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Silicon Motion Announces Results For The Period Ended December 31, 2012

Stocks in this article: SIMO

Our non-GAAP financial measures are provided to enhance the user's overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors as these non-GAAP results exclude certain expenses, gains and losses that we believe are not indicative of our core operating results and because it is consistent with the financial models and estimates published by many analysts who follow the Company. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with our forecasts, and for benchmarking our performance externally against our competitors. Also, when evaluating potential acquisitions, we exclude the items described below from our consideration of the target's performance and valuation. Since we find these measures to be useful, we believe that our investors benefit from seeing the results from management's perspective in addition to seeing our GAAP results. We believe that these non-GAAP measures, when read in conjunction with the Company's GAAP financials, provide useful information to investors by offering:

–  the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;

–  the ability to better identify trends in the Company's underlying business and perform related trend analysis;

–  a better understanding of how management plans and measures the Company's underlying business; and

–  an easier way to compare the Company's operating results against analyst financial models and operating results of our competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of each of the adjustments that we incorporate into our non-GAAP measures, as well as the reasons for excluding each of these individual items in our reconciliation of these non-GAAP financial measures:

Stock-based compensation expense consists of non-cash charges related to the fair value of stock options and restricted stock units awarded to employees. The Company believes that the exclusion of these non-cash charges provides for more accurate comparisons of our operating results to our peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, the Company believes it is useful to investors to understand the specific impact of share-based compensation on its operating results.

Acquisition-related charges consist of non-cash charges that can be impacted by the timing and magnitude of our acquisitions.  We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures.  We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.  Acquisition-related charges include the following:

–  Amortization of intangible assets relates to the amortization of core technology, customer relationship, and other intangibles acquired as part of an acquisition.

Foreign exchange gains and losses prior to January 1, 2012, consist of translation gains and/or losses of non-NT$ denominated current assets and current liabilities, as well as certain other balance sheet items which result from the appreciation or depreciation of non-NT$ currencies against the NT$.  Beginning January 1, 2012, due to a change in functional currency of our largest operating subsidiary, we changed our reporting currency from the NT$ to US$ and subsequently our foreign exchange gains and losses now consist of translation gains and/or losses of non-US$ denominated current assets and current liabilities, as well as certain other balance sheet items which result from the appreciation or depreciation of non-US$ currencies against the US$.    We do not use financial instruments to manage the impact on our operations from changes in foreign exchange rates, and because our operations are subject to fluctuations in foreign exchange rates, we therefore exclude foreign exchange gains and losses when presenting non-GAAP financial measures.

Other non-recurring items:

–  Litigation expenses consist of legal expenses relating to intellectual property disputes, commercial claims and other types of litigation. While litigation may arise in the ordinary course of our business, we nevertheless consider litigation to be an unusual, non-recurring and unplanned activity and therefore exclude this charge when presenting non-GAAP financial measures.

–  Vendor dispute charges relate to the write down of certain unsalable inventory due to defects in the components provided by our vendor. These parts were supplied to us at a quality below levels previously specified and agreed.  All parts known to be defective have been identified and are within our control.  We have resolved this matter with our vendor and recovered in 1Q 2013 the full value of the inventory being written off. This charge (as well as the amount recovered) has been excluded from our non-GAAP results as we believe this is an unusual, non-recurring and unplanned activity. 

Silicon Motion Technology Corporation Consolidated Statements of Income (in thousands, except percentages and per ADS data, unaudited)  
   
  For the Three Months Ended
  Dec. 31, 2011  (US$) Sep. 30, 2012  (US$) Dec. 31, 2012  (US$)  
Net Sales 67,146 77,066 70,605  
Cost of sales 33,762 41,424 40,251  
Gross profit 33,384 35,642 30,354  
Operating expenses        
Research & development 12,389 12,076 14,296  
Sales & marketing 4,312 4,234 3,799  
General & administrative 2,604 2,776 2,968  
Operating income 14,079 16,556 9,291  
         
Non-operating income (expense)        
Gain on sale of investments 5 1 --  
Interest income, net 226 378 400  
Foreign exchange gain (loss),net (1,079) 362 (49)  
Others, net 4 17 (118)  
Subtotal (844) 758 233  
Income before income tax 13,235 17,314 9,524  
Income tax expense (benefit) 992 1,692 1,595  
Net income 12,243 15,622 7,929  
         
Basic earnings per ADS $0.39 $0.48 $0.24  
Diluted earnings per ADS $0.37 $0.46 $0.23  
         
Margin Analysis:        
Gross margin 49.7% 46.3% 43.0%  
Operating margin 21.0% 21.5% 13.2%  
Net margin 18.2% 20.3% 11.2%  
         
Additional Data:        
Weighted avg. ADS equivalents 2 31,053 32,428 32,468  
Diluted ADS equivalents 33,315 33,647 33,820  
         
2Assumes all outstanding ordinary shares are represented by ADSs. Each ADS represents four ordinary shares.        
   
Silicon Motion Technology Corporation Reconciliation of GAAP to Non-GAAP Operating Results (in thousands, except percentages and per ADS data, unaudited)  
           
    For the Three Months Ended      
    Dec. 31, 2011 (US$) Sep. 30, 2012 (US$) Dec. 31, 2012 (US$)  
GAAP net income   12,243 15,622 7,929  
Stock-based compensation:          
Cost of sales   78 114 107  
Research and development   1,541 2,092 2,030  
Sales and marketing   679 679 688  
General and administrative   463 543 532  
Total stock-based compensation   2,761 3,428 3,357  
           
           
Non-recurring items:          
Vendor dispute   -- -- 1,057  
Litigation expenses   (19) -- 31  
Foreign exchange loss (gain), net   1,079  (362)  49  
Non-GAAP net income   16,064 18,688 12,423  
           
Shares used in computing non-GAAP diluted earnings per ADS   34,210 34,547 34,518  
           
Non-GAAP diluted earnings per ADS   $0.47 $0.54 $0.36  
           
Non-GAAP gross margin   49.8% 46.4% 44.6%  
Non-GAAP operating margin   25.1% 25.9% 19.5%  
           
   
Silicon Motion Technology Corporation Consolidated Statements of Income (in thousands, except percentages, and per ADS data, unaudited)  
   
  For the Year Ended
  Dec. 31,  2011 ( US$) Dec. 31,  2012 ( US$)  
Net Sales 224,301 281,371  
Cost of sales 116,067 149,650  
Gross profit 108,234 131,721  
Operating expenses      
Research & development 40,565 50,975  
Sales & marketing 14,561 15,919  
General & administrative 11,365 12,157  
Amortization of intangible assets 791 --  
Operating income 40,952 52,670  
       
Non-operating  income ( expense )      
Gain on sale of investments 10 2  
Interest income, net 522 1,372  
Foreign exchange gain (loss),net 5,749 390  
Others, net 14 (100)  
Subtotal 6,295 1,664  
Income before income tax 47,247 54,334  
Income tax expense 5,789 7,117  
Net income 41,458 47,217  
       
Basic earnings per ADS $1.34 $1.46  
Diluted earnings per ADS $1.28 $1.40  
       
Margin Analysis:      
Gross margin 48.3% 46.8%  
Operating margin 18.3% 18.7%  
       
Weighted average ADS:      
Basic 30,771 32,315  
Diluted 32,343 33,626  
       
Silicon Motion Technology Corporation Reconciliation of GAAP to Non-GAAP Operating Results (in thousands, except percentages and per ADS data, unaudited)      
       
    For the Year Ended  
  Dec. 31,  2011 ( US$) Dec. 31,  2012 ( US$)
GAAP net income 41,458 47,217
Stock-based compensation:    
Cost of sales 254 375
Research and development 5,046 7,055
Sales and marketing 2,059 2,494
General and administrative 1,513 1,878
Total stock-based compensation 8,872 11,802
     
Acquisition related charges:    
Amortization of intangible assets 791 --
Non-recurring items:    
Vendor dispute -- 1,057
Litigation expenses 20 31
Foreign exchange loss (gain), net (5,749) (390)
     
Non-GAAP net income 45,392 59,717
     
Shares used in computing non-GAAP diluted earnings per ADS 33,489 34,459
     
Non-GAAP diluted earnings per ADS $1.35 $1.73
     
Non-GAAP gross margin 48.4% 47.3%
Non-GAAP operating margin 22.6% 23.3%
     
 
Silicon Motion Technology Corporation
Consolidated Balance Sheet 
(In thousands, unaudited)
       
  Dec. 31, 2011  (US$)  Sep. 30, 2012 (US$)  Dec. 31, 2012 (US$)
Cash and cash equivalents 88,763 146,570 154,734
Short-term investments 2,980 -- 14,882
Accounts receivable (net) 38,222 37,593 35,983
Inventories 30,315 36,801 32,143
Refundable deposits - current 15,193 15,240 15,283
Deferred income tax assets (net) 1,078 2,565 2,369
Prepaid expenses and other current assets 3,012 3,248 3,018
Total current assets 179,563 242,017 258,412
   
Long-term investments 178 178 178
Property and equipment (net) 24,728 23,490 23,386
Goodwill and intangible assets (net) 38,756 35,465 35,472
Other assets 7,382 4,835 5,339
Total assets 250,607 305,985 322,787
       
Accounts payable 20,997 27,502 26,642
Income tax payable 3,306 3,506 4,668
Accrued expenses and other current liabilities 18,420 21,216 25,087
Total current liabilities 42,723 52,224 56,397
Other liabilities 3,103 3,922 4,124
Total liabilities 45,826 56,146 60,521
Shareholders' equity 204,781 249,839 262,266
Total liabilities & shareholders' equity 250,607 305,985 322,787
       
Note: Our 2011 US$ financial numbers are translated from NT$, as previously disclosed.  Beginning January 1, 2012, our reporting currency is the US$.      

About Silicon Motion:

We are a fabless semiconductor company that designs, develops and markets high performance, low-power semiconductor solutions for the multimedia consumer electronics market. We have two major product lines, mobile storage and mobile communications. Our mobile storage business is composed of microcontrollers used in NAND flash memory storage products such as flash memory cards, USB flash drives, SSDs, and embedded flash applications. Our mobile communications business is composed primarily of handset transceivers and mobile TV IC solutions.

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