SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2003
Commission file number 000-49602
SYNAPTICS INCORPORATED
| Delaware | 77-0118518 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
2381 Bering Drive
San Jose, California 95131
(408) 434-0110
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 x 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 x
Number of shares of Common Stock outstanding at May 6, 2003: 23,579,735
SYNAPTICS INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003
TABLE OF CONTENTS
| Page | ||||||
Part I. Financial Information |
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Item 1. Financial Statements: |
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Condensed Consolidated Balance Sheets— March 31, 2003 and June 30, 2002 (Unaudited) |
3 | |||||
Condensed Consolidated Statements of Operations— Three Months and Nine Months Ended March 31, 2003 and 2002 (Unaudited) |
4 | |||||
Condensed Consolidated Statements of Cash Flows— Nine Months Ended March 31, 2003 and 2002 (Unaudited) |
5 | |||||
Notes to Condensed Consolidated Financial Statements (Unaudited) |
6 | |||||
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
11 | |||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
16 | |||||
Item 4. Controls and Procedures |
16 | |||||
Part II. Other Information |
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Item 6. Exhibits and Reports on Form 8-K |
17 | |||||
Signatures |
18 | |||||
Certifications |
19 | |||||
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNAPTICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| March 31, | June 30, | |||||||||||
| 2003 | 2002 (1) | |||||||||||
| (unaudited) | ||||||||||||
| ASSETS | ||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 38,584 | $ | 45,491 | ||||||||
Short-term investments |
34,314 | 19,689 | ||||||||||
Accounts receivable, net of allowances of $210 and $200
at March 31, 2003 and June 30, 2002, respectively |
14,152 | 13,242 | ||||||||||
Inventories |
5,782 | 5,867 | ||||||||||
Prepaid expenses and other current assets |
3,745 | 2,964 | ||||||||||
Total current assets |
96,577 | 87,253 | ||||||||||
Property and equipment, net |
1,870 | 2,043 | ||||||||||
Goodwill |
765 | 765 | ||||||||||
Other assets |
270 | 320 | ||||||||||
Total assets |
$ | 99,482 | $ | 90,381 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 6,806 | $ | 5,867 | ||||||||
Accrued compensation |
2,383 | 2,161 | ||||||||||
Accrued warranty |
1,002 | 1,002 | ||||||||||
Income taxes payable |
3,050 | 2,646 | ||||||||||
Other accrued liabilities |
2,343 | 1,814 | ||||||||||
Capital leases and equipment financing obligations |
286 | 445 | ||||||||||
Total current liabilities |
15,870 | 13,935 | ||||||||||
Capital leases and equipment financing obligations, net of
current portion |
55 | 259 | ||||||||||
Note payable to a related party |
1,500 | 1,500 | ||||||||||
Other liabilities |
741 | 684 | ||||||||||
Commitments and contingencies |
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Stockholders’ equity: |
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Common stock; $0.001 par value; 60,000,000 shares authorized; 23,567,455 and 23,182,757 shares issued and outstanding as of March 31, 2003 and June 30, 2002, respectively |
24 | 23 | ||||||||||
Additional paid-in capital |
77,294 | 75,013 | ||||||||||
Deferred stock compensation |
(1,339 | ) | (1,085 | ) | ||||||||
Notes receivable from stockholders |
(755 | ) | (876 | ) | ||||||||
Retained earnings |
5,979 | 865 | ||||||||||
Accumulated other comprehensive income |
113 | 63 | ||||||||||
Total stockholders’ equity |
81,316 | 74,003 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 99,482 | $ | 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.
3
SYNAPTICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| March 31, | March 31, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net revenue |
$ | 26,103 | $ | 24,421 | $ | 72,479 | $ | 74,392 | |||||||||
Cost of revenue (1) |
15,385 | 14,197 | 41,745 | 44,180 | |||||||||||||
Gross margin |
10,718 | 10,224 | 30,734 | 30,212 | |||||||||||||
Operating expenses: |
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Research and development (1) |
4,942 | 4,072 | 15,077 | 11,880 | |||||||||||||
Selling, general, and administrative (1) |
2,715 | 2,351 | 7,957 | 7,451 | |||||||||||||
Amortization of other acquired
intangible assets |
— | 29 | 40 | 104 | |||||||||||||
Amortization of deferred stock
compensation |
137 | 121 | 363 | 363 | |||||||||||||
Total operating expenses |
7,794 | 6,573 | 23,437 | 19,798 | |||||||||||||
Operating income |
2,924 | 3,651 | 7,297 | 10,414 | |||||||||||||
Interest income |
259 | 151 | 815 | 232 | |||||||||||||
Interest expense |
(35 | ) | (43 | ) | (121 | ) | (156 | ) | |||||||||
Income before provision for income taxes |
3,148 | 3,759 | 7,991 | 10,490 | |||||||||||||
Provision for income taxes |
1,079 | 1,321 | 2,877 | 3,663 | |||||||||||||
Net income |
$ | 2,069 | $ | 2,438 | $ | 5,114 | $ | 6,827 | |||||||||
Net income per share: |
|||||||||||||||||
Basic |
$ | 0.09 | $ | 0.14 | $ | 0.22 | $ | 0.66 | |||||||||
Diluted |
$ | 0.08 | $ | 0.10 | $ | 0.21 | $ | 0.31 | |||||||||
Shares used in computing net income
per share: |
|||||||||||||||||
Basic |
23,537 | 17,653 | 23,407 | 10,329 | |||||||||||||
Diluted |
25,125 | 24,422 | 24,869 | 21,720 | |||||||||||||
| (1) | Cost of revenue excludes $7,000, $7,000, $21,000, and $21,000 of amortization of deferred stock compensation for the three months ended March 31, 2003 and 2002, and the nine months ended March 31, 2003 and 2002, respectively. Research and development expense excludes $38,000, $49,000, $115,000, and $147,000 of amortization of deferred stock compensation for the three months ended March 31, 2003 and 2002, and the nine months ended March 31, 2003 and 2002, respectively. Selling, general, and administrative expenses exclude $92,000, $65,000, $227,000, and $195,000 of amortization of deferred stock compensation for the three months ended March 31, 2003 and 2002, and the nine months ended March 31, 2003 and 2002, respectively. These amounts have been aggregated and reflected as “Amortization of deferred stock compensation.” |
See notes to condensed consolidated financial statements.
4
SYNAPTICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended | ||||||||||
| March 31, | ||||||||||
| 2003 | 2002 | |||||||||
Operating activities |
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Net income |
$ | 5,114 | $ | 6,827 | ||||||
Adjustments to reconcile net income to net cash provided by operating
activities: |
||||||||||
Depreciation and amortization of property and equipment |
1,071 | 883 | ||||||||
Amortization of other acquired intangible assets |
40 | 104 | ||||||||
Amortization of deferred stock compensation |
363 | 363 | ||||||||
Fair value of options issued to consultants for services rendered |
17 | — | ||||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
(910 | ) | (1,470 | ) | ||||||
Inventories |
85 | 632 | ||||||||
Prepaid expenses and other current assets |
(781 | ) | (783 | ) | ||||||
Other assets |
10 | 262 | ||||||||
Accounts payable |
939 | 541 | ||||||||
Accrued compensation and warranty |
222 | 711 | ||||||||
Other accrued liabilities and income taxes payable |
933 | 1,364 | ||||||||
Other liabilities |
57 | 67 | ||||||||
Net cash provided by operating activities |
7,160 | 9,501 | ||||||||
Investing activities |
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Purchases of short-term investments |
(18,144 | ) | (6,715 | ) | ||||||
Proceeds from sales and maturities of short-term investments |
3,569 | — | ||||||||
Purchase of property and equipment |
(898 | ) | (1,103 | ) | ||||||
Net cash used in investing activities |
(15,473 | ) | (7,818 | ) | ||||||
Financing activities |
||||||||||
Payments on capital leases and equipment financing obligations |
(363 | ) | (339 | ) | ||||||
Proceeds from equipment financing |
— | 308 | ||||||||
Proceeds from issuance of common stock upon initial public offering
net of issuance costs |
— | 49,290 | ||||||||
Proceeds from issuance of common stock under ESPP and stock option
plans |
1,648 | 788 | ||||||||
Repayment of notes receivable from stockholders |
121 | 30 | ||||||||
Net cash provided by financing activities |
1,406 | 50,077 | ||||||||
(Decrease) Increase in cash and cash equivalents |
(6,907 | ) | 51,760 | |||||||
Cash and cash equivalents at beginning of period |
45,491 | 3,766 | ||||||||
Cash and cash equivalents at end of period |
$ | 38,584 | $ | 55,526 | ||||||
Supplemental disclosures of cash flow information |
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Cash paid for interest |
22 | 73 | ||||||||
Cash paid for income taxes |
2,442 | 2,313 | ||||||||
Issuance of common stock from escrow related to the acquisition of
sales representative workforce |
— | 75 | ||||||||
Unrealized gain/(loss) on short term investments |
50 | (5 | ) | |||||||
See notes to condensed consolidated financial statements.
5
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 condensed 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 condensed consolidated financial statements have been shown as ending on June 30 and calendar quarter ends for all annual, interim, and quarterly financial statement captions.
We have elected to follow APB Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for stock options. Had compensation expense for stock options been determined based on the fair value of the option at date of grant consistent with the provisions of FAS No. 123, “Accounting for Stock-Based Compensation,” net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| March 31, | March 31, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Net income as reported |
$ | 2,069 | $ | 2,438 | $ | 5,114 | $ | 6,827 | ||||||||||
Stock-based compensation |
137 | 121 | 363 | 363 | ||||||||||||||
Total stock-based
compensation determined
under fair value based
method for all awards |
(778 | ) | (553 | ) | (2,018 | ) | (1,487 | ) | ||||||||||
Adjusted net income, fair
value method for all
stock-based awards |
$ | 1,428 | $ | 2,006 | $ | 3,459 | $ | 5,703 | ||||||||||
Net income per share — Basic: |
||||||||||||||||||
As reported |
$ | 0.09 | $ | 0.14 | $ | 0.22 | $ | 0.66 | ||||||||||
SFAS No. 123 adjusted |
$ | 0.06 | $ | 0.11 | $ | 0.15 | $ | 0.55 | ||||||||||
Net income per share — Diluted: |
||||||||||||||||||
As reported |
$ | 0.08 | $ | 0.10 | $ | 0.21 | $ | 0.31 | ||||||||||
SFAS No. 123 adjusted |
$ | 0.06 | $ | 0.08 | $ | 0.14 | $ | 0.26 | ||||||||||
The fair value of each award granted was estimated at the date of grant using a Black-Scholes option-pricing model, assuming no expected dividends and the following weighted average assumptions.
| Options | ESPP | |||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Expected annual volatility |
84.5 | % | 84.5 | % | 84.5 | % | 84.5 | % | ||||||||
Expected life of options in years |
5 | 5 | .4 | .4 | ||||||||||||
Risk-free interest rate |
2.8 | % | 4.8 | % | 1.1 | % | 2.0 | % | ||||||||
Expected dividend yield |
0 | 0 | 0 | 0 | ||||||||||||
6
| Options | ESPP | |||||||||||||||
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Expected annual volatility |
84.5% | % | 84.5 | % | 84.5 | % | 84.5 | % | ||||||||
Expected life of options in years |
5 | 5 | .4 | .4 | ||||||||||||
Risk-free interest rate |
2.8 | % | 4.8 | % | 1.1 | % | 2.0 | % | ||||||||
Expected dividend yield |
0 | 0 | 0 | 0 | ||||||||||||
2. Revenue Recognition
We recognize revenue from product sales when there is persuasive evidence that an arrangement exists, delivery has occurred and title has transferred, the price is fixed and determinable, and collectibility is reasonably assured. We accrue for estimated sales returns and other allowances at the time of recognition of revenue, which is typically upon shipment, based on historical experience. Contract revenue for research and development is recorded as earned based on the performance requirements of the contract. Non-refundable contract fees for which no further performance obligations exist, and for which there is no conti