-----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, SAjmu67kW3BLja/nCcQqUxRtgmrIHbVheT5m9SpvI+pVf8Q/AEwY0Ka9bTztMla+ QjOsQrEfJhBqeNN+AaPmZw== 0000950005-97-000688.txt : 19970813 0000950005-97-000688.hdr.sgml : 19970813 ACCESSION NUMBER: 0000950005-97-000688 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE SEMICONDUCTOR CORP/DE/ CENTRAL INDEX KEY: 0000913293 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770057842 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22594 FILM NUMBER: 97656698 BUSINESS ADDRESS: STREET 1: 3099 N FIRST ST CITY: SAN JOSE STATE: CA ZIP: 95134-2008 BUSINESS PHONE: 4083834900 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----- ----- Commission file number 0-22594 ALLIANCE SEMICONDUCTOR CORPORATION (Exact name of Registrant as specified in its charter) Delaware 77-0057842 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3099 North First Street San Jose, California 95134-2006 (Address of principal executive offices) (Zip code) (408) 383-4900 (Registrant's telephone number, including area code) 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 . --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No . --- --- The number of shares outstanding of the registrant's Common Stock on August 7, 1997 was 39,184,134 shares. Page 1 of 19, including exhibits 1 ALLIANCE SEMICONDUCTOR CORPORATION FORM 10-Q INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheets June 30, 1997 and March 31, 1997 3 Consolidated Statements of Operations Three months ended June 30, 1997 and 1996 4 Consolidated Statements of Cash Flows Three months ended June 30, 1997 and 1996 5 Notes to Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-14 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 15 Item 2. Changes in Securities. Not Applicable Item 3. Defaults Upon Senior Securities. Not Applicable Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable Item 5. Other Information. Not Applicable Item 6. Exhibits and Reports on Form 8-K. 16 SIGNATURES 17 2 Part I. FINANCIAL INFORMATION Item I. Consolidated Financial Statements. ALLIANCE SEMICONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited, in thousands) June 30, March 31, 1997 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 28,643 $ 22,489 Accounts receivable, net 19,891 16,827 Inventory 38,196 29,535 Deferred taxes 18,346 17,851 Income tax receivable 14,633 14,633 Other current assets 1,158 1,636 -------- -------- Total current assets 120,867 102,971 Property and equipment, net 11,097 11,352 Investment in Chartered Semiconductor 51,596 51,596 Investment in United Semiconductor Corp. 54,749 52,829 Investment in United Silicon, Inc. 13,701 13,701 Other assets 116 120 -------- -------- $252,126 $232,569 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 37,913 $ 18,766 Accrued liabilities 4,203 4,584 Current portion of long term obligations 1,630 1,621 -------- -------- Total current liabilities 43,746 24,971 Long term obligations 1,794 2,219 Deferred tax liability 702 702 -------- -------- Total liabilities 46,242 27,892 -------- -------- Stockholders' equity Common stock 390 390 Additional paid-in capital 180,111 180,012 Retained earnings 25,383 24,275 -------- -------- Total stockholders' equity 205,884 204,677 -------- -------- $252,126 $232,569 ======== ======== See accompanying notes to consolidated financial statements. 3 ALLIANCE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended June 30, -------- 1997 1996 -------- -------- Net revenues $ 36,339 $ 14,108 Cost of revenues 29,615 24,331 -------- -------- Gross profit (loss) 6,724 (10,223) -------- -------- Operating expenses: Research and development 4,107 3,439 Selling, general and administrative 4,055 2,492 -------- -------- Total operating expenses 8,162 5,931 -------- -------- Income (loss) from operations (1,438) (16,154) Other income, net 189 716 -------- -------- Income (loss) before income taxes and equity in income of USC (1,249) (15,438) Benefit for income taxes (437) (5,403) -------- -------- Income (loss) before equity in income of USC (812) (10,035) Equity in income of USC 1,920 -- -------- -------- Net income (loss) $ 1,108 ($10,035) ======== ======== Net income (loss) per share $ 0.03 ($ 0.26) ======== ======== Weighted average common shares and equivalents 41,042 38,416 ======== ======== See accompanying notes to consolidated financial statements. 4 ALLIANCE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Three Months Ended June 30, -------- 1997 1996 ---------- ----------- Cash flows from operating activities: Net income (loss) $ 1,108 ($10,035) Adjustments to reconcile net income (loss) to net cash provided by (usedin) operating activities: Depreciation and amortization 837 700 Equity in income of USC (1,920) -- Changes in assets and liabilities: Accounts receivable (3,064) (2,027) Inventory (8,661) (2,670) Other assets 482 6,292 Accounts payable 19,147 (310) Accrued liabilities (381) (1,568) Income taxes including deferred income taxes (495) (3,845) ---------- ----------- Net cash provided by (used in) 7,053 (13,463) operating activities ---------- ----------- Cash used in investing activities: Acquisition of equipment (582) (1,319) Investment in United Silicon, Inc. -- 187 ---------- ----------- Net cash used in investing activities (582) (1,132) ---------- ----------- Cash flows from financing activities: Net proceeds from issuance of common stock 99 116 Repayments of long term obligations (416) -- ---------- ----------- Net cash provided by (used in) financing activities (317) 116 ---------- ----------- Net increase (decrease) in cash and cash equivalents 6,154 (14,479) Cash and cash equivalents at beginning of the period 22,489 80,566 ---------- ----------- Cash and cash equivalents at end of the period $ 28,643 $ 66,087 ========== =========== Supplemental disclosures: Income taxes paid (refunded) $ -- $ (7,962) ======== ======== See accompanying notes to consolidated financial statements. 5 ALLIANCE SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared by Alliance Semiconductor Corporation (the "Company") in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company and its subsidiaries, and their consolidated results of operations and cash flows. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal years ended March 31, 1997 and 1996 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 27, 1997. For purposes of presentation, the Company has indicated the first three months of fiscal 1998 and 1997 as ending on June 30, respectively; whereas, in fact the Company's fiscal quarters end on the Saturday nearest the end of the calendar quarter. The results of operations for the three months ended June 30, 1997, are not necessarily indicative of the results that may be expected for the year ending March 31, 1998, and the Company makes no representations related thereto. Note 2. Balance Sheet Components June 30, March 31, 1997 1997 ------- ------- Inventory: (in thousands) Work in process $22,655 $18,319 Finished goods 15,541 11,216 ------- ------- $38,196 $29,535 ======= ======= Note 3. Inventory Charge During the first quarter of fiscal 1997, the Company continued to experience a significant deterioration in the average selling prices and a slowing in demand for certain of its SRAM products. As a result of this deterioration, the Company recorded a pre-tax charge of approximately $16.0 million primarily to reflect a further decline in market value of the Company's inventory. This charge included $2.3 million for adverse purchase commitments related to these SRAM products. The Company is unable to predict when or if such decline in prices will stabilize. A continued decline in average selling prices for SRAM products could result in additional material inventory valuation adjustments and corresponding charges to operations. 6 Note 4. Commitments At June 30, 1997, the Company had approximately $18.4 million of noncancelable purchase commitments with suppliers. The Company expects to sell all products which it has committed to purchase from suppliers. In July 1995, the Company entered into an agreement with United Microelectronics Corporation ("UMC") and S3 Incorporated ("S3") to form a separate Taiwanese company, United Semiconductor Corporation, for the purpose of building and managing a semiconductor manufacturing facility in Taiwan. Alliance paid approximately 1 billion New Taiwan Dollars ("NTD") (approximately US$36.4 million) in September 1995, approximately NTD 450 million (approximately $16.4 million) in July 1996, and had the option to pay, on or before July 31, 1997, approximately NTD 450 million, plus interest at a rate of 8.5% on such amount from and after July 4, 1996. The Company exercised this option and paid approximately NTD 492 million (approximately US$17.6 million) in July 1997. As a result of this last payment, Alliance has an equity ownership of approximately 19% and the right to purchase up to approximately 25% of the manufacturing capacity in this facility. In October 1995, the Company entered into an agreement with UMC and other parties to form a separate Taiwanese company, United Silicon Inc., for the purpose of building and managing a semiconductor manufacturing facility in Taiwan. The contributions of Alliance and other parties shall be in the form of equity investments, representing an initial ownership interest of approximately 5% for each US$30 million invested. Alliance's investment, which is payable in NTD, will be up to approximately US$30 million payable in up to three installments. The first installment of approximately 50% of the total investment was made in January 1996, and the Company has the option to pay a second installment of approximately 25% of the total investment in December 1997, plus interest at a rate of 8.5% on such amount from and after July 7, 1997. The final installment of approximately 25% of the total investment is called for on or before fab production ramp-up. If the Company exercises its option and further pays the third installment, the Company will have an equity ownership of approximately 5% and have the right to purchase up to approximately 6.25% of the manufacturing capacity in this facility. As of June 30, 1997, $4.8 million of standby letters of credit were outstanding and expire on or before September 30, 1997. Note 5. Net Income (Loss) Per Share Net income (loss) per share is based on the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares include common stock options using the treasury stock method. Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share" was issued in February 1997. Under SFAS 128, the Company will be required to disclose basic EPS and diluted EPS, for all periods for which an income statement is presented, which will replace disclosure currently being made for primary EPS and fully-diluted EPS. SFAS 128 requires adoption for both interim and annual fiscal periods ending after December 15, 1997. If SFAS 128 has been in effect during the first quarter of fiscal 1998 and 1997, basic and diluted EPS would not have been significantly different than EPS reported for those periods. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. When used in this Report, the words "expects," anticipates," "believes," "approximates," "estimates" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements, which include statements concerning the timing of new product introductions; the functionality and availability of products under development; trends in the personal computer, networking, telecommunications and instrumentation markets, in particular as they may affect demand for or pricing of the Company's products; the percentage of export sales and sales to strategic customers; the percentage of revenue by product line; and the availability and cost of products from the Company's suppliers; are subject to risks and uncertainties. These risks and uncertainties include those set forth in Item 2 (entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations") of this Report, and in Item 1 (entitled "Business") of Part I and in Item 7 (entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations") of Part II of the Company's Annual report on Form 10-K for the fiscal year ended March 30, 1997 filed with the Securities and Exchange Commission on June 27, 1997. These risks and uncertainties, or the occurrence of other events, could cause actual results to differ materially from those projected in the forward-looking statements. These forward-looking statements speak only as of the date of this Report. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or to reflect any change in events, conditions or circumstances on which any such forward-looking statement is based, in whole or in part. Results of Operations The following table sets forth, for the periods indicated, certain operating data as a percentage of net revenue: Three Months Ended June 30, ------------------------ 1997 1996 ------- -------- Net revenue 100.0% 100.0% Cost of revenue 81.5 172.5 ------- -------- Gross profit (loss) 18.5 (72.5) ------- -------- Operating expenses: Research and development 11.3 24.4 Selling, general and administrative 11.2 17.6 ------- -------- Total operating expenses 22.5 42.0 ------- -------- Income (loss) from operations (4.0) (114.5) Other income, net 0.5 5.1 ------- -------- Income (loss) before income taxes and equity in income of USC (3.5) (109.4) Provision (benefit) for income taxes (1.2) (38.3) ------- -------- Income before equity in income of USC (2.3)% (71.1)% ======= ======== Net Revenue During the first quarter of fiscal 1998, the Company's net revenue was principally derived from the sale of DRAM and SRAM products, whereas the Company's net revenue for the first quarter of fiscal 1997 was 8 principally derived from the sale of SRAM products. Net revenue for the first quarter of fiscal 1998 was $36.3 million, or 158% higher than the $14.1 million of revenue for the first quarter of fiscal 1997. During the first quarter of fiscal 1998, one customer accounted for 12% of net revenue. During the first quarter of fiscal 1997, one customer accounted for 10% of net revenue. The increase in net revenue in the first quarter of fiscal 1998 was due to increased production of DRAM products and an overall increase in the number of units shipped, offset by decreases in the average selling prices for the Company's SRAM and 4 megabit DRAM products and a decrease in demand for certain of the Company's SRAM products. Revenues from the Company's SRAM products contributed approximately 26% of the Company's net revenues for the first quarter of fiscal 1998 compared to approximately 83% of the Company's net revenues for the first quarter of fiscal 1997. To increase demand and the average selling price for the Company's SRAM products, the Company has added to its SRAM product offerings and begun to manufacture in volume quantities enhanced versions of 1 megabit SRAMs and a 4 megabit SRAM. The Company is unable to predict when or if such price and demand declines will stabilize or if the introduction of new product offerings will offset future price and demand declines. A continued decline in average selling prices or unit demand could have a material adverse effect on the Company's operating results. In addition to existing DRAM product offerings, the Company has recently begun to manufacture volume quantities of 4 megabit DRAM, in a 256KbitX16 configuration, and a 16 megabit DRAM. Revenues from the Company's DRAM products contributed approximately 69% of the Company's net revenues for the first quarter of fiscal 1998 compared to approximately 8% of the Company's net revenues for the first quarter of fiscal 1997. The DRAM market is characterized by volatile supply and demand conditions, fluctuating pricing and rapid technology changes to higher density products. During the first quarter of fiscal 1998, average selling prices for the Company's DRAM products declined compared to same period of the prior year. The Company is unable to predict when or if such price declines will stabilize. A continued decline in average selling prices of DRAMs could have a material adverse effect on the Company's operating results. The Company has also recently begun to manufacture in volume quantities the new ProMotion-AT3D, the latest enhancement to the Company's multi-media user interface ("MMUI") accelerator product family. Sales of the Company's MMUI product line contributed approximately 5% to the Company's net revenues for the first quarter of fiscal 1998 compared to approximately 9% of the Company's net revenues for the first quarter of fiscal 1997. The graphics and video accelerator market is characterized by a large and growing number of competitors providing a steady stream of new products with enhanced features. A significant decline in average selling prices due to competitive conditions, including overall supply and demand in the market, could have a material adverse effect on the Company's operating results. Generally, the markets for the Company's products are characterized by volatile supply and demand conditions, numerous competitors, rapid technological change and product obsolescence. These conditions could require the Company to make significant shifts in its product mix in a relatively short period of time. These changes involve several risks, including, among others, constraints or delays in timely deliveries of products from the Company's suppliers; lower than anticipated wafer manufacturing yields; lower than expected throughput from assembly and test suppliers; and less than anticipated demand and selling prices. The occurrence of any problems resulting from these risks could have a material adverse effect on the Company's operating results. Gross Profit (Loss) The Company experienced a gross profit for the first quarter of fiscal 1998 of $6.7 million, or 18.5% of net revenue compared to a gross loss of $10.2 million, or (72.5)% of net revenue for the same period of fiscal 1997. The gross profit and increase in gross margin in the first quarter of fiscal 1998 resulted from sales of higher margin products and the absence of pre-tax inventory and purchase commitment related charges of approximately $16.0 million recorded in the first quarter of fiscal 1997 primarily to reflect declines in the market value for certain of the Company's products, offset by continued declines in average selling prices of certain of the Company's products. The Company is unable to predict when or if such price declines will 9 stabilize. A continued decline in average selling prices could result in material adverse impacts on the Company's gross margins. The Company is subject to a number of factors which may have an adverse impact on gross margins, including the availability and cost of products from the Company's suppliers; increased competition and related decreases in average unit selling prices; changes in the mix of products sold; and the timing of new product introductions and volume shipments. In addition, the Company may seek to add additional foundry suppliers and transfer existing and newly developed products to more advanced manufacturing processes. The commencement of manufacturing at a new foundry is often characterized by lower yields as the manufacturing process is refined. There can be no assurance that one or more of the factors set forth in this paragraph will not have a material adverse effect on the Company's gross margins in future periods. Research and Development Research and development expenses were $4.1 million, or 11.3% of net revenue in the first quarter of fiscal 1998 compared to $3.4 million, or 24.4% of net revenue in the same period of the prior year. The increase in research and development expenses was due to increased expenditures for materials utilized in the Company's development activities which are dependent on the timing of new product development and introduction and increases in personnel related costs. Research and development expenses are expected to increase in absolute dollars and may also increase as a percentage of net revenue. Selling, General and Administrative Selling, general and administrative expenses were $4.1 million, or 11.2% of net revenue in the first quarter of fiscal 1998 compared to $2.5 million, or 17.6% of net revenue in the first quarter of fiscal 1997. The increase in selling, general and administrative expenses was primarily the result of increased sales commissions due to increased revenue, increased legal expenses in connection with certain legal matters and higher personnel-related costs. Selling, general and administrative expenses are expected to increase in absolute dollars and may also increase as a percentage of net revenue. Other Income, Net Net other income was $0.2 million for the first quarter of fiscal 1998 compared to $0.7 million for the same period of fiscal 1997. Net other income for the first quarter of fiscal 1998 primarily represents interest and dividend income from investments. Provision (Benefit) for Income Taxes The Company's effective tax rate was 35.0% for the first quarter of fiscal 1998 and fiscal 1997. The tax benefit for the first quarter of fiscal 1998 represents amounts which may be carried back to offset taxes paid in prior years, resulting in a tax refund to the Company. Equity in Income of United Semiconductor Corporation As discussed in "Liquidity and Capital Resources", the Company entered into an agreement with other parties to form a separate Taiwanese company, United Semiconductor Corporation, ("USC"). This 10 investment is accounted for under the equity method of accounting with a ninety day lag in reporting the Company's share of results for the entity. Equity in income of USC reflects the Company's share of income earned by USC for the previous quarter. The Company reported such an amount in the first quarter of fiscal 1998. No amount was reported for the same period of the prior year as the Company's share of USC's net income was not material. Factors That May Affect Future Results The Company's quarterly and annual operating results have historically been, and will continue to be, subject to quarterly and other fluctuations due to a variety of factors, including general economic conditions, changes in pricing policies by the Company, its competitors or its suppliers, anticipated and unanticipated decreases in average selling prices of the Company's products, fluctuations in manufacturing yields, availability and cost of products from the Company's suppliers, the timing of new products announcements and introductions by the Company or its competitors, changes in the mix of products sold, the cyclical nature of the semiconductor industry, the gain or loss of significant customers, increased research and development expenses associated with new product introductions, market acceptance of new or enhanced versions of the Company's products, seasonal customer demand and the timing of significant orders. Operating results could be adversely affected by economic conditions generally or in various geographic areas, other conditions affecting the timing of customer orders and capital spending, a downturn in the market for personal computers, or order cancellations or rescheduling. Additionally, because the Company is continuing to increase its operating expenses for personnel and new product development, the Company's operating results will be adversely affected if increased sales levels are not achieved. The markets for the Company's products are characterized by rapid technological change, evolving industry standards, rapid product obsolescence and significant price competition and, as a result, are subject to decreases in average selling prices. The Company has recently experienced significant deterioration in average selling prices for its SRAM and DRAM products. The Company is unable to predict when or if such decline in prices will stabilize. Historically, average selling prices for semiconductor memory products have declined and the Company expects that average selling prices will decline in the future. Accordingly, the Company's ability to maintain or increase revenues will be highly dependent on its ability to increase unit sales volume of existing products and to successfully develop, introduce and sell new products. Declining average selling prices will also adversely affect the Company's gross margins unless the Company is able to reduce its cost per unit in an amount sufficient to offset the declines in average selling prices. There can be no assurance the Company will be able to increase unit sales volumes of existing products, develop, introduce and sell new products or reduce its cost per unit to offset declines in average selling prices. There also can be no assurance that even if the Company were to increase unit sales volumes and sufficiently reduce its costs per unit, the Company would be able to maintain or increase revenues or gross margins. The cyclical nature of the semiconductor industry periodically results in shortages of advanced process wafer fabrication capacity which the Company experiences from time to time. The Company's ability to maintain adequate levels of inventory is primarily dependent upon the Company obtaining sufficient supply of products at an acceptable cost to meet future demand, and any inability of the Company to maintain adequate inventory levels may adversely affect its relations with its customers. In addition, because the Company must order products and build inventory substantially in advance of products shipments, there is a risk that the Company will forecast incorrectly and produce excess or insufficient inventories of particular products because demand for the Company's products is volatile and subject to rapid technology and price change. This inventory risk is heightened because certain of the Company's key customers place orders with short lead times. The Company's customers' ability to reschedule or cancel orders without significant penalty could adversely affect the Company's liquidity, as the Company may be unable to adjust its purchases from its independent foundries to match such customers' changes and cancellations. The Company has in the past produced excess quantities of certain products which has had a material adverse effect on the 11 Company's operating results. There can be no assurance that the Company in the future will not produce excess quantities of any of its products. To the extent the Company produces excess or insufficient inventories of particular products, the Company's operating results could be materially adversely affected, as was the case during fiscal 1996 and fiscal 1997, during which periods the Company recorded pre-tax charges of $55 million and $17 million, respectively, primarily to reflect a decline in the market value of certain inventory and certain manufacturing issues. The Company currently relies on outside foundries to manufacture all of the Company's products. Reliance on these foundries involves several risks, including constraints or delays in timely delivery of the Company's products, reduced control over delivery schedules, quality assurance and costs, and loss of production due to seismic activity, weather conditions and other factors. Although the Company continuously evaluates sources of foundry capacity and may seek to add additional foundry capacity, there can be no assurance that capacity can be obtained at acceptable prices, if at all. The occurrence of any supply or other problem resulting from these risks could have a material adverse effect on the Company's operating results, as was the case during the third quarter of fiscal 1996, during which period manufacturing yields of one of the Company's products were materially adversely affected by manufacturing problems at one of the Company's foundry suppliers. There can be no assurance that other problems affecting manufacturing yields of the Company's products will not occur in the future. The Company conducts a significant portion of its business internationally and is subject to a number of risks resulting from such operations. Such risks include political and economic instability and changes in diplomatic and trade relationships, foreign currency fluctuations, unexpected changes in regulatory requirements, delays resulting from difficulty in obtaining export licenses for certain technology, tariffs and other barriers and restrictions, and the burdens of complying with a variety of foreign laws. Although the Company to date has not experienced any material adverse effect on its operations as a result of such factors, there can be no assurance that such factors will not adversely impact the Company's operations in the future or require the Company to modify its current business practice. The Company also is party to certain legal proceedings, and is subject to the risk of adverse developments in such proceedings. The semiconductor industry is characterized by frequent claims and litigation regarding patent and other intellectual property rights. The Company currently is involved in patent litigation, and also has from time to time received, and believes that it likely will in the future receive, notices alleging that the Company's products, or the processes used to manufacture the Company's products, infringe the intellectual property rights of third parties, and the Company is subject to the risk that it may become party to litigation involving such claims. The Company currently is party to an anti-dumping proceeding, which may result in the imposition of dumping duties on the Company's importation into the United States of Taiwan-manufactured SRAMs. A material portion of the Company's SRAMs are manufactured in Taiwan, and imposition of such duties could materially adversely affect the Company's ability to sell such products in the United States. There can be no assurance that adverse developments in current or future legal proceedings will not have a material adverse effect on the Company's operating results or financial condition. Additionally, other factors may materially adversely affect the Company's operating results. The Company relies on domestic and offshore subcontractors for die assembly and testing of products, and is subject to risks of disruption in adequate supply of such services and quality problems with such services. The Company is subject to the risks of shortages of goods or services and increases in the cost of raw materials used in the manufacture or assembly of the Company's products. The Company faces intense competition, and many of its principal competitors and potential competitors have substantially greater financial, technical, marketing, distribution and other resources, broader product lines and longer-standing relationships with customers than does the Company, any of which factors may place such competitors and potential competitors in a stronger competitive position than the Company. The Company's corporate headquarters are located near major earthquake faults, and the Company is subject to the risk of damage or 12 disruption in the event of seismic activity. There can be no assurance that any of the foregoing factors will not materially adversely affect the Company's operating results. As a result of the foregoing factors, as well as other factors affecting the Company's operating results, past performance should not be considered to be a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. In addition, stock prices for many technology companies are subject to significant volatility, particularly on a quarterly basis. If revenues or earnings fail to meet expectations of the investment community, there could be an immediate and significant impact on the market price of the Company's common stock. Liquidity and Capital Resources The Company's operating activities generated cash of $7.1 million in the first quarter of fiscal 1998 and used cash of $13.5 million in the first quarter of fiscal 1997. Cash generated from operations in the first quarter of fiscal 1998 was the result of net income generated during the period and a net increase in certain working capital components. Cash used in operations in the first quarter of fiscal 1997 was primarily a result of net loss generated during the period combined with a net decrease in certain working capital components. Net cash used in investing activities was $0.6 million for the first quarter of fiscal 1998 and $1.1 million for the same period of fiscal 1997. Net cash used in investing activities in the first quarter of fiscal 1998 reflects equipment purchases of $0.6 million. Net cash used in investing activities in the first quarter of fiscal 1997 reflects equipment purchases of $1.3 million, partially offset by a reduction in the investment of United Silicon, Inc. of $0.2 million. The Company's financing activities used cash of $0.3 million in the first quarter of fiscal 1998 and provided cash of $0.1 million in the first quarter of fiscal 1997. Net cash used in financing activities in the first quarter of fiscal 1997 reflects repayment of long term obligations of $0.4 million, offset by net proceeds of $0.1 million from the sales of common stock in connection with the exercise of stock options. Net cash provided by financing activities in the first quarter of fiscal 1997 reflects net proceeds from the sales of common stock in connection with the exercise of stock options. At June 30, 1997, the Company had $28.6 million in cash, an increase of $6.1 million from March 31, 1997, and working capital of $77.1 million, a decrease of $0.9 million from March 31, 1997. The Company believes that these sources of liquidity, together with an expected tax refund (which was received in July 1997) and anticipated financings, will be sufficient to meet its projected working capital and other cash requirements for the foreseeable future. In order to obtain an adequate supply of wafers, especially wafers manufactured using advanced process technologies, the Company has considered and will continue to consider various possible transactions, including equity investments in or loans to foundries in exchange for guaranteed production, the formation of joint ventures to own and operate foundries, or the usage of "take or pay" contracts that commit the Company to purchase specified quantities of wafers over extended periods. Manufacturing arrangements such as these may require substantial capital investments, which may require the Company to seek additional debt or equity financing. There can be no assurance that such additional financing, if required, will be available when needed or, if available, will be on satisfactory terms. Additionally, the Company has entered into and will continue to enter into various transactions, including the licensing of its integrated circuit designs in exchange for royalties, fees or guarantees of manufacturing capacity. In July 1995, the Company entered into an agreement with United Microelectronics Corporation ("UMC") and S3 Incorporated ("S3") to form a separate Taiwanese company, United Semiconductor 13 Corporation, for the purpose of building and managing a semiconductor manufacturing facility in Taiwan. The facility is now in full production using advanced submicron semiconductor manufacturing processes. Alliance paid approximately NTD 1 billion (approximately US$36.4 million) in September 1995, approximately NTD 450 million (approximately $16.4 million) in July 1996, and had the option to pay, on or before July 31, 1997, approximately NTD 450 million, plus interest at a rate of 8.5% on such amount from and after July 4, 1996. The Company exercised this option and paid approximately NTD 492 million (approximately US$17.6 million) in July 1997. As a result of this last payment, Alliance has an equity ownership of approximately 19% and the right to purchase up to approximately 25% of the manufacturing capacity in this facility. In October 1995, the Company entered into an agreement with UMC and other parties to form a separate Taiwanese company, United Silicon Inc., for the purpose of building and managing a semiconductor manufacturing facility in the Science Based Industrial Park in Hsin Chu City, Taiwan, Republic of China. The facility is expected to commence production utilizing advanced submicron semiconductor manufacturing processes in late 1997, although there can be no assurance that production will begin on schedule. The contributions of Alliance and other parties shall be in the form of equity investments, representing an initial ownership interest of approximately 5% for each US$30 million invested. Alliance's investment, which is payable in NTD, will be up to approximately US$30 million payable in up to three installments. The first installment of approximately 50% of the total investment was made in January 1996, and the Company has the option to pay a second installment of approximately 25% of the total investment in December 1997, plus interest at a rate of 8.5% on such amount from and after July 7, 1997, and the final installment of approximately 25% of the total investment is called for on or before fab production ramp-up. If the Company exercises its option and further pays the third installment, the Company will have an equity ownership of approximately 5% and have the right to purchase up to approximately 6.25% of the manufacturing capacity in this facility. In addition, the Company believes that success in its industry requires substantial capital and liquidity. In addition to capital needs for its ongoing business operations, the Company also may desire, from time to time, as market and business conditions warrant, to invest in or acquire complementary businesses, products or technologies. As a result, the Company may seek additional equity or debt financings to fund such activities or to otherwise take advantage of favorable financing opportunities. The sale of additional equity or convertible debt securities could result in additional dilution to the Company's stockholders. There can be no assurance that such additional financing, if required, can be obtained on terms acceptable to the Company, if at all. 14 Part II. OTHER INFORMATION Item 1. Legal Proceedings. As previously reported, in March 1996, a putative class action lawsuit was filed against the Company and certain of its officers and directors and others in the United States District Court for the Northern District of California, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder. (The complaint alleged that the Company, N.D. Reddy and C.N. Reddy also had liability under Section 20(a) of the Exchange Act.) The complaint, brought by an individual who claimed to have purchased 100 shares of the Company's common stock on November 2, 1995, was putatively brought on behalf of a class of persons who purchased the Company's common stock between July 11, 1995 and December 29, 1995. In April 1997, the Court dismissed the complaint, with leave to file an amended complaint. In June 1997, plaintiff filed an amended complaint against the Company and certain of its officers and directors alleging violations of Sections 10(b) and 20(a) of the Exchange Act. In July 1997, the Company moved to dismiss the amended complaint. The Company intends to continue to defend vigorously against any claims asserted against it, and believes it has meritorious defenses against the asserted claims. Due to the inherent uncertainty of litigation, the Company is not able to reasonably estimate the potential losses, if any, that may be incurred in relation to this litigation. 15 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Number Title Filing Status ------ ----- ------------- 3.01 Company's Certificate of Incorporation (A) 3.02 Company's Bylaws (A) 3.03 Company's Certificate of Elimination of Series A Preferred Stock (A) 3.04 Company's Certificate of Amendment of Certificate of (B) Incorporation 4.01 Specimen of Common Stock Certificate of Company (A) 10.01 Trademark License Agreement dated as of October 17, 1996 between (C) Company and Alliance Semiconductor International Corporation, a Delaware corporation, as amended through May 31, 1997 10.02 Letter Agreement dated April 25, 1997 by and among Registrant, S3 Incorporated, United Microelectronics Corporation and United Semiconductor Corporation (C) 10.03 Letter Agreement dated June 23, 1997 between Company and (C) United Microelectronics Corporation 11.01 Statement re: Computation of Net Income (Loss) per Share (D) and Common Equivalent Shares 27.01 Financial Data Schedule (D) (b) Reports on Form 8-K None. - ---------------------------------- (A) The document referred to is hereby incorporated by reference from the Company's Registration Statement on Form SB-2 (File No. 33-69956-LA) declared effective by the Commission on November 30, 1993. (B) The document referred to is hereby incorporated by reference from the Company's Quarterly Report on Form 10-Q (File No. 0-22594) filed with the Commission on November 14, 1995. (C) The document referred to is hereby incorporated by reference from the Company's Annual Report on Form 10-K (File No. 0-22594) filed with the Commission on June 27, 1997. (D) The document referred to is filed herewith. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Alliance Semiconductor Corporation (Registrant) Date: August 12, 1997 /s/ N. D. Reddy --------------- N. Damodar Reddy President and Principal Executive Officer Date: August 12, 1997 /s/ Charles Alvarez ------------------- Charles Alvarez Vice President - Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-11.01 2 COMPUTATION OF NET INCOME Exhibit 11.01 ALLIANCE SEMICONDUCTOR CORPORATION COMPUTATION OF NET INCOME (LOSS) PER SHARE AND COMMON EQUIVALENT SHARES
Quarter Ended June 30, 1997 1996 -------------------- --------------------- (in thousands, except per share data) Net income (loss).................................. $1,108 $(10,035) ====== ========= Weighted average number of common shares outstanding during the quarter................. 38,999 38,416 Weighted-average common stock equivalents (calculated using the "treasury stock" method) representing shares issuable upon exercise of employee stockoptions..................... 2,043 ----- ------ Weighted-average common shares and equivalents..... 41,042 38,416 ====== ======== Net income (loss) per share........................ $ 0.03 $ (0.26) ====== ========
18 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLADATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 3-MOS MAR-28-1998 MAR-30-1997 JUN-28-1997 28,643 0 19,891 0 38,196 120,867 17,538 6,441 252,126 43,746 1,794 0 0 390 205,494 252,126 36,339 36,339 29,615 29,615 4,107 0 0 (1,249) (437) (812) 0 0 0 1,108 0.03 0.03
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