UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-26124
IXYS CORPORATION
| DELAWARE (State or other jurisdiction of incorporation or organization) |
77-0140882 (IRS Employer Identification No.) |
3540 BASSETT STREET
SANTA CLARA, CALIFORNIA 95054-2704
(Address of principal executive offices and Zip Code)
(408) 982-0700
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o
THE NUMBER OF SHARES OF THE REGISTRANT’S COMMON STOCK, $0.01 PAR VALUE, OUTSTANDING AS OF JANUARY 27, 2005 WAS 33,249,893.
1.
IXYS CORPORATION
FORM 10-Q
December 31, 2004
INDEX
2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IXYS CORPORATION
| December 31, 2004 | March 31, 2004 | |||||||
| (unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 50,677 | $ | 42,058 | ||||
Restricted cash |
461 | 1,141 | ||||||
Accounts
receivable, net of allowances of $2,731 at December 31, 2004 and $2,654 at March 31, 2004 |
38,909 | 33,131 | ||||||
Inventories |
54,754 | 48,055 | ||||||
Prepaid expenses and other current assets |
15,259 | 1,710 | ||||||
Deferred income taxes |
7,595 | 7,769 | ||||||
Total current assets |
167,655 | 133,864 | ||||||
Property, plant and equipment, net |
26,329 | 26,369 | ||||||
Other assets |
5,868 | 7,310 | ||||||
Deferred income taxes |
10,015 | 9,503 | ||||||
Goodwill |
21,502 | 21,223 | ||||||
Total assets |
$ | 231,369 | $ | 198,269 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of capitalized lease obligations |
$ | 2,786 | $ | 3,447 | ||||
Notes payable to bank |
— | 800 | ||||||
Accounts payable |
11,986 | 15,277 | ||||||
Accrued expenses and other current liabilities |
39,335 | 18,094 | ||||||
Total current liabilities |
54,107 | 37,618 | ||||||
Capitalized lease obligations, net of current portion |
2,308 | 2,904 | ||||||
Loans payable |
157 | 157 | ||||||
Pension liabilities |
13,806 | 12,059 | ||||||
Total liabilities |
70,378 | 52,738 | ||||||
Commitments and contingencies (Note 7) |
||||||||
Stockholders’ equity
|
||||||||
Preferred stock, $0.01 par value: |
||||||||
Authorized: 5,000,000 shares; none issued and outstanding |
— | — | ||||||
Common stock, $0.01 par value: |
||||||||
Authorized: 80,000,000 shares; 33,407,064 issued and 33,243,925
outstanding at December 31, 2004 and 33,018,675 issued and 32,923,373
outstanding at March 31, 2004 |
332 | 331 | ||||||
Additional paid-in capital |
152,817 | 151,074 | ||||||
Deferred compensation |
(5 | ) | (10 | ) | ||||
Notes receivable from stockholders |
(749 | ) | (1,388 | ) | ||||
Accumulated deficit |
(299 | ) | (10,750 | ) | ||||
Less cost of treasury stock: 170,202 shares at December 31, 2004 and
95,302 shares at March 31, 2004 |
(983 | ) | (447 | ) | ||||
Accumulated other comprehensive income |
9,878 | 6,721 | ||||||
Total stockholders’ equity |
160,991 | 145,531 | ||||||
Total liabilities and stockholders’ equity |
$ | 231,369 | $ | 198,269 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
IXYS CORPORATION
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
Net revenues |
$ | 66,258 | $ | 50,744 | $ | 187,597 | $ | 133,766 | ||||||||
Cost of goods sold |
46,203 | 38,699 | 130,857 | 98,143 | ||||||||||||
Gross profit |
20,055 | 12,045 | 56,740 | 35,623 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research, development and engineering |
4,778 | 4,023 | 14,400 | 11,912 | ||||||||||||
Selling, general and administrative |
8,226 | 7,518 | 25,753 | 22,693 | ||||||||||||
Total operating expenses |
13,004 | 11,541 | 40,153 | 34,605 | ||||||||||||
Operating income |
7,051 | 504 | 16,587 | 1,018 | ||||||||||||
Interest income |
334 | 272 | 691 | 558 | ||||||||||||
Interest expense |
(32 | ) | (53 | ) | (129 | ) | (130 | ) | ||||||||
Other income (expense), net |
186 | (129 | ) | (293 | ) | (327 | ) | |||||||||
Income before income tax |
7,539 | 594 | 16,856 | 1,119 | ||||||||||||
Provision for income tax |
(2,790 | ) | (208 | ) | (6,405 | ) | (398 | ) | ||||||||
Net income |
$ | 4,749 | $ | 386 | $ | 10,451 | $ | 721 | ||||||||
Net income per share—basic |
$ | 0.14 | $ | 0.01 | $ | 0.32 | $ | 0.02 | ||||||||
Weighted average shares used in per share calculation — basic |
33,076 | 32,772 | 33,029 | 32,289 | ||||||||||||
Net income per share—diluted |
$ | 0.14 | $ | 0.01 | $ | 0.30 | $ | 0.02 | ||||||||
Weighted average shares used in per share calculation — diluted |
35,012 | 34,860 | 34,876 | 34,321 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
IXYS CORPORATION
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
Net income |
$ | 4,749 | $ | 386 | $ | 10,451 | $ | 721 | ||||||||
Other comprehensive income: |
||||||||||||||||
Foreign currency translation adjustments |
2,307 | 2,281 | 3,157 | 2,957 | ||||||||||||
Comprehensive income |
$ | 7,056 | $ | 2,667 | $ | 13,608 | $ | 3,678 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
IXYS CORPORATION
| Nine Months Ended | ||||||||
| December 31, | ||||||||
| 2004 | 2003 | |||||||
| (unaudited) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 10,451 | $ | 721 | ||||
Adjustments to reconcile net income to net cash provided by operating
activities:: |
||||||||
Depreciation and amortization |
8,236 | 7,965 | ||||||
Provision for receivables allowances |
2,726 | (687 | ) | |||||
Write-down of excess and obsolete inventories |
2,968 | 84 | ||||||
Loss (gain) on foreign currency transactions |
561 | (1,671 | ) | |||||
Deferred income taxes |
24 | 695 | ||||||
Compensation expense for notes from shareholders |
119 | — | ||||||
Interest forgiven on notes from shareholders |
55 | — | ||||||
Loss on disposal of fixed assets |
132 | — | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(7,104 | ) | (5,512 | ) | ||||
Inventories |
(7,063 | ) | (329 | ) | ||||
Prepaid expenses and other current assets |
(14,586 | ) | (196 | ) | ||||
Other assets |
317 | (670 | ) | |||||
Accounts payable |
(1,626 | ) | 656 | |||||
Accrued expenses and other liabilities |
17,330 | (456 | ) | |||||
Pension liabilities |
688 | 407 | ||||||
Net cash provided by operating activities |
13,228 | 1,007 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Increase (decrease) in restricted cash |
680 | 1,626 | ||||||
Net cash acquired in acquisition of Microwave Technology, Inc. |
— | 143 | ||||||
Purchase of plant and equipment |
(6,179 | ) | (2,645 | ) | ||||
Net cash used in investing activities |
(5,499 | ) | (876 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Principal payments on capital lease obligations |
(1,763 | ) | (3,106 | ) | ||||
Proceeds from notes payable to bank |
— | 62 | ||||||
Repayment of notes payable to bank |
(800 | ) | (10 | ) | ||||
Purchase of treasury stock |
(536 | ) | — | |||||
Proceeds from exercise of options |
1,010 | 651 | ||||||
Proceeds from issuance of ESPP |
615 | 198 | ||||||
Payments of notes from stockholders |
610 | — | ||||||
Net cash used in financing activities |
(864 | ) | (2,205 | ) | ||||
Effect of foreign exchange rate fluctuations on cash and cash equivalents |
1,754 | 580 | ||||||
Net increase (decrease) in cash and cash equivalents |
8,619 | (1,494 | ) | |||||
Cash and cash equivalents at beginning of period |
$ | 42,058 | $ | 40,094 | ||||
Cash and cash equivalents at end of period |
$ | 50,677 | $ | 38,600 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
IXYS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Condensed Consolidated Financial Statements
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited condensed consolidated financial statements include the accounts of IXYS Corporation (“IXYS” or the “Company”) and its wholly owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management’s most difficult judgments include: allowance for sales returns, allowance for doubtful accounts, allowance for ship and debits, valuation of inventories, valuation of property, plant, equipment and intangible assets, revenue recognition, legal contingencies, goodwill, income tax and defined benefit plans. All significant intercompany transactions have been eliminated in consolidation. All adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been made. It is recommended that the interim financial statements be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2004 contained in the Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of the operating results expected for later quarters or the full fiscal year. A reclassification has been made to the prior period’s condensed consolidated financial statements to conform to the current period’s presentation. In the reclassification, litigation expenses in the amount of $393,000 and $2,254,000 for the three and nine-month periods ended December 31, 2003 were reclassified from other expense, net to selling, general and administrative expenses. Such reclassification had no effect on previously reported net income or retained earnings.
2. Accounting for Stock-Based Compensation
IXYS accounts for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of IXYS’s stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. IXYS’s policy is to grant options with an exercise price equal to the quoted market price of IXYS’s stock on the grant date. Accordingly, no compensation has been recognized for its stock option plans. IXYS provides additional pro forma disclosures as required under SFAS No. 123, “Accounting for Stock-Based Compensation.”
Had compensation cost for its stock plans been determined based on the fair value at the grant date consistent with the provisions of SFAS No. 123, IXYS’s net income (loss) and net income (loss) per share for the three and nine month periods ended December 31, 2004 and 2003 would have changed to the pro forma amounts indicated below (in thousands, except per share amounts):
7
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
Net Income, as reported |
$ | 4,749 | $ | 386 | $ | 10,451 | $ | 721 | ||||||||
Add: Stock-based compensation included in operations |
— | — | — | — | ||||||||||||
Less: Total employee stock-based compensation
expense determined under fair value method for
all awards to employees, net of tax |
(455 | ) | (597 | ) | (1,362 | ) | (1,756 | ) | ||||||||
Pro forma net income (loss) |
$ | 4,294 | $ | (211 | ) | $ | 9,089 | $ | (1,035 | ) | ||||||
Basic net income (loss) per share: |
||||||||||||||||
As reported |
$ | 0.14 | $ | 0.01 | $ | 0.32 | $ | 0.02 | ||||||||
Pro forma |
$ | 0.13 | $ | (0.01 | ) | $ | 0.28 | $ | (0.03 | ) | ||||||
Diluted net income (loss) per share: |
||||||||||||||||
As reported |
$ | 0.14 | $ | 0.01 | $ | 0.30 | $ | 0.02 | ||||||||
Pro forma |
$ | 0.12 | $ | (0.01 | ) | $ | 0.26 | $ | (0.03 | ) | ||||||
For purposes of computing pro forma net income, we estimate the fair value of option grants and employee stock purchase plan purchase rights using the Black-Scholes option pricing model. For purposes of the pro forma disclosures, we utilized an expected life of 4 years, a risk free rate of 3.52%, expected volatility of 46.67% and no expected dividend rate.
3. Acquisition of Microwave Technology, Inc.
On September 5, 2003, IXYS completed its acquisition of 100% of the voting equity interests of Microwave Technology, Inc. (“MwT”), a manufacturer of discrete gallium arsenide field effect transistors (“FETS”) based in the United States. The acquisition of MwT expanded the Company’s line of radio frequency, or RF, products by adding MwT’s gallium arsenide semiconductor products and increased IXYS’s presence in RF power semiconductors. The acquisition was intended to allow the combined organization to be more competitive and to achieve greater financial strength, operational efficiencies, access to capital and growth potential than either company could separately achieve. These factors contributed to the purchase price in excess of the fair value of MwT’s net tangible and intangible assets acquired, and, as a result, IXYS has recorded goodwill in connection with this transaction. The acquisition was a stock-for-stock exchange. As such, none of the goodwill is expected to be deductible for tax purposes. MwT has been included in our statement of operations since September 5, 2003. In connection with the acquisition, approximately 767,000 shares of IXYS common stock and options exercisable for approximately 26,000 shares of IXYS common stock were issued. The total purchase price is as follows (in thousands):
Value of IXYS common stock issued |
$ | 4,189 | ||
Value of IXYS options issued |
167 | |||
Direct merger costs |
321 | |||
Total purchase price |
$ | 4,677 | ||
The fair value of IXYS’s common stock issued was determined using an average of the closing sales prices of a share of our common stock on the Nasdaq National Market for the five trading days before and after the definitive agreement was signed. The fair value of the options assumed in the transaction was determined using the Black-Scholes option pricing model using an expected life of 2-years, risk free rate of 2% and expected volatility of 66% and no expected dividend rate. IXYS has allocated the purchase price to identifiable intangible assets, tangible assets, deferred tax assets, liabilities assumed and goodwill as follows (in thousands):
8
Fair value of tangible assets and deferred tax assets acquired: |
||||||
Current assets |
$ | 2,182 | ||||
Deferred tax assets |
559 | |||||
Plant and equipment |
91 | |||||
| 2,832 | ||||||
Amortizable intangible assets: |
Estimated useful lives | |||||
Core technology |
300 | 5 to 6 years | ||||
Existing technology |
1,300 | 5 to 6 years | ||||
Contract and related customers’ relationships |
400 | 5 to 6 years | ||||
Tradename |
200 | 5 to 6 years | ||||
Backlog |
200 | 3 to 6 months | ||||
| 2,400 | ||||||
Total assets acquired |
5,232 | |||||
Fair value of liabilities assumed |
(2,415 | ) | ||||
Net assets acquired |
2,817 | |||||
Goodwill |
1,860 | |||||
Total purchase price |
$ | 4,677 | ||||
Pro Forma Disclosure (in thousands, except per share data):
The following unaudited pro forma combined amounts give effect to the acquisition of MwT as if the acquisition had occurred on April 1, 2003. On a pro forma basis, the results of operations of MwT for the nine-month period ended December 31, 2003 are consolidated with IXYS results for the nine-month period ended December 31, 2003. The pro forma amounts do not purport to be indicative of what would have occurred had the acquisition been made as of the beginning of the period or of results which may occur in the future.
| Nine Months Ended | ||||
| December 31, | ||||
| 2003 | ||||
| (unaudited) | ||||
Revenue |
$ | 136,150 | ||
Net income (loss) |
(1,686 | ) | ||
Net income per share — basic |
(0.05 | ) | ||
Shares used in per share calculation-basic |
32,713 | |||
Net income per share — diluted |
(0.05 | ) | ||
Shares used in per share calculation-diluted |
32,713 | |||
9
4. Inventories
Inventories consist of the following (in thousands):
| December 31, 2004 | March 31, 2004 | |||||||
| (unaudited) | ||||||||
Raw materials |
$ | 14,461 | $ | 12,117 | ||||
Work in process |
27,110 | 26,729 | ||||||
Finished goods |
13,183 | 9,209 | ||||||
Total |
$ | 54,754 | $ | 48,055 | ||||
5. Computation of Net Income (Loss) Per Share
Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution from the exercise of options into common stock.
Basic and diluted earnings per share are calculated as follows (in thousands, except per share amounts):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
BASIC: |
||||||||||||||||
Weighted average shares outstanding for the period |
33,076 | 32,772 | 33,029 | 32,289 | ||||||||||||
Net income (loss) available for common stockholders |
$ | 4,749 | $ | 386 | $ | 10,451 | $ | 721 | ||||||||
Net income (loss) available for common stockholders per share |
$ | 0.14 | $ | 0.01 | $ | 0.32 | $ | 0.02 | ||||||||
DILUTED: |
||||||||||||||||
Weighted average shares outstanding for the period |
33,076 | 32,772 | 33,029 | 32,289 | ||||||||||||
Net effective dilutive stock options based on
treasury stock method using average market price |
1,936 | 2,088 | 1,847 | 2,032 | ||||||||||||
Shares used in computing per share amounts |
35,012 | 34,860 | 34,876 | 34,321 | ||||||||||||
Net income (loss) available for common stockholders |
$ | 4,749 | $ | 386 | $ | 10,451 | $ | 721 | ||||||||
Net income (loss) per share available for common stockholders |
$ | 0.14 | $ | 0.01 | $ | 0.30 | $ | 0.02 | ||||||||
Total common stock equivalents excluded for the computation
of earnings per share as their effect was anti-dilutive |
817 | 532 | 1,262 | 570 | ||||||||||||
6. Segment Information
IXYS operates in a single industry segment comprised of semiconductor products used primarily in power-related applications, including those in motor drives, consumer products and power conversion (among them, uninterruptible power supplies, switch mode power supplies and medical electronics), and in the telecommunications industry. IXYS’s sales by major geographic area (based on destination) were as follows: