DELAWARE
|
77-0584301
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
2150
GOLD STREET
P.O.
BOX 2150
ALVISO,
CALIFORNIA
|
95002
|
(Address
of principal
executive
offices)
|
(Zip
Code)
|
Page
|
|||
Item Number
|
|||
Part
I: Financial Information
|
|||
Item 1.
|
Financial
Statements
|
|
|
|
Condensed
Consolidated Balance Sheets at December 31, 2006 and March 31,
2006
|
3
|
|
|
Condensed
Consolidated Statements of Operations for the three and nine months
ended
December 31, 2006 and December 31, 2005
|
4
|
|
|
Condensed
Consolidated Statements of Cash Flows for the nine months ended December
31, 2006 and December 31, 2005
|
5
|
|
|
Notes
To Condensed Consolidated Financial Statements
|
6
|
|
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
18
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
30
|
|
Item 4.
|
Controls
and Procedures
|
30
|
|
Part
II: Other Information
|
|
||
Item 1.
|
Legal
Proceedings
|
30
|
|
Item
1a.
|
Risk
Factors
|
33
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
*
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
*
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
*
|
|
Item 5.
|
Other
Information
|
*
|
|
Item 6.
|
Exhibits
|
40
|
|
Signatures
|
|
44
|
|
December
31,
2006
(unaudited)
|
March 31,
2006
|
|||||
|
|||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
139,798
|
$
|
154,630
|
|||
Short-term
investments
|
53,879
|
30,749
|
|||||
Accounts
receivable trade, net of allowance for doubtful accounts of $17 at
December 31 and $401 at March 31
|
28,549
|
36,184
|
|||||
Inventories
|
17,968
|
17,175
|
|||||
Prepaids
and other
|
6,957
|
6,034
|
|||||
Total
current assets
|
247,151
|
244,772
|
|||||
Property
and equipment, net
|
15,305
|
16,459
|
|||||
Intangible
assets, net
|
4,654
|
9,055
|
|||||
Goodwill
|
84,405
|
181,981
|
|||||
Deferred
income taxes
|
—
|
11,151
|
|||||
Other
long-term assets
|
15,853
|
16,259
|
|||||
Total
assets
|
$
|
367,368
|
$
|
479,677
|
|||
|
|||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
7,260
|
$
|
14,911
|
|||
Accrued
liabilities
|
22,690
|
21,778
|
|||||
Income
taxes payable
|
6,357
|
3,565
|
|||||
Total
current liabilities
|
36,307
|
40,254
|
|||||
Stockholders’
equity:
|
|||||||
Capital
stock:
|
|||||||
Preferred
stock:
|
|||||||
Authorized
–
5,000
preferred shares, $0.001 par value
|
|||||||
Issued
and outstanding – none at December 31 and at March 31
|
|||||||
Common
stock:
|
|||||||
Authorized
– 100,000 shares of common stock, $0.001 par value
|
|||||||
Issued
and outstanding – 36,684 shares at December 31 and 35,899 shares at
March 31
|
37
|
36
|
|||||
Additional
paid-in capital
|
457,984
|
441,197
|
|||||
Treasury
shares
|
(833
|
)
|
—
|
||||
Cumulative
other comprehensive loss
|
(94
|
)
|
(94
|
)
|
|||
Deferred
stock-based compensation
|
—
|
(4,572
|
)
|
||||
Retained
earnings (deficit)
|
(126,033
|
)
|
2,856
|
||||
Total
stockholders’ equity
|
331,061
|
439,423
|
|||||
|
|||||||
Total
liabilities and stockholders’ equity
|
$
|
367,368
|
$
|
479,677
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
December
31
|
December
31
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Revenues
|
$
|
51,117
|
$
|
73,965
|
$
|
176,025
|
$
|
208,644
|
|||||
Cost
of revenues (1)(2)
|
30,261
|
39,762
|
101,726
|
117,355
|
|||||||||
Gross
profit
|
20,856
|
34,203
|
74,299
|
91,289
|
|||||||||
Operating
expenses:
|
|||||||||||||
Research
and development (3)(5)
|
15,621
|
12,541
|
47,939
|
35,045
|
|||||||||
Selling,
general and administrative (4)
|
19,786
|
12,195
|
49,922
|
35,040
|
|||||||||
Impairment
of goodwill and intangibles
|
101,001
|
-
|
101,001
|
-
|
|||||||||
Total
operating expenses
|
136,408
|
24,736
|
198,862
|
70,085
|
|||||||||
Income
(loss) from operations
|
(115,552
|
)
|
9,467
|
(124,563
|
)
|
21,204
|
|||||||
Interest
and other income
|
|||||||||||||
Interest
income
|
2,324
|
1,519
|
6,700
|
3,496
|
|||||||||
Other
income (6)
|
-
|
-
|
3,217
|
-
|
|||||||||
Interest
and other income
|
2,324
|
1,519
|
9,917
|
3,496
|
|||||||||
Income
(loss) before income taxes
|
(113,228
|
)
|
10,986
|
(114,646
|
)
|
24,700
|
|||||||
Provision
for income taxes (7)
|
17,209
|
3,621
|
14,243
|
5,993
|
|||||||||
Net
income (loss)
|
$
|
(130,437
|
)
|
$
|
7,365
|
$
|
(128,889
|
)
|
$
|
18,707
|
|||
Earnings
(loss) per share:
|
|||||||||||||
Basic
|
$
|
(3.57
|
)
|
$
|
0.21
|
$
|
(3.55
|
)
|
$
|
0.54
|
|||
Diluted
|
$
|
(3.57
|
)
|
$
|
0.20
|
$
|
(3.55
|
)
|
$
|
0.51
|
|||
Weighted
average number of shares of common stock outstanding:
|
|||||||||||||
Basic
|
36,585
|
35,413
|
36,342
|
34,632
|
|||||||||
Diluted
|
36,585
|
37,295
|
36,342
|
36,718
|
|||||||||
(1)
Amount includes amortization of acquired developed product
technology
|
$
|
-
|
$
|
1,925
|
$
|
-
|
$
|
5,775
|
|||||
(2)
Amount includes stock-based compensation
|
$
|
289
|
$
|
27
|
$
|
1,088
|
$
|
27
|
|||||
(3)
Amount includes stock-based compensation
|
$
|
1,952
|
$
|
74
|
$
|
6,310
|
$
|
253
|
|||||
(4)
Amount includes stock-based compensation
|
$
|
2,267
|
$
|
260
|
$
|
7,569
|
$
|
372
|
|||||
(5)
Amount includes amortization of intangibles related to
acquisitions
|
$
|
428
|
$
|
729
|
$
|
1,417
|
$
|
2,187
|
|||||
(6)
Gain on sale of investment
|
$
|
-
|
$
|
-
|
$
|
3,217
|
$
|
-
|
|||||
(7)
Amount includes deferred income tax asset valuation allowance in
a certain
jurisdiction
|
$
|
16,778
|
$
|
-
|
$
|
16,778
|
$
|
-
|
Nine
Months Ended
December
31
|
|||||||
2006
|
2005
|
||||||
Cash
flows from (used in) operating activities:
|
|||||||
Net
income (loss)
|
$
|
(128,889
|
)
|
$
|
18,707
|
||
Adjustments
to reconcile net income (loss) to net cash from operating
activities:
|
|||||||
Depreciation
and amortization
|
7,776
|
5,559
|
|||||
Amortization
of acquired technology
|
1,988
|
7,962
|
|||||
Impairment
of intangible assets
|
3,425
|
-
|
|||||
Goodwill
impairment
|
97,576
|
-
|
|||||
Stock-based
compensation
|
14,967
|
652
|
|||||
Deferred
income taxes
|
11,151
|
3,818
|
|||||
Gain
on sale of investment
|
(3,217
|
)
|
-
|
||||
Other
|
250
|
453
|
|||||
Change
in operating assets and liabilities, net of amounts
acquired:
|
|||||||
Accounts
receivable trade
|
7,635
|
(6,935
|
)
|
||||
Inventories
|
(793
|
)
|
(5,630
|
)
|
|||
Prepaids
and other
|
(923
|
)
|
(1,535
|
)
|
|||
Accounts
payable
|
(7,651
|
)
|
(1,780
|
)
|
|||
Accrued
liabilities
|
912
|
8,798
|
|||||
Income
taxes payable
|
2,792
|
(560
|
)
|
||||
Net
cash provided by operating activities
|
6,999
|
29,509
|
|||||
Cash
flows from (used in) investing activities:
|
|||||||
Purchase
of short-term investments
|
(72,536
|
)
|
(71,733
|
)
|
|||
Proceeds
on maturity of short-term investments
|
49,406
|
10,002
|
|||||
Additions
to property and equipment
|
(4,487
|
)
|
(6,705
|
)
|
|||
Proceeds
on sale of investment
|
3,919
|
-
|
|||||
Additions
to mask sets
|
(2,413
|
)
|
(2,598
|
)
|
|||
Additions
to intangible assets
|
(1,280
|
)
|
(565
|
)
|
|||
Other
|
-
|
287
|
|||||
Net
cash used in investing activities
|
(27,391
|
)
|
(71,312
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from issue of common stock
|
5,560
|
25,261
|
|||||
Net
cash provided by financing activities
|
5,560
|
25,261
|
|||||
Decrease
in cash and cash equivalents
|
(14,832
|
)
|
(16,542
|
)
|
|||
Cash
and cash equivalents, beginning of period
|
154,630
|
129,757
|
|||||
Cash
and cash equivalents, end of period
|
$
|
139,798
|
$
|
113,215
|
Three
Months Ended December 31
|
Nine
Months Ended December 31
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Stock
Option Plans:
|
|||||||||||||
Risk-free
interest rates
|
4.7
|
%
|
4.3
|
%
|
4.9
|
%
|
4.3
|
%
|
|||||
Volatility
|
63
|
%
|
80
|
%
|
67
|
%
|
80
|
%
|
|||||
Expected
life in years
|
4.25
|
4.25
|
4.25
|
4.25
|
|||||||||
Employee
Stock Purchase Plans:
|
|||||||||||||
Risk-free
interest rates
|
5.1
|
%
|
4.4
|
%
|
5.1
|
%
|
4.4
|
%
|
|||||
Volatility
|
47
|
%
|
80
|
%
|
47
|
%
|
80
|
%
|
|||||
Expected
life in years
|
0.75
|
1.25
|
0.75
|
1.25
|
|
Three Months Ended
December
31, 2005
|
Nine
Months Ended
December
31, 2005
|
|||||
Net
income attributable to common stockholders:
|
|||||||
As
reported
|
$
|
7,365
|
$
|
18,707
|
|||
Stock
compensation, as reported
|
361
|
652
|
|||||
Stock
compensation, under SFAS 123
|
(5,841
|
)
|
(17,110
|
)
|
|||
Pro
forma net income
|
$
|
1,885
|
|
$
|
2,249
|
||
|
|||||||
Basic
earnings per share:
|
|||||||
As
reported
|
$
|
0.21
|
$
|
0.54
|
|||
Pro
forma
|
$
|
0.05
|
|
$
|
0.06
|
||
Diluted
earnings per share:
|
|||||||
As
reported
|
$
|
0.20
|
$
|
0.51
|
|||
Pro
forma
|
$
|
0.05
|
|
$
|
0.06
|
|
Number
of
Options
(in
thousands)
|
Weighted
Average
Exercise
Price
Per Share
|
Weighted
Average
Remaining
Life
(Years)
|
|||||||
|
||||||||||
Outstanding,
March 31, 2006
|
7,127
|
$
|
16.43
|
6.74
|
||||||
Granted
|
598
|
12.21
|
||||||||
Exercised
|
(186
|
)
|
9.19
|
|||||||
Forfeited
|
(71
|
)
|
16.56
|
|||||||
Expired
|
(190
|
)
|
24.39
|
|||||||
|
||||||||||
Outstanding,
June 30, 2006
|
7,278
|
$
|
16.06
|
6.62
|
||||||
Granted
|
26
|
12.23
|
||||||||
Exercised
|
(124
|
)
|
8.40
|
|||||||
Forfeited
|
(276
|
)
|
15.79
|
|||||||
Expired
|
(173
|
)
|
19.71
|
|||||||
|
||||||||||
Outstanding,
September 30, 2006
|
6,731
|
$
|
16.10
|
6.38
|
||||||
Granted
|
543
|
10.41
|
||||||||
Exercised
|
(141
|
)
|
7.45
|
|||||||
Forfeited
|
(166
|
)
|
15.31
|
|||||||
Expired
|
(140
|
)
|
19.17
|
|||||||
|
||||||||||
Outstanding,
December 31, 2006
|
6,827
|
$
|
15.78
|
6.12
|
||||||
Exercisable,
December 31, 2006
|
4,459
|
$
|
16.64
|
5.88
|
||||||
|
Number of Units
(in
thousands)
|
Weighted
Average
Grant-Date
Fair
Value
|
|||||
|
|||||||
Nonvested
at March 31, 2006
|
266
|
$
|
19.93
|
||||
Granted
|
203
|
12.89
|
|||||
Vested
|
(37
|
)
|
13.11
|
||||
Forfeited
|
(9
|
)
|
18.98
|
||||
Nonvested
at June 30, 2006
|
423
|
$
|
16.62
|
||||
Granted
|
129
|
12.37
|
|||||
Vested
|
(12
|
)
|
13.53
|
||||
Forfeited
|
(20
|
)
|
15.21
|
||||
Nonvested
at September 30, 2006
|
520
|
$
|
15.53
|
||||
Granted
|
233
|
10.27
|
|||||
Vested
|
(21
|
)
|
10.16
|
||||
Forfeited
|
(17
|
)
|
14.64
|
||||
Nonvested
at December 31, 2006
|
715
|
$
|
13.71
|
Three
Months Ended
December
31
|
Nine
Months Ended
December
31
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Numerator
for basic and diluted earnings (loss) per share:
|
|||||||||||||
Net
income (loss)
|
$
|
(130,437
|
)
|
$
|
7,365
|
$
|
(128,889
|
)
|
$
|
18,707
|
|||
Denominator
for basic earnings (loss) per share:
|
|||||||||||||
Weighted
average shares of common stock
|
36,585
|
35,413
|
36,342
|
34,632
|
|||||||||
Basic
earnings (loss) per share:
|
$
|
(3.57
|
)
|
$
|
0.21
|
$
|
(3.55
|
)
|
$
|
0.54
|
|||
Denominator
for diluted earnings (loss) per share:
|
|||||||||||||
Weighted
average shares of common stock
|
36,585
|
35,413
|
36,342
|
34,632
|
|||||||||
Stock
options (1)
|
-
|
1,882
|
-
|
2,086
|
|||||||||
Shares
used in computing diluted earnings (loss) per share
|
36,585
|
37,295
|
36,342
|
36,718
|
|||||||||
Diluted
earnings (loss) per share:
|
$
|
(3.57
|
)
|
$
|
0.20
|
$
|
(3.55
|
)
|
$
|
0.51
|
|||
Anti-dilutive
potential shares of common stock excluded from above
calculation
|
6,687
|
5,528
|
6,962
|
5,851
|
Three
Months Ended
December
31
|
Nine
Months Ended
December
31
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
United
States
|
$
|
124
|
$
|
393
|
$
|
965
|
$
|
3,103
|
|||||
China
|
20,126
|
31,964
|
71,908
|
91,183
|
|||||||||
Europe
|
6,210
|
10,104
|
21,001
|
23,232
|
|||||||||
Japan
|
6,591
|
7,537
|
18,423
|
22,016
|
|||||||||
South
Korea
|
8,509
|
13,722
|
40,069
|
39,273
|
|||||||||
Taiwan
|
5,904
|
8,059
|
17,747
|
21,159
|
|||||||||
Rest
of world
|
3,653
|
2,186
|
5,912
|
8,678
|
|||||||||
Total
Revenue
|
$
|
51,117
|
$
|
73,965
|
$
|
176,025
|
$
|
208,644
|
|
December
31,
2006
|
March 31,
2006
|
|||||
United
States, including goodwill
|
$
|
93,139
|
$
|
197,561
|
|||
Rest
of world
|
11,225
|
9,934
|
|||||
|
$
|
104,364
|
$
|
207,495
|
Three
Months Ended
December 31 |
Nine
Months Ended
December 31 |
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Customer
A
|
-
|
15%
|
|
15%
|
|
15%
|
|
||||||
Customer
B
|
10%
|
|
10%
|
|
10%
|
|
10%
|
|
|||||
Customer
C
|
-
|
-
|
11%
|
|
10%
|
|
|
December
31,
2006
|
March 31,
2006
|
|||||
Customer
1
|
24
|
%
|
22
|
%
|
|||
Customer
2
|
11
|
%
|
12
|
%
|
|||
Customer
3
|
-
|
12
|
%
|
||||
Customer
4
|
-
|
11
|
%
|
|
December
31,
2006
|
March 31,
2006
|
|||||
Finished
goods
|
$
|
12,695
|
$
|
10,717
|
|||
Work-in-process
|
9,423
|
10,123
|
|||||
|
22,118
|
20,840
|
|||||
Less:
Inventory reserve
|
(4,150
|
)
|
(3,665
|
)
|
|||
|
$
|
17,968
|
$
|
17,175
|
Three
Months Ended
December 31 |
Nine
Months Ended
December
31
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Balance
at beginning of period
|
$
|
3,126
|
$
|
2,331
|
$
|
3,665
|
$
|
2,954
|
|||||
Increase
to provision
|
1,333
|
653
|
2,074
|
316
|
|||||||||
Write
offs
|
(309
|
)
|
-
|
(1,589
|
)
|
(286
|
)
|
||||||
Balance
at end of period
|
$
|
4,150
|
2,984
|
$
|
4,150
|
$
|
2,984
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
December
31
|
December
31
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Balance
at beginning of period
|
$
|
115
|
$
|
173
|
$
|
164
|
$
|
230
|
|||||
Increase
to provision
|
10
|
2
|
270
|
5
|
|||||||||
Write
offs
|
(6
|
)
|
(2
|
)
|
(315
|
)
|
(62
|
)
|
|||||
Balance
at end of period
|
$
|
119
|
$
|
173
|
$
|
119
|
$
|
173
|
|
December
31, 2006
|
||||||||||||
|
Cost
|
Accumulated
Amortization
|
Impairment
|
Net
|
|||||||||
Acquired
technology
|
$
|
48,475
|
$
|
44,017
|
$
|
3,425
|
$
|
1,033
|
|||||
Patents
|
4,876
|
1,255
|
—
|
3,621
|
|||||||||
Other
|
500
|
500
|
—
|
—
|
|||||||||
Total
|
$
|
53,851
|
$
|
45,772
|
$
|
3,425
|
$
|
4,654
|
|
March
31, 2006
|
||||||||||||
|
Cost
|
Accumulated
Amortization
|
Impairment
|
Net
|
|||||||||
Acquired
technology
|
$
|
47,953
|
$
|
42,029
|
$
|
—
|
$
|
5,924
|
|||||
Patents
|
4,118
|
987
|
—
|
3,131
|
|||||||||
Other
|
500
|
500
|
—
|
—
|
|||||||||
Total
|
$
|
52,571
|
$
|
43,516
|
$
|
—
|
$
|
9,055
|
For the year ended
March 31:
|
||||
2007
|
$
|
187
|
||
2008
|
748
|
|||
2009
|
752
|
|||
2010
|
516
|
|||
2011
|
360
|
|||
Thereafter
|
2,091
|
|||
Total
|
$
|
4,654
|
|
|
|||
Goodwill,
opening balance
|
$
|
181,981
|
||
Impairment
charge
|
(97,576
|
)
|
||
Goodwill,
closing balance
|
$
|
84,405
|
|
December
31, 2006
|
March 31,
2006
|
|||||||||||||||||
|
Cost
|
Accumulated
Amortization
|
Net
|
Cost
|
Accumulated
Amortization
|
Net
|
|||||||||||||
Investments,
at cost
|
$
|
10,225
|
$
|
—
|
$
|
10,225
|
$
|
11,177
|
$
|
—
|
$
|
11,177
|
|||||||
Production
mask sets
|
10,270
|
4,642
|
5,628
|
7,857
|
2,775
|
5,082
|
|||||||||||||
Total
|
$
|
20,495
|
$
|
4,642
|
$
|
15,853
|
$
|
19,034
|
$
|
2,775
|
$
|
16,259
|
· |
We
record estimated reductions to revenue for customer returns based
on
historical experience. A customer has a right to return products
only if
the product is faulty or upon termination of a distributor agreement,
although in certain circumstances we agree to accept returns if
replacement orders are placed for other products or to maintain our
business relationship. If actual customer returns increase, we may
be
required to recognize additional reductions to revenue.
|
· |
We
record the estimated future cost of replacing faulty product as an
increase to cost of revenues. To date we have not experienced significant
returns related to quality. If returns increase as a result of changes
in
product quality, we may be required to recognize additional warranty
expense.
|
· |
We
maintain allowances for estimated losses resulting from the inability
of
our customers to make required payments and other disputes. If the
financial condition of our customers were to deteriorate, resulting
in an
impairment of their ability to make payments, additional allowances
may be
required. We have not suffered any significant loss in this area.
|
· |
We
provide for inventory obsolescence reserves against our inventory
for
estimated obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value based
upon
assumptions about future demand and market conditions. If actual
market
conditions are less favorable than those we project, additional inventory
valuation reserves may be required.
|
· |
We
account for stock-based compensation in accordance with Statement
of
Financial Accounting Standards (SFAS) No. 123R, Share-Based
Payment. Under
the provisions of SFAS No. 123R, stock based compensation is
estimated at the grant date based on the award’s fair-value as calculated
by the Black-Scholes option-pricing model and is recognized as expense
ratably over the requisite service period. The Black-Scholes model
requires various highly judgmental assumptions including volatility,
forfeiture rates and expected option life. If any of the assumptions
change significantly, stock-based compensation expense may differ
materially in the future from that recorded in the current period.
|
· |
We
provide for costs associated with settling litigation when we believe
that
we have a reasonable basis for estimating those costs. If actual
costs
associated with settling litigation differ from our estimates, we
may be
required to recognize additional costs.
|
· |
Goodwill,
which represents the excess of cost over the fair value of net assets
acquired in business combinations, is tested annually for impairment,
and
is tested for impairment more frequently if events and circumstances
indicate that the goodwill might be impaired. The impairment tests
are
performed in accordance with FASB Statement of Financial Accounting
Standards No. 142, “Goodwill and Other Intangible Assets”.
Accordingly, an impairment loss is recognized to the extent that
the
carrying amount of goodwill exceeds its implied fair value. This
determination is made at the reporting unit level. We have assigned
all
goodwill to a single, enterprise-level reporting unit. The impairment
test
consists of two steps. First, we determine the fair value of the
reporting
unit. The fair value is then compared to its carrying amount. Second,
if
the carrying amount of the reporting unit exceeds its fair value,
an
impairment loss is recognized for any excess of the carrying amount
of the
reporting unit’s goodwill over the implied fair value of that goodwill.
The implied fair value of goodwill would be determined by allocating
the
fair value of the reporting unit in a manner similar to a purchase
price
allocation in accordance with FASB Statement of Financial Accounting
Standards No. 141, “Business Combinations”. The residual fair value
after this allocation is the implied fair value of the reporting
unit
goodwill. We perform our annual impairment test on January 1st of
each year.
|
· |
We
record a valuation allowance to reduce our deferred tax assets to
the
amount that we believe is more likely than not to be realized. The
Company
has, and expects to continue to provide a full valuation allowance
on
future tax benefits until, it can demonstrate a sustained level of
profitability that establishes its ability to utilize the assets
in the
jurisdictions that the assets
relate.
|
· |
From
time to time, we incur costs related to potential merger and acquisition
activities. When we assess that we will be the acquirer for accounting
purposes in such transactions and we expect to complete the transaction,
direct costs associated with the acquisition are deferred and form
part of
the final purchase price. In the event these assessments change,
any such
deferred costs would be expensed. Costs associated with other merger
activities are expensed as incurred.
|
|
Three
months ended
December
31
|
||||||
|
2006
|
2005
|
|||||
Total
revenue
|
$
|
51,117
|
$
|
73,965
|
|||
Gross
profit
|
20,856
|
34,203
|
|||||
Gross
profit percentage
|
40.8
|
%
|
46.2
|
%
|
|||
Revenue
by geography:
|
|||||||
United
States
|
$
|
124
|
$
|
393
|
|||
China
|
20,126
|
31,964
|
|||||
Europe
|
6,210
|
10,104
|
|||||
Japan
|
6,591
|
7,537
|
|||||
South
Korea
|
8,509
|
13,722
|
|||||
Taiwan
|
5,904
|
8,059
|
|||||
Rest
of world
|
3,653
|
2,186
|
|||||
|
|||||||
Total
revenue
|
$
|
51,117
|
$
|
73,965
|
|
Three
Months Ended
|
||||||||||||
|
December
31,
2006
|
December
31,
2005
|
|||||||||||
|
$000
|
%
of
Revenue
|
$000
|
%
of
Revenue
|
|||||||||
Research
and development
|
|
15,621
|
30.6
|
%
|
|
12,541
|
17.0
|
%
|
|
Three
Months Ended
|
||||||||||||
|
December
31,
2006
|
December
31,
2005
|
|||||||||||
|
$000
|
%
of
Revenue
|
$000
|
%
of
Revenue
|
|||||||||
Selling,
general and administrative
|
19,786
|
38.7
|
%
|
12,195
|
16.5
|
%
|
|
Three
Months Ended
|
||||||
|
December
31,
2006
|
December
31,
2005
|
|||||
|
$000
|
$000
|
|||||
Impairment
of goodwill and intangibles
|
101,001
|
—
|
|
Three
Months Ended
|
||||||
|
December
31,
2006
|
December
31,
2005
|
|||||
|
$000
|
$000
|
|||||
Interest
and other income
|
2,324
|
1,519
|
|
Three
Months Ended
|
||||||
|
December
31,
2006
|
December
31,
2005
|
|||||
|
$000
|
$000
|
|||||
Income
tax expense
|
17,209
|
3,621
|
Nine
Months Ended
|
|||||||
December
31
|
|||||||
2006
|
2005
|
||||||
Total
revenue
|
$
|
176,025
|
$
|
208,644
|
|||
Gross
profit
|
74,299
|
91,289
|
|||||
Gross
profit percentage
|
42.2
|
%
|
43.8
|
%
|
|||
Revenue
by geography:
|
|||||||
United
States
|
$
|
965
|
$
|
3,103
|
|||
China
|
71,908
|
91,183
|
|||||
Europe
|
21,001
|
23,232
|
|||||
Japan
|
18,423
|
22,016
|
|||||
South
Korea
|
40,069
|
39,273
|
|||||
Taiwan
|
17,747
|
21,159
|
|||||
Rest
of world
|
5,912
|
8,678
|
|||||
Total
revenue
|
$
|
176,025
|
$
|
208,644
|
|
Nine
Months Ended
|
||||||||||||
|
December
31,
2006
|
December
31,
2005
|
|||||||||||
|
$000
|
%
of
Revenue
|
$000
|
%
of
Revenue
|
|||||||||
Research
and development
|
|
47,939
|
27.2
|
%
|
|
35,045
|
16.8
|
%
|
|
Nine
Months Ended
|
||||||||||||
|
December
31,
2006
|
December
31,
2005
|
|||||||||||
|
$000
|
%
of
Revenue
|
$000
|
%
of
Revenue
|
|||||||||
Selling,
general and administrative
|
49,922
|
28.4
|
%
|
35,040
|
16.8
|
%
|
|
Nine
Months Ended
|
||||||
|
December
31,
2006
|
December
31,
2005
|
|||||
|
$000
|
$000
|
|||||
Impairment
of goodwill and intangibles
|
101,001
|
—
|
|
Nine
Months Ended
|
||||||
|
December
31,
2006
|
December
31,
2005
|
|||||
|
$000
|
$000
|
|||||
Interest
income
|
6,700
|
3,496
|
|||||
Other
income
|
3,217
|
—
|
|||||
|
|||||||
Interest
and other income
|
9,917
|
3,496
|
|
Nine
Months Ended
|
||||||
|
December
31,
2006
|
December
31,
2005
|
|||||
|
$000
|
$000
|
|||||
Income
tax expense
|
14,243
|
5,993
|
|
December
31,
2006
|
March 31,
2006
|
|||||
($
are in thousands)
|
|||||||
Cash
and cash equivalents
|
$
|
139,798
|
$
|
154,630
|
|||
Short-term
investments
|
53,879
|
30,749
|
|||||
|
|||||||
Total
cash, cash equivalents and short-term investments
|
$
|
193,677
|
$
|
185,379
|
|||
|
|||||||
Working
capital
|
$
|
210,844
|
$
|
204,518
|
|||
Current
ratio
|
6.8
|
6.1
|
|||||
Receivables
days outstanding
|
51
|
54
|
|||||
Inventory
turnover days
|
54
|
45
|
PAYMENTS
DUE BY FISCAL YEAR
|
||||||||||||||||||||||
TOTAL
|
2007
|
2008
|
2009
|
2010
|
2011
|
Thereafter
|
||||||||||||||||
Operating
Leases
|
$
|
14,076
|
$
|
1,750
|
$
|
3,908
|
$
|
3,769
|
$
|
2,003
|
$
|
1,704
|
$
|
942
|
· |
Our
ability to gain and maintain “design wins” with our customers and ramp new
designs into production volumes;
|
· |
Customer
inventory levels and market share;
|
· |
Growth
rate of the flat-panel TV and LCD monitor markets;
|
· |
Seasonal
consumer demand for flat-panel TV, high definition TV (“HDTV”) and LCD
monitors into which our products are incorporated;
|
· |
Changes
in the mix of products we sell, especially between our higher-priced
TV/video products and our lower-priced monitor products;
|
· |
Increased
competition and competitive pricing pressures;
|
· |
Availability
and pricing of panels and other components for flat-panel TVs and
LCD
monitors;
|
· |
Wafer
costs and other product fabrication costs;
|
· |
Foreign
exchange rate fluctuations, research and development tax credits
and other
factors that impact tax rates; and
|
· |
Changes
in product costs or manufacturing yields or available production
capacity
at our fabrication facilities.
|
· |
A
continued reduction in the costs of products in the respective markets;
|
· |
The
availability, at a reasonable price, of components required by such
products (such as LCD panels); and
|
· |
The
emergence of competing technologies and standards.
|
· |
Lack
of adequate capacity during periods of excess demand;
|
· |
Increased
manufacturing cost or the unavailability of product in the event
that
manufacturing capacity becomes constrained;
|
· |
Reduced
control over manufacturing and delivery schedules of products;
|
· |
Reduced
control over quality assurance and reliability;
|
· |
Difficulty
of managing manufacturing costs and quantities;
|
· |
Potential
misappropriation of intellectual property; and
|
· |
Political
or environmental risks (including earthquake and other natural disasters)
in Taiwan, where the manufacturing facilities are located.
|
· |
Stop
selling the products or using the technology that are allegedly
infringing;
|
· |
Attempt
to obtain a license to the relevant intellectual property, which
license
may not be available on commercially reasonable terms or at all;
|
· |
Incur
substantial costs including defense costs, settlements and/or judgments;
and
|
· |
Attempt
to redesign those products that are allegedly infringing.
|
· |
Fluctuations
in currency exchange rates, tariffs, import restrictions and other
trade
barriers;
|
· |
Unexpected
changes in regulatory requirements;
|
· |
Political
and economic instability;
|
· |
Exposure
to litigation or government investigations in these countries;
|
· |
Longer
payment periods;
|
· |
Ability
to enforce contracts or payment terms;
|
· |
Potentially
adverse tax consequences;
|
· |
Export
license requirements; and
|
· |
Unexpected
changes in diplomatic and trade relationships.
|
· |
Unexpected
changes in, or impositions of, legislative or regulatory requirements;
|
· |
Delays
resulting from difficulty in obtaining export licenses for certain
technology, tariffs, quotas and other trade barriers and restrictions;
|
· |
Imposition
of additional taxes and penalties;
|
· |
The
burdens of complying with a variety of foreign laws; and
|
· |
Other
factors beyond our control, including acts of terrorism, which may
delay
the shipment of our products, impair our ability to travel or our
ability
to communicate with foreign locations.
|
· |
We
may experience difficulty in assimilating the acquired operations
and
employees;
|
· |
We
may be unable to retain the key employees of the acquired operations;
|
· |
The
acquisitions may disrupt our ongoing business;
|
· |
We
may not be able to incorporate successfully the acquired technologies
and
operations into our business and maintain uniform standards, controls,
policies and procedures;
|
· |
We
may lack the experience to enter into new markets, products or
technologies; and
|
· |
An
acquisition we choose to pursue may require a significant amount
of
capital, which limits our ability to pursue other strategic opportunities.
|
Exhibit
Number
|
Exhibit
Description
|
|
2.1(1)
|
Agreement
and Plan of Merger and Reorganization, dated as of September 27,
2001, by
and between Genesis Microchip Incorporated and Sage,
Inc.
|
|
2.2(1)
|
Share
Exchange and Arrangement Agreement and Plan of Arrangement by and
among
the Registrant, Genesis Microchip Nova Scotia Corp., and Genesis
Microchip
Incorporated.
|
|
2.3(2)
|
Agreement
and Plan of Merger, dated as of March 17, 2003, among Genesis Microchip
Inc., Display Acquisition Corporation and Pixelworks, Inc. (with
Forms of
Voting Agreements).
|
|
3.1(1)
|
Certificate
of Incorporation of the Registrant.
|
|
3.2(3)
|
Amended
and Restated Bylaws of the Registrant.
|
|
3.3(4)
|
Certificate
of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of the Registrant.
|
|
4.1(1)
|
Form
of Common Stock Certificate of the Registrant.
|
|
4.2(4)
|
Preferred
Stock Rights Agreement, dated as of June 27, 2002, between the Registrant
and Mellon Investor Services, L.L.C., as amended on March 16,
2003.
|
|
10.1(5)
|
Agreement,
dated January 20, 1997, between Yves Faroudja and Faroudja Laboratories,
Inc.
|
|
10.2
|
Intentionally
omitted.
|
|
10.3(6)*
|
Offer
of employment to James E. Donegan dated June 25, 2002.
|
|
10.4(6)*
|
Settlement
Agreement and Release with Amnon Fisher.
|
|
10.5(9)*
|
Offer
Letter of Employment with Anders Frisk, dated February 15,
2000.
|
|
10.6(9)*
|
Offer
Letter of Employment with Matthew Ready, dated April 12,
2000.
|
|
10.7(9)*
|
Offer
Letter of Employment from Paradise Electronics, Inc. to Mohammad
Tafazzoli, dated February 17, 1998.
|
|
10.8(7)*
|
Form
of Change of Control Severance Agreement (as entered into between
Genesis
and, among others, each of Anders Frisk, Raphael Mehrbians, Tzayao
Chan,
and Mohammad Tafazzoli).
|
|
10.9(9)*
|
Separation
Agreement and Release with Chandrashekar Reddy.
|
|
10.10(9)*
|
Consulting
Agreement with Chandrashekar Reddy.
|
|
10.11(8)*
|
1987
Stock Option Plan.
|
|
10.12(8)*
|
1997
Employee Stock Option Plan.
|
|
10.13(21)*
|
1997
Employee Stock Purchase Plan, as last amended on August 24,
2005.
|
|
10.14*
|
1997
Non-Employee Stock Option Plan, as amended on February 8,
2007.
|
|
10.15
|
Intentionally
omitted.
|
|
10.16*
|
2001
Nonstatutory Stock Option Plan, as amended on February 8,
2007.
|
|
10.17(8)*
|
Paradise
Electronics, Inc. 1997 Employee Stock Option Plan.
|
|
10.18(8)*
|
Sage,
Inc. Second Amended and Restated 1997 Stock Plan.
|
|
10.19(9)*
|
2001
Employee Stock Purchase Loan Plan (for non-officers).
|
|
10.20(9)
|
Lease
Termination Agreement with 1601 McCarthy Boulevard, L.L.C. regarding
premises located in Milpitas,
California.
|
10.21(12)
|
Settlement
Agreement and Release with James E. Donegan.
|
|
10.22(10)
|
Termination
and Release Agreement, dated as of August 5, 2003, among Genesis
Microchip
Inc., Display Acquisition Corporation and Pixelworks,
Inc.
|
|
10.23(11)*
|
Offer
Letter with Michael Healy.
|
|
10.24(11)*
|
Change
of Control Severance Agreement with Michael Healy.
|
|
10.25(11)*
|
Option
Exchange Agreement with Raphael Mehrbians.
|
|
10.26(14)*
|
Interim
CEO Employment Agreement with Eric Erdman.
|
|
10.27(14)*
|
Form
of director and officer indemnification agreement.
|
|
10.28(13)*
|
2003
Stock Plan.
|
|
10.29(15)*
|
Form
of 2000 Nonstatutory Stock Option Plan Stock Option Agreement with
Nonemployee Directors.
|
|
10.30(15)*
|
Form
of 2000 Nonstatutory Stock Option Plan International Stock Option
Agreement.
|
|
10.31(15)*
|
Form
of 2000 Nonstatutory Stock Option Plan Stock Option Agreement for
China.
|
|
10.32(16)*
|
Amendment
No. 1 to Separation Agreement and Release with Chandrashekar Reddy,
dated
November 10, 2004.
|
|
10.33(17)*
|
Offer
Letter of Employment with Elias Antoun, dated November 10,
2004.
|
|
10.34(18)*
|
Change
in Control Severance Agreement with Elias Antoun, dated November
29,
2004.
|
|
10.35(19)*
|
Separation
Agreement and Release with Eric Erdman, dated December 3,
2004.
|
|
10.36(19)*
|
Consulting
Agreement with Eric Erdman, dated December 3, 2004.
|
|
10.37(20)*
|
Separation
Agreement and Release with Young Ahn, dated December 28,
2004.
|
|
10.38(21)*
|
1997
Employee Stock Option Plan, as amended on September 19, 2005, and
form of
Notice of Grant of Restricted Stock Units.
|
|
10.39(21)*
|
2000
Nonstatutory Stock Option Plan, as amended on September 19,
2005.
|
|
10.40(24)*
|
Separation
Agreement and Release with Ken Murray, dated March 6,
2006.
|
|
10.41(22)*
|
Offer
Letter with Behrooz Yadegar, dated April 11, 2006.
|
|
10.42(24)*
|
Fiscal
Year 2007 Executive Bonus Plan, dated June 10, 2006.
|
|
10.43(23)*
|
Separation
Agreement and Release with Tzoyao Chan, dated July 27,
2006.
|
|
10.43(25)*
|
Offer
Letter with Hildy Shandell, dated August 30, 2006.
|
|
10.44(25)*
|
Change
in Control Severance Agreement with Hildy Shandell, dated September
12,
2006.
|
|
10.45(26)
|
Lease
Agreement and Lease Rider Agreement with Transamerica Occidental
Life
Insurance Company, dated September 18, 2006 .
|
|
10.46(27)*
|
Separation
Agreement and Release with Raphael Mehrbians, dated October 20,
2006.
|
|
10.47(28)
|
Settlement
and License Agreement with Silicon Image, Inc., dated December 21,
2006.
|
|
10.48(29)*
|
Amendment
to Change of Control Severance Agreement with Anders Frisk, dated
August
14, 2006.
|
|
21(24)
|
Subsidiaries.
|
|
31.1
|
Certification
of Chief Executive Officer, as required by Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange
Act
of 1934.
|
|
31.2
|
Certification
of Chief Financial Officer, as required by Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange
Act
of 1934.
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer, as required
by
Section 1350 of Chapter 63 of Title 18 of the United States Code
(18
U.S.C. 1350).
|
(1)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form S-4 (File
No. 333-72202) filed with the Securities and Exchange Commission on
October 25, 2001, as amended.
|
|
|
||
(2)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 20, 2003.
|
|
(3)
|
Incorporated
by reference to the Registrant’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on July 1, 2002, as amended.
|
|
(4)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form 8-A12G
filed with the Securities and Exchange Commission on August 5, 2002,
as amended by the Registrant’s Statement on Form 8-12G/A filed with the
Securities and Exchange Commission on March 31, 2003.
|
|
(5)
|
Incorporated
by reference to Faroudja Laboratories, Inc.’s Form S-1 (File
No. 333-32375) filed with the Securities and Exchange Commission on
July 30, 1997, as amended.
|
|
(6)
|
Incorporated
by reference to the Registrant’s Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission on August 14, 2002.
|
|
(7)
|
Incorporated
by reference to Registration Statement on Form S-4 filed by Pixelworks,
Inc. with the Securities and Exchange Commission on April 18, 2003,
as amended.
|
|
(8)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form S-8 filed
with the Securities Exchange Commission on February 21, 2002.
|
|
(9)
|
Incorporated
by reference to the Registrant’s Annual Report on Form 10-K filed with the
Securities Exchange Commission on June 20, 2003.
|
|
(10)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on August 6, 2003.
|
|
(11)
|
Incorporated
by reference to the Registrant’s Quarterly Report on Form 10-Q filed with
the Securities Exchange Commission on February 13, 2004.
|
|
(12)
|
Incorporated
by reference to the Registrant’s Annual Report on Form 10-K/A filed with
the Securities Exchange Commission on July 29, 2003.
|
|
(13)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form S-8 filed
with the Securities Exchange Commission on October 15, 2003.
|
|
(14)
|
Incorporated
by reference to the Registrant’s Annual Report on Form 10-K filed with the
Securities Exchange Commission on June 10, 2004.
|
|
(15)
|
Incorporated
by reference to the Registrant’s Quarterly Report on Form 10-Q filed with
the Securities Exchange Commission on November 9, 2004.
|
|
(16)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on November 15, 2004.
|
|
(17)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on November 19, 2004.
|
|
(18)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on December 3, 2004.
|
|
(19)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on December 8, 2004.
|
|
(20)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on January 3, 2005.
|
|
(21)
|
Incorporated
by reference to the Registrant’s Quarterly Report on Form 10-Q filed with
the Securities Exchange Commission on November 8, 2005.
|
|
(22)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on May 10, 2006.
|
(23)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on August 1, 2006.
|
|
(24)
|
Incorporated
by reference to the Registrant’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on June 14, 2006.
|
|
(25)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on September 18, 2006.
|
|
(26)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on September 19, 2006.
|
|
(27)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on October 23, 2006.
|
|
(28)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on December 22, 2006.
|
|
(29)
|
Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed with the
Securities Exchange Commission on August 17, 2006.
|
|
*
|
Identifies
a management contract or compensatory plan of arrangement required
to be
filed as an exhibit to this report pursuant to Item 14(c) of this
report.
|
GENESIS
MICROCHIP INC.
|
||
|
|
|
By: |
/s/
MICHAEL E. HEALY
|
|
Michael
E. Healy
|
||
Chief
Financial Officer
|
||
(Authorized
Officer to sign on behalf of Registrant & Principal Financial
Officer)
|