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 Quarterly Period Ended September 30, 2004
or
| ¨ | 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 0-23006
DSP GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 94-2683643 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification number) | |
| 3120 Scott Boulevard, Santa Clara, California | 95054 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (408) 986-4300
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 November 1, 2004, there were 28,006,106 shares of Common Stock ($.001 par value per share) outstanding.
DSP GROUP, INC.
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(US dollars in thousands)
| September 30, 2004 |
December 31, 2003 | |||||
| (Unaudited) | (Audited) | |||||
| ASSETS | ||||||
| CURRENT ASSETS: |
||||||
| Cash and cash equivalents |
$ | 91,272 | $ | 36,812 | ||
| Held-to-maturity marketable securities and bank deposits |
52,252 | 42,490 | ||||
| Trade receivables, less allowance for returns of $123 in September 30, 2004 and December 31, 2003 and for doubtful accounts of $803 in September 30, 2004 and $708 in December 31, 2003 |
16,151 | 15,844 | ||||
| Deferred income taxes |
1,326 | 1,326 | ||||
| Other accounts receivable and prepaid expenses |
1,440 | 1,462 | ||||
| Inventories |
8,549 | 8,466 | ||||
| TOTAL CURRENT ASSETS |
170,990 | 106,400 | ||||
| LONG-TERM ASSETS: |
||||||
| Held-to-maturity marketable securities |
193,540 | 197,071 | ||||
| Investments in equity securities of traded companies |
— | 47,138 | ||||
| Long-term prepaid expenses and lease deposits |
583 | 513 | ||||
| Severance pay fund |
3,019 | 2,360 | ||||
| Deferred income taxes |
641 | — | ||||
| TOTAL LONG-TERM ASSETS |
197,793 | 247,082 | ||||
| PROPERTY AND EQUIPMENT, NET |
6,556 | 7,108 | ||||
| OTHER ASSETS |
||||||
| Intangible assets, net |
1,616 | 2,076 | ||||
| Goodwill |
1,500 | 5,804 | ||||
| TOTAL OTHER ASSETS |
3,116 | 7,880 | ||||
| TOTAL ASSETS |
$ | 378,445 | $ | 368,470 | ||
Note: The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
3
DSP GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US dollars in thousands)
| September 30, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | (Audited) | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Trade payables |
$ | 13,937 | $ | 11,221 | ||||
| Accrued compensation and benefits |
8,237 | 9,000 | ||||||
| Income taxes payables |
24,177 | 11,107 | ||||||
| Accrued expenses and other accounts payable |
14,087 | 14,185 | ||||||
| TOTAL CURRENT LIABILITIES |
60,438 | 45,513 | ||||||
| LONG-TERM LIABILITIES: |
||||||||
| Accrued severance pay |
3,353 | 2,555 | ||||||
| Deferred income taxes |
— | 14,592 | ||||||
| Other long-term liabilities |
— | 1,429 | ||||||
| TOTAL LONG-TERM LIABILITIES |
3,353 | 18,576 | ||||||
| STOCKHOLDERS’ EQUITY: |
||||||||
| Preferred stock, $0.001 par value - Authorized shares - 5,000,000 at September 30, 2004 and December 31, 2003; issued and outstanding shares - none at September 30, 2004 and December 31, 2003 |
— | — | ||||||
| Common stock, $0.001 par value - Authorized shares: 50,000,000 at September 30, 2004 and December 31, 2003; issued and outstanding shares: 27,976,973 at September 30, 2004 and 28,615,884 at December 31, 2003 |
28 | 29 | ||||||
| Additional paid-in capital |
186,906 | 174,700 | ||||||
| Treasury stock |
(29,318 | ) | (1,192 | ) | ||||
| Accumulated other comprehensive income |
70 | 23,045 | ||||||
| Retained earnings |
156,968 | 107,799 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY |
314,654 | 304,381 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 378,445 | $ | 368,470 | ||||
Note: The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(US dollars in thousands, except per share amounts)
| Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| Product revenues and other |
$ | 46,232 | $ | 47,178 | $ | 128,956 | $ | 114,739 | ||||
| Cost of product revenues and other |
23,401 | 25,643 | 66,177 | 63,626 | ||||||||
| Gross profit |
22,831 | 21,535 | 62,779 | 51,113 | ||||||||
| Operating expenses: |
||||||||||||
| Research and development |
8,463 | 6,704 | 23,327 | 17,402 | ||||||||
| Sales and marketing |
2,929 | 3,429 | 9,014 | 8,616 | ||||||||
| General and administrative |
1,718 | 1,899 | 5,258 | 5,006 | ||||||||
| Impairment of goodwill |
— | — | 4,304 | — | ||||||||
| In-process research and development write-off |
— | — | — | 2,727 | ||||||||
| Total operating expenses |
13,110 | 12,032 | 41,903 | 33,751 | ||||||||
| Operating income |
9,721 | 9,503 | 20,876 | 17,362 | ||||||||
| Other income: |
||||||||||||
| Interest and other income, net |
2,069 | 2,112 | 6,353 | 5,945 | ||||||||
| Capital gains |
15,460 | — | 44,448 | 241 | ||||||||
| Income before provision for income tax |
27,250 | 11,615 | 71,677 | 23,548 | ||||||||
| Provision for income taxes |
6,870 | 1,975 | 21,812 | 4,154 | ||||||||
| Net income |
$ | 20,380 | $ | 9,640 | $ | 49,865 | $ | 19,394 | ||||
| Net earnings per share: |
||||||||||||
| Basic |
$ | 0.72 | $ | 0.34 | $ | 1.73 | $ | 0.70 | ||||
| Diluted |
$ | 0.69 | $ | 0.32 | $ | 1.64 | $ | 0.66 | ||||
| Weighted average number of shares used in per share computations of: |
||||||||||||
| Basic |
28,411 | 28,168 | 28,779 | 27,677 | ||||||||
| Diluted |
29,358 | 30,142 | 30,337 | 29,343 | ||||||||
See notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(US dollars in thousands)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Net cash provided by operating activities |
$ | 26,078 | $ | 23,753 | ||||
| Investing activities: |
||||||||
| Purchase of held-to-maturity marketable securities and bank deposits |
(102,183 | ) | (152,296 | ) | ||||
| Proceeds from sales and maturity of held-to-maturity marketable securities and bank deposits |
94,444 | 114,525 | ||||||
| Purchases of property and equipment |
(1,269 | ) | (1,818 | ) | ||||
| Proceeds from sale of available-for-sale marketable securities |
55,457 | 508 | ||||||
| Cash received from discontinued operation |
— | 4,058 | ||||||
| Payment for investment in Teleman Multimedia Inc. assets |
(1,450 | ) | (2,100 | ) | ||||
| Net cash provided by (used in) investing activities |
44,999 | (37,123 | ) | |||||
| Financial activities: |
||||||||
| Issuance of Common Stock and Treasury Stock for cash upon exercise of options and upon purchase of Common Stock under employee stock purchase plan |
13,252 | 22,614 | ||||||
| Purchase of Treasury Stock |
(29,869 | ) | (13,847 | ) | ||||
| Net cash provided by (used in) financing activities |
(16,617 | ) | 8,767 | |||||
| Increase (decrease) in cash and cash equivalents |
$ | 54,460 | $ | (4,603 | ) | |||
| Cash and cash equivalents at beginning of period |
$ | 36,812 | $ | 39,919 | ||||
| Cash and cash equivalents at end of period |
$ | 91,272 | $ | 35,316 | ||||
See notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(US dollars in thousands)
| Three Months Ended September 30, 2004 |
Number Common Stock |
Common Stock |
Additional Paid-In Capital |
Treasury Stock |
Retained Earnings |
Other Comprehensive Income (Loss) |
Total Comprehensive Income |
Total Stockholders’ Equity |
||||||||||||||||||||||
| Balance at June 30, 2004 |
29,399 | $ | 29 | $ | 186,359 | $ | — | $ | 136,716 | $ | 9,981 | $ | 333,085 | |||||||||||||||||
| Net income |
— | — | — | — | 20,380 | — | $ | 20,380 | 20,380 | |||||||||||||||||||||
| Realized gain on available-for-sale marketable securities, net |
— | — | — | — | — | (9,915 | ) | (9,915 | ) | (9,915 | ) | |||||||||||||||||||
| Realized gain from hedging activities, net |
— | — | — | — | — | 4 | 4 | 4 | ||||||||||||||||||||||
| Total comprehensive income |
$ | 10,469 | ||||||||||||||||||||||||||||
| Issuance of common Stock upon purchase of ESPP shares |
38 | ( | * | 547 | — | — | — | 547 | ||||||||||||||||||||||
| Purchase of Treasury Stock |
(1,487 | ) | (1 | ) | &nb | |||||||||||||||||||||||||