SYNAPTICS INC - 10-Q Quarterly Report

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

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

SYNAPTICS INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2003


			Page

Part I.Financial Information
	Item 1.Financial Statements:
		Condensed Consolidated Balance Sheets- December 31, 2003 (Unaudited) and June 30, 2003		3
		Condensed Consolidated Statements of Operations- Three Months and Six Months Ended December 31, 2003 and 2002 (Unaudited)		4
		Condensed Consolidated Statements of Cash Flows- Six Months Ended December 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			17
	Item 4.Controls and Procedures			17
Part II.Other Information
	Item 4.Submission of Matters to a Vote of Security Holders			18
	Item 6.Exhibits and Reports on Form 8-K			18
Signatures				19

SYNAPTICS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)


					December 31,			June 30,
					2003			2003

					(Unaudited)
				ASSETS
Current Assets:
			Cash and cash equivalents		$	47,849		$	41,697
			Short-term investments			36,222			35,589
			Restricted cash			240			240
		Accounts receivable, net of allowances of $130 and $160, respectively				17,717			13,181
			Inventories			5,081			6,428
			Prepaid expenses and other current assets			2,197			2,637

				Total current assets		109,306			99,772
Property and equipment, net						1,755			1,934
Goodwill						1,891			1,968
Other assets						834			834

Total assets					$	113,786		$	104,508

				LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
		Accounts payable			$	5,855		$	6,893
		Accrued compensation				3,424			2,808
		Accrued warranty				937			1,002
		Income taxes payable				4,419			1,661
		Other accrued liabilities				2,922			3,362
		Capital leases and equipment financing obligations				94			231

				Total current liabilities		17,651			15,957
Capital leases and equipment financing obligations, net of current portion						—			28
Note payable to a related party						1,500			1,500
Other liabilities						829			759
Commitments and contingencies Stockholders’ equity:
	Preferred stock;
				$0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding		—			—
	Common stock;
				$0.001 par value; 60,000,000 shares authorized; 24,264,165 and 23,835,877 shares issued and outstanding, respectively		24			24
	Additional paid-in capital					80,293			78,761
	Deferred stock compensation					(901	)		(1,184	)
	Notes receivable from stockholders					—			(20	)
	Accumulated other comprehensive income					39			100
	Retained earnings					14,351			8,583

				Total stockholders’ equity		93,806			86,264

Total liabilities and stockholders’ equity					$	113,786		$	104,508

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


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

		2003			2002			2003			2002

Net revenue		$	34,274		$	24,199		$	63,845		$	46,376
Cost of revenue (1)			20,134			13,917			37,560			26,360

	Gross margin		14,140			10,282			26,285			20,016

Operating expenses:
	Research and development (1)		5,130			4,812			10,226			10,135
	Selling, general, and administrative (1)		3,293			2,638			6,367			5,242
	Amortization of other acquired intangible assets		—			10			—			40
	Amortization of deferred stock compensation		132			116			269			226
	Restructuring		—			—			432			—

	Total operating expenses		8,555			7,576			17,294			15,643

Income from operations			5,585			2,706			8,991			4,373
Interest and other income, net			229			279			455			556
Interest expense			(34	)		(47	)		(68	)		(86	)

Income before provision for income taxes			5,780			2,938			9,378			4,843
Provision for income taxes			2,279			1,093			3,610			1,798

	Net income	$	3,501		$	1,845		$	5,768		$	3,045

Net income per share:
	Basic	$	0.15		$	0.08		$	0.24		$	0.13

	Diluted	$	0.13		$	0.07		$	0.22		$	0.12

Shares used in computing net income per share:
	Basic		24,112,862			23,386,723			24,063,583			23,309,271

	Diluted		26,725,178			25,083,296			26,602,849			24,957,002

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


			Six Months Ended
			December 31,

			2003			2002

Cash flows from operating activities
Net income			$	5,768		$	3,045
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation of property and equipment			565			696
	Amortization of other acquired intangible assets			—			40
	Amortization of deferred stock compensation			283			226
	Fair value of options issued to consultants for services rendered			—			17
	Changes in operating assets and liabilities:
		Accounts receivable		(4,536	)		(210	)
		Inventories		1,347			(236	)
		Prepaid expenses and other current assets		440			(437	)
		Other assets		—			44
		Accounts payable		(1,038	)		656
		Accrued compensation		616			(222	)
		Accrued warranty		(65	)		—
		Income taxes payable		2,758			(184	)
		Other accrued liabilities		(363	)		630
		Other liabilities		70			38

Net cash provided by operating activities				5,845			4,103

Cash flows from investing activities
Purchases of short-term investments				(8,985	)		(13,200	)
Proceeds from sales and maturities of short-term investments				8,291			2,230
Purchase of property and equipment				(386	)		(435	)

Net cash used in investing activities				(1,080	)		(11,405	)

Cash flows from financing activities
Payments on capital leases and equipment financing obligations				(165	)		(276	)
Proceeds from issuance of common stock upon exercise of options and stock purchase plan				1,532			902
Repayment of notes receivable from stockholders				20			120

Net cash provided by financing activities				1,387			746

Increase (decrease) in cash and cash equivalents				6,152			(6,556	)
Cash and cash equivalents at beginning of period				41,697			45,491

Cash and cash equivalents at end of period			$	47,849		$	38,935

Supplemental disclosures of cash flow information
Cash paid for interest			$	4		$	16
Cash paid for taxes				850			1,972

SYNAPTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

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, 2003.

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

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.

Our fiscal year ends on the last Saturday in June. For ease of presentation, the accompanying 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 Statement of Financial Accounting Standard 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						Six Months Ended
			December 31,						December 31,

			2003			2002			2003			2002

Net income — as reported			$	3,501		$	1,845		$	5,768		$	3,045
	Add: Stock-based compensation included in reported net income, net of related tax			81			73			165			142
	Deduct: Total stock-based compensation determined under fair value based method for all awards, net of related tax			(901	)		(551	)		(1,852	)		(1,134	)

		Net income — pro forma	$	2,681		$	1,367		$	4,081		$	2,053

Net income per share — Basic:
		As reported	$	0.15		$	0.08		$	0.24		$	0.13
		Pro forma	$	0.11		$	0.06		$	0.17		$	0.09
Net income per share — Diluted:
		As reported	$	0.13		$	0.07		$	0.22		$	0.12
		Pro forma	$	0.10		$	0.05		$	0.15		$	0.08

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.


	Stock Options						Employee Stock Purchase Plan

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

	2003			2002			2003		2002

Expected annual volatility		61.2	%		86.1	%		—		—
Expected life in years		5			5			—		—
Risk-free interest rate		3.3	%		2.8	%		—		—
Expected dividend yield		—			—			—		—
Weighted average fair value	$	6.72		$	2.94			—		—


Delaware		77-0118518

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


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 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
Exhibit Index
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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