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INVENSENSE INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge)
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements and the notes to those statements included elsewhere in
this Quarterly Report on Form 10-Q, the Consolidated Financial Statements and
Notes thereto for the year ended April 3, 2011, and with management's discussion
and analysis of our financial condition and results of operations included in
our prospectus filed pursuant to Rule 424(b) under the Securities Act with the
Securities and Exchange Commission on November 16, 2011.
This Quarterly Report on Form 10-Q, including this Management's Discussion and
Analysis of Financial Condition and Results of Operations, includes a number of
forward-looking statements that involve many risks and uncertainties.
Forward-looking statements are identified by the use of the words "would",
"could", "will", "may", "expect", "believe", "should", "anticipate", "outlook",
"if", "future", "intend", "plan", "estimate", "predict", "potential", "targets",
"seek" or "continue" and similar words and phrases, including the negatives of
these terms, or other variations of these terms, that denote future events.
These forward-looking statements include our expectations as to future sales of
consumer electronics devices that could potentially integrate motion processors,
our expectation that our products will remain a component of customers' products
throughout any such product's life cycle, our belief that certain end-markets
pose large growth opportunities for motion processing functionality, our ability
to protect our intellectual property in the United States and abroad, our belief
in the sufficiency of our cash flows to meet our needs and our future financial
and operating results. These statements reflect our current views with respect
to future events and our potential financial performance and are subject to
risks and uncertainties that could cause our actual results and financial
position to differ materially and adversely from what is projected or implied in
any forward-looking statements included in this Form 10-Q. These factors
include, but are not limited to, the risks described under Item 1A of Part II -
"Risk Factors," Item 2 of Part I - "Management's Discussion and Analysis of
Financial Condition and Results of Operations," elsewhere in this Quarterly
Report on Form 10-Q and those discussed in other documents we file with the SEC.
We make these forward-looking statements based upon information available on the
date of this Form 10-Q, and we have no obligation (and expressly disclaim any
such obligation) to update or alter any forward-looking statements, whether as a
result of new information or otherwise except as otherwise required by
securities regulations.
Overview
We are the pioneer and a global market leader in intelligent motion processing
solutions. Our solutions are comprised of an integrated circuit (IC) that
incorporates motion sensors, such as gyroscopes, with associated software on a
single chip and are differentiated by their small form factor, high level of
integration, performance, reliability and cost effectiveness. While our
solutions have broad applicability, we currently target consumer electronics
applications such as console and portable video gaming devices, smartphones,
tablet devices, digital still and video cameras, smart TVs (including digital
set-top boxes, televisions and multi-media HDDs), 3D mice, navigation devices,
toys, and health and fitness accessories. We utilize a fabless model, leveraging
current CMOS and MEMS foundries and semiconductor packaging supply chains.
We define motion processing as the ability to detect, measure, synthesize,
analyze and digitize an object's motion in three-dimensional space. Our
MotionProcessing solutions for consumer electronics applications span increasing
levels of integration, from single-axis gyroscopes to fully-integrated,
intelligent dual- and three-axis, and the industry's only six-axis,
MotionProcessor units (MPUs). Our technology is comprised of five core
proprietary components: our Nasiri-Fabrication platform, our advanced MEMS
motion sensor designs, our application-specific mixed-signal circuitry for
sensor signal processing, our sensor fusion algorithms in firmware that
intelligently assimilate data from multiple sensors for use by end applications,
and finally our MotionApps platform consisting of application program interfaces
(APIs) and calibration algorithms.
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Our current strategy is to continue targeting the consumer electronics market
with integrated MotionProcessing solutions that meet or exceed the performance
and cost requirements of consumer electronics manufacturers, are easy to
integrate and set industry performance benchmarks. Our ability to secure new
customers depends on winning competitive processes, known as design wins. These
selection processes are typically lengthy, and, as a result, our sales cycles
will vary based on the market served, whether the design win is with an existing
or a new customer and whether our product being designed into our customer's
device is a first generation or subsequent generation product. Because the sales
cycle for our products is long, we can incur design and development support
expenditures in circumstances where we do not ultimately recognize any net
revenue. We do not receive long-term purchase commitments from any of our
customers, all of whom purchase our products on a purchase order basis. While
product life cycles in our target market vary by application, once one of our
solutions is incorporated into a customer's design, we believe that our solution
is likely to remain a component of the customer's product for its life cycle
because of the time and expense associated with redesigning the product or
substituting an alternative solution. The trend is also supported by the
increased likelihood that once a customer introduces one of our products into
one of their devices, we believe they are likely to introduce it into others.
Additionally, once a customer introduces one of our lower functionality sensors
into their platforms, we believe they are more likely to adopt our more advanced
integrated MotionProcessing solutions.
The history of our product development and sales and marketing efforts is, on a
calendar year basis, as follows:
• From our inception in 2003 through 2005, we were primarily engaged in
the design and development of our analog gyroscopes. In this period,
we also developed and refined our fabrication process, which we refer
to as the Nasiri-Fabrication platform.
• In 2006, we began volume shipments of our IDG family of integrated X-Y
dual-axis analog gyroscopes for the compact digital camera market, the
first commercially available sensors of that type. Subsequently,
through 2008, we developed and shipped successive generations of these
gyroscopes with enhanced performance and reduced die sizes. We began
high-volume shipments of our IDG-600 to Nintendo beginning in May
2008.
• In 2009, we began shipping enhanced and alternative versions of our
single- and dual-axis analog gyroscopes as well as our ITG family of
X-Y-Z three-axis digital output gyroscopes. We alsosignificantly
accelerated shipments of our products due to the broad market adoption
of the Nintendo Wii MotionPlus accessory. In addition, we migrated our
manufacturing processes to larger wafer sizes enablingsignificant
cost efficiencies.
• In 2010, we began volume shipments of our MPU-3000 family of motion
processors with digital output, three-axis gyroscopes, and software
development kits, designed to enable faster motion processing
application development. In addition, we started shipping our ITG- and
IMU-3000 family of products, which address a broader array of consumer
applications than our analog products. We also startedsampling our
MPU-6000 family of integrated six-axis MotionProcessors that integrate
a three-axis gyroscope and three-axis accelerometer on one chip with
our MotionApps platform.
• In 2011, our ITG/IMU/MPU-3000 family of products started high volume
shipments for the portable gaming, smart TVs, smartphone and tablet
markets.
• In 2011, we began volume shipments of our MPU-6000 family of motion
processors with broad acceptance across the mobile ecosystem.
Our fiscal periods end on Sundays, rather than the end of each calendar period.
Our fiscal year is either a 52- or 53-week period, and ends on the Sunday
closest to March 31. The third fiscal quarter in each of our two most recent
fiscal years ended on January 1, 2011 ("three months ended January 1, 2011") and
December 26, 2010 ("three months ended December 26, 2010"). References to the
period end financial data as of the quarter ended January 1, 2012 and fiscal
year ended April 3, 2011 are hereafter referred to as "January 2012" and "April
2011".
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Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes included
elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these condensed consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, net revenue, costs, and expenses, and any related disclosures. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Changes in accounting
estimates are reasonably likely to occur from period to period. Accordingly,
actual results could differ significantly from the estimates made by our
management. We evaluate our estimates and assumptions on an ongoing basis. To
the extent that there are material differences between these estimates and our
actual results, our future financial statement presentation, financial condition
results of operations and cash flows will be affected.
We believe that the assumptions and estimates associated with revenue
recognition, income taxes, inventory valuation stock-based compensation, and
financial instruments with characteristics of both liabilities and equity have
the greatest potential impact on our condensed consolidated financial
statements. Therefore, we consider these to be our critical accounting policies
and estimates.
There have been no material changes to the our critical accounting policies and
estimates as compared to the critical accounting policies and estimates
described in our Prospectus filed pursuant to Rule 424(b) under the Securities
Act of 1933 with the Securities and Exchange Commission on November 15, 2011
(our "Prospectus").
Basis of Presentation
Net Revenue
We derive our net revenue from sales of our integrated MotionProcessing
solutions. We primarily sell our products through our worldwide sales
organization directly to manufacturers of consumer electronics devices. To date,
a significant majority of our net revenue has been derived from these direct
sales, and we expect this trend to continue for the foreseeable future. We also
sell our products through an indirect channel of distributors that fulfill
orders for our products from manufacturers of consumer electronics devices,
original design manufacturers and contract manufacturers.
We primarily sell our products directly to customers and distributors in Asia,
which constituted 91% and 98% of our net revenue for the first nine months of
fiscal 2012 and 2011, respectively. For additional information about net revenue
by geographic region, refer to note 1 to our condensed consolidated financial
statements included in this report.
We believe that a substantial majority of our net revenue will continue to come
from sales to customers located in Asia, where most of the manufacturers of
consumer electronics devices that use and may in the future use our products are
located. As a result of this regional customer concentration, we may be subject
to economic and political events and other developments that impact our
customers in Asia. For more information, see the section titled "Risk
Factors-Our business, financial condition and results of operations could be
adversely affected by the political and economic conditions of the countries in
which we conduct business."
Gross Profit
Gross profit is the difference between net revenue and the cost of revenue. Cost
of revenue primarily consists of manufacturing, packaging, assembly and testing
costs for our products, shipping costs, costs of personnel, including
stock-based compensation, warranty costs, and write-downs for excess and
obsolete inventory.
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We price our products based on market and competitive conditions and
periodically reduce the price of our products as market and competitive
conditions change. Typically we experience price decreases over the life cycle
of our products, which may vary by market and customer. As a result, if we are
not able to decrease the cost of our products in line with the price decreases
of our products, we may experience a reduction in our gross profit. Gross profit
has been and will continue to be affected by a variety of factors, including:
• demand for our products and services;
• product manufacturing yields;
• write-downs of inventory for excess quantity and technological obsolescence;
• new product introductions and enhancements both by us and by our
competitors;
• product mix and average selling prices;
• the proportion of our products that are sold through direct versus
indirect channels;
• our ability to attain volume manufacturing pricing from our foundry partners and suppliers; and
• growth in our headcount and other related costs incurred in our
organization.
Research and Development
Research and development expense primarily consists of personnel related
expenses (including stock based compensation), intellectual property license
costs, reference design development costs, development testing and evaluation
costs, depreciation expense and allocated occupancy costs. Research and
development activities include the design of new products, refinement of
existing products and processes and design of test methodologies, including
hardware and software to ensure compliance with required specifications. All
research and development costs are expensed as incurred. We expect our research
and development expenses to increase on an absolute basis as we continue to
expand our product offerings and enhance existing products.
Selling, General and Administrative
Selling, general and administrative expense primarily consists of personnel
related expenses (including stock based compensation), sales commissions, field
application engineering support, travel costs, professional and consulting fees,
legal fees, depreciation expense and allocated occupancy costs. We expect
selling, general and administrative expenses to increase on an absolute basis in
the future as we expand our sales, marketing, finance and administrative
personnel, and we incur additional expenses associated with operating as a
public company.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities includes the changes in the fair
value of our warrants as required by ASC 815-40-15.
Income Tax Provision
The provision for income taxes consists of our estimated Federal, State and
foreign income taxes based on our pre-tax income. Our provision differs from the
federal statutory rate primarily due to expenses that are not deductible for
income taxes such as the changes in fair value of our warrant liability and
certain stock-based compensation, research and development credits and state
income taxes.
We have expanded our international operations and staff to better support our
expansion in international markets. This business expansion has included an
international structure that, among other things, consists of research and
development cost-sharing arrangements, certain licenses and other contractual
arrangements between us and our wholly owned foreign subsidiaries. These
arrangements are intended to result in a percentage of our pre-tax income being
subject to foreign tax at relatively lower tax rates when compared to the U.S.
federal statutory tax rate. As a result, our effective tax rate is expected to
be lower than the U.S. federal statutory rate in future fiscal years as we
completed the implementation of our international structure in fiscal year 2011.
However, the realization of any expected tax benefits is contingent upon
numerous factors, including the judgments of tax authorities in several
jurisdictions and thus cannot be assured.
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Results of OperationsThe following table sets forth certain condensed consolidated statement of
income data as a percentage of net revenue for the periods indicated.
Three Months Ended Nine Months Ended
January 1, December 26, January 1, December 26,
2012 2010 2012 2010
Net revenue 100 % 100 % 100 % 100 %
Cost of revenue 45 44 44 45
Gross profit 55 56 56 55
Operating expenses:
Research and development 12 14 12 16
Selling, general and
administrative 11 18 11 16
Total operating expenses 23 32 23 32
Income from operations 32 24 33 23
Change in fair value of warrant
liabilities 0 0 0 (6 )
Other income (expense), net 0 0 0 0
Income before income taxes 32 24 33 17
Income tax provision 7 7 8 8
Net income 25 % 17 % 25 % 9 %
Net Revenue
(in thousands) Three Months Ended Nine MonthsEnded
January 1, December 26, January 1, December 26,
2012 2010 2012 2010
Net revenue $ 41,229 $ 27,170 $ 119,890 $ 72,695
Net revenue for the third quarter and first nine months of fiscal year 2012
increased by $14.1 million and $47.2 million, or 52% and 65%, from the third
quarter and first nine months of fiscal year 2011, respectively, primarily due
to higher volume shipments of our more advanced products to an expanded customer
base including manufacturers of smartphones, tablet devices and digital
television and set-top box remote controls. Total unit shipments increased by
93% and 81% for the third quarter and first nine months of fiscal year 2012,
respectively, compared to the same periods of the prior fiscal year. Overall
average unit selling price for the third quarter and first nine months of fiscal
year 2012 decreased by approximately 21% and 9%, respectively, compared to the
same periods of the prior fiscal year as a result of the change in our product
mix.
Cost of Revenue and Gross Profit
(in thousands) Three Months Ended Nine Months Ended
January 1, December 26, January 1, December 26,
2012 2010 2012 2010
Cost of revenue $ 18,538 $ 11,827 $ 52,919 $ 33,014
% of net revenue 45 % 44 % 44 % 45 %
Gross profit $ 22,691 $ 15,343 $ 66,971 $ 39,681
% of net revenue 55 % 56 % 56 % 55 %
Gross profit for the third quarter and first nine months of fiscal year 2012
increased by $7.3 million and $27.3 million, or 48% and 69%, respectively,
compared to the same periods of the prior year, due to an increase of unit
shipments of our products and year-over-year improvements in our production
yields and efficiency.
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Gross profit as a percentage of sales, or gross margin, for the same periods
also increased due to improvements in our production yields and efficiency,
partially offset by a write-down of inventory related to excess and obsolete
material for third quarter and first nine months of fiscal year 2012 of $133,000
and $2.3 million, respectively. We expect gross margins to fluctuate during the
remainder of fiscal year 2012 due to changes in product mix, average unit
selling prices, manufacturing costs and inventory write-downs.
Research and Development
Three Months Ended Nine Months Ended
January 1, December 26, January 1, December 26,
(in thousands) 2012 2010 2012 2010
Research and development $ 4,758 $ 3,792 $ 14,099 $ 11,380
% of net revenue 12 % 14 % 12 % 16 %
Research and development expense for the third quarter and first nine months of
fiscal year 2012 increased by $1.0 million and $2.7 million, or 25% and 24%,
respectively, compared to the same periods of the prior year. The increase for
the third quarter of fiscal year 2012 was primarily attributable to increased
personnel costs and mask and foundry expenses of $0.5 million and $0.3 million,
respectively. The increase for the first nine months was primarily attributable
to increased personnel costs, mask and foundry expenses and outside services of
$1.3 million, $0.7 million and $0.3 million, respectively. Research and
development headcount was 99 at the end of the third quarter of fiscal year 2012
and 83 at the end of the third quarter of fiscal year 2011.
Selling, General and Administrative
Three Months Ended Nine Months Ended
January 1, December 26, January 1, December 26,
(in thousands) 2012 2010 2012 2010
Selling, general and administrative $ 4,427 $ 4,863
$ 12,836 $ 11,478
% of net revenue 11 % 18 % 11 % 16 %
Selling, general and administrative expense for the third quarter of fiscal year
2012 decreased by $0.4 million or 9% compared to the same period in the prior
year. The decrease in the third quarter of 2012 was primarily attributable to
the write-off of deferred offering costs of $1.4 million in the third quarter of
2011, partially offset by increased personnel costs of $0.6 million in the third
quarter of 2012. Selling, general and administrative expense for the first nine
months of fiscal year 2012 increased by $1.4 million or 12% compared to the same
period in the prior year. The increase in the first nine months of 2012 was
primarily attributable to increased personnel costs of $2.1 million, increased
travel and entertainment costs of $0.2 million, increased facilities cost of
$0.2 million, partially offset by the write-off of deferred offering costs of
$1.4 million in the third quarter of 2011. Selling, general and administrative
headcount increased to 88 at the end of the third quarter of fiscal year 2012
from 68 at the end of the third quarter of fiscal year 2011.
Income From Operations
Three Months Ended Nine Months Ended
January 1, December 26, January 1, December 26,
(in thousands) 2012 2010 2012 2010
Income from operations $ 13,506 $ 6,688 $ 40,036 $ 16,823
% of net revenue 32 % 24 % 33 % 23 %
Income from operations for the third quarter and first nine months of fiscal
year 2012 increased by $6.8 million and $23.2 million, or 102% and 138%,
respectively, compared to the same periods of the prior year, primarily due to
increased unit shipments, increased gross profit and lower operating expenses as
a percentage of sales.
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Other Income (Expense), Net
Three Months Ended Nine Months Ended
January 1, December 26, January 1, December 26,(in thousands) 2012 2010 2012 2010
Change in fair value of
warrant liabilities $ - $ - $ - $ (4,025 )
Other income (expense), net (43 ) (16 ) 166 (1 )
Total $ (43 ) $ (16 ) $ 166 $ (4,026 )
% of net revenue - % - % - % (6 ) %
Other income (expense), net was $(43,000) and $166,000 for the third quarter and
first nine months of fiscal year 2012, respectively, compared to $(16,000) and
$(4.0) million for the same periods in the prior year. The change in other
income (expense) for the third quarter of fiscal 2012 was relatively flat as a
percentage of net revenue compared to the same period in the prior year. The
change in other income (expense), for the first nine months of fiscal 2012
compared to the same period in the prior year was primarily due to changes in
fair value of warrant liabilities in the first nine months of fiscal 2011.
Effective June 25, 2010, we amended our certificate of incorporation to remove
certain provisions from our preferred stock that had resulted in our warrants
being previously classified as liabilities. On that date, the fair value of the
warrants, $11.9 million, was reclassified to stockholders' equity. Accordingly,
for periods after June 27, 2010, we were not required to reflect changes in fair
value of warrant liabilities in our condensed consolidated statements of income.
Income Tax Provision
Three Months Ended Nine Months Ended
January 1, December 26, January 1, December 26,
(in thousands) 2012 2010 2012 2010
Income tax provision $ 2,887 $ 1,955 $ 9,147 $ 5,998
% of net revenue 7 % 7 % 8 % 8 %
The increase in the provision for income taxes was primarily due to the increase
in income before taxes to $13.5 million and $40.2 million for the third quarter
and first nine months of fiscal year 2012, respectively, compared to $6.7
million and $12.8 million for the same periods in the prior year, offset by a
lower effective tax rate resulting from the establishment of our international
structure in the third quarter of fiscal year 2011.
In the three and nine months ended January 1, 2012, the Company recorded an
income tax provision of $2.9 million and $9.1 million respectively, compared to
an income tax provision of $2.0 million and $6.0 million in the three and nine
months ended December 26, 2010, respectively. The Company's estimated 2012
effective tax rate differs from the U.S. statutory rate primarily due to profits
earned in jurisdictions where the tax rate is lower than the U.S. tax rate and
the benefit of the federal research and development income tax credit. The
income tax provision was also unfavorably impacted by the effects of
non-deductible stock-based compensation expense.
Net Income
Three Months Ended Nine Months Ended
January 1, December 26, January 1, December 26,
(in thousands) 2012 2010 2012 2010
Net income $ 10,576 $ 4,717 $ 31,055 $ 6,799
% of net revenue 25 % 17 % 25 % 9 %
Net income for the third quarter and first nine months of fiscal year 2012
increased by $5.9 million and $24.3 million, or 124% and 357%, respectively,
compared to the same periods of the prior year, primarily due to increased unit
shipments, increased gross profit, lower operating expenses as a percentage of
sales, the absence of charges related to warrants to purchase preferred stock
and a decrease in the effective tax rate.
Liquidity and Capital Resources
As of January 1, 2012, we had $139.6 million of cash, cash equivalents and
short-term investments. We believe our current cash, along with net cash
provided by operating activities, will be sufficient to satisfy our liquidity
requirements for the next 12 months. Our liquidity may be negatively impacted as
a result of a decline in sales of our products due to a decline in our end
markets, decrease in sales of our customers' products in the market, or adoption
of competitors' products.
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As of January 1, 2012, $25.5 million of the $130.1 million of cash, and cash
equivalents was held by our foreign subsidiaries. If these funds are needed for
our operations in the U.S., we would be required to accrue and pay U.S. taxes to
repatriate these funds. However, our intent is to indefinitely reinvest these
funds outside of the U.S. and our current plans do not demonstrate a need to
repatriate them to fund our U.S. operations.
Our primary uses of cash are to fund operating expenses, purchases of inventory
and the acquisition of property and equipment. Cash used to fund operating
expenses excludes the impact of non-cash items such as depreciation and
stock-based compensation and is impacted by the timing of when we pay these
expenses as reflected in the change in our outstanding accounts payable and
accrued expenses.
Our primary sources of cash are cash receipts on accounts receivable from our
shipment of products to customers and distributors. Aside from the growth in
amounts billed to our customers, net cash collections of accounts receivable are
impacted by the efficiency of our cash collections process, which can vary from
period to period depending on the payment cycles of our major customers and
distributors.
Below is a summary of our cash flows (used in) provided by operating activities,
investing activities and financing activities for the periods indicated:
Nine Months Ended
January 1, December 26,
(in thousands) 2012 2010
Net cash provided by operating activities $ 33,563 $ 4,893
Net cash used in investing activities (1,713 ) (7,181 )
Net cash (used in) provided by financing activities 69,482 (5,116 )
Net increase (decrease) in cash and cash equivalents $ 101,332
$ (7,404 )
Net Cash Provided by Operating Activities
Net cash provided by operating activities in the first nine months of fiscal
year 2012 of $33.6 million primarily reflected net income of $31.1 million,
non-cash expenses of $4.0 million and a net decrease in operating assets and
liabilities of $1.5 million consisting primarily of a decrease in other assets
of $1.6 million, a decrease in accounts payable of $2.3 million and an increase
in accrued liabilities of $4.4 million. Non-cash expenses of $4.0 million
consisted primarily of depreciation and amortization of $1.5 million and
stock-based compensation of $2.5 million.
Net cash provided by operating activities in the first nine months of fiscal
year 2011 of $4.9 million primarily reflected net income of $6.8 million,
non-cash expenses of $8.9 million, offset by an increase in accounts receivable
and inventories of $4.7 million and $6.6 million, respectively. The non-cash
expenses of $8.9 million consisted primarily of depreciation and amortization of
$1.3 million, stock-based compensation of $1.6 million, the revaluation of
warrants of $4.0 million and the write-off of deferred offering costs of $1.4
million.
Net Cash (Used in) Provided by Investing Activities
Net cash used in investing activities in the first nine months of fiscal year
2012 of $1.7 million primarily reflected the purchase of property and equipment
of $1.7 million and includes the sale of available for sale investments of $7.8
million and the purchase of available for sale investments of $8.0 million.
Net cash used in investing activities in the first nine months of fiscal year
2011 of $7.2 million included primarily purchases of available for sale
investments of $5.2 million and the purchase of property and equipment of $2.0
million.
Net Cash Used in Financing Activities
Net cash provided by financing activities in the first nine months of fiscal
year 2012 of $69.5 million resulted primarily from proceeds from initial public
offering, net of underwriter commissions of $69.8 million partially offset by
the payment of $1.7 million related to the Company's offering.
Net cash used in financing activities in the first nine months of fiscal year
2011 of $5.1 million consisted primarily of $4.0 million of payments of
refundable customer advances and payments of offering costs related to the
Company's offering of $1.4 million.
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Off balance sheet arrangements
As part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities of financial partnerships,
such as entities often referred to as structured finance or special purpose
entities, or SPEs, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As of January 1, 2012, we were not involved in any
unconsolidated SPE transactions.
Contractual Obligations
The following table summarizes our outstanding contractual obligations as of
January 1, 2012:
Payments Due by Period
Less Than 1 1-3 3-5 More Than
Total Year Years Years 5 Years
(in thousands)
Operating lease obligations $ 1,339 $ 328 $ 858 $ 153 $ -
Capital lease obligations 56 7 49 - -
Purchase obligations 10,342 10,342 - - -
Total contractual obligations $ 11,737 $ 10,677 $ 907 $ 153 $ -
Operating leases consist of contractual obligations from agreements for
non-cancelable office space. Capital lease obligations consist of leases used to
finance the acquisition of equipment. Purchase obligations consist of the
minimum purchase commitments made to contract manufacturers.
Uncertain tax positions consist of amounts included in the net deferred tax
asset balance of $2.7 million at January 1, 2012, which would affect our income
tax expense if recognized. Due to the high degree of uncertainty regarding the
settlement of these liabilities, we are unable to estimate the year in which the
future cash flows may occur.
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU
No. 2011-04, "Amendments to Achieve Common Fair Value Measurements and
Disclosure Requirements in U.S. GAAP and IFRSs." ASU No. 2011-04 amended ASC
820, Fair Value Measurements and Disclosures, to converge the fair value
measurement guidance in GAAP and International Financial Reporting Standards
(IFRSs). Some of the amendments clarify the application of existing fair value
measurement requirements, while other amendments change particular principles in
ASC 820. In addition, ASU No. 2011-04 requires additional fair value
disclosures. The amendments are to be applied prospectively and are effective
for interim and annual periods beginning after December 15, 2011, which is the
Company's fourth quarter of fiscal year 2012. The Company is currently
evaluating the impact, if any, that ASU No. 2011-04 may have on its financial
condition and results of operations.
In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive
Income". ASU No. 2011-05 amended ASC 320, "Comprehensive Income, to converge the
presentation of comprehensive income between U.S GAAP and IFRS." ASU No. 2011-05
requires that all non-owner changes in stockholders' equity be presented in
either a single continuous statement of comprehensive income or in two separate
but consecutive statements and requires reclassification adjustments for items
that are reclassified from other comprehensive income to net income in the
statement(s) where the components of net income and the components of other
comprehensive income are presented. ASU No. 2011-05 eliminates the option to
present the components of other comprehensive income as part of the statement in
changes of stockholders equity. ASU 2011-05 is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011, which
will be the Company's fiscal year 2013. The adoption of ASU No. 2011-05 will
affect the presentation of comprehensive income but will not impact the
Company's financial condition or results of operations.
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