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 December 31, 1998 				 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the 	Securities and Exchange Act of 1934 (No Fee Required) 		 Commission File No. 0-12718 			 SUPERTEX, INC. 	(Exact name of Registrant as specified in its Charter) California 94-2328535 (State or other jurisdiction of (IRS Employer Identification #) incorporation or organization) 			1235 Bordeaux Drive 		 Sunnyvale, California 94089 	 (Address of principal executive offices) Registrant's Telephone Number, Including Area Code: (408) 744-0100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock 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 ( ) As of February 2, 1999, 12,079,539 shares of the Registrant's common stock were issued and outstanding. 		 Total number of pages: 10 SUPERTEX, INC. QUARTERLY REPORT - FORM 10Q Table of Contents Page No. - ----------------- -------- 		 PART I - FINANCIAL INFORMATION Item 1. Financial Statements 	 Consolidated Statements of Income .................... 3 	 Consolidated Balance Sheets .......................... 4 	 Consolidated Statements of Cash Flows ................ 5 	 Notes to Consolidated Financial Statements ........... 6 Item 2. Management's Discussion and Analysis of Financial 	 Condition and Results of Operations .................. 7 			PART II - OTHER INFORMATION Item 6. Exhibits, Financial Statement Schedule 	 and Reports on Form 8-K .............................. 9 PART I - FINANCIAL INFORMATION Item 1. Financial Statements 				SUPERTEX, INC. 		 CONSOLIDATED STATEMENTS OF INCOME 				 (unaudited) 		 (in thousands, except per share amounts) 						 Three-months Ended, Nine-months Ended, 							 December 31, December 31, 							 ------------ ------------ 						 1998 1997 1998 1997 						 ---- ---- ---- ---- Net sales $ 12,017 $ 13,857 $ 37,668 $ 39,782 						 -------- -------- -------- -------- Cost and expenses: Cost of sales 6,565 7,496 19,980 21,644 Research and development 1,483 1,464 4,462 4,265 Selling, general and administrative 1,522 1,741 4,999 4,978 						 -------- -------- -------- -------- Total costs and expenses 9,570 10,701 29,441 30,887 						 -------- -------- -------- -------- Income from operations 2,447 3,156 8,227 8,895 Interest income 625 454 1,578 1,171 Other income (expense), net (26) (22) (69) 5 						 -------- -------- -------- -------- Income before provision for income taxes 3,046 3,588 9,737 10,071 Provision for income taxes 842 1,220 3,116 3,424 						 -------- -------- -------- -------- Net income $ 2,204 $ 2,368 $ 6,621 $ 6,647 						 ======== ======== ======== ======== Net income per share: Basic $ 0.18 $ 0.20 $ 0.55 $ 0.55 						 ======== ======== ======== ======== Diluted $ 0.18 $ 0.19 $ 0.54 $ 0.54 						 ======== ======== ======== ======== Shares used in per share computation Basic 12,055 12,089 12,073 12,068 						 ======== ======== ======== ======== Diluted 12,233 12,427 12,271 12,407 						 ======== ======== ======== ======== <FN> See accompanying Notes to Consolidated Financial Statements. 			 SUPERTEX, INC. 		 CONSOLIDATED BALANCE SHEETS 			 (unaudited) 					 Dec. 31, 1998 Mar. 31, 1998 					 ------------- ------------- 						 (in thousands) ASSETS Current Assets: Cash and cash equivalents $ 17,993 $ 24,556 Short term investments 20,886 6,956 Trade accounts receivable, net of allowances of $847 and $700 9,213 9,784 Other receivables 404 322 Inventories 9,929 10,263 Deferred income taxes 2,181 2,181 Prepaid expenses 206 218 						 -------- -------- Total current assets 60,812 54,280 Property and equipment, net 11,113 12,349 						 -------- -------- TOTAL ASSETS $ 71,925 $ 66,629 						 ======== ======== LIABILITIES Current liabilities: Trade accounts payable and accrued liabilities $ 6,535 $ 6,881 Income taxes payable 790 1,080 Deferred revenue on shipments to distributors 1,012 1,451 						 -------- -------- Total current liabilities 8,337 9,412 						 -------- -------- SHAREHOLDERS' EQUITY Preferred stock, no par value -- 10,000 shares authorized, none outstanding -- -- Common stock, no par value -- 30,000 shares authorized; issued and outstanding 12,064 and 12,097 shares 20,923 20,713 Retained earnings 42,665 36,504 						 -------- -------- Total shareholders' equity 63,588 57,217 						 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 71,925 $ 66,629 						 ======== ======== <FN> See accompanying Notes to Consolidated Financial Statements. 			 SUPERTEX, INC. 	 CONSOLIDATED STATEMENTS OF CASH FLOWS 		 (unaudited, in thousands) 						 Nine Months Ended 						 ----------------- 					 Dec. 31, 1998 Dec. 31, 1997 					 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,621 $ 6,647 						 -------- -------- Non-cash adjustments to net income: Depreciation and amortization 2,609 1,804 Provision for doubtful accounts and sales returns 1,652 916 Provision for excess and obsolete inventories (33) (75) Changes in operating assets and liabilities: Accounts and other receivables (1,163) (1,266) Inventories 367 (249) Prepaid expenses 12 83 Trade accounts payable and accrued expenses (346) (253) Income taxes payable (290) 940 Deferred revenue on shipments to distributors (439) 300 						 -------- -------- Total adjustments 2,369 2,200 						 -------- -------- Net cash provided by operating activities 8,990 8,847 						 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (1,373) (2,658) Purchases of short term investments (41,096) (21,287) Proceeds from maturities of short term investments 27,344 18,153 						 -------- -------- Net cash used in investing activities (15,303) (5,792) 						 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Stock options exercised 136 333 Repurchase of stock (563) (419) 						 ------- ------- Net cash used in financing activities (249) (86) 						 ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (6,562) 2,969 CASH AND CASH EQUIVALENTS: Beginning of period 24,556 19,166 						 -------- -------- End of period $ 17,993 $ 22,135 						 ======== ======== <FN> See accompanying Notes to Consolidated Financial Statements. 			 SUPERTEX, INC. 	 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - ------ In the opinion of management, the unaudited financial statements for the nine months ended December 31, 1998 and 1997, include all adjustments (consisting of normal recurring adjustments) necessary for fair presentation of financial condition and results of operations for those periods in accordance with generally accepted accounting principles. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the audited financial statements of Supertex, Inc. for the fiscal year ended March 31, 1998, which were included in the Annual Report on Form 10-K (File Number 0-12718). Interim results are not necessarily indicative of results for the full fiscal year. Note 2 - ------ Inventories consisted of (in thousands): 					 Dec. 31, 1998 March 31, 1998 					 ------------- -------------- 							(unaudited) Finished goods .............................. $ 2,930 $ 2,919 Work-in-process ............................. 6,488 6,200 Raw materials ............................... 511 1,144 						 ------- ------- 						 $ 9,929 $10,263 						 ======= ======= Note 3 - ------ Net Income per Share: Basic EPS is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. The following is a reconciliation of the numerator (net income) and the denominator (number of shares) used in the basic and diluted EPS calculations. 			 For Three-months Ended, For Nine-months Ended, 				 December 31, December 31, 				 1998 1997 1998 1997 				 ---- ---- ---- ---- BASIC: Weighted average shares outstanding for the period 12,055 12,089 12,073 12,068 Net income $ 2,204 $ 2,368 $ 6,621 $ 6,647 			 -------- -------- -------- -------- Net income per share $ 0.18 $ 0.20 $ 0.55 $ 0.55 			 ======== ======== ======== ======== DILUTED: Weighted average shares outstanding for the period 12,055 12,089 12,073 12,068 Common stock equivalents 178 338 198 341 				------ ------ ------ ------ Total common and common equivalent shares 12,233 12,427 12,271 12,409 				------ ------ ------ ------ Net income $ 2,204 $ 2,368 $ 6,621 $ 6,647 			 ------- ------- ------ ------ Net income per share $ 0.18 $ 0.19 $ 0.54 $ 0.54 			 ======= ======= ======= ======= Note 4 - ------ On February 1, 1999, Supertex, Inc. completed the acquisition of all the assets of the six inch sub-micron wafer fabrication (fab) facility located in San Jose, CA from Orbit Semiconductor, Inc. a wholly owned subsidiary of Dii Group. Per the Asset Purchase Agreement dated January 16, 1999, the purchase price, including the assumption of operating lease liabilities, is approximately $11.2 million. In connection with the acquisition, the Company is assuming certain contract obligations and work-in-process inventory. Orbit will assist Supertex to accelerate its process transfer to the six-inch fab. The associated cost with this transfer will be expensed over the present quarter and next fiscal quarter. PART I - FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial 	 Condition and Results of Operations Certain Factors: This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934. Actual future results could differ materially from those discussed here and elsewhere in this report. Factors that could affect future results include general economic conditions, both in the United States and foreign markets, economic conditions specific to the semiconductor industry, the Company's ability to introduce new products, its ability to enhance existing products, its ability to meet the continually changing requirements of its customers, its ability to manufacture efficiently, its ability to control costs, and its ability to maintain and enhance relationships with its assembly and test subcontractors and independent distributors and sales representatives. Results of Operations Net Sales: Net sales for the quarter ended December 31, 1998 were $12,017,000, a 13% decrease from $13,857,000 of the same quarter last year due to continuing weakness in demand and price pressure. For the nine months ended December 31, 1998, net sales declined by 5% to $37,668,000 from $39,782,000 when compared with the same period of the prior year. In this quarter as well as the nine months period, approximately 55% of the Company's net sales were derived from customers outside the United States. All of the Company's sales to international customers were denominated in U.S. currencies. Gross Margin: As a percent of sales, the Company's gross margin for the quarter and the nine months period ending December 31, 1998 was 45% and 47% respectively, compared with 46% gross margin for the same quarter and nine months period of last fiscal year. Research and Development: As a percent of net sales, third quarter R&D expenses increased to 12% of net sales for the quarter and nine months ending December 31, 1998. This compares with R&D expenses of 11% of net sales for the quarter and nine months period of last year. Dollar expenditures increased slightly to $1,483,000 and $4,462,000 for the quarter and nine months ended December 31, 1998 respectively, as compared with $1,464,000 and $4,265,000 for the same periods of the last fiscal year. Selling, General and Administrative: Expenses for selling, general and administrative remained constant at 13% of net sales for the quarter and nine months ending December 31, 1998 and 1997. Interest Income: Interest income for this quarter was $625,000 compared with $454,000 for the comparable quarter of last year. Nine months interest income was $1,578,000, a 35% increase from $1,171,000 of the same period of last fiscal year. Higher amount of funds available for investments contributed to this increase. Provision for Income Taxes: The Company's effective tax rate for the three- and nine- months ended December 31, 1998 decreased to 28% and 32% respectively, compared with the effective tax rate of 34% of net sales for the same quarter and nine month periods of last fiscal year. Overview: Total assets grew to $71,925,000 as of December 31, 1998, up from $66,629,000 from quarter ending March 31, 1998. The increase is due to favorable operating results for the quarter. Liquidity and Capital Resources: On December 31, 1998, the Company had $38,879,000 in cash, cash equivalents, and short term investments, compared with $31,512,000 on March 31, 1998. This increase is mostly due to positive cash flow from operating activities of $8,988,000 consisting principally of net income of $6,621,000. Net cash used in investing activities as of the second quarter of fiscal year 1999 was $15,302,000 compared to $5,792,000 for the same period last year. Net cash used in short-term investment activities totaled $41,096,000, and $1,372,000 was used in the purchase of equipment. Net cash used in financing activities was $249,000. Repurchase of stocks accounted for $563,000, which was offset by proceeds from stock option exercises of $136,000 and proceeds from other activities of $178,000. The Company anticipates that available funds and cash expected to be generated from operations will be sufficient to meet cash and working capital requirements through the end of fiscal year 1999. Year 2000 Issues. Background: The Company is aware of the issues associated with the programming code in existing computer systems and software products as the millennium (year 2000) approaches. The "Year 2000" or "Y2K" problem is pervasive and complex, as virtually every computer operation will be affected in the same way by the rollover of the two digit year value to 00. The issue is whether computer systems will properly recognize date-sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. As a result, many companies' software, computer systems and other equipment may need to be upgraded or replaced in order to comply with such "Y2K" requirements. Assessment: The Y2K problem could affect computers, software, and other equipment used, operated, or maintained by the Company. Accordingly, the Company has been reviewing its internal computer program and systems to ensure that they will be Y2K compliant in a timely manner. It is utilizing both internal and external resources to identify, correct or reprogram, and test the systems for Y2K compliance. The Company's Y2K readiness program is divided into five major sections, namely; Enterprise Resource Planning (ERP) Systems, PC Systems and Applications, Shop Floor Control System, the Facilities Systems, and Third Party Suppliers and Customers. The inventory and priority assessment phases of each section of the program have been completed. The testing phases of the program are being performed by the Company. It is anticipated that all reprogramming efforts will be completed by September 30, 1999. For other sections, a six month safety net is built into our Y2K readiness program to allow for any unplanned or unscheduled occurrence that may need to be remedied prior to the millennium. As part of the Y2K readiness program, the Company has purchased and is implementing a Shop Floor Control System called MESA software from Camstar Systems, Inc. This will replace the existing work in process tracking system. Implementation of MESA is on schedule and is expected to be completed by mid-1999. Remaining business software programs and computer systems are expected to be Y2K compliant through the Y2K readiness program including those supplied by vendors or they will be retired. It is important to note that Supertex, Inc. products are not date sentitive. Suppliers and Customers: As part of the Y2K readiness program, the Company has identified primary vendors, service providers and customers that are believed to be critical to business operations. Steps are being undertaken to reasonably ascertain their stage of Y2K readiness through questionnaires, interviews and other available means. The process of evaluating these third party business partners began on July 1, 1998 and is scheduled for completion by mid-1999, with follow up reviews scheduled through the remainder of 1999. However, the Company has limited or no control over the actions of these third parties. Thus, while the Company does not anticipate any significant Y2K problems with these systems, there can be no assurance that these third party entities will resolve any or all Y2K problems before the occurrence of a material disruption to the Company or any of its customers. Any failure of these third parties to resolve Y2K problems in a timely manner could have a material adverse effect on the Company's business, financial condition and results of operations. Costs: It is currently estimated that the aggregate cost of the Company's year 2000 project is approximately $1,200,000 including the cost of implementing the new Shop Floor Control System, MESA, estimated to be approximately $700,000, substantially all of which would be capitlized. Other non-Y2K information technology projects have not been materially delayed or impacted by tge Company's Y2K initiatives. Contingency Plans: The Company is currently developing contingency plans intended to mitigate possible disruption in business operations that may result from the Y2K issue. The Company's objective is to complete its initial contingency planning by June 30, 1999. Contingency plans may include increasing inventory levels of raw materials, securing alternate sources of supply and distribution, accelerated replacement of affected equipment or software, increased work hours for Company personnel, additional staffing, manual workarounds and other appropriate measures. Risks: The Company's Y2K readiness program is an ongoing process and the risk assessments and estimates of costs and completion dates for the various components of the Y2K readiness program described above are forward looking statements and are subject to change. Factors that may cause changes include among others the continued availability and cost of programming and testing resources, ability to identify and remediate all Y2K problems, the timely implementation of Y2K ready systems, the timely conversion by third parties of their equipment and proprietary software, and unanticipated problems identified in the ongoing compliance review. Although preliminary estimates indicate that the Y2K issue will not have a material impact on the Company, there can be no assurance that the Y2K issue, due to the above factors or other unforeseen consequences, will not have a material adverse effect on the Company's business, financial condition and operating results. PART II - OTHER INFORMATION Item 6. - Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K. None. 			 SIGNATURE 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. 			 SUPERTEX, INC. 			 (Registrant) Date: February 12, 1999 			 By: /s/ Henry C. Pao 				 --------------------------- 				 Dr. Henry C. Pao, President 				 (Principal Executive and 				 Financial Officer)