UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter ended March 27, 2004
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 0-19299
Integrated Circuit Systems, Inc.
(Exact name of registrant as specified in its charter)
| Pennsylvania | 23-2000174 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
2435 Boulevard of the Generals
Norristown, Pennsylvania 19403
(Address of principal executive offices)
(610) 630-5300
(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 x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No ¨
As of May 5, 2004, there were 72,581,743 shares of Common Stock; $0.01 par value, outstanding.
INTEGRATED CIRCUIT SYSTEMS, INC.
| Page Number | ||||
| PART I. |
FINANCIAL INFORMATION |
|||
| Item 1. |
Consolidated Financial Statements: | |||
| Consolidated Balance Sheets (Unaudited): March 27, 2004 and June 28, 2003 | 3 | |||
| Consolidated Statements of Operations (Unaudited): Three Months and Nine Months Ended March 27, 2004 and March 29, 2003 | 4 | |||
| Consolidated Statements of Cash Flows (Unaudited): Nine Months Ended March 27, 2004 and March 29, 2003 | 5 | |||
| Notes to Consolidated Financial Statements | 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 2. |
Issuer Purchases of Equity Securities | 18 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 19 | ||
2
PART I. FINANCIAL INFORMATION
| Item 1. | Consolidated Financial Statements |
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
| March 27, 2004 |
June 28, 2003 |
|||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 77,482 | $ | 118,038 | ||||
| Marketable securities |
105,811 | 5,000 | ||||||
| Accounts receivable, net |
44,792 | 31,501 | ||||||
| Inventory, net |
16,888 | 15,822 | ||||||
| Deferred income taxes |
4,683 | 6,713 | ||||||
| Prepaid and refundable income taxes |
14,651 | 12,212 | ||||||
| Prepaid assets |
4,493 | 4,842 | ||||||
| Other current assets |
1,522 | 6,309 | ||||||
| Total current assets |
270,322 | 200,437 | ||||||
| Property and equipment, net |
17,084 | 15,749 | ||||||
| Long term investments |
1,000 | 32,000 | ||||||
| Intangibles |
28,428 | 30,245 | ||||||
| Goodwill |
36,573 | 36,573 | ||||||
| Other assets |
67 | 144 | ||||||
| Total assets |
$ | 353,474 | $ | 315,148 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current Liabilities: |
||||||||
| Current portion of long-term obligation |
$ | 136 | $ | 10,059 | ||||
| Accounts payable |
18,971 | 10,836 | ||||||
| Accrued salaries and bonus |
1,521 | 2,302 | ||||||
| Accrued expenses and other current liabilities |
5,650 | 8,553 | ||||||
| Total current liabilities |
26,278 | 31,750 | ||||||
| Deferred tax and other liabilities |
11,957 | 12,575 | ||||||
| Total liabilities |
38,235 | 44,325 | ||||||
| Commitments and contingencies Shareholders’ equity: |
||||||||
| Preferred Stock, authorized 5,000; none issued |
— | — | ||||||
| Common stock, $0.01 par, authorized 300,000; Issued 72,453 and 71,284 shares, as of March 27, 2004 and June 28, 2003, respectively |
725 | 713 | ||||||
| Additional paid in capital |
276,890 | 258,422 | ||||||
| Retained earnings |
83,104 | 28,625 | ||||||
| Deferred compensation |
— | (731 | ) | |||||
| Other comprehensive income |
12 | 6 | ||||||
| Treasury stock, at cost, 2,115 and 1,120 shares, as of March 27, 2004 and June 28,2003, respectively |
(45,492 | ) | (16,212 | ) | ||||
| Total shareholders’ equity |
315,239 | 270,823 | ||||||
| Total liabilities and shareholders’ equity |
$ | 353,474 | $ | 315,148 | ||||
See accompanying notes to consolidated financial statements.
3
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| Mar. 27, 2004 |
Mar. 29, 2003 |
Mar. 27, 2004 |
Mar. 29, 2003 |
|||||||||||||
| Revenue: |
$ | 67,794 | $ | 60,853 | $ | 202,644 | $ | 180,668 | ||||||||
| Cost and expenses: |
||||||||||||||||
| Cost of sales |
26,745 | 24,709 | 81,288 | 73,731 | ||||||||||||
| Research and development |
10,426 | 8,772 | 29,748 | 25,793 | ||||||||||||
| Selling, general and administrative |
9,108 | 9,497 | 28,536 | 29,039 | ||||||||||||
| Operating income |
21,515 | 17,875 | 63,072 | 52,105 | ||||||||||||
| Interest and other income |
544 | 405 | 1,885 | 1,993 | ||||||||||||
| Interest expense |
(33 | ) | (377 | ) | (251 | ) | (1,294 | ) | ||||||||
| Income before income taxes |
22,026 | 17,903 | 64,706 | 52,804 | ||||||||||||
| Income taxes |
3,480 | 2,626 | 10,228 | 7,889 | ||||||||||||
| Net income |
$ | 18,546 | $ | 15,277 | $ | 54,478 | $ | 44,915 | ||||||||
| Basic income per share: |
||||||||||||||||
| Net income |
$ | 0.26 | $ | 0.22 | $ | 0.77 | $ | 0.66 | ||||||||
| Diluted income per share: |
||||||||||||||||
| Net income |
$ | 0.26 | $ | 0.22 | $ | 0.75 | $ | 0.64 | ||||||||
| Weighted average shares outstanding – basic |
70,320 | 68,155 | 70,398 | 67,733 | ||||||||||||
| Weighted average shares outstanding – diluted |
72,215 | 70,879 | 72,817 | 70,401 | ||||||||||||
See accompanying notes to consolidated financial statements.
4
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended |
||||||||
| Mar. 27, 2004 |
Mar. 29, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 54,478 | $ | 44,915 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
6,855 | 6,892 | ||||||
| Gain on sale of assets |
(659 | ) | (503 | ) | ||||
| Tax benefit of stock options |
9,905 | 9,970 | ||||||
| Deferred income taxes |
1,491 | (2,976 | ) | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(13,291 | ) | (5,740 | ) | ||||
| Inventory |
(1,065 | ) | 1,908 | |||||
| Other assets, net |
1,424 | 230 | ||||||
| Accounts payable, accrued expenses and other current liabilities |
6,233 | (1,077 | ) | |||||
| Restructuring costs |
(753 | ) | (1,450 | ) | ||||
| Accrued interest expense |
(57 | ) | 154 | |||||
| Income taxes |
(2,439 | ) | 30 | |||||
| Net cash provided by operating activities |
62,122 | 52,353 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of marketable securities |
(161,893 | ) | (35,178 | ) | ||||
| Sales/Maturities of marketable securities |
92,880 | 32,860 | ||||||
| Capital expenditures |
(5,829 | ) | (2,704 | ) | ||||
| Other |
47 | 2,373 | ||||||
| Net cash used in investing activities |
(74,795 | ) | (2,649 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Exercise of stock options |
11,636 | 3,480 | ||||||
| Shares purchased through stock purchase plan |
655 | 585 | ||||||
| Purchase of treasury stock |
(30,251 | ) | (5,396 | ) | ||||
| Repayments of long-term debt |
(9,923 | ) | (22,247 | ) | ||||
| Net cash used in financing activities |
(27,883 | ) | (23,578 | ) | ||||
| Net (decrease) increase in cash and cash equivalents |
(40,556 | ) | 26,126 | |||||
| Cash and cash equivalents: |
||||||||
| Beginning of period |
$ | 118,038 | $ | 74,255 | ||||
| End of period |
$ | 77,482 | $ | 100,381 | ||||
See accompanying notes to consolidated financial statements.
5
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) INTERIM ACCOUNTING POLICY
The accompanying financial statements have not been audited. In the opinion of our management, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly our financial position at March 27, 2004 and results of operations and cash flows for the interim periods presented.
Certain footnote information has been condensed or omitted from these financial statements. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended June 28, 2003. Results of operations for the nine months ended March 27, 2004 are not necessarily indicative of results to be expected for the full year.
Per SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” we have determined the critical principles by considering accounting policies that involve the most complex or subjective decisions or assessments. We state these accounting policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the consolidated financial statements contained in our Annual Report on Form 10-K for our fiscal year ended June 28, 2003. There were no significant changes to our critical accounting polices during the nine months ended March 27, 2004.
Stock Options
We apply the intrinsic-value-based method prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees,” in accounting for employee stock options. Our policy is to grant stock options at the fair market value of the underlying stock at the date of grant. Accordingly, compensation expense is generally recognized only when options are granted with a discounted exercise price. Any resulting compensation expense is recognized ratably over the associated service period, which is generally the option vesting term.
6
We have determined pro forma net earnings and earnings per share information as if the fair value method described in SFAS No. 123, “Accounting for Stock Based Compensation,” had been applied to employee stock-based compensation. The pro forma effect on net earnings and net earnings per share is as follows for the three-month and nine-month periods ending March 27, 2004 and March 29, 2003 (in thousands, except net income per share):
| Three Months Ended |
Nine-Months Ended | |||||||||||
| Mar. 27, 2004 |
Mar. 29, 2003 |
Mar 27, 2004 |
Mar 29, 2003 | |||||||||
| Net income, as reported |
$ | 18,546 | $ | 15,277 | $ | 54,478 | $ | 44,915 | ||||
| Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects |
244 | 244 | 731 | 1,538 | ||||||||
| Less: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects |
3,886 | 3,284 | 11,657 | 9,852 | ||||||||