XNAS:MPWR Monolithic Power Systems Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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mpsi_10q-063012.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 


FORM 10-Q
 

 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 000-51026
 

 
Monolithic Power Systems, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 


Delaware
77-0466789
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
79 Great Oaks Boulevard, San Jose, CA 95119 (408) 826-0600
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE AND TELEPHONE NUMBER)
 

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   
Yes x No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o Accelerated filer  x Non-accelerated filer  o Smaller reporting company  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No  x
 
There were 34,842,856 shares of the registrant’s common stock issued and outstanding as of July 17, 2012.
 


 
1

 
 
MONOLITHIC POWER SYSTEMS, INC.

 
TABLE OF CONTENTS
 
PAGE
PART I. FINANCIAL INFORMATION
 
3
ITEM 1.
FINANCIAL STATEMENTS (Unaudited)
 
3
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
3
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
4
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  5
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
6
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
7
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
19
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
29
ITEM 4.
CONTROLS AND PROCEDURES
 
30
PART II. OTHER INFORMATION
 
30
ITEM 1.
LEGAL PROCEEDINGS
 
30
ITEM 1A.
RISK FACTORS
 
31
ITEM 4.
MINE SAFETY DISCLOSURES
 
44
ITEM 6.
EXHIBITS
 
45
 
 
2

 
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS

 
MONOLITHIC POWER SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(Unaudited)

   
June 30,
2012
   
December 31,
2011
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 81,644     $ 96,371  
Short-term investments
    103,013       77,827  
Accounts receivable, net of allowances of $5 in 2012 and 2011
    21,415       15,097  
Inventories
    29,455       20,104  
Deferred income tax assets, net - current
    646       421  
Prepaid expenses and other current assets
    1,978       1,685  
Total current assets
    238,151       211,505  
Property and equipment, net
    59,584       47,794  
Long-term investments
    11,714       13,675  
Deferred income tax assets, net - long-term
    19       239  
Other assets
    606       654  
Total assets
  $ 310,074     $ 273,867  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 17,701     $ 8,904  
Accrued compensation and related benefits
    11,035       9,321  
Accrued liabilities
    6,848       7,845  
Total current liabilities
    35,584       26,070  
                 
Non-current income tax liabilities
    5,249       4,920  
Total liabilities
    40,833       30,990  
Commitments and contingencies
               
Stockholders' equity:
               
Common stock, $0.001 par value, $35 and $34 in 2012 and 2011, respectively; shares authorized: 150,000,000; shares issued and outstanding: 34,820,281 and 33,826,032 in 2012 and 2011, respectively
    175,624       159,336  
Retained earnings
    89,535       79,948  
Accumulated other comprehensive income
    4,082       3,593  
Total stockholders’ equity
    269,241       242,877  
Total liabilities and stockholders’ equity
  $ 310,074     $ 273,867  

See accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
MONOLITHIC POWER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
                         
Revenue
  $ 58,607     $ 51,628     $ 109,091     $ 96,096  
Cost of revenue (1)
    27,435       25,070       51,509       47,233  
                                 
Gross profit
    31,172       26,558       57,582       48,863  
Operating expenses:
                               
Research and development (2)
    12,468       11,237       23,586       21,323  
Selling, general and administrative (3)
    12,167       10,343       24,133       19,833  
Litigation expense (benefit)
    (244 )     939       (116 )     1,752  
Total operating expenses
    24,391       22,519       47,603       42,908  
Income from operations
    6,781       4,039       9,979       5,955  
Interest income and other, net
    359       24       465       207  
                                 
Income before income taxes
    7,140       4,063       10,444       6,162  
Income tax provision
    548       581       857       787  
                                 
Net income
  $ 6,592     $ 3,482     $ 9,587     $ 5,375  
Basic net income per share
  $ 0.19     $ 0.10     $ 0.28     $ 0.16  
Diluted net income per share
  $ 0.18     $ 0.10     $ 0.27     $ 0.15  
Weighted average common shares outstanding:
         
Basic
    34,665       33,846       34,385       34,432  
Diluted
    35,997       34,903       35,660       35,598  
                                 
                                 
(1) Includes stock-based compensation expense
  $ 118     $ 89     $ 213     $ 152  
(2) Includes stock-based compensation expense
  $ 1,524     $ 1,550     $ 2,790     $ 2,977  
(3) Includes stock-based compensation expense
  $ 2,187     $ 2,036     $ 4,141     $ 3,533  
Total stock-based compensation expense
  $ 3,829     $ 3,675     $ 7,144     $ 6,662  
 
See accompanying notes to condensed consolidated financial statements. 

 
4

 
 
MONOLITHIC POWER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)

   
Three months ended June 30,
   
Six months ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Net income
  $ 6,592     $ 3,482     $ 9,587     $ 5,375  
Other comprehensive income (loss):
                               
Auction-rate securities valuation reserve adjustment
    9       -       99       140  
Unrealized gain/ (loss) on available-for-sale securities
    10       9       (6 )     2  
Foreign currency translation adjustments
    (2 )     704       396       858  
Comprehensive income
  $ 6,609     $ 4,195     $ 10,076     $ 6,375  
 
5

 

MONOLITHIC POWER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
  
   
Six months ended June 30,
 
   
2012
   
2011
 
             
Cash flows from operating activities:
           
Net income
  $ 9,587     $ 5,375  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    4,453       4,375  
Loss on disposal of property and equipment
    79       -  
Amortization and realized gain on debt instruments
    87       308  
Deferred income tax assets
    (2 )     -  
Credit gain on auction-rate securities
    (40 )     -  
Tax benefit from stock option transactions
    1,929       1,845  
Excess tax benefit from stock option transactions
    (767 )     (474 )
Stock-based compensation
    7,144       6,662  
Changes in operating assets and liabilities:
               
Accounts receivable
    (6,318 )     758  
Inventories
    (9,350 )     1,082  
Prepaid expenses and other current assets
    (297 )     661  
Accounts payable
    5,912       2,062  
Accrued and other long-term liabilities
    (999 )     1,290  
Accrued income taxes payable and noncurrent tax liabilities
    (834 )     (1,612 )
Accrued compensation and related benefits
    1,708       (818 )
Net cash provided by operating activities
    12,292       21,514  
                 
Cash flows from investing activities:
               
Property and equipment purchases
    (13,184 )     (5,271 )
Proceeds from sale of property and equipment
    13       -  
Purchases of short-term investments
    (86,774 )     (22,957 )
Proceeds from sale of short-term investments
    61,518       86,719  
Proceeds from sale of long-term investments
    2,100       2,100  
Net cash provided by (used in) investing activities
    (36,327 )     60,591  
                 
Cash flows from financing activities:
               
Proceeds from issuance of common stock
    7,341       4,262  
Proceeds from employee stock purchase plan
    1,036       928  
Repurchase of common stock
    -       (38,472 )
Excess tax benefits from stock option transactions
    767       474  
Net cash provided by (used in) financing activities
    9,144       (32,808 )
                 
Effect of change in exchange rates
    164       378  
Net increase (decrease) in cash and cash equivalents
    (14,727 )     49,675  
Cash and cash equivalents, beginning of period
    96,371       48,010  
Cash and cash equivalents, end of period
  $ 81,644     $ 97,685  
                 
Supplemental disclosures for cash flow information:
               
Cash paid for taxes
  $ 423     $ 381  
Supplemental disclosures of non-cash investing and financing activities:
               
Liability accrued for equipment purchases
  $ 4,414     $ 527  
Temporary impairment reversal of auction-rate securities
  $ (99 )   $ (140 )

See accompanying notes to condensed consolidated financial statements.
 
 
6

 
 
MONOLITHIC POWER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1. Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared by Monolithic Power Systems, Inc. (the “Company” or “MPS”) in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted in accordance with these rules and regulations. The information in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Form 10-K filed with the SEC on March 12, 2012.
 
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The financial statements contained in this Form 10-Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or for any other future period.
 
Summary of Significant Accounting Policies
 
There have been no changes to the Company significant accounting policies during the six months ended June 30, 2012 as compared to the significant accounting policies described in the Company audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
 
Recently Adopted Accounting Pronouncements
 
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update  (“ASU”) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) – Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The ASU is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2011 and should be applied prospectively. The Company adopted this standard effective January 1, 2012.
 
In June 2011, the FASB issued ASU No. 2011-05 relating to Comprehensive Income (Topic 220) – Presentation of Comprehensive Income (ASU 2011-05), which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2011 and must be applied retrospectively. The Company adopted this standard effective January 1, 2012.
 
2. Stock-Based Compensation — The Company has two stock option plans and an employee stock purchase plan (ESPP)—the 1998 Stock Option Plan, the 2004 Equity Incentive Plan and the 2004 Employee Stock Purchase Plan. The Company recognized stock-based compensation expenses for the three and six months ended June 30, 2012 and 2011, as follows (in thousands):
 
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Non-Employee
  $ 6     $ 4     $ 11     $ 8  
ESPP
  $ 179       150       390       302  
Restricted Stock
  $ 2,881       2,057       5,061       3,220  
Stock Options
  $ 763       1,464       1,682       3,132  
TOTAL
  $ 3,829     $ 3,675     $ 7,144     $ 6,662  
 
 
7

 

MONOLITHIC POWER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (Unaudited)
 
 
2004 Equity Incentive Plan

The Company’s Board of Directors adopted the Company’s 2004 Equity Incentive Plan in March 2004, and the Company’s stockholders approved it in November 2004. Options granted under the 2004 Plan have a maximum term of ten years. New hire grants generally vest over four years at the rate of 25 percent one year from the date of grant and 1/48th monthly thereafter. Refresh grants generally vest over four years at the rate of 50 percent two years from the date of grant and 1/48th monthly thereafter. There were 800,000 shares initially reserved for issuance under the 2004 Plan. The 2004 Plan provides for annual increases in the number of shares available for issuance beginning on January 1, 2005 equal to the lesser of: 5% of the outstanding shares of common stock on the first day of the year, 2,400,000 shares, or a number of shares determined by the Board of Directors. The following is a summary of the 2004 Plan, which includes stock options and restricted stock awards and units:

Available for Grant as of December 31, 2011
    4,291,737  
2012 Additions to Plan
    1,641,301  
2012 Grants
    (837,931 )
2012 Cancellations
    110,705  
Available for Grant as of June 30, 2012
    5,205,812  


A summary of the status of the Company’s stock option plans at June 30, 2012 and changes during the six months then ended is presented in the table below: 

   
Stock Options
   
Weighted
Average
Exercise Price
   
Weighted
Average
Remaining
Contractual
Term (Years)
   
Aggregate
Intrinsic Value
 
Outstanding at December 31, 2011 (4,202,786 options exercisable at a weighted-average exercise price of $15.05 per share)
    4,863,239     $ 15.31       3.44     $ 8,817,049  
Options granted (weighted-average fair value of $6.69 per share)
    7,000       15.96                  
Options exercised
    (661,843 )     11.09                  
Options forfeited and expired
    (59,041 )     20.69                  
Outstanding at June 30, 2012
    4,149,355       15.91       3.08       18,556,231  
Options exercisable at June 30, 2012 and expected to become exercisable
    4,127,134       15.91       3.06       18,465,230  
Options vested and exercisable at June 30, 2012
    3,768,592     $ 15.83       2.90     $ 17,125,148  
 

The total fair value of options that vested during the three months ended June 30, 2012 and 2011 was $0.8 million and $1.5 million, respectively, and the total fair value of options that vested during the six months ended June 30, 2012 and 2011 was $1.7 million and $3.1 million. The total intrinsic value of options exercised during the three months ended June 30, 2012 and 2011 was $2.8 million and $0.7 million, respectively. The total intrinsic value of options exercised was $5.5 million during both the six months ended June 30, 2012 and 2011. Net cash proceeds from the exercise of stock options were $3.4 million for the three months ended June 30, 2012 and $0.7 million for the three months ended June 30, 2011. Net cash proceeds from the exercise of stock options were $7.3 million for the six months ended June 30, 2012 and $4.3 million for the six months ended June 30, 2011. At June 30, 2012, unamortized compensation expense related to unvested options was approximately $2.6 million, net of estimated forfeitures. The weighted average period over which compensation expense related to these options will be recognized is approximately 1.8 years. 
 
The employee stock-based compensation expense recognized under Accounting Standards Codification (“ASC”) 718-10-30 Compensation – Stock Compensation –Overall - Initial Measurement, was determined using the Black-Scholes option pricing model. Option pricing models require the input of subjective assumptions and these assumptions can vary over time. The Company did not grant any stock option awards during the three months ended June 30, 2012. Weighted-average assumptions to determine the fair values of stock option awards granted were as follows:
 
 
8

 
 
MONOLITHIC POWER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (Unaudited)
 
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Expected term (years)
    3.8       4.0       4.1       4.0  
Expected volatility
    53.4 %     53.0 %     53.4 %     52.9 %
Risk-free interest rate
    0.6 %     1.3 %     0.6 %     1.4 %
Dividend yield
    -       -       -       -  
 
 
In estimating the expected term, the Company considers its historical stock option exercise experience, post vesting cancellations and remaining contractual term of the options outstanding. In estimating the expected volatility, the Company uses its own historical data to determine its estimated expected volatility. The Company uses the U.S. Treasury constant maturity yield based on the expected term for its risk-free interest rate and a dividend yield of zero as it does not issue dividends. The Company applies a forfeiture rate that is based on options that have been forfeited historically.
 
Restricted Stock

The Company grants restricted stock units (RSUs), which vest generally over four years as determined by the Company’s Compensation Committee, and are issued upon vesting. Before vesting, these restricted stock units are not eligible for dividends, if and when declared. A summary of the restricted stock units is presented in the table below:
 
 
   
Restricted Stock Units
   
Weighted Average Grant Date Fair Value Per Share
   
Weighted Average Remaining Recognition Period (Years)
 
Outstanding at December 31, 2011
    1,299,556     $ 16.87       2.71  
Awards granted
    830,931       18.22          
Awards released
    (235,159 )     17.66          
Awards forfeited
    (51,664 )     16.92          
Outstanding at June 30, 2012
    1,843,664     $ 17.50       2.57  


The total expense recognized for RSUs was $2.9 million for the three months ended June 30, 2012 and $2.1 million for the three months ended June 30, 2011. The total expense recognized for RSUs was $5.1 million for the six months ended June 30, 2012 and $4.6 million for the six months ended June 30, 2011, respectively. The intrinsic value on the vesting date related to restricted stock units released for the three months ended June 30, 2012 and 2011 was $2.4 million and $1.4 million, respectively, and the intrinsic value on the vesting date related to restricted stock units released for the six months ended June 30, 2012 and 2011 was $4.4 million and $3.1 million, respectively. The intrinsic value related to restricted stock units outstanding at June 30, 2012 and 2011 was $36.6 million and $21.8 million, respectively. At June 30, 2012, the unamortized compensation expense related to unvested restricted stock units was approximately $22.1 million, net of estimated forfeitures, with a weighted average remaining recognition period of 2.6 years.

On February 25, 2010, the Board granted 416,000 performance units to the Company’s executive officers. These performance units generally vest over four years, with a graded acceleration feature that allows all or a portion of these awards to be accelerated if certain performance conditions are satisfied. The amount of shares to be accelerated is based on achieving certain performance targets, with the minimal acceleration occurring if performance exceeds at least 110% of non-GAAP earnings per share as set forth in the Company’s annual operating plan approved by the Board, as determined by the Compensation Committee in its sole discretion. The Compensation Committee has the discretion not to accelerate any shares, if it so chooses, even if the performance targets are met. To date, none of the shares have been accelerated.
 
 
9

 
 
MONOLITHIC POWER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (Unaudited)


The Company granted 153,000 Time-based RSUs to its CEO in February 2011. In the fourth quarter of 2011, the compensation committee proposed modifying half of the Time-based RSUs to Performance-based RSUs and on February 7, 2012 the Board approved the performance goals based on the Company’s 2012 revenue (“2012 Modification”). The Performance-based RSUs will vest on a quarterly basis during the period following the achievement of the goal. The maximum number of RSUs the CEO may receive is 100% of the Performance-based RSUs originally granted.

On February 14, 2012, the Board granted 413,000 Restricted Stock Units (“RSUs) to the Company’s executive officers. Fifty percent of RSUs granted to Company’s executive officers will vest over two years on a quarterly basis (“Time-based RSUs”) and 50% of the units will represent a target number of RSUs awarded upon achievement of a pre-determined goal (“2012 Executive RSUs ”) for the Company’s revenue in 2013 (“Performance-based RSUs”). Half of these Performance-based RSUs will vest when earned with the remainder vesting during the following two years on a quarterly basis. The maximum number of RSU an executive employee may receive is 300% of the Performance-based RSUs originally granted. The Performance-based RSUs earned will be reduced by maximum 15% in the event that the Company’s total shareholder return (“TSR”), defined as the cumulative change in share price plus dividends, as compared to the Company’s compensation peer group is below a specified percentile for calendar years 2012 and 2013.

On April 24, 2012, the Company granted 344,650 RSUs to its existing non-executive employees. These RSUs grants include 219,317 Time-based RSUs and 125,333 Performance-based RSUs. The Performance-based RSUs will be a target number of RSUs awarded upon achievement of a pre-determined goal (“2012 Non-Executive RSUs”) for the reported revenue of the Company, certain regions or product-line divisions in 2013. Half of these Performance-based RSUs will vest when earned with the remainder vesting during the following two years on a quarterly basis. The maximum number of RSUs an employee may receive is 300% of the Performance-based RSUs originally granted.

Based on the Company’s revenue forecast as of June 30, 2012, the Company has determined that it is probable that it will be able to achieve the pre-determined goal for the 2012 Modification, 2012 Executive RSUs and for the majority of 2012 Non-Executive RSUs which will allow the eligible employees to receive 100% of the RSUs originally granted. The Company has recorded stock-based compensation expense for the Performance-based RSUs, expected to meet the pre-determined goal, based on grant date fair value adjusted for forfeiture rate which will be amortized based on graded-vesting method.
 
2004 Employee Stock Purchase Plan
 
Under the 2004 Employee Stock Purchase Plan (the Purchase Plan), eligible employees may purchase common stock through payroll deductions. Participants may not purchase more than 2,000 shares in a six-month offering period or stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period in accordance with the Internal Revenue Code and applicable Treasury Regulations. A total of 200,000 shares of common stock were reserved for issuance under the Purchase Plan.  The Purchase Plan provides for an automatic annual increase beginning on January 1, 2005 by an amount equal to the lesser of: 1,000,000 shares, 2% of the outstanding shares of common stock on the first day of the year, or a number of shares as determined by the Board of Directors. For the six months ended June 30, 2012 and 2011, 97,247 shares and 70,685 shares, respectively, were issued under the Purchase Plan. The following is a summary of the Purchase Plan and changes during the six months ended June 30, 2012:

Available Shares as of December 31, 2011
    3,693,210  
2012 Additions
    676,520  
2012 Purchases
    (97,247 )
Available Shares as of June 30, 2012
    4,272,483  
 


The Purchase Plan is considered compensatory under ASC 718-50-25, Compensation – Stock Compensation - Employee Share Purchase Plans - Recognition, and is accounted for in accordance with ASC 718-50-30 Compensation – Stock Compensation - Employee Share Purchase Plans - Initial Measurement - Look-Back Plans. The intrinsic value for stock purchased was $0.7 million and $0.2 million for each of the six months ended June 30, 2012 and 2011, respectively. The unamortized expense as of June 30, 2012 was $0.1 million, which will be recognized over 0.1 years. The Black-Scholes option pricing model was used to value the employee stock purchase rights. For the six months ended June 30, 2012 and 2011, the following weighted average assumptions were used in the valuation of the stock purchase rights:
 
 
10

 
 
MONOLITHIC POWER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (Unaudited)
 
   
Six months ended June 30,
 
   
2012
   
2011
 
Expected term (years)
    0.5       0.5  
Expected volatility
    50.7 %     37.5 %
Risk-free interest rate
    0.1 %     0.2 %
Dividend yield
    -       -  

Cash proceeds from employee stock purchases for each of the six months ended June 30, 2012 and 2011 was $1.0 million and $0.9 million, respectively.
 
3. Inventories - Inventories consist of the following (in thousands):

   
June 30,
2012
   
December 31,
2011
 
Work in progress
  $ 18,880     $ 11,596  
Finished goods
    10,575       8,508  
Total inventories
  $ 29,455     $ 20,104  
                                                                                                            
   
4. Accrued Liabilities- Accrued liabilities consist of the followig (in thousands):
 
   
June 30,
2012
   
December 31,
2011
 
Deferred revenue and customer prepayments
  $ 2,820     $ 3,603  
Stock rotation reserve
    1,203       1,086  
Legal expenses and settlement costs
    607       911  
Warranty
    443       561  
Other
    1,775       1,684  
Total accrued liabilities
  $ 6,848     $ 7,845  
 
A roll-forward of the warranty reserve for the six months ended June 30, 2012 and 2011 is as follows (in thousands):
 
   
Six months ended June 30,
 
   
2012
   
2011
 
Balance at beginning of year
  $ 561     $ 764  
Warranty costs
    (124 )     (333 )
Unused warranty provision
    (213 )     (220 )
Warranty provision for product sales
    219       515  
Balance at end of period
  $ 443     $ 726  
 

5. Net Income per Share — Basic net income per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share is calculated using the treasury stock method and reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into common stock.  For the three and six months ended June 30, 2012 and 2011, the Company had securities outstanding, which could potentially dilute basic net income per share in the future, but were excluded from the computation of diluted net income per share in the periods presented, as their effect would have been anti-dilutive. The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):
 
 
11

 
 
MONOLITHIC POWER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (Unaudited)
 

   
Three months ended June 30,
   
Six months ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Numerator:
                       
Net income
  $ 6,592     $ 3,482     $ 9,587     $ 5,375  
                                 
Denominator:
                               
Weighted average oustanding shares used to compute basic net income per share
    34,665       33,846       34,385       34,432  
Effect of dilutive securities
    1,332       1,057       1,275       1,166  
Weighted average oustanding shares used to compute diluted net income per share
    35,997       34,903       35,660       35,598  
                                 
Net income per share - basic
  $ 0.19     $ 0.10     $ 0.28     $ 0.16  
Net income per share - diluted
  $ 0.18     $ 0.10     $ 0.27     $ 0.15  

For the three months ended June 30, 2012 and 2011, approximately 1.3 million and 4.1 million weighted common stock equivalents, respectively, were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive. For the six months ended June 30, 2012 and 2011, approximately 1.7 million and 4.3 million weighted common stock equivalents, respectively, were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive.

6. Segment Information
 
As defined by the requirements of ASC 280-10-50 Segment Reporting – Overall - Disclosure, the Company operates in one reportable segment that includes the design, development, marketing and sale of high-performance, mixed-signal analog semiconductors for the communications, computing, consumer, and industrial markets. Geographic revenue is based on the location to which customer shipments are delivered. For the three and six months ended June 30, 2012 and 2011, the Company derived substantially all of its revenue from sales to customers located outside North America. The following is a list of customers whose sales exceeded 10% of revenue for the three and six months ended June 30, 2012 and 2011.
 
     
Three months ended June 30,
   
Six months ended June 30,
 
Customers
   
2012
   
2011
   
2012
   
2011
 
                           
  A       16 %     16 %     15 %     16 %
  B       13 %     *       14 %     *  
 
 (*) represents less than 10%
 
The following is a summary of revenue by geographic region based on customer ship-to location (in thousands):

   
Three months ended June 30,
   
Six months ended June 30,
 
Country
 
2012
   
2011
   
2012
   
2011
 
China
  $ 35,091     $ 31,203     $ 64,184     $ 54,880  
Taiwan
    7,820       5,156       14,235       10,285  
Korea
    2,600       4,417       4,559       8,844  
Europe
    3,793       3,567       7,983       7,042  
Japan
    2,355       2,740       4,661       5,718  
USA
    1,601       860       2,713       1,966  
Other
    5,347       3,685       10,756       7,361  
Total
  $ 58,607     $ 51,628     $ 109,091     $ 96,096  

 
 
12

 
 
MONOLITHIC POWER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (Unaudited)

The following is a summary of revenue by product family (in thousands):
 
   
Three months ended June 30,
   
Six months ended June 30,
 
Product Family
 
2012
   
2011
   
2012
   
2011
 
DC to DC Converters
  $ 51,165     $ 44,771     $ 95,507     $ 83,351  
Lighting Control Products
    7,442       6,857       13,584       12,745  
Total
  $ 58,607     $ 51,628     $ 109,091     $ 96,096  
 
 
The following is a summary of long-lived assets by geographic region (in thousands):
 
   
June 30, 2012
   
December 31, 2011
 
China
  $ 38,170     $ 32,566  
United States
    21,835       15,662  
Taiwan
    73       98  
Japan
    68       70  
Other
    44       51  
TOTAL
  $ 60,190     $ 48,447  
 

On July 8, 2011, the Company purchased the property located at 79 Great Oaks Boulevard in San Jose, California, to be used as its new headquarters and sales offices. The property consists of an approximately 106,262 square foot office building and approximately 5.5 acres of land. The $11.0 million purchase price for the property was allocated based on an independent third party valuation with $5.0 million attributable to the building and $6.0 million attributable to the land. The Company moved to its new headquarters and started to depreciate the building in May 2012. The increase of $6.2 million in the long-lived assets for the six months ended June 30, 2012 for the United States was primarily related to the building improvements at this new location. Buildings and building improvements have a depreciation life of up to 40 years.
 
7. Litigation
 
On September 16, 2011 and September 29, 2011, two nearly identical shareholder derivative actions were filed in the United States District Court for the Northern District of California and the California Superior Court for Santa Clara County, naming as defendants certain of the Company’s current and former directors and officers and the Company’s compensation advisory firm.  The complaints asserted claims for, among other things, breach of fiduciary duty in connection with the directors' approval of compensation for the Company's executive officers during 2010.  The complaints each sought an award of damages in favor of the Company, equitable relief, costs and attorney's fees. On March 2, 2012, the parties in the state court action stipulated to the dismissal without prejudice of that action. On April 3, 2012, a hearing was held in the United States District Court on the defendants’ motions to dismiss the case. On June 13, 2012, the United States District Court issued an order granting the motions and dismissing the complaint without prejudice.  The court ruled that the plaintiff had failed to sufficiently allege that pre-suit demand on the Company’s board of directors was excused, and granted the plaintiff leave to amend the complaint. The plaintiff subsequently informed the defendants that it did not intend to amend the complaint. On July 9, 2012, the parties in the federal court action stipulated to the dismissal without prejudice of that action, and on July 10, 2012, the federal court signed an order dismissing the action without prejudice.

On May 3, 2012, the United States District Court for the Northern District of California issued an order finding O2 Micro International, Ltd. (“O2 Micro”) liable for approximately $9.1 million in attorneys’ fees and non-taxable costs, plus interest, in connection with the patent litigation that the Company won in 2010.  This award is in addition to the approximately $340,000 in taxable costs that the Court had earlier ordered O2 Micro to pay to the Company in connection with the same lawsuit. The matter originated when O2 Micro filed complaints against the Company in both the United States International Trade Commission (“ITC”) and the Northern District of California, alleging that the Company infringed four O2 Micro patents but then voluntarily dismissed three patents. In June 2010, the ITC found that the Company's products did not infringe O2 Micro’s patent. Subsequently, O2 Micro unilaterally dismissed its infringement claims with prejudice, and granted the Company and its customers broad covenants not to sue in the district court case. On March 3, 2011, the Court ordered O2 Micro to pay the Company $339,315.13 in costs. The Court also found that “O2 Micro engaged in a vexatious litigation strategy and litigation misconduct,” entitling the Company to its reasonable attorneys' fees. O2 Micro's vexatious litigation strategy consisted of filing lawsuits against the Company and its customers; only to dismiss them after substantial litigation had taken place. This allowed O2 Micro to damage the Company's business while avoiding trials at which the validity of its patents would be challenged. Since that time, the Company submitted the documentation for its attorneys’ fees and non-taxable costs. O2 Micro challenged those fees on various grounds. On May 3, 2012, the Court accepted the Company’s figures and entered an order awarding $8,419,429 in attorneys’ fees, and $663,151 in non-taxable costs, plus interest. The Court then entered judgment for the Company. The Company anticipates that O2 Micro will appeal the Court’s orders and the final judgment. These amounts will be recognized in the Consolidated Financial Statements of the Company when all related appeals have been exhausted and collectability is probable.  
 
 
13

 
 
MONOLITHIC POWER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (Unaudited)
 
The Company and certain of its subsidiaries are parties to actions and proceedings incident to the Company's business in the ordinary course of business, including litigation regarding its intellectual property, challenges to the enforceability or validity of its intellectual property and claims that the Company’s products infringe on the intellectual property rights of others. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company defends itself vigorously against any such claims.

In December 2011, the Company entered into a settlement and license agreement with a third-party company for infringement of the Company’s patent whereby the Company will receive a total of $2 million which will be paid in equal installments of $0.3 million in each quarter of 2012 and the remainder will be paid in two equal installments in first two quarters of 2013. For the three and six months ended June 30, 2012, the Company received the $0.3 million and $0.6 million payments, respectively, which were recorded as credits to litigation expenses in the Condensed Consolidated Statements of Operations.
 
8. Fair Value Measurements
 
The following is a schedule of Company’s cash and cash equivalents, short-term investments and long-term investments as of June 30, 2012 and December 31, 2011 (in thousands):
 
   
Estimated Fair Market Value as of
 
   
June 30, 2012
   
December 31, 2011
 
   
(In thousands)
 
Cash, Cash Equivalents and Investments

XNAS:MPWR Monolithic Power Systems Inc Quarterly Report 10-Q Filling

Monolithic Power Systems Inc XNAS:MPWR Stock - Get Quarterly Report SEC Filing of Monolithic Power Systems Inc XNAS:MPWR stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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XNAS:MPWR Monolithic Power Systems Inc Quarterly Report 10-Q Filing - 6/30/2012
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