SYNAPTICS INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 28, 2002

Commission file number 000-49602

SYNAPTICS INCORPORATED

(Exact name of Registrant as specified in its charter)


Delaware		77-0118518

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2381 Bering Drive
San Jose, California 95131
(Address of principal executive offices)
(Zip code)

(408) 434-0110
(Registrant’s telephone number, including area code)

Indicate by check 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 o No þ

Number of shares of Common Stock outstanding at February 5, 2003: 23,521,331

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS
EX-10.6(a)
EX-10.6(b)
EX-99.1
EX-99.2

SYNAPTICS INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2002

TABLE OF CONTENTS


			Page

Part I. Financial Information
	Item 1. Financial Statements:
		Condensed Consolidated Balance Sheets— December 31, 2002 and June 30, 2002 (Unaudited)		3
		Condensed Consolidated Statements of Operations— Three Months and Six Months Ended December 31, 2002 and 2001 (Unaudited)		4
		Condensed Consolidated Statements of Cash Flows— Six Months Ended December 31, 2002 and 2001 (Unaudited)		5
		Notes to Condensed Consolidated Financial Statements (Unaudited)		6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			9
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			15
	Item 4. Controls and Procedures			15
Part II.Other Information
	Item 4. Submission of Matters To A Vote of Security Holders			15
	Item 6. Exhibits and Reports on Form 8-K			15
Signatures				16
Certifications				17

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SYNAPTICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)


					December 31,			June 30,
					2002			2002 (1)

					(unaudited)
				ASSETS
Current assets:
	Cash and cash equivalents				$	38,935		$	45,491
	Short-term investments					30,743			19,689
	Accounts receivable, net of allowances of $210 and $200
		at December 31, 2002 and June 30, 2002, respectively				13,452			13,242
	Inventories					6,103			5,867
	Prepaid expenses and other current assets					3,401			2,964

	Total current assets					92,634			87,253
Property and equipment, net						1,782			2,043
Goodwill						765			765
Other assets						236			320

Total assets					$	95,417		$	90,381

			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	6,523		$	5,867
	Accrued compensation					1,939			2,161
	Accrued warranty					1,002			1,002
	Income taxes payable					2,462			2,646
	Other accrued liabilities					2,444			1,814
	Capital leases and equipment financing obligations					346			445

	Total current liabilities					14,716			13,935
Capital leases and equipment financing obligations, net of current portion						82			259
Note payable to a related party						1,500			1,500
Other liabilities						722			684
Commitments and contingencies
Stockholders’ equity:
	Common stock					23			23
	Additional paid-in capital					76,666			75,013
	Deferred stock compensation					(1,594	)		(1,085	)
	Notes receivable from stockholders					(755	)		(876	)
	Retained earnings					3,910			865
	Accumulated other comprehensive income					147			63

	Total stockholders’ equity					78,397			74,003

Total liabilities and stockholders’ equity					$	95,417		$	90,381

(1)

Derived from our audited financial statements as of June 30, 2002, included in our Form 10-K filed with the Securities and Exchange Commission.

See notes to condensed consolidated financial statements.

SYNAPTICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)


		Three Months Ended						Six Months Ended
		December 31,						December 31,

		2002			2001			2002			2001

Net revenue		$	24,199		$	26,402		$	46,376		$	49,971
Cost of revenue (1)			13,917			15,376			26,360			29,983

	Gross margin		10,282			11,026			20,016			19,988
Operating expenses:
	Research and development (1)		4,812			4,117			10,135			7,808
	Selling, general, and administrative (1)		2,638			2,426			5,242			5,101
	Amortization of other acquired intangible assets		10			62			40			75
	Amortization of deferred stock compensation		116			121			226			242

	Total operating expenses		7,576			6,726			15,643			13,225

Operating income			2,706			4,300			4,373			6,763
Interest income			279			48			556			81
Interest expense			(47	)		(49	)		(86	)		(113	)

Income before income taxes			2,938			4,299			4,843			6,731
Provision for income taxes			1,093			1,497			1,798			2,342

	Net income	$	1,845		$	2,802		$	3,045		$	4,389

Net income per share:
	Basic	$	0.08		$	0.42		$	0.13		$	0.66

	Diluted	$	0.07		$	0.14		$	0.12		$	0.22

Shares used in computing net income per share:
	Basic		23,387			6,709			23,309			6,666

	Diluted		25,083			20,376			24,957			20,369

(1)

Cost of revenue excludes $7,000, $7,000, $14,000, and $14,000 of amortization of deferred stock compensation for the three months ended December 31, 2002 and 2001, and the six months ended December 31, 2002 and 2001, respectively. Research and development expense excludes $38,000, $49,000, $77,000, and $98,000 of amortization of deferred stock compensation for the three months ended December 31, 2002 and 2001, and the six months ended December 31, 2002 and 2001, respectively. Selling, general, and administrative expenses exclude $71,000, $65,000, $135,000, and $130,000 of amortization of deferred stock compensation for the three months ended December 31, 2002 and 2001, and the six months ended December 31, 2002 and 2001, respectively. These amounts have been aggregated and reflected as “Amortization of deferred stock compensation.”

See notes to condensed consolidated financial statements.

SYNAPTICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


			Six Months Ended
			December 31,

			2002			2001

Operating activities
Net income			$	3,045		$	4,389
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation and amortization of property and equipment			696			609
	Amortization of other acquired intangible assets			40			75
	Amortization of deferred stock compensation			226			242
	Fair value of options issued to consultants for services rendered			17			—
	Changes in operating assets and liabilities:
		Accounts receivable		(210	)		214
		Inventories		(236	)		2,284
		Prepaid expenses and other current assets		(437	)		37
		Other assets		44			(776	)
		Accounts payable		656			(1,445	)
		Accrued compensation		(222	)		476
		Other accrued liabilities and income taxes payable		446			425
		Accrued warranty		—			250
		Other liabilities		38			44

Net cash provided by operating activities				4,103			6,824
Investing activities
Purchases of short-term investments				(13,200	)		—
Proceeds from sales and maturities of short-term investments				2,230			—
Purchase of property and equipment				(435	)		(639	)

Net cash used in investing activities				(11,405	)		(639	)
Financing activities
Payments on capital leases and equipment financing obligations				(276	)		(321	)
Proceeds from equipment financing				—			308
Common stock issued under ESPP and stock option plans				902			642
Repayment of notes receivable from stockholders				120			30

Net cash provided by financing activities				746			659

Increase (decrease) in cash and cash equivalents				(6,556	)		6,844
Cash and cash equivalents at beginning of period				45,491			3,766

Cash and cash equivalents at end of period			$	38,935		$	10,610

Supplemental disclosures of cash flow information
Cash paid for interest				16			58
Cash paid for taxes				1,972			1,713

See notes to condensed consolidated financial statements.

SYNAPTICS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and generally accepted accounting principles. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In our opinion, the statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future period. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended June 30, 2002.

The consolidated financial statements include our financial statements and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

Our fiscal year ends on the last Saturday in June. For ease of presentation, the accompanying financial statements have been shown as ending on June 30 and calendar quarter ends for all annual, interim, and quarterly financial statement captions.

2. Net Income Per Share

Basic net income per share amounts have been computed using the weighted-average number of shares of common stock outstanding during each period, less shares subject to repurchase. Diluted net income per share amounts also include the effect of potentially dilutive securities, including stock options, warrants, and convertible preferred stock, when dilutive.

The following table presents the computation of basic and diluted net income per share (in thousands, except per share amounts):


			Three Months Ended				Six Months Ended
			December 31,				December 31,

			2002		2001		2002		2001

Numerator for basic and diluted net income per share:
	Net income		$	1,845	$	2,802	$	3,045	$	4,389

Denominator for basic net income per share:
	Weighted average common shares outstanding			23,387		6,709		23,309		6,678
	Less: Weighted average shares subject to repurchase			—		—		—		(12	)

Denominator for basic net income per share				23,387		6,709		23,309		6,666

Denominator for diluted net income per share:
	Shares used above, basic			23,387		6,709		23,309		6,666
	Dilutive stock options			1,696		2,533		1,648		2,569
	Dilutive warrants			—		23		—		23
	Dilutive preferred stock			—		11,074		—		11,074
	Dilutive contingent shares			—		37		—		37

Denominator for diluted net income per share				25,083		20,376		24,957		20,369

Net income per share:
		Basic	$	0.08	$	0.42	$	0.13	$	0.66

		Diluted	$	0.07	$	0.14	$	0.12	$	0.22

3. Cash Equivalents and Short-term Investments

Cash equivalents consist of highly liquid investments with original maturities of three months or less. Short-term investments consist of debt securities classified as available for sale and are carried at their market value as of the balance sheet date with approximated amortized cost. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains or losses are determined on the specific identification method and are reflected in income. Net unrealized gains or losses are recorded directly in stockholder’s equity except those unrealized losses that are deemed to be other than temporary are reflected in income.

As of December 31, 2002, cash, cash equivalents, and short-term investments consisted of the following (in thousands):

Gross

Amortized

Unrealized

Fair

Cost

Gains

Losses

Value

Cash and cash equivalents:

Cash

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