-----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, SNPeC8l1iBEuowGoX7bs/l/6nZyPJQ/7Otwjm2XNPlTHOJSUcDv2E5A/bpo24Je4 jvslaO2SX+xWWnpwdsp4Ow== 0000772406-98-000068.txt : 19980622 0000772406-98-000068.hdr.sgml : 19980622 ACCESSION NUMBER: 0000772406-98-000068 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980619 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRRUS LOGIC INC CENTRAL INDEX KEY: 0000772406 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770024818 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17795 FILM NUMBER: 98651108 BUSINESS ADDRESS: STREET 1: 3100 W WARREN AVE CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5106238300 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) for the fiscal year ended March 28, 1998 Commission file Number 0-17795 CIRRUS LOGIC, INC. (Exact name of registrant as specified in its charter.) CALIFORNIA 77-0024818 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3100 West Warren Avenue, Fremont, CA 94538 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 623-8300 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of Class) 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 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. [X] Aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant as of June 1, 1998 was approximately $540,908,000 based upon the closing price reported for such date on the Nasdaq National Market. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination is not necessarily conclusive. The number of outstanding shares of the registrant's common stock, no par value, was 66,331,318 as of June 1, 1998. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant's 1998 Annual Meeting of Shareholders to be held July 21, 1998 are incorporated by reference into Part III of this Form 10-K. PART I ITEM 1. BUSINESS Cirrus Logic, Inc., ("Cirrus Logic" or the "Company") was incorporated in California on February 3, 1984, as the successor to a research corporation which had been incorporated in Utah in 1981. The Company commenced operations in November 1984. This Form 10-K contains forward-looking statements within the meaning of the Private Securities Reform Litigation Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Such risks and uncertainties include the timing and acceptance of new product introductions, the actions of the Company's competitors and business partners, and those discussed below in Management's Discussion & Analysis. Cirrus Logic designs and manufactures advanced integrated circuits that integrate algorithms and mixed-signal processing for mass storage, communications, consumer electronics and industrial markets. The Company's expertise in advanced mixed-signal processing, embedded processors and application-specific algorithms add high value to major brands worldwide in magnetic and optical storage; networking communications; consumer/professional audio, video and imaging; and ultra-precision data acquisition. The Company serves a broad customer base in the markets of mass storage, personal computers (PCs), communications, consumer electronics and industrial electronics. Key customers among these include Western Digital, Seagate, Fujitsu, Hewlett-Packard, Dell, Compaq, IBM, Apple, Acer, NEC, Cisco Systems, Bay Networks, Motorola, Nokia, Sony, 3Com, Bose, National Instruments, Rockwell Automation and Schlumberger. Markets and Products Cirrus Logic targets large existing markets, as well as emerging markets that derive value from the Company's expertise in advanced mixed-signal processing, embedded processors and application-specific algorithms. The Company applies its analog, digital, mixed-signal design capabilities, systems-level engineering and software expertise to create highly integrated solutions that enable its customers to differentiate their products and reduce their time to market. These solutions are implemented primarily in ICs and related software, but may also include subsystem modules or system equipment designs and related software. Within the major markets currently served, represented by mass storage, communications, consumer electronics, industrial electronics and personal computers, the Company's products address key system-level applications including magnetic and optical mass storage, multimedia (graphic, video, and audio), wide area and local area networking, hand- held and portable computing, communication devices, consumer audio and industrial measurement and control. In the third quarter of fiscal 1998 the Company discontinued certain product development efforts in the graphics product group of its PC products division. Further, the Company's future direction is to de-emphasize new product developments targeted primarily for the PC motherboard and emphasize non-PC motherboard market opportunities in mass storage, communications, consumer electronics and industrial automation. However, sales of many of the Company's products will continue to depend largely on the sales of PCs. Mass Storage The Company supplies integrated circuits that perform the key electronics functions contained in advanced magnetic, optical and removeable disk drives. Since pioneering the IDE (integrated drive electronics) standard for embedded disk drive controllers in 1986, the Company has helped engineer the development of higher capacity 3.5-inch disk drives for desktop computers and workstations and 2.5-inch form factor drives for portable computers. The Company continues to be a merchant supplier of controllers to the disk drive market. In fiscal 1995, the Company continued its strategy of expanding its opportunity in the disk drive electronics market by pioneering development of CMOS digital read channels. The Company's mass storage customers include Western Digital, Fujitsu, Hitachi, Seagate and Sony. The following mass storage products are expected to be the most important in the near term:
Description Key Features Status ----------------- ------------------------------------- ------------------ Advanced Architecture Advanced data handling and error-detection/ In production PC AT-UDMA33/66 correction capabilities for data integrity (UDMA33) and Disk Controllers in high-performance hard disk drives. sampling (UDMA66) Multiple products. Digital PRML Single-chip digital read/write channel In production. Read/Write Channels solutions. Advanced digital signal processing algorithms allow more data per disk. Multiple products. Single-chip 1394 Single-chip IEEE 1394 (Firewire) CMOS disk Sampling. Disk Controller controller incorporating the mixed-signal PHY layer and Link layer. Single-chip Drive Single-chip electronics solution Sampling. Electronics Platform incorporating the PRML Read Channel, PC AT UDMA66 Disk Controller, ARM 16-bit RISC processor, micro-DSP, ROM, RAM and Servo Logic. Single-chip ATAPI High data rates (up to 45x speeds), and In production. CD-ROM Controllers hardware error detection/correction capabilities for simplified firmware development. Multiple products. SCSI and ATAPI High integration and performance (up to In production. CD-R/RW 26x read and 8x recording). Handles (Recordable/Readable both CD-R and CD-RW formats. Advanced - -Writable) Controllers automation for simplified firmware development. Multiple products. Integrated DVD High integration DVD Drive Electronics, Sampling. Drive Manager incorporating PRML Read Channel, servo control and decoder functions for DVD- ROM and DVD-Player applications. The Company offers a broad family of magnetic storage controller products for the AT IDE, UDMA and IEEE 1394 (Firewire) interface standards. To achieve the high recording densities required by disk drives, the Company has pioneered a number of controller innovations, including 88-bit Reed-Solomon error correction, zone-bit recording and split-data fields. The Company began volume shipments of its magnetic storage read channel products in fiscal 1995, and was the first merchant supplier to provide key data-detection technology known as partial-response, maximum-likelihood ("PRML") for 3.5-inch and small-form-factor drives. Based on the Company's CMOS mixed-signal technology and its proprietary SofTarget PRML technology, these devices substantially increase the amount of data that can be stored on a disk platter using existing industry-standard head and media technology. The Company has recently introduced extended technology PRML (ERP4 and E2PR4) read channels. On March 30, 1998, the Company announced its entry into the DVD market. The DVD Drive Manager integrates on one piece of silicon the RF Amp circuitry, PRML read channel, full servo subsystem, ECC and decoder for both DVD and CD-ROM drives and CSS decryption circuitry. The DVD Drive Manager can be used for either DVD-ROM or DVD-Player applications. The Company entered the CD-ROM decoder market in fiscal 1995 and is currently on its fourth generation of decoder product, supporting speeds up to 45x. In fiscal 1997, the Company introduced its first controller products for recordable/rewritable CD drives. The second generation of CD-R/CD-RW products is currently in production, supporting up to 8x write and 26x read speeds. Communications The Company develops and markets products that address the needs of the Local Area Network (LAN), Wide Area Network (WAN), and internet environments. The following communications products are expected to be the most important in fiscal 1999:
Description Key Features Status ----------------- ------------------------------------- ------------------ x2 56K, V.90 Further developments within family x2 56K in and ISDN FastPath roadmap to support voice and data, production, V.90 modems video conferencing, and high-speed in sampling and lines. Multiple products. ISDN in develop V.34+ FastPath Highly integrated voice/data/modem In production. modem chipsets offering 33.6 Kbps performance. Multiple products. Multi-protocol Extensive family of intelligent multi- In production. Serial I/O protocol input/output devices, reducing Controllers processor overhead burden in communications equipment. Multiple products. Local Area Highest level of integration, simplified In production. Network Controllers design of 10BASE-T and 10/100 local area network controllers and single and multi- channel analog front ends for motherboards, interface cards and network equipment. Two products. T1/E1 Line Broad family of high-performance, mixed- In production. Interface signal devices for interfacing network Controllers equipment and end-user equipment to T1 and E1 lines. Multiple products. The Company provides products that meet the needs of both the host or Internet Service Provider ("ISP") end of the information pipeline (high-density, multichannel devices) as well as that of the client or end user (single-channel devices and internet enabling systems-on-a- chip). From a client application standpoint, the Company's products are designed to support fax over internet, internet enabled screenphones, and IP enabled cellular smartphones and palm form factor PDAs. Products are plan to support the emerging xDSL/G-Lite standards. Some of the industry firsts include: monolithic T1 line interface, CMOS coax Ethernet Transceiver, low power system-on-a-chip for internet enabled appliances, and HDLC controllers with embedded ARM processor. The Company's specific product offerings within each key market environment include the following: LAN - Physical layer interface ICs (PHYs), Ethernet 10/100 Transceivers, and Ethernet controllers provide the analog-to- digital and digital-to-analog conversion and Media Access Control (MAC) for Ethernet LAN connections. WAN - Universal T1/E1 Line Interface Units (LIU) and framers, serial and parallel I/O controllers, high-level data link controllers (HDLC) and ATM controllers provide the analog-to- digital and digital-to-analog conversion, packetizing, and data formatting support at the WAN level. Internet (IP) Connectivity - ARM processor based system-on-a- chip solutions provide a foundation enabling access to the internet via commonly used communications devices such as cellular phones, screenphones, and connected PDAs. The Company's customers for these products include Cisco Systems, 3COM, Bay Networks, Hewlett Packard, IBM, Motorola, Psion, Sony, and Scientific Atlanta. Advanced Mixed-Signal Applications Cirrus Logic designs, manufactures and markets advanced analog and digital integrated circuits for data acquisition, instrumentation and imaging applications. The Company's Crystal brand is recognized for providing high-performance mixed-signal and signal processing solutions to these markets. The Company's broad line of analog-to-digital converters consist of general-purpose and low-frequency measurement devices. These circuits use a combination of self-calibrating digital correct and delta sigma architectures to improve accuracy and eliminate expensive discrete analog components. In addition to supporting a discrete product family, the Company's advanced mixed-signal expertise design techniques are applied to IC solutions across the Company's product line. The Company is an acknowledged leader in precision analog circuits and mixed-signal applications and the exploitation of this expertise is an important component of the Company's strategy. Cirrus Logic's product family includes more than 100 products used in industrial automation, instrumentation, medical, military and geophysical applications. The Company's customers include National Instruments, Rockwell Automation and Schlumberger. Consumer Electronics Products The Company currently offers over 60 products for the consumer high-fidelity audio market. Product features include analog-to-digital and digital-to-analog conversion and a family of DSP-based audio decoders that support the major audio standards such as Dolby AC-3, DTS and 5.1 Channel MPEG audio decoding. The products provide digital high-fidelity audio record and playback for high-end professional recordings audiophile-quality stereo systems, set-top audio decoders, digital audio tape ("DAT"), CD players, Compact Disk Interactive ("CDI") and automotive stereo systems. Customers include Philips, Nokia and Sony. The Company also offers controller ICs to the consumer electronics market which can output digital content such as internet web content to standard televisions. These products are being used by customers to develop products such as set-top boxes and Internet appliances. During the year, the Company began volume production of a highly integrated chip set for digital cameras. The products provide a low-cost high-quality solution for industrial, security home video conferencing and PC-based video conferencing. The following are expected to be important consumer electronic products in fiscal 1999:
Description Key Features Status ----------------- ------------------------------------- ------------------ Multi-standard, Simplify home entertainment systems In production. Multi-channel by meeting multiple popular standards Audio Decoders (Dolby, Digital Theatre Systems, MPEG-2) with single-chip solutions. CCD Video Camera Reduce the cost of digital cameras for In production. Chipset security systems, pattern recognition, home videoconferencing and PC videoconferencing.
PC Audio The Company offers a wide array of audio products for multimedia PCs. These highly integrated chips and software bring CD-quality sound and studio quality composition and mixing capabilities to PCs and workstations. The Company is a leading supplier of 16-bit stereo codecs for PCs. These mixed-signal devices use the Company's delta sigma technology to provide high-quality audio input and output functions for PC audio products, including those that offer Dolby Digital (AC-3), SoundBlaster, AdLib and Microsoft Sound compatibility. The Company's audio chips also provide PCs with audio decompression and FM and wavetable sound/music synthesis. The Company's leading audio product is now a highly integrated single-chip audio product that integrates codec, SoundBlaster and FM synthesis functions. The Company has recently begun production of products which provide special effects audio technology, allowing PC game players to perceive sound as coming from various points around them in a 3-D space. The following are expected to be the most important of the Company's PC audio products in fiscal 1999.
Description Key Features Status ----------------- ------------------------------------- ------------------ Audio Codecs Digital-to-analog converters for PC and In production. workstation audio. Multiple products. ISA Audio High-integration ISA bus PC audio In production. controllers. Highest audio quality, Sound Blaster and FM synthesis with option SRS or Qsound Spatial audio effects. Multiple products. PCI Audio High-integration PCI bus PC audio In production. Controllers controllers. Range of low-cost to high- performance DSP-based solutions. DSP solutions offer advanced audio processing such as Dolby AC-3 for DVD content playback. Multiple products.
PC Graphics and Video The Company is a supplier of graphics accelerators and integrated graphics/video accelerators for desktop and portable PCs. The majority of graphics revenues come from the Company's 64-bit graphics accelerators for cost-sensitive and mainstream desktop PCs. These products are implemented in several pin-compatible families which offer a range of price/performance solutions for OEMs and graphics board makers. As a companion product to its graphics/video accelerators, the Company also provides an NTSC video encoder for high- quality digital display on a standard television monitor. While the Company has discontinued any further product development efforts in the PC graphics market, it plans to continue support of current products to major OEMs and add-in card manufacturers. Emerging Product Opportunities The Company is also engaged in developing and is producing high- integration system-on-a-chip solutions for dedicated Internet appliances, Network Computers, handheld and ultra-portable computing and communications appliances such as Personal Communicators. The Company is currently manufacturing a family of system-on-a-chip products for the handheld market. The Company's products in this market incorporate a CPU core licensed from Advanced RISC Machines (ARM) Limited. Manufacturing Historically, the Company relied for its wafer manufacturing needs upon merchant wafers manufactured by outside suppliers. In much of 1994 and 1995, the merchant market was unable to meet demand, and the Company's merchant wafer suppliers sought to limit the proportion of wafers they sold to any single customer, which further restricted the Company's ability to buy wafers. Wafer shortages increased the Company's supply costs and at times prevented the Company from meeting the market demand for its own products. In response to its rapid growth, and to historical and anticipated supply shortages, the Company has pursued a strategy to expand its wafer supply sources by taking direct ownership interests in wafer manufacturing joint ventures. In 1994, the Company and IBM formed MiCRUS, a manufacturing joint venture that produces wafers for both companies. MiCRUS began operations in 1995. In July 1996, the Company and Lucent Technologies formed Cirent Semiconductor, a manufacturing joint venture that produces wafers for both companies. Cirent Semiconductor began operations in 1997. The Company believes that it will also continue to rely on merchant wafer suppliers for a portion of its wafer requirements. The Company's manufacturing strategy is intended to provide the following benefits: Assured Capacity. The first goal is to secure capacity to provide improved control over wafer supplies, particularly during periods of heightened industry-wide demand. Advantageous Cost Structure. Wafers produced by joint ventures, such as MiCRUS and Cirent, are potentially less expensive than merchant wafers. Increasing its supply of wafers from such joint ventures may help the Company achieve lower manufacturing costs than its competitors. Access to Leading Process Technologies. By partnering with world class manufacturers such as IBM and Lucent Technologies, the Company can access leading process technologies which allows it to reduce product cost, increase performance and increase functionality. In addition to its wafer supply arrangements, the Company currently contracts with third party assembly vendors to package the wafer die into finished products. The Company qualifies and monitors assembly vendors using procedures similar in scope to those used for wafer procurement. Assembly vendors provide fixed-cost-per- unit pricing, as is common in the semiconductor industry. During fiscal 1998, the Company started outsourcing a substantial portion of its production testing. As of May 23, 1998, the Company had approximately 29% of its employees engaged in manufacturing related activities. The Company's manufacturing division will continue to qualify and monitor suppliers' production processes, participate in process development, package development and process and product characterization, perform mixed-signal production testing, support R&D activities and maintain quality standards. MiCRUS IBM and Cirrus Logic own 52% and 48%, respectively, of MiCRUS, which produces wafers using IBM's wafer processing technology (primarily CMOS wafers with 0.35-, 0.5- and 0.6-micron technology, with 0.25-micron technology set for production in fiscal 1999) and makes process technology payments to IBM, which totaled $63.5 million as of March 28, 1998. MiCRUS leases an existing IBM facility in East Fishkill, New York. Activities of the joint venture are focused on the manufacture of semiconductor wafers, and do not encompass direct product licensing or product exchanges between the Company and IBM. Unless extended by the parties, the joint venture will expire on December 31, 2003. MiCRUS is managed by a six-member governing board of whom three are appointed by IBM, two are appointed by Cirrus Logic and one is the chief executive officer of MiCRUS. The Company is currently entitled to 55% of the MiCRUS output. If either company does not purchase its full entitlement of the wafers, that company will be liable to the joint venture for costs associated with the underutilized capacity that results from the company's shortfall in wafer purchases, unless the shortfall is purchased by the other company or, under limited circumstances, offered to third parties. In connection with the formation and expansion of the MiCRUS joint venture, the Company has incurred obligations to make equity contributions to MiCRUS, to make payments to MiCRUS under a manufacturing agreement and to guarantee equipment lease obligations incurred by MiCRUS. To date, the Company has made equity investments totaling $23.8 million. No additional equity investments are scheduled. However, the expansion of the MiCRUS production facility could require additional equity contributions by the Company. Payments to IBM under the manufacturing agreement as of March 28, 1998 have totaled $63.5 million with the final payment of $7.5 million due in fiscal 1999. The manufacturing agreement payments are being charged to the Company's cost of sales over the life of the venture based upon the ratio of current units of production to current and anticipated future units of production over the remaining life of the venture. Cirent Semiconductor Cirent operates two wafer fabs in Orlando, Florida in a facility that is leased from Lucent. Cirent uses Lucent's wafer processing technology (primarily CMOS wafers with 0.35-micron technology) and makes process technology payments to Lucent, which totaled $85.0 million as of March 28, 1998. Cirent is owned 60% by Lucent and 40% by Cirrus Logic and is managed by a Board of Governors, of whom three are appointed by Lucent and two are appointed by Cirrus Logic. The joint venture has a term of ten years and unless the term is extended by the parties, the joint venture will expire on August 9, 2006. Initially, Lucent and the Company were each entitled to purchase one- half of the output of the second fab. During the second quarter of fiscal 1998, the Company amended its existing joint venture formation agreement and reduced its entitlement to 25% of the output of the second fab. If either company does not purchase its full entitlement of the wafers, that company will be liable to the joint venture for costs associated with the underutilized capacity that results from the company's shortfall in wafer purchases, unless the shortfall is purchased by the other company or, under limited circumstances, offered to third parties. In connection with the Cirent joint venture, the Company has committed to make equity contributions to Cirent, make payments to Cirent under a manufacturing agreement and to guarantee and/or become a co-lessee under equipment lease obligations incurred by Cirent. To date, the Company has made equity investments totaling $14.0 million. No additional equity investments are scheduled. Payments under the manufacturing agreement as of March 28, 1998 have totaled $85.0 million. These payments will be charged to the Company's cost of sales over the life of the venture based upon the ratio of current units of production to current and anticipated future units of production over the remaining life of the agreement. Other Wafer Supply Arrangements In fiscal 1996, the Company entered into a volume purchase agreement amended with TSMC, which was amended in September 1997 and expires in December 2000. Under the agreement, the Company will purchase from TSMC 50% of its wafer needs that are not filled by MiCRUS and Cirent, provided that TSMC can meet the technological and other requirements of the Company's customers. TSMC is committed to supply these wafer needs. The amendment removed the requirements contained in the original agreement that the Company purchase a fixed minimum number of wafers each year and that the Company make sizable advance payments. In July of 1997, the Company terminated the joint venture and foundry capacity agreement it had entered into with UMC, a Taiwanese Company, in the fall of 1995 and recovered the cumulative costs of its investment in the venture. Patents, Licenses and Trademarks To protect its products, the Company relies heavily on trade secret, patent, copyright, mask work and trademark laws. The Company applies for patents and copyrights arising from its research and development activities and intends to continue this practice in the future to protect its products and technologies. The Company presently holds more than 350 U.S. patents, and in several instances holds corresponding international patents, and has more than 400 U.S. patent applications pending. The Company has also licensed a variety of technologies from outside parties to complement its own research and development efforts. The Company is also receiving brand recognition of its products. For example, the Crystal(R) name has become a well recognized brand for high-quality audio DAC's (digital-to- analog converters) and industrial ADC's (analog-to-digital converters). Research and Development Research and development efforts concentrate on the design and development of new products for each market and on the continued enhancement of the Company's design automation tools. Product-oriented research and development efforts are organized along its Mass Storage Products, Communication Products, Crystal Semiconductor Products and Personal Computer Product Divisions. The Company also funds certain advanced process technology development as well as other emerging product opportunities. Expenditures for research and development in fiscal 1998, 1997, and 1996 were $179.6 million, $230.8 million and $238.8 million, respectively. As of May 23, 1998, the Company had approximately 40% of its employees engaged in research and development activities. The Company's future success is highly dependent upon its ability to develop complex new products, to transfer new products to production in a timely fashion, to introduce them to the marketplace ahead of the competition and to have them selected for design into products of leading systems manufacturers. Competition Markets for the Company's products are highly competitive, and the Company expects that competition will increase. The Company competes with other semiconductor suppliers who offer standard semiconductors, application-specific integrated circuits and fully customized integrated circuits, including both chip- and board- level products. A few customers also develop integrated circuits that compete with the Company's products. The Company's competitive strategy has been to provide lower-cost versions of existing products and new, more advanced products for customers' new designs. While no single company competes with the Company in all of the Company's product lines, the Company faces significant competition in each of its product lines. The Company expects to face additional competition from new entrants in each of its markets, which may include both large domestic and international semiconductor manufacturers and smaller, emerging companies. The principal competitive factors in the Company's markets include time to market; quality of hardware/software design and end- market systems expertise; price; product benefits that are characterized by performance, features, quality and compatibility with standards; access to advanced process and packaging technologies at competitive prices; and sales and technical support. Competition typically occurs at the design stage, where the customer evaluates alternative design approaches that require integrated circuits. Because its products have not been available from second sources, the Company generally does not face direct competition in selling its products to a customer once its integrated circuits have been designed into that customer's system. Nevertheless, because of shortened product life cycles and even shorter design-in cycles, the Company's competitors have increasingly frequent opportunities to achieve design wins in next generation systems. In the event that competitors succeed in supplanting the Company's products, the Company's market share may not be sustainable and net sales, gross margin, and earnings would be adversely affected. Sales, Marketing and Technical Support The Company's products are sold worldwide, and historically 50-65% of revenues have come from shipments to overseas destinations. The Company maintains a worldwide sales force with a matrixed organization, which is intended to provide centralized coordination of strategic accounts, territory-based local support and coverage of smaller customers, and specialized selling of product lines with unique customer bases. The domestic sales force includes a network of regional direct sales offices located in California, Florida, Illinois, Maryland, Massachusetts, North Carolina, Oregon, and Texas. International sales offices and organizations are located in Taiwan, Japan, Singapore, Korea, Hong Kong, China, the United Kingdom, Germany, France and Barbados. The Company supplements its direct sales force with sales representative organizations and distributors. Technical support staff are located at the sales offices and also at the Company's facilities in Fremont, California; Broomfield, Colorado; Austin, Texas; Greenville, South Carolina and Raleigh, North Carolina. Two customers accounted for approximately 19% and 11%, respectively of net sales in fiscal 1998. One customer accounted for approximately 10% of net sales in fiscal 1997. In fiscal 1996 no customer represented 10% or more of net sales. The loss of a significant customer or a significant reduction in such a customer's orders could have an adverse effect on the Company's sales. Export sales information is incorporated by reference from the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II hereof. Backlog Sales are made primarily pursuant to standard short-term purchase orders for delivery of standard products. The quantity actually ordered by the customer, as well as the shipment schedules, are frequently revised to reflect changes in the customer's needs. Accordingly, the Company believes that its backlog at any given time is not a meaningful indicator of future revenues. Employees As of May 23, 1998, the Company had approximately 1,857 full-time equivalent employees, of whom 40% were engaged in research and product development, 31% in sales, marketing, general and administrative and 29% in manufacturing. The Company's future success will depend, in part, on its ability to continue to attract, retain and motivate highly qualified technical, marketing, engineering and management personnel. The Company believes that its employee relations are good. None of the Company's employees are represented by any collective bargaining agreements, although Cirent Semiconductor is staffed by Lucent Technologies' employees who are represented by a union. EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information with regard to executive officers of Cirrus Logic, Inc. (ages are as of June 1, 1998): Michael L. Hackworth (age 57), a founder of the Company, was appointed Chairman of the Board, President and Chief Executive Officer in July 1997. He served as President, Chief Executive Officer and a director from January 1985 to July 1997. He is also a director of Read-Rite Corporation. Previously he was employed by Signetics Corporation for over thirteen years, most recently as Senior Vice President of MOS and Linear Products. Suhas S. Patil (age 53), a founder of the Company, was named Chairman Emeritus in July 1997. He has served as a Director since the Company was founded in 1984 and as Chairman of the Board from 1994 to July 1997. He served as Vice President, Research and Development until March 1990 and Executive Vice President, Products and Technology through April 1997. He is also a director of CyberMedia, Inc. George N. Alexy (age 49) has resumed the position of Senior Vice President, Corporate Marketing. He was in the Office of the President and also served as Chief Products and Marketing Officer from April 1997 to March 1998, when that office was dissolved. He joined the Company in 1987 as Vice President, Marketing and in May 1993, he was promoted to Senior Vice President, Marketing. Previously, he was employed by Intel Corporation for ten years, most recently as Product Marketing Manager, High Performance Microprocessors. Patrick V. Boudreau (age 57) joined the Company in October 1996 as Senior Vice President, Human Resources. He was Vice President, Human Resources for Fujitsu Microelectronics from 1995 to 1996. From 1989 to 1995, he was President of P.V.B. Associates, a management consulting and executive search firm, as well as Senior Vice President of Lazer-Tron Corporation. Eric C. Broockman (age 43) was appointed to the position of Vice President and General Manager, Crystal Semiconductor Products Division in April 1997. He joined the Company in February 1995 as Vice President and General Manager, Network Broadcast Products Division. Prior to joining the Company, he was employed by IBM for 16 years, most recently as Product Line Manager, DSP Business Unit. Henry M. Josefczyk (age 60) joined the Company in November 1997, as Senior Vice President, Worldwide Sales. Prior to joining the Company, he served as Vice President of Sales and Marketing for NKK Micro Devices from September 1996 to November 1997 and Vice President of Worldwide Sales for IC Works from June 1992 to September 1996. Steven Dines (age 44) was appointed Vice President and General Manager, Mass Storage Products Division in May 1997. He joined the Company in May 1991 as Member, Corporate Strategic Staff and in December 1991, he assumed the position of Director, Mass Storage Products Marketing. In November 1993, he was promoted to Vice President, Mass Storage. Prior to joining the Company he spent twelve years at Advanced Micro Devices, most recently as Director, Strategic Marketing for Europe and with IMP, Inc. as Director, Product Planning and Applications. Robert F. Donohue (age 55) joined the Company in May 1996 as Vice President, Chief Legal Officer, General Counsel and Secretary. Prior to joining the Company, he was Vice President, General Counsel and Secretary of Frame Technology Corporation from 1993 to 1996 and Vice President, General Counsel and Secretary of Cadence Design Systems, Inc. from 1989 to 1993. Michael D. Shealy (age 50) was appointed Vice President and General Manager of the Communications Division in September 1997. Prior to joining the Company, he served at Compaq Computer as the Vice President of the Small and Medium Business Solutions Division from July 1996 and as Vice President of Emerging markets from August 1995 to July 1996. From April 1993 to August 1995, he was a senior executive at AT&T Paradyne serving as the Vice President and General Manager of the Personal Access Products business and Vice President of Strategic Development. Prior to joining AT&T, he was the President and CEO of Digital Technology, Inc. Edward C. Ross (age 56), joined the Company in September 1995 as President, Worldwide Manufacturing Group. In April 1997, he became President, Manufacturing and Technology. Prior to joining the Company, he was President of Power Integrations, a manufacturer of high-voltage integrated circuits, from January 1989 to January 1995. Ronald K. Shelton (age 37) was appointed Vice President, Finance, Chief Financial Officer and Treasurer in April 1997. He joined the Company in September 1996 as Vice President, Finance and Corporate Controller. From April 1992 to August 1996, he was Vice President, Finance and Administration and Chief Financial Officer of Alliance Semiconductor Corporation. Prior to joining Alliance Semiconductor Corporation, he held management positions with Etec Systems, Inc., a semiconductor equipment manufacturer, and Deloitte & Touche. Eric J. Swanson (age 41) was appointed Vice President and Chief Technical Officer of the Company in March 1998. He joined Crystal Semiconductor Corporation in 1985 as Telecom/Filter Design Manager and in 1986 we was appointed to the position of Vice President of Technology of Crystal. Crystal merged with the Company in October 1991. Prior to joining Crystal, he was with AT&T - Bell Laboratories from 1980 to 1985. ITEM 2. PROPERTIES The Company's principal facilities, located in Fremont, California, consist of approximately 340,000 square feet of office space leased pursuant to agreements which expire from 2003 to 2007 plus renewal options. This space is used for manufacturing, product development, sales, marketing and administration. The Company's Austin, Texas facilities consist of approximately 300,000 square feet of office space leased pursuant to agreements which expire from 1999 to 2005 plus renewal options. The Company also has facilities located in Tempe, Arizona; Broomfield, Colorado; Raleigh, North Carolina; Greenville, South Carolina; Bellevue, Washington; Pune, India; and Tokyo, Japan. The Company also leases sales and sales support offices in the United States in California, Colorado, Florida, Illinois, Maryland, Massachusetts, Oregon, Pennsylvania and Texas and internationally in Taiwan, Japan, Singapore, Korea, Hong Kong, China, the United Kingdom, Germany, France and Barbados. The Company may add additional manufacturing and sales offices to support its business needs. ITEM 3. LEGAL PROCEEDINGS The Company and certain of its customers from time to time have been notified that they may be infringing certain patents and other intellectual property rights of others. Further, customers have been named in suits alleging infringement of patents by the customer products. Certain components of these products have been purchased from the Company and may be subject to indemnification provisions made by the Company to the customers. The Company has not been named in any such suits. Although licenses are generally offered in such situations, there can be no assurance that litigation will not be commenced in the future regarding patents, mask works, copyrights, trademarks, trade secrets, or indemnification liability, or that any licenses or other rights can be obtained on acceptable terms. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the Nasdaq National Market under the symbol "CRUS." The following table shows for the periods indicated the high and low closing prices for the Common Stock. High Low ------ ------ Fiscal year ended March 30, 1996 First quarter 33.69 17.06 Second quarter 59.63 31.00 Third quarter 55.50 19.75 Fourth quarter 26.38 17.13 Fiscal year ended March 29, 1997 First quarter 25.13 16.88 Second quarter 21.88 13.38 Third quarter 24.13 15.75 Fourth quarter 17.11 10.77 Fiscal year ended March 28, 1998 First quarter 13.00 8.50 Second quarter 17.56 10.31 Third quarter 17.44 10.38 Fourth quarter 11.38 9.69 At March 28, 1998, there were approximately 2,198 holders of record of the Company's Common Stock. The Company has not paid cash dividends on its Common Stock and presently intends to continue a policy of retaining any earnings for reinvestment in its business. In December 1996, an offering of U.S. $300,000,000 in 6% Convertible Subordinated Notes due December 15, 2003 ("Notes") was made to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended, and to a limited number of institutions that were accredited investors in a manner exempt from the registration requirements of the Securities Act. The Notes were also being offered by Goldman Sachs International, as selling agent for Goldman Sachs & Co., Salomon Brothers International Limited, as selling agent for Salomon Brothers Inc., J.P. Securities Ltd., as selling agent for J.P. Morgan Securities, Inc., and Robertson, Stephens & Company LLC, outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act. These Notes will be convertible into shares of Common Stock of the Registrant at any time on or after the 90th day following the last original issue date of the Notes, and prior to the close of business on the maturity date, unless previously redeemed or repurchased, at a conversion rate of 41.2903 shares per $1,000 principal amount of Notes (equivalent to a conversion price of approximately $24.219 per share). ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA (Amounts in thousands, except per share amounts, ratios and employees)
Fiscal years ended --------------------------------------------------------- 1998 1997 1996 1995 1994 ------------ ----------- ---------- ---------- ---------- Net sales $954,270 $917,154 $1,146,945 $889,022 $557,299 Costs and expenses and gain on sale of assets and other, net: Cost of sales 605,484 598,795 774,350 512,509 298,582 Research and development 179,552 230,786 238,791 165,622 126,632 Selling, general and administrative 117,273 126,722 165,267 126,666 91,887 Gain on sale of assets, net (20,781) (18,915) - - - Restructuring costs and other, net 14,464 20,954 11,566 - - Non-recurring costs - - 1,195 3,856 - Merger costs - - - 2,418 - ---------- ---------- --------- --------- --------- Income (loss) from operations 58,278 (41,188) (44,224) 77,951 40,198 Interest expense (27,374) (19,754) (5,151) (2,441) (2,196) Interest income 19,893 8,053 7,759 9,129 4,280 Other income (expense), net 5,206 1,270 (107) 4,999 13,682 ---------- ---------- --------- --------- --------- Income (loss) before income taxes and cumulative effect of accounting change 56,003 (51,619) (41,723) 89,638 55,964 Provision (benefit) for income taxes 19,510 (5,463) (5,540) 28,236 18,146 ---------- ---------- --------- --------- --------- Income (loss) before cumulative effect of accounting change 36,493 (46,156) (36,183) 61,402 37,818 Cumulative effect of change in method of accounting for income taxes - - - - 7,550 ---------- ---------- --------- --------- --------- Net income (loss) $36,493 ($46,156) ($36,183) $61,402 $45,368 ========== ========== ========= ========= ========= Net income per common share - basic: Income (loss) before accounting change $0.54 ($0.71) ($0.58) $1.03 $0.73 Cumulative effect of change in accounting principle - - - - 0.15 ---------- ---------- --------- --------- --------- Net income (loss) per common share - basic $0.54 ($0.71) ($0.58) $1.03 $0.88 ========== ========== ========= ========= ========= Net income per common share - diluted: Income (loss) before accounting change $0.52 ($0.71) ($0.58) $0.96 $0.67 Cumulative effect of change in accounting principle - - - - 0.13 ---------- ---------- --------- --------- --------- Net income (loss) per common share - diluted $0.52 ($0.71) ($0.58) $0.96 $0.80 ========== ========== ========= ========= ========= Weighted average common shares outstanding: Basic 67,333 65,007 62,761 59,707 51,838 Diluted 69,548 65,007 62,761 63,969 56,486 Financial position at year end: Total assets $1,137,542 $1,136,821 $917,577 $673,534 $517,931 Working capital 476,154 428,670 182,643 251,619 273,527 Capital lease obligations, excluding current 5,475 9,848 6,258 9,602 7,753 Long-term debt, excluding current 32,559 51,248 65,571 16,603 11,392 Convertible subordinated notes 300,000 300,000 - - - Total liabilities 681,199 732,624 488,911 254,518 173,616 Shareholders' equity 456,343 404,197 428,666 419,016 344,315 Current Ratio 2.40 2.17 1.44 2.10 2.77 Employees 1,774 2,557 3,151 2,331 1,854 In August 1994, the Company merged with PicoPower Technology, Inc. All of the consolidated financial information reflects the combined operations of the companies. The net income (loss) per common share amounts prior to 1998 have been restated as required to comply with Statement of Financial Accounting Standards No. 128, Earnings Per Share. For further discussion of net income (loss) per share and the impact of Statement No. 128, see the notes to the consolidated financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ANNUAL RESULTS OF OPERATIONS Except for historical information contained herein, this Discussion and Analysis contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties, including, but not limited to those discussed below, that could cause actual results to differ materially from those projected. 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 undertakes no obligation to publicly release the results of any revision to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Net Sales Net sales for fiscal 1998 were $954.3 million, an increase of 4% from $917.2 million in fiscal 1997. Revenues from divested businesses in fiscal 1998 were $43.7 million compared to $100.8 million in fiscal 1997. Net sales from the core businesses in fiscal 1998 were approximately $910.6 million compared to $816.4 million in fiscal 1997. Excluding revenues from divested businesses, net sales in fiscal 1998 increased by $94.2 million from fiscal 1997 largely due to increased sales in the Mass Storage Products division, primarily related to increased unit sales of read channel devices and controllers, and $60.0 million of revenues from patent cross-license agreements which were offset by decreased sales in the PC Products division, primarily related to decreasing unit sales and declining average selling prices of graphics products. Net sales for fiscal 1997 decreased 20% from $1,146.9 million for fiscal 1996. Sales of graphics, audio, and mass storage products decreased in fiscal 1997 over fiscal 1996 while sales of fax/modem products increased. The decline in net sales of graphics and audio products in fiscal 1997 was the result of decreasing unit sales and declining average selling prices. The decline in net sales of mass storage products was the result of reduced sales of controller products offset somewhat by an increase in sales of read-channel products. The increase in net sales of fax/modem products was primarily the result of increased sales of newer high-speed modem products. Export sales, principally to Asia, include sales to U.S. - based customers with manufacturing plants overseas and were approximately $506 million in fiscal 1998 compared to approximately $568 million in fiscal 1997 and approximately $647 million in fiscal 1996. Export sales to the Pacific Rim (excluding Japan) were 31%, 32% and 34% of net sales; to Japan were 15%, 22% and 17% of net sales; and to Europe and the rest of the world were 7%, 7% and 6% of net sales, in fiscal 1998, 1997 and 1996, respectively. The Company's sales are currently denominated primarily in U.S. dollars. The Company currently enters into foreign currency forward exchange and option contracts to hedge certain of its foreign currency exposures related to sales and balance sheet accounts denominated in yen. The Company has not experienced any significant losses related to its foreign exchange activity. In fiscal 1998, net sales to two customers were approximately 19% and 11%, respectively. Sales to one other customer in fiscal 1997 were approximately 10% of net sales. In fiscal 1996, no single customer accounted for 10% or more of net sales. Gross Margin The gross margin percentage was 36.6% in fiscal 1998, compared to 34.7% and 32.5% in fiscal 1997 and 1996, respectively. The gross margin increase in fiscal 1998 was primarily a result of improved margins in mass storage due to a change in mix within the Mass Storage Products division towards read channel products, an overall change in product mix within the Company towards mass storage products and $60.0 million of patent cross-license revenues in the fourth quarter which had no corresponding cost of sales. These improvements were offset by lower margins in PC products and $53.0 million of charges recorded in the fourth quarter related to wafer purchase commitments for MiCRUS and Cirent, the Company's joint ventures. The lower margins in PC products are primarily related to declining average selling prices on graphics and modem products. Excluding the impact of the patent cross-license revenues and the wafer purchase commitment charges for both fiscal 1998 and fiscal 1997, gross margins would have been 38% for both fiscal years. During fiscal 1997, the gross margin was adversely impacted by $34.5 million of charges that were recorded in the fourth quarter related to wafer purchase commitments of $22.0 million and inventory write-downs of $12.5 million. In fiscal 1996, the gross margin was adversely impacted by $70.8 million of fourth quarter charges for inventory write-downs, wafer purchase commitments and manufacturing variances. Exclusive of these charges, the gross margin percentage would have been 39% in fiscal 1997 and fiscal 1996. While the gross margins in these years were flat, they reflect reduced unit costs resulting from the migration to larger wafers and more efficient processing technologies, improved efficiencies at the Company's MiCRUS facility, and a decrease in the cost of wafers and assembly services purchased from third-party suppliers, all of which were offset by the impact of decreased average selling prices for most of the Company's major products. Research and Development Expenses Research and development expenses expressed as a percentage of net sales were 18.8%, 25.2%, and 20.8% in fiscal 1998, 1997 and 1996, respectively. Research and development expenditures decreased in fiscal 1998 both as a percentage of net sales and absolute dollars primarily as a result of the divestiture of certain non-core businesses and also as a result of the April 1997 headcount reductions which were made in connection with the Company's realignment into four market- focused divisions. The absolute research and development spending decreased in fiscal 1997 over fiscal 1996 primarily due to divestitures. Selling, General and Administrative Expenses Selling, general, and administrative expenses expressed as a percentage of net sales represented approximately 12.3%, 13.8% and 14.4% in fiscal 1998, 1997 and 1996, respectively. The decreases as a percentage of net sales and in absolute dollars were primarily a result of the divestiture of certain non-core businesses in fiscal 1998 and to the April 1997 headcount reductions which were made in connection with the Company's realignment into four market-focused divisions. Both the percentage of net sales and the absolute spending decreased in fiscal 1997 over fiscal 1996 were primarily a result of reductions in compensation expenses, marketing expenses for promotions and advertising, and administrative expenses, including the impact of divestitures. Gain on Sale of Assets During the third quarter of fiscal 1998, the Company sold its Nuera Communications, Inc. subsidiary for cash proceeds of approximately $21.5 million ($16.1 million net of $5.4 million of Nuera's own cash) and recorded a gain of approximately $11.1 million. Gain on sale of assets also includes the reversal of $9.7 million that had previously been accrued for losses on facilities commitments in connection with the sale and shut down of the operating divisions of Pacific Communication Sciences, Inc. ("PCSI") in the fourth quarter of fiscal 1997. During the fourth quarter of fiscal 1997, the Company completed the sale of the assets of PCSI's Wireless Semiconductor Products to Rockwell International for $18.1 million in cash and made the decision to shut down PCSI's Subscriber Product Group. In connection with the sale of the PCSI Wireless Semiconductor Product Group and the shut-down of the Subscriber Group, the Company recorded a net gain of $0.3 million. During the third quarter of fiscal 1997, the Company completed the sale to ADC Telecommunications Inc. of the PCSI Infrastructure Product Group. The Company received approximately $20.8 million in cash for the group. In connection with the transaction, the Company recorded a gain of approximately $12.0 million. During the second quarter of fiscal 1997, the Company completed the sale of its PicoPower product line to National Semiconductor Corporation. The Company received approximately $17.6 million in cash for the PicoPower product line. In connection with the transaction, the Company recorded a gain of approximately $6.9 million. Restructuring Costs and Other, net The Company recorded restructuring costs of $11.8 million in the third quarter of fiscal 1998 in connection with a discontinuation of certain strategies and product development efforts in the graphics product group of its PC products division. This resulted in a workforce reduction of approximately 65 positions. The primary components of the restructuring charge were $8.4 million related to excess assets and facility leases and $1.8 million of severance payments that were made during fiscal 1998. The total expected cash outlay related to this charge is approximately $8.3 million, of which $2.6 million is expected to be paid in fiscal 1999. Restructuring costs and other also includes a $2.0 million reversal of amounts that had been previously accrued for losses on facilities in connection with the April 1997 restructuring and other costs of $4.7 million representing additional compensation costs in connection with the same restructuring that were earned and recorded in the third quarter of fiscal 1998. In the fourth quarter of fiscal 1997, as a result of the Company's strategy to focus on the markets for multimedia (graphics, video, and audio), mass storage, and communications, the Company began divesting its non-core business units and eliminating projects that do not fit within its core markets. These actions resulted in a restructuring charge of $21.0 million which included $5.1 million related to workforce reductions and $15.9 million primarily related to excess assets and facilities in connection with the reorganization into four market-focused product divisions (Personal Computer Products, Communications Products, Mass Storage Products, and Crystal Semiconductor Products). This resulted in a workforce reduction of approximately 400 people in April 1997, representing approximately 15 percent of its worldwide staff. As of March 28, 1998, activities related to this restructuring were substantially complete. In the fourth quarter of fiscal 1996, as a result of decreased demand for the Company's products for use in personal computers, which accounted for more than 80% of the Company's revenue, management reviewed the various operating areas of the business and took certain steps to bring operating expenses and capacity in line with demand. These actions resulted in a pre-tax restructuring charge of approximately $11.6 million. The principal actions in the restructuring involved the consolidation of support infrastructure and the withdrawal from an unprofitable product line and reduction of planned production capacity. This resulted in the elimination of approximately 320 positions from the manufacturing, research and development, sales and marketing, and administrative departments. As of March 28, 1998, activities related to this restructuring were substantially complete. Non-recurring and Merger Costs In the third quarter of fiscal 1996, the Company incurred non-recurring costs of approximately $1.2 million associated with the formation of the Cirent Semiconductor joint venture with Lucent Technologies (formerly AT&T Microelectronics). Interest Expense Interest expense was $27.4 million, $19.8 million and $5.2 million in fiscal 1998, 1997 and 1996, respectively. The increase in interest expense in fiscal 1998 is primarily due to the Company's convertible subordinated notes being outstanding for the entire fiscal year as compared with fiscal 1997, in which the convertible subordinated notes were issued in the third quarter. The increase in interest expense in fiscal 1997 as compared with fiscal 1996 was primarily the result of the issuance of convertible subordinated notes in fiscal 1997 and increased borrowings on short-term and long-term debt during fiscal 1997. Interest Income Interest income in fiscal 1998 was $19.9 million compared to $8.1 million in fiscal 1997 and $7.8 million in fiscal 1996. Interest income increased in fiscal 1998 over fiscal 1997 as the funds raised by the fiscal 1997 convertible subordinated notes offering were available to be invested in cash equivalents and marketable securities for the entire year. In addition, the Company generated cash from operations during the year, which was also available for investment during the year. Interest income increased in fiscal 1997 over fiscal 1996 because the funds raised by the fiscal 1997 convertible subordinated notes offering were available to be invested in cash equivalents and marketable securities for part of the year. Other Income (Expense), net In fiscal 1998, other income (expense), net, includes gains on the disposal of certain equity investments and foreign currency transaction gains, which were partially offset by certain legal settlements. In fiscal 1997, other income (expense), net, primarily relates to foreign currency transaction gains. Income Taxes The provision for income taxes was 34.8% in fiscal 1998 compared to a benefit for income taxes of 10.6% in fiscal 1997 and 13.3% in fiscal 1996. The effective tax rate for fiscal 1998 is equal to the U.S. federal statutory rate, after the addition of state income taxes offset by federal and state research tax credits. The tax benefit rates in 1997 and 1996 were less than the federal statutory rate, primarily because of foreign operating results which are taxed at rates other than the U.S. statutory rate. Realization of the Company's net deferred tax assets is dependent on future U.S. taxable income. While the Company believes that it is more likely than not that such assets will be realized, other factors, including those mentioned in the discussion of Future Operating Results, may impact the ultimate realization of such assets. The deferred tax assets realizability is evaluated on a quarterly basis. LIQUIDITY AND CAPITAL RESOURCES During fiscal 1998, the Company generated $192.2 million of cash and cash equivalents from its operating activities as compared to $2.6 million during fiscal 1997 and $7.7 million in fiscal 1996. The fiscal 1998 increase from fiscal 1997 was primarily due to improved accounts receivable and inventory turnover, funding received for equipment and leasehold advances to the joint ventures and the generation of income from operations as opposed to a net loss in the prior year. Included in the net income from operations in fiscal 1998 was $60.0 million of patent cross-license revenues. These increases were partially offset by a reduction in accounts payable. The fiscal 1997 decrease from fiscal 1996 was primarily caused by the increase in the net loss from operations, the non-cash effect of the gain on sale of assets offset partially by the increase in the non-cash effect of depreciation and amortization and the net change in operating assets and liabilities. The Company generated $16.0 million in cash in investing activities during fiscal 1998, as opposed to using $221.0 million during fiscal 1997 and $104.9 million during fiscal 1996. Part of the fiscal 1998 increase in cash was due to a higher percentage of the Company's investments in securities with original maturities less than ninety days than in the prior fiscal year. As a result, available for sale investments generated a net cash flow of $62.8 million during fiscal year 1998 while using a net cash flow of $168.9 million through purchase of investments in fiscal 1997. In addition, during fiscal 1998 the Company received approximately $20.5 million from the termination of the UMC agreements, and approximately $16.1 million from the sale of Nuera (proceeds of $21.5 million less Nuera's own cash of $5.4 million) as opposed to $56.5 million of proceeds from the sale of assets in the prior year, which included proceeds from PCSI divestiture activities. The decrease in cash from investing activities during fiscal 1997 compared to fiscal 1996 was primarily the result of a decrease in proceeds from short-term investments and increased short- term investment purchases in fiscal 1997 over fiscal 1996 along with a decrease in additions to property and equipment and the proceeds from sale of assets. Net cash used in financing activities was $12.3 million in fiscal 1998, as opposed to generating $214.0 million and $186.4 million of cash in fiscal 1997 and 1996, respectively. The cash used in fiscal 1998 was primarily due to payments on the Company's outstanding lease obligations and debt. The increase in cash from financing activities in fiscal 1997 was primarily due to proceeds from the issuance of $300.0 million of convertible subordinated notes offset by repayment of short-term bank debt. The semiconductor industry is extremely capital intensive. To remain competitive, the Company believes it must continue to invest in advanced wafer manufacturing and test equipment. Investments will continue to be made in the various external manufacturing arrangements and the Company's facilities. The Company intends to obtain most of the necessary capital through direct or guaranteed equipment lease financing and the balance through debt and/or equity financing, and cash generated from operations. As of March 28, 1998, the Company is contingently liable as guarantor or co-guarantor for equipment leases of MiCRUS and Cirent which have remaining payments of approximately $542.3 million due through 2004 compared to $526.0 million as of March 29, 1997. In addition, the Company has other commitments related to its joint venture relationships that total approximately $7.5 million at March 28, 1998. As of March 28, 1998, the Company has a bank line of credit to provide a commitment for letters of credit up to a maximum aggregate of $35.0 million, which expires on June 30, 1998 and are collateralized by cash or securities with interest at the higher of: (a) .50% per annum above the latest federal funds rate (as defined in the Second Amended Credit Agreement); or (b) the rate of interest in effect for such day as publicly announced from time to time by the bank. The Company is currently in compliance with all covenants under the bank line of credit. The Company expects to amend or replace the existing line of credit facility in fiscal 1999. The Company does not believe the amendment of its line of credit will have an impact on its financial position or on its ability to finance its operations for the foreseeable future. As of March 28, 1998, the Company had approximately $30.8 million outstanding letters of credit and an additional $4.2 million available under this line of credit. The Company believes that its capital resources are adequate to meet its needs for at least the next 12 months. However, if additional financing is needed for any reason, there can be no assurance that financing will be available or, if available, will be on satisfactory terms. Failure to obtain adequate financing would restrict the Company's ability to expand its manufacturing infrastructure, to make other investments in capital equipment, and to pursue other initiatives. Future Operating Results Quarterly Fluctuations The Company's quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. The Company's operating results are affected by a wide variety of factors, many of which are outside of the Company's control, including but not limited to, economic conditions and overall market demand in the United States and worldwide, the Company's ability to introduce new products and technologies on a timely basis, the ability to retain and attract key technical and management personnel, changes in product mix, fluctuations in manufacturing costs which affect the Company's gross margins, declines in market demand for the Company's and its customers' products, sales timing, the level of orders that are received and can be shipped in a quarter, the cyclical nature of both the semiconductor industry and the markets addressed by the Company's products, product obsolescence, price erosion, and competitive factors. The Company's operating results in 1999 are likely to be affected by these factors as well as others. The Company must order wafers and build inventory well in advance of product shipments. Because the Company's markets are volatile and subject to rapid technology and price changes, there is a risk that the Company will forecast inaccurately and produce excess or insufficient inventories of particular products. This inventory risk is heightened because many of the Company's customers place orders with short lead times. Such inventory imbalances have occurred in the past and in fact contributed significantly to the Company's operating losses in fiscal 1997 and 1996. These factors increase not only the inventory risk but also the difficulty of forecasting quarterly operating results. Moreover, as is common in the semiconductor industry, the Company frequently ships more product in the third month of each quarter than in either of the first two months of the quarter, and shipments in the third month are higher at the end of that month. The concentration of sales in the last month of the quarter contributes to difficulty in predicting the Company's quarterly revenues and results of operations. The Company's success is highly dependent upon its ability to develop complex new products, to introduce them to the marketplace ahead of the competition, and to have them selected for design into products of leading system manufacturers. Both revenues and margins may be affected quickly if new product introductions are delayed or if the Company's products are not designed into successive generations of products of the Company's customers. These factors have become increasingly important to the Company's results of operations because the rate of change in the markets served by the Company continues to accelerate. Issues Relating to Manufacturing and Manufacturing Investment The Company participates in joint ventures with International Business Machines Corp. ("IBM"), MiCRUS joint venture, and Lucent Technologies, Cirent Semiconductor joint venture, under a series of agreements intended to secure a committed supply of wafers from manufacturing facilities operated by the joint ventures. The joint ventures are controlled by IBM and Lucent Technologies, respectively, and are dependent on the controlling partners' advanced proprietary manufacturing process technologies and manufacturing expertise. These agreements include wafer purchase agreements under which the Company is committed to purchase a fixed percentage of the output of the joint venture manufacturing facilities. As a result, the operating results of the Company may be more sensitive to changing business conditions, as anticipated decreases in revenues could cause the Company to decide to not fulfill its wafer purchase obligations. This would result in charges to the Company from the joint ventures in amounts intended to cover the joint ventures fixed costs related to the shortfall in wafer orders from the Company. The Company determines any estimated shortfalls in such purchase commitments over the short-term (six- months) and accrues such amounts to the extent they would result in inventory losses were the Company to fulfill the commitment and take delivery of the related inventory. The Company's gross margins and earnings were adversely impacted by such charges in the amounts of $53.0 million, $22.0 million, $12.1 million, $7.8 million and $6.2 million in the fourth quarter of fiscal 1998, the fourth and second quarters of fiscal 1997 and the second and first quarter of fiscal 1996, respectively. With its other foundries, the Company becomes committed upon placing orders and is subject to penalties for cancellations. Moreover, the Company will benefit from the MiCRUS and Cirent Semiconductor joint ventures only if they are able to produce wafers at or below prices generally prevalent in the market. If, however, either of these ventures is not able to produce wafers at competitive prices, the Company's results of operations could be materially adversely affected. The process of beginning production and increasing volume with the joint ventures inevitably involves risks, and there can be no assurance that the manufacturing costs of such ventures will be competitive. During fiscal 1998 and 1997, excess production capacity in the industry lead to significant price competition between merchant semiconductor foundries and the Company believes that in some cases this resulted in pricing from certain foundries that was lower than the Company's cost of production from its manufacturing joint ventures. The Company experienced pressures on its selling prices during fiscal 1998 and fiscal 1997, which had a negative impact on its results of operations and it believes that this was partially due to the fact that certain of its competitors were able to obtain favorable pricing from such foundries. Certain provisions of the MiCRUS and Cirent Semiconductor agreements may cause the termination of the joint venture in the event of a change in control of the Company. Such provisions could have the effect of delaying, deferring or preventing a change of control of the Company. In connection with the financing of its operations, the Company has borrowed money and entered into substantial equipment lease obligations and is likely to expand such commitments in the future. Such indebtedness could cause the Company's principal and interest obligations to increase substantially. The degree to which the Company is leveraged could adversely affect the Company's ability to obtain additional financing for working capital, acquisitions or other purposes and could make it more vulnerable to industry downturns and competitive pressures. The Company's ability to meet its debt service and other obligations will be dependent upon the Company's future performance, which will be subject to financial, business, and other factors affecting the operations of the Company, many of which are beyond its control. An inability to obtain financing to meet these obligations could cause the Company to become in default of such obligations. Although the Company has increased its future wafer supplies from MiCRUS and Cirent Semiconductor, the Company expects to continue to purchase portions of its wafers from, and to be reliant upon, outside merchant wafer suppliers. The Company's current strategy is to fulfill its wafer requirements using a balance of secured wafer supply from its joint ventures and from outside merchant wafer suppliers. The Company also uses other outside vendors to package the wafer die into integrated circuits and to perform the majority of the Company's product testing. During the second quarter of fiscal 1998 the Company reduced its purchase obligations at Cirent Semiconductor by 50 percent, pursuant to an agreement under which the Company can reacquire, at no incremental cost, an additional 10 percent of the total Cirent Semiconductor wafer output and can sell any portion of its wafer purchase obligation to third parties on a foundry basis. The agreement also provides the Company with future access to certain Lucent advanced process technologies including 0.18 micron process technology. The Company's results of operations could be adversely affected in the future, as they have been so affected in the past, if particular suppliers are unable to provide a sufficient and timely supply of product, whether because of raw material shortages, capacity constraints, unexpected disruptions at the plants, delays in qualifying new suppliers or other reasons, or if the Company is forced to purchase wafers or packaging from higher cost suppliers or to pay expediting charges to obtain additional supply, or if the Company's test facilities are disrupted for an extended period of time. Because of the concentration of sales at the end of each quarter, a disruption in the Company's production or shipping near the end of a quarter could materially reduce the Company's revenues for that quarter. Production may be constrained even though capacity is available at one or more wafer manufacturing facilities because of the difficulty of moving production from one facility to another. Any supply shortage could adversely affect sales and operating profits. The Company's reliance upon outside vendors for assembly and test could also adversely impact sales and operating profits if the Company was unable to secure sufficient access to the services of these outside vendors. Product development in the Company's markets is becoming more focused on the integration of functionality on individual devices and there is a general trend towards increasingly complex products. The greater integration of functions and complexity of operations of the Company's products increase the risk that latent defects or subtle faults could be discovered by customers or end users after volumes of product have been shipped. If such defects were significant, the Company could incur material recall and replacement costs for product warranty. The Company's relationship with customers could also be adversely impacted by the recurrence of significant defects. Dependence on PC Market Although the Company's future direction is to emphasize non-PC market opportunities in mass storage, communications, consumer electronics and industrial automation, sales of many of the Company's products will continue to depend largely on sales of personal computers (PCs). Reduced growth in the PC market could affect the financial health of the Company as well as its customers. Moreover, as a component supplier to PC OEMs and to peripheral device manufacturers, the Company is likely to experience a greater magnitude of fluctuations in demand than the Company's customers themselves experience. In addition, many of the Company's products are used in PCs for the consumer market, and the consumer PC market is more volatile than other segments of the PC market. Other integrated circuit (IC) makers, including Intel Corporation, have expressed their interest in integrating through hardware functions, adding through special software functions, or kitting components to provide some multimedia or communications features into or with their microprocessor products. Successful integration of these functions could substantially reduce the Company's opportunities for IC sales in these areas. In addition, the Company's de-emphasis of PC products and its focus on non-PC markets could have an adverse affect on the Company's PC product sales as customers seek other supply sources with greater commitments to the PC market. A number of PC OEMs buy products directly from the Company and also buy motherboards, add-in boards or modules from suppliers who in turn buy products from the Company. Accordingly, a significant portion of the Company's sales may depend directly or indirectly on the sales to a particular PC OEM. Since the Company cannot track sales by motherboard, add-in board or module manufacturer, the Company may not be fully informed as to the extent or even the fact of its indirect dependence on any particular PC OEM, and, therefore, may be unable to assess the risks of such indirect dependence. Issues Relating to Mass Storage Market The disk drive market has historically been characterized by a relatively small number of disk drive manufacturers and by periods of rapid growth followed by periods of oversupply and contraction. Growth in the mass storage market is directly affected by growth in the PC market. Furthermore, the price competitive nature of the disk drive industry continues to put pressure on the price of all disk drive components. Recent market demands for sub-$1,000 PC's puts further pressure on the price of disk drives and disk drive components. In addition, consolidation in the disk drive industry has reduced the number of customers for the Company's mass storage products and increased the risk of large fluctuations in demand. The Company believes that constraints in supply of certain read-head components to the disk drive industry limited sales of its mass storage products in the fourth quarter of fiscal 1997. In addition, the Company believes that excess inventories held by its customers limited sales of the Company's mass storage products in the second quarter of fiscal 1997 and limited sales of the Company's optical disk drive products in the third quarter of fiscal 1997. Revenues from mass storage products in fiscal 1999 are likely to depend heavily on the success of certain 3.5 inch disk drive products selected for use by various customers, which in turn depends upon obtaining timely customer qualification of the new products and bringing the products into volume production timely and cost effectively. The Company's revenues from mass storage products are dependent on the successful introduction by its customers of new disk drive products and can be impacted by the timing of customers' transition to new disk drive products. Recent efforts by certain of the Company's customers to develop their own ICs for mass storage products could in the future reduce demand for the Company's mass storage products, which could have an adverse effect on the Company's revenues and gross margins from such products. In addition, in response to the current market trend towards integrating hard disk controllers with microcontrollers, the Company's revenues and gross margins from its mass storage products will be dependent on the Company's ability to introduce such integrated products in a commercially competitive manner. During the last half of fiscal 1998, major companies in the disk drive industry, including certain of the Company's customers, have reported declines in business. In addition, the Company's mass storage products were not designed into a major customer's next generation product which is expected to run fiscal 1999. Consequently, these factors will have an adverse impact on the mass storage division's revenue through at least the first half of fiscal 1999. Issues Relating to Graphics Products In November 1997, the Company changed its direction in graphics from reliance on 2D and 3D stand alone products to a strategy of providing future integrated multimedia products. Concurrently, the Company realigned and reduced its graphics research and development and marketing activities toward this new product direction, resulting in a workforce reduction of approximately sixty-five employees. While the Company continues to sell its line of existing 2D and 3D graphics products, levels and duration of future revenues from these products is uncertain. Further, if the new integrated function products are not brought to market in a timely manner or do not address the market needs or costs of performance requirements, then the Company's market share and sales will be adversely affected. Issues Relating to Consumer Electronics Products Most of the Company's revenues in the consumer electronics arena are in the multimedia audio market derive from the sales of audio codecs and integrated 16-bit codec-plus-controller solutions for the PC market and consumer electronics equipment. In the PC market, pricing pressures have forced a transition from multi-chip solutions to products that integrate the codec, controller and synthesis functions into a single IC. The Company's revenues from the sale of PC audio products in fiscal 1999 are likely to be significantly affected by the introduction of cost reduced, fully-integrated, single-chip audio ICs. Moreover, aggressive competitive pricing pressures have adversely affected and may continue to adversely affect the Company's revenues and gross margins from the sale of audio ICs. In addition, the introduction of new audio products from the Company's competitors, the introduction of mediaprocessors and the introduction of MMX processors with multimedia features by Intel Corporation could adversely affect revenues and gross margins from the sale of the Company's audio products. Three-dimensional, spatial-effects audio became an important feature in fiscal 1998, primarily in products for the consumer electronics marketplace. If the Company's spatial-effects audio products do not meet the cost or performance requirements of the market, revenues from the sale of audio products could be adversely affected. Issues Relating to Communications Products The communications market for voice/data/fax modem chip sets is intensely competitive, and competitive pricing pressures have affected and are likely to continue to affect the average selling prices and gross margins of this product line. As a relatively new entrant to this market, the Company may be at a competitive disadvantage to suppliers who have long-term customer relationships, have greater market share or have greater financial resources. In addition, the introduction of new modem products from the Company's competitors, the introduction of media processors and the introduction of MMX processors with multimedia features by Intel Corporation could adversely affect revenues and gross margins from the sale of the Company's modem products. Issues Relating to Industrial Products Industrial Products is a very broad market with many well established competitors. The Company's ability to compete in this market will be adversely affected if it cannot establish broad sales channels or if it does not develop and maintain a broad enough product line to compete effectively. In addition, the customer product design in time is long. Customer delays in product development and introductions creates risk relative to the Company's revenue plans. Further, the Company's products in this market are technically very complex. The complexity of the products contributes to risks in getting products to market on a timely basis, which could impact the Company's revenue plans. The scarcity of analog engineering talent also contributes to risks related to product development timing in this market. Intellectual Property Matters The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. The Company and certain of its customers from time to time have been notified that they may be infringing certain patents and other intellectual property rights of others. In addition, customers have been named in suits alleging infringement of patents or other intellectual property rights by customer products. Certain components of these products have been purchased from the Company and may be subject to indemnification provisions made by the Company to its customers. Although licenses are generally offered in situations where the Company or its customers are named in suits alleging infringement of patents or other intellectual property rights, there can be no assurance that any licenses or other rights can be obtained on acceptable terms. An unfavorable outcome occurring in any such suit could have an adverse effect on the Company's future operations and/or liquidity. Foreign Operations and Markets Because many of the Company's subcontractors and several of the Company's key customers, such customers collectively accounting for a significant percentage of the Company's revenues, are located in Japan and other Asian countries, the Company's business is subject to risks associated with many factors beyond its control. International operations and sales may be subject to political and economic risks, including political instability, currency controls, exchange rate fluctuations, and changes in import/export regulations, tariff and freight rates. Although the Company buys hedging instruments to reduce its exposure to currency exchange rate fluctuations, the Company's competitive position can be affected by the exchange rate of the U.S. dollar against other currencies, particularly the Japanese yen. Further, to the extent that volatility in foreign financial markets was to have an adverse impact on economic conditions in a country or geographic region in which the Company does business, demand for and supply of the Company's products could be adversely impacted, which would have a negative impact on the Company's revenues and earnings. A significant number of the Company's customers and suppliers are in Asia. The recent turmoil in the Asian financial markets does not appear to have had a material impact on the Company's sales orders or bookings. However, the financial instability in these regions may have an adverse impact on the financial position of end users in the region which could impact future orders and/or the ability of such users to pay the Company or the Company's customers, which could also impact the ability of such customers to pay the Company. The Company performs extensive financial due diligence on customers and potential customers and generally required material sales to Asia to either be secured by letters of credit or transacted on a cash on demand basis. Given the current situation in Asia, the Company has begun to require the letters of credit to be established through American banking institutions. During this volatile period, the Company expects to carefully evaluate the collection risk related to the financial position of customers and potential customers. The results of such evaluations will be considered in structuring the terms of sale, in determining whether to accept sales orders, in evaluating the recognition of revenue on sales in the area and in evaluating the collectability of outstanding accounts receivable from the region. In situations where significant collection risk exists, the Company will either not accept the sales order, defer the recognition of related revenues, or, in the case of previously transacted sales, establish appropriate bad debt reserves. Despite these precautions, should the current volatility in Asia have a material adverse impact on the financial position on end users of the customers products in Asia, the Company could experience a material adverse impact on its results of operations. Competition The Company's business is intensely competitive and is characterized by new product cycles, price erosion, and rapid technological change. Competition typically occurs at the design stage, where the customer evaluates alternative design approaches that require integrated circuits. Because of shortened product life cycles and even shorter design-in cycles, the Company's competitors have increasingly frequent opportunities to achieve design wins in next generation systems. In the event that competitors succeed in supplanting the Company's products, the Company's market share may not be sustainable and net sales, gross margin, and results of operations would be adversely affected. Competitors include major domestic and international companies, many of which have substantially greater financial and other resources than the Company with which to pursue engineering, manufacturing, marketing and distribution of their products. Emerging companies are also increasing their participation in the market, as well as customers who develop their own integrated circuit products. Competitors include manufacturers of standard semiconductors, application-specific integrated circuits and fully customized integrated circuits, including both chip and board-level products. The ability of the Company to compete successfully in the rapidly evolving area of high-performance integrated circuit technology depends significantly on factors both within and outside of its control, including, but not limited to, success in designing, manufacturing and marketing new products, wafer supply, protection of Company products by effective utilization of intellectual property laws, product quality, reliability, ease of use, price, diversity of product line, efficiency of production, the pace at which customers incorporate the Company's integrated circuits into their products, success of the customers' products, and general economic conditions. Also the Company's future success depends, in part, upon the continued service of its key engineering, marketing, sales, manufacturing, support, and executive personnel, and on its ability to continue to attract, retain, and motivate qualified personnel. The competition for such employees is intense, and the loss of the services of one or more of these key personnel could adversely affect the Company. Because of these and other factors, past results may not be a useful predictor of future results. Impact of Year 2000 The "Year 2000 Issue" is the result of computer programs being written using two digits rather than four to define the applicable year. If the Company's computer programs with date-sensitive functions are not Year 2000 compliant, they may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company is currently in the process of modifying and/or replacing significant portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company presently believes that with modifications to testing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company will use both internal and external resources to reprogram or replace and test the software for Year 2000 modifications. In addition, the Year 2000 Issue creates risk for the Company from unforeseen problems from third parties with whom the Company deals on financial transactions. Such failures of the Company's third parties' computer systems could have a material impact on the Company's ability to conduct its business. The Company is also assessing the capability of its products sold to customers over a period of years to handle the Year 2000 Issue and has a plan in place to address product issues during fiscal 1999. Management believes that the likelihood of a material adverse impact due to problems with internal systems or products sold to customers is remote and expects that the cost of these projects over the next two years will not have a material effect on the Company's financial position or overall trends in results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands, except per share amounts)
Fiscal years ended --------------------------------- March 28, March 29, March 30, 1998 1997 1996 ---------- ----------- ---------- Net sales $954,270 $917,154 $1,146,945 Operating costs and expenses, gain on sale of assets and other, net Cost of sales 605,484 598,795 774,350 Research and development 179,552 230,786 238,791 Selling, general and administrative 117,273 126,722 165,267 Gain on sale of assets, net (20,781) (18,915) - Restructuring costs and other, net 14,464 20,954 11,566 Non-recurring costs - - 1,195 ---------- --------- --------- Total operating costs and expenses, gain on sale of assets and other, net 895,992 958,342 1,191,169 ---------- --------- --------- Income (loss) from operations 58,278 (41,188) (44,224) Interest expense (27,374) (19,754) (5,151) Interest income 19,893 8,053 7,759 Other income (expense), net 5,206 1,270 (107) ---------- --------- --------- Income (loss) before provision (benefit) for income taxes 56,003 (51,619) (41,723) ---------- --------- --------- Provision (benefit) for income taxes 19,510 (5,463) (5,540) ---------- --------- --------- Net income (loss) $36,493 ($46,156) ($36,183) ========== ========= ========= Net income (loss) per share: Basic $0.54 ($0.71) ($0.58) ========== ========= ========= Diluted $0.52 ($0.71) ($0.58) ========== ========= ========= Weighted average common shares outstanding: Basic 67,333 65,007 62,761 Diluted 69,548 65,007 62,761 See accompanying notes.
CONSOLIDATED BALANCE SHEETS (Thousands)
March 28, March 29, 1998 1997 ------------ ------------ Assets Current assets: Cash and cash equivalents $347,421 $151,540 Short-term investments 125,378 188,215 Accounts receivable, less allowance for doubtful accounts of $11,176 in 1998 and $12,770 in 1997 103,073 173,743 Inventories 103,703 127,252 Deferred tax assets 28,505 34,410 Equipment and leasehold improvement advances to joint ventures 97,711 112,597 Other current assets 10,402 7,245 ------------ ----------- Total current assets 816,193 795,002 Property and equipment, at cost: Machinery and equipment 249,649 252,643 Furniture and fixtures 15,075 15,767 Leasehold improvements 23,458 23,112 ------------ ----------- 288,182 291,522 Less accumulated depreciation and amortization (188,818) (160,667) ------------ ----------- Property and equipment, net 99,364 130,855 Manufacturing agreements, net of accumulated amortization of $19,409 in 1998 and $10,729 in 1997, and investment in joint ventures 166,953 151,675 Deposits and other assets 55,032 59,289 ------------ ----------- $1,137,542 $1,136,821 ============ =========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $110,761 $187,510 Accounts payable - joint venures 98,753 43,668 Accrued salaries and benefits 41,832 33,792 Current maturities of long-term debt and capital lease obligations 26,554 30,999 Income taxes payable 38,053 31,259 Other accrued liabilities 24,086 39,104 ------------ ----------- Total current liabilities 340,039 366,332 Capital lease obligations 5,475 9,848 Long-term debt 32,559 51,248 Other long-term 3,126 5,196 Convertible subordinated notes 300,000 300,000 Commitments and contingencies Shareholders' equity: Convertible preferred stock, no par value; 5,000 shares authorized, none issued - - Common stock, no par value, 140,000 shares authorized, 68,175 shares issued and outstanding in 1998 and 66,156 in 1997 366,914 351,261 Retained earnings 89,429 52,936 ------------ ----------- Total shareholders' equity 456,343 404,197 ------------ ----------- $1,137,542 $1,136,821 ============ =========== See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands)
Fiscal Years Ended -------------------------------- March 28, March 29, March 30, 1998 1997 1996 ---------- ---------- ---------- Cash flows from operating activities: Net income (loss) $36,493 ($46,156) ($36,183) Adjustments to reconcile net income (loss) to net cash provided by operating activites: Depreciation and amortization 71,869 87,960 64,301 Gain on sale of assets (11,082) (18,915) - Provision for loss on property and equipment 3,505 10,278 - Compensation related to the issuance of certain employee stock options 493 494 820 Changes in operating assets and liabilities: Accounts receivable 66,411 (42,438) 27,615 Inventories 21,574 2,367 (30,860) Funds received for joint venture equipment leased 14,886 (17,914) (94,683) Deferred tax and other current assets 2,566 14,659 (28,735) Accounts payable (21,034) 16,879 73,854 Accrued salaries and benefits 11,449 (7,858) 9,337 Income taxes payable 6,794 11,968 15,209 Other accrued liabilities (11,685) (8,752) 7,045 --------- --------- --------- Net cash provided by operations 192,239 2,572 7,720 --------- --------- --------- Cash flows from investing activities: Purchase of available for sale investments (370,794) (182,552) (175,139) Proceeds from available for sale investments 433,631 13,616 228,092 Purchase of held to maturity investments - - (10,444) Proceeds from held to maturity investments - - 57,144 Proceeds from sale of assets, net 16,142 56,526 - Proceeds from termination of UMC agreement 20,543 - - Manufacturing agreements and investment in joint venture (44,500) (54,000) (44,604) Additions to property and equipment (27,639) (30,722) (127,802) Increase in deposits and other assets (11,394) (23,903) (32,140) --------- --------- --------- Net cash provided by (used for) investing activities 15,989 (221,035) (104,893) --------- --------- --------- Cash flows from financing activities: Proceeds from issuance of convertible notes - 290,640 - Borrowings on long-term debt 5,980 10,009 74,973 Payments on long-term debt (21,124) (21,154) (10,798) Payments on capital lease obligations (12,363) (5,720) (4,051) Borrowings on short-term debt - 172,000 121,000 Payments on short-term debt - (252,000) (41,000) Proceeds from sale and leaseback of property and equipme - - 13,067 Increase in other long-term liabilities - 565 4,898 Issuance of common stock, net of issuance costs and repurchases 15,160 19,684 28,345 --------- --------- --------- Net cash (used for) provided by financing activies (12,347) 214,024 186,434 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 195,881 (4,439) 89,261 Cash and cash equivalents at beginning of year 151,540 155,979 66,718 --------- --------- --------- Cash and cash equivalents at end of year $347,421 $151,540 $155,979 ========= ========= ========= Non-cash investing and financing activities: Equipment purchased under capital leases $ - $10,556 $594 Tax benefit of stock options exercises - 1,509 16,668 Cash payments (refunds) for: Interest $26,878 $8,381 $4,358 Income taxes 7,022 (25,625) 17,612 See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Three Years Ended March 28, 1998 (Thousands)
Common Stock --------------------- Retained Shares Amount Earnings Total ---------- ---------- ---------- ---------- Balance, April 1, 1995 60,594 $283,741 $135,275 $419,016 Issuance of stock under stock plans and other, net of repurchases 3,357 28,345 - 28,345 Compensation related to the issuance of certain employee options - 820 - 820 Net loss - - (36,183) (36,183) Tax benefit of stock option exercises - 16,668 - 16,668 --------- --------- --------- --------- Balance, March 30, 1996 63,951 329,574 99,092 428,666 Issuance of stock under stock plans and other, net of repurchases 2,205 19,684 - 19,684 Compensation related to the issuance of certain employee options - 494 - 494 Net loss - - (46,156) (46,156) Tax benefit of stock option exercises - 1,509 - 1,509 --------- --------- --------- --------- Balance, March 29, 1997 66,156 351,261 52,936 404,197 Issuance of stock under stock plans and other, net of repurchases 2,019 15,160 - 15,160 Compensation related to the issuance of certain employee options - 493 - 493 Net income - - 36,493 36,493 --------- --------- --------- --------- Balance, March 28, 1998 68,175 $366,914 $89,429 $456,343 ========= ========= ========= ========= See accompanying notes.
CIRRUS LOGIC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business and Major Customer Information Cirrus Logic, Inc. (the "Company") is a premier supplier of advanced integrated circuits that integrate algorithms and mixed-signal processing for mass storage, communications, consumer electronics and industrial markets. The Company's application-specific algorithms, systems expertise and precision analog techniques add high value to major brands worldwide in magnetic and optical storage; networking communications; consumer/professional audio; video and imaging; and ultra-precision data acquisition. In fiscal 1998, two customers comprised approximately 19% and 11% of net sales. In fiscal 1997, one other customer accounted for 10% of net sales, while in fiscal 1996, no customer accounted for 10% or more of net sales. Export sales include sales to overseas operations of domestic corporations and represented 53%, 62% and 56% of net sales in fiscal 1998, 1997 and 1996, respectively. Export sales to the Pacific Rim (excluding Japan) were 31%, 32% and 34% of net sales; to Japan were 15%, 22% and 17% of net sales and to Europe and the rest of the world were 7%, 7% and 6% of net sales, in fiscal 1998, 1997 and 1996, respectively. There are no restrictions on the transfer of funds in international markets in which the Company does business. Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. Accounts denominated in foreign currencies have been remeasured in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation," using the U.S. dollar as the functional currency. Translation adjustments relating to Cirrus Logic K.K., whose functional currency is the Japanese yen, have not been material. Cash Equivalents and Short-term Investments Cash equivalents consist primarily of over-night deposits, commercial paper, U.S. Government Treasury and Agency instruments, and money market funds with original maturities of three months or less at date of purchase. Short-term debt investments have original maturities greater than three months and consist of U.S. Government Treasury and Agency instruments, municipal bonds, certificates of deposit and commercial paper. Short-term Investments: Held-to-Maturity and Available-for-Sale Management determines the appropriate classification of certain debt and equity securities at the time of purchase as either held-to- maturity, trading or available-for-sale and reevaluates such designation as of each balance sheet date. Held-to-maturity debt securities are stated at cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, as well as any interest on the securities, is included in interest income. Held-to-maturity securities include only those securities the Company has the positive intent and ability to hold to maturity. Securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity, if material. Realized gains and losses, declines in value judged to be other than temporary, and interest on available-for-sale securities are included in interest income. Foreign Exchange Contracts The Company may enter into foreign currency forward exchange and option contracts to hedge certain of its foreign currency transaction, translation and remeasurement exposures. The Company's accounting policies for some of these instruments are based on the Company's designation of such instruments as hedging transactions. Instruments not designated as a hedge transaction will be "marked to market" at the end of each accounting period. The criteria the Company uses for designating an instrument as a hedge include effectiveness in exposure reduction and one-to-one matching of the derivative financial instrument to the underlying transaction being hedged. Gains and losses on foreign currency exchange and option contracts that are designated and effective as hedges of existing transactions are recognized in income in the same period as losses and gains on the underlying transactions are recognized and generally offset. Gains and losses on currency option contracts that are designated and effective as hedges of transactions, for which a firm commitment has been attained, are deferred and recognized in income in the same period that the underlying transactions are settled and were not material as of March 28, 1998. During fiscal 1998, 1997 and 1996, the Company purchased foreign currency option contracts to hedge certain yen denominated net balance sheet accounts and sales. As of March 28, 1998 and March 29, 1997, the Company had foreign currency forward and/or option contracts outstanding denominated in Japanese yen for approximately $15,602,000 and $74,460,000, respectively. The fiscal 1998 contracts expire on various dates in the first quarter of fiscal 1999. The fiscal 1997 contracts expired through June 27, 1997. While the contract amounts provide one measure of the volume of the transactions outstanding at March 28, 1998 and March 29, 1997, they do not represent the amount of the Company's exposure to credit risk. The Company's exposure to credit risk (arising from the possible inability of the counterparties to meet the terms of their contracts) is generally limited to the amount, if any, by which the counterparty's obligations exceed the obligations of the Company. Transaction gains and losses were not material in fiscal 1998, 1997 and 1996. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and trade accounts receivable. The Company is exposed to credit risk to the extent of the amounts recorded on the balance sheet. By policy, the Company places its cash equivalents and short term investments only with high credit quality financial institutions and, other than U.S. Government Treasury instruments, limits the amounts invested in any one institution or in any type of instrument. The Company performs ongoing credit evaluations of its customers' financial condition, limits its exposure to accounting losses by limiting the amount of credit extended whenever deemed necessary, utilizes letters of credit where appropriate and generally does not require collateral. The Company expects to sell a significant amount of products in the Pacific Rim and Japan. The Company's exposure to risk with Asian customers has been largely mitigated through the use of these letters of credit. Inventories The Company applies the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market principle to value its inventories. One of the factors the Company consistently evaluates in application of this principle is the extent to which products are accepted into the marketplace. By policy, the Company evaluates market acceptance based on known business factors and conditions by comparing forecasted customer unit demand for the Company's products over a specific future period or demand horizon to quantities on hand at the end of each accounting period. On a quarterly and annual basis, inventories are analyzed on a part-by- part basis. Inventory quantities on hand in excess of forecasted demand, as adjusted by management, are considered to have reduced market value and, therefore, the cost basis is adjusted from standard cost to the lower of cost or market. Typically, market value for excess or obsolete inventories is considered to be zero. The short product life cycles and the competitive nature of the industry are factors considered in the estimation of customer unit demand at the end of each quarterly accounting period. Inventories are comprised of the following (in thousands): March 28, March 29, 1998 1997 --------- --------- Work-in-process $ 66,558 $ 79,276 Finished goods 37,145 47,976 --------- --------- $ 103,703 $ 127,252 ========= ========= Property and Equipment Property and equipment is recorded at cost. Depreciation and amortization is provided on a straight-line basis over estimated useful lives ranging from three to five years, or over the life of the lease for equipment under capitalized leases, if shorter. Leasehold improvements are amortized over the term of the lease or their estimated useful life, whichever is shorter. Depreciation expense for fiscal years 1998, 1997 and 1996 was $48,328,000, $57,726,000 and $46,243,000, respectively. Wafer Purchase Commitments The Company has firm commitments to purchase wafers from joint venture partnerships in which it is a minority owner (MiCRUS and Cirent Semiconductor) and from other third party suppliers. The Company estimates its wafer needs on an ongoing basis and in certain cases may reduce its wafer purchase commitments by selling its committed portion of the joint ventures' wafer capacity to others or allowing third parties to utilize the Company's available wafer starts under its wafer purchase commitments. The Company's ability to adjust short-term production mix and volume throughput in its joint ventures and at its third party suppliers is limited by contract, and changes within six months of manufacturing start dates are difficult to make given order lead times, set-up times, design cycle times, manufacturing cycle times, and customer and foundry qualification times. If the Company's firm wafer purchase commitments exceed its wafer needs and it is unable to sell the excess to others, losses on firm wafer purchase commitments in excess of estimated wafer needs over the short-term (six months) are accrued to the extent they would result in inventory losses were the company to fulfill the commitment and take delivery of the inventory. During fiscal 1998, 1997 and 1996, the Company accrued and expensed estimated losses under wafer purchase commitments of $53.0 million, $30.5 million and $14.0 million, respectively. As of March 28, 1998 and March 29, 1997, the company had accruals for charges incurred and estimated losses under wafer purchase commitments of $63.8 million and $30.2 million, respectively. The amount of this accrual is an estimate and the liability for losses under wafer purchase commitments is ultimately subject to actual shortfalls in purchase commitments in future quarters. Revenue Recognition Revenue from product sales direct to customers is recognized upon shipment. Certain of the Company's sales are made to distributors under agreements allowing certain rights of return and price protection on products unsold by distributors. Accordingly, the Company defers revenue and gross profit on such sales until the product is sold by the distributors. Revenues in fiscal 1998 includes $60.0 million from two patent cross- license agreements under which the Company has no ongoing obligations. These revenues were recognized upon the execution of the agreements. Non-recurring and Merger Costs In fiscal 1996, non-recurring costs were approximately $1.2 million associated with the formation of the Cirent Semiconductor joint venture with Lucent Technologies. Advertising Expense The cost of advertising is expensed as incurred. Advertising costs were $4.9 million in fiscal 1998 and were not significant in fiscal 1997 and 1996. Other Income (Expense), net In fiscal 1998, other income (expense), net, includes gains on the disposal of certain investments in common stock and foreign currency transaction gains, which were somewhat offset by certain legal settlements. In fiscal 1997, other income (expense), net, primarily relates to foreign currency transaction gains. Stock-based Compensation The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, no compensation cost has been recognized for its fixed cost stock option plans or its associated stock purchase plan when the exercise price is equal to the fair value on the date of grant. The Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation." See Note 13. Net Income Per Share In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the previously reported primary and fully diluted net income (loss) per share with basic and diluted net income (loss) per share. Unlike primary net income (loss) per share, basic net income (loss) per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted net income (loss) per share is very similar to the previously reported fully diluted net income (loss) per share. All net income (loss) per share amounts for all periods have been restated to conform to the Statement 128 requirement. The following table sets forth the computation of basic and diluted net income (loss) per share (In thousands, except per share amounts):
March 28, March 29, March 30, 1998 1997 1996 --------- --------- --------- Numerator: Net income (loss) $36,493 ($46,156) ($36,183) ========= ========= ========= Denominator: Denominator for basic net income (loss) per share - weighted- average shares 67,333 65,007 62,761 Dilutive common stock equivalents, using treasury stock method 2,215 - - --------- --------- --------- Denominator for diluted net income (loss) per share 69,548 $65,007 $62,761 ========= ========= ========= Basic net income (loss) per share $0.54 ($0.71) ($0.58) ========= ========= ========= Diluted net income (loss) per share $0.52 ($0.71) ($0.58) ========= ========= =========
Options to purchase 1,546,000 shares of common stock were outstanding as of March 28, 1998 but were not included in the computation of diluted earnings per share, as the effect would be antidilutive. As of March 28, 1998, the Company had outstanding convertible notes to purchase 12,387,000 shares of common stock that were not included in the computation of diluted net income (loss) per share because the effect would be antidilutive. RECLASSIFICATIONS Certain reclassifications have been made to the 1997 financial statements to conform to the 1998 presentation. Such reclassifications had no effect on the results of operations or shareholders' equity. 2. GAIN ON SALE OF ASSETS During the second quarter of fiscal 1997, the Company completed the sale of the PicoPower product line to National Semiconductor Corporation. The Company received approximately $17.6 million in cash for the PicoPower product line. In connection with the transaction, the Company recorded a gain of approximately $6.9 million. During the third quarter of fiscal 1997, the Company completed the sale to ADC Telecommunications, Inc. of the PCSI's Infrastructure Product Group. The Company received approximately $20.8 million in cash for the group. In connection with the transaction, the Company recorded a gain of approximately $12.0 million. During the fourth quarter of fiscal 1997, the Company completed its divestiture of PCSI by selling the assets of PCSI's Wireless Semiconductor Products to Rockwell International for $18.1 million in cash and made the decision to shut down PCSI's Subscriber Product Group. In connection with the sale of the Wireless Semiconductor Product Group and the shut-down of the Subscriber Group, the Company recorded a net gain of $0.3 million in the fourth quarter. The shut- down of the Subscriber Group resulted in severance costs of $2.2 million, the write-off of excess assets (primarily computer and related equipment) of $1.1 million, accruals for excess facilities of $0.9 million and an estimated net cost to settle contracted and other obligations of $3.2 million. In December 1997, the Company sold its Nuera Communications, Inc. subsidiary for cash proceeds of approximately $21.5 million ($16.1 million net of $5.4 million of Nuera's own cash) and recorded a gain of approximately $11.1 million in the third quarter of fiscal 1998. Gain on sale of assets also includes the reversal of $9.7 million that had previously been accrued for losses on facilities commitments in connection with the sale and shut down of the operating divisions of PCSI in the fourth quarter of fiscal 1997. Pending the resolution of certain matters, the Company may record up to an additional gain on sale of $6.8 million in connection with these transactions. 3. FINANCIAL INSTRUMENTS Fair Values of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash: The carrying amount reported in the balance sheet for cash approximates its fair value. Investment securities: The fair values for marketable debt securities are based on quoted market prices. Foreign currency exchange and option contracts: The fair values of the Company's foreign currency exchange forward and option contracts are estimated based on quoted market prices of comparable contracts, adjusted through interpolation where necessary for maturity differences. Long-term debt: The fair value of long-term debt is estimated based on current interest rates available to the Company for debt instruments with similar terms and remaining maturities. The carrying amounts and fair values of the Company's financial instruments at March 28, 1998 are as follows (in thousands): Carrying Amount Fair Value --------------- ---------- Cash $ 206,520 $ 206,520 Investment securities: U.S. Government Treasury instruments 220,357 219,782 U.S. Government Agency instruments 14,904 14,904 Commercial paper 25,953 25,953 Other investments 5,065 5,065 Foreign currency forward exhange and option contracts - 15,528 Long-term debt (354,871) (286,231) The carrying amounts and fair values of the Company's financial instruments at March 29, 1997 are as follows (in thousands): Carrying Amount Fair Value --------------- ---------- Cash $ 148,509 $ 148,509 Investment securities: U.S. Government Treasury instruments 179,395 180,183 U.S. Government Agency instruments 11,111 11,184 Other investments 740 740 Foreign currency forward exhange and option contracts - 74,316 Long-term debt (376,892) (307,655) Investments At March 28, 1998, all available-for-sale securities have contracted maturities of less than one year. Gross realized and unrealized gains and losses on all classes of securities were immaterial at and for the periods ended March 28, 1998, March 29, 1997, and March 30, 1996. The following is a reconciliation of the investment categories to the balance sheet classification at March 28, 1998 (in thousands): Cash and Cash Short-term Equivalents Investments Total ----------- ----------- --------- Cash $206,520 $ - $ 206,520 Available-for-sale securities 140,901 125,378 266,279 ----------- ----------- --------- Total $ 347,421 $ 125,378 $ 472,799 =========== =========== ========= The following is a reconciliation of the investment categories to the balance sheet classification at March 29, 1997 (in thousands): Cash and Cash Short-term Equivalents Investments Total ----------- ----------- --------- Cash $ 148,509 $ - $ 148,509 Available-for-sale securities 3,031 188,215 191,246 ----------- ----------- --------- Total $ 151,540 $ 188,215 $ 339,755 =========== =========== ========= 4. USE OF ESTIMATES AND CONCENTRATIONS OF OTHER RISKS The Company's financial statements are prepared in accordance with generally accepted accounting principles that require the use of management estimates. These estimates are impacted, in part, by the following risks and uncertainties: Inventories. The Company produces inventory based on orders received and forecasted demand. The Company must order wafers and build inventory well in advance of product shipments. Because the Company's markets are volatile and subject to rapid technology and price changes, there is a risk that the Company will forecast incorrectly and produce excess or insufficient inventories of particular products. This inventory risk is heightened because many of the Company's customers place orders with short lead times. Demand will differ from forecasts and such difference may have a material effect on actual results of operations. Wafer Purchase Commitments. The Company has firm commitments to purchase wafers from its joint venture partnerships and other suppliers and will accrue losses to the extent firm wafer purchase commitments exceed its estimated wafer needs for the next six months. The Company continuously forecasts its estimated wafer needs. However, there is a risk that the Company's ultimate wafer purchases will differ from its forecasted wafer needs. Accordingly, the amount of the accrual may differ from the actual liability for losses under the wafer purchase commitments and such differences may have a material effect on actual results of operations. 5. JOINT VENTURES AND MANUFACTURING SUPPLY AGREEMENTS In 1994, the Company and IBM formed MiCRUS, a manufacturing joint venture that produces wafers for both companies. MiCRUS began operations in 1995. In addition, in July 1996, the Company and Lucent Technologies (Lucent) formed Cirent Semiconductor (Cirent), a manufacturing joint venture that produces wafers for both companies. Cirent began operations in the fourth quarter of fiscal 1997. MiCRUS IBM and Cirrus Logic own 52% and 48%, respectively, of MiCRUS, which produces wafers using IBM's wafer processing technology and makes process technology payments to IBM, which totaled $63.5 million as of March 28, 1998. MiCRUS leases an existing IBM facility in East Fishkill, New York. Activities of the joint venture are focused on the manufacture of semiconductor wafers, and do not encompass direct product licensing or product exchanges between the Company and IBM. The joint venture has a remaining term of six years. MiCRUS is managed by a six-member governing board of whom three are appointed by IBM, two are appointed by Cirrus Logic and one is the chief executive officer of MiCRUS. The Company is currently entitled to 55% of the MiCRUS output. If either company does not purchase its full entitlement of the wafers, that company will be liable to the joint venture for costs associated with the underutilized capacity that results from the company's shortfall in wafer purchases, unless the shortfall is purchased by the other company or, under limited circumstances, offered to third parties. In connection with the formation and expansion of the MiCRUS joint venture, the Company has incurred obligations to make equity contributions to MiCRUS, to make payments to MiCRUS under a manufacturing agreement and to guarantee equipment lease obligations incurred by MiCRUS. To date, the Company has made equity investments totaling $23.8 million. No additional equity investments are scheduled. However, the expansion of the MiCRUS production could require additional equity contributions by the Company. Payments under the manufacturing agreement as of March 28, 1998 have totaled $63.5 million and the final $7.5 million is due in fiscal 1999. The manufacturing agreement payments are being charged to the Company's cost of sales over the life of the venture based upon the ratio of current units of production to current and anticipated future units of production over the remaining life of the venture. Cirent Semiconductor Cirent operates two wafer fabs in Orlando, Florida in a facility that is leased from Lucent. Cirent uses Lucent's wafer processing technology and makes process technology payments to Lucent, which totaled $85.0 million as of March 28, 1998. Cirent is owned 60% by Lucent and 40% by Cirrus Logic and is managed by a Board of Governors, of whom three are appointed by Lucent and two are appointed by Cirrus Logic. The joint venture has a term of ten years. Initially, Lucent and the Company were each entitled to purchase one- half of the output of the second fab. During the second quarter of fiscal 1998, the Company amended its existing joint venture formation agreement and reduced its entitlement to 25% of the output of the second fab. If either company does not purchase its full entitlement of the wafers, that company will be liable to the joint venture for costs associated with the underutilized capacity that results from the company's shortfall in wafer purchases, unless the shortfall is purchased by the other company or, under limited circumstances, offered to third parties. In connection with the Cirent joint venture, the Company has committed to make equity contributions to Cirent, make payments to Cirent under a manufacturing agreement and to guarantee and/or become a co-lessee under equipment lease obligations incurred by Cirent. To date, the Company has made equity investments totaling $14.0 million. No additional equity investments are scheduled. Payments under the manufacturing agreement as of March 28, 1998 have totaled $85.0 million. These payments are being charged to the Company's cost of sales over the life of the venture based upon the ratio of current units of production to current and anticipated future units of production over the remaining life of the agreement. The Company purchased from its joint ventures manufactured wafers in the following amounts for fiscal 1998, 1997 and 1996 (in thousands): 1998 1997 1996 ----------- ----------- ---------- Joint venture wafer purchases MiCRUS $157,300 $154,100 $77,100 Cirent 32,700 - - ----------- ----------- ---------- Total $190,000 $154,100 $77,100 =========== =========== ========== The Company's accounts payable balances related to wafers purchased from its joint ventures and for losses under wafer purchase agreements are as follows (in thousands): March 28, March 29, 1998 1997 ----------- ----------- Joint venture accounts payable MiCRUS $33,200 $13,500 Cirent 1,800 - Wafer purchase commitments 63,800 30,200 ----------- ----------- Total $98,800 $43,700 =========== =========== The Company guarantees jointly and severally with IBM and Lucent equipment financings of the joint ventures in the following amounts as of March 28, 1998 (in thousands): March 28, 1998 Maturity ----------- ------------------- Joint venture accounts payable MiCRUS 291,500 1998 through 2002 Cirent 250,800 1998 through 2004 ----------- ------------------- Total $542,300 =========== The Company purchased the following amount of manufacturing equipment and facility improvements for its joint ventures that the Company expects to sell to independent leasing companies that will in turn lease the equipment and improvements to the respective joint ventures (in thousands): March 28, March 29, 1998 1997 ----------- ---------- Equipment purchases for joint ventures MiCRUS $68,600 $65,900 Cirent 29,100 46,700 ----------- ---------- Total $97,700 $112,600 =========== ========== Condensed combined financial information for MiCRUS and Cirent is as follows (in thousands): December 31, 1997 1996 --------- --------- Current assets $190,000 $160,000 Non-current assets 233,000 150,000 --------- --------- Total $423,000 $310,000 ========= ========= Current liabilities $134,000 $175,000 Non-current liabilities 211,000 81,000 Partner's capital 78,000 54,000 --------- --------- Total $423,000 $310,000 ========= ========= Year Ended December 31, 1997 1996 1995 --------- --------- --------- Revenue $365,000 $250,000 $139,000 Expenses (449,000) (310,000) (171,000) --------- --------- --------- Net loss ($84,000) ($60,000) ($32,000) ========= ========= ========= The Company accounts for the joint ventures under the equity method. Under the terms of the joint venture agreements, the other joint venture partners were responsible for the start-up costs of the joint ventures. IBM funded MiCRUS through the year ended December 31, 1995, while Cirent was funded by Lucent through the year ended December 31, 1997. Accordingly, the Company's equity in the earnings of the joint ventures were not material in 1998, 1997 and 1996. In addition, the Company's total amortization of the joint venture manufacturing payments was $8,680,000, $6,789,000 and $3,407,000 for fiscal years 1998, 1997 and 1996, respectively. Other Wafer Supply Arrangements Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC"). In fiscal 1996, the Company entered into a volume purchase agreement amended with TSMC, which was amended in September 1997 and expires in December 2000. Under the agreement, the Company will purchase from TSMC 50% of its wafer needs that are not filled by MiCRUS and Cirent, provided that TSMC can meet the technological and other requirements of the Company's customers. TSMC is committed to supply these wafer needs. The amendment removed the requirements contained in the original agreement that the Company purchase a fixed minimum number of wafers each year and that the Company make sizable advance payments. United Microelectronics Corporation ("UMC"). In July of 1997, the Company terminated the joint venture and foundry capacity agreement it had entered into with UMC, a Taiwanese Company, in the fall of 1995 and recovered the cumulative costs of its investment in the venture. 6. OBLIGATIONS UNDER CAPITAL LEASES The Company has capital lease agreements for machinery and equipment as follows (in thousands): March 28, March 29, 1998 1997 ---------- ---------- Capitalized cost $ 31,173 $ 30,594 Accumulated amortization (21,419) (15,957) ---------- ---------- Total $ 9,754 $ 14,637 ========== ========== Amortization expense on assets capitalized under capital lease obligations is included in depreciation and amortization. The lease agreements are secured by the leased property. Future minimum lease payments under capital leases for the following fiscal years, together with the present value of the net minimum lease payments as of March 28, 1998, are (in thousands): 1999 $ 4,933 2000 3,228 2001 2,549 2002 736 2003 - --------- Total minimum lease payments 11,446 Less amount representing interest ( 1,729) --------- Present value of net lease payments 9,717 Less current maturities ( 4,242) --------- Capital lease obligations $ 5,475 ========= 7. LONG-TERM DEBT Long-term debt consists of the following (in thousands): March 28, March 29, 1998 1997 ---------- ---------- Installment notes with interest rates ranging from 6.38% to 9.08% $ 54,871 $ 76,892 Less current maturities (22,312) (25,644) --------- ---------- Long-term debt $ 32,559 $ 51,248 ========= ========== Principal payments for the following fiscal years are (in thousands): 1999 $ 22,312 2000 19,345 2001 9,518 2002 3,357 2003 339 -------- Total $ 54,871 ======== At March 28, 1998, installment notes are secured by machinery and equipment with a net book value of $47,058,000 ($67,947,000 at March 29,1997). 8. CONVERTIBLE SUBORDINATED NOTES During December 1996, the Company completed an offering of $300.0 million of convertible subordinated notes. The notes bear interest at six percent, mature in December 2003, and are convertible into shares of the Company's common stock at $24.219 per share. Expenses associated with the offering of approximately $9.4 million are deferred and included in deposits and other assets. Such expenses are being amortized to interest expense over the term of the notes. 9. BANK ARRANGEMENTS The Company has a bank line of credit to provide for letters of credit for up to a maximum aggregate of $35.0 million, which expires on June 30, 1998 and are collateralized by cash or securities with interest at the higher of: (a).50% per annum above the latest federal funds rate (as defined in the Second Amended Credit Agreement ); or (b)the rate of interest in effect for such day as publicly announced from time to time by the Bank of America National Trust and Savings Association in San Francisco, California. The Company is currently in compliance with all covenants under the bank line of credit. As of March 28, 1998, the Company had approximately $30.8 million outstanding of letters of credit and an additional $4.2 million available under this line of credit. 10. COMMITMENTS Facilities and Equipment Under Operating Lease Agreements The Company leases its facilities and certain equipment under operating lease agreements, some of which have renewal options. Certain of these arrangements provide for lease payment increases based upon future fair market rates. The aggregate minimum future rental commitments under all operating leases for the following fiscal years are (in thousands): Net Facilities Subleases Commitments ---------- ----------- ----------- 1999 $10,324 $2,204 $8,120 2000 9,969 2,000 7,969 2001 9,067 2,080 6,987 2002 8,183 2,163 6,020 2003 7,648 2,249 5,399 Thereafter 23,197 10,085 13,112 ---------- ----------- ----------- Total minimum lease payments $68,388 $20,781 $47,607 ========== =========== =========== Total rent expense was approximately $11,061,000, $12,580,000 and $11,177,000 for fiscal 1998, 1997 and 1996, respectively. Rental income was $1,116,000 for fiscal 1998 and immaterial for fiscal 1997 and 1996. 11. RESTRUCTURING CHARGES The Company recorded restructuring costs of $11.8 million in the third quarter of fiscal 1998 in connection with a discontinuation of certain strategies and product development efforts in the graphics product group of its PC Products division. This resulted in a workforce reduction of approximately 65 positions. The primary components of the restructuring charge were $3.5 million related to excess assets and $4.9 million related to excess facilities and $1.8 million of severance payments that were made during the quarter. The total expected cash outlay related to this charge is approximately $8.3 million, of which $2.6 million is expected to be paid in fiscal 1999. The following sets forth the remaining balance of the Company's fiscal 1998 restructuring accrual as of March 28, 1998 (in thousands): Severance Facilities and related scale back and benefits other costs Total ------------- --------------- ------------ Fiscal 1998 provision $1,833 $9,976 $11,809 Amount utilized (1,833) (1,553) ($3,386) ------------- --------------- ------------ Balance, March 28, 1998 $ - $8,423 $8,423 ============= =============== ============ In the fourth quarter of fiscal 1997, the Company recorded a pre-tax restructuring charge of $21.0 million in connection with a decision to reorganize into four market focused divisions (Personal Computer Products, Communications Products, Mass Storage Products and Crystal Semiconductor Products), to outsource certain of its production testing and to consolidate certain corporate functions. In connection with these actions, the Company had effected a workforce reduction of approximately 400 people, representing approximately 15 percent of the worldwide staff, and consolidated certain corporate functions. Approximately $5.1 million of the restructuring charge was attributable to the workforce reduction. The remaining $15.9 million relates primarily to the write-off of excess assets (primarily excess test equipment and leasehold improvements totaling approximately $9.5 million) and facilities commitments (approximately $3.0 million), which were determined using an expected future cash flows basis for determining the impairment of the asset values and the amount of the facilities accrual. In fiscal 1998, the Company reversed $2.0 million that had been previously accrued for excess facilities commitments and incurred and paid an additional $4.7 million of compensation costs in connection with the same restructuring. Cash payments of approximately $9.1 million, including the additional $4.7 million, were made in fiscal 1998. As of March 28, 1998, activities related to this restructuring were substantially complete. The following sets forth the remaining balance of the Company's fiscal 1997 restructuring accrual as of March 28, 1998 (in thousands): Severance Facilities and related scale back and benefits other costs Total ------------- --------------- ------------ Balance, March 29, 1997 $5,100 $15,854 $20,954 Amount utilized (5,063) (12,843) (17,906) Adjustments - (2,000) (2,000) ------------- --------------- ------------ Balance, March 28, 1998 $ 37 $1,011 $1,048 ============= =============== ============ In the fourth quarter of fiscal 1996, as a result of decreased demand for the Company's products for use in personal computers, which accounted for more than 80% of the Company's revenue, management reviewed the various operating areas of the business and took certain steps to bring operating expenses and capacity in line with demand. These actions resulted in a pre-tax restructuring charge of approximately $11.6 million. The principal actions in the restructuring involved the consolidation of support infrastructure and the withdrawal from an unprofitable product line and reduction of planned production capacity. This resulted in the termination of approximately 320 positions from the manufacturing, research and development, sales and marketing, and administrative departments. As of March 28, 1998, activities related to this restructuring were substantially complete. The following sets forth the remaining balance of the Company's fiscal 1996 restructuring accrual as of March 28, 1998 (in thousands): Severance Capacity and related scale back and benefits other costs Total ------------- --------------- ------------ March 30, 1996 $7,536 $4,030 $11,566 Amount utilized (6,904) (1,691) (8,595) ------------- --------------- ------------ March 29, 1997 632 2,339 2,971 Amount utilized (632) (1,453) (2,085) ------------- --------------- ------------ March 28, 1998 $- $886 $886 ============= =============== ============ 12. EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have adopted 401(k) Profit Sharing Plans (the "Plans") covering substantially all of their qualifying domestic employees. Under the Plans, employees may elect to reduce their current compensation by up to 15%, subject to annual limitations, and have the amount of such reduction contributed to the Plans. The Plans permit, but do not require, additional discretionary contributions by the Company on behalf of all participants. During fiscal 1998, 1997 and 1996, the Company and its subsidiaries matched employee contributions up to various maximums per plan for a total of approximately $1,007,000, $2,046,000 and $2,111,000, respectively. The Company intends to continue the contributions in fiscal 1999. 13. SHAREHOLDERS' EQUITY Employee Stock Purchase Plan In March 1989, the Company adopted the 1989 Employee Stock Purchase Plan (ESPP). As of March 28, 1998, approximately 969,660 shares of Common Stock are reserved for future issuance under this plan. During fiscal 1998, 1997 and 1996, 640,501, 618,169 and 593,820 shares, respectively, were issued under the ESPP. Preferred Stock The Preferred Stock is authorized but unissued. The Board of Directors has the authority to issue the undesignated Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued shares of Preferred Stock and to fix the number of shares constituting any series and the designations of such series, without any further vote or action by the shareholders. Stock Option Plans The Company has various stock option plans (the "Option Plans") under which officers, key employees, non-employee directors and consultants may be granted qualified and non-qualified options to purchase shares of the Company's authorized but unissued Common Stock. Options are generally priced at the fair market value of the stock on the date of grant. Options are either exercisable upon vesting or exercisable immediately but unvested shares are held in escrow and are subject to repurchase at the original issuance price. Options currently expire no later than ten years from date of grant. In previous years, the Company also has issued non-qualified stock options to purchase a total of 664,156 shares at prices ranging from $0.06 to $6.50 per share, subject to a vesting schedule of three and one-half or four years and 23,000 shares as stock grants to employees at no cost which vest over five years. During fiscal 1998, 9,200 shares of the stock grants were cancelled and retired. The Company recognizes as compensation expense the excess of the fair market value at the date of grant over the exercise price of such options and grants. The compensation expense is amortized ratably over the vesting period of the options and was $493,000, $494,000 and $820,000 in fiscal 1998, 1997 and 1996, respectively. Information relative to stock option activity is as follows (in thousands): Options Weighted Available Average for Number of Aggregate Exercise Grant Shares Price Price --------- ------- ---------- -------- Balance, April 1, 1995 1,486 13,388 $ 141,794 $ 10.59 Shares authorized for issuance 1,880 - - - Options granted (3,086) 3,086 108,828 35.27 Options exercised - (2,704) (20,399) 7.54 Options cancelled 529 (575) (9,900) 17.22 --------- ------- ---------- -------- Balance, March 30, 1996 809 13,195 220,323 16.70 Shares authorized for issuance 3,500 - - - Options granted (3,421) 3,421 67,089 19.61 Options exercised - (1,569) (12,418) 7.91 Options cancelled 2,465 (2,509) (55,648) 22.18 --------- ------- ---------- -------- Balance, March 29, 1997 3,353 12,538 219,346 17.49 Shares authorized for issuance 1,000 - - - Options granted (10,304) 10,304 104,030 10.10 Options exercised - (1,387) (10,219) 7.37 Options cancelled 11,191 (11,191) (210,969) 18.85 Options expired (2,542) - - - --------- ------- ---------- -------- Balance, March 28, 1998 2,698 10,264 $ 102,188 $ 9.96 ========= ======= ========== ======== As of March 28, 1998, approximately 12,962,299 shares of Common Stock were reserved for issuance under the Option Plans. The following table summarizes information concerning currently outstanding and exercisable options: Options Outstanding Options Exercisable ------------------------------------ ----------------------- Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price - --------------- ----------- ----------- -------- ----------- -------- $0.06-$9.13 1,700,023 4.06 $7.37 1,692,955 $7.40 $9.13-$9.25 5,524,004 9.09 $9.19 19,769 $9.19 $9.25-$15.50 2,739,835 8.97 $12.09 300,639 $12.63 $15.50-$54.63 300,150 8.39 $19.29 38,981 $28.10 ---------------------------------------- --------------------- 10,264,012 8.20 $9.96 2,052,344 $8.57 ======================================== ===================== As of March 29, 1997 and March 30, 1996, the amount of options exercisable were 5,569,000 and 5,109,000, respectively. On April 30, 1997, the Company engaged in an option exchange program under which 7,092,233 of options to purchase replacement options with an exercise price of $9.1875 per share were granted to current employees with outstanding options with exercise prices above $9.1875 per share and the old options were cancelled, unless the employee elected not to participate in the exchange. In connection with this program, replacement options have been issued with the same vesting schedule as the old options, however, all replacement options were subject to a one year blackout on exercise which expires on April 30, 1998. If an employee voluntarily terminates his or her employment prior to the end of the blackout period, the replacement options would be forfeited. Shares Reserved for Future Issuance The Company has a total of approximately 26,319,000 shares of common stock reserved as of March 28, 1998 for issuance related to its convertible subordinated notes, the Option Plans, and the ESPP. Stock-Based Compensation The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans other than for restricted stock and performance-based awards. Had compensation cost for the Company's other stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below: 1998 1997 1996 ---------- ---------- ---------- Net income (loss) as reported $36,493 ($46,156) ($36,183) Proforma net income (loss) $5,812 ($65,256) ($49,783) Basic net income (loss) per share as reported $0.54 ($0.71) ($0.58) Proforma basic net income (loss) per share $0.08 ($1.00) ($0.80) Diluted net income (loss) per share as reported $0.52 ($0.71) ($0.58) Proforma diluted net income (loss) per share $0.08 ($1.00) ($0.80) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period (for options) and the six-month purchase period (for stock purchases under the ESPP). The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. The effects on pro forma disclosure of applying SFAS No. 123 are not likely to be representative of the effects on pro forma disclosures of future years. Because SFAS No. 123 is applicable only to options granted subsequent to April 1, 1995, the pro forma effect will not be fully reflected until 2000. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model using a dividend yield of 0% and the following additional weighted-average assumptions used for grants: 1998 1997 1996 Employee Option Plans: ---------- ---------- ---------- Expected stock price volatility 69.46% 68.87% 68.87% Risk-free interest rate 6.2% 6.1% 5.8% Expected lives (in years) 5.0 5.0 5.0 Employee Stock Purchase Plan: Expected stock price volatility 69.46% 74.47% 74.47% Risk-free interest rate 5.8% 5.7% 5.3% Expected lives (in years) 0.5 0.5 0.5 Using the Black-Scholes option valuation model, the weighted average estimated fair value of employee stock options granted in fiscal 1998, 1997 and 1996 were $5.55, $11.05 and $20.53, respectively. The weighted average estimated fair value for purchase rights granted under the ESPP for fiscal 1998, 1997 and 1996 were $4.37, $6.79 and $8.43, respectively. 14. INCOME TAXES Income (loss) before provision (benefit) for income taxes consists of (in thousands): 1998 1997 1996 --------- --------- --------- United States $49,757 ($25,176) ($21,168) Foreign 6,246 (26,443) (20,555) --------- --------- --------- Total $56,003 ($51,619) ($41,723) ========= ========= ========= The provision (benefit) for income taxes consists of (in thousands): 1998 1997 1996 --------- --------- --------- Federal Current $6,890 ($15,264) $25,303 Deferred 8,524 7,041 (28,182) --------- --------- --------- 15,414 (8,223) (2,879) State Current 1,532 (1,077) 3,402 Deferred (146) 812 (10,110) --------- --------- --------- 1,386 (265) (6,708) Foreign Current 2,710 3,025 4,047 --------- --------- --------- $19,510 ($5,463) ($5,540) ========= ========= ========= The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal rate to pretax income as follows: 1998 1997 1996 --------------------------- Expected income tax provison (benefit) at the US federal statutory rate 35.0% (35.0%) (35.0%) Provision (benefit) for state income taxes, net of federal effect 1.6% (0.4%) (10.5%) Foreign operating results taxed at rates other than the US statutory rate 1.1% 27.9% 35.9% Research and development credits (Flow-through method) (3.6%) (5.0%) (3.1%) Other 0.7% 1.9% (0.6%) --------------------------- Provision (benefit) for income taxes 34.8% (10.6%) (13.3%) =========================== Under Standard Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", deferred income tax assets and liabilities reflect the net tax effects of tax carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are (in thousands): March 28, March 29, 1998 1997 ------------------- Deferred tax assets: Inventory valuation $13,480 $21,129 Accrued expenses and allowances 20,433 21,457 Net operating loss carryforwards - 3,687 Research and development credit carryforwards 17,372 14,193 State investment tax credit carryforwards 2,959 4,442 Other 8,377 4,521 ------------------- Total deferred tax assets 62,621 69,429 ------------------- Deferred tax liabilities: Depreciation 10,806 9,239 Other 5,117 5,114 ------------------- Total deferred tax liabilities 15,923 14,353 ------------------- Total net deferred tax assets $46,698 $55,076 =================== The tax credit carryforwards expire beginning in the fiscal year 2004 through 2012. 15. RECENTLY ISSUED ACCOUNTING STANDARDS In 1997, the Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", was issued and is effective for fiscal years commencing after December 15, 1997. In 1997, the Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures About Segments of an Enterprise and Related Information", was issued and is effective for fiscal years commencing after December 15, 1997. The Company is required to adopt the provisions of SFAS 130 and 131 in fiscal year 1999 and expects the adoption will not impact results of operations or financial position but will require additional disclosures. 16. LEGAL MATTERS The Company and certain of its customers from time to time have been notified that they may be infringing certain patents and other intellectual property rights of others. Further, customers have been named in suits alleging infringement of patents by the customer products. Certain components of these products have been purchased from the Company and may be subject to indemnification provisions made by the Company to the customers. The Company has not been named in any such suits. Although licenses are generally offered in such situations, there can be no assurance that litigation will not be commenced in the future regarding patents, mask works, copyrights, trademarks, trade secrets, or indemnification liability, or that any licenses or other rights can be obtained on acceptable terms. 17. SUBSEQUENT EVENTS (Unaudited) On May 4, 1998, the Board of Directors of the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock outstanding held on record as of May, 15, 1998. Each Right will entitle shareholders to purchase 1/100 share of the Company's Series A Participating Preferred Stock at an exercise price of $60. The Rights only become exercisable in certain limited circumstances following the tenth day after a person or group announces acquisitions of or tender offers for 15% or more of the Company's common stock. For a limited period of time following the announcement of any such acquisition or offer, the Rights are redeemable by the Company at a price of $0.01 per Right. If the Rights are not redeemed, each Right will then entitle the holder to purchase common stock having the value of twice the exercise price. For a limited period of time after the exercisability of the Rights, each Right, at the discretion of the Board, may be exchanged for one share of common stock per Right. The Rights will expire in the fiscal year 2009. 18. SUBSEQUENT EVENTS Subsequent to March 28, 1998 and through June 4, 1998, the Company has repurchased approximately 3.2 million shares of its common stock at a total cost of approximately $33.8 million. The repurchases were made under a common stock repurchase program approved by the Board of Directors for the repurchase of up to 10,000,000 shares of its Common Stock in the open market from time to time, depending upon market conditions, share price and other conditions. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Cirrus Logic, Inc. We have audited the accompanying consolidated balance sheets of Cirrus Logic, Inc. as of March 28, 1998 and March 29, 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 28, 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cirrus Logic, Inc. at March 28, 1998 and March 29, 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 28, 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, presents fairly in all material respects the information set forth therein. /s/Ernst & Young LLP San Jose, California April 22, 1998, except for Note 18, as to which the date is June 4, 1998 CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA (Amounts in thousands except per share amounts) (Unaudited)
Fiscal years by quarter ----------------------------------------------------------------------------------- 1998 1997 ----------------------------------------- ---------------------------------------- 4th ++ 3rd + 2nd 1st 4th ** 3rd * 2nd 1st --------- --------- --------- --------- --------- --------- --------- -------- Operating summary: Net sales $287,844 $240,843 $223,960 $201,623 $212,917 $253,309 $236,030 $214,898 Cost of sales 201,380 146,586 135,047 122,471 163,905 156,613 145,870 132,407 Loss (gain) on sale of assets, net (4,700) (16,081) - - 7 (12,009) (6,913) - Restructuring costs and other, net - 14,464 - - 20,954 - - - Income (loss) from operations 18,047 18,893 15,896 5,443 (56,943) 17,360 7,690 (9,295) Income (loss) before income taxes 21,226 18,467 12,768 3,543 (59,596) 14,419 4,194 (10,636) Net income (loss) 12,149 $12,926 $8,938 $2,480 ($51,859) $10,310 $2,998 ($7,605) Net income (loss) per share: Basic $0.18 $0.19 $0.13 $0.04 ($0.79) $0.16 $0.05 ($0.12) Diluted $0.18 $0.18 $0.13 $0.04 ($0.79) $0.15 $0.04 ($0.12) Weighted average common shares outstanding: Basic 68,092 67,593 67,232 66,416 65,197 65,178 64,776 64,159 Diluted 69,241 70,561 70,549 67,849 65,197 68,441 67,221 64,159 Stock prices: High $11.38 $17.44 $17.56 $13.00 $17.11 $24.13 $21.88 $25.13 Low 9.69 10.38 10.31 8.50 10.77 15.75 13.38 16.88 The per common share amounts prior to the third quarter of fiscal 1998 have been restated as required to comply with Statement of Financial Accounting Standards No. 128, Earnings Per Share. For further discussion of net income (loss) per share and the impact of Statement No. 128, see the notes to the consolidated financial statements. * In the third quarter of fiscal 1997, other expenses increased as a result of a charge of approximately $2.3 million for the settlement of pending security claims against the Company. ** The fourth quarter of fiscal 1997 includes $34.5 million that was charged to cost of sales for wafer purchase commitments, inventory write- downs, and $21.0 million related to a workforce reduction, excess assets and excess facilities commitments. + In the third quarter of fiscal 1998, restructuring expenses includes $11.8 million charges related to workforce reductions, excess assets and excess facility commitments related to strategic changes in the graphic division. ++ The fourth quarter of fiscal 1998 includes $60.0 million of revenues from license and patent royalties and $53.0 million that was charged to cost of sales for wafer purchase commitments.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Executive Officers - See the section entitled "Executive Officers of the Registrant" in Part I, Item 1 hereof. (b) Directors - The information required by this Item is incorporated by reference to the section entitled "Election of Directors" in the Registrant's Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the sections entitled "Executive Compensation" and various stock benefit plan proposals in the Registrant's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the sections entitled "Share Ownership of Directors, Executive Officers and Certain Beneficial Owners" of the Registrant's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the section entitled "Employment Agreements and Certain Transactions" in the Registrant's Proxy Statement. 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 following consolidated financial statements of the Registrant and Report of Ernst & Young LLP, Independent Auditors are included herewith: (i) Consolidated Balance Sheets as of March 28, 1998 and March 29, 1997. (ii) Consolidated Statements of Operations for the years ended March 28, 1998, March 29, 1997 and March 30, 1996. (iii) Consolidated Statements of Shareholders' Equity for the years ended March 28, 1998, March 29, 1997 and March 30, 1996. (iv) Consolidated Statements of Cash Flows for the years ended March 28, 1998, March 29, 1997 and March 30, 1996. (v) Notes to Consolidated Financial Statements. (vi) Report of Ernst & Young LLP, Independent Auditors. 2. Financial Statement Schedule The following consolidated financial statement schedule is filed as part of this report and should be read in conjunction with the consolidated financial statements: Schedule II Valuation and Qualifying Accounts All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements or notes thereto. CIRRUS LOGIC INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Balance Charged to Balance at Beginning Costs and Payments/ at Close Item of Period Expenses Deductions of Period - ----------------------- ------------- ----------- ------------ ------------ (Amounts in thousands) 1996 Accrued wafer purchase commitments $ - $ 14,000 $ - $ 14,000 Allowance for doubtful accounts $ 9,439 $ 4,094 ($ 359) (1) $ 13,174 1997 Accrued wafer purchase commitments $ 14,000 $ 31,700 ($15,500) $30,200 Allowance for doubtful accounts $ 13,174 $ 518 ($ 922)(1) $ 12,770 1997 Accrued wafer purchase commitments $ 30,200 $ 53,000 ($19,400) $63,800 Allowance for doubtful accounts $ 12,770 $ 630 ($ 2,224) (1) $ 11,176 (1) Uncollectible accounts written off, net of recoveries and sale of assets. 3. Exhibits The following exhibits are filed as part of or incorporated by reference into this Report: 3.1 (8) Restated Articles of Incorporation of Registrant, as amended. 3.2 (1) Form of Restated Articles of Incorporation of Registrant. 3.3 (1) By-laws of Registrant, as amended. 4.1 (1) Article III of Restated Articles of Incorporation of Registrant (See Exhibits 3.1 and 3.2). 10.1 (9) Amended 1987 Stock Option Plan. 10.2 (9) Amended 1989 Employee Stock Purchase Plan. 10.3 (1) Fourth Amendment to Preferred Shares Purchase Agreements, Founders Registration Rights Agreements, and Warrant Agreements and Consent between the Registrant and certain shareholders of the Registrant dated May 15, 1987, as amended April 28, 1989. 10.4 (1) Form of Indemnification Agreement. 10.5 (1) Agreement for Foreign Exchange Contract Facility between Bank of America National Trust and Savings Association and Registrant, dated April 24, 1989. 10.6 (2) 1990 Directors Stock Option Plan and forms of Stock Option Agreement. 10.7 (2) Lease between Renco Investment Company and Registrant dated December 29, 1989. 10.8 (2) Loan agreement between USX Credit Corporation and Registrant dated December 28, 1989. 10.9 (3) Loan agreement between Household Bank and Registrant dated September 24, 1990. 10.10 (4) Equipment lease agreement between AT&T Systems Leasing Corporation and Registrant dated December 2, 1991. 10.11 (4) Lease between Renco Investment Company and Registrant dated May 21, 1992. 10.12 (5) Loan agreement between Deutsche Credit Corporation and Registrant dated March 30, 1993. 10.13 (5) Lease between Renco Investment Company and Registrant dated February 28, 1993. 10.14 (6) Lease between Renco Investment Company and Registrant dated May 4, 1994. 10.15 (7) Participation Agreement dated as of September 1, 1994 among Registrant, International Business Machines Corporation, Cirel Inc. and MiCRUS Holdings Inc. 10.16 (7) Partnership Agreement dated as of September 30, 1994 between Cirel Inc. and MiCRUS Holdings Inc. 10.17 (8) General Partnership Agreement dated as of October 23, 1995 between the Company and AT&T. 10.18 (8) Joint Venture Formation Agreement dated as of October 23, 1995 between the Company and AT&T. 10.19 (10) Second Amended and Restated Multicurrency Credit Agreement between Registrant and Bank of America dated June 30, 1997. 10.20 (11) Third Amendment to the Joint Venture Formation Agreement with Cirent dated August 21, 1997. 19.1 Proxy Statement to the 1998 Annual Meeting of Shareholders. 21.1 Subsidiaries of Registrant. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 27.1 Article 5 Financial Data Schedule (March 28, 1998) 27.2 Article 5 Financial Data Schedule (March 29, 1997) 27.3 Article 5 Financial Data Schedule (March 30, 1996) 27.4 Article 5 Financial Data Schedule (December 27, 1997) 27.5 Article 5 Financial Data Schedule (September 27, 1997) 27.6 Article 5 Financial Data Schedule (June 28, 1997) 27.7 Article 5 Financial Data Schedule (December 28, 1996) 27.8 Article 5 Financial Data Schedule (September 28, 1996) 27.9 Article 5 Financial Data Schedule (June 29, 1996) (1) Incorporated by reference to Registration Statement No. 33-28583. (2) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1990. (3) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991. (4) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1992. (5) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1993. (6) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended April 2, 1994. (7) Incorporated by reference to Registrant's Report on Form 10-Q/A for the quarterly period ended October 1, 1994. (8) Incorporated by reference to Registrant's Report on Form 10-Q/A for the quarterly period ended September 30, 1995. (9) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 30, 1996. (10) Previously filed. (11) Incorporated by reference to Registrant's Report on Form 10-Q/A for the quarterly period ended September 27, 1997. (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. CIRRUS LOGIC, INC. By: /s/ Ronald K. Shelton Ronald K. Shelton Vice President, Finance, Chief Financial Officer, Principal Accounting Officer, and Treasurer. KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald K. Shelton, his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. 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: /s/ Michael L. Hackworth /s/ C. Gordon Bell Michael L. Hackworth C. Gordon Bell President, Chief Executive Director, June 19, 1998 Officer, Chairman of the Board and Director June 19, 1998 /s/ Suhas S. Patil /s/ D. James Guzy Suhas S. Patil D. James Guzy Chairman Emeritus and Director, June 19, 1998 Director June 19, 1998 /s/ Ronald K. Shelton /s/ Walden C. Rhines Ronald K. Shelton Walden C. Rhines Vice President, Finance Director, June 19, 1998 Chief Financial Officer, Principal Accounting Officer, and Treasurer June 19, 1998 /s/ Robert H. Smith Robert H. Smith Director, June 19, 1998 EX-21.1 2 SUBSIDIARIES OF REGISTRANT [ARTICLE] 5 [MULTIPLIER] 1,000 EXHIBIT 21.1 CIRRUS LOGIC INC. SUBSIDIARIES OF REGISTRANT Acumos Incorporated (California) Cirel Inc. (California) Ciror, Inc. (California) Cirrus Logic Holdings, Inc. (California) Cirrus Logic International Ltd. (Bermuda) Cirrus Logic International SARL (France) Cirrus Logic Korea Co., LTD. (Korea) Cirrus Logic, GmBh. (Germany) Cirrus Logic, K.K. (Japan) Cirrus Logic, Software India, Pvt. Ltd. (India) Cirrus Logic (U.K.) Limited (United Kingdom) Crystal Semiconductor Corporation (Delaware) Pacific Communications Sciences, Inc. (Delaware) EX-23.1 3 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 33-31697, 33-37409, 33-43914, 33-47453, 33-53990, 33-60464, 33-71862, 33-83148, 33-65495, 333-16417 and 333-42693) pertaining to one or more of the following: the Cirrus Logic, Inc. Amended 1987 Stock Option Plan; the Cirrus Logic, Inc. Amended 1989 Employee Stock Purchase Plan; the Cirrus Logic, Inc. Amended 1990 Directors' Stock Option Plan; the Cirrus Logic, Inc. Amended 1991 Non- qualified Stock Option Plan; the Crystal Semiconductor Corporation 1987 Incentive Stock Option Plan; the PicoPower Technology Inc. 1992 Stock Option Plan and the Amended 1996 Stock Plan of our report dated April 22, 1998 (except for Note 18, as to which the date is June 4, 1998), with respect to the consolidated financial statements and schedule of Cirrus Logic, Inc. included in this Annual Report (Form 10-K) for the year ended March 28, 1998, filed with the Securities and Exchange Commission. /s/Ernst & Young LLP San Jose, California June 17, 1998 EX-27.1 4 ARTICLE 5 FINANCIAL DATA SCHEDULE (MARCH 28, 1998)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 28, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 Mar-28-1998 Mar-30-1997 Mar-28-1998 12-MOS 347,421 125,378 114,249 (11,176) 103,703 816,193 288,182 (188,818) 1,137,542 340,039 0 0 0 366,914 89,429 1,137,542 954,270 954,270 605,484 605,484 290,508 0 (27,374) 56,003 19,510 36,493 0 0 0 36,493 ($0.54) ($0.52) FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.2 5 ARTICLE 5 FINANCIAL DATA SCHEDULE (MARCH 29, 1997)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 29, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 000772406 CIRRUS LOGIC, INC. 1,000 Mar-29-1997 Mar-31-1996 Mar-29-1997 12-MOS 151,540 188,215 186,513 (12,770) 127,252 795,002 291,522 (160,667) 1,136,821 366,332 0 0 0 351,261 52,936 1,136,821 917,154 917,154 598,795 598,795 359,547 0 (19,754) (51,619) (5,463) (46,156) 0 0 0 (46,156) ($0.71) ($0.71) FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.3 6 ARTICLE 5 FINANCIAL DATA SCHEDULE (MARCH 30, 1996)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 000772406 CIRRUS LOGIC, INC. 1,000 Mar-30-1996 Apr-02-1995 Mar-30-1996 12-MOS 155,979 19,279 146,892 (13,174) 134,502 594,827 283,727 (113,479) 917,577 412,184 0 0 0 329,574 99,092 917,577 1,146,945 1,146,945 774,350 774,350 416,819 0 (5,151) (41,723) (5,540) (36,183) 0 0 0 (36,183) ($0.58) ($0.58) FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.4 7 ARTICLE 5 FINANCIAL DATA SCHEDULE (DECEMBER 27, 1997)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 27, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 000772406 CIRRUS LOGIC, INC. 1,000 Mar-28-1998 Mar-30-1997 Dec-27-1997 9-MOS 172,945 233,441 122,799 0 99,793 782,783 108,720 0 1,114,077 319,984 0 0 0 367,598 77,280 1,114,077 666,426 666,426 404,104 404,104 222,091 0 0 34,777 10,433 24,344 0 0 0 24,344 $0.36 $0.35 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.5 8 ARTICLE 5 FINANCIAL DATA SCHEDULE (SEPTEMBER 27, 1997)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 27, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 000772406 CIRRUS LOGIC, INC. 1,000 Mar-28-1998 Mar-30-1997 Sep-27-1997 6-MOS 154,153 211,724 150,470 0 93,365 750,967 117,657 0 1,075,395 290,725 0 0 0 362,705 64,354 1,075,395 425,583 425,583 257,518 257,518 146,726 0 0 16,311 4,893 11,418 0 0 0 11,418 $0.17 $0.17 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.6 9 ARTICLE 5 FINANCIAL DATA SCHEDULE (JUNE 28, 1997)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 28, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 000772406 CIRRUS LOGIC, INC. 1,000 Mar-28-1998 Mar-30-1997 Jun-28-1997 3-MOS 100,093 225,357 157,940 0 97,773 731,603 124,490 0 1,063,696 286,409 0 0 0 358,956 55,415 1,063,696 201,623 201,623 122,471 122,471 73,709 0 0 3,543 1,063 2,480 0 0 0 2,480 $0.04 $0.04 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.7 10 ARTICLE 5 FINANCIAL DATA SCHEDULE (DECEMBER 28, 1996)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 28, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 000772406 CIRRUS LOGIC, INC. 1,000 Mar-29-1997 Mar-31-1996 Dec-28-1996 9-MOS 213,767 140,103 152,384 0 128,034 776,551 152,698 0 1,133,721 311,463 0 0 0 349,165 104,795 1,133,721 704,237 704,237 434,890 434,890 253,592 0 0 7,977 2,274 5,703 0 0 0 5,703 $0.09 $0.08 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.8 11 ARTICLE 5 FINANCIAL DATA SCHEDULE (SEPTEMBER 28, 1996)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 28, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 000772406 CIRRUS LOGIC, INC. 1,000 Mar-29-1997 Mar-31-1996 Sep-28-1996 6-MOS 53,661 12,219 139,051 0 142,089 583,985 161,416 0 918,831 410,387 0 0 0 340,869 94,485 918,831 450,928 450,928 278,277 278,277 174,256 0 0 (6,442) (1,835) (4,607) 0 0 0 (4,607) ($0.07) ($0.07) FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
EX-27.9 12 ARTICLE 5 FINANCIAL DATA SCHEDULE (JUNE 29, 1996)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 29, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 000772406 CIRRUS LOGIC, INC. 1,000 Mar-29-1997 Mar-31-1996 Jun-29-1996 3-MOS 112,224 12,219 127,542 0 133,985 561,437 171,763 0 882,522 374,957 0 0 0 338,530 91,487 882,522 214,898 214,898 132,407 132,407 91,786 0 0 (10,636) (3,031) (7,605) 0 0 0 (7,605) ($0.12) ($0.12) FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
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