-----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, QWDNbhy7j/c/OWA496Xd40Jty91hkMhOOteyD+tpKQWsmF/psq2/c386nEJrfFXy k0LQEqt5F2nbyFsiIls1Jg== 0000753568-96-000004.txt : 19961118 0000753568-96-000004.hdr.sgml : 19961118 ACCESSION NUMBER: 0000753568-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96665422 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 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, 1996 [ ] 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.) 48720 Kato Road, Fremont, California 94538 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 668-7000 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, 1996 Common Stock, .0001 par value 9,052,671 shares TABLE OF CONTENTS PART I FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Financial Statements 3-5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders. 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS EXAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) SEPTEMBER 30, MARCH 31, 1996 1996 ASSETS (Unaudited) CURRENT ASSETS: Cash and equivalents $40,438 $49,302 Short-term investments 2,997 2,981 Accounts receivable, net 17,406 19,319 Inventories 16,884 18,065 Prepaid expenses and other 1,719 582 Deferred income taxes 5,697 5,697 Total current assets 85,141 95,946 PROPERTY, PLANT, AND EQUIPMENT, net 43,981 34,185 GOODWILL, net 4,339 5,026 OTHER ASSETS 3,831 3,917 TOTAL ASSETS $137,292 $139,074 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $8,267 $12,680 Accrued compensation and related benefits 4,286 4,017 Other accrued expenses 710 1,699 Total current liabilities 13,263 18,396 DEFERRED INCOME TAXES 1,822 1,852 LONG-TERM OBLIGATIONS 979 979 STOCKHOLDERS' EQUITY: Preferred stock; $.0001 par value; 2,250,000 shares authorized; no shares outstanding - - Common stock; $.0001 par value; 25,000,000 shares authorized; 9,980,437 and 9,918,371 shares outstanding 78,068 77,688 Cumulative translation adjustments 204 200 Retained earnings 56,376 53,379 Treasury stock; 927,766 shares of Common stock at cost (13,420) (13,420) Total stockholders' equity 121,228 117,847 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $137,292 $139,074 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, 1996 1995 1996 1995 NET SALES $22,689 $31,681 $47,879 $66,611 COST AND EXPENSES: Cost of sales 12,544 14,232 25,582 32,130 Research and development 3,526 4,040 6,948 7,900 Selling, general and administrative 5,255 6,025 11,183 12,133 Goodwill amortization 343 344 687 629 Write-off of in-process research and development -- -- -- 2,390 One-time charges relating to discontinued product line -- -- -- 1,155 Total costs and expenses 21,668 24,641 44,400 56,337 OPERATING INCOME 1,021 7,040 3,479 10,274 OTHER INCOME: Interest income, net 596 830 1,202 1,630 Other, net 14 340 344 467 Total other income, net 610 1,170 1,546 2,097 INCOME BEFORE INCOME TAXES 1,631 8,210 5,025 12,371 INCOME TAXES 701 2,832 2,028 5,259 NET INCOME $930 $5,378 $2,997 $7,112 NET INCOME PER SHARE $0.10 $0.52 $0.33 $0.70 SHARES USED IN COMPUTATION 9,068 10,411 9,086 10,221 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, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $2,997 $7,112 Reconciliation to net cash provided by operating activities Depreciation and amortization 3,129 2,670 Write-off of in-process research and development -- 2,390 Deferred income taxes (30) (37) Changes in operating assets and liabilities: Accounts receivable 1,913 8,403 Inventories 1,181 409 Prepaid expenses and other (1,137) (136) Accounts payable and accrued expenses (5,402) (11,279) Accrued compensation and related benefits 269 (409) Income taxes payable -- 1,313 Net cash provided by operating activities 2,920 10,436 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (12,238) (9,995) Short-term investments, net (16) (789) Other assets 86 (1,114) Net cash provided by financing activities (12,168) (11,898) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 380 6,272 Net cash provided by financing activities 380 6,272 EFFECT OF RATE CHANGES ON CASH 4 (362) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (8,864) 4,448 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 49,302 57,029 CASH AND EQUIVALENTS AT END OF PERIOD $40,438 $61,477 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $2,250 $2,850 See notes to condensed consolidated financial statements. EXAR CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 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 1996 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, 1996, 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. 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, 1996 1996 (In thousands) Raw materials $279 $762 Work-in- process 10,280 11,563 Finished goods 6,325 5,740 $16,884 $18,065 NOTE 3. NET INCOME PER SHARE Net income 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. NOTE 4. ACQUIRED COMPANIES 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 $1.3 million of loans previously granted to SMI. In addition, the Company may be required to issue up to $1.5 million in additional shares based on SMI's future operating performance. For accounting purposes, the acquisition was accounted for as a purchase. Accordingly, the results of operations for the three and six month periods ended September 30, 1995 include the operations of SMI subsequent to the date of acquisition. As a result of this transaction, the Company recorded approximately $1.5 million of goodwill which is being amortized over a period of five years. The remaining portion of the excess purchase price (approximately $2.4 million) represented in-process research and development which was charged to operations in the six months ended September 30, 1995. Contingent consideration in connection with the SMI acquisition has not been accrued and will be reflected in the Company's financial statements when issued or paid. Had the acquisition been effective at the beginning of fiscal 1996, there would not have been a significant impact on the Company's results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained herein, the following discussion contains forward looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, as well as in the section entitled "Business" in the Company's 1996 Form 10-K and in Item 2 of the Company's Form 10-Q for the quarter ended June 30, 1996 filed with the Securities and Exchange Commission on July 1, 1996, and August 14, 1996, respectively. GENERAL - The Company derives revenues principally from the sale of integrated circuits for use in communications, consumer electronics, document imaging, automotive, personal computers and other selected areas. In addition, until June 1995, the Company also generated revenues from the sale of mass storage products. The Company's gross margins from the sale of integrated circuits may 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 tend to 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 has wholly-owned subsidiaries in Japan and the United Kingdom to support its sales operations in each of those areas. The Company's business in Japan includes the sale of integrated circuits which are primarily for use in consumer electronics products. In May 1995, the Company was notified by its foundry supplier of wafers used in its mass storage products that no wafers would be delivered in the second and third quarters of fiscal 1996. Accordingly, the Company discontinued its mass storage product line in the second quarter of fiscal 1996. The Company filed a claim against its foundry supplier for recovery of write-offs and other losses it incurred as a result of the termination of this product line, and this matter is currently in arbitration. In June 1995, the Company acquired Silicon Microstructures, Inc. ("SMI"). The acquisition has been accounted for as a purchase. Accordingly, the Company's results of operations include the operations of SMI subsequent to the date of acquisition (see Note 4 to Notes to Condensed Consolidated Financial Statements). RESULTS OF OPERATIONS - Net sales for the second quarter of fiscal 1997 were $22.7 million compared to $31.7 million for the same period a year ago, a decrease of approximately 28%. Net sales for the six month period ended September 30, 1996 decreased by 28% to $47.9 million compared to $66.6 million for the corresponding period in fiscal 1996 as the Company experienced decreases in net sales in essentially all of its continuing product lines. In addition, the decrease in net sales reflects the discontinuance of hard disk drive products which resulted in a $3.3 million decrease in net sales for the six month period ended September 30, 1996. Cost of sales for the second quarter and the first six months of fiscal 1997 increased to approximately 55% of net sales and 53% of net sales, respectively, compared to 45% and 48% of net sales for the same periods in fiscal 1996. The resulting decrease in gross margins was due primarily to changes in product mix and manufacturing inefficiencies as a result of the lower volume of production. Expenditures for research and development for the second quarter and first six months of fiscal 1997 represented approximately 16% of net sales and 15% of net sales, respectively, compared to 13% and 12% of net sales in the corresponding periods in fiscal 1996. The increase in research and development expenditures as a percentage of net sales was primarily attributable to the lower volume of sales in fiscal 1997. Selling, general and administrative expenses represented approximately 23% of net sales in the second quarter and first six months of fiscal 1997, compared to 19% and 18% of net sales in the corresponding periods of fiscal 1996, respectively. The increase as a percentage of net sales results from the lower volume of sales in fiscal 1997. The results of operations for the first six months of fiscal 1996 include the operations of the Company's mass storage product line which was discontinued during the period. As a result of the termination of this product line, the Company incurred one-time charges. Had the mass storage product line been discontinued as of April 1, 1995, the impact would have been to decrease net sales by $3.3 million and to increase operating income and net income by $1.8 million and $1.3 million ($0.13 per share), respectively, compared to actual operating results for the first six months of fiscal 1996. Net interest income for the first six months of fiscal 1997 decreased by approximately $428,000 as a result of lower levels of cash and short-term investments available for investment 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 1997 was approximately 40% as non-deductible expenses, state income taxes and foreign income, which is taxed at rates different from U.S. income tax rates, were partially 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 1997 was $0.33 per share compared to $0.70 per share for the same period in fiscal 1996. Excluding the effects of the one-time write-offs, net income for the first six months of fiscal 1996 was $10.3 million ($1.00 per share). The decrease in net income during fiscal 1997 reflects severence costs of approximately $200,000 resulting from a reduction in the Company's workforce of approximately 8%. In addition the Company incurred legal costs associated with the claim against its mass storage foundry supplier of approximately $300,000. These costs are reflected in the financial results. To date, inflation has not had a significant impact on the Company's operating results. In 1987, Micro Power Systems 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 million. FACTORS THAT MAY AFFECT FUTURE RESULTS The semiconductor industry 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, exchange rate fluctuations, 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 1997, the Company financed its operations primarily from existing cash balances and cash flow from operations. At September 30, 1996, the Company had approximately $43.4 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, 1996. In addition, the Company has credit facilities with certain domestic and foreign banks under which it may borrow up to $35 million in support of its foreign currency transactions. At September 30, 1996 the Company had outstanding Japanese yen forward contracts totaling approximately $1.2 million which mature through March 1997. 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. 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 $3.8 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"). Pursuant to the terms of the agreement, Exar has invested approximately $11 million for the purchase and installation of equipment at IC Works in exchange for a predetermined supply of wafers over the next five years. As of September 30, 1996, the Company may be required to invest an additional $4.5 million in equipment at IC Works. Under a separate but related agreement, Exar made a minority equity investment in IC Works. 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 29, 1996 in Fremont, California. At the meeting the following individuals were elected to the Board of Directors of the Company and will hold office until the 1999 Annual Meeting of Stockholders. The number of affirmative and negative votes cast were as follows: Affirmative Negative Mr. George D. Wells 7,540,904 497,245 Mr. Raimon L. Conlisk 7,534,193 503,956 In addition, certain individuals will continue to hold office as directors of the Company until the Annual Meeting of Stockholders as follows:, Mr. James E. Dykes - 1997, Mr. George E. Grega - 1997 and Mr. Ronald W. Guire - 1998. 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 approve the amendment to the Company's 1991 Stock Option Plan to increase the aggregate number of shares of Common Stock authorized for issuance by 300,000 shares 5,189,256 2,232,819 614,374 1,700 Resolution to approve the Company's 1996 Non-Employee Director's Stock Option Plan 6,321,573 1,095,324 619,552 1,700 ITEM 5. - OTHER INFORMATION On October 14, 1996, Donald L. Ciffone, Jr. was elected as the President and Chief Executive Officer of the Company. Mr. Ciffone was also appointed to the Board of Directors of the Company. Mr. Ciffone succeeds George Wells, who had previously announced his intention to step down as CEO and President but will continue on the Board of Directors. ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11.1 - Statement re Computation of Per Share Earnings (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 13, 1996 Ronald W. Guire Executive Vice President, Chief Financial Officer EXHIBIT INDEX Exhibit Page 11.1 14 19 EX-11 2 EXHIBIT 11.1 THREE MONTHS SIX MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 NET INCOME $930 $5,378 $2,997 $7,112 SHARES USED IN COMPUTATION: Weighted average common shares outstanding 9,030 9,727 9,014 9,580 Dilutive effect of stock options 38 684 72 641 Shares used in computation 9,068 10,411 9,086 10,221 NET INCOME PER SHARE $0.10 $0.52 $0.33 $0.70 EX-27 3
5 This schedule contains summary financial information extracted from Exar Corporation's Condensed Financial Statements for the period ended September 30, 1996 and is qualified in it's entirety by reference to such 10-Q filing. 3-MOS MAR-31-1997 SEP-30-1996 40,438 2,997 17,406 0 16,884 85,141 43,981 0 137,292 13,263 0 64,648 0 0 56,580 137,292 22,689 22,689 12,554 21,668 0 0 0 1,631 701 930 0 0 0 930 0 0.10
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