-----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, IdiDqCEBi6A1DeeT0s6ovFG24aKu0WXMsXgBVYiGlGKfjwt3uZQZ2n+T5QR35KEf OU6tCsC65ZRGBlyfGTnBXA== 0000950005-97-000916.txt : 19971114 0000950005-97-000916.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950005-97-000916 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 000-22594 FILM NUMBER: 97714889 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 U.S. 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 September 27, 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 past 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 November 6, 1997 was 39,319,416 shares. Page 1 of 20, including exhibits The Exhibit Index is located on page 18. ALLIANCE SEMICONDUCTOR CORPORATION FORM 10-Q INDEX
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets September 30, 1997 and March 31, 1997 3 Consolidated Statements of Operations Three months and six months ended September 30, 1997 and 1996 4 Consolidated Statements of Cash Flows Six months ended September 30, 1997 and 1996 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-15 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 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 17 Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19
2 Part I. Financial Information Item I. Consolidated Financial Statements ALLIANCE SEMICONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited, in thousands)
September 30, March 31, 1997 1997 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 20,911 $ 22,489 Accounts receivable, net 15,206 16,827 Inventory 33,533 29,535 Deferred taxes 19,103 17,851 Income tax receivable -- 14,633 Other current assets 1,159 1,636 -------- -------- Total current assets 89,912 102,971 Property and equipment, net 11,196 11,352 Investment in Chartered Semiconductor 51,596 51,596 Investment in United Semiconductor Corp. ("USC") 75,014 52,829 Investment in United Silicon, Inc. ("USI") 13,701 13,701 Other assets 120 120 -------- -------- $241,539 $232,569 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,360 $ 18,766 Accrued liabilities 4,712 4,584 Current portion of long term obligations 1,677 1,621 -------- -------- Total current liabilities 36,749 24,971 Long term obligations 1,357 2,219 Deferred tax liability 702 702 -------- -------- Total liabilities 38,808 27,892 -------- -------- Stockholders' equity Common stock 393 390 Additional paid-in capital 181,506 180,012 Retained earnings 20,832 24,275 -------- -------- Total stockholders' equity 202,731 204,677 -------- -------- $241,539 $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 Six Months Ended September 30, September 30, ------------------ ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net revenue $ 28,998 $ 13,135 $ 65,337 $ 27,243 Cost of revenue 31,693 11,029 61,308 35,360 -------- -------- -------- -------- Gross profit (loss) (2,695) 2,106 4,029 (8,117) -------- -------- -------- -------- Operating expenses: Research and development 3,558 3,639 7,665 7,078 Selling, general and administrative 4,885 2,703 8,940 5,195 -------- -------- -------- -------- Total operating expenses 8,443 6,342 16,605 12,273 -------- -------- -------- -------- Income (loss) from operations (11,138) (4,236) (12,576) (20,390) Other income, net 54 459 243 1,172 -------- -------- -------- -------- Income (loss) before income taxes and equity in income of USC (11,084) (3,777) (12,333) (19,218) Provision (benefit) for income taxes (3,879) (1,302) (4,316) (6,725) -------- -------- -------- -------- Income (loss) before equity in income of USC (7,205) (2,455) (8,017) (12,493) Equity in income of USC 2,654 -- 4,574 -- -------- -------- -------- -------- Net income (loss) ($ 4,551) ($ 2,455) ($ 3,443) ($12,493) ======== ======== ======== ======== Net income (loss) per share ($ 0.12) ($ 0.06) ($ 0.09) ($ 0.32) ======== ======== ======== ======== Weighted average common shares and equivalents 39,175 38,483 39,087 38,450 ======== ======== ======== ======== See accompanying notes to consolidated financial statements.
4 ALLIANCE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended September 30, ---------------- 1997 1996 ---- ---- Cash flows from operating activities: Net income (loss) ($ 3,443) ($12,493) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,686 1,447 Equity in income of USC (4,574) -- Changes in assets and liabilities: Accounts receivable 1,621 (1,724) Inventory (3,998) (1,212) Other assets 477 5,749 Accounts payable 11,594 (19,418) Accrued liabilities 128 (3,113) Income taxes including deferred income taxes 13,381 (5,182) -------- -------- Net cash provided by (used in) operating activities 16,872 (35,946) -------- -------- Cash used in investing activities: Acquisition of equipment (1,530) (1,739) Investment in USC (17,611) (16,391) Investment in USI -- 187 -------- -------- Net cash used in investing activities (19,141) (17,943) -------- -------- Cash flows from financing activities: Net proceeds from issuance of common stock 1,497 220 Repayments of long term obligations (806) -- -------- -------- Net cash provided by financing activities 691 220 -------- -------- Net increase (decrease) in cash and cash equivalents (1,578) (53,669) Cash and cash equivalents at beginning of the period 22,489 80,566 -------- -------- Cash and cash equivalents at end of the period $ 20,911 $ 26,897 ======== ======== Supplemental disclosures: Income taxes paid (refunded) ($17,783) -- ======== ======== 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" or "Alliance") 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 six months of fiscal 1998 and 1997 as ending on September 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 and six months ended September 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 September 30, March 31, 1997 1997 ---- ---- Inventory: (in thousands) Work in process $15,181 $18,319 Finished goods 18,352 11,216 ------- ------- $33,533 $29,535 ======= ======= Note 3. Inventory Charges During the second quarter of fiscal 1998, the Company experienced continued deterioration in the average selling prices for certain of its dynamic random access memory ("DRAM") products and a continued decline in the average selling prices and demand for certain of its static random access memory ("SRAM") products; as a result of this deterioration, the Company recorded a pre-tax charge of approximately $6.1 million to reflect a further decline in market value of the Company's inventory. During the first quarter of fiscal 1997, the Company experienced 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. The Company is unable to predict when or if such decline in prices and demand will stabilize. A continued decline in average selling prices or demand for SRAM and DRAM products could result in additional material inventory valuation adjustments and corresponding charges to operations. 6 Note 4. Investments 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 ("USC"), for the purpose of building and managing a semiconductor manufacturing facility in Taiwan. Alliance paid approximately NTD 1 billion (approximately US$36.4 million) in September 1995, approximately NTD 450 million (approximately US$16.4 million) in July 1996, and 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. The Company accounts for this investment in USC using the equity method and as a result has recorded $4.6 million of equity in income of USC for the first six months of fiscal 1998. Note 5. Commitments At September 30, 1997, the Company had approximately $13.8 million of noncancelable purchase commitments with suppliers. The Company expects to sell all products which it has committed to purchase from suppliers. During the first quarter of fiscal 1997, the average selling prices of the Company's SRAM products deteriorated significantly. As a result of this deterioration, the Company recorded a pre-tax charge of approximately $2.3 million for adverse purchase commitments related to these SRAM products, which is included in the $16.0 million charge recorded in the first quarter of fiscal 1997 (see Note 3). In October 1995, the Company entered into an agreement with UMC and other parties to form a separate Taiwanese company, United Silicon, Inc. ("USI"), 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 New Taiwan Dollars, 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 September 30, 1997, $5.1 million of standby letters of credit were outstanding which expire through September 1998. Note 6. 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 7 after December 15, 1997. If SFAS 128 had been in effect during the first and second quarters of fiscal 1998 and 1997, basic and diluted EPS would not have been significantly different than EPS reported for those periods. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations When used in this Report, the words "expects," anticipates," "believes," "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 Six Months Ended September 30, September 30, ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net revenue 100.0% 100.0% 100.0% 100.0% Cost of revenue 109.3 84.0 93.8 (129.8) ----- ----- ----- ----- Gross profit (loss) (9.3) 16.0 6.2 (29.8) ----- ----- ----- ----- Operating expenses: Research and development 12.3 27.7 11.7 26.0 Selling, general and administrative 16.8 20.6 13.7 19.1 ----- ----- ----- ----- Total operating expenses 29.1 48.3 25.4 45.1 ----- ----- ----- ----- Income (loss) from operations (38.4) (32.3) (19.2) (74.9) ----- Other income, net 0.2 3.5 0.4 4.3 ----- ----- ----- ----- Income (loss) before income taxes (38.2) (28.8) (18.9) (70.6) Provision (benefit) for income taxes (13.4) (10.1) (6.6) (24.7) ----- ----- ----- ----- Income (loss) before equity in income of USC (24.8)% (18.7)% (12.3)% (45.9)% ===== ===== ===== =====
8 Net Revenue During the first two quarters 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 two quarters of fiscal 1997 was principally derived from the sale of SRAM products. Net revenue for the second quarter of fiscal 1998 was $29.0 million, or 121% higher than the $13.1 million of revenue for the second quarter of fiscal 1997. Net revenue for the first sixth months of fiscal 1998 was $65.3 million, or 140% higher than the $27.2 million of net revenue for the first sixth months of fiscal 1997. During the first six months of fiscal 1998, one customer accounted for 14% of net revenue. During the first six months of fiscal 1997, no customer accounted for more than 10% of net revenue. The increase in net revenue for the three and six months ended September 30, 1997, was due to increased production of DRAM products and an overall increase in units shipped, offset by continued decreases in the average selling prices for certain of the Company's SRAM and DRAM products and a decrease in demand for certain of the Company's SRAM products. The Company is unable to predict when or if such price and demand declines will stabilize. A continued decline in average selling prices or unit demand could have a material adverse effect on the Company's operating results. Revenues from the Company's SRAM products contributed approximately 30% of the Company's net revenues for the second quarter of fiscal 1998 and approximately 28% of the Company's net revenues for the first sixth months of fiscal 1998. 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 ship volume quantities of enhanced versions of 1 megabit SRAMs and a 4 megabit SRAMs. In addition to existing DRAM product offerings, the Company has recently begun to ship volume quantities of 4 megabit DRAM, in a 256KbitX16 configuration, and a 16 megabit DRAM. Revenues from the Company's DRAM products contributed approximately 63% of the Company's net revenues for the second quarter and 67% of the Company's net revenues for the first sixth months of fiscal 1998. The DRAM market is characterized by volatile supply and demand conditions, fluctuating pricing and rapid technology changes to higher density products. During the first six months of fiscal 1998, average selling prices for the Company's DRAM products have experienced declines. 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 ship in limited quantities the new ProMotion(R)-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 6% to the Company's net revenues for the second quarter of fiscal 1998 and approximately 5% of the Company's net revenues for the first sixth months of fiscal 1998. 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 lower 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. 9 Gross Profit (Loss) The Company experienced a gross loss of $2.7 million for the second quarter of fiscal 1998, or (9.3)% of net revenue compared to gross profit of $2.1 million, or 16% of net revenue for the same period of fiscal 1997. Gross profit was $4.0 million for the first six months of fiscal 1998, or 6.2% of net revenue compared to gross loss of $8.1 million, or (29.8)% of net revenue for the same period of fiscal 1997. The decrease in gross margin for the second quarter of fiscal 1998 resulted primarily from pre-tax inventory related charges of approximately $6.1 million recorded in the second quarter to reflect recent declines in the market value for certain of the Company's products. The increase in gross margin for the first six months of fiscal 1998 resulted primarily increase revenues and a decrease in pre-tax inventory related charges recorded to reflect declines in the market value for certain of the Company's products. As a result of the significant deterioration in the average selling prices for certain of its SRAM and DRAM products and decreased demand for certain of its SRAM products, the Company's gross margin declined and became a gross loss during the second quarter of fiscal 1998. The Company is unable to predict when or if such declines in price and demand will stabilize. A continued decline in average selling prices or demand could result in further 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 or decreased demand, 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 $3.6 million, or 12.3% of net revenue in the second quarter of fiscal 1998 compared to $3.6 million, or 27.7% of net revenue in the same period of the prior fiscal year. Research and development expenses were $7.7 million, or 11.7% of net revenue in the first six months of fiscal 1998 compared to $7.1 million, or 26.0% of net revenue in the same period of the prior fiscal year. The increase in research and development expenses for the first six months of fiscal 1998 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, increased legal expenses related to legal reserves for certain patent-related items 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 in future periods. Selling, General and Administrative Selling, general and administrative expenses were $4.9 million, or 16.8% of net revenue in the second quarter of fiscal 1998 compared to $2.7 million, or 20.6% of net revenue in the same period of the prior fiscal year. Selling, general and administrative expenses were $8.9 million, or 13.7% of net revenue in the first six months of fiscal 1998 compared to $5.2 million, or 19.1% of net revenue in the same period of the prior fiscal year. 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 proceedings, bad debt reserves 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 in future periods. 10 Other Income, Net Net other income was $0.1 million for the second quarter of fiscal 1998 compared to $0.5 million for the same period of fiscal 1997. Net other income was $0.2 million for the first six months of fiscal 1998 compared to $1.2 million for the same period of fiscal 1997. Net other income for the first three and sixth months of fiscal 1998 primarily represents interest and dividend income from investments, offset by interest expense for long term obligations. Provision (Benefit) for Income Taxes The Company's effective tax rate was 35.0% for the first and second quarters of fiscal 1998 and 1997. The tax benefit for the first and second quarters of fiscal 1998 and 1997 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 ("USC") As discussed in "Liquidity and Capital Resources", the Company entered into an agreement with other parties to form a separate Taiwanese company, USC. This 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 $2.7 million of equity in income of USC for the second quarter and $4.6 million of equity in income of USC for the first six months of fiscal 1998. No amounts were reported for the same periods 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 product 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 11 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 Company usually ships more product in the third month of each quarter than in either of the first two months of the quarter, with shipments in the third month higher at the end of the month. This pattern, which is common in the semiconductor industry, is likely to continue. The concentration of sales in the last month of the quarter may cause the Company's quarterly results of operations to be more difficult to predict. Moreover, a disruption in the Company's production or shipping near the end of a quarter could materially reduce the Company's net sales for that quarter. The Company's reliance on outside foundries and independent assembly and testing houses reduces the Company's ability to control, among other things, delivery schedules. The cyclical nature of the semiconductor industry periodically results in shortages of advanced process wafer fabrication capacity such as 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 customer changes and cancellations. The Company has in the past produced excess quantities of certain products which has had a material adverse effect on the 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, fiscal 1997 and fiscal 1998, during which periods the Company recorded pre-tax charges of $55 million, $17 million and $6 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 fires, seismic activity, weather conditions and other factors. In October 1997, a fire caused extensive damage to United Integrated Circuits Corporation ("UICC"), a foundry joint venture between United Microelectronics Corporation ("UMC") and various companies. UICC is located next to United Silicon, Inc. ("USI") and near USC and UMC in Science-Based Industrial Park, Hsin-Chu, Taiwan. (The Company has products manufactured at UMC and USC, and owns equity stakes in USC and USI.) There can be no assurance that fire or other disaster will not have a material adverse affect on UMC, USC or USI in the future. In addition, as a result of the rapid growth of the semiconductor industry based in the Science-Based Industrial Park, severe constraints have been placed on the water and electricity supply in that region. Any shortages of water or electricity could adversely affect the Company's foundries' ability to supply the Company's products, which could have a material adverse effect on the Company's results of operations or financial condition. 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 12 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 assessment of anti-dumping duties on the Company's importation into the United States of Taiwan-manufactured SRAMs. See Item 1 - Legal Proceedings, of Part II of this Report. There can be no assurance that adverse developments in current or future legal proceedings, including without limitation the above-identified patent litigation and antidumping 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 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 $16.9 million in the first six months of fiscal 1998 and used cash of $35.9 million in the first six months of fiscal 1997. Cash generated from operations in the first six months of fiscal 1998 was the result of taxes refunded and changes in working capital accounts, offset by the net loss generated during the period combined with the Company's share of USC's income. Cash used in operations 13 in the first six months of fiscal 1997 was primarily a result of net loss generated during the period and payment of a significant portion of the Company's liabilities. Net cash used in investing activities was $19.1 million for the first six months of fiscal 1998 and $17.9 million for the same period of fiscal 1997. Net cash used in investing activities in the first six months of fiscal 1998 reflects an investment of $17.6 million in USC and equipment purchases of $1.5 million. Net cash used in investing activities in the first six months of fiscal 1997 reflects an investment of $16.4 million in USC, equipment purchases of $1.7 million, partially offset by a reduction in the investment of USI of $0.2 million. Net cash provided by financing activities was $0.7 million in the first six months of fiscal 1998 and $0.2 million in the first six months of fiscal 1997. Net cash provided by financing activities in the first six months of fiscal 1998 reflects net proceeds from the sales of common stock in connection with the exercise of stock options, offset by repayments of long term obligations. Net cash provided by financing activities in the first six months of fiscal 1997 reflects net proceeds from the sales of common stock in connection with the exercise of stock options. At September 30, 1997, the Company had $20.9 million in cash, a decrease of $1.6 million from March 31, 1997 and working capital of $53.2 million, a decrease of $24.8 million from March 31, 1997. The Company believes that these sources of liquidity, together with potential 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 UMC and S3 to form a separate Taiwanese company, USC, for the purpose of building and managing a semiconductor manufacturing facility in Taiwan. Alliance paid approximately NTD 1 billion (approximately US$36.4 million) in September 1995, approximately NTD 450 million (approximately US$16.4 million) in July 1996, and 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, USI, 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 and initial ownership interest of approximately 5% for each US$30 million invested. Alliance's investment, which is payable in New Taiwan Dollars, 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. 14 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. 15 Part II. Other Information Item 1. Legal Proceedings As previously reported, in February 1997, Micron Technology, Inc. filed an anti-dumping petition (the "Petition") with the United States International Trade Commission ("ITC") (Investigation Nos. 731-TA-761-762) and United States Department of Commerce ("DOC") (Investigations Nos. A-580-828, A-583-827), alleging that static random access memories ("SRAMs") produced in Korea and Taiwan are being sold in the United States at less than fair value, and that the United States industry producing SRAMs (the "Domestic Industry") is materially injured or threatened with material injury by reason of imports of SRAMs manufactured in Korea and Taiwan. The Petition requests the United States government to impose antidumping duties on imports into the United States of SRAMs manufactured in Korea and Taiwan. A material portion of the SRAMs designed and sold by the Company are manufactured in Taiwan. The Company received preliminary producer and importer questionnaires from the ITC, and submitted responses to such questionnaires in March 1997. In April 1997, the ITC preliminarily determined that there is a reasonable indication that the imports of the products under investigation are injuring the United States industry. The Company received a questionnaire and supplements thereto from the DOC, and responded to such questionnaire and supplements in accordance with the deadlines established by the DOC. In September 1997, the DOC preliminarily determined that estimated antidumping duties of 59.06% (the "Preliminary Margin") should be imposed on the Company's importation of Taiwan-fabricated SRAMs. The Company anticipates that the DOC will make a final determination as to the level of such margin (the "Final Margin") in the first calendar quarter of 1998. The Company anticipates that the ITC, in the first quarter of calendar 1998, will make a final determination as to whether the Domestic Industry is materially injured or threatened with material injury by reason of imports of SRAMs manufactured in Korea and Taiwan. Since October 1997, the Company has been required to post a bond in the amount of the Preliminary Margin in order to import Taiwan-fabricated SRAMs into the United States. If the DOC makes a final determination that the Company should be required to pay estimated antidumping duties, and if the ITC finds that the Domestic Industry is materially injured or threatened with material injury by reason of imports of SRAMs manufactured in Taiwan, then the Company will be required to pay a cash deposit in the amount of the Final Margin in order to import Taiwan-fabricated SRAMs into the United States. The Company may, in 1999, request a review of its sales of Taiwan-fabricated SRAMs from approximately October 1997 through March 1999 (the "Review Period"). If the Company makes such a request, the cash deposits made by the Company shall not be "assessed" or "liquidated" until the conclusion of the review, in early 2000. If the DOC found, based upon analysis of the Company's sales during the Review Period, that antidumping duties either should not be imposed or should be imposed at a lower rate than the Final Margin, the difference between the cash deposits made by the Company, and the deposits that would have been made had the lower rate (or no rate, as the case may be) been in effect, would be returned to the Company, plus interest. If, on the other hand, the DOC found that higher margins were appropriate, the Company would have to pay difference between the cash deposits made by the Company, and the deposits that would have been made had the higher rate been in effect. The Company vigorously is seeking, and intends to continue vigorously to seek, to ensure that antidumping duties are not assessed on imports of its SRAM products manufactured in Taiwan. There can be no assurance, however, that such duties will not be assessed. The possibility of assessment of such could materially adversely affect the Company's ability to sell Taiwan-fabricated SRAMs in the United States and have a material adverse effect on the Company's operating results or financial condition. 16 Item 4. Submission of Matters to a Vote of Security Holders On September 5, 1997, at the annual meeting of the stockholders of the Company, the stockholders voted to: (1) elect as directors, until the 1998 annual meeting of the stockholders or until their respective successors are elected and qualified, N. Damodar Reddy (36,429,537 votes in favor and 65,974 votes withheld), C.N. Reddy (36,430,137 votes in favor and 65,374 votes withheld), Sanford L. Kane (36,433,137 votes in favor and 62,374 votes withheld) and Jon B. Minnis (36,434,137 votes in favor and 61,374 votes withheld); and (2) ratify and approve the appointment of Price Waterhouse as the Company's independent auditors for the current fiscal year (36,422,258 votes in favor, 34,428 votes against and 38,825 votes abstained). 17 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits
Number Title Filing Status ------ ----- ------------- 3.01 Registrant's Certificate of Incorporation (A) 3.02 Registrant's Bylaws (A) 3.03 Registrant's Certificate of Elimination of Series A Preferred Stock (A) 3.04 Registrant's Certificate of Amendment of Certificate of (B) Incorporation 4.01 Specimen of Common Stock Certificate of Registrant (A) 11.01 Statement re: Computation of Earnings per Share (C) 27.01 Financial Data Schedule (C) (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 filed herewith.
18 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: November 11, 1997 /s/ N. D. Reddy --------------- N. Damodar Reddy President and Principal Executive Officer Date: November 11, 1997 /s/ Charles Alvarez ------------------- Charles Alvarez Vice President - Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) 19 EX-11.01 2 EXHIBIT 11.01 Exhibit 11.01 ALLIANCE SEMICONDUCTOR CORPORATION COMPUTATION OF NET INCOME(LOSS) PER SHARE AND COMMON EQUIVALENT SHARES
Three Months Ended Six Months Ended September 30, September 30, 1997 1996 1997 1996 -------- -------- -------- -------- (in thousands, except per (in thousands, except per share data) share data) Net income (loss) .............................................. ($ 4,551) ($ 2,455) ($ 3,443) ($12,490) ======== ======== ======== ======== Weighted average number of common shares outstanding during the period .............................. 39,175 38,483 39,087 38,450 Weighted-average common stock equivalents (calculated using the "treasury stock" method) representing shares issuable upon exercise of employee stock options .................................................... -- -- -- -- -------- -------- -------- -------- Weighted-average common shares and equivalents ................. 39,175 38,483 39,087 38,450 ======== ======== ======== ======== Net income (loss) per share .................................... ($ 0.12) ($ 0.06) ($ 0.09) ($ 0.32) ======== ======== ======== ========
20 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 6-MOS MAR-28-1998 MAR-30-1997 SEP-27-1997 20,911 0 15,206 0 33,533 89,912 11,196 0 241,539 36,749 1,357 0 0 393 202,338 241,539 65,337 65,337 61,308 61,308 7,665 0 0 (12,333) (4,316) (8,017) 0 0 0 (3,443) (0.09) (0.09)
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