Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
EXAR > SEC Filings for EXAR > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for EXAR CORP

Form 10-Q for EXAR CORP


7-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as information contained in "Part II, Item 1A." below and elsewhere in this Quarterly Report on Form 10-Q, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are generally written in the future tense and/or may generally be identified by words such as "will," "may," "should," "could," "expect," "suggest," "believe," "anticipate," "intend," "plan," or other similar words. Forward-looking statements contained in our Quarterly Report include, among others, statements regarding (1) our future strategies and target markets, (2) our future revenues, gross profits and margins, (3) our future research and development ("R & D") efforts and related expenses, (4) our future selling, general and administrative expenses ("SG&A"), (5) our cash and cash equivalents, short-term marketable securities and cash flows from operations being sufficient to satisfy working capital requirements and capital equipment needs for at least the next 12 months, (6) our ability to continue to finance operations with cash flows from operations, existing cash and investment balances, and some combination of long-term debt and/or lease financing and sales of equity securities, (7) the possibility of future acquisitions and investments, (8) our ability to accurately estimate our assumptions used in valuing stock-based compensation, (9) our ability to estimate and reconcile distributors' reported inventories to their activities, (10) our ability to estimate future cash flows associated with long-lived assets, and (11) the volatile global economic and financial market conditions. 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 business, operating results and financial condition to differ materially and adversely from what is projected or implied by any forward looking statement included in this Form 10-Q. Factors that could cause actual results to differ materially from those stated herein include, but are not limited to: the information contained under the caption "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 1A. Risk Factors", as well as those risks discussed in our Annual Report on Form 10-K for the fiscal year ended April 1, 2012. We disclaim any obligation to update information in any forward-looking statement, except as required by law.


Table of Contents

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements and notes thereto, included in this Quarterly Report on Form 10-Q, and our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 1, 2012, as filed with the Securities and Exchange Commission ("SEC"). Our results of operations for the three and six months ended September 30, 2012 are not necessarily indicative of results to be expected for any future period.

BUSINESS OVERVIEW

We design, develop and market high performance analog mixed-signal integrated circuits and advanced sub-system solutions for data communication, networking, storage, consumer and industrial applications. Our product portfolio includes power management and connectivity components, communications products, network security and storage optimization solutions. Our comprehensive knowledge of end-user markets along with the underlying analog, mixed signal and digital technology has enabled us to provide innovative solutions designed to meet the needs of the evolving connected world. Applying both analog and digital technologies, our products are deployed in a wide array of applications such as portable electronic devices, set top boxes, digital video recorders, networking and telecommunication systems, servers, enterprise storage systems and industrial automation equipment. We provide customers with a breadth of component products and subsystem solutions based on advanced silicon integration.

We market our products worldwide with sales offices and personnel located throughout the Americas, Europe, and Asia. Our products are sold in the United States through a number of manufacturers' representatives and distributors. Internationally, our products are sold through various regional and country specific distributors. Globally, these channel partners are assisted and managed by our regional sales teams. In addition to our regional sales teams, we also employ a worldwide team of field application engineers to work directly with our customers.

Our international sales consist of sales that are denominated in U.S. dollars. Our international related operating expenses expose us to fluctuations in currency exchange rates because our foreign operating expenses are denominated in foreign currencies while our sales are denominated in U.S. dollars. Our operating results are subject to fluctuations as a result of several factors that could materially and adversely affect our future profitability as described in "Part II, Item 1A. Risk Factors-Our Financial Results May Fluctuate Significantly Because Of A Number Of Factors, Many Of Which Are Beyond Our Control."

Our fiscal years consist of 52 or 53 weeks. In a 52-week year, each fiscal quarter consists of 13 weeks. Fiscal years 2013 and 2012 consist of 52 and 53 weeks, respectively, with the first quarter of fiscal year 2012 consisting of 14 weeks. All references to quarterly or three and six months ended financial results are references to the results of the relevant fiscal period.

Business Outlook

We experienced a sequential quarterly increase of 5% in our net sales in the second quarter as compared to the first quarter of fiscal year 2013. The increase in net sales as compared to the immediately prior quarter was primarily attributed to the growth in our Data Compression and Security and Connectivity product lines. Operating expenses decreased from $14.0 million in the first quarter to $13.7 in the second quarter of fiscal year 2013, due to a significant decrease in restructuring charges and exit costs from $0.8 million to $0.3 million quarter-to-quarter. We believe we are effectively managing our operating expenses while continuing to invest an appropriate amount in research and development projects for future products. In the third fiscal quarter of fiscal year 2013 compared to the second quarter, we expect sales, gross margin, and operating expenses to increase slightly.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our financial statements and accompanying disclosures in conformity with U.S. generally accepted accounting principles ("GAAP") requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes. The SEC has defined a company's critical accounting policies as policies that are most important to the portrayal of a company's financial condition and results of operations, and which require a company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified our most critical accounting policies and estimates to be as follows: (1) revenue recognition; (2) valuation of inventories; (3) income taxes; (4) stock-based compensation; (5) goodwill; (6) long-lived assets; and
(7) valuation of business combinations. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates if the assumptions, judgments and conditions upon which they are based turn out to be inaccurate. A further discussion of our critical accounting policies can be found in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended April 1, 2012.


Table of Contents

RESULTS OF OPERATIONS

The first quarter of fiscal years 2013 and 2012 consist of 13 and 14 weeks, respectively. In the following discussion of the results of operations, year-to-date fiscal year 2013 amounts are less than the fiscal year 2012 amounts due to the shorter quarter length in the first fiscal quarter, in addition to the other explanations cited below.

Net Sales by Product Line

Our net sales by product line in dollars and as a percentage of net sales were
as follows for the periods presented (in thousands, except percentages):



                                                   Three Months Ended                                              Six Months Ended
                                         September 30,             October 2,                           September 30,             October 2,
                                              2012                    2011              Change               2012                    2011              Change
Net Sales:
Connectivity                           $ 16,352        53 %    $ 18,788        52 %         (13 %)    $ 32,380        54 %    $ 37,826        52 %         (14 %)
Power management                          6,793        22 %       7,831        22 %         (13 %)      13,395        22 %      15,128        21 %         (11 %)
Data compression and security             4,538        15 %       4,959        14 %          (8 %)       8,227        14 %       8,853        12 %          (7 %)
Communications                            2,939        10 %       4,542        12 %         (35 %)       5,871        10 %      11,291        15 %         (48 %)

Total                                  $ 30,622       100 %    $ 36,120       100 %                   $ 59,873       100 %    $ 73,098       100 %

Software net sales have not been a significant part of our total net sales.

Connectivity

Net sales of Connectivity products, including UARTs and serial transceiver products, for the three and six months ended September 30, 2012 decreased by $2.4 million and $5.4 million, respectively, as compared to the same period a year ago due to lower sales volume across all regions and channels and price erosion on high volume serial transceiver products of $0.3 million and $0.8 million, respectively.

Power Management

Power Management products, including DC-DC regulators, LED drivers and programmable power management devices, for the three and six months ended September 30, 2012 decreased by $1.0 million and $1.7 million, respectively, as compared to the same period a year ago due to lower sales volume across all regions and channels and price erosion.

Data Compression and Security

Net sales of Data Compression and Security products, including network access and storage products, encryption and data reduction and packet processing products, for the three and six months ended September 30, 2012 decreased $0.4 million and $0.6 million, respectively, as compared to the same period a year ago. The decrease in net sales was primarily due to lower sales volume and price erosion on our end of life products.

Communications

Net sales of Communication products, including network access, transmission and transport products, for the three and six months ended September 30, 2012 decreased $1.6 million and $5.4 million, respectively, as compared to the same period a year ago. The decrease in net sales of these products is primarily due to lower sales volume of legacy SONET/SDH-based and packet-based devices.


Table of Contents

Net Sales by Channel

Our net sales by channel in dollars and as a percentage of net sales were as
follows for the periods presented (in thousands, except percentages):



                                                    Three Months Ended                                              Six Months Ended
                                          September 30,             October 2,                           September 30,             October 2,
                                               2012                    2011              Change               2012                    2011              Change
Net Sales:
Sell-through distributors               $ 17,068        56 %    $ 19,607        54 %         (13 %)    $ 34,220        57 %    $ 41,357        57 %         (17 %)
Direct and others                         13,554        44 %      16,513        46 %         (18 %)      25,653        43 %      31,741        43 %         (19 %)

Total                                   $ 30,622       100 %    $ 36,120       100 %                   $ 59,873       100 %    $ 73,098       100 %

Net sales to our distributors for which we recognize revenue on the sell-through basis for the three and six months ended September 30, 2012 decreased by $2.5 million and $7.1 million, respectively, as compared to the same period a year ago due to lower sales volume across all product lines except power management products and price erosion on high volume serial transceiver products.

Net sales to our direct customers and other distributors for the three and six months ended September 30, 2012 decreased by $3.0 million and $6.1 million, respectively, primarily attributable to lower sales volume across all product lines except power management products and average selling price erosion.

Net Sales by Geography

Our net sales by geography in dollars and as a percentage of net sales were as
follows for the periods presented (in thousands, except percentages):



                                                  Three Months Ended                                              Six Months Ended
                                        September 30,             October 2,                           September 30,             October 2,
                                             2012                    2011              Change               2012                    2011              Change
Net Sales:
Asia                                  $ 17,754        58 %    $ 21,606        60 %         (18 %)    $ 36,541        61 %    $ 43,079        59 %         (15 %)
Americas                                 8,265        27 %       9,582        26 %         (14 %)      14,586        24 %      18,962        26 %         (23 %)
EMEA                                     4,603        15 %       4,932        14 %          (7 %)       8,746        15 %      11,057        15 %         (21 %)

Total                                 $ 30,622       100 %    $ 36,120       100 %                   $ 59,873       100 %    $ 73,098       100 %

Net sales in Asia for the three months ended September 30, 2012 decreased by $3.9 million as compared to the same period a year ago due to lower sales volume across all of our product lines in the region and price erosion on high volume serial transceiver products.

Net sales in Americas for the three months ended September 30, 2012 decreased by $1.3 million as compared to the same period a year ago due to lower sales volume across all of our product lines in the region with the exception of Data Compression and Security products.

Net sales in Europe, the Middle East and Africa ("EMEA") for the three months ended September 30, 2012 decreased by $0.3 million as compared to the same period a year ago due to lower sales volume across all of our product lines in the region with the exception of Communication products.

Net sales in Asia for the six months ended September 30, 2012 decreased by $6.5 million as compared to the same period a year ago due to lower sales volume across all of our product lines in the region with the exception of Data Compression and Security products.

Net sales in Americas and EMEA for the six months ended September 30, 2012 decreased by $4.4 million and $2.3 million, respectively, as compared to the same period a year ago due to lower sales volume across all of our product lines in the region.


Table of Contents

Gross Profit

Our gross profit in dollars and as a percentage of net sales was as follows for
the periods indicated (in thousands, except percentages):



                                                  Three Months Ended                                             Six Months Ended
                                         September 30,            October 2,                           September 30,            October 2,
                                              2012                   2011              Change               2012                   2011              Change
Net Sales                              $  30,622               $ 36,120                              $  59,873               $ 73,098
Cost of sales:
Cost of sales                             16,434       53 %      18,486       51 %         (11 %)       31,897       53 %      37,718       52 %         (15 %)
Amortization of acquired intangible
assets                                       858        3 %         905        3 %          (5 %)        1,777        3 %       1,810        2 %          (2 %)

Gross profit                           $  13,330       44 %    $ 16,729       46 %                   $  26,199       44 %    $ 33,570       46 %

Gross profit represents net sales less cost of sales. Cost of sales includes:

the cost of purchasing finished silicon wafers manufactured by independent foundries;

the costs associated with assembly, packaging, test, quality assurance and product yields;

the cost of personnel and equipment associated with manufacturing, engineering and support;

the cost of stock-based compensation associated with manufacturing, engineering and support personnel;

the amortization of purchased intangible assets and acquired intellectual property;

the provision for excess and obsolete inventory;

the sale of previously reserved inventory, and

provisions for restructuring charges and exit costs.

Gross profit as a percentage of net sales for the three and six months ended September 30, 2012, respectively, decreased by approximately 2% as compared to the same period a year ago. The decrease in gross profit percentage was primarily due to unfavorable product mix.

We believe that gross profit will fluctuate as a percentage of sales and in absolute dollars due to, among other factors, sales mix, manufacturing costs, our ability to leverage fixed operational costs across increased shipment volumes and competitive pricing pressure on our products. We reduced employee-related costs through restructuring activities in the fourth quarter of fiscal year 2012. We began to realize the reduction in the underlying costs in fiscal year 2013.

Other Costs and Expenses

The following table shows other costs and expenses in dollars and as a
percentage of net sales for the periods indicated (in thousands, except
percentages):



                                                Three Months Ended                                             Six Months Ended
                                       September 30,            October 2,                           September 30,            October 2,
                                            2012                   2011              Change               2012                   2011              Change
Net Sales                            $  30,622               $ 36,120                              $  59,873               $ 73,098
R&D expense:                             5,773       19 %       8,838       24 %         (35 %)       11,222       19 %      18,118       25 %         (38 %)
SG&A expense:                            7,639       25 %       9,373       26 %         (18 %)       15,421       26 %      18,915       26 %         (18 %)


Table of Contents

Research and Development ("R&D")

Our R&D expenses consist primarily of:

the salaries, stock-based compensation, and related expenses of employees engaged in product research, design and development activities;

costs related to engineering design tools, mask tooling costs, software amortization, test hardware, and engineering supplies and services;

amortization of acquired intangible assets such as existing technology and patents/core technology; and

facilities expenses.

R&D expenses for the three months ended September 30, 2012 decreased $3.1 million, or 35%, as compared to the same period a year ago. R&D expenses for the six months ended September 30, 2012 decreased $6.9 million, or 38%, as compared to the same period a year ago. The decrease was primarily a result of lower labor and facility related expenses resulting from our reduction in force in the fourth quarter of fiscal year 2012 and lower maintenance costs on our design software.

We have a contractual agreement under which certain of our R&D costs are eligible for reimbursement. Amounts collected under this arrangement are offset against R&D expenses. For the second quarters of fiscal years 2013 and 2012, we offset $0.5 million and $1.0 million of R&D expenses in connection with this agreement, respectively. For the first six months of fiscal years 2013 and 2012, we offset $1.0 million and $2.5 million of R&D expenses in connection with this agreement, respectively.

We believe that R&D expenses will fluctuate as a percentage of sales and increase in absolute dollars due to, among other factors, higher mask costs in connection with advanced process geometries, increased investment in software development, incentives, annual merit increases and fluctuations in reimbursements under a research and development contract. We reduced employee related costs, rent and electronic design automation tool expenses through restructuring activities in the fourth quarter of fiscal year 2012. In connection with the restructuring, we eliminated our internal capability to physically design deep submicron products and adopted an outsourcing model instead. Partially offsetting our cost reductions, we are incurring incremental subcontract costs for deep submicron design, will hire engineers to execute our strategy and expect salary increases, profit sharing costs and a year over year reduction in reimbursement under R&D contract. We began to realize the net cost reduction in fiscal year 2013.

Selling, General and Administrative ("SG&A")

SG&A expenses consist primarily of:

salaries, stock-based compensation and related expenses;

sales commissions;

professional and legal fees;

amortization of acquired intangible assets such as distributor relationships, tradenames/trademarks and customer relationships; and

acquisition related costs.

SG&A expenses for the three months ended September 30, 2012 decreased $1.7 million, or 18%, as compared to the same period a year ago. SG&A expenses for the six months ended September 30, 2012 decreased $3.5 million, or 18%, as compared to the same period a year ago. The decrease was primarily a result of lower labor-related costs, incentives and professional fees.

We believe that SG&A expenses will fluctuate as a percentage of sales and in absolute dollars due to, among other factors, variable commissions, legal costs, incentives and annual merit increases. We reduced employee related costs through restructuring activities in the fourth quarter of fiscal year 2012. We began to realize the net cost reduction in fiscal year 2013.


Table of Contents

Restructuring Charges and Exit Costs



                                                 Three Months Ended                                           Six Months Ended
                                        September 30,            October 2,                         September 30,            October 2,
                                             2012                   2011             Change              2012                   2011             Change
Net Sales                             $  30,622               $ 36,120                            $  59,873               $ 73,098
Restructuring charges and exit
costs - cost of sales                        -        -             -        -            -              81       -            152       -           (47 %)
Restructuring charges and exit
costs - operating expenses                  291        1 %          -        -           100 %        1,095        2 %         173       -           533 %

During the second quarter of fiscal years 2013 and 2012, we incurred restructuring charges and exit costs of $0.3 million and $1.2 million, respectively, primarily consisting of severance benefits. See "Note 8 - Restructuring Charges and Exit Costs."

Other Income and Expenses

The following table shows other income and expenses in dollars and as a
percentage of net sales for the periods indicated (in thousands, except
percentages):



                                                  Three Months Ended                                              Six Months Ended
                                        September 30,             October 2,                           September 30,             October 2,
                                             2012                    2011              Change               2012                    2011              Change
Net Sales                             $ 30,622                $ 36,120                               $ 59,873                $ 73,098
Interest income and other, net             674         2 %         715         2 %          (6 %)       1,320         2 %       1,426         2 %          (7 %)
Interest expense                           (38 )      -            (61 )      -            (38 %)         (72 )      -           (121 )      -            (40 %)

Interest Income and Other, Net

Interest income and other, net primarily consists of:

interest income;

foreign exchange gains or losses;

realized gains or losses on marketable securities; and

realized gains or losses on sales of fixed assets and intangible assets.

The decrease in interest income and other, net during the three and six months ended September 30, 2012 as compared to the same period a year ago was primarily attributable to a decrease in interest income as a result of lower yield related to our cash investments and lower invested cash balances, offset by a gain on the sale of intangible assets of $0.2 million in the second quarter of fiscal year 2013.

Interest Expense

. . .

  Add EXAR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for EXAR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.