-----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, SmpdvxU6D4mlEQToM26+IOJz2A2SKV2OqCZ4GcJUQubPPxDYDHo+7CewNZp+rP/B srOGeWWi86mOhLhNkBFMsw== 0000753568-95-000014.txt : 19951119 0000753568-95-000014.hdr.sgml : 19951119 ACCESSION NUMBER: 0000753568-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXAR CORP CENTRAL INDEX KEY: 0000753568 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 941741481 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14225 FILM NUMBER: 95592804 BUSINESS ADDRESS: STREET 1: 2222 QUME DR STREET 2: PO BOX 49007 CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084346400 MAIL ADDRESS: STREET 2: 2222 QUME DRIVE CITY: SAN JOSE STATE: CA ZIP: 95131 10-Q 1 2ND QUARTER REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended September 30, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------- ------- Commission File No. 0-14225 EXAR CORPORATION (Exact Name of registrant as specified in its charter) Delaware 94-1741481 (State or other jurisdiction of ( I.R.S. Employer incorporation or organization) Identification No.) 2222 Qume Drive, San Jose, California 95131 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (408) 434-6400 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at September 30, 1995 Common Stock, .0001 par value 9,818,437 shares TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements....... 3-5 Notes to Condensed Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 9-11 PART II OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders. 12 Item 6. Exhibits and Reports on Form 8-K.................. 12 Signatures........................................ 13 EXHIBITS Exhibit 11.1...................................... 14 EXAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) SEPTEMBER MARCH 30,1995 31,1995 (Unaudited) ASSETS CURRENT ASSETS: Cash and equivalents 61,477 57,029 Short-term investments 5,922 5,133 Accounts receivable, net 21,518 29,719 Inventories 18,375 18,411 Prepaid expenses and other 1,562 1,687 Deferred income taxes 7,277 7,277 Total current assets 116,131 119,256 PROPERTY AND EQUIPMENT, net 30,575 22,192 GOODWILL, net 5,713 4,866 OTHER ASSETS 2,079 3,766 TOTAL ASSETS 154,498 150,080 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 16,979 27,326 Accrued compensation and related benefits 4,707 4,925 Other accrued expenses 1,401 1,912 Income taxes payable 5,121 3,807 Total current liabilities 28,208 37,970 LONG-TERM LIABILITIES: Long-term liabilities 2,557 2,557 Deferred income taxes 1,820 1,857 STOCKHOLDERS' EQUITY: Preferred stock; $.0001 par value; 2,250,000 shares authorized; no shares outstanding - - Common stock; $.0001 par value; 12,000,000 shares authorized; 9,818,437 and 9,309,066 shares outstanding 74,684 67,217 Cumulative translation adjustments 320 682 Retained earnings 46,909 39,797 Total stockholders' equity 121,913 107,696 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 154,498 150,080 See notes to condensed consolidated financial statements. EXAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 1995 1994 NET SALES 31,681 40,752 66,611 78,813 COST AND EXPENSES: Cost of sales 14,232 25,110 32,130 49,313 Research and development 4,040 3,385 7,900 6,596 Selling, general and administrative 6,025 6,154 12,133 12,119 Goodwill amortization 344 234 629 324 Write-off of in-process research and development - - 2,390 16,875 One-time charges relating to discontinued product line - - 1,155 - Total costs and expenses 24,641 34,883 56,337 85,227 OPERATING INCOME (LOSS) 7,040 5,869 10,274 (6,414) OTHER INCOME (EXPENSE): Interest income, net 830 482 1,630 1,102 Other, net 340 150 467 352 Total other income, net 1,170 632 2,097 1,454 INCOME (LOSS) BEFORE INCOME TAXES 8,210 6,501 12,371 (4,960) INCOME TAXES 2,832 2,320 5,259 4,190 NET INCOME (LOSS) 5,378 4,181 7,112 (9,150) NET INCOME (LOSS) PER SHARE 0.52 0.45 0.70 (1.01) SHARES USED IN COMPUTATION 10,411 9,248 10,221 9,086 See notes to condensed consolidated financial statements EXAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) SIX MONTHS ENDED SEPTEMBER 30, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) 7,112 (9,150) Reconciliation to net cash provided by operating activities: Depreciation and amortization 2,670 2,732 Write-off of in-process research and development 2,390 16,875 Deferred income taxes (37) - Changes in operating assets and liabilities: Accounts receivable 8,403 (5,103) Inventories 409 (1,908) Prepaid expenses and other (136) 610 Accounts payable and accrued expenses (11,279) (1,589) Accrued compensation and related benefits (409) (1,371) Income taxes payable 1,313 841 Net cash provided by operating activities 10,436 1,937 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (9,995) (2,239) Short-term investments, net (789) 2,289 Other assets (1,114) (533) Acquired companies - (19,131) Net cash used in investing activities (11,898) (19,614) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term liabilities - (2,137) Proceeds from issuance of common stock 6,272 2,358 Net cash provided by financing activities 6,272 221 EFFECT OF RATE CHANGES ON CASH (362) 57 NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 4,448 (17,399) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 57,029 62,400 CASH AND EQUIVALENTS AT END OF PERIOD 61,477 45,001 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes 2,850 3,861 See notes to condensed consolidated financial statements. EXAR CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 NOTE 1.BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Such financial statements have been prepared in conformity with generally accepted accounting principles consistent with those reflected in the Company's 1995 annual report on Form 10-K, and include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows. The results of operations for the six month period ended September 30, 1995 are not necessarily indicative of the results of operations to be expected for the full year. Exar Corporation (Exar or the Company) designs, develops, manufactures and markets analog and mixed-signal application specific integrated circuits for use in the communications, document imaging, consumer electronics, computer and automotive markets and other selected areas. NOTE 2.CASH EQUIVALENTS The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. NOTE 3.SHORT-TERM INVESTMENTS The Company's policy is to invest in various short-term instruments with investment grade credit ratings. Generally such investments have contractual maturities of less than one year. The Company accounts for its short-term investments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company classifies its short-term investments as "available for sale securities." At September 30, 1995, there was no significant difference between the fair market value and the underlying cost of such securities. NOTE 4.INVENTORIES Inventories are stated at the lower of standard cost (first-in, first-out method) or market and consist of the following: September 30, March 31, 1995 1995 Raw materials $ 512 $ 301 Work-in-process 10,915 11,746 Finished goods 6,948 6,364 $18,375 $18,411 NOTE 5.INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes," which requires an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. NOTE 6.NET INCOME (LOSS) PER SHARE Net income (loss) per share is calculated based on the weighted average number of common and dilutive common share equivalents outstanding. Common share equivalents reflect the dilutive effect of outstanding stock options. In September 1994, the Board of Directors declared a 3 for 2 stock dividend which was effected in the form of a stock split. All share and per share amounts for 1994 have been retroactively restated to give effect to the stock split. NOTE 7.ACQUIRED COMPANIES In May 1994, the Company acquired all of the outstanding common stock of Origin Technology, Inc., (Origin) for $1.4 million in cash and invested an additional $1.0 million in newly issued common stock of Origin. The purchase agreement includes provisions for additional payments to the selling shareholders of up to $1.5 million through 1999 based on Origin's future operating performance. Such contingent payments have been accrued and are included in long-term liabilities at September 30, 1995. In June 1994, the Company acquired all of the outstanding common stock of MPS Holdings, Inc. (Micro Power) for $21.7 million in cash. On March 31, 1995, the Company acquired all of the outstanding common stock of Startech Semiconductor, Inc. (Startech), in exchange for 349,587 shares of common stock, the assumption of Startech's outstanding stock options with an aggregate value of $8,750,000, and cash of $4,450,000. The purchase agreement includes provisions for adjustments to the final purchase price, which may result in additional payments of up to $6 million in April 1996 and an additional $6 million in October 1996 based on Startech's future operating performance. In addition, the Company may be required to pay up to $3,000,000 in deferred compensation to certain key employees of Startech through April 1998. In June 1995, the Company acquired Silicon Microstructures, Inc. (SMI), in exchange for 43,334 shares of common stock and the conversion to equity of $1,250,000 of loans previously granted to SMI. In addition, the Company may be required to issue up to $1,500,000 in additional shares based on SMI's future operating performance. For accounting purposes, the acquisitions have been accounted for as purchases. Accordingly, the results of operations for the three and six month periods ended September 30, 1995 and 1994 include the operations of the acquired companies subsequent to the dates of acquisition. As a result of these transactions, the Company recorded approximately $8.4 million of goodwill which is being amortized over a period of five years. The remaining portion of the excess purchase price represented in-process research and development which was charged to operations (approximately $2.4 million in the six months ended September 30, 1995 and approximately $16.9 million in the six months ended September 30, 1994.) Contingent consideration in connection with the Startech and SMI acquisitions has not been accrued and will be reflected in the Company's financial statements when issued or paid. Had the acquisitions been effective at the beginning of fiscal 1995, the impact would have been to increase revenues by $9.4 million and to decrease operating loss and net loss by $197,000 and $541,000 ($0.05 per share), respectively. The acquisition of SMI has not had a significant impact on the Company's results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL - The Company derives revenue principally from the sale of integrated circuits to unaffiliated customers. In the past, a portion of the Company's revenues were also derived from wafer services provided to Rohm Co. Ltd. (Rohm). The Company's gross margins from sales of integrated circuits vary depending on competition from other manufacturers, the volume of products manufactured and sold, and the Company's ability to achieve certain manufacturing efficiencies. The Company's newer analog and mixed-signal products have higher gross margins than many of the Company's more mature products and margins of any particular product may erode over time. The Company's business in Japan includes the sale of integrated circuits for use in consumer electronics products. Sales in Japan are made through the Company's wholly-owned subsidiaries. Until April 1 1995, the Company also sold, in Japan, second source integrated circuits for use in consumer electronics products. Although this was a high volume business, such products produced lower gross margins than the Company's other products. The Company has wholly-owned subsidiaries in Japan and the United Kingdom to support its sales operations in each of those areas. During the first quarter of fiscal 1995, the Company acquired Origin Technology, Inc. (Origin) and Micro Power Systems, Inc. (Micro Power). In March 1995, the Company acquired Startech Semiconductor, Inc. (Startech), and in June 1995 the Company acquired Silicon Microstructures, Inc. (SMI). All of the acquisitions have been accounted for as purchases. Accordingly, the Company's results of operations include the operations of the acquired companies subsequent to the dates of acquisition. RESULTS OF OPERATIONS - Net sales for the second quarter of fiscal 1996 were $31.7 million compared to $40.8 million for the same period a year ago, a decrease of approximately 22%. Net sales for the six month period ended September 30, 1995 decreased by 15% to $66.6 million compared to $78.8 million for the corresponding period in 1994. The decrease in net sales reflects a number of actions directed toward reducing the Company's low-margin business and focusing on higher-margin product lines. Effective April 1, 1995 the Company eliminated sales of second source consumer products in Japan which resulted in a reduction in net sales of approximately 18.5 million during the first six months of fiscal 1996. In addition, during the first quarter of fiscal 1996 the Company discontinued its mass storage product line as a result of supply disruptions which resulted in a reduction of approximately 7.7 million in net sales during the first six months of fiscal 1996. Net sales were also adversely impacted by delay in product deliveries from certain of the Company's foundry sources. These decreases were partially offset by an increase in sales of the Company's other proprietary products of approximately 23% and 31% in the three and six month periods ended September 30, 1995, respectively, as the Company experienced strong demand for its data acquisition products and communications products and benefited from the sale of personal computer and pressure sensor products as a result of the Startech and SMI acquisitions. Cost of sales for the second quarter and the first six months of fiscal 1996 decreased to approximately 45% of net sales and 48% of net sales, respectively, compared to 62% of net sales for the same periods in fiscal 1995. The resulting increase in gross margins is due primarily to changes in product mix, including i) the decrease in sales of mass storage and second source consumer products, which have historically provided lower gross margins than the Company receives from the sale of its other products, ii) the addition of higher margin product lines as a result of recent acquisitions, and iii) manufacturing efficiencies for certain of the Company's products. Expenditures for research and development for the second quarter and first six months of fiscal 1996 represented approximately 13% of net sales and 12% of net sales, respectively, compared to 8% of net sales in the corresponding periods in fiscal 1995. The increase in research and development expenditures as a percentage of net sales reflects the additional research and development expenditures of acquired companies and the elimination of second source consumer product sales which did not require research and development expenditures. Selling, general and administrative expenses, as a percentage of net sales, increased from 15% in the second quarter and first six months of fiscal 1995 to approximately 19% and 18%, respectively, in the corresponding periods of the current year. The increase as a percentage of net sales reflects the lower level of sales in fiscal 1996, as well as additional selling, general and administrative expenses of acquired companies. Net interest income for the first six months of fiscal 1996 increased by approximately $500,000 as a result of higher levels of cash and short-term investments and higher average investment rates during the period. Other income consists primarily of foreign currency gains. The Company's provision for income taxes is based on income from operations, excluding the write-offs of in-process research and development, as there was no tax benefit associated with the write-offs. The Company's effective tax rate for the first six months of fiscal 1996, excluding the write-off of in-process research and development, was approximately 34% as state income taxes and foreign income, which is taxed at rates different form U.S. income tax rates, was offset by tax advantaged investment income and tax savings generated from utilization of the Company's foreign sales corporation. Net income for the first six months of fiscal 1996, excluding the effects of one-time write-offs was $10.3 million ($1.00 per share) compared to $7.7 million ($0.85 per share) for the same period in fiscal 1995. To date, inflation has not had a significant impact on the Company's operating results. The California Regional Water Quality Control Board for the San Francisco Bay Region is conducting an investigation of contaminants detected in subsurface groundwater at approximately 50 different sites in Santa Clara County, California, including a location formerly leased by Exar. Ongoing studies indicate that contaminants in the groundwater beneath such leased facility result from the migration of contaminants released by other neighboring manufacturers. Although this matter is subject to an unusual degree of uncertainty, on the basis of the facts presently known, the ultimate outcome of this matter is not expected to have a material adverse effect on the Company's financial position or results of operations. In 1987, Micro Power identified low-level groundwater contamination on its principal manufacturing property. Although the area of contamination appears to have been defined, the source of the contamination has not been identified. The Company has reached an informal agreement with another entity to participate in the cost of ongoing site investigations and the operation of remedial systems to remove subsurface chemicals which is expected to continue for 10 to 15 years. The accompanying financial statements include the Company's share of estimated remediation costs of approximately $1.3 million. The Company is in an industry which is characterized by intense competition, rapid technological change, cyclical market patterns, occasional shortages of materials, dependence upon highly skilled engineering and other personnel and significant expenditures for product development. The Company's operations have reflected, and may in the future reflect, substantial fluctuation from period- to-period as a result of the above factors, as well as general economic conditions, the timing of orders from major customers, variations in manufacturing efficiencies, management decisions to commence or discontinue certain product lines, and the Company's ability to design, introduce and manufacture new products on a cost-effective and timely basis. LIQUIDITY AND CAPITAL RESOURCES - During the first six months of fiscal 1996, the Company financed its operations primarily from existing cash balances and cash flow from operations. At September 30, 1995, the Company had approximately $67.4 million of cash and short-term investments. In addition, the Company has available short-term, unsecured lines of credit totaling $35.5 million with certain domestic and foreign banks, none of which were being utilized at September 30, 1995. On March 31, 1995, the Company acquired Startech Semiconductor in exchange for a combination of cash and common stock valued at $13.2 million. In June 1995, the Company completed the acquisition of SMI in exchange for 43,334 shares of common stock and the conversion to equity of $1,250,000 of loans previously granted to SMI. Certain of the purchase agreements include provisions for adjustments to the final purchase price and/or include deferred compensation arrangements which may result in additional payments of up to $16.5 million, in some combination of cash and/or common stock, over the next three years. On October 11, 1995, the Company entered into a wafer production agreement with IC Works, Inc., (IC Works). Under the terms of the agreement, Exar will invest approximately $15 million for the purchase and installation of equipment at IC Works in exchange for a predetermined supply of wafers over the next five years. Under a separate but related agreement, Exar may be required to make a minority equity investment in IC Works. The building lease for the Company's primary manufacturing and administrative facilities expires in November 1995. The Company is in the process of constructing new facilities on its property in Fremont, California which it expects to complete in the third quarter of fiscal 1996. The Company believes that costs to complete such construction will require the use of approximately $5 million in cash during the remainder of fiscal 1996. The Company anticipates that it will finance its operations with cash flows from operations, existing cash balances, borrowings under existing bank credit lines, and some combination of long-term debt and/or lease financing and additional sales of equity securities. The combination and sources of capital will be determined by management based on the needs of the Company and prevailing market conditions. PART II - OTHER INFORMATION ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of the Stockholders of Exar Corporation was held on August 31, 1995 in Santa Clara, California. At the meeting the following individual was elected to the Board of Directors of the Company and will hold office until the 1998 Annual Meeting of Stockholders. The number of affirmative and negative votes cast were as follows: Affirmative Negative Ronald W. Guire 7,426,178 135,314 In addition, certain individuals will continue to hold office as directors of the Company until the Annual Meeting of Stockholders as follows:, Mr. Raimon L. Conlisk - 1996, Mr. George D. Wells - 1996, Mr. George E. Grega - 1997, and Mr. James E. Dykes - 1997. Other matters voted upon at the meeting and the number of affirmative and negative votes cast with respect to each such matter were as follows: Affirmative Negative Withheld Abstained Resolution to increase the number of shares authorized for issuance under the Company's 1991 Stock Option Plan. 4,222,665 3,322,348 -- 16,479 ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11.1 - Statement re Computation of Per Share Earnings (Loss) (b) During the quarter for which this report is filed the Registrant filed no reports on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXAR CORPORATION By /s/ Date: November 14, 1995 George D. Wells President Chief Executive Officer By /s/ Date: November 14, 1995 Ronald W. Guire Executive Vice President, Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Exar Corporations Condensed Financial Statements for the period ended September 30, 1995 and is qualified in its entirety by reference to such 10-Q filing. 6-MOS MAR-31-1996 SEP-30-1995 61,477 5,922 21,518 0 18,375 116,131 30,575 0 154,498 28,208 0 74,684 0 0 47,229 121,913 31,681 66,611 32,130 56,337 0 0 0 12,371 5,259 7,112 0 0 0 7,112 0.52 0
EX-11.1 3 EXHIBIT 11.1 TO 10Q THREE MONTHS SIX MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 1995 1994 NET INCOME (LOSS) 5,378 4,181 7,112 (9,150) SHARES USED IN COMPUTATION: Weighted average common shares 9,727 8,823 9,580 9,086 outstanding Dilutive effect of stock options 684 425 641 - Shares used in computation 10,411 9,248 10,221 9,086 NET INCOME (LOSS) PER SHARE 0.52 0.45 0.70 (1.01) See notes to consolidated financial -----END PRIVACY-ENHANCED MESSAGE-----