SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
O2 MICRO INTERNATIONAL LIMITED
Grand Pavilion Commercial Centre, West Bay Road
P.O. Box 32331 SMB, George Town
Grand Cayman, Cayman Islands
(345) 945-1110
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F X Form 40-F ______
------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes ______ No X
------
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
82-N.A.
----
INDEX
O2MICRO INTERNATIONAL LIMITED
Page No.
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS 3
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2003
AND DECEMBER 31, 2002 3
CONSOLIDATED STATEMENTS OF OPERATIONS AND 5
COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30,
2002
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE 6
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 14
CONDITION AND RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT 15
MARKET RISK
PART II OTHER INFORMATION
Item 1. EXHIBITS 17
EXHIBIT INDEX 17
SIGNATURE 18
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
O\\2\\MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousand U.S. Dollars, Except Share Amounts)
September 30, December 31,
ASSETS 2003 2002
------ ------------- ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 52,028 $ 69,334
Restricted cash 1,892 2,019
Short-term investments 60,431 42,675
Accounts receivable - net 10,502 7,595
Inventories 10,741 6,967
Prepaid expenses and other current assets 2,772 2,891
--------- ---------
Total Current Assets 138,366 131,481
--------- ---------
INVESTMENT IN SHARES OF STOCKS 7,865 5,985
--------- ---------
FIXED ASSETS - NET 5,141 5,611
--------- ---------
OTHER ASSETS
Restricted assets - net 7,643 -
--------- ---------
Convertible loans to 360(degrees) Web Ltd. - 1,750
--------- ---------
Other Assets 1,562 1,009
--------- ---------
TOTAL ASSETS $ 160,577 $ 145,836
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes and accounts payable $ 7,399 $ 5,202
Income tax payable 2,572 1,957
Current portion of obligations under capital lease 2 7
Accrued expenses and other current liabilities 5,556 3,522
--------- ---------
Total Current Liabilities 15,529 10,688
--------- ---------
OBLIGATIONS UNDER CAPITAL LEASE - NET OF CURRENT PORTION - -
--------- ---------
Total Liabilities 15,529 10,688
--------- ---------
CONTINGENCIES AND COMMITMENTS
SHAREHOLDERS' EQUITY
Preference shares at $0.001 par value per share - -
Ordinary shares at $0.001 par value per share
Authorized - 95,000,000 shares
Issued - 38,348,546 shares as of September 30, 2003 and
38,857,094 shares including 720,700 shares of treasury
stock as of December 31, 2002, respectively 38 39
3
Treasury Stock - (6,823)
Additional paid-in capital 132,431 133,016
Accumulated other comprehensive loss (438) (692)
Retained earnings 13,017 9,608
--------- ---------
Total Shareholders' Equity 145,048 135,148
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 160,577 $ 145,836
========= =========
The accompanying notes are an integral part of the financial statements.
4
O\\2\\MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In Thousand U.S. Dollars, Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2003 2002 2003 2002
--------- --------- --------- ---------
NET SALES $ 23,193 $ 18,024 $ 63,429 $ 51,794
COST OF SALES 10,042 7,269 27,649 20,407
--------- --------- --------- ---------
GROSS PROFIT 13,151 10,755 35,780 31,387
--------- --------- --------- ---------
OPERATING EXPENSES
Research and development 4,845 4,750 14,600 13,948
Selling, general and administrative 4,559 3,284 13,197 8,796
Stock - based compensation - 9 - 42
--------- --------- --------- ---------
Total Operating Expenses 9,404 8,043 27,797 22,786
--------- --------- --------- ---------
INCOME FROM OPERATIONS 3,747 2,712 7,983 8,601
--------- --------- --------- ---------
NON-OPERATING INCOME (EXPENSES)
Interest income 379 374 952 1,489
Impairment loss on investment in shares of stocks - (254) (17) (483)
Interest expenses - (1) (1) (3)
Exchange gain (loss) 367 (97) 453 83
Other - net (32) 166 (112) 202
--------- --------- --------- ---------
Total Non-operating Income 714 188 1,275 1,288
--------- --------- --------- ---------
INCOME BEFORE INCOME TAX 4,461 2,900 9,258 9,889
INCOME TAX EXPENSES 502 355 1,173 1,307
--------- --------- --------- ---------
NET INCOME 3,959 2,545 8,085 8,582
--------- --------- --------- ---------
OTHER COMPREHENSIVE GAIN (LOSS)
Translation adjustments on subsidiaries 54 (32) (90) 71
Unrealized gain (loss) on available-for-sale securities 185 (3) 344 (68)
--------- --------- --------- ---------
Total Other Comprehensive Gain (Loss) 239 (35) 254 3
--------- --------- --------- ---------
COMPREHENSIVE INCOME $ 4,198 $ 2,510 $ 8,339 $ 8,585
========= ========= ========= =========
EARNINGS PER SHARE:
Basic $ 0.10 $ 0.07 $ 0.21 $ 0.22
========= ========= ========= =========
Diluted $ 0.10 $ 0.07 $ 0.21 $ 0.21
========= ========= ========= =========
SHARES USED IN EARNINGS PER SHARE CALCULATION:
Basic (in thousands) 38,341 38,361 38,217 38,362
========= ========= ========= =========
Diluted (in thousands) 39,845 39,073 39,390 40,232
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
5
O\\2\\MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousand U.S. Dollars)
Nine Months Ended
September 30,
------------------------
2003 2002
---------- ----------
OPERATING ACTIVITIES:
Net income $ 8,085 $ 8,582
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,912 1,387
Amortization of deferred stock options - 42
Amortization of stock options granted for services 290 72
Gain on sale of short-term investments - (233)
Deferred income tax assets 182 167
Impairment of investments 17 483
Loss on sale of fixed assets 66 7
Changes in operating assets and liabilities:
Accounts receivable - net (2,907) (6,670)
Inventories (3,774) (2,943)
Prepaid expenses and other current assets (119) (68)
Notes and accounts payable 2,197 346
Income tax payable 615 389
Accrued expenses and other current liabilities 2,034 64
---------- ----------
Net Cash Provided by Operating Activities 8,598 1,625
---------- ----------
INVESTING ACTIVITIES:
Convertible loans to 360(degrees) Web Ltd. - (1,000)
Receivables from employee cash advance (112) (382)
Acquisitions of:
Fixed assets (1,463) (2,927)
Short-term investments (102,489) (165,306)
Long-term investments (147) (5,468)
(Increase) decrease in:
Restricted assets (7,643) -
Restricted cash 127 (657)
Refundable deposits (108) 7
Deferred charges (493) 6
Proceeds from:
Sale of short-term investments 85,077 152,458
Sale of fixed assets 1 3
---------- ----------
Net Cash Used in Investing Activities (27,250) (23,266)
---------- ----------
FINANCING ACTIVITIES:
Acquisitions of treasury shares (647) (6,763)
Proceeds from:
Exercise of stock options 1,506 886
Issuance of shares for warrants exercised - 750
Issuance of ordinary shares upon ESPP plan 468 370
Payments of principal of capital leases (5) (7)
---------- ----------
Net Cash Provided by (Used in) Financing Activities 1,322 (4,764)
---------- ----------
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE 24 72
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (17,306) (26,333)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 69,334 98,814
---------- ----------
6
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 52,028 $ 72,481
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
Cash paid for interest $ 1 $ 3
Cash paid for tax $ 395 $ 744
NONCASH INVESTING AND FINANCING ACTIVITIES
Convertible loans to 360(degrees) Web Ltd. transferred to
investment in shares of stock $ 1,750 $ -
Unrealized gain (loss) on short-term investments $ 344 ($68)
The accompanying notes are an integral part of the financial statements.
7
O\\2\\MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in management's opinion, include
all adjustments, consisting only of normal recurring accruals necessary to
fairly present the resulting operations for the indicated periods. Certain
information and 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. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's Form 20-F registration statement for
the year ended December 31, 2002 as filed with the SEC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Use of estimates
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 certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
b. Restricted Assets
The Company classifies deposits made for customs, collateral for
obtaining foundry capacity, line of credit, office leases and Taiwan court cases
as restricted assets and classifies as a current asset if the deposit is
refundable within a twelve-month period.
c. Treasury stock
The Company determined it will retire ordinary shares repurchased under a
share repurchase plan. Accordingly, the excess of the purchase price over par
value was allocated between capital surplus and retained earnings based on the
average issuance price of the shares repurchased. Any future repurchases will be
immediately retired.
d. Recent accounting pronouncements
In January 2003, the Financial Accounting Standard Board ("FASB") issued
Interpretation ("FIN") 46, "Consolidation of Variable Interest Entities - an
Interpretation of Accounting Research Bulletin ("ARB") No. 51." FIN 46 requires
the primary beneficiary to consolidate a variable interest entity ("VIE") if it
has a variable interest that will absorb a majority of the entity's expected
losses if they occur, receive a majority of the entity's expected residual
returns if they occur, or both. FIN 46 applies immediately to VIEs created after
January 31, 2003, and to VIEs in which the entity obtains an interest after that
date. For VIEs acquired before February 1, 2003, the effective date for the
Company is July 1, 2003. The Company does not expect that the adoption of FIN 46
to have a material impact on its consolidated financial statements.
In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF 00-21, "Revenue Arrangements with Multiple Deliverables,"
related to the timing of revenue recognition for arrangements in which goods or
services or both are delivered separately in a bundled sales arrangement. The
EITF requires that when the deliverables included in this type of arrangement
meet certain criteria they should be accounted for separately as separate units
of accounting. This may result in a difference in the timing of revenue
recognition but will not result in a change in the total amount of revenue
recognized in a bundled sales arrangement. The allocation of revenue to the
separate deliverables is based on the relative fair value of each item. If the
fair value is not available for the delivered items then the residual method
must be used. This method requires that the amount allocated to the undelivered
items in the arrangement is their full fair value. This would result in the
discount, if any, being allocated to the delivered items. This consensus is
effective prospectively for
8
arrangements entered into in fiscal periods beginning after June 15, 2003. The
prospective application of this guidance in 2004 is not expected to impact the
Company's revenue significantly.
In April 2003, the FASB issued SFAS No. 149, "Amendment to Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 is applied prospectively and is effective for contracts
entered into or modified after June 30, 2003, except for SFAS No. 133
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003 and certain provisions relating to forward purchases and
sales on securities that do not yet exist. The Company is currently in the
process of determining the impact of this statement on its results of
operations, financial position and cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
statement establishes standards for how an issuer classifies and measures
certain financial instruments. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The statement requires that certain financial instruments that, under
previous guidance, could be accounted for as equity, be classified as
liabilities, or assets in some circumstances. This statement does not apply to
features embedded in a financial instrument that is not a derivative in its
entirety. The statement also requires disclosures about alternative ways of
settling the instruments and the capital structure of entities whose shares are
mandatorily redeemable. The adoption of SFAS No. 150 is not expected to have an
impact on the Company's financial statements.
3. ACCOUNTS RECEIVABLE -- NET
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
(In Thousands)
Accounts receivable $ 10,903 $ 7,973
Allowances for:
Doubtful receivable (86) (64)
Sales returns and discounts (315) (314)
--------- ---------
$ 10,502 $ 7,595
========= =========
4. INVENTORIES
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
(In Thousands)
Finished goods $ 2,307 $ 2,344
Work-in-process 4,999 2,846
Raw materials 3,435 1,777
--------- ---------
$ 10,741 $ 6,967
========= =========
9
5. SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities:
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
(In Thousands)
US treasury bills $ 41,984 $ 26,914
Time deposits 10,563 10,263
Foreign government bonds 622 3,227
Corporate bonds 7,238 2,247
Others 24 24
--------- ---------
$ 60,431 $ 42,675
========= =========
Available-for-sale securities by contractual maturity are as follows:
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
(In Thousands)
Due within one year $ 48,785 $ 40,606
Due after one year through two years 1,002 2,069
Due after two years 10,644 -
--------- ---------
$ 60,431 $ 42,675
========= =========
The Company's gross unrealized gains and losses as of September 30, 2003
were $558,000 and $326,000, respectively, and as of December 31, 2002 were
$64,000 and $176,000, respectively.
6. INCOME TAX
The effective income tax rate for the three months ended September 30 was
11.3% in 2003 and 12.2% in 2002, respectively. The effective income tax rate for
the nine months ended September 30 was 12.7% in 2003 and 13.2% in 2002,
respectively.
7. EARNINGS PER SHARE
The following table shows the calculation of basic and diluted earnings
per share:
All numbers in thousands except earnings per share
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Basic earnings per share:
Net income $ 3,959 $ 2,545 $ 8,085 $ 8,582
========= ========= ========= =========
Weighted average shares outstanding - 38,341 38,361 38,217 38,362
Basic
Earnings per share - basic $ 0.10 $ 0.07 $ 0.21 $ 0.22
========= ========= ========= =========
(Forward)
10
Diluted earnings per share:
Net income $ 3,959 $ 2,545 $ 8,085 $ 8,582
========= ========= ========= =========
Weighted average shares outstanding - 38,341 38,361 38,217 38,362
Basic
Effect of dilutive securities:
Options 1,504 712 1,173 1,740
Warrants - - - 130
--------- --------- --------- ---------
Weighted average shares outstanding -
Diluted 39,845 39,073 39,390 40,232
========= ========= ========= =========
Earnings per share - diluted $ 0.10 $ 0.07 $ 0.21 $ 0.21
========= ========= ========= =========
8. OBLIGATIONS UNDER CAPITAL LEASE
The Company leases office space and certain equipment under noncancelable
operating lease agreements that expire on various dates through December 2005.
The Company's office lease provides for periodic rent increases based on the
general rate of inflation. The Company also leases certain equipment under a
capital lease that expires in May 2004. The lease provides for a bargain
purchase option upon the expiration of the lease. As of September 30, 2003,
minimum lease payments under all noncancelable leases were as follows:
Capital Operating
Year Leases Leases
---- --------- ---------
(In Thousands)
2003 $ 2 $ 447
2004 - 1,195
2005 - 176
--------- ---------
Total minimum lease payments 2 $ 1,818
=========
Less: Amount representing interest -
---------
Present value of minimum lease payments 2
Less: Current portion 2
---------
Long-term obligations under capital lease $ -
=========
Obligations under capital lease are secured by the related equipment, and
the total costs of the equipment under capital lease were $165,000 as of
September 30, 2003 and as of December 31, 2002. Accumulated amortization was
$162,000 as of September 30, 2003 and $155,000 as of December 31, 2002.
9. RELATED PARTY TRANSACTIONS
a. In February 2000, the Company loaned $750,000 to 360(degrees) Web
Ltd. (360(degrees) Web). Interest accrued at USD-Libor + 1% and was to be paid
semiannually until the loan was fully repaid or until the loan was converted
into 2,083,333 Series B preference shares in 360(degrees) Web, or 22.3% of the
outstanding capital stock of 360(degrees) Web. The conversion price was US $0.36
per share. The Company was granted the right to convert the loans at any time
before the maturity date of February 1, 2005 or before the date 360(degrees) Web
offers its shares in an initial public offering. In February 2002, the Company
made an additional loan of $1 million to 360(degrees) Web on terms similar to
the February 2000 loan until the loan was fully repaid or until the loan was
converted into 1,000,000 Series C preference shares of 360(degrees) Web at a
conversion price of $1.00 per share. As of September 30, 2003, two of the
Company's directors serve as directors of 360(degrees) Web.
On January 3, 2003, the Company issued a notice to 360(degrees) Web to
exercise the option to convert the loans to the preference shares in
360(degrees) Web. After the conversion, the Company has a 35.18% ownership in
360(degrees) Web and has elected to account for the investment under the cost
method. The Company did not participate in any capital increase of 360(degrees)
Web in 2003. As of September 30, 2003, the Company has a 29.33 % ownership in
360(degrees) Web.
11
b. In 2001, James Keim, one of the Company's directors, accepted the
assignment of Head of Marketing and Sales in the Cayman Islands, and moved to
the Cayman Islands in December 2001. In connection with the move and to assist
Mr. Keim to purchase a residence in the Cayman Islands, the Company entered into
a term loan agreement with Mr. Keim in February 2002, under which the Company
made an interest free, unsecured loan in the amount of $400,000 to Mr. Keim. The
loan is repayable in February 2007. As of September 30, 2003, $18,000 had been
repaid.
10. CONTINGENCIES AND COMMITMENTS
a. On March 22, 2000, Philips Electronics North America Corporation
(Philips) asked the Company to evaluate the need for a license for products
using I2C serial interface. While the Company cannot make any assurance
regarding the eventual resolution of this matter, the Company believes that the
Company would not be subject to any material exposure with respect to past
activities. The Company is currently negotiating an agreement with Philips.
b. On November 3, 2000, the Company filed a suit with the United States
District Court in the Northern District of California against Monolithic Power
Systems, Inc. ("MPS"), a privately held company in Los Gatos, California, USA
seeking declaratory judgment of non-infringement and invalidity of MPS' U.S.
Patent No.6,114,814. The Company also claimed intentional and negligent
interference with prospective economic advantage. MPS counterclaimed alleging
infringement of such patent. Before the Company's filing, MPS alleged in a
letter to the Company that a new product of the Company would infringe MPS' U.S.
Patent No.6,114,814.
On October 24, 2001, the Company filed a complaint against MPS that seeks
damages and injunctive relief for infringement of the Company's U.S. Patent No.
6,259,615. The complaint was amended on November 13, 2001 to include trade
secret counts against MPS. MPS also added additional counterclaims alleging
infringement of MPS' U.S. Patent No. 6,316,881, a continuation of MPS' U.S.
Patent No. 6,114,814. The court has issued orders construing the asserted claims
of the patents-in-suit. The fact discovery is currently completed and trial is
currently scheduled to occur in February 2004. MPS seeks injunctive relief and
unspecified damages. The Company disputes MPS' claims and intends to defend the
lawsuit vigorously. While the Company cannot make any assurance regarding the
eventual resolution of this matter, the Company does not believe the final
outcome will have a material adverse effect on its consolidated results of
operations or financial condition.
c. On January 6, 2003, the Company filed a patent infringement complaint
in the Eastern District of Texas against Sumida Corporation in Japan and Taiwan
Sumida Electronics Incorporated in Taiwan. Subsequently, MPS also filed a patent
infringement complaint in the Eastern District of Texas against Sumida
Corporation in Japan and Taiwan Sumida Electronics Incorporated in Taiwan based
on the same patents in the lawsuit in the Northern District of California.
Sumida Corporation has sought indemnification from the Company.
The Company is a party to other litigation matters, legal proceedings and
claims. While the results of such litigations and claims cannot be predicted
with certainty, the final outcome of such matters is not expected to have a
material adverse effect on the Company's consolidated financial position or
results of operations. No assurance can be given, however, that these matters
will be resolved without the Company becoming obligated to make payments or to
pay other costs to the opposing parties, with the potential for having an
adverse effect on the Company's financial position or its results of operations.
11. SEGMENT INFORMATION
The Company designs, develops and markets innovative power management and
security components for mobile communication, computer, information appliance
and LCD products. The company's integrated circuit products are produced with
digital, analog, and mixed signal integrated circuit manufacturing processes.
The Company's Chief Operating Decision Maker ("CODM"), the Chief Executive
Officer; only reviews information on an enterprise-wide basis to assess
performance and allocate resources so the Company has one reporting segment.
12
Net revenues from unaffiliated customers by geographic region are based
on the customer's bill-to location and are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Asia $ 23,173 $ 17,804 $ 63,397 $ 51,557
U.S.A. 20 1 32 16
Others - 219 - 221
----------- ----------- ----------- -----------
$ 23,193 $ 18,024 $ 63,429 $ 51,794
=========== =========== =========== ===========
Long-lived assets consist of fixed assets and are based on the physical
location of the assets at the end of each period.
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
(In Thousands)
Cayman $ 1,391 $ 1,471
U.S.A. 369 414
Taiwan 2,418 2,679
Others 963 1,047
--------- ---------
$ 5,141 $ 5,611
========= =========
During the quarter ended September 30, 2003, one customer accounted for
10% or more of net revenues ( 12.7%). During the nine month period ended
September 30, 2003, one customer accounted for 10% or more of net revenues
(17.8%). During the quarter ended September 30, 2002, three customers accounted
for 10% or more of net revenues (28.6%, 18.1% and 11.5%). During the nine month
period ended September 30, 2002, two customers accounted for 10% or more of net
revenues (18.3% and 14.5%).
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the interim
financial statements and the notes thereto in Part I, Item 1 of this quarterly
report and with Operating and Financial Review and Prospects contained in the
Company's Annual Report on Form 20-F (the "Annual Report").
Overview
We design, develop and market high performance mixed signal integrated
circuits for power management, power saving applications and computer security
applications. Our net sales have been derived primarily from the sale of
integrated circuit products to customers in the mobile computing, communications
and other consumer electronics products markets.
We utilize a "fabless" semiconductor business model, which means we focus
on designing, developing and marketing products, while having these products
manufactured by large independent semiconductor foundries. Because we are a
fabless semiconductor company, we do not need to invest significant capital to
manufacture semiconductor devices, and can take advantage of some of the
cost-efficiencies of third-party foundries. We place purchase orders with third
parties for specific quantities of packaged semiconductor devices or wafers at
set prices. We also use third parties to test and assemble our products, which
reduces the capital we need to invest in these activities.
Results of Operations
Net Sales. Net sales for the three months ended September 30, 2003 were
$23.2 million, an increase of $5.2 million or 28.7% from $18.0 million for the
three months ended September 30, 2002. The increase in net sales reflects
increased unit shipments of our existing products as well as shipments of new
products.
Gross Profit. Gross profit for the three months ended September 30, 2003
was $13.2 million, an increase of $2.4 million or 22.3% from $10.8 million for
the three months ended September 30, 2002. This increase in dollar amount was
due to increased sales of products. We expect that our gross profit as a
percentage of net sales will fluctuate in the future as a result of the stages
of our products in their life cycles, variations in our product mix, the timing
of our product introductions and specific product manufacturing costs.
Research and Development Expenses. Research and development expenses for
the three months ended September 30, 2003 were $4.845 million, an increase of
$95,000 or 2% from $4.75 million for the three months ended September 30, 2002.
This increase primarily reflects the addition of research and development
personnel. We expect that research and development expenses will increase in the
foreseeable future due to more non-recurring expenses associated with the
development of new products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 2003 were $4.6
million, an increase of $1.3 million or 38.8% from $3.3 million for the three
months ended September 30, 2002. This increase in absolute dollar amount was
primarily due to increased expenses relating to intellectual property protection
activities, additional personnel, system training expenses, and other expenses
associated with the additional personnel. We expect that selling, general and
administrative expenses will continue to increase in dollar amount for the
foreseeable future.
Stock-Based Compensation. For accounting purposes, we recognize
stock-based compensation whenever we grant options or warrants to purchase our
ordinary shares to employees with exercise prices that are less than the fair
market value of the underlying shares at the grant date and whenever we grant
options or warrants to consultants. Amortization of deferred compensation
recorded in the three months ended September 30, 2003 was $0, a decrease of
$9,000 or 100% from $9,000 for the three months ended September 30, 2002.
Non-operating Income-net. Non-operating income-net for the three months
ended September 30, 2003 was $714,000, an increase of $526,000 from $188,000 for
the three months ended September 30, 2002, primarily reflecting an increase in
foreign exchange gains and no impairment changes on investment in shares of
stocks.
Income Taxes. Income tax expenses for the three months ended September
30, 2003 was $502,000, an increase of $147,000 from $355,000 for the three
months ended September 30, 2002.
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Our quarterly results of operations have fluctuated significantly in the
past and may continue to fluctuate in the future based on a number of factors,
not all of which are in our control. In particular, our results of operations
have fluctuated in the past due, among other things, to competitive pressures on
selling prices; the volume of product sales; the timing and cancellation of
customer orders; lengthy sales cycles; pricing concessions on volume sales;
changes in product mix; product pricing from foundries; our ability to develop,
introduce and market new products and technologies on a timely basis;
introduction of products and technologies by our competitors; and market
acceptance of our and our customers' products. Our results of operations may
also fluctuate in the future based on a number of factors, including but not
limited to, those listed above, general business conditions in the semiconductor
industry; general economic conditions; currency fluctuations; the availability
of foundry capacity and raw materials, and our ability to expand and implement
our sales and marketing programs. As a result of the foregoing factors, we
believe period to period comparisons are not necessarily meaningful and should
not be relied upon as indicative of future results.
Liquidity and Capital Resources
On September 30, 2003, we had $138.4 million in total current assets,
including $52.0 million in cash and cash equivalents and $60.4 million in
short-term investments. Our operating activities provided $8.6 million cash
during the nine months ended September 30, 2003. Additionally, our investing
activities used cash of $27.3 million in the nine months ended September 30,
2003 and our financing activities provided cash of $1.3 million in the nine
months ended September 30, 2003.
Disclosure Regarding Forward-Looking Statements
This Form 6-K contains statements of a forward-looking nature. These
statements are made under the "safe harbor" provisions of the U.S. Private
Securities Litigation Reform Act of 1995. You can identify these forward-looking
statements by terminology such as "may," "will," "expects," "should," "could,"
"plans," "intends," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms and other comparable
terminology. These forward-looking statements include statements relating to our
future gross profits, research and development expenses and selling, general and
administrative expenses. The forward-looking statements contained in this Form
6-K involve known and unknown risks, uncertainties and other factors that may
cause our or the industry's actual results, levels of activity, performance or
achievements to be materially different from the future results, levels of
activity, performance or achievements expressed or implied by these statements.
Such risks and uncertainties include the stages of our products in their life
cycles, variations in our product mix, the timing of our product introductions,
specific product manufacturing costs, increased competition, introduction of new
competing technologies and the increase of unexpected expenses. These factors
also include, among other things, those risks outlined in our filings with the
Securities and Exchange Commission, including our Annual Report, that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. We assume no obligation to update or revise any
forward-looking information, whether as a result of new information, future
events or otherwise.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Market risk is the risk of loss related to adverse changes in market
prices, including interest rates and foreign exchange rates, of financial
instruments. In the normal course of business, our financial position is
routinely subject to a variety of risks, including market risk associated with
interest rate movements and currency rate movements on non-U.S. dollar
denominated assets and liabilities, as well as collectibility of accounts
receivable.
We regularly assess these financial instruments and their ability to
address market risk and have established policies and business practices to
protect against the adverse effects of these and other potential exposures.
Interest Rate Risk
Our major market risk exposure is changing interest rates. Our exposure
to market risk for changes in interest rates relates primarily to our
investments in government and corporate bonds.
We maintain an investment portfolio consisting mainly of fixed income
securities with an average maturity of one to two years. These securities are
subject to interest rate risk and will fall in value if market interest rates
15
increase. If market rates were to increase immediately and uniformly by 10.0%
from the levels at September 30, 2003, the fair value of the portfolio would
decline by an immaterial amount. We presently intend to treat our fixed income
investments as available for sale, and therefore we do not expect our operating
results or cash flows to be affected to any significant degree by the effect of
a sudden short-term change in market interest rate exposures. We did not
purchase or hold any derivative financial instruments for trading purposes.
The table below provides information about our financial instruments
whose maturity dates are greater than three months as of September 30, 2003.
Expected Maturity Dates
--------------------------------------------------------------------------------
Total
2007 and Carrying Fair
2003 2004 2005 2006 thereafter Value Value
-------- -------- -------- -------- ---------- --------- ---------
(in thousands)
US Treasury Bills
Fixed rate (US$)...... 16,971 15,018 - - 9,995 41,984 41,984
Government Bonds:
Fixed rate (US$)...... - - - 2,387 5,155 7,542 7,542
Time Deposits:
Fixed rate (US$)...... 10,218 1,698 - 3 - 11,919 11,919
Corporate Bonds
Fixed rate (US$)...... 1,606 5,632 - - - 7,238 7,238
Foreign currency risk
Fluctuations in exchange rates may adversely affect our financial
results. The functional currencies for our foreign subsidiaries are the local
currency. As a result, certain of our assets and liabilities, including certain
bank accounts, accounts receivable, restricted assets and accounts payable,
exist in non-U.S. dollar denominated currencies such as New Taiwan Dollar, which
are sensitive to foreign currency exchange rate fluctuations. As of September
30, 2003, we held approximately $8.2 million in government bonds, certificates
of deposits, time deposits and demand accounts denominated in New Taiwan
Dollars.
We have not engaged in hedging techniques designed to mitigate foreign
currency exposures and we may experience economic loss as a result of foreign
currency exchange fluctuations. In the three month period ended September 30,
2003, we experienced gains of $367,000 due to foreign currency exchange
fluctuations, which are reflected in the results of operations
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PART 2. OTHER INFORMATION
Item 1. Exhibits
(a) Exhibits:
The Exhibit Index attached hereto is hereby incorporated by reference to
this Item.
(b)
EXHIBIT INDEX
Exhibit
Number Exhibit Title
-------------- ------------------------------------------------ ----------
99 Press Release
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
O2 MICRO INTERNATIONAL LIMITED
Date: November 18, 2003 /S/ STERLING DU
----------------------------------
Name: Sterling Du
Title: Chief Executive Officer
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