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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
(x) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) For the Fiscal Year Ended March 31, 1999
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934 For the transition period from _______ to ________
Commission File No. 0-12718
SUPERTEX, INC.
(Exact name of Registrant as specified in its Charter)
California 94-2328535
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1235 Bordeaux Drive
Sunnyvale, California 94089
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (408) 744-0100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 2, 1999, was $79,769,000 based on the closing price
reported for such date. Shares of common stock held by officers, directors
and other persons who may be deemed "affiliates" of the Registrant have been
excluded from this computation. This determination of affiliate status is
not necessarily a conclusive determination for other purposes. The number of
shares outstanding of the Registrant's common stock as of June 2, 1999, were
12,066,228.
Documents Incorporated by Reference: Part III incorporates by reference
portions of the Company's definitive proxy statement for the Annual Meeting
of Shareholders to be held on August 6, 1999 (the "Proxy Statement").
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Exhibit Index is on Page 30
Total number of pages is 32
(BLANK PAGE)
SUPERTEX, INC.
ANNUAL REPORT - FORM 10K
Table of Contents
Page No.
PART I
Item 1. Business................................................... 4
Item 2. Properties................................................. 8
Item 3. Legal Proceedings.......................................... 8
Item 4. Submission of Matters to a Vote of Security Holders........ 8
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters.................................................... 8
Item 6. Selected Consolidated Financial Data....................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 10
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.. 13
Item 8. Financial Statements and Supplementary Data................ 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant......... 13
Item 11. Executive Compensation..................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 14
Item 13. Certain Relationships and Related Transactions............. 14
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K........................................................ 14
Signatures.............................................................. 15
PART I
Item 1. Business
Supertex, Inc. ("Supertex" or the "Company") is a technology-based producer
of high voltage analog and mixed signal semiconductor components. It designs,
develops, manufactures, and markets integrated circuits utilizing
state-of-the-art high voltage DMOS, HVCMOS and HVBiCMOS analog and mixed
signal technologies. With respect to its DMOS transistor products, the
Company has maintained an established position in key products for
telecommunication and automatic test equipment industries. Supertex has been
an industry leader in high voltage integrated circuits (HVCMOS AND HVBiCMOS),
which take advantage of the best features of CMOS, bipolar, and DMOS
technologies and integrate them into the same chip. They are used by flat
panel display, printer, medical ultrasound imaging, telephone,
telecommunications and instrumentation industries.
The Company markets its products through direct sales personnel, independent
sales representatives and distributors in the United States and abroad,
primarily to electronic equipment manufacturers.
The Company was incorporated in California in October 1975 and conducted an
initial public offering of its Common Stock in December 1983. Its executive
offices are located at 1235 Bordeaux Drive, Sunnyvale, California 94089, and
its principal manufacturing facilities are located at 1225/1231 Bordeaux Drive,
Sunnyvale, California 94089 and at 71 Vista Montana, San Jose, California
95134. Supertex also maintains three direct field offices located in: (1) New
York; (2) Texas; and (3) The United Kingdom. The telephone number of its
headquarters is (408) 744-0100. The Company's mailing address is 1235
Bordeaux Drive, P.O.Box 3607, Sunnyvale, California 94088-3607.
Products
Supertex offers semiconductor products that interface between the low voltage
computer logic signal world and the high voltage requirements of the real
analog world. Most of our products use mixed signal technologies. We supply
standard and custom interface products primarily for the following three market
groups:
The Telecommunications Group consists of interface products used in
telephone handsets, solid state relays, modems, fax, ISDN, networking,
PABX, PCMCIA cards, as well as diagnostic, curbside, set-top and central
office equipment. In addition, they are used in military radio frequency
and microwave communication applications.
The Imaging Group consists of interface products for Flat Panel Displays
and Non-impact Printers and Plotters. The flat panel display product family
is sold to customers using Electro-Luminescent (EL), Plasma, Vacuum
Fluorescent, Plasma- addressed LCD, Ferro-electric LCD, and Field Emission
Display (FED) technologies. There is also a family of products for driving
EL panels to back-lit displays on handheld instruments, such as cellular
phones, PDAs, pagers, HPCs, and meters. The printer product family is used
in ink-jet and electrostatic types of printers and plotters, which are
mostly high end products, with full color capability, high resolution and
high speed output.
The Medical Electronics Group consists of products primarily for
ultrasound diagnostic imaging equipment as well as selected portable
instrumentation applications.
Supertex has been a leading provider of products to these specific markets,
therefore we have been able to work very closely with key customers to define
new products by determining future market needs. Such close collaboration has
produced a wide range of leading edge new products for Supertex and has
allowed our customers to quickly develop new and more advanced products for
their markets.
In the DMOS transistor product line, Supertex focuses on certain niches such
as very low threshold and low leakage devices which are most suitable for
telecommunication, automatic test equipment, and hand held applications where
these features justify a premium. The DMOS transistor products also serve as
predecessors to a fully integrated solution - high voltage integrated circuits.
Research and Development
Supertex expended approximately $7,195,000, $5,582,000, and $5,306,000 on
research and development activities during fiscal years 1999, 1998, and 1997,
respectively. Research and development activities continue at the rate of
over thirty new product projects per year.
We believe that our position as a leading supplier in our targeted markets can
only be maintained through continuous investments in research and development.
We focus our efforts on designing new products with existing process
technologies while also developing new process technologies to be used for
future new products. The effective monitoring and control of our research and
development programs have resulted in better performance and greater
technological achievements at lower costs.
Manufacturing
Manufacturing operations include wafer fabrication, limited assembly and
packaging, product testing, and quality control.
We subcontract most of our standard component packaging and limited testing to
independent assemblers, principally in Thailand, Taiwan, Malaysia, and the
Philippines. A specialized assembly area is also maintained at our
manufacturing facilities to package engineering prototypes, to ensure high
priority deliveries, and to assemble high reliability circuits required in
military and high reliability applications. After assembly, packaged units
are shipped back to our facility or to testing subcontractors for final
product testing. Quality control is performed at our headquarters before
shipment to customers. Although our off-shore assembly and test subcontractors
have not experienced any serious work stoppages, the political situation in
these countries could be volatile. Any prolonged work stoppage or other
inability to assemble products would have a material adverse impact on our
operating results although we have qualified assemblers in different countries
to reduce risk. Furthermore, economic risks, such as changes in tariff or
freight rates or interruptions in air transportation, could adversely affect
our operating results.
We believe that we are well-positioned to fulfill our manufacturing goals and
obligations. In October 1998 we acquired a nearby manufacturing facility from
Orbit Semiconductor, a subsidiary of the DII Group. The manufacturing
facility was being run at one-third of its capacity, and was being sold at a
relative discount due to poor semiconductor market conditions. The facility
recently had been upgraded to manufacture submicron wafer semiconductors, and
provides manufacturing capacity complementary to our then existing facilities.
We believe that this strategic acquisition of Orbit Semiconductor's
fabrication facility will strengthen our position in the semiconductor
manufacturing industry. In addition, we have a licensing agreement with
Texas Instruments, which has allocated a certain amount of its wafer
production capacity to assist us in meeting our manufacturing needs.
The availability of blank silicon wafers has improved considerably in the past
years. Assembly packages and other raw materials we use in the manufacturing
of our products are obtainable from several suppliers. Some of such materials
were in short supply in prior years, but recently the supply of these materials
appears to be plentiful and subject to competitive pricing pressure. However,
any future shortage of supply would have a material adverse effect on our
operating results. As is typical in the semiconductor industry, we must allow
for lead times in ordering certain materials and services and often commit to
volume purchases to obtain favorable pricing concessions and resource
allocations.
Environmental Laws
Government regulations impose various environmental controls on the waste
treatment and discharge of certain chemicals and gases after their use in
semiconductor processing. We believe that our activities comply with present
environmental regulations. However, increasing attention has been focused on
the environmental impact of semiconductor manufacturing operations. While we
have not experienced any material adverse effects on our business or financial
results from our compliance with environmental regulations and installation of
pollution control equipment, there can be no assurance that changes in such
regulations will not necessitate
our acquisition of costly equipment or other requirements in the future. We
work closely with pollution experts from federal, state, and local agencies,
especially from the cities of Sunnyvale and San Jose, California, to ensure
that we are in compliance with present requirements.
Sales
We market our standard and custom products in the United States and abroad
through our direct sales and marketing personnel in our headquarters, as well
as through independent sales representatives and distributors supported by our
field sales managers out of our sales offices in Illinois, New York, and the
United Kingdom.
Export sales are made primarily through independent distributors to customers
in Western Europe and the Far East, and represented 51%, 53%, and 51% of net
sales in fiscal years 1999, 1998, and 1997, respectively. Exports to the Far
East are largely to customers in Japan. Export sales are denominated only in
U.S. dollars. Although export sales are subject to certain governmental
commodity controls and restrictions for national security purposes, we have
not had any material adverse effects on our business or financial results
because of these limitations.
In fiscal 1999, Microtek, who is our primary distributor in Japan, accounted
for approximately 16% of net sales. Sales to Microtek made up 19% and 18% of
net sales for fiscal 1998 and 1997, respectively. We have no long-term
production agreement with Microtek. Normal terms and conditions of sale
apply, which include a 60-day notice of cancellation and charges for work in
process for cancellations of less than 60 days from shipment. While we
maintain a good relationship with Microtek, Inc, a breakdown in that
relationship could materially and adversely affect our business and financial
results.
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value. Our inventories include high technology
parts and components that are specialized in nature or subject to rapid
technological obsolescence. While we endeavor to minimize the required
inventory on hand and consider technological obsolescence when estimating
amounts required such estimates are subject to change.
Revenue from direct sales to end-user customers is recognized upon shipment of
products. Sales to distributors are made primarily under arrangements
allowing limited price protection and the right of stock rotation on
merchandise unsold by the distributors. Because of this uncertainty
associated with pricing concessions and possible returns, we defer recognition
of such sales and the related costs of sales until the merchandise is sold by
distributors to their end-user customers. Material miscalculation in amounts
reported could materially and adversely affect our business and financial
results.
Backlog
Our backlog at March 31, 1999 was approximately $17,139,000, compared with
$15,339,000 and $15,168,000 at March 31, 1998 and 1997, respectively. This
increase, despite customers still demanding short lead times, is primarily
attributable to our newly acquired foundry. We expect that all of the
current backlog will be shipped in fiscal 2000. Customers may cancel or
reschedule orders without significant penalty, and the price of products may
be adjusted between the time the purchase order is booked into backlog and the
time the product is shipped to the customer. For those reasons, we believe
that backlog is not meaningful in predicting our actual net revenue for any
future period.
Competition
Because of our market niche, market statistics are not generally available for
many of our products. Competition in general among manufacturers of
semiconductor components and discrete transistors is intense. Many of our
domestic and foreign competitors have larger and stronger facilities,
financial, technical, and personnel resources, and more diverse product lines.
Such factors as product prices, product performance, diversity of product
lines, delivery capabilities, and the ability to adapt to rapid technological
change and develop new and improved products are the principal methods of
competition in the industry. We believe we are a leader in important segments
of our product families where we have a technological and/or cost advantage
and that we are generally competitive with respect to these factors.
Patents and Licenses
We hold numerous United States patents which will expire between 1999 and 2016
and we have applications for additional patents pending. Although we believe
that our patents may have value, there can be no assurance that our patents or
any additional patents that may be obtained in the future will provide
meaningful protection from competition. We believe that our success depends
primarily on the experience, creative skills, technical expertise, and
marketing ability of our personnel rather than on the ownership of patents.
Patents may, however, be useful for cross-license purposes and have served the
Company well in the past.
Supertex is not aware that any of its products infringe on patent or other
proprietary rights of third parties but it cannot be certain that they do not
do so. If infringement is alleged, there can be no assurance that the
necessary licenses could be obtained, or if obtained, would be on terms or
conditions that would not have a material adverse effect on the Company.
Employees
At March 31, 1999, we had 396 full time employees of which 118 employees
were retained by the Company as a result of the acquisition of the six-inch
submicron wafer manufacturing facility. Many of our employees are highly
skilled, and our continued growth and success will depend in part on our
ability to attract and retain such employees. At times, we as well as other
semiconductor manufacturers experience difficulty in hiring and retaining
sufficient numbers of skilled personnel.
We believe that the compensation, benefits, and incentives offered to our
employees are competitive with those generally offered throughout the
semiconductor industry. There are no collective bargaining agreements between
us and our employees, and there has been no work stoppage due to labor
difficulties. The Company considers its employee relations to be good.
Executive Officers of the Company
Name Position with the Company Age Officer Since
- ------------------------------------------------------------------------------
Henry C. Pao President, Principal Executive 61 1976
and Financial Officer
Richard E. Siegel Executive Vice President 53 1982
Benedict C. K. Choy Senior Vice President, 53 1976
Technology Development and
IC Products, and Secretary
Dennis E. Kramer Vice President, Materials 57 1996
William Numann Vice President, DMOS Products 42 1997
Officers appointed by the Board of Directors serve at the discretion of the
Board. There is no family relationship between any directors or executive
officers of the Company except as stated below.
Henry C. Pao is a founder of Supertex and has served as President, Principal
Financial and Executive Officer, and as a Director since the Company's
formation in fiscal 1976. Previously, he worked at Fairchild Semiconductor,
Raytheon, Sperry Rand and IBM. He has B.S., M.S., and Ph.D. degrees in
electrical engineering from University of Illinois at Champaign-Urbana. Dr.
Pao is the son of Mr. Yunni Pao and the brother of Frank Pao, also Directors
of the Company.
Richard E. Siegel joined the Company in 1981 as National Sales Manager, was
appointed Vice President of Sales and Marketing in April 1982, Senior Vice
President in February 1988, and has served as Executive Vice President since
November 1988. He has been a Director since 1988. Previously, he worked at
Signetics Corporation, Fairchild Semiconductor, Ford Instrument and Grumman
Aircraft Corporation. He has a B.S. degree in Mechanical Engineering from
City College of New York, augmented with Electrical Engineering courses from
Brooklyn Polytechnic Institute, New York.
Benedict C. K. Choy, a founder of the Company, joined Supertex in fiscal 1976
as Vice President, Device Technology and Process Development, and has served
as Senior Vice President since February 1988. He has been a Director since
1986. Previously, he worked at Fairchild Semiconductor, National
Semiconductor, and Raytheon. He has a B.S. degree in electrical engineering
from the University of California, Berkeley.
Dennis E. Kramer joined Supertex in September 1981 as Wafer Fab II Production
Manager. Over his tenure, he has managed many facets of the wafer fabrication
process as well as all the back-end manufacturing operations. He was promoted
to Vice President of Materials in 1996. Previously, he worked at Siemens and
Signetics Corporation. He has a B.S. degree in Chemistry from University of
California, Los Angeles and an MBA from Santa Clara University.
William Numann came on board in June 1997, as Vice-President of DMOS Products.
Aside from his product line responsibilities, he is working with the Company's
senior management team in developing a new strategic plan for the Company.
Previously, he worked at Siliconix and Supertex, Inc. He has a B.S. degree
in electrical engineering and an MBA, both from Rensseleaer Polytechnic
Institute, New York.
Item 2. Properties
The Company leases facilities covering approximately 38,000 square feet at
1225/1231 Bordeaux Drive, Sunnyvale, California. Operations at these
facilities include wafer fabrication, process engineering, assembly, and
quality control functions. These facilities are leased from a corporation
owned by a director of the Company. (See Note 7 of "Notes to Consolidated
Financial Statements.")
The Company also leases facilities at 71 Vista Montana, San Jose, California
covering approximately 61,700 square feet where the Company's six-inch wafer
fabrication and process engineering functions are located.
The Company owns its corporate headquarters, a facility of approximately
42,000 square feet at 1235 Bordeaux Drive, Sunnyvale, California, which houses
the executive offices, sales and marketing, product engineering, test,
production control, corporate financial and administrative staff.
The Company believes that its existing facilities and equipment are well
maintained and are in good operating condition.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
On June 2, 1999, the last reported sale price was $9.875 per share. There
were approximately 3,180 shareholders of record of common stock on June 2,
1999. We have not paid cash dividends on our common stock in fiscal years
1998 and 1997, and the Board of Directors presently intends to continue this
policy in order to retain earnings for the development of the Company's
business. Accordingly, it is anticipated that no cash dividends will be paid
to holders of common stock in the foreseeable future.
The following table sets forth the range of high and low closing sale prices
reported on The Nasdaq Stock Market under the symbol SUPX for the periods
indicated.
Fiscal Years Ended March 31,
-----------------------------------
1999 1998
---------------- -----------------
High Low High Low
--------------------- ----------------------
First Quarter $ 13 1/8 $ 8 3/4 $ 15 1/8 $ 9 3/4
Second Quarter 12 1/8 9 1/8 17 11
Third Quarter 11 1/2 9 1/16 17 7/8 10 1/2
Fourth Quarter 13 9 3/4 11 3/4 9 7/8
Item 6. Selected Consolidated Financial Data
The selected financial information and other data presented below should be
read in conjunction with the "Consolidated Financial Statements," "Notes to
Consolidated Financial Statements," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Form 10-K.
Fiscal Years Ended March 31,
----------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
Working capital........ $ 42,809 $ 44,868 $ 36,734 $ 32,197 $ 27,723
Total assets ....... $ 74,589 $ 66,629 $ 56,408 $ 45,428 $ 37,310
Shareholders' equity . $ 62,680 $ 57,217 $ 48,487 $ 38,663 $ 31,164
Fiscal Years Ended March 31,
----------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share amounts)
Statement of Operations Data:
Net sales...................... $ 50,721 $ 52,706 $ 48,935 $ 42,802 $ 31,806
Costs and expenses:
Costs of sales............. 28,867 28,709 26,073 22,097 16,133
Research and development... 7,195 5,582 5,306 5,647 4,427
Selling, general and
administrative............. 6,860 6,724 6,226 5,700 5,324
Write-off of in process
technology................. 2,506 -- -- -- --
-------- -------- -------- -------- --------
Income from operations......... 5,293 11,691 11,330 9,358 5,922
Other income:
Interest income............ 1,981 1,666 1,430 1,099 867
Other income, net.......... (130) 2 63 255 129
-------- -------- -------- -------- --------
Income before provision for
income taxes................... 7,144 13,359 12,823 10,712 6,918
Provision for income taxes..... 1,810 4,542 4,103 3,321 1,853
-------- -------- -------- -------- --------
Net income............. $ 5,334 $ 8,817 $ 8,720 $ 7,391 $ 5,065
======== ======== ======== ======== ========
Net income per share:
Basic.................. $ 0.44 $ 0.73 $ 0.73 $ 0.62 $ 0.43
======== ======== ======== ======== ========
Diluted................ $ 0.44 $ 0.71 $ 0.70 $ 0.60 $ 0.42
======== ======== ======== ======== ========
Shares used in per share
computation:
Basic.................. 12,077 12,074 12,026 11,902 11,772
======== ======== ======== ======== ========
Diluted................ 12,225 12,380 12,509 12,296 12,003
======== ======== ======== ======== ========
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain Factors
Certain Factors This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21 E of the
Securities Exchange Act of 1934. Actual future results could differ
materially from those discussed here and elsewhere in this report. Factors
that could affect future results include general economic conditions, both in
the United States and foreign markets, economic conditions specific to the
semiconductor industry, risks associated with customer concentration, the
successful integration of the newly acquired wafer fabrication facility and
other risks associated with the acquisition, the Company's ability to
introduce new products, its ability to enhance existing products, its ability
to meet the continually changing requirements of its customers, its ability to
manufacture efficiently, its ability to control costs, and its ability to
maintain and enhance relationships with its assembly and test subcontractors
and independent distributors and sales representatives.
The following discussion should be read in conjunction with the "Consolidated
Financial Statements," "Notes to Consolidated Financial Statements" and
"Selected Consolidated Financial Data" included elsewhere in this Form 10-K.
The following table sets forth items from the Statements of Income as a
percentage of net sales for the periods indicated:
Fiscal Years Ended March 31,
----------------------------
1999 1998 1997
---- ---- ----
Net sales................................. 100.0% 100.0% 100.0%
Costs of sales ....................... 56.9 54.5 53.3
Research and development............... 14.2 10.6 10.8
Selling, general and administrative.... 13.6 12.8 12.7
Write off of in process technology..... 4.9 -- --
Income from operations.................... 10.4 22.1 23.2
Other income
Interest income........................ 3.9 3.2 2.9
Other income (expense), net............ (0.2) 0.0 0.1
Income before provision for
income taxes...................... 14.1 25.3 26.2
Provision for income taxes................ 3.6 8.6 8.4
Net income........................ 10.5% 16.7% 17.8%
Results of Operations
Net Sales The Company had net sales of $50,721,000 in fiscal 1999, a decrease
of $1,985,000 or 3.8% from the previous fiscal year. Fiscal 1998 net sales
improved from fiscal 1997 by $3,771,000 or 7.7%. The decline in the
current fiscal year's net sales reflects weakness in demand and price pressure
during the first three fiscal quarters primarily as a result of the Asian
economic crisis.
In fiscal 1999, approximately 51% of the Company's net sales were derived from
customers outside the United States, primarily in Western Europe and the Far
East (53% in fiscal 1998 and 51% in fiscal 1997). All of the Company's sales
to international customers were denominated in U.S. currencies. There was no
currency exchange exposure; however, during the first three quarters of fiscal
1999 when the US dollar strengthened beyond expectation, many international
customers requested and received some modest price concessions.
Gross Margin The Company's gross margin as a percentage of net sales was
43.1%, 45.5%, and 46.7% in fiscal 1999, 1998, and 1997, respectively. The
decline in gross margin in fiscal 1999 is the result of the decline in net
sales as discussed above and increased manufacturing depreciation expense
partly due to the acquisition of the six-inch submicron wafer fabrication
facility.
Research and Development Research and development expenses were 14.2%, 10.6%,
and 10.8% of net sales in fiscal 1999, 1998, and 1997, respectively. The
increase in research and development expenses for fiscal 1999 is attributable
primarily to the Process Development Agreement ("PDA") that the Company has
with Orbit Semiconductor which will allow faster process transfer from the
Company's four inch fabrication processes to the Company's newly acquired six
inch submicron wafer fabrication facility. The PDA extends up to the first
quarter for fiscal 2000. The Company expects the number of research and
development projects to increase during fiscal 2000.
Selling, General and Administrative Selling, general and administrative
expenses were 13.6%, 12.8%, and 12.7% of net sales in fiscal 1999, 1998, and
1997, respectively. In fiscal 1999, the selling, general and administrative
expenses remained relatively the same as the previous year but the decline in
net sales amount caused the percentage to increase less than 1%. The Company
expects that dollar expenditures in selling, general and administrative
expenses will increase in fiscal 2000 as a result of the acquisition of the
new six-inch wafer fabrication facility, although the percentage to net sales
may not increase.
Write-off of In-process Technology The Company incurred a non-cash, non-tax
deductible charge to operations of $2.5 million for the write-off of
in-process technology related to the acquisition of assets from Orbit
Technology in February 1999, because the technological feasibility of the
in-process technology acquired had not been established and there was no
alternative future use.
Interest Income Interest income, which consists primarily of interest income
from the Company's cash, cash equivalents and short-term investments, was
$1,981,000 as compared with $1,666,000 in fiscal 1998 and $1,430,000 in fiscal
1997 due to the larger amount of funds available for investment.
Other Income (Expense) Other Income (expense) of $130,000 for fiscal 1999
consists primarily of royalties received from Texas Instruments net of tax,
sublease income net of sublease expenses, and gain on disposal of retired
equipment. The decline in this category for the fiscal year 1999 when
compared to fiscal 1998 and 1997 was primarily due to additional sublease
expenses incurred during the fiscal year, mainly depreciation in nature, as a
result of a new sublease contract.
Provision for Income Taxes Income taxes for fiscal 1999, 1998, and 1997 were
at 25.3%, 34.0%, and 32.0%, respectively, of income before provision for
income taxes. The lower tax provision for fiscal 1999 was due to higher tax
credits and additional expenses from the acquisition of the six-inch facility.
The effective income tax rate is expected to return to over 30.0% in fiscal
2000.
Financial Condition
Overview Total assets grew to $74,589,000 at the end of fiscal 1999, up from
$66,629,000 at the end of fiscal 1998. The increase is due to favorable
operating results for the year and the acquisition of the six-inch submicron
wafer fabrication facility from Orbit Semiconductor during the fourth quarter
of fiscal 1999.
Liquidity and Capital Resources The Company's primary source of funds for
fiscal 1999, 1998, and 1997 has been the net cash generated from operating
activities of $10,277,000, $11,264,000, and $8,524,000, respectively. Net
cash provided by operating activities in fiscal 1999 of $10,277,000 consisted
principally of net income of $5,334,000, plus depreciation and amortization of
$4,136,000, write-off of in-process technology of $2,506,000, provision for
doubtful accounts and sales returns of $2,417,000, and an increase in accounts
payable and accrued expenses of $3,830,000, partially offset by increases in
accounts receivable and inventories of $3,828,000 and $1,169,000,
respectively.
Net cash used in investing activities in fiscal 1999 was $6,366,000 which
consisted of an increase in short term investments of $5,943,000 offset by
purchases of property and equipment of $7,586,000, and intangible assets of
$4,723,000 both of which includes the purchase of certain assets from Orbit
Semiconductor.
Net cash used in financing activities in fiscal 1999 was $277,000, which
consisted of repurchases of the Company's common stock in the amount of
$559,000 partially offset by proceeds from exercises of stock
options of $282,000.
As of March 31, 1999, the Company's working capital was $42,809,000, which
included approximately $29,556,000 in cash, cash equivalents and short-term
investments.
The Company anticipates that the available funds and cash expected to be
generated from operations will be sufficient to meet cash and working capital
requirements through the end of fiscal 2000. The Company expects to spend
approximately $3,000,000 for capital acquisitions during fiscal year 2000.
Year 2000 Issues.
Background. The Company is aware of the issues associated with the
programming code in existing computer systems and software products as the
millennium (year 2000) approaches. The "Year 2000" or "Y2K" problem is
pervasive and complex, as virtually every computer operation will be affected
in some way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date-sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or could cause them to fail. As a
result, many companies' software, computer systems and other equipment may
need to be reprogrammed or replaced in order to comply with such "Y2K"
requirements.
Assessment. The Y2K problem could affect computers, software, and other
equipment used, operated, or maintained by the Company. Accordingly, the
Company has been reviewing its internal computer programs and systems to
ensure that they will be Y2K compliant in a timely manner. It is utilizing
both internal and external resources to identify, correct or reprogram, and
test the systems for Y2K compliance. The Company's Y2K readiness program is
divided into five major sections, namely; Enterprise Resource Planning (ERP)
Systems, PC Systems and Applications, Shop Floor Control System, the
Facilities Systems, and Third Party Suppliers and Customers. The inventory
and priority assessment phases of each section of the programs have been
completed. The testing phases of the program are being performed by the
Company. It is anticipated that all reprogramming efforts will be completed
by September 30, 1999. For the other sections, a six month safety net has been
built into our Y2K readiness program to allow for any possible unplanned or
unscheduled occurrence that may need to be remedied prior to the millennium.
As a part of the Y2K readiness program, the Company has purchased and is
implementing a Shop Floor Control System called MESA software from Camstar
Systems, Inc. This will replace the existing work in process tracking system.
Implementation of MESA is on schedule and is expected to be completed by
mid-1999. Remaining business software programs and computer systems are
expected to be Y2K compliant through the Y2K readiness program including
those supplied by vendors or they will be retired. It is important to note
that Supertex, Inc. products are not date sensitive.
Suppliers and Customers. As part of the Y2K readiness program, the Company
has identified primary vendors, service providers and customers that are
believed to be critical to its business operations. Steps are being
undertaken to reasonably ascertain their stage of Y2K readiness through
questionnaires, interviews and other available means. The process of
evaluating these third party business partners began on July 1, 1998 and is
scheduled for completion by mid-1999, with follow-up reviews scheduled through
the remainder of 1999. However, the Company has limited or no control over
the actions of these third parties. Thus, while the Company does not
anticipate any significant Y2K problems, there can be no assurance that these
third party entities will resolve any or all Y2K problems before the
occurrence of a material disruption to the Company or any of its customers.
Any failure of these third parties to resolve their Y2K problems in a timely
manner could have a material adverse effect on the Company's business,
financial condition and results of operations.
Costs. It is currently estimated that the aggregate cost of the Company's Y2K
project is approximately $1,200,000 including the cost of implementing the new
Shop Floor Control System, MESA, estimated to be approximately $700,000,
substantially all of which would be capitalized. Other non-Y2K information
technology projects have not been materially delayed or impacted by the
Company's Y2K initiatives.
Contingency Plans. The Company is currently developing contingency plans
intended to mitigate possible disruption in business operations that may
result from the Y2K issue. The Company's objective is to complete
its initial contingency planning by June 30, 1999. Contingency plans may
include increasing inventory levels of raw materials, securing alternate
sources of supply and distribution, accelerated replacement of affected
equipment or software, short to medium-term use of backup equipment and
software, increased work hours for Company personnel, additional staffing,
manual workarounds and other appropriate measures.
Risks. The Company's Y2K readiness program is an ongoing process and the risk
assessments and estimates of costs and completion dates for the various
components of the Y2K readiness program described above are forward looking
statements and are subject to change. Factors that may cause changes include
among others the continued availability and cost of programming and testing
resources, ability to identify and remediate all Y2K problems, the timely
implementation of Y2K ready systems, the timely conversion by third parties
of their equipment and proprietary software, and unanticipated problems
identified in the ongoing compliance review. Although preliminary estimates
indicate that the Y2K issue will not have a material impact on the Company,
there can be no assurance that the Y2K issues, due to the above factors or
other unforeseen consequences, will not have a material adverse effect on the
Company's business, financial condition and operating results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to financial market risks due primarily to changes in
interest rates. The Company does not use derivatives to alter the interest
characteristics of its investment securities. The Company has no holdings of
derivative or commodity instruments. The fair value of the Company's
investment portfolio or related income would not be significantly impacted by
changes in interest rates since the investment maturities are short and the
interest rates are primarily fixed. The Company anticipates interest on cash
balances for 1999 to be approximately $1,500,000 at an estimated average
interest rate of 5%.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Financial Statement Schedule are listed in Item
14 of this report.
Supplementary Quarterly Financial Data:
Quarters Ended
--------------
Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
1999 1998 1998 1998 1998 1997 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
(Unaudited) (in thousands, except per share amounts)
Statement of Operations Data:
Net sales .................. $13,053 $12,017 $12,650 $13,001 $12,923 $13,857 $13,613 $12,313
Costs of sales ............. 8,887 6,565 6,508 6,907 7,065 7,496 7,468 6,680
Income (loss) from operations (2,934) 2,447 2,879 2,901 2,795 3,156 3,117 2,623
Income (loss) before
provision for income taxes... (2,593) 3,046 3,349 3,342 3,289 3,588 3,488 2,994
Net income (loss)............ $(1,287) $ 2,204 $ 2,210 $ 2,207 $ 2,171 $ 2,368 $ 2,302 $ 1,976
Net income (loss) per share:
Basic ............... $ (0.11) $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.20 $ 0.19 $ 0.16
Diluted ............. $ (0.11) $ 0.18 $ 0.18 $ 0.18 $ 0.17 $ 0.19 $ 0.19 $ 0.16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors is set forth under "Election of Directors -
Nominees" on Page 2 of the Proxy Statement, which information is incorporated
herein by reference. Information regarding executive officers is included in
Part I hereof under caption "Executive Officers of the Company," and is hereby
incorporated herein by reference.
Item 11. Executive Compensation
Information regarding the Company's remuneration of its officers and directors
is set forth under "Compensation of Directors" on Page 5 and "Compensation of
Executive Officers" on Page 7 of the Proxy Statement, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding the security ownership of certain beneficial owners and
management is set forth under "Security Ownership of Certain Beneficial Owners
and Management" on Pages 5 through 7 of the Proxy Statement, which information
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is set
forth under "Certain Transactions: Lease with Company Director" on Page 5 of
the Proxy Statement, which information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
Page No.
1. Report of PricewaterhouseCoopers L.L.P., Independent
Accountants......................................................... 16
2. Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1999 and 1998.......... 17
For the three years ended March 31, 1999, 1998, and 1997:
Consolidated Statements of Income and Comprehensive Income. 18
Consolidated Statements of Shareholders' Equity............ 19
Consolidated Statements of Cash Flows...................... 20
Notes to Consolidated Financial Statements...................... 21
3. Financial Statement Schedule. The following Financial Statement
Schedule of Supertex, Inc., is filed as part of this report and
should be read in conjunction with the Consolidated Financial
Statements of Supertex.
Schedule for fiscal years ended March 31, 1999, 1998, and 1997:
II Valuation and Qualifying Accounts....................... 29
All other schedules have been omitted since the required information is not
present or it is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements, including notes thereto.
4. Exhibits. The exhibits listed in the accompanying EXHIBIT INDEX are filed
as part of this annual report.
Supertex, Inc.
Exhibits pursuant to item 601 of regulation S-K
Exhibit Description
Number
2.1 Agreement for purchase and sale of assets, dated January 16, 1999 by
and between Supertex, Inc. and Orbit Semiconductor.*
- -------------------
* Incorporated herein by reference to the Company's Current Report on Form 8-K
dated January 19, 1999 filed with the Commission on February 12, 1999 in which
this exhibit bears the same number.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SUPERTEX, INC.
Dated: June 16, 1999 /s/ Henry C. Pao
----------------
Henry C. Pao, President,
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Henry C. Pao, his attorney-in-fact, with the
power of substitution, for him in any and all capacities, to sign any
amendments to this report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Signature Title Date
/s/ Henry C. Pao President, Principal Executive and June 16, 1999
- ---------------- Financial Officer and Director
(Henry C. Pao)
/s/ Richard E. Siegel Executive Vice President and Director June 16, 1999
- ---------------------
(Richard E. Siegel)
/s/ Benedict C. K. Choy Senior Vice President and Director June 16, 1999
- -----------------------
(Benedict C. K. Choy)
/s/ Yunni Pao Director June 16, 1999
- -------------
(Yunni Pao)
/s/ Frank C. Pao Director June 16, 1999
- ----------------
(Frank C. Pao)
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and
Shareholders of Supertex, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(2) present fairly, in all material respects, the
consolidated financial position of Supertex, Inc. and its subsidiary at March
31, 1999 and March 31, 1998, and the results of their consolidated operations
and their cash flows for each of the three years in the period ended March 31,
1999, in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule listed on the index appearing
under Item 14(a)(3) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
San Jose, California
April 23, 1999
SUPERTEX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31,
---------
1999 1998
---- ----
ASSETS
Current Assets:
Cash and cash equivalents............. $ 28,190 $ 24,556
Short term investments................ 1,366 6,956
Trade accounts receivable, net of
allowances of $1,020 in 1999 and $700
in 1998............................... 10,860 9,784
Other accounts receivable............. 657 322
Inventories........................... 11,330 10,263
Deferred income taxes................. 1,862 2,181
Prepaid expenses...................... 453 218
-------- --------
Total current assets.......... 54,718 54,280
Property, plant and equipment, net............ 15,946 12,349
Intangible assets, net ....................... 2,072 --
Deferred income taxes......................... 1,853 --
-------- --------
TOTAL ASSETS ................................. $ 74,589 $ 66,629
======== ========
LIABILITIES
Current Liabilities:
Trade accounts payable................ $ 6,835 $ 3,436
Accrued salaries, wages and employee
benefits.............................. 3,162 3,086
Income taxes payable.................. -- 1,080
Other accrued liabilities............. 714 359
Deferred revenue on shipments to
distributors.......................... 1,198 1,451
-------- --------
Total current liabilities..... 11,909 9,412
-------- --------
Commitments (Note 7)
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 12,099 shares in 1999
and 12,097 shares in 1998............. 20,895 20,713
Accumulated other comprehensive
income................................ 356 --
Retained earnings..................... 41,429 36,504
-------- --------
Total shareholders' equity.... 62,680 57,217
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $ 74,589 $ 66,629
======== ========
See accompanying Notes to Consolidated Financial Statements.
SUPERTEX, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
Net sales............................... $ 50,721 $ 52,706 $ 48,935
--------- --------- ---------
Costs and expenses:
Costs of sales...................... 28,867 28,709 26,073
Research and development............ 7,195 5,582 5,306
Selling, general and administrative. 6,860 6,724 6,226
Write-off of in process technology.. 2,506 -- --
--------- --------- ---------
Total costs and expenses........ 45,428 41,015 37,605
--------- --------- ---------
Income from operations.................. 5,293 11,691 11,330
Other income:
Interest income..................... 1,981 1,666 1,430
Other income(expense), net.......... (130) 2 63
--------- --------- ---------
Income before provision for
income taxes.................... 7,144 13,359 12,823
Provision for income taxes.............. 1,810 4,542 4,103
--------- --------- ---------
Net income...................... 5,334 8,817 8,720
Other comprehensive income:
Change in unrealized gain .......... 356 -- --
--------- --------- ---------
Comprehensive income............ $ 5,690 $ 8,817 $ 8,720
========= ========= =========
Net income per share:
Basic............................... $ 0.44 $ 0.73 $ 0.73
========= ========= =========
Diluted............................. $ 0.44 $ 0.71 $ 0.70
========= ========= =========
Shares used in per share computation:
Basic............................... 12,077 12,074 12,026
========= ========= =========
Diluted............................. 12,225 12,380 12,509
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
SUPERTEX, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Common Stock Other
------------ Comprehensive Retained Shareholders'
Shares Amount Income Earnings Equity
------ ------ ------------- -------- -------------
Balance, March 31, 1996 ........ 11,936 $18,709 $ -- $19,954 $ 38,663
Stock options exercised .... 156 760 -- -- 760
Stock repurchased .... (45) (72) -- (489) (561)
Tax benefit from exercise of
stock options............... -- 905 -- -- 905
Net income.................. -- -- -- 8,720 8,720
-----------------------------------------------------
Balance, March 31, 1997 ........ 12,047 20,302 -- 28,185 48,487
Stock options exercised .... 97 439 -- -- 439
Stock repurchased .... (47) (80) -- (498) (578)
Tax benefit from exercise of
stock options............... -- 52 -- -- 52
Net income ............ -- -- -- 8,817 8,817
-----------------------------------------------------
Balance, March 31, 1998 ........ 12,097 20,713 -- 36,504 57,217
Stock options exercised .... 63 286 -- -- 286
Stock repurchased .... (61) (104) -- (459) (563)
Tax benefit from exercise of
stock options............... -- -- -- 50 50
Change in unrealized holding
gains and losses............ -- -- 356 -- 356
Net income ............ -- -- -- 5,334 5,334
-----------------------------------------------------
Balance, March 31, 1999 ........ 12,099 $20,895 $ 356 $ 41,429 $ 62,680
====== ======= ======= ========= =========
See accompanying Notes to Consolidated Financial Statements.
SUPERTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended March 31,
--------------------
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 5,334 $ 8,817 $ 8,720
-------- -------- --------
Non-cash adjustments to net income:
Depreciation and amortization........................ 4,135 2,669 2,163
Write-off of in-process technology................... 2,506 -- --
Provision for doubtful accounts and sales returns.... 2,417 1,573 2,054
Provision for excess and obsolete inventories........ 1,300 277 256
Loss on disposal of assets........................... -- 11 2
Deferred income taxes................................ (1,533) (347) (593)
Changes in operating assets and liabilities:
Accounts receivable.................................. (3,828) (2,188) (3,641)
Inventories.......................................... (2,367) (1,291) (2,251)
Prepaid expenses..................................... (235) 200 (244)
Trade accounts payable and accrued expenses.......... 3,830 203 1284
Income taxes payable................................. (1,029) 966 430
Deferred revenue on shipments to distributors........ (253) 374 344
-------- -------- --------
Total adjustments....................................... 4,943 2,447 (196)
-------- -------- --------
Net cash provided by operating activities............... 10,277 11,264 8,524
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of intangible assets........................... (4,723) -- --
Purchases of property and equipment..................... (7,586) (3,276) (7,452)
Purchases of short term investments..................... (41,175) (27,613) (33,275)
Proceeds from maturities of short term investments..... 47,118 25,152 35,059
-------- -------- --------
Net cash used in investing activities................... (6,366) (5,737) (5,668)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised................................. 282 375 763
Stock repurchased....................................... (559) (512) (561)
-------- -------- --------
Net cash provided by (used in) financing activities..... (277) (137) 202
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 3,634 5,390 3,058
CASH AND CASH EQUIVALENTS:
Beginning of year.................................... 24,556 19,166 16,108
-------- -------- --------
End of year.......................................... $ 28,190 24,556 $ 19,166
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Tax benefit from exercise of stock options............ 50 52 902
Stock tendered for exercise of stock options.......... -- 64 --
See accompanying Notes to Consolidated Financial Statements.
SUPERTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business The Company designs, manufactures and markets custom and
standard semiconductor products.
Principles of Consolidation The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated.
Fiscal Period The Company uses a 52-53 week fiscal year ending the Saturday
nearest March 31. The Company's fiscal years in the accompanying financial
statements have been shown ending on March 31. Fiscal years 1999, 1998, and
1997 all comprise 52 weeks.
Use of Estimates in Preparation of the Financial Statements The preparation
of financial statements in conformity with generally accepted accounting
principles 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 and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain Risks and Uncertainties The Company's business is concentrated in the
high voltage semiconductor components industry, which is rapidly changing,
highly competitive and subject to competitive pricing pressures. The
Company's operating results may experience substantial period-to-period
fluctuations due to these factors, including the cyclical nature of the
semiconductor industry, the changes in customer requirements, the timely
introduction of new products, the Company's ability to implement new
capabilities or technologies, its ability to manufacture efficiently, its
reliance on subcontractors and vendors, and the general economic conditions.
Cash and Cash Equivalents The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Short Term Investments Short term investments, which are classified as
available-for-sale, consist principally of commercial papers that mature
within one year and are stated at cost, which approximates fair market value.
Unrealized holding gains and losses are reflected at a net amount in a
separate component of the Statement of Shareholders' Equity until realized.
For the purpose of computing realized gains and losses, cost is identified on
a specific identification basis.
Inventories Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market value. The Company's inventories include
high technology parts and components that are specialized in nature or subject
to rapid technological obsolescence. While the Company has programs to
minimize the required inventories on hand and considers technological
obsolescence when estimating amounts required to reduce recorded amounts to
market values, it is reasonably possible that such estimates could change in
the near term.
Property, Plant and Equipment Property and equipment are stated at cost and
generally depreciated using accelerated methods over estimated useful lives of
five years. Building and building improvements are recorded at cost and are
depreciated on a straight-line basis over the useful life of the building.
Leasehold improvements are recorded at cost and are amortized on a
straight-line basis over the lesser of the related lease term or the estimated
useful life of the assets. The Company reviews for impairment its long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset might not be recoverable. In certain situations, an
impairment loss would be recognized.
SUPERTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Intangible Assets Other intangible assets arose as part of the Asset Purchase
Agreement with Orbit Semiconductor. Other intangible assets consist of
purchased technology and assembled workforce, which are being amortized on a
straight-line basis over their estimated useful lives of two years and five
years, respectively.
The Company assesses the recoverability of intangible assets by determining
whether the amortization of the asset's net book value over its remaining life
can be recovered through projected undiscounted future cash flows. Intangible
assets consist of the following at March 31, 1999 (in thousands):
Purchased Technology $1,735
Assembled Workforce 482
------
2,217
Less accumulated amortization (145)
------
$2,072
======
Revenue Recognition Net sales are stated net of allowance. Revenue from
direct sales to end-user customers is recognized upon shipment of product.
Sales to distributors are made primarily under arrangements allowing limited
price protection and the right of stock rotation on merchandise unsold by the
distributors. Because of the uncertainty associated with pricing concessions
and possible returns, the Company defers recognition of such sales and the
related costs of sales until the merchandise is sold by distributors to their
end-user customers.
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. The following is a reconciliation of the numerator (net income)
and the denominator (number of shares) used in the basic and diluted EPS
calculations.
Fiscal Year Ended
March 31,
1999 1998 1997
---- ---- ----
BASIC:
Weighted average shares outstanding
for the period 12,077 12,074 12,026
Net income $ 5,334 $ 8,817 $ 8,720
------- -------- --------
Net income per share $ 0.44 $ 0.73 $ 0.73
------- -------- --------
DILUTED:
Weighted average shares outstanding
for the period 12,077 12,074 12,026
Common stock equivalents 148 306 483
------- -------- --------
Total common and common equivalent shares 12,225 12,380 12,509
------- -------- --------
Net income $ 5,334 $ 8,817 $ 8,720
------- -------- --------
Net income per share $ 0.44 $ 0.71 $ 0.70
------- -------- --------
Options to purchase the Company's common stock of 515,446 shares at prices
between $8.875 - $16.75, 200,600 shares at prices between $13.875 - $19.875,
and 32,700 shares at prices between $17.50 - $19.875 in fiscal 1999, 1998, and
1997, respectively, were outstanding but were not included in the computation
of diluted earnings per share because the option exercise prices were greater
than the average market price of the common stock.
Concentration of Credit Risk The Company sells its semiconductor products in
North America, Europe and the Pacific Rim to numerous customers. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. Allowances for potential credit losses are maintained and
such losses historically have not been material. Substantially all of the
Company's cash, cash equivalents and short term investments are held at four
major financial institutions domiciled in the United States.
SUPERTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Income Taxes The Company utilizes the liability method to account for income
taxes where deferred tax assets or liabilities are determined based on the
temporary differences between the bases used for financial versus tax
reporting of assets and liabilities, using tax laws and rates in effect for
the year in which the differences are expected to affect taxable income. The
realizability of deferred tax assets is based on expectations about future
taxable income.
Fair Value of Financial Instruments Carrying amounts of certain of the
Company's financial instruments including cash, cash equivalents, accounts
receivable, accounts payable and other accrued liabilities approximate fair
value due to their short maturities.
Comprehensive Income The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
statement requires the disclosure of comprehensive income and its components
in a full set of general purpose financial statements or on the statement of
operations. Comprehensive income is defined as net income plus revenues,
expenses, gains and losses that, under generally accepted accounting
principles, are excluded from net income.
Recent Accounting Pronouncements In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position and that the corresponding gains
or losses be reported either in the statement of operations or as a component
of comprehensive income, depending on the type of hedging relationship that
exists. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. Earlier application is allowed as of the beginning of any quarter
beginning after issuance. The Company does not anticipate that the adoption
of SFAS 133 will have a material impact on its financial position or results
of operations.
2. INVENTORIES (in thousands):
March 31,
1999 1998
---- ----
Finished goods............... $ 3,534 $ 2,919
Work-in-process.............. 7,099 6,200
Raw materials................ 697 1,144
---------- ----------
$ 11,330 $ 10,263
========== ==========
3. PROPERTY AND EQUIPMENT (in thousands):
March 31,
1999 1998
---- ----
Machinery and equipment ...... $ 28,936 $ 21,597
Leasehold improvements ...... 2,374 2,175
Building...................... 1,968 1,968
Furniture and fixtures ...... 118 70
---------- ----------
33,396 25,810
Less accumulated depreciation
& amortization................ (18,275) (14,286)
---------- ----------
15,121 11,524
Land.......................... 825 825
---------- ----------
$ 15,946 $ 12,349
========== ==========
SUPERTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. ACQUISITION OF FACILITY (in thousands):
In February 1999, the Company acquired certain assets related to the six-inch
fabrication facility of Orbit Semiconductor for a total cash purchase price of
approximately $10,000,000 including direct costs incurred. The allocation of
the purchase price was based on estimated fair values of the assets on
February 1, 1999 (in thousands):
Property and equipment $ 5,277
Purchased technology 1,735
Assembled workforce 482
In-process technology 2,506
-------
$10,000
=======
The amounts allocated to purchased technology and assembled workforce were
determined through known valuation techniques in the high technology industry.
The value assigned to in-process technology was determined by identifying
development projects for which technological feasibility had not been
established and estimating the expected cash flows from the projects once
commercially feasible. These cash flows were discounted back to their present
value and a percentage of completion discount was applied to the calculation.
The technological feasibility of the in-process technology had not been
established and had no alternative future use. Accordingly, the entire
$2.5 million has been charged to operations in the fourth quarter of fiscal
1999.
5. INCOME TAXES
The components of the provision for income taxes for fiscal years ended March
31, 1999, 1998 and 1997 are as follows (in thousands):
March 31,
1999 1998 1997
---- ---- ----
Federal - current ........... $ 3,226 $ 4,223 $ 4,128
Federal - deferred ........... (1,304) (333) (540)
-------- -------- --------
1,922 3,890 3,588
-------- -------- --------
State - current ............... 117 666 568
State- deferred ............... (229) (14) (53)
-------- -------- --------
(112) 652 515
-------- -------- --------
$ 1,810 $ 4,542 $ 4,103
======== ======== ========
Substantially all of the Company's revenue is taxable in the United States.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before provision for income
taxes as follows:
1999 1998 1997
---- ---- ----
Statutory provision................... 34% 35% 35%
State tax, net of federal benefits.... 5% 4% 4%
Tax credits........................... (6%) (3%) (3%)
Benefit of foreign sales corporations. (4%) (3%) (3%)
Other................................. (4%) 1% (1%)
---- ---- ----
25% 34% 32%
==== ==== ====
Income taxes of $4,891,000, $4,226,000, and $4,265,000 were paid during fiscal
1999, 1998, and 1997, respectively.
SUPERTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The components of the deferred tax assets are as follows (in thousands):
March 31,
1999 1998
Deferred tax assets: ---- ----
Depreciation and Amortization ......... $ 1,853 $ --
Accrued benefits....................... 337 362
Inventory allowances................... 561 342
Accrued liabilities.................... 433 312
State deferred taxes
(net of federal benefits).............. 31 182
Deferred revenue on shipments to
distributors........................... 457 568
Allowances for doubtful accounts and sales
returns................................ (66) (80)
Other.................................. 109 495
------- -------
Total deferred tax assets........ $ 3,715 $ 2,181
======= =======
Management has determined that no valuation allowance is required because,
although realization is not assured, the Company has sufficient taxable income
in carryback years to absorb items deductible in the future for federal tax
purposes and anticipates that its estimated future taxable income will allow
the deferred tax asset for state tax purposes to be fully realized in future
years. The amount of the deferred tax asset that is realizable could be
reduced in the near term if actual results differ significantly from estimates
of future taxable income.
6. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan -- The Company has a discretionary profit sharing plan
for the benefit of eligible employees. Related expenses were $914,000,
$1,299,000, and $1,259,000 in fiscal 1999, 1998, and 1997, respectively.
Savings and Retirement Plan -- The Supertex Savings and Retirement Plan
allows for employee savings intended to qualify under the provisions of
Section 401 of the Internal Revenue Code. Employees having at least three
months of permanent service may make pretax contributions of 1% to 20% of
qualified compensation, with the Company matching certain percentages of
employee contributions, all of which are 100% vested. In fiscal years 1999,
1998, and 1997, the Company's matching contributions were $189,000, $180,000,
and $160,000, respectively.
Stock Option Plan -- The 1991 Stock Option Plan (the Option Plan) provides
for granting incentive stock options to employees, and non-statutory stock
options to employees and consultants. Terms for exercising options are
determined by the Board of Directors, and options expire at the earlier of
the term provided in the Notice of Grant or upon termination of employment or
consulting relationship.
A total of 1,925,715 shares of the Company's common stock were reserved for
issuance under the 1991 Plan. Options granted under the Plan are granted at
the fair market value of the Company's common stock on the date of grant and
generally expire 7 years from the date of grant or at termination of service,
whichever occurs first. The options generally are exercisable beginning one
year from date of grant and generally vest over a five-year period.
SUPERTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Activity under the Option Plan is as follows (in thousands, except share and
per share data):
Weighted
Available Options Outstanding Average
for ------------------- Exercise
Grant Shares Price Per Share Amount Price
--------- ----------- ---------------- ------- --------
Balance, March 31, 1996 781,275 861,950 $ 2 3/4 - 12 5/4 $ 5,274 $ 6.12
Granted (364,300) 364,300 9 7/8 - 12 4,859 $13.34
Exercised (156,360) 2 3/4 - 11 3/4 (760) $ 4.88
Canceled 63,000 (63,000) 2 3/4 - 17 1/2 (687) $10.86
--------- ----------- -------
Balance, March 31, 1997 479,975 1,006,890 2 3/4 - 19 7/8 8,686 $ 8.63
Granted (378,300) 378,300 10 5/8 - 15 1/4 4,526 $11.96
Exercised (96,770) 2 3/4 - 16 1/2 (439) $ 4.54
Canceled 276,860 (276,860) 3 - 19 7/8 (3,604) $13.02
--------- ----------- -------
Balance, March 31, 1998 378,535 1,011,560 2 3/4 - 16 3/4 9,169 $ 9.06
Granted (430,500) 430,500 9 5/8 - 11 4,656 $10.82
Exercised (63,000) 2 3/4 - 10 1/8 (286) $ 4.55
Canceled 93,700 (93,700) 2 7/8 - 16 3/4 (1,177) $12.57
--------- ----------- -------
Balance, March 31, 1999 41,735 1,285,360 $ 2 3/4 -$16 3/4 $12,361 $ 9.06
========= =========== =======
Stock Compensation -- The Company has adopted the disclosure-only provisions
of SFAS 123. Accordingly, no compensation cost has been recognized for the
1991 Stock Option Plan. Had compensation cost for the Option Plan been
determined based on the fair value at the grant date for the awards consistent
with the provisions of SFAS 123, the Company's net income and net income per
share for the years ended March 31, 1999 and 1998 would have been reduced to
the pro forma amounts indicated below (in thousands except per share data):
1999 1998 1997
---- ---- ----
Net Income As reported $5,334 $8,817 $8,720
Pro forma $4,261 $7,894 $8,002
Dillutive Earnings As reported $ 0.44 $ 0.73 $ 0.70
per share
Pro forma 0.36 $ 0.65 $ 0.65
The weighted average fair value of options granted during fiscal 1999, 1998
and 1997 was $5.89 per share, $4.94 per share, and $6.87 per share,
respectively. All options were granted at market price of the Company's
common stock on the date of grant. The Company made option grants prior to
fiscal 1996, the effective disclosure date of SFAS 123. Therefore, the pro
forma disclosures may not be representative of the effects on reported net
income or earnings-per-share for future years.
The fair value of each option grant for the Option Plan is estimated on the
date of grant using the Black-Scholes multiple options pricing model with the
following weighted average assumptions by year:
1999 1998 1997
---- ---- ----
Risk-free interest rate 5.00% 5.38% 5.53%
Expected term of option from vest date 0.61 0.53 0.54
Expected volatility 61.00% 50.30% 61.50%
Expected dividend yield -- -- --
SUPERTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The options outstanding and currently exercisable by exercise price under the
Option Plan at March 31, 1999 are as follows:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------
Weighted-Average
Range of Exercise Number Remaining Weighted-Average Number Weighted-Average
Prices Outstanding Contractual Life Exercise Price Outstanding Exercise Price
- -------------------------------------------------------------------------------------------------------
$2.750 - $9.375 395,760 2.55 $ 6.29 287,900 $ 5.78
$9.500 - $10.750 497,300 6.43 $10.62 36,680 $10.40
$11.000 - $12.000 349,300 5.83 $11.44 41,840 $11.73
$12.375 - $16.750 43,000 5.16 $13.77 16,080 $13.28
- ----------------- --------- ---- ------ ------- ------
$2.750 - $16.750 1,285,360 5.03 $ 9.62 382,500 $ 7.19
7. COMMITMENTS
Facilities Operating Leases
The Company leases its four-inch manufacturing facility under an operating
lease that expires in 2001, from a corporation owned by one of the Company's
directors. Under the lease, the Company is responsible for maintenance costs,
including real property taxes, utilities and other costs. As part of the
acquisition of the Orbit's six inch wafer fabrication operation, the Company
is also leasing under an operating lease that expires on April 30, 2004 with
two (2) options to extend the term of the Lease, each for a period of five (5)
years. Monthly rent during the entire term is $67,977.80 without adjustment.
The Company is responsible for maintenance costs, including real property
taxes, utilities, insurance and other costs. Future minimum lease payments at
March 31, 1999 are as follows (in thousands):
Fiscal Year
2000 2001 2002 2003 2004 Total
------- ------- ----- ----- ----- -------
$ 1,204 $ 1,171 $ 816 $ 816 $ 816 $ 4,823
Rental expenses, net of sublease, were approximately $462,000, $ 315,000, and
$321,000 (net of sublease income of $49,000, $49,000, and $105,000) in fiscal
years 1999, 1998, and 1997, respectively. Of the total rental expenses paid,
$375,000, $362,000 and $352,000 were paid to the Company's director in fiscal
1999, 1998 and 1997, respectively.
Operating Equipment Lease
Following the acquisition of the six inch wafer fabrication facility, the
Company assumed an existing equipment operating lease from Orbit Semiconductor.
This operating lease consists of four different lease schedules representing
four groups of equipment. Operating lease expenses were approximately $129,000
in fiscal year 1999. Aggregate future minimum lease payments at March 31, 1999
are as follows ( in thousands):
Fiscal Year
2000 2001 2002 Total
------- ------- ------ -------
$ 1,262 $ 1,091 $ 650 $ 3,003
SUPERTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards No.131,
"Disclosures about Segments of an Enterprise and Related Information"
(SFAS131) effective March 31, 1999. SFAS 131 establishes standards for
disclosure about operating segments and related disclosures about products
and services, geographic areas and major customers. Comparative information
has been provided for prior years. The Company operates in one business
segment.
The Company's principal markets are in the United States, Europe and Asia.
Following is a summary of the geographic information related to revenues and
information related to significant customers for the years ended March 31,
1999, 1998 and 1997:
(in thousands) 1999 1998 1997
---- ---- ----
Revenues
United States $24,608 $24,595 $23,770
Europe 11,379 10,732 8,038
Asia 12,215 13,338 13,730
Other 2,519 4,041 3,397
------- ------- -------
Total Revenue $52,540 $54,608 $51,506
======= ======= =======
International sales are entirely comprised of export sales.
Significant Customers
One distributor accounted for approximately 16%, 19%, and 18% of net sales in
fiscal 1999, 1998, and 1997, respectively.
The Company's assets are located in the United States. The Company does not
segregate information related to operating income generated by its export
sales.
SCHEDULE II
SUPERTEX, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Balance at
Beginning Costs and Write-Off End
of Period Expenses of Accounts of Period
Year ended March 31, 1997
Allowance for sales returns........ $ 434 $ 2,020 $ 2,077 $ 377
Allowance for doubtful accounts.... 125 34 11 148
Inventory allowances............... 559 256 171 644
Year ended March 31, 1998
Allowance for sales returns........ $ 377 $ 1,333 $ 1,167 $ 543
Allowance for doubtful accounts.... 148 240 231 157
Inventory allowances............... 644 277 47 874
Year ended March 31, 1999
Allowance for sales returns........ $ 543 $ 1,932 $ 2,102 $ 373
Allowance for doubtful accounts.... 157 485 (5) 647
Inventory allowances............... 874 1,300 727 1,447
SUPERTEX, INC.
EXHIBIT INDEX
(The Registrant will furnish to any shareholders who so request a copy of this
Annual Report on Form 10-K and any Exhibit listed below, provided that the
Registrant may require payment of a reasonable fee not to exceed its expense
in furnishing such information.)
Exhibit Exhibit Description
2.1* Agreement for purchases and sale of assets by and between Supertex,
Inc. and Orbit Semiconductor dated January 16, 1999.
3.1** Restated Articles of Incorporation of Registrant filed May 21,
1980.
3.2** Certificate of Amendment of Articles of Incorporation filed April
16, 1981.
3.3** Certificate of Amendment of Articles of Incorporation filed
September 30, 1983.
3.4***** Bylaws of Registrant, as amended.
10.2** Lease for 1225 and 1231 Bordeaux Drive, Sunnyvale, California,
dated January 25, 1991, between Fortuna Realty Company, as Lessor,
and Registrant, as Lessee.
10.2a Lease for 71 Vista Montana, San Jose, California, dated December 7,
1988, between Sobrato Development Companies #871, a California
Limited Partnership, as Lessor, and Paradigm Technology, Inc., a
California Corporation, as Lessee.
10.2b Lease Assignment agreement for 71 Vista Montana, San Jose,
California, dated February 1, 1999 among Orbit Semiconductor, as
seller, Sobrato Development Companies #871, as landlord, and
Supertex, Inc., as buyer.
10.2c Master Lease Agreement #06714-00300 dated September 15, 1995
between NationsBanc Leasing Corporation, as Lessor, and Orbit
Semiconductors, Inc., as lessee.
10.2d Transfer and Assumption Agreement for leased equipment located at
71 Vista Montana, San Jose, California dated January 22, 1999 by
and among Orbit Semiconductor, Inc., as Transferor, Supertex, Inc.,
as Transferee, and NationsBanc Leasing Corporation, as Lessor.
10.6** 1981 Stock Option Plan, as amended, with form of stock option
agreement.
10.6a***** 1991 Stock Option Plan, as amended, with form of stock option
agreement.
10.7** Profit Sharing Plan.
10.21*** Certificate of Amendment of Articles of Incorporation filed
October 14, 1988.
10.22**** Agreement with Texas Instruments Inc. dated May 31, 1991.(1)
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
* Incorporated by reference to the exhibit of the same number filed with
current report on form 8-K dated January 19, 1999.
** Incorporated by reference to exhibit of same number of Registrant's
Registration Statement on Form S-1 (File No. 2-86898), which became
effective December 6, 1983.
*** Incorporated by reference to exhibit filed with Quarterly Report on Form
10-Q for period ended October 1, 1988.
**** Incorporated by reference to exhibit filed with Annual Report on Form
10-K for year ended March 31, 1991.
***** Incorporated by reference to exhibit included in Registrant's
Registration Statement on Form S-8 (File No. 33-43691) which became
effective September 1, 1995.
(1) Confidential treatment of portions of this exhibit was granted by order
dated August 12, 1991.