-----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, DRdMemtV28M7AyAiX1F9dGugYdDh+j+tESbvXhEJ/t1hGsp3iyE4+QQu8iiALaKB YeWIiTqV8Df0eFqdrqiRUw== 0000753568-98-000001.txt : 19980209 0000753568-98-000001.hdr.sgml : 19980209 ACCESSION NUMBER: 0000753568-98-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980206 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: SEC FILE NUMBER: 000-14225 FILM NUMBER: 98523066 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 1: 48720 KATO RD CITY: FREMONT STATE: CA ZIP: 94538-1167 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 December 31, 1997 [ ] 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 December 31, 1997 Common Stock, .0001 par value 9,403,489 shares net of treasury shares TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION 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 6. Exhibits and Reports on Form 8-K......................... 11 Signatures................................................12 PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS EXAR COPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) DECEMBER 31, MARCH 31, 1997 1997 ASSETS (Unaudited) CURRENT ASSETS: Cash and equivalents $66,651 $48,479 Short-term investments 3,172 5,053 Accounts receivable, net 16,084 13,644 Inventories 7,371 7,276 Prepaid expenses and other 1,448 3,225 Deferred income taxes 5,985 5,985 Total current assets 100,711 83,662 PROPERTY, PLANT AND EQUIPMENT, net 26,117 32,823 GOODWILL, net 2,333 3,211 OTHER ASSETS 8,355 5,841 TOTAL ASSETS $137,516 $125,537 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and other accrued $7,841 $9,563 expenses Accrued compensation and related 7,927 5,277 benefits Income taxes payable 1,167 0 Total current liabilities 16,935 14,840 LONG-TERM OBLIGATIONS 763 880 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; 10,381,255 and 10,123,076 shares outstanding 83,982 80,072 Cumulative translation adjustments 70 (292) Retained earnings 49,911 44,182 Treasury stock; 977,766 shares of common stock at cost (14,145)(14,145) Total stockholders' equity 119,818 109,817 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $137,516 $125,537 See notes to condensed consolidated financial statements. EXAR COPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (In thousands, except share amounts) THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 NET SALES $26,577 $21,819 $76,910 $69,698 COSTS AND EXPENSES: Cost of sales 13,455 12,952 39,737 38,535 Research and development 3,953 3,340 11,675 10,288 Selling, general and administrative 5,982 5,364 17,392 16,547 Goodwill amortization 293 344 878 1,031 Total costs and expenses 23,683 22,000 69,682 66,401 OPERATING INCOME (LOSS) 2,894 (181) 7,228 3,297 OTHER INCOME: Interest income, net 837 521 2,065 1,723 Other, net 7 8 73 353 Total other income, net 844 529 2,138 2,076 INCOME BEFORE INCOME TAXES 3,738 348 9,366 5,373 INCOME TAXES 1,431 245 3,637 2,273 NET INCOME $2,307 $103 $5,729 $3,100 NET INCOME PER SHARE: BASIC $0.25 $0.01 $0.62 $0.34 DILUTED $0.23 $0.01 $0.59 $0.34 SHARES USED IN COMPUTATION OF NET INCOME PER SHARE: BASIC 9,365 9,098 9,289 9,042 DILUTED 9,933 9,185 9,734 9,119 See notes to condensed consolidated financial statements EXAR COPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In thousands) 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $5,729 $3,100 Reconciliation to net cash provided by operating activities: Depreciation and amortization 4,342 4,716 Deferred income taxes -- (36) Changes in operating assets and liabilities: Accounts receivable (2,440) 3,963 Inventories (95) 4,572 Prepaid expenses and other (436) (178) Accounts payable and other accrued expenses (2,283) (6,688) Accrued compensation and related benefits 2,650 (240) Income taxes payable 3,380 (1,250) Net cash provided by operating activities 10,847 7,959 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (2,931) (14,313) Proceeds from sales of equipment 7,353 -- Purchases of short-term investments (2,120) (53) Sales of short-term investments 4,000 -- Purchases of long-term investments (3,000) -- Other assets (133) (20) Net cash provided by (used in) investing activities 3,169 (14,386) CASH FLOWS FROM FINANCING ACTIVITIES: Long-term obligations (117) -- Proceeds from issuance of common stock 3,910 1,476 Net cash provided by financing activities 3,793 1,476 EFFECT OF EXCHANGE RATE CHANGES ON CASH 363 (6) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 18,172 (4,957) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 48,479 49,302 CASH AND EQUIVALENTS AT END OF PERIOD $66,651 $44,345 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $351 $2,650 See notes to condensed consolidated financial statements. EXAR CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996 NOTE 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of Exar Corporation and its wholly-owned subsidiaries ("Exar" or the "Company"). Such financial statements have been prepared in conformity with generally accepted accounting principles consistent with those reflected in the Company's 1997 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 three and nine months ended December 31, 1997 are not necessarily indicative of the results of operations to be expected for the full year. Exar designs, develops and markets analog and mixed-signal application specific integrated circuits for use in the communications, video and imaging, silicon microstructures and in other selected product areas. Principal markets include North America, Asia, Europe and other countries. NOTE 2. INVENTORIES Inventories are stated at the lower of standard cost (first-in, first-out method) or market and consist of the following: December 31, March 31, 1997 1997 Work-in-process $ 5,371 $ 4,987 Finished goods 2,000 2,289 $ 7,371 $ 7,276 NOTE 3. NET INCOME PER SHARE The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS 128). SFAS 128 requires a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Prior periods have been restated to conform with SFAS 128. THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 NET INCOME $ 2,307 $ 103 $ 5,729 $ 3,100 SHARES USED IN COMPUTATION: Weighted average common shares outstanding used in computation of basic net income per share 9,365 9,098 9,289 9,042 Dilutive effect of stock options 568 87 445 77 Shares used in computation of diluted net income per share 9,933 9,185 9,734 9,119 BASIC NET INCOME PER SHARE $ 0.25 $ 0.01 $ 0.62 $ 0.34 DILUTED NET INCOME PER SHARE $ 0.23 $ 0.01 $ 0.59 $ 0.34 Options to purchase 109,300 and 1,169,733 shares of common stock at prices ranging from $25.19 to $37.25 and $15.75 to $37.25 were outstanding as of December 31, 1997 and 1996, respectively, but not included in the computation of diluted net income per share because the options' exercise prices were greater than the average market price of the common shares as of such dates and, therefore, would be antidilutive under the treasury stock method. NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board adopted Statements of Financial Accounting Standards No. 130 (Reporting Comprehensive Income), which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources; and No. 131 (Disclosures about Segments of an Enterprise and Related Information), which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas, and major customers. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. 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 1997 Form 10-K and in Item 2 of the Company's Form 10-Q for the quarters ended June 30, 1997 and September 30, 1997, filed with the Securities and Exchange Commission on June 30, 1997, August 14, 1997 and November 7, 1997, respectively. GENERAL - The Company derives revenue principally from the sale of integrated circuits for use in communications, video and imaging, silicon microstructures and other selected areas. The Company's gross margins from sales of integrated circuits vary depending on competition from other manufacturers, the volume of products manufactured and sold, the Company's ability to achieve certain manufacturing efficiencies and the cost of material procured from the Company's suppliers. 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 the Far East and Europe. RESTRUCTURING AND OTHER CHARGES - In the quarter ended March 31, 1997, the Company announced and began to implement a restructuring plan to i) reduce manufacturing expenses by transferring its test and shipping operations to offshore sub-contractors, ii) focus the Company's product strategy to provide analog and mixed signal products for the video, imaging, communications and silicon sensor markets and iii) narrow the Company's distribution channels to create more leverage. The Company's restructuring actions consisted primarily of writing down certain equipment as a result of the transfer of operations and change in product focus; terminating 54 full-time employees, 44 of whom have been terminated through December 31, 1997; writing down inventory associated with product lines which are being discontinued; canceling certain facility leases and terminating contracts as a result of a change in distribution channels; and writing down goodwill associated with discontinued products. These actions resulted in a charge of $5,345,000 to operating expenses and $4,631,000 to cost of goods sold in the fourth quarter of fiscal 1997. The charges included non-cash items of $8,454,000 and cash items of $1,522,000. During the first nine months of fiscal 1998, the Company utilized $482,000 of cash related to the $924,000 accrued balance at March 31, 1997. The Company expects that most of the remaining contemplated restructuring action will be completed within the next three months and will be financed through cash. Also, in the quarter ended March 31, 1997, the Company incurred a charge of $9 million relating to the write-down of capital assets and investments made under the terms of a wafer production agreement with IC Works, Inc. During the quarter ended December 31, 1997, the Company sold the capital assets written down in connection with this prior year charge. The sales proceeds exceeded the carrying value and, as a result, the Company reversed $1.2 million of the related reserve during the quarter. Offsetting this reversal, the Company decided during the quarter to replace its current information system under development with a system determined to better meet the Company's needs and wrote off $1.2 million of capitalized costs associated with system modules which the Company does not intend to use. RESULTS OF OPERATIONS - Net sales for the third quarter of fiscal 1998 were $26.6 million compared to $21.8 million for the corresponding period in fiscal 1997, an increase of approximately 22%. Net sales for the nine month period ended December 31, 1997 increased by approximately 10% to $76.9 million compared to $69.7 million for the corresponding period in fiscal 1997. These increases were primarily due to significant increases in net sales of the Company's silicon microstructure and communications product lines as well as last time buy activity pertaining to some of the Company's discontinued custom legacy products. These increases were partially offset by a significant decrease in net sales of discontinued consumer products in the Company's legacy consumer product line. Cost of goods sold for the third quarter and the first nine months of fiscal 1998 decreased to approximately 51% and 52% of net sales, respectively, compared to 59% and 55% of net sales for the same periods in fiscal 1997. The resulting increase in gross margins is due primarily to manufacturing efficiencies due to higher production volumes, changes in product mix and efficiencies gained as a result of the Company's decision, in the fourth quarter of fiscal 1997, to transfer its test and shipping operations to offshore sub-contractors to reduce manufacturing expenses. Research and development expenses in the third quarter and first nine months of fiscal 1998, as a percentage of net sales, remained consistent at approximately 15% with the corresponding periods in fiscal 1997. Research and development expenses in the third quarter and first nine months of fiscal 1998 increased by approximately 18% and 13%, respectively, compared to the same periods in fiscal 1997. The increase in research and development expenses is attributable primarily to increased spending on masks and other related costs for new product development. Selling, general and administrative expenses for the third quarter and the first nine months of fiscal 1998 remained relatively consistent as a percentage of net sales for the same periods in fiscal 1997. Selling, general and administrative expenses in the third quarter and first nine months of fiscal 1998 increased by approximately 12% and 5%, respectively, compared to the same periods in fiscal 1997. The increase in selling, general and administrative expenses is attributable primarily to increased spending on marketing efforts. The Company's provision for income taxes is based on income from operations. The Company's effective tax rate for the first nine months of fiscal 1998 was approximately 39% compared with the federal statutory rate of 35%. The discrepancy is due to non-deductible expenses, state income taxes and foreign income, which is taxed at rates different from U.S. income tax rates, partially offset by tax advantaged investment income and tax savings generated from utilization of the Company's foreign sales corporation. In 1987, one of the Company's subsidiaries identified low-level groundwater contamination on its principal manufacturing site. Although the area of contamination appears to have been defined, the source of the contamination has not been identified. The Company has reached an 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 approximately $.9 million share of estimated remediation costs. LIQUIDITY AND CAPITAL RESOURCES - During the first nine months of fiscal 1998, the Company financed its operations primarily from cash flows from operations and existing cash and short-term investments. At December 31, 1997, the Company had approximately $69.8 million of cash and short-term investments. In addition, the Company had available short-term, unsecured lines of credit totaling $17.5 million, none of which was being utilized at December 31, 1997. In addition, the Company has credit facilities with certain domestic and foreign banks under which it may borrow up to $35 million to support its foreign currency transactions. At December 31, 1997, the Company had no outstanding foreign currency forward contracts. The Company made a $4.5 million minority equity investment in IC Works, Inc., a semiconductor manufacturer ("IC Works"), in February 1996. In April 1997, the Company made an additional equity investment in IC Works of $3 million. The Company anticipates that it will finance its operations with cash flows from operations, existing cash and short-term investment 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. FACTORS THAT MAY AFFECT FUTURE RESULTS - The Company is currently transferring its test and shipping operations to offshore sub-contractors to reduce manufacturing expenses. In addition, the Company has refocused its product strategy to provide analog and mixed-signal products for the video, imaging, communications and silicon sensor markets and, therefore, has eliminated certain product offerings. Furthermore, the semiconductor industry is characterized by economic downturns resulting in diminished product demand, erosion of average selling prices, intense competition, rapid technological change, occasional shortages of materials, dependence upon highly skilled engineering and other personnel and significant expenditures for product development. In addition, the cyclical market patterns of the semiconductor industry periodically result in shortages of wafer fabrication capacity. The Company's ability to meet future demand for its products is dependent upon obtaining sufficient supply of raw materials and components. 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, the availability and cost of products from the Company's suppliers, management decisions to commence or discontinue certain product lines, the Company's ability to design, introduce and manufacture new products on a cost-effective and timely basis and other factors. Exar's future operating results could be adversely affected by a downturn in the semiconductor market or by the failure of one or more of its customers to compete successfully in such market. The markets for components used in the video, imaging, communications and silicon sensor markets are extremely price competitive. PART II - OTHER INFORMATION ITEM 6. - REPORTS ON FORM 8-K (a) 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: February 5, 1998 Donald L. Ciffone, Jr. President Chief Executive Officer By /s/ Date: February 5, 1998 Ronald W. Guire Executive Vice President, Chief Financial Officer, Secretary EX-27 2
5 3-MOS MAR-31-1998 DEC-31-1997 66,651 3,172 16,084 0 7,371 100,711 26,117 0 137,516 16,935 0 0 0 69,837 49,981 137,516 26,577 26,577 13,455 23,683 0 0 0 3,738 1,431 2,307 0 0 0 2,307 0.25 0.23
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