-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TtMS4ONyiojtA+kFbFkw5Izv90v0qfYzuPYHF/qnceS3zSELUWi7owYsE3YzzUaX 3p8X9TrSRJZWkvMnghXcZw== 0001017062-98-002087.txt : 19981016 0001017062-98-002087.hdr.sgml : 19981016 ACCESSION NUMBER: 0001017062-98-002087 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19981015 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED MICRO CIRCUITS CORP CENTRAL INDEX KEY: 0000711065 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942586591 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-23193 FILM NUMBER: 98726359 BUSINESS ADDRESS: STREET 1: 6290 SEQUENCE DR CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194509333 MAIL ADDRESS: STREET 1: 6290 SEQUENCE DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92121 10-K/A 1 FORM 10-K AMENDMENT #1 DATED MARCH 31, 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K/A AMENDMENT NO. 1 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 000-23193 APPLIED MICRO CIRCUITS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2586591 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 6290 SEQUENCE DRIVE SAN DIEGO, CALIFORNIA 92121 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 450-9333 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE 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 than 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 [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $431,600,000 as of March 31, 1998, based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of Common Stock held by each officer and director and by each person who owns 5% of more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. There were 22,536,013 shares of the registrant's Common Stock issued and outstanding as of March 31, 1998. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
ITEM PAGE PART II 6. Selected Financial Data................................ 3 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 3 8. Financial Statements and Supplementary Data............ 9 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................ 10
The Registrant hereby amends the following items of its Form 10-K for the fiscal year ended March 31, 1998 previously filed with the Securities and Exchange Commission. 2 ITEM 6. SELECTED FINANCIAL DATA. (in thousands, except per share data)
MARCH 31, -------------------------------------------- 1994 1995 1996 1997 1998 ------- ------- ------- ------- -------- CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Net revenues...................... $49,686 $46,950 $50,264 $57,468 $ 76,618 Cost of revenues.................. 29,187 27,513 34,169 30,057 34,321 ------- ------- ------- ------- -------- Gross profit...................... 20,499 19,437 16,095 27,411 42,297 Research and development........ 9,273 10,108 8,283 7,870 13,268 Selling, general and administrative................. 9,513 10,112 11,232 12,537 14,278 ------- ------- ------- ------- -------- Total operating expenses...... 18,786 20,220 19,515 20,407 27,546 Operating income (loss)........... 1,713 (783) (3,420) 7,004 14,751 Gain on contract settlement, net.. 9,530 -- -- -- -- Interest income (expense), net.... (464) (358) (242) (29) 871 ------- ------- ------- ------- -------- Income (loss) before income taxes. 10,779 (1,141) (3,662) 6,975 15,622 Provision (benefit) for income taxes............................ 575 (70) 32 659 406 ------- ------- ------- ------- -------- Net income (loss)................. 10,204 (1,071) $(3,694) $ 6,316 $ 15,216 ======= ======= ======= ======= ======== Basic earnings (loss) per share: Earnings (loss) per share....... $ 2.46 $ (0.25) $ (0.81) $ 1.26 $ 1.44 ======= ======= ======= ======= ======== Shares used in calculating basic earnings (loss) per share...... 4,144 4,365 4,566 5,006 10,594 ======= ======= ======= ======= ======== Diluted earnings (loss) per share: Earnings (loss) per share....... $ 0.60 $ (0.06) $ (0.21) $ 0.35 $ 0.75 ======= ======= ======= ======= ======== Shares used in calculating diluted earnings (loss) per share.......................... 17,099 17,194 17,394 17,907 20,294 ======= ======= ======= ======= ======== CONSOLIDATED BALANCE SHEET DATA: Working Capital................... $19,867 $16,753 $13,977 $19,364 $ 77,417 Total Assets...................... 45,124 40,180 37,836 41,814 112,834 Long-term debt and capital lease obligations, less current portion.......................... 7,493 6,515 4,447 3,192 4,091 Total stockholders' equity........ 25,829 24,805 21,512 27,743 91,634
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Item 1. Business--Factors That May Affect Future Results". Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company assumes no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward- looking statements. 3 OVERVIEW AMCC designs, develops, manufactures and markets high-performance, high- bandwidth silicon solutions for the world's communications infrastructure. The Company tailors solutions to customer and market requirements by using a combination of high-frequency; mixed-signal design expertise; system-level knowledge and multiple silicon process technologies. AMCC believes that its internal bipolar and BiCMOS processes, complemented by advanced CMOS processes from external foundries, enable the Company to offer high-performance, high- speed solutions optimized for specific applications and customer requirements. The Company further believes that its products provide significant cost, power, performance and reliability advantages for systems OEMs in addition to accelerating time-to-market. The Company also leverages its technology to provide products for the automated test equipment (ATE), high-speed computing and military markets. In fiscal 1997, the Company substantially reorganized its management team and increased its focus on becoming the leading supplier of high-performance, high-bandwidth connectivity ICs for the world's communications infrastructure. Accordingly, the Company accelerated the pace of development of new products for high-performance telecommunications and data communications markets. Following the reorganization of the Company's management team in fiscal 1997 and its renewed focus on ASSP's for the telecommunications and data communications markets, the Company returned to profitability after two years of incurring net losses. The Company's revenues have increased in each of the last eight fiscal quarters. In addition, as a result primarily of the $21.5 million of net income generated in fiscal 1997 and 1998, the Company transitioned from accumulated deficit of $15.4 million at March 31, 1996 to retained earnings of $5.7 million at March 31, 1998. In December 1997, the Company completed the initial public offering (IPO) of its common stock, which raised net proceeds to the Company of approximately $25.1 million. In March 1998, the Company completed a secondary public offering, which raised net proceeds to the Company of approximately $26.9 million. RESULTS OF OPERATIONS The following table sets forth certain selected consolidated statements of operations data in dollars and as a percentage of revenues for the periods indicated:
FISCAL YEAR ENDED MARCH 31, ----------------------------------------------- 1996 1997 1998 -------------- -------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) $ % $ % $ % ------- ----- ------- ----- ------- ----- Net revenues.................. $50,264 100.0 % $57,468 100.0 % $76,618 100.0% Cost of revenues.............. 34,169 68.0 30,057 52.3 34,321 44.8 ------- ----- ------- ----- ------- ----- Gross profit.................. 16,095 32.0 27,411 47.7 42,297 55.2 Operating expenses: Research and development.... 8,283 16.5 7,870 13.7 13,268 17.3 Selling, general and administrative............. 11,232 22.3 12,537 21.8 14,278 18.6 ------- ----- ------- ----- ------- ----- Total operating expenses.. 19,515 38.8 20,407 35.5 27,546 35.9 ------- ----- ------- ----- ------- ----- Operating income (loss)....... (3,420) (6.8) 7,004 12.2 14,751 19.3 Interest income (expense), net.......................... (242) (0.5) (29) (0.1) 871 1.1 ------- ----- ------- ----- ------- ----- Income (loss) before provision for income taxes............. (3,662) (7.3) 6,975 12.1 15,622 20.4 Provision for income taxes.... 32 0.0 659 1.1 406 0.5 ------- ----- ------- ----- ------- ----- Net income (loss)............. $(3,694) (7.3)% $ 6,316 11.0 % $15,216 19.9% ======= ===== ======= ===== ======= ===== Diluted earnings (loss) per share: Earnings (loss) per share... $ (0.21) $ 0.35 $ 0.75 Shares used in calculating earnings (loss) per share.. 17,394 17,907 20,294
4 COMPARISON OF THE YEAR ENDED MARCH 31, 1998 TO THE YEAR ENDED MARCH 31, 1997 Net Revenues. Net revenues for the year ended March 31, 1998 were approximately $76.6 million, representing an increase of 33% over net revenues of approximately $57.5 million for the year ended March 31, 1997. Revenues from sales of communications products increased from 44% of net revenues for the year ended March 31, 1997 to 48% of net revenues for the year ended March 31, 1998, reflecting unit growth in shipments of existing products, as well as the introduction of new products for these markets. Revenues from sales of products to other markets, consisting of the ATE, high-speed computing and military markets, decreased from 56% of net revenues for the year ended March 31, 1997, to 52% of net revenues for the year ended March 31, 1998, although revenues from sales to these other markets increased in absolute dollars. The increase in absolute dollars in revenues attributed to these other markets was primarily due to an increase in shipments of PCI bus products for high-speed computing applications and to increased shipments of products to the ATE market. Sales to Nortel accounted for 21% and 20% of net revenues for the years ended March 31, 1998 and 1997, respectively. In the year ended March 31, 1998, one other customer, Insight Electronics, Inc., the Company's domestic distributor, accounted for 11% of net revenues. Sales outside of North America accounted for 23% and 21% of net revenues for the years ended March 31, 1998 and 1997, respectively. Although less than six percent of the Company's revenues were attributable to sales in Asia for the year ended March 31, 1998, the recent economic instability in certain Asian countries could adversely affect the Company's business, financial condition and operating results, particularly to the extent that this instability impacts the sales of products manufactured by the Company's customers. See "Item 1. Business--Factors That May Affect Future Results--International Sales." Gross Margin. Gross margin was 55.2% for the year ended March 31, 1998, as compared to 47.7% for the year ended March 31, 1997. The significant increase in gross margin primarily resulted from increased utilization of the Company's wafer fabrication facility, as well as a $1.1 million improvement in manufacturing yields. The Company's gross margin is primarily impacted by factory utilization, wafer yields, product mix and the Company's timing of depreciation expense and other costs associated with expanding its manufacturing capacity. Although AMCC does not expect its gross margin to continue to increase at the rate reflected above, its strategy is to maximize factory utilization whenever possible, maintain or improve its manufacturing yields, and focus on the development and sales of high-performance products that can have higher gross margins. There can be no assurance, however, that the Company will be successful in achieving these objectives. In addition, these factors can vary significantly from quarter to quarter, which would likely result in fluctuations in quarterly gross margin and net income. See "Item 1. Business--Factors That May Affect Future Operating Results--Fluctuations in Operating Results." Research and Development. Research and development (R&D) expenses increased 69% to approximately $13.3 million, or 17.3% of net revenues, for the year ended March 31, 1998, from approximately $7.9 million, or 13.7% of net revenues, for the year ended March 31, 1997. The substantial increase in R&D expenses was due to accelerated new product and process development efforts including a $3.4 million increase in compensation costs, a $1.6 million increase in prototyping and outside contractor costs and increases in certain other expenses. The Company believes that a continued commitment to R&D is vital to maintain a leadership position with innovative communications products. Accordingly, the Company expects R&D expenses to increase in absolute dollars and possibly as a percentage of net revenues in the future. Currently, R&D expenses are primarily focused on the development of products and processes for the telecommunications and data communications markets, and the Company expects to continue this focus. Selling, General and Administrative. Selling, general and administrative ("SG&A") expenses were approximately $14.3 million, or 18.6% of net revenues, for the year ended March 31, 1998, as compared to approximately $12.5 million, or 21.8% of net revenues, for the year ended March 31, 1997. The increase in SG&A expenses for the year ended March 31, 1998 was primarily due to a $700,000 increase in compensation costs, a $600,000 increase in commissions earned by third-party sales representatives and increases in certain other expenses. The decrease in SG&A expenses as a percentage of net revenues for the year ended March 31, 1998 was a result of net revenues increasing more rapidly than SG&A expenses. The Company expects SG&A expenses to increase in the future due principally to additional staffing in its sales and marketing departments and additional expenses related to being a public company. 5 Operating Margin. The Company's operating margin increased to 19.3% of net revenues for the year ended March 31, 1998, compared to 12.2% for the year ended March 31, 1997, principally as a result of the increase in gross margin and decrease in SG&A expenses as a percentage of net revenues, partially offset by the increase in R&D expenses as a percentage of net revenues. Net Interest Income. Net interest income increased to $871,000 for the year ended March 31, 1998 from a net interest expense of $29,000 for the year ended March 31, 1997. This increase was due principally to a $600,000 increase in interest income resulting from larger cash and short-term investment balances generated by the proceeds from the Company's public offerings completed during the year ended March 31, 1998, as well as a $300,000 decrease in interest expense associated with outstanding capital lease and debt obligations. Income Taxes. The Company's annual effective tax rate for the year ended March 31, 1998 was 2.6%. This was due primarily to the reduction of a valuation allowance recorded against deferred tax assets for net operating loss carryforwards and credits in the prior two years. This reduction results from sufficient levels of income for fiscal 1998, which makes the realization of these deferred tax assets more likely than not. The effective tax rate of 9.5% for the year ended March 31, 1997 was attributable primarily to alternative minimum taxes ("AMT"). The Company expects its effective tax rate to approximate statutory rates in fiscal 1999. Diluted Earnings per share. Diluted earnings per share increased 114% to $0.75 in the year ended March 31, 1998, compared to $0.35 for the year ended March 31, 1997. Deferred Compensation. In connection with the grant of certain stock options to employees during the six months ended September 30, 1997, the Company recorded aggregate deferred compensation of $599,000, representing the difference between the fair value of the Common Stock at the date of grant for accounting purposes and the option exercise price of such options. Such amount is presented as a reduction of stockholders' equity and amortized ratably over the vesting period of the applicable options. Amortization of deferred compensation recorded for the year ended March 31, 1998 was $127,000. The Company currently expects to record amortization of deferred compensation with respect to these option grants of approximately $159,000, $159,000, $129,000 and $25,000 during the fiscal years ended March 31, 1999, 2000, 2001 and 2002, respectively. Backlog. The Company's sales are made primarily pursuant to standard purchase orders for delivery of products. Quantities of the Company's products to be delivered and delivery schedules are frequently revised to reflect changes in customer needs, and customer orders can be canceled or rescheduled without significant penalty to the customer. For these reasons, the Company's backlog as of any particular date is not representative of actual sales for any succeeding period, and the Company therefore believes that backlog is not a good indicator of future revenue. The Company's backlog for products requested to be shipped and nonrecurring engineering services to be completed in the next six months was $30.1 million on March 31, 1998, compared to $20.4 million on March 31, 1997. See "Item 1. Business--Factors That May Affect Future Results--Fluctuations in Operating Results." Recently Issued Accounting Standards. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Company does not believe that comprehensive income or loss under SFAS No. 130 has been materially different than net income or loss. The Company believes it operates in one business and operating segment and does not believe adoption of SFAS No. 131 will have a material impact on the Company's financial statements. Year 2000 Compliance. Certain of the Company's internal computer systems are not Year 2000 compliant and the Company utilizes third-party equipment and software that may not be Year 2000 compliant. The Company has commenced taking actions to correct such internal systems and is in the early stages of conducting an audit of its third-party suppliers as to the Year 2000 compliance of their systems. The Company does not believe that the cost of these actions will have a material adverse affect on the Company's business, financial 6 condition or operating results. However, there can be no assurance that a failure of the Company's internal computer systems or of third-party equipment or software used by the Company, or of systems maintained by the Company's suppliers, to be Year 2000 compliant will not have a material adverse effect on the Company's business, financial condition or operating results. In addition, there can be no assurance that adverse changes in the purchasing patterns of the Company's customers or potential customers as a result of Year 2000 issues affecting such customers will not have a material adverse effect on the Company's business, financial condition or results of operations. See "Item 1. Business--Factors That May Affect Future Results--Year 2000 Compliance." COMPARISON OF THE YEAR ENDED MARCH 31, 1997 TO THE YEAR ENDED MARCH 31, 1996 Net Revenues. Net revenues for the year ended March 31, 1997 increased to approximately $57.5 million from approximately $50.3 million for the year ended March 31, 1996. Revenues from sales of communications products increased from 41% of net revenues for the year ended March 31, 1996 to 44% of net revenues for the year ended March 31, 1997, reflecting unit growth in shipments of existing products, as well as the introduction of new products for the communications market. Revenues from sales of products to other markets decreased from 59% of net revenues for the year ended March 31, 1996 to 56% of net revenues for the year ended March 31, 1997. In the years ended March 31, 1997 and 1996, sales to Nortel accounted for 20% of net revenues in each year. Sales to customers outside of North America accounted for 21% and 24% of net revenues in the years ended March 31, 1997 and 1996, respectively, reflecting an increase in revenues from sales to such customers, but a decreased percentage of net revenues. Gross Margin. Gross margin was 47.7% for the year ended March 31, 1997, compared to 32.0% for the year ended March 31, 1996. The substantial increase in gross margin in fiscal 1997 resulted primarily from a $3.2 million reduction in charges related to excess inventory, as well as from increased utilization of the Company's wafer fabrication facility. See "Item 1. Business--Factors That May Affect Future Results--Fluctuations in Operating Results." Research and Development. R&D expenses were approximately $7.9 million, or 13.7% of net revenues, for the year ended March 31, 1997, as compared to approximately $8.3 million, or 16.5% of net revenues, for the year ended March 31, 1996. The decrease in R&D expense for the year ended March 31, 1997 was primarily due to a $315,000 decrease in prototyping costs. Selling, General and Administrative. SG&A expenses were approximately $12.5 million, or 21.8% of net revenues, for the year ended March 31, 1997, as compared to approximately $11.2 million, or 22.3% of net revenues, for the year ended March 31, 1996. SG&A expenses increased in the year ended March 31, 1997 due primarily to a $1.3 million increase in compensation expense and a $300,000 increase in product promotion expenses, offset by decreases in certain other expenses. Net Interest Expense. Net interest expense was $29,000 in the year ended March 31, 1997, as compared to $242,000 in the year ended March 31, 1996. The decrease in net interest expense was attributable to a $100,000 decrease in interest expense resulting from decreasing levels of capital lease and debt obligations and to a $100,000 increase in interest income as a result of increasing levels of cash, cash equivalents and short-term investments. Income Taxes. The Company's effective tax rate for the year ended March 31, 1997 was 9.5%, which was comprised primarily of alternative minimum tax and reflected tax at the statutory rate, reduced by net operating loss and research and development tax credits. The tax benefit for the year ended March 31, 1996 was not material due to loss incurred during that fiscal year. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of liquidity as of March 31, 1998 consisted of $67.9 million in cash, cash equivalents and short-term investments. Working capital as of March 31, 1998 was $77.4 million, compared to $19.4 million as of March 31, 1997. This increase in working capital was primarily due to $52.0 million in net proceeds from the Company's initial and secondary public offerings, and cash provided by operating activities, 7 offset by the purchase of property and equipment and by the repurchase of certain shares of the Company's Preferred Stock. During the fiscal years ended March 31, 1997 and 1996 the Company financed its operations primarily through cash provided by operations and equipment lease financing. For the years ended March 31, 1998, 1997 and 1996, net cash provided by operating activities was $16.9 million, $11.7 million and $6.7 million, respectively. Net cash provided by operating activities in fiscal 1998 primarily reflected net income before depreciation and amortization expense plus increases in accounts payable and accrued liabilities less increases in accounts receivable and deferred income taxes. Net cash provided by operating activities in fiscal 1997 primarily reflected net income before depreciation and amortization expense. Net cash provided by operating activities in fiscal 1996 differed from the net loss primarily due to adjustments for depreciation and amortization expense, a reduction in inventory levels and an increase in accounts payable and accrued liabilities. Capital expenditures totaled $11.6 million, $4.1 million and $2.6 million for the years ended March 31, 1998, 1997 and 1996, respectively, of which $3.6 million, $1.2 million and $1.2 million for the years ended March 31, 1998, 1997 and 1996, respectively, were financed using debt or capital leases. The Company intends to increase its capital expenditures for manufacturing equipment, test equipment and computer hardware and software. The Company has tentative plans to expand the cleanroom in its existing wafer fabrication facility to accommodate new equipment that would expand capacity and would be used for process development, however the Company is also evaluating other alternatives to provide for additional capacity and process development. The Company also plans to initiate construction of a new six-inch wafer fabrication facility during 1999 and to complete the physical plant during 2000. The Company believes the new facility will not begin commercial production prior to late 2000. The Company currently expects to spend approximately $18.0 million on capital expenditures in fiscal 1999, of which approximately $6.0 million is currently estimated to be related to the potential expansion of its existing wafer fabrication facility and approximately $6.0 million will relate to the initial site acquisition and construction of its new wafer fabrication facility. In the course of acquiring land and financing for this new facility, the Company may be required to expend additional funds and to provide marketable securities as collateral. The Company estimates that the total cost of the new wafer fabrication facility will be at least $80.0 million, of which at least $30.0 million relates to the purchase of land and construction of the facility and at least $50.0 million relates to capital equipment purchases. The Company plans to finance the new wafer fabrication facility through a combination of available cash, cash equivalents and short term investments, cash from operations, debt and lease financing and approximately $24.0 million of the net proceeds of its initial and secondary public offerings. The Company is also exploring other alternatives for the expansion of its manufacturing capacity, including purchasing a wafer fabrication facility and entering into strategic relationships to obtain additional capacity. Although the Company believes that it will be able to obtain financing for a significant portion of the planned capital expenditures at competitive rates and terms from its existing and new financing sources, there can be no assurance that the Company will be successful in these efforts or that the new facility will be completed and in volume production within its current budget or within the period currently scheduled by the Company. Furthermore, there can be no assurance that other alternatives to constructing a new wafer fabrication facility will be available on a timely basis or at all. See "Item 1. Business--Factors That May Affect Future Results-Manufacturing Capacity Limitations; New Production Facility," "--Dependence on Third-Party Manufacturing and Supply Relationships" and "--Need For Additional Capital." With the exception of the approximately $52.0 million in net proceeds from the initial and secondary public offerings, the Company has not raised financing from sales of equity (other than option exercises under employee stock plans) since September 1987, and as a financing strategy has used cash flow from operating activities and equipment debt and lease financing. In June 1997, the Company repurchased 172,300 shares of Preferred Stock (convertible into 2,119,435 shares of Common Stock) for approximately $3.9 million. The Company believes that its available cash, cash equivalents and short- term investments, and cash generated from operations, will be sufficient to meet the Company's capital requirements for the next 12 months, although the Company could be required, or could elect, to seek to raise additional capital during such period. The Company expects that it will need to raise additional debt or equity financing in the future. There can be no 8 assurance that such additional debt or equity financing will be available on commercially reasonable terms or at all. See "Item 1. Business--Factors That May Affect Future Operating Results--Need for Additional Capital." FACTORS THAT MAY AFFECT FUTURE RESULTS The Company's results of operations have varied significantly in the past and may continue to do so in the future. These variations have been, and may in the future be, due to a number of factors, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. These factors include, but are not limited to: the rescheduling or cancellation of orders by customers; fluctuations in the timing and amount of customer requests for product shipments; fluctuations in manufacturing yields and inventory levels; changes in product mix; the Company's ability to introduce new products and technologies on a timely basis; the introduction of products and technologies by the Company's competitors; the availability of external foundry capacity, purchased parts and raw materials; competitive pressures on selling prices; the timing of investments in research and development; market acceptance of the Company's and its customers' products; the timing of depreciation and other expenses to be incurred by the Company in connection with the increase of capacity for its existing manufacturing facility and in connection with its proposed new manufacturing facility; the timing and amount of recruiting and relocation expenses, prototyping costs and product promotional expenses; costs associated with future litigation, if any, including without limitation, litigation relating to the use or ownership of intellectual property; costs associated with compliance with applicable environmental regulations; general semiconductor industry conditions; and general economic conditions, including, but not limited to, economic conditions in Asia. Historically, average selling prices in the semiconductor industry have decreased over the life of a product, and as a result, the average selling prices of the Company's products may be subject to significant pricing pressures in the future. Because the Company is continuing to increase its operating expenses for personnel and new product development, and because the Company is limited in its availability to reduce expenses quickly in response to any revenue short falls, the Company's business, financial condition and operating results would be adversely affected if increased sales are not achieved. In addition, the Company's operating results may be below the expectations of public market analysts or investors, which could have a material adverse effect on the market price of the Common Stock. See "Item 1. Business--Factors That May Affect Future Results--Fluctuations in Operating Results," "--Manufacturing Yields," "-- Increasing Dependence on Telecommunications and Data Communications Markets and Increasing Dependence on Application-Specific Standard Products," "-- Dependence on High-Speed Computing Market," "--Rapid Technological Change; Necessity to Develop and Introduce New Products," "--Manufacturing Capacity Limitations; New Production Facility," "--Transition to New Process Technologies," "--Customer Concentration," "--Intense Competition," "-- Management of Growth," and "--International Sales." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Refer to the Index on Page F-l of the Financial Report included herein. 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements The financial statements of the Company are included herein as required under Item 8 of this Annual Report on Form 10-K. See Index on page F-l. (2) Financial Statement Schedules: The financial statement schedules of the Company are included in Part IV of this report on the pages indicated: For the three fiscal years ended March 31, 1998 -- Schedule II Valuation and Qualifying Accounts (3) Exhibits The following exhibits are filed or incorporated by reference into this report. (A) EXHIBITS 3.1(1) Restated Certificate of Incorporation of the Company. 3.2(2) Amended and Restated Bylaws of the Company. 10 4.1(3) Specimen Stock Certificate. Form of Indemnification Agreement between the Company and each of its 10.1(3) Officers and Directors. 1982 Employee Incentive Stock Option Plan, as amended, and form of 10.2(3) Option Agreement. 10.3(3) 1992 Stock Option Plan as amended, and form of Option Agreement. 10.4(3) 1997 Employee Stock Purchase Plan and form of Subscription Agreement. 10.5(3) 1997 Directors' Stock Option Plan and form of Option Agreement. 401(k) Plan, effective April 1, 1985 and form of Enrollment 10.6(3) Agreement. Convertible Preferred Stock, Series 1 and Series 2, Purchase 10.7(3) Agreement, dated December 8, 1983. Convertible Preferred Stock Series 3 Purchase Agreement, dated 10.8(3) September 16, 1987. 10.9(3) Industrial Real Estate Lease, dated October 29, 1996 between the Registrant and ADI Mesa Partners AMCC, L.P. (the Sequence Drive Lease). 10.10(3) Industrial Real Estate Lease, dated April 8, 1992 between the Registrant and Mira Mesa Business Park (the Oberlin Drive Lease). 10.11(3) Security Agreements, dated January 30, 1992 by and between the Registrant and Roger Smullen. 10.12(3) Promissory Notes, dated January 30, 1992, as amended, by and between the Registrant and Roger Smullen. 10.13(3) Loan Agreement, dated May 1, 1996 and Exercise Notice and Restricted Stock Purchase Agreements dated July 23, 1997 by and between Registrant and David Rickey. 10.14(3) Promissory Notes, dated February 12, 1996, May 1, 1996, April 1, 1997 and July 23, 1997 by and between the Registrant and David Rickey. 10.15(3) Patent License Agreement, dated January 1, 1998, as amended by and between Registrant and Motorola, Inc. 10.16(3) Patent License Agreement, dated March 1, 1991, as amended, by and between Registrant and International Business Machines Corporation. 10.17(3) Patent License Agreement, dated June 1, 1997 by and between Registrant and International Business Machines Corporation. 10.18(3) Letter Agreement, dated January 30, 1996 by and between the Registrant and David Rickey. 10.19(3) Patent License Agreement, dated October 19, 1992, as amended by and between Registrant and Alcatel Network Systems, Inc. 10.20(3) Amendment No. 1 to Convertible Preferred Stock, Series 1 and Series 2 Purchase Agreement, dated September 16, 1987 and Convertible Preferred Stock, Series 3 Purchase Agreement, dated September 16, 1987. 10.21(4) Loan Agreement Secured by Property, dated February 19, 1998 by and between Registrant and Laszlo Gal and Agnes Gal. 10.22(4) Note Secured by Deed of Trust, dated February 19, 1998 by and between Registrant and Laszlo Gal and Agnes Gal. 10.23(4) Loan and Pledge Agreement, dated February 19, 1998 by and between Registrant and Anil Bedi. 11.1(5) Computation of Per Share Data under SFAS No. 128. 21.1(6) Subsidiary of the Registrant. 23.1 Consent of Independent Auditors 24.1(6) Power of Attorney (see page 42). 27.1 Financial Data Schedules.
11 (b) Current reports on Form 8-K. The registrant filed the following current reports on Form 8-K with the Commission during the fourth quarter of the fiscal year ended March 31, 1998: (1) On February 27, 1998, the Company filed a report on Form 8-K reporting under Item 5 thereof, regarding the audited consolidated financial statements for the three year periods ended March 31, 1997 and unaudited financial statements for the nine month periods ended December 31, 1996 and 1997, respectively. - -------- (1) Incorporated by reference to Exhibit 3.2 filed with the Company's Registration Statement (No. 333-37609) filed October 10, 1997, or with any Amendments thereto, which registration statement became effective November 24, 1997. (2) Incorporated by reference to Exhibit 3.4 filed with the Company's Registration Statement (No. 333-37609) filed October 10, 1997, or with any Amendments thereto, which registration statement became effective November 24, 1997. (3) Incorporated by reference to identically numbered exhibits filed with the Company's Registration Statement (No. 333-37609) filed October 10, 1997, or with any Amendments thereto, which registration statement became effective November 24, 1997. (4) Incorporated by reference to identically numbered exhibits filed with the Company's Registration Statement (No. 333-46071) filed February 11, 1998, or with any Amendments thereto, which registration statement became effective March 12, 1998. (5) The Computation of Per Share Data under SFAS No. 128 is included on page F-9 of this report. (6) Incorporated by reference to identically numbered exhibits filed with the Company's Annual Report on Form 10-K filed June 15, 1998. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. APPLIED MICRO CIRCUITS CORPORATION By: /s/ Joel O. Holliday ---------------------------------- Joel O. Holliday Chief Financial Officer Date: October 15, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE David M. Rickey * President and Chief October 15, 1998 - ----------------------------------- Executive Officer David M. Rickey /s/ Joel O. Holliday Chief Financial October 15, 1998 - ----------------------------------- Officer Joel O. Holliday Roger A. Smullen, Sr. * Director and Chairman October 15, 1998 - ----------------------------------- of the Board of Roger A. Smullen, Sr. Directors William K. Bowes, Jr. * Director October 15, 1998 - ----------------------------------- William K. Bowes, Jr. R. Clive Ghest * Director October 15, 1998 - ----------------------------------- R. Clive Ghest Franklin P. Johnson, Jr. * Director October 15, 1998 - ----------------------------------- Franklin P. Johnson, Jr. Arthur B. Stabenow * Director October 15, 1998 - ----------------------------------- Arthur B. Stabenow
* By: /s/ Joel O. Holliday ------------------------------ Joel O. Holliday (Attorney-in-Fact) 13 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Ernst & Young LLP, Independent Auditors......................... F-2 Consolidated Balance Sheets as of March 31, 1997 and 1998................. F-3 Consolidated Statements of Operations for the fiscal years ended March 31, 1996, 1997 and 1998............................................ F-4 Consolidated Statements of Stockholders' Equity for the fiscal years March 31, 1996, 1997 and 1998............................................ F-5 Consolidated Statements of Cash Flows for the fiscal years ending March 31, 1996, 1997 and 1998............................................ F-6 Notes to Consolidated Financial Statements................................ F-7
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Applied Micro Circuits Corporation We have audited the accompanying consolidated balance sheets of Applied Micro Circuits Corporation as of March 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 1998. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Applied Micro Circuits Corporation at March 31, 1997 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP San Diego, California April 21, 1998 F-2 APPLIED MICRO CIRCUITS CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, ----------------- ASSETS 1997 1998 ------ ------- -------- Current assets: Cash and cash equivalents................................. $ 5,488 $ 6,460 Short-term investments--available-for-sale................ 8,109 61,436 Accounts receivable, net of allowance for doubtful accounts of $200 and $350 at March 31, 1997 and 1998, respectively............................................. 8,418 12,179 Inventories............................................... 7,530 8,185 Deferred income taxes..................................... -- 3,882 Notes receivable from officer and employees............... 8 87 Other current assets...................................... 690 2,297 ------- -------- Total current assets.................................... 30,243 94,526 Notes receivable from officers and employees................ 803 1,090 Property and equipment, net................................. 10,768 17,218 ------- -------- Total assets.............................................. $41,814 $112,834 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable.......................................... $ 2,428 $ 5,215 Accrued payroll and related expenses...................... 3,102 5,057 Other accrued liabilities................................. 1,881 2,344 Deferred revenue.......................................... 806 1,873 Current portion of long-term debt......................... 37 567 Current portion of capital lease obligations.............. 2,625 2,053 ------- -------- Total current liabilities............................... 10,879 17,109 Long-term debt, less current portion........................ -- 2,736 Long-term capital lease obligations, less current portion... 3,192 1,355 Commitments and contingencies (Notes 6 and 10).............. Stockholders' equity: Preferred Stock, $0.01 par value: 2,000,000 shares authorized, none issued and outstanding. -- -- Convertible preferred stock, $0.01 par value: Authorized shares--1,350,000 and none at March 31, 1997, and 1998, respectively.................................. Issued and outstanding shares--1,223,594 and none at March 31, 1997, and 1998, respectively.................. Liquidation value--$25,695 and none at March 31, 1997 and March 31, 1998, respectively............................ 12 -- Common Stock, $0.01 par value: Authorized shares--34,500,000 and 60,000,000 at March 31, 1997 and 1998, respectively............................. Issued and outstanding shares--5,025,357 and 22,536,013 at March 31, 1997 and 1998, respectively................ 50 225 Additional paid-in capital................................ 36,974 86,660 Deferred compensation, net................................ -- (472) Retained earnings (deficit)............................... (9,235) 5,722 Notes receivable from stockholders........................ (58) (501) ------- -------- Total stockholders' equity.............................. 27,743 91,634 ------- -------- Total liabilities and stockholders' equity................ $41,814 $112,834 ======= ========
See accompanying notes F-3 APPLIED MICRO CIRCUITS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED MARCH 31, ------------------------- 1996 1997 1998 ------- ------- ------- Net revenues......................................... $50,264 $57,468 $76,618 Cost of revenues..................................... 34,169 30,057 34,321 ------- ------- ------- Gross Profit......................................... 16,095 27,411 42,297 Operating expenses: Research and development........................... 8,283 7,870 13,268 Selling, general and administrative................ 11,232 12,537 14,278 ------- ------- ------- Total operating expenses......................... 19,515 20,407 27,546 ------- ------- ------- Operating income (loss).............................. (3,420) 7,004 14,751 Interest income (expense), net....................... (242) (29) 871 ------- ------- ------- Income (loss) before income taxes.................... (3,662) 6,975 15,622 Provision for income taxes........................... 32 659 406 ------- ------- ------- Net income (loss).................................... $(3,694) $ 6,316 $15,216 ======= ======= ======= Basic earnings (loss) per share: Earnings (loss) per share.......................... $ (0.81) $ 1.26 $ 1.44 ======= ======= ======= Shares used in calculating basic earnings (loss) per share......................................... 4,566 5,006 10,594 ======= ======= ======= Diluted earnings (loss) per share: Earnings (loss) per share.......................... $ (0.21) $ 0.35 $ 0.75 ======= ======= ======= Shares used in calculating diluted earnings (loss) per share......................................... 17,394 17,907 20,294 ======= ======= =======
See accompanying notes. F-4 APPLIED MICRO CIRCUITS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
CONVERTIBLE NOTES PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED RECEIVABLE TOTAL ------------------ ------------------ PAID-IN DEFERRED EARNINGS FROM STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) STOCKHOLDERS EQUITY ---------- ------ ---------- ------ ---------- ------------ --------- ------------ ------------- Balance, March 31, 1995.................. 1,223,594 $ 12 4,426,257 $ 44 $36,733 $ -- $(11,750) $(234) $24,805 Issuance of stock pursuant to exercise of stock options.... -- -- 547,767 5 251 -- -- -- 256 Repurchase of common stock............... -- -- (5,708) -- (13) -- -- -- (13) Payments on and forgiveness of notes -- -- -- -- -- -- -- 158 158 Net loss............. -- -- -- -- -- -- (3,694) -- (3,694) ---------- ---- ---------- ---- ------- ----- -------- ----- ------- Balance, March 31, 1996.................. 1,223,594 12 4,968,316 49 36,971 -- (15,444) (76) 21,512 Issuance of stock pursuant to exercise of stock options.... -- -- 92,680 1 41 -- -- -- 42 Repurchase of common stock............... -- -- (35,639) -- (38) -- (107) -- (145) Payments on notes.... -- -- -- -- -- -- -- 18 18 Net income........... -- -- -- -- -- -- 6,316 -- 6,316 ---------- ---- ---------- ---- ------- ----- -------- ----- ------- Balance, March 31, 1997.................. 1,223,594 12 5,025,357 50 36,974 -- (9,235) (58) 27,743 Issuance of Common Stock, net of issuance costs...... -- -- 5,038,448 51 51,942 -- -- -- 51,993 Conversion of convertible preferred stock to common Stock................ (1,051,294) (11) 10,717,317 107 (96) -- -- -- -- Issuance of stock pursuant to exercise of stock options.... -- -- 1,701,620 17 858 -- -- (455) 420 Net exercise of warrants............ -- -- 53,271 -- -- -- -- -- -- Payments on notes.... -- -- -- -- -- -- -- 12 12 Repurchase of convertible preferred stock............... (172,300) (1) -- -- (3,617) -- (259) -- (3,877) Deferred compensation related to stock options............. -- -- -- -- 599 (599) -- -- -- Amortization of deferred compensation........ -- -- -- -- -- 127 -- -- 127 Net Income........... -- -- -- -- -- -- 15,216 -- 15,216 ---------- ---- ---------- ---- ------- ----- -------- ----- ------- Balance, March 31, 1998.................. -- $ -- 22,536,013 $225 $86,660 $(472) $ 5,722 $(501) $91,634 ========== ==== ========== ==== ======= ===== ======== ===== =======
See accompanying notes. F-5 APPLIED MICRO CIRCUITS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED MARCH 31, ----------------------------- 1996 1997 1998 -------- -------- --------- Operating Activities Net income (loss)............................. $ (3,694) $ 6,316 $ 15,216 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................. 5,311 5,185 5,174 Write-offs of inventories..................... 3,663 452 600 Amortization of deferred compensation......... -- -- 127 Loss on debt forgiveness...................... 150 -- -- Changes in assets and liabilities: Accounts receivable.......................... (594) 1,058 (3,761) Inventories.................................. (1,776) (1,146) (1,255) Other current assets......................... 320 (116) (1,607) Accounts payable............................. 1,853 (1,553) 2,787 Accrued payroll and other accrued liabilities................................. 1,047 1,562 2,418 Deferred income taxes........................ -- -- (3,882) Deferred revenue............................. 416 (25) 1,067 -------- -------- --------- Net cash provided by operating activities.. 6,696 11,733 16,884 Investing Activities Proceeds from sales and maturities of short- term investments............................. 11,238 7,944 66,547 Purchase of short-term investments............ (10,859) (11,512) (119,874) Notes receivable from officers and employees.. (203) (608) (366) Purchase of property and equipment............ (1,427) (2,855) (11,342) -------- -------- --------- Net cash used for investing activities..... (1,251) (7,031) (65,035) Financing Activities Net proceeds from issuance of common stock, net.......................................... 256 42 52,413 Repurchase of common stock.................... (13) (145) -- Repurchase of convertible preferred stock..... -- -- (3,877) Payments on notes receivable from stockholders................................. 8 18 12 Payments on capital lease obligations......... (2,750) (2,824) (2,691) Payments on long-term debt.................... (864) (582) (37) Issuance of long-term debt.................... -- -- 3,303 -------- -------- --------- Net cash provided by (used for) financing activities................................ (3,363) ( 3,491) 49,123 -------- -------- --------- Net increase in cash and cash equivalents.. 2,082 1,211 972 Cash and cash equivalents at beginning of period......................................... 2,195 4,277 5,488 -------- -------- --------- Cash and cash equivalents at end of period...... $ 4,277 $ 5,488 $ 6,460 ======== ======== ========= Supplemental disclosure of cash flow information: Cash paid for: Interest...................................... $ 715 $ 656 $ 380 ======== ======== ========= Income taxes.................................. $ 48 $ 770 $ 3,251 ======== ======== =========
Supplemental schedule of noncash investing and financing activities: Capital lease obligations of approximately $1.2 million, $1.2 million and $282,000 were incurred during fiscal years 1996, 1997 and 1998, respectively. During the fiscal year 1998, notes were received for the exercise of stock options totaling $455,000. See accompanying notes. F-6 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business The Company designs, develops, manufactures and markets high-performance, high-bandwidth silicon solutions for the world's communications infrastructure. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. Cash, Cash Equivalents and Short-Term Investments Cash and cash equivalents consist of money market type funds and highly liquid debt instruments with original maturities of three months or less at the date of acquisition. Short-term investments consist of United States Treasury notes, obligations of U.S. government agencies and corporate bonds. The Company maintains its excess cash in financial institutions with strong credit ratings and has not experienced any significant losses on its investments. The estimated fair value of each investment security approximates cost and, therefore, no unrealized gains or losses existed as of March 31, 1997 and 1998. The following is a summary of available-for-sale securities (in thousands):
MARCH 31, -------------- 1997 1998 ------ ------- U.S. treasury securities and obligations of U.S. Government agencies................................................... $4,189 $15,908 U.S. corporate debt securities.............................. 3,628 45,528 Other....................................................... 292 -- ------ ------- $8,109 $61,436 ====== =======
Available-for-sale securities by contractual maturity are as follows (in thousands):
MARCH 31, 1998 --------- Due in one year or less............................................ $50,510 Due after one year through two years............................... 5,663 Greater than two years............................................. 5,263 ------- $61,436 =======
Concentration of Credit Risk The Company believes that the concentration of credit risk in its trade receivables is mitigated by the Company's credit evaluation process, relatively short collection terms and dispersion of its customer base. The Company generally does not require collateral. The Company has not experienced significant losses on trade receivables from any particular customer or geographic region for any period presented. The Company invests its excess cash in debt instruments of the U.S. Treasury, governmental agencies and corporations with strong credit ratings. The Company has established guidelines relative to diversification and maturities that attempt to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. The Company has not experienced any significant losses on its cash equivalents or short-term investments. F-7 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. These estimates include assessing the collectability of accounts receivable, the use and recoverability of inventory, estimates to complete engineering contracts, costs of future product returns under warranty and provisions for contingencies expected to be incurred. Actual results could differ from those estimates. Inventories Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. The Company's inventory valuation process is done on a part-by-part basis. Lower of cost to market adjustments, specifically identified on a part-by-part basis, reduce the carrying value of the related inventory and take into consideration reductions in sales prices, excess inventory levels and obsolete inventory. Once established, these adjustments are considered permanent and are not reversed until the related inventory is sold or disposed. Property and Equipment Property and equipment are stated at cost and depreciated over the estimated useful lives of the assets (3 to 7 years) using the straight line method. Leasehold improvements are stated at cost and amortized over the shorter of the useful life of the asset or the lease term. Property and equipment under capital leases are recorded at the net present value of the minimum lease payments and are amortized over the shorter of the useful life of the assets or the lease term. Leased assets purchased at the expiration of the lease term are capitalized at acquisition cost. Impairment of Long-Lived Assets In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of", the Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. Through March 31, 1998, the Company has not experienced any such impairments. Advertising Cost Advertising costs are expensed as incurred. Revenues Revenues related to product sales are generally recognized when the products are shipped to the customer. Recognition of revenues and the related cost of revenues on shipments to distributors that are made under agreements allowing for price protection and right of return on products unsold by the distributor are deferred until the distributor ships the product to its customer. Revenues on engineering design contracts are recognized using the percentage-of- completion method based on actual cost incurred to date compared to total estimated costs of the project. Deferred revenue represents the margin on shipments of products to distributors that will be recognized when the distributors ship the products to their customers and billings in excess of costs and estimated earnings on uncompleted engineering design contracts. Warranty Reserves Estimated expenses for warranty obligations are accrued as revenue is recognized. Reserve estimates are adjusted periodically to reflect actual experience. F-8 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Research and Development Research and development costs are expensed as incurred. Substantially all research and development expenses are related to new product development, designing significant improvements to existing products and new process development. Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related interpretations in accounting for its employee and director stock options because the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), requires the use of option valuation models that were not developed for use in valuing employee and director stock options. Under SFAS 123 compensation cost is determined using the fair value of stock-based compensation determined as of the grant date, and is recognized over the periods in which the related services are rendered. The statement also permits companies to elect to continue using the current implicit value accounting method specified in APB 25 to account for stock-based compensation and disclose in the footnotes to the financial statements the pro forma effect of using the fair value method for its stock based compensation. Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation. Earnings (Loss) Per Share In February 1997, the Financial Accounting Standards Board issued SFAS No. 128. "Earnings per Share," which supersedes APB Opinion No. 15. SFAS No. 128 replaces the presentation of primary earnings per share (EPS) with "Basic EPS" which includes no dilution and is based on weighted-average common shares outstanding for the period. Companies with complex capital structures, including the Company, will also be required to present "Diluted EPS" that reflects the potential dilution of securities such as employee stock options and warrants to purchase common stock. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. On February 3, 1998, the SEC issued Staff Accounting Bulletin (SAB) No. 98 which revised the previous instructions for determining the dilutive effects in earnings per share computations of common stock and common stock equivalents issued at prices below the IPO price prior to the effectiveness of the IPO. The reconciliation of shares used to calculate basic and diluted earnings (loss) per share consists of the following (in thousands):
MARCH 31, -------------------- 1996 1997 1998 ------ ------ ------ Shares used in basic earnings (loss) per share computation--weighted average common shares outstanding........................................... 4,566 5,006 10,594 Effect of assumed conversion of preferred stock from date of issuance...................................... 12,828 12,828 7,434 Net effect of dilutive common share equivalents based on treasury stock method.............................. -- 73 2,266 ------ ------ ------ Shares used in diluted earnings (loss) per share computations.......................................... 17,394 17,907 20,294 ====== ====== ======
Recently Issued Accounting Standards In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Segment Information. Both of these standards are effective for fiscal years beginning F-9 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) after December 15, 1997. SFAS No. 130 requires that all components of comprehensive income, including net income, be reported in the financial statements in the period in which they are recognized. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income and other comprehensive income, including foreign currency translation adjustments, and unrealized gains and losses on investments, shall be reported, net of their related tax effect, to arrive at comprehensive income. The Company does not believe that comprehensive income or loss has been materially different than net income or loss as reported. SFAS No. 131 amends the requirements for public enterprises to report financial and descriptive information about their reportable operating segments. Operating segments, as defined in SFAS No. 131, are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company in deciding how to allocate resources and in assessing performance. The financial information is required to be reported on the basis that is used internally for evaluating the segment performance. The Company believes it operates in one business and operating segment and does not believe adoption of SFAS No. 131 will have a material impact on the Company's financial statements. NOTE 2. CERTAIN FINANCIAL STATEMENT INFORMATION
MARCH 31, ------------------ 1997 1998 -------- -------- Inventories (in thousands): Finished goods......................................... $ 1,076 $ 1,817 Work in process........................................ 4,279 5,161 Raw materials.......................................... 2,175 1,207 -------- -------- $ 7,530 $ 8,185 ======== ======== Property and equipment (in thousands): Machinery and equipment................................ $ 21,211 $ 25,983 Leasehold improvements................................. 5,789 7,476 Computers, office furniture and equipment.............. 11,701 13,219 -------- -------- 38,701 46,678 Less accumulated depreciation and amortization........... (27,933) (29,460) -------- -------- $ 10,768 $ 17,218 ======== ========
The cost and accumulated amortization of machinery and equipment under capital leases at March 31, 1998 were approximately $10.0 million and $7.2 million, respectively ($12.2 million and $7.3 million, at March 31, 1997). Amortization of assets held under capital leases is included with depreciation expense. During the years ended March 31, 1996, 1997 and 1998, the Company earned interest income of $473,000, $627,000 and $1,252,000, respectively, and incurred interest expense of $715,000, $656,000 and $381,000, respectively. NOTE 3. LONG-TERM DEBT The Company has an equipment line of credit agreement with a bank for $5 million, of which $3.3 million was utilized at March 31, 1998 and which expires March 31, 1999. Advances under the line of credit are collateralized by the equipment purchased. Borrowings under the line of credit are required to be repaid in equal monthly installments over five to seven years and bear interest at a rate based on 5 year Treasury Bills plus 1.9% which is fixed as of the date of the note. At March 31, 1998, the Company had approximately $1.7 million available under the line of credit. F-10 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Long-term debt consists of the following (in thousands):
MARCH 31, ------------ 1997 1998 ---- ------ 10% notes payable, paid in April 1997......................... $ 37 $ -- Notes Payable (under line of credit), principal and interest payable in monthly installments of $66,000 through March 2003 at 7.42%..................................................... -- 3,303 ---- ------ 37 3,303 Less current portion.......................................... (37) (567) ---- ------ $ -- $2,736 ==== ======
Principal maturities of the note payable at March 31, 1998 are as follows for years ending March 31: $567,000, 1999; $610,000, 2000; $657,000, 2001; $707,000, 2002 and $762,000, 2003. NOTE 4. STOCKHOLDERS' EQUITY On October 6, 1997, the Board of Directors authorized, which the stockholders subsequently approved, a two for three reverse stock split of all outstanding common stock. All share and per share amounts and stock option data have been restated to retroactively reflect the stock split. In November 1997, the Certificate of Incorporation of the Company was amended to provide that the authorized number of shares of common and preferred stock issuable by the Company was 60,000,000 shares of common stock ($0.01 par value) and 2,000,000 shares of preferred stock ($0.01 par value). Stock Offerings In December 1997, the Company completed an initial public offering of its common stock. The offering raised net proceeds to the Company of approximately $25.1 million. In March, 1998, the Company completed a secondary offering of common stock in which the Company raised net proceeds of approximately $26.9. Convertible Preferred Stock On April 24, 1997 the Board authorized the Company to repurchase up to $4 million of convertible preferred stock, with priority given to the holders of convertible preferred stock that submitted bids for the sale of their shares of convertible preferred stock at the lowest price per share. On June 20,1997, the Company repurchased an aggregate of 172,300 shares of convertible preferred stock for approximately $3.9 million at prices between $1.20 and $2.61 per share on an as converted to common stock basis. In connection with the initial public offering, all then outstanding shares of convertible preferred stock immediately converted into 10,717,317 shares of common stock. Preferred Stock In November 1997, the Certificate of Incorporation was amended to allow the issuance of up to 2,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series of the designation of such series, without further vote or action by the stockholders. Stock Options The Company's 1992 Stock Option Plan provides for the granting of incentive and nonqualified stock options to employees. Generally, options are granted at prices at least equal to fair value of the Company's F-11 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) common stock on the date of grant. In addition, certain officers and directors have been granted nonqualified stock options. The Company's 1982 Employee Incentive Stock Option Plan expired in 1992. Options to purchase an aggregate of 54,812 shares of common stock under the 1982 Plan remain outstanding as of March 31, 1998. Options under both plans expire not more than ten years from the date of grant and are immediately exercisable after the date of grant but are subject to certain repurchase rights by the Company, at the Company's option, until such ownership rights have vested. Vesting generally occurs over four years. At March 31, 1997 and 1998, 42 shares and 651,842 shares of common stock were subject to repurchase, respectively. Pursuant to an employment agreement between the Company and an executive, the Company granted an option to purchase 800,000 shares of the Company's common stock at $0.53 per share under the 1992 Stock Option Plan. The option vests ratably over four years. In the event the Company is acquired, the agreement stipulates that under certain circumstances the executive is eligible for certain additional compensation. These options as well as 66,667 additional options issued in April 1997 were exercised in July 1997. The exercise was paid for with various notes, which aggregated $455,000 and bear interest at rates between 5.98% and 6.54%, and are due at the earlier of February 12, 2000 ($420,000) and April 9, 2001 ($35,000) or the termination of employment. Certain other option agreements provide for the exercise of stock options with long-term promissory notes. These notes bear interest at rates ranging from 5.32% to 5.91%, are payable at the earlier of termination of employment or January 1999 and are secured by the shares of common stock purchased with the notes. Pro forma information regarding net income (loss) and net income (loss) per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value of the options was estimated at the date of grant using the minimum value method for grants prior to the initial public offering and the Black Scholes method for grants after the initial public offering using the following weighted average assumptions for fiscal year 1996, 1997 and 1998; risk free interest rate of 6%; an expected option life of four years; no annual dividends, and an expected volatility of .92 (used only for the options valued using the Black Scholes method.). For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expenses over the vesting period of such options. The effects of applying SFAS No. 123 for pro forma disclosure purposes are not likely to be representative of the effects on pro forma net income in future years because they do not take into consideration pro forma compensation expenses related to grants made prior to 1996. The Company's pro forma information follows:
YEAR ENDED MARCH 31, ----------------------- 1996 1997 1998 ------- ------ ------- Net income (loss): As reported....................................... $(3,694) $6,316 $15,216 Pro forma......................................... $(3,718) $6,225 $14,856 Earnings (loss) per share: As reported: Basic........................................... $ (0.21) $ 0.35 $ 0.84 Diluted......................................... $ (0.21) $ 0.35 $ 0.75 Pro forma: Basic........................................... $ (0.21) $ 0.35 $ 0.82 Diluted......................................... $ (0.21) $ 0.35 $ 0.73 Weighted fair value of options granted during the year............................................... $ 0.12 $ 0.15 $ 6.84
F-12 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of the Company's stock option activity, including those issued outside of the plans, and related information are as follows:
MARCH 31, --------------------------------------------------------------- 1996 1997 1998 -------------------- -------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE --------- --------- --------- --------- ---------- --------- Outstanding at Beginning of year..... 1,633,054 $0.50 1,690,160 $0.51 2,842,293 $0.51 Granted............. 1,017,000 0.53 1,457,285 0.53 1,798,873 10.00 Exercised........... (547,767) 0.47 (92,680) 0.45 (1,701,620) 0.51 Forfeited........... (412,127) 0.51 (212,472) 0.53 (257,095) 0.64 --------- ----- --------- ----- ---------- ----- Outstanding at end of year................... 1,690,160 $0.51 2,842,293 $0.51 2,682,451 $6.87 ========= ===== ========= ===== ========== ===== Vested at end of year... 349,337 $0.51 851,764 $0.51 635,050 $0.60 ========= ===== ========= ===== ========== =====
The following is a further breakdown of the options outstanding at March 31, 1998:
WEIGHTED AVERAGE WEIGHTED RANGE OF REMAINING AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE PRICE OUTSTANDING LIFE PRICE -------- ----------- ----------- -------- $0.45--$ 0.97 1,737,064 8.19 $ 0.53 $0.98--$ 8.25 286,596 9.51 $ 7.72 $8.26--$23.87 658,791 9.98 $23.21 ------------- --------- ---- ------ $0.45--$23.87 2,682,451 8.77 $ 6.87 ============= ========= ==== ======
From April 1, 1997 through September 30, 1997, the Company recorded deferred compensation expense for the difference between the exercise price and the fair value for financial statement presentation purposes of the Company's common stock, as determined by the Board of Directors, for all options granted in the first and second quarters of fiscal 1998. This deferred compensation aggregates to $599,000, which is being amortized over the four year vesting period of the related options. Amortization during fiscal 1998 was $127,000. Warrants In connection with certain notes payable secured by equipment, capital leases for equipment and revolving lines of credit issued in 1989 and 1990, the Company had outstanding warrants to purchase 83,807 shares of common stock at $2.63 to $3.00 per share, subject to certain anti-dilution adjustments and adjustments in the event of certain mergers or acquisitions. No value was placed on the warrants at the time of issuance as it was considered to be immaterial. In November 1997, 53,271 shares of common stock were issued upon the net exercise of these warrants at the initial public offering price of $8.00 per share. 1997 Employee Stock Purchase Plan The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan") was adopted by the Board of Directors on October 6, 1997, which the stockholders subsequently approved. A total of 400,000 shares of Common Stock are reserved for issuance under the 1997 Purchase Plan. At March 31, 1998, no shares had been issued under the 1997 Purchase Plan. F-13 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1997 Directors' Stock Option Plan The Company's 1997 Directors' Stock Option Plan (the "Directors' Plan") was adopted by the Board of Directors on October 6, 1997, which the stockholders subsequently approved. A total of 200,000 shares of Common Stock are reserved for issuance under the Directors' Plan. The Directors' Plan provides for the grant of non-statutory options to nonemployee directors of the Company. At March 31, 1998, no shares had been issued under the Directors' Plan. Common Shares Reserved for Future Issuance At March 31, 1998, the Company has the following shares of common stock reserved for issuance upon the exercise of equity instruments: Stock Options: Issued and outstanding........................................... 2,682,451 Authorized for future grants..................................... 1,982,639 Stock purchase plan................................................ 400,000 --------- 5,065,090 =========
NOTE 5. INCOME TAXES The provision for income taxes consists of the following (in thousands):
YEAR ENDED MARCH 31, ----------------- 1996 1997 1998 ---- ---- ------- Current: Federal................................................. $27 $380 $ 3,606 State................................................... 5 279 682 --- ---- ------- Total Current......................................... $32 $659 $ 4,288 Deferred: Federal................................................. -- -- (3,558) State................................................... -- -- (324) --- ---- ------- Total Deferred........................................ -- -- (3,882) --- ---- ------- $32 $659 $ 406 === ==== =======
The provision (credit) for income taxes reconciles to the amount computed by applying the federal statutory rate (35%) to income before income taxes as follows (in thousands):
YEAR ENDED MARCH 31, ------------------------------------------ 1996 1997 1998 ------------ ------------ ------------ $ % $ % $ % ------- --- ------- --- ------- --- Tax at federal statutory rate..... $(1,282) (35)% $ 2,441 35 % $ 5,468 35 % Increase (decrease) in valuation allowance of deferred tax assets. 1,282 35 (2,343) (34) (5,094) (32) Foreign Sales Corporation......... -- -- -- -- (309) (2) Federal Alternative Minimum Tax... 27 -- 380 5 -- -- State taxes, net of federal benefit.......................... 5 -- 181 3 233 1 Federal Tax Credits............... -- -- -- -- (281) (2) Other............................. -- -- -- -- 389 3 ------- --- ------- --- ------- --- $ 32 -- $ 659 9 % $ 406 3 % ======= === ======= === ======= ===
F-14 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Significant components of the Company's deferred tax assets and liabilities for federal and state income taxes as of March 31, 1997 and 1998 are as shown below. As of March 31, 1997, a valuation allowance had been recognized to offset the deferred tax assets as realization of such assets was uncertain. At March 31, 1998, the effective tax rate is computed based on a full reduction of the valuation allowance and realization of the deferred tax asset.
MARCH 31, --------------- 1997 1998 ------- ------ Deferred tax assets (in thousands): Reserves..................................................... $ 2,233 $1,814 Capitalization of inventory and research and development costs....................................................... 226 242 Research and development credit carryforwards................ 1,667 898 Depreciation and amortization................................ 200 242 State income taxes........................................... -- 239 Other credit carryforwards................................... 768 447 ------- ------ Subtotal....................................................... 5,094 3,882 Valuation allowance............................................ (5,094) -- ------- ------ Net deferred taxes............................................. $ -- $3,882 ======= ======
At March 31, 1998, the Company has federal alternative minimum tax and research and development tax credit carryforwards of approximately $447,000 and $898,000, respectively, which will begin to expire in 2008 unless previously utilized. Under Internal Revenue Code Section 382, the Company's use of its tax credit carryforwards could be limited in the event of certain cumulative changes in the Company's stock ownership. NOTE 6. LEASE COMMITMENTS The Company leases its present manufacturing facilities under a long-term operating lease expiring in March 2003. The lease is renewable for up to an additional five years. This lease requires the Company to pay property taxes and incidental maintenance expenses and contains escalation clauses based upon increases in the Consumer Price Index. In September 1997, the Company moved into a new administration and manufacturing facility which is leased under a long-term operating lease. This lease expires in September 2007, requires the Company to pay property taxes and incidental maintenance expenses and is renewable for up to ten years. The lease provides for defined rent increases over the term of the lease. F-15 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Annual future minimum lease payments, including machinery and equipment under capital leases as of March 31, 1998 are as follows:
OPERATING CAPITAL YEAR ENDING MARCH 31, LEASES LEASES - --------------------- --------- ------- 1999....................................................... $1,062 $2,236 2000....................................................... 1,055 811 2001....................................................... 1,077 386 2002....................................................... 1,096 275 2003....................................................... 1,096 34 Thereafter................................................. 4,180 -- ------ ------ Total minimum lease payments............................. $9,566 3,742 ====== Less amount representing interest............................ 334 ------ Present value of remaining minimum capital lease payments (including current portion of $2,053)....................... $3,408 ======
Rent expense (including short-term leases and net of sublease income) for the years ended March 31, 1996, 1997 and 1998 was $2.3 million, $1.2 million and $1.2 million, respectively. Sublease income was $0, $208,000 and $119,000 for the years ended March 31, 1996, 1997 and 1998, respectively. NOTE 7. RELATED PARTY TRANSACTIONS At March 31, 1997 and 1998, the Company had outstanding notes receivables from officer(s) of $803,000 and $1,065,000, respectively. These notes bear interest at the rates of 5.32% to 5.91%, and are due at the earlier of, one to three years from the date of the note or termination of employment with the Company. NOTE 8. EMPLOYEE RETIREMENT PLAN Effective January 1, 1986, the Company established a 401(k) defined contribution retirement plan (the "Retirement Plan") covering all full-time employees with greater than three months of service. The Retirement Plan provides for voluntary employee contributions from 1% to 20% of annual compensation, subject to a maximum limit allowed by Internal Revenue Service guidelines. The Company may contribute such amounts as determined by the Board of Directors. Employer contributions vest to participants at a rate of 20% per year of service, provided that after five years of service all past and subsequent employer contributions are 100% vested. The contributions charged to operations totaled $182,000, $318,000 and $412,000 for the years ended March 31, 1996, 1997 and 1998, respectively. NOTE 9. SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION During the years ended March 31, 1996, 1997 and 1998, 20%, 20% and 21% respectively, of net revenues were from one customer and in 1998. Additionally, in 1998, another customer accounts for 11% of net revenues. No other customer accounted for more than 10% of net revenues in any period. At March 31, 1998, included in the accounts receivable were $2.3 million of outstanding receivables from the customer that represented 21% of the net revenues for fiscal 1998. F-16 APPLIED MICRO CIRCUITS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Net revenues by geographic region were as follows (in thousands):
YEAR ENDED MARCH 31, ----------------------- 1996 1997 1998 ------- ------- ------- Net revenues: United States......................................... $28,134 $34,424 $44,448 Canada................................................ 10,116 10,943 14,204 Europe and Israel..................................... 6,525 8,216 13,773 Asia.................................................. 5,489 3,885 4,193 ------- ------- ------- $50,264 $57,468 $76,618 ======= ======= =======
NOTE 10. CONTINGENCIES The Company is party to various claims and legal actions arising in the normal course of business, including notification of possible infringement on the intellectual property rights of third parties. In addition, since 1993 the Company has been named as a potentially responsible party ("PRP") along with a large number of other companies that used Omega Chemical Corporation ("Omega") in Whittier, California to handle and dispose of certain hazardous waste material. The Company is a member of a large group of PRPs that has agreed to fund certain remediation efforts at the Omega site for which the Company has accrued approximately $50,000. Although the ultimate outcome of these matters is not presently determinable, management believes that the resolution of all such pending matters, net of amounts accrued, will not have a material adverse affect on the Company's financial position or liquidity; however, there can be no assurance that the ultimate resolution of these matters will not have a material impact on the Company's results of operations in any period. F-17 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E ------ ---------- ------------------ ----------- --------- ADDITIONS ------------------ (1) (2) CHARGED CHARGED BALANCE AT TO COSTS TO OTHER BALANCE BEGINNING AND ACCOUNTS- DEDUCTIONS- AT END DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD ----------- ---------- -------- --------- ----------- --------- Year ended March 31, 1998: Allowance for doubtful accounts................. $200 $157 $-- $ 7 $350 Year ended March 31, 1997: Allowance for doubtful accounts................. $ 90 $198 $88 $-- $200 Year ended March 31, 1996: Allowance for doubtful accounts................. $115 $ -- $-- $25 $ 90
EX-23.1 2 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-8 No. 333-40905 pertaining to the 1997 Employee Stock Purchase Plan and No. 333-47185 pertaining to the 1982 Employee Incentive Stock Option Plan, the 1992 Employee Stock Option Plan and the 1997 Directors' Stock Option Plan of Applied Micro Circuits Corporation of our report dated April 21, 1998, with respect to the consolidated financial statements, as amended, and schedule of Applied Micro Circuits Corporation included in this Form 10-K/A. ERNST & YOUNG LLP San Diego, California October 14, 1998 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR END MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FISCAL 1998 ANNUAL REPORT FORM 10-K. 1,000 12-MOS MAR-31-1998 APR-01-1997 MAR-31-1998 6,460 61,436 12,529 350 8,185 94,526 22,392 5,174 112,834 17,109 0 0 0 225 91,409 112,834 76,618 76,618 34,321 61,867 0 0 871 15,622 406 15,622 0 0 0 15,216 1.44 0.75
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