SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
O/2/MICRO INTERNATIONAL LIMITED
Grand Pavilion Commercial Centre, West Bay Road
P.O. Box 32331 SMB, George Town
Grand Cayman, Cayman Islands
(345) 945-1110
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
82- N.A.
INDEX
O2MICRO INTERNATIONAL LIMITED
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS 3
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2004 AND
DECEMBER 31, 2003 3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND
MARCH 31, 2003 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 2004 AND MARCH 31, 2003 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 12
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 13
PART II OTHER INFORMATION
Item 1. EXHIBITS 14
EXHIBIT INDEX 15
SIGNATURE 16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
O/2/MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousand U.S. Dollars, Except Share Amounts)
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 59,929 $ 66,489
Restricted cash 1,901 1,892
Short-term investments 64,158 53,923
Accounts receivable - net 11,522 9,794
Inventories 8,139 9,613
Prepaid expenses and other current assets 3,419 3,365
------------ ------------
Total Current Assets 149,068 145,076
------------ ------------
LONG-TERM INVESTMENTS 7,505 7,865
------------ ------------
FIXED ASSETS - NET 4,841 4,880
------------ ------------
OTHER ASSETS
Restricted assets - net 10,528 10,044
------------ ------------
Other Assets 1,380 1,428
------------ ------------
TOTAL ASSETS $ 173,322 $ 169,293
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and accounts payable $ 5,235 $ 6,334
Income taxes payable 3,410 2,852
Accrued expenses and other current liabilities 4,999 5,380
------------ ------------
Total Current Liabilities 13,644 14,566
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preference shares at $0.001 par value per share
Authorized - 5,000,000 shares - -
Ordinary shares at $0.001 par value per share
Authorized - 95,000,000 shares
Issued - 39,123,609 and 39,032,616 shares
as of March 31, 2004 and December 31, 2003,
respectively 39 39
Additional paid-in capital 137,874 137,076
Accumulated other comprehensive loss (437) (521)
Retained earnings 22,202 18,133
------------ ------------
Total Shareholders' Equity 159,678 154,727
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 173,322 $ 169,293
============ ============
The accompanying notes are an integral part of the financial statements.
3
O/2/MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In Thousand U.S. Dollars, Except Per Share Amounts)
Three Months Ended
March 31
----------------------------
2004 2003
------------ ------------
NET SALES $ 22,196 $ 19,341
COST OF SALES 9,400 8,384
------------ ------------
GROSS PROFIT 12,796 10,957
------------ ------------
OPERATING EXPENSES
Research and development 4,561 4,912
Selling, general and administrative 4,259 4,319
------------ ------------
Total Operating Expenses 8,820 9,231
------------ ------------
INCOME FROM OPERATIONS 3,976 1,726
------------ ------------
NON-OPERATING INCOME (EXPENSES)
Interest income 231 279
Impairment loss on long-term investments - (11)
Gain on sale of long-term investments 340 -
Foreign exchange gain 222 46
Other - net 3 (83)
------------ ------------
Total Non-operating Income 796 231
------------ ------------
INCOME BEFORE INCOME TAX 4,772 1,957
INCOME TAX EXPENSE 566 270
------------ ------------
NET INCOME 4,206 1,687
OTHER COMPREHENSIVE INCOME (LOSS)
Translation adjustments on subsidiaries 170 (256)
Unrealized gain (loss) on available-for-sale
securities (86) 84
------------ ------------
Total Other Comprehensive Income (Loss) 84 (172)
------------ ------------
COMPREHENSIVE INCOME $ 4,290 $ 1,515
============ ============
EARNINGS PER SHARE:
Basic $ 0.11 $ 0.04
============ ============
Diluted $ 0.10 $ 0.04
============ ============
SHARES USED IN EARNINGS PER SHARE CALCULATION:
Basic (in thousands) 39,054 38,091
============ ============
Diluted (in thousands) 40,617 38,828
============ ============
The accompanying notes are an integral part of the financial statements.
4
O/2/MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousand U.S. Dollars)
Three Months Ended
March 31
2004 2003
------------ ------------
OPERATING ACTIVITIES:
Net income $ 4,206 $ 1,687
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 688 602
Amortization of stock options granted for
services 37 32
Gain on sale of long-term investments (340) -
Deferred income tax assets 58 69
Impairment of long-term investments - 11
Loss on sale of fixed assets - 66
Changes in operating assets and liabilities:
Accounts receivable - net (1,728) (2,264)
Inventories 1,474 (1,241)
Prepaid expenses and other current assets (145) (370)
Notes and accounts payable (1,099) 614
Income taxes payable 558 185
Accrued expenses and other current
liabilities (383) 1,649
------------ ------------
Net Cash Provided by Operating Activities 3,326 1,040
------------ ------------
INVESTING ACTIVITIES
Receivables from employee cash advance 37 (124)
Acquisitions of:
Fixed assets (498) (717)
Short-term investments (43,307) (11,318)
Long-term investments (320) -
(Increase) decrease in:
Restricted assets (484) (2,373)
Restricted cash (9) 137
Other assets (72) (363)
Proceeds from:
Sale of short-term investments 32,986 18,081
Sale of long-term investments 1,020 -
Sale of fixed assets - 1
------------ ------------
Net Cash Provided by (Used in) Investing
Activities (10,647) 3,324
------------ ------------
FINANCING ACTIVITIES:
Acquisitions of treasury stock (172) (647)
Proceeds from exercise of stock options 830 47
Payment of principal on capital leases (1) (2)
------------ ------------
Net Cash Provided by (Used in) Financing
Activities 657 (602)
------------ ------------
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE 104 (248)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (6,560) 3,514
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 66,489 69,334
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,929 $ 72,848
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
Cash paid for interest $ 1 $ 1
Cash paid for tax $ 16 $ 8
NON-CASH INVESTING AND FINANCING ACTIVITIES
Convertible loans converted to long-term
investments $ - $ 1,750
Unrealized gain (loss) on short-term
investments $ (86) $ 84
The accompanying notes are an integral part of the financial statements.
5
O/2/MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and, in management's opinion, include all
adjustments, consisting only of normal recurring accruals necessary to fairly
present the resulting operations for the indicated periods. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Although the Company believes
that the disclosures are adequate to make the information presented not
misleading, it is suggested that these consolidated financial statements be read
in conjunction with the consolidated financial statements and the notes thereto
included in the Company's Form 20-F registration statement for the year ended
December 31, 2003.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
b. Recent accounting pronouncements not yet adopted
In January 2003, the Financial Accounting Standards Board ("FASB")
released Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46") which requires that all primary beneficiaries of Variable Interest
Entities ("VIE") consolidate that entity. FIN 46 is effective immediately for
VIEs created after January 31, 2003 and to VIEs in which an enterprise obtains
an interest after that date. It applies in the first fiscal year or interim
period beginning after June 15, 2003 to VIEs in which an enterprise holds a
variable interest it acquired before February 1, 2003. In December 2003, the
FASB published a revision to FIN 46 ("FIN 46R") to clarify some of the
provisions of the interpretation and to defer the effective date of
implementation for certain entities. Under the guidance of FIN 46R, entities
that do not have interests in structures that are commonly referred to as
special purpose entities (SPE's) are required to apply the provisions of the
interpretation in financial statements for periods ending after March 14, 2004.
The Company does not have interests in special purpose entities and the adoption
of FIN 46R did not impact the Company's financial statements.
3. ACCOUNTS RECEIVABLE - NET
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
(In Thousands)
Accounts receivable $ 11,925 $ 10,195
Allowances for:
Doubtful receivable (88) (86)
Sales returns and discounts (315) (315)
------------ ------------
$ 11,522 $ 9,794
============ ============
6
4. INVENTORIES
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
(In Thousands)
Finished goods $ 1,994 $ 2,042
Work-in-process 3,528 3,608
Raw materials 2,617 3,963
------------ ------------
$ 8,139 $ 9,613
============ ============
5. SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities:
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
(In Thousands)
US treasury bills $ 43,602 $ 33,958
Time deposit 10,612 10,611
Foreign government bonds 4,053 1,144
Corporate bonds 5,866 8,185
Others 25 25
------------ ------------
$ 64,158 $ 53,923
============ ============
Available-for-sale securities by contractual maturity are as follows:
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
(In Thousands)
Due within one year $ 61,267 $ 52,752
Due after two years 2,891 1,171
------------ ------------
$ 64,158 $ 53,923
============ ============
The Company's gross unrealized gains and losses at March 31, 2004 were
$160,000 and $97,000, respectively, and at December 31, 2003 were $196,000 and
$47,000, respectively.
7
6. LONG-TERM INVESTMENTS
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
(In Thousands)
Cost method
X-FAB Semiconductor Foundries AG $ 4,968 $ 4,968
360 Degree Web Ltd. (360 Degree Web) 1,070 1,750
Etrend Hightech Corporation (Etrend) 967 647
GEM Services, Inc. 500 500
Silicon Genesis Corporation - -
------------ ------------
$ 7,505 $ 7,865
============ ============
On January 3, 2003, the Company exercised its option to convert its
convertible loans of $1,750,000 in 360 Degree Web to 2,083,333 Series B
preference shares of capital stock at $0.36 per share and 1,000,000 Series B2
preference shares of capital stock at $1.00 per share. 360 Degree Web designs,
develops and markets intelligent security software solutions that provide secure
computing environment for personal computer mobile devices and the internet.
After the conversion, the Company had a 35.2% ownership in 360 Degree Web. The
Company did not participate in 360 Degree Web's financing during 2003 and the
ownership was diluted to 29.3% as of December 31, 2003. At December 31, 2003,
one of the Company's directors serves as a director of 360 Degree Web. In
addition, the Company does not actively participate in the decision-making
process at 360 Degree Web. Management of 360 Degree Web owns more than 50% of
the outstanding voting shares and 100% of the Series A voting preferred shares
which has more characteristics of common stock than the other preferred shares.
Therefore, the Company accounts for the investment under the cost method of
accounting.
In March 2004, the Company sold 1,000,000 shares of its stock in 360
Degree Web and recognized a gain of $340,000. Upon completion of the
transaction, the Company's ownership was reduced to 19.8%.
The Company invested in Etrend's ordinary shares in December 2002 and
July 2003. Etrend is a wafer probing, packing and testing company. As of
December 31, 2003, the Company acquired 2,189,288 shares for $647,000, which
represents approximately 12.5% ownership of Etrend. The Company invested
additional $320,000 in Etrend's financing in March 2004 and the Company's
ownership was reduced to 11.2% as of March 31, 2004.
7. INCOME TAX
The effective income tax rate for the three months ended March 31 was
11.9% in 2004 and 13.8% in 2003, respectively.
8
8. EARNINGS PER SHARE
The following table shows the calculation of basic and diluted earnings
per share:
All numbers in thousands except earnings per share
Three Months Ended
March 31
----------------------------
2004 2003
------------ ------------
(Unaudited)
Basic earnings per share:
Net income $ 4,206 $ 1,687
============ ============
Weighted average shares outstanding - basic 39,054 38,091
Earnings per share - basic $ 0.11 $ 0.04
============ ============
Diluted earnings per share:
Net income $ 4,206 $ 1,687
============ ============
Weighted average shares outstanding - basic 39,054 38,091
Effect of dilutive securities:
Options 1,563 737
Warrants - -
------------ ------------
Weighted average shares outstanding - diluted 40,617 38,828
============ ============
Earnings per share - diluted $ 0.10 $ 0.04
============ ============
9. OBLIGATIONS UNDER CAPITAL LEASE
The Company leases office space and certain equipment under
non-cancellable operating lease agreements that expire at various dates through
June 2006. The Company's office lease provides for periodic rent increases based
on the general rate of inflation. The Company also leases certain equipment
under a capital lease that expires in May 2004. There are provisions in the
lease that provides for a bargain purchase option upon the expiration of the
lease. Capital lease obligations are secured by the related equipment and the
total costs of the equipment under capital lease were both $165,000 as of March
31, 2004 and as of March 31, 2003. Accumulated amortization was $163,000 as of
March 31, 2004 and $162,000 as of December 31, 2003, respectively.
As of March 31, 2004, minimum lease payments under all operating leases
were as follows:
Operating
Leases
--------------
Year
(In Thousands)
2004 $ 952
2005 583
2006 113
2007 -
2008 -
------------
Total minimum lease payments $ 1,648
============
9
10. RELATED PARTY TRANSACTIONS
In 2001, James Keim, one of the Company's directors, accepted the
assignment of Head of Marketing and Sales in the Cayman Islands, and moved to
the Cayman Islands in December 2001. In connection with the move and to assist
Mr. Keim to purchase a residence in the Cayman Islands, the Company entered into
a term loan agreement with Mr. Keim in February 2002, under which the Company
made an interest free, unsecured loan in the amount of $400,000 to Mr. Keim. The
loan is repayable in February 2007. As of March 31, 2004, $18,000 had been
repaid.
11. CONTINGENCIES
Monolithic Power Systems, Inc. ("MPS"), a privately held company in Los
Gatos, California, USA has alleged in a counterclaim that certain products
of the Company infringe on two of MPS' patents. Litigation on such claim is
pending in the United States District Court in the Northern District of
California. Trial is currently scheduled for August 2004.
While the Company cannot make any assurance regarding the eventual
resolution of this matter, the Company does not believe the final outcome
will have a material adverse effect on its consolidated results of
operations or financial condition.
The Company, as a normal course of business, is a party to various
litigation matters, legal proceedings and claims. These actions may be in
various jurisdictions, and may involve patent protection and/or patent
infringement. While the results of such litigations and claims cannot be
predicted with certainty, the final outcome of such matters is not expected
to have a material adverse effect on its consolidated financial position or
results of operations. No assurance can be given, however, that these
matters will be resolved without the Company becoming obligated to make
payments or to pay other costs to the opposing parties, with the potential
for having an adverse effect on the Company's financial position or its
results of operations.
12. SEGMENT INFORMATION
The Company designs, develops and markets innovative power management
and security components for mobile communication, computer, information
appliance and LCD products. The Company's integrated circuit products are
produced with digital, analog, and mixed signal integrated circuit manufacturing
processes. The Company's Chief Operating Decision Maker ("CODM"), the Chief
Executive Officer, reviews information on an enterprise-wide basis to assess
performance and allocate resources so the Company has one reporting segment.
Net revenues from unaffiliated customers by geographic region are based
on the customer's bill-to location and are as follows:
Three Months Ended
March 31,
----------------------------
2004 2003
------------ ------------
(In Thousands)
(Unaudited)
Asia $ 22,191 $ 19,340
United States 5 1
------------ ------------
$ 22,196 $ 19,341
============ ============
10
Long-lived assets consist of fixed assets and are based on the physical
location of the assets at the end of each period.
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
(In Thousands)
Taiwan $ 2,551 $ 2,354
United States 1,153 1,251
Singapore 554 633
People's Republic of China 456 415
Others 127 227
------------ ------------
$ 4,841 $ 4,880
============ ============
During the quarter ended March 31, 2004, one customer accounted for 10%
or more of net revenues (10.4%). During the quarter ended March 31, 2003, three
customers accounted for 10% or more of net revenues (20.3%, 10.7% and 10.1%).
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the interim
financial statements and the notes thereto in Part I, Item 1 of this quarterly
report and with Operating and Financial Review and Prospects contained in the
Company's Annual Report on Form 20-F (the "Annual Report").
OVERVIEW
We design, develop and market high performance mixed signal integrated
circuits for power management, power saving applications and computer security
applications. Our net sales have been derived primarily from the sale of
integrated circuit products to customers in the computer, consumer electronics,
industrial and communications markets.
We utilize a "fabless" semiconductor business model, which means we
focus on designing, developing and marketing products, while having these
products manufactured by large independent semiconductor foundries. Because we
are a fabless semiconductor company, we do not need to invest significant
capital to manufacture semiconductor devices, and can take advantage of some of
the cost-efficiencies of third-party foundries. We place purchase orders with
third parties for specific quantities of packaged semiconductor devices or
wafers at set prices. We also use third parties to test and assemble our
products, which reduces the capital we need to invest in these activities.
RESULTS OF OPERATIONS
Net Sales. Net sales for the three months ended March 31, 2004 were
$22.2 million, an increase of $2.9 million or 14.8% from $19.3 million for the
three months ended March 31, 2003. The increase in net sales reflects increased
unit shipments of our existing products as well as shipments of new products.
Gross Profit. Gross profit for the three months ended March 31, 2004 was
$12.8 million, an increase of $1.8 million or 16.8% from $11.0 million for the
three months ended March 31, 2003. This increase in dollar amount was due to
increased sales of products. We expect that our gross profit as a percentage of
net sales will fluctuate in the future as a result of the stages of our products
in their life cycles, variations in our product mix, the timing of our product
introductions and specific product manufacturing costs.
Research and Development Expenses. Research and development expenses for
the three months ended March 31, 2004 were $4.6 million, a decrease of $351,000
or 7.1% from $4.9 million for the three months ended March 31, 2003. This
decrease was primarily due to re-arrangement of several shuttle runs or shared
engineering test wafers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 2004 were $4.3
million, a decrease of $60,000 or 1.4% from $4.3 million for the three months
ended March 31, 2003. This decrease in absolute dollar amount was primarily due
to decreased expenses relating to intellectual property protection activities
offset by the hiring of additional personnel, traveling, and other expenses
associated with the hiring of additional personnel. We expect that selling,
general and administrative expenses will continue to increase in dollar amount
for the foreseeable future.
Non-operating Income-net. Non-operating income-net for the three months
ended March 31, 2004 was $796,000, an increase of $565,000 from $231,000 for the
three months ended March 31, 2003, primarily reflecting an increase in gain on
sale of long-term investments and foreign exchange gain.
Income Taxes. Income tax expenses for the three months ended March 31,
2004 was $566,000, an increase of $296,000 from $270,000 for the three months
ended March 31, 2003. The effective income tax rate for three months ended March
31, 2004 was 11.9% and 13.8% for the three months ended March 31, 2003. The
effective rate was lower for the three months ended March 31, 2004 primarily due
to the sales mix in different countries.
12
Our quarterly results of operations have fluctuated significantly in the
past and may continue to fluctuate in the future based on a number of factors,
not all of which are in our control. In particular, our results of operations
have fluctuated in the past due, among other things, to competitive pressures on
selling prices; the volume of product sales; the timing and cancellation of
customer orders; lengthy sales cycles; pricing concessions on volume sales;
changes in product mix; product pricing from foundries; our ability to develop,
introduce and market new products and technologies on a timely basis;
introduction of products and technologies by our competitors; and market
acceptance of our and our customers' products. Our results of operations may
also fluctuate in the future based on a number of factors, including but not
limited to, those listed above, general business conditions in the semiconductor
industry; general economic conditions; currency fluctuations; the availability
of foundry capacity and raw materials, and our ability to expand and implement
our sales and marketing programs. As a result of the foregoing factors, we
believe period to period comparisons are not necessarily meaningful and should
not be relied upon as indicative of future results.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2004, we had $149.1 million in total current assets,
including $59.9 million in cash and cash equivalents and $64.2 million in
short-term investments. Our operating activities provided $3.3 million cash
during the three months ended March 31, 2004. Additionally, our investing
activities used cash of $10.6 million in the three months ended March 31, 2004
and our financing activities provided cash of $657,000 in the three months ended
March 31, 2004. We expect our operating activities will continue to generate
additional cash but we expect to continue to deposit more cash in the Taiwan
courts for preliminary injunctions and provisional attachment actions. In May
2004, we purchased the 37,180 square foot building in Santa Clara, California
housing our California operations. The purchase price was approximately $4.6
million.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 6-K contains statements of a forward-looking nature. These
statements are made under the "safe harbor" provisions of the U.S. Private
Securities Litigation Reform Act of 1995. You can identify these forward-looking
statements by terminology such as "may," "will," "expects," "should," "could,"
"plans," "intends," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms and other comparable
terminology. These forward-looking statements include statements relating to our
future gross profits, research and development expenses and selling, general and
administrative expenses. The forward-looking statements contained in this Form
6-K involve known and unknown risks, uncertainties and other factors that may
cause our or the industry's actual results, levels of activity, performance or
achievements to be materially different from the future results, levels of
activity, performance or achievements expressed or implied by these statements.
Such risks and uncertainties include the stages of our products in their life
cycles, variations in our product mix, the timing of our product introductions,
specific product manufacturing costs, increased competition, introduction of new
competing technologies and the increase of unexpected expenses. These factors
also include, among other things, those risks outlined in our filings with the
Securities and Exchange Commission, including our Annual Report, that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. We assume no obligation to update or revise any
forward-looking information, whether as a result of new information, future
events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the risk of loss related to adverse changes in market
prices, including interest rates and foreign exchange rates, of financial
instruments. In the normal course of business, our financial position is
routinely subject to a variety of risks, including market risk associated with
interest rate movements and currency rate movements on non-U.S. dollar
denominated assets and liabilities, as well as collectibility of accounts
receivable.
We regularly assess these financial instruments and their ability to
address market risk and have established policies and business practices to
protect against the adverse effects of these and other potential exposures.
13
Interest Rate Risk
Our major market risk exposure is changing interest rates. Our exposure
to market risk for changes in interest rates relates primarily to our
investments in US treasury bills, time deposits, government and corporate bonds.
We maintain an investment portfolio consisting mainly of fixed income
securities. These securities are subject to interest rate risk and will fall in
value if market interest rates increase. If market rates were to increase
immediately and uniformly by 10.0% from the levels at March 31, 2004, the fair
value of the portfolio would decline by an immaterial amount. We presently
intend to treat our fixed income investments as available for sale, and
therefore we do not expect our operating results or cash flows to be affected to
any significant degree by the effect of a sudden short-term change in market
interest rate exposures. We did not purchase or hold any derivative financial
instruments for trading purposes.
The table below provides information about our financial instruments
whose maturity dates are greater than three months as of March 31, 2004.
EXPECTED MATURITY DATES
--------------------------------------------------------------------------
TOTAL
2008 AND CARRYING FAIR
2004 2005 2006 2007 THEREAFTER VALUE VALUE
-------- -------- -------- --------- ---------- ---------- --------
(in thousands)
US Treasury Bills
Fixed rate (US$)............... 43,602 - - - - 43,602 43,602
Government Bonds:
Fixed rate (US$)............... 1,189 - 5,251 6,784 1,616 14,840 14,840
Time Deposits:
Fixed rate (US$)............... 11,893 - 3 - - 11,896 11,896
Corporate Bonds
Fixed rate (US$)............... 5,866 - - - - 5,866 5,866
Foreign currency risk
Fluctuations in exchange rates may adversely affect our financial
results. The functional currencies for our foreign subsidiaries are the local
currency. As a result, certain of our assets and liabilities, including certain
bank accounts, accounts receivable, restricted assets and accounts payable,
exist in non-U.S. dollar denominated currencies such as New Taiwan Dollar, which
are sensitive to foreign currency exchange rate fluctuations. As of March 31,
2004, we held approximately $15.3 million in government bonds, certificates of
deposits, time deposits and demand accounts denominated in New Taiwan Dollars.
We have not engaged in hedging techniques designed to mitigate foreign
currency exposures and we may experience economic loss as a result of foreign
currency exchange fluctuations. In the three month period ended March 31, 2004,
we experienced gains of $222,000 due to foreign currency exchange fluctuations,
which are reflected in the results of operations
PART 2. OTHER INFORMATION
ITEM 1. EXHIBITS
(a) Exhibits:
The Exhibit Index attached hereto is hereby incorporated by reference to
this Item.
(b)
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EXHIBIT INDEX
Exhibit
Number Exhibit Title
--------------- ------------------------------------- ---------------
99 Press Release
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
O/2/ MICRO INTERNATIONAL LIMITED
Date: June 16, 2004 /S/ STERLING DU
----------------------------------
Name: Sterling Du
Title: Chief Executive Officer
16