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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 0-9653
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XICOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 94-2526781
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1511 BUCKEYE DRIVE 95035
MILPITAS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 432-8888
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
(TITLE OF CLASS)
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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 and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock (Common Stock, without par
value) held by non-affiliates of the Registrant was approximately $125,041,208
on March 21, 1997.
The aggregate number of outstanding shares of Common Stock, without par
value, of the Registrant was 18,902,252 on March 21, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in Parts
II, III and IV of this Form 10-K Report: (1) Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1996 and (2) Proxy Statement
for Registrant's 1997 Annual Meeting of Shareholders.
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PART I
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors
listed in the "Factors Affecting Future Results" section of "Management's
Discussion & Analysis of Financial Conditions and Results of Operations" which
is incorporated by reference in Part II, Item 7. of this report and the risk
factors included in Item 1. below.
ITEM 1. BUSINESS
Xicor, Inc. ("Xicor" or the "Company") designs, develops, manufactures and
markets reprogrammable nonvolatile semiconductor memory devices for use in
commercial, industrial and military applications. Xicor's E(2)PROMs
(Electrically Erasable Programmable Read-Only Memories), SerialFlash(TM)
(Xicor's trademark) memory devices and NOVRAMs (Xicor's acronym for its
Nonvolatile Random Access Memories) serve as support products to microprocessors
and microcontrollers. Xicor's series of products called E(2)POT(R) (Xicor's
trademark) electronically controlled potentiometers incorporate Xicor's
nonvolatile memory technology and are digitally controlled replacements for
mechanical potentiometers.
Xicor's devices offer a comprehensive set of features to its customers. By
virtue of their nonvolatility, Xicor's devices retain their information content
when power is lost or turned off. Reprogramming is accomplished by "writing"
over the old data without a need for first "erasing" the old data. Xicor's
devices can be reprogrammed bit by bit or in larger groups of bits called
"words" and "pages" without being removed from the system, all using the 5-volt
power source common in microcontroller and microprocessor-based systems, or
lower voltages, making them suitable for hand-held and portable applications.
Further, control and timing circuits are fully integrated "on-chip", thereby
eliminating the need for such external support circuits. Xicor products are sold
in a variety of packages, including plastic, ceramic and small outline surface
mount packages for small footprint and height.
The combination of reprogrammability and nonvolatility has enabled Xicor's
customers to develop products which have characteristics that can be altered
from a remote location by a technician or on-site by a non-technical user
through a keyboard, or which are automatically self-calibrating, thereby
reducing field service costs. Microcontroller and microprocessor-based products
incorporating Xicor's devices can be customized by either the distributor or the
end user subsequent to the production process. This simplifies production
control, reduces the lead time required for such customization and permits lower
inventory levels to be maintained. Xicor products also offer programmable
security locks enabling system producers to prevent changes to embedded
programs.
Xicor is continuing to apply its electrically reprogrammable memory
technology to develop innovative products combining nonvolatility and in-system
data alterability. To address the large E(2)PROM commodities market, Xicor is
also redesigning certain key commodity products for cost reduction through
smaller chip sizes. Xicor products are used by manufacturers of electronic
products throughout the world in a wide range of applications, including
telecommunications, consumer, computer, industrial, automotive and military
products.
SEMICONDUCTOR MEMORY DEVICES
A variety of currently available nonvolatile semiconductor memories offer
different degrees of programming flexibility. Nonvolatile memory devices which
have been introduced over time include read-only memories ("ROMs"), programmable
read only memories ("PROMs"), electrically programmable read-only memories
("EPROMs"), electrically erasable programmable ROMs ("E(2)PROMs"), nonvolatile
random access memories ("NOVRAMs"), Flash Memories and, most recently,
SerialFlash Memories. A brief description of these nonvolatile devices follows:
ROMs and PROMs are one time programmable. ROMs have the data permanently
programmed into the memory during the manufacturing process according to
customer specifications, making necessary long-range
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planning before introducing a new product incorporating ROMs. PROMs are
programmable one time after manufacture. However, programming a PROM is complex
and in practice is only done at the factory or by distributors.
EPROMs can be reprogrammed several times. However, reprogramming an EPROM
is a two-step process, erasing the old data by exposing it to ultraviolet light
and then programming the new data into the system using voltages higher than 5
volts, the voltage most common in microprocessor-based products. Since
ultraviolet light and an auxiliary power source are required, the erasure and
reprogramming generally are performed outside the system, thus requiring
physical removal of the EPROM from the printed circuit board.
The development of E(2)PROMs provided significant programming flexibility.
These non-volatile memories can be reprogrammed in-system tens of thousands of
times and can be altered one byte or several bytes at a time. E(2)PROMs are
termed serial or parallel depending on their connection to the system's
processor. Serial E(2)PROM devices transmit data through a single input-output
port while parallel devices transmit data through multiple ports concurrently.
Devices called Flash memories offer a middle ground in price and features
between EPROMs and E(2)PROMs. Unlike EPROMs, Flash memories can be reprogrammed
while in a system. However, unlike the more flexible E(2)PROMs that can be
altered one byte or several bytes at a time, Flash memories can only be altered
all at once or in larger groups of bytes. In nonvolatile reprogrammable memory
chips containing less than 256K bits, the memory cell array takes up less than
half of the chip area and the support circuitry the balance. Accordingly,
manufacturers of Flash memories have focused on parallel interface high density
devices where customers are willing to forgo the ease of use of the full
featured E(2)PROMs for the lower cost of a Flash memory or where the Flash
memory has achieved higher density due to its smaller memory cell size.
SerialFlash memory devices offer lower memory density and smaller package size
than the typical parallel interface Flash memories.
NOVRAMs were developed to combine the versatility and rapid data access of
the RAM with the nonvolatility of the full-featured E(2)PROM on a single
semiconductor. The complex dual-memory structure of the NOVRAM, while providing
substantially greater functionality than the E(2)PROM, results in a
significantly greater cost per memory bit.
XICOR PRODUCTS AND APPLICATIONS
Xicor's product line currently consists of E(2)PROMs, SerialFlash memory
devices and NOVRAMs as described above and E(2)POT electronically controlled
potentiometers. E(2)POTs are digitally controlled electronic potentiometers that
were developed by Xicor and incorporate its nonvolatile memory technology.
Digitally controller potentiometers are a popular replacement for mechanically
adjustable devices and provide the user with capabilities not readily available
with either mechanical potentiometers or digital-to-analog circuits.
All Xicor devices are nonvolatile, are reprogrammable using only a 5-volt
or lower power supply and eliminate the need for external control and timing
circuits by integrating such circuits "on-chip." Xicor's products operate over a
wide speed and temperature range and are sold in a variety of package options,
including plastic, ceramic and surface mount. The complementary metal oxide
silicon ("CMOS") technology is the primary technology used in manufacturing
Xicor's devices due to its low power consumption. A limited number of devices
are manufactured using the silicon-gate n-channel metal oxide silicon ("NMOS")
technology. For military applications, Xicor manufactures E(2)PROMs, NOVRAMs and
E(2)POTs that are fully compliant with paragraph 1.2.1 of MIL-STD-883 Revision E
for Class level B products as well as various Standard Microcircuit Drawings.
Xicor's products are sold worldwide for a broad range of applications,
including telecommunications, consumer, computer, industrial, automotive and
military applications.
The ease and flexibility with which Xicor's devices can be programmed allow
a system incorporating such devices to be programmed after final production and
reprogrammed in-the-field as required, either through a keyboard or from a
remote location via telephone lines, satellite link or from a central database
over a local
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area network. For example, a technician need no longer travel to the user's site
to initialize a computer printer since this can be accomplished by the user
through a keyboard. Similar advantages exist over products that incorporate
batteries to provide nonvolatility, since a site visit is still necessary to
replace a run-down battery and then rewrite the data.
The ease of reprogrammability of Xicor's E(2)PROMs, SerialFlash memory
devices and NOVRAMs also permits customized features to be implemented at a late
stage of the manufacturing process or at the point of distribution, thereby
reducing the lead time required for such customization and permitting lower
inventory levels to be maintained. Xicor's E(2)PROMs, SerialFlash memory devices
and NOVRAMs further enhance productivity and minimize service costs by enabling
microprocessor-based products to perform self-diagnostics, adjust and
recalibrate themselves and then store the parameters in Xicor's nonvolatile
memories until subsequent self-diagnostics and adjustment. Process controllers
and other equipment subject to harsh environmental conditions, as well as
measurement and data recording instruments which routinely require calibration,
can thereby be kept constantly and automatically calibrated.
Similarly, the E(2)POT potentiometer, as a solid state device, offers
designers of equipment various benefits, including (i) automated assembly line
calibration rather than mechanical "tweaking" of potentiometers; (ii) protection
against parameter drift due to vibration or contamination; (iii) elimination of
potentiometer access problems; and (iv) product enhancements such as keyboard
adjustments for volume or brightness control and calibration of equipment from
the front panel.
MARKETING AND SALES
In new applications, particularly for newly introduced devices, Xicor's
products generally require long "design-in" cycles for customer applications
with extensive field application engineering support by Xicor. Xicor considers
close support of its customers' design efforts to be an important aspect of its
marketing strategy.
Xicor markets its products directly from its headquarters in Milpitas,
California and from regional domestic and foreign sales offices. Products are
also marketed domestically through a national network of independent sales
representatives, each of which has been granted an exclusive sales territory,
and through national and regional stocking distributors which also handle
competitive products. Xicor's products are also marketed abroad through an
international network of independent non-exclusive stocking sales
representatives. Generally, sales to distributors and stocking sales
representatives are made under agreements allowing rights of return and price
protection on unsold merchandise. Xicor's policy is to defer recognition of
sales and related costs on such shipments until the products are sold by the
distributors and stocking sales representatives.
During the years ended December 31, 1996, 1995 and 1994, Xicor's export
sales constituted 45%, 47%, and 50%, respectively, of revenues. Xicor's export
sales, which are generally denominated in US currency, are subject to risks
common to all export activities, including governmental regulation and the risk
of imposition of tariffs or other trade barriers. Further, export sales must be
licensed by the Office of Export Administration of the US Department of
Commerce.
One distributor accounted for 14% of Xicor's revenues in 1996 and 1995 and
12% in 1994. Distributors are not themselves end users, but rather serve as a
channel of sale to many end users of Xicor's products.
Although Xicor receives volume purchase orders, such orders do not
necessarily result in sales as they are in most cases, consistent with industry
practice, terminable by the customer without penalty. Consequently, backlog
figures are not necessarily indicative of future sales.
MANUFACTURING
Wafers are fabricated in Xicor's six-inch wafer fabrication plant in
Milpitas, California. The wafer fabrication processes for Xicor's products are
highly complicated, utilize numerous highly toxic and corrosive chemicals and
gases, and require stringent control of many extremely precise steps, similar to
those used in the semiconductor industry for the production of other large scale
integrated circuits. These steps include complex
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processes such as microphotolithography, wet chemical and dry plasma etch,
chemical vapor deposition, high temperature diffusion and oxidation, ion
implantation and vacuum metallization, which are applied to silicon wafers to
form several hundred to several thousand devices ("chips") per wafer depending
on the product. Each chip, in turn, contains thousands to millions of individual
transistors and other circuit elements. The sensitivity of the manufacturing
process to dust and other contaminants requires the production process to take
place in a highly controlled, clean environment. Xicor uses sophisticated
computer-controlled testing equipment to test each chip on the wafer to identify
those potentially meeting the desired electrical criteria.
Although Xicor's manufacturing process is highly controlled, minute
impurities, difficulties in the process or defects in the masks can cause wafers
to be rejected or a substantial percentage of individual chips to be
nonfunctional, a problem indigenous to the semiconductor industry. Xicor from
time to time experiences a variety of technical problems in its manufacturing
processes which adversely affect manufacturing yields until they are corrected.
Maintaining and improving manufacturing yields is essential for profitability.
Fabricated wafers are shipped for assembly to either a dedicated
subcontract line in Taiwan or to other independent subcontractors located in
South Korea, Thailand and the Philippines where the wafers are separated into
individual chips. Each potentially functional chip is encapsulated in a plastic
or ceramic package containing external leads to which the chip is connected by
extremely fine wires. Completed packages then undergo inspection, sealing and
limited testing. Xicor also makes limited use of assembly subcontractors in
California to satisfy particular customer requirements and uses a small in-house
assembly line to provide rapid turnaround for new product development.
Most of the assembled devices undergo comprehensive electrical testing
offshore at one of Xicor's independent subcontractors located in Taiwan,
Thailand, South Korea and the Philippines. Currently most military and new
products undergo such testing by Xicor at its facility in Milpitas, California.
Quality assurance testing for all products is also performed in Milpitas prior
to shipment to customers. In accordance with industry practice, Xicor provides a
limited warranty for its devices against defects in materials and workmanship
for periods ranging from 90 days to one year.
Reliance on foreign assembly and test contractors and Xicor's maintenance
of inventories and equipment at such contractors' facilities entails certain
political and economic risks, including political instability and expropriation,
currency controls and exchange fluctuations, and changes in tariff and freight
rates. In the event Xicor's foreign assembly and test operations, or air
transportation to or from foreign contractors, were disrupted, Xicor's
operations would be materially adversely affected.
The principal raw materials utilized in the production process are polished
silicon wafers, ultra-pure metals, chemicals and gases. Encapsulation materials
that enclose the chip and provide the external connecting leads are provided by
the independent assembly contractors or are purchased by Xicor and shipped to
such contractors. Shortages could occur in various essential materials due to
interruption of supply or due to increased demand in the industry. Shortages
have occurred in the Company's history and lead times have been extended in the
industry on occasion without materially adversely affecting the Company.
However, there can be no assurance that future shortages, if any, would not have
a material adverse effect on Xicor's operations.
Cost reduction is an important on-going activity at Xicor since continually
lower selling prices are essential to maintain and improve Xicor's competitive
position. Xicor's cost reduction program is designed to minimize defects,
simplify testing and reduce the physical size of its chips.
Compliance with Environmental Regulations
The manufacture of semiconductors requires the use and storage of
substantial amounts of toxic chemicals, solvents and gases. Government
regulations impose various environmental controls on the storage, use and
disposal of such materials. Such regulations have grown more complex and
enforcement more rigorous and increasing attention has been focused on the
environmental impact of semiconductor manufacturing operations. While Xicor to
date has not experienced any materially adverse effect on its business from
environmental regulations, there can be no assurance that changes in such
regulations will not necessitate the acquisition of more costly equipment or
require more costly procedures or process changes to be initiated.
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RESEARCH AND DEVELOPMENT
Xicor believes the continuing development of new and improved processes and
products is essential to maintain its competitive position. Process development
is an on-going activity designed to improve Xicor's technology. Product
development is a difficult and lengthy process, the ultimate success of which is
dependent upon Xicor's ability to transfer newly developed products to volume
production in a timely fashion. There can be no assurance that any research and
development efforts will be successfully completed or that future products will
be available on a timely basis or achieve market acceptance.
Xicor's product development is currently focused on developing proprietary
microchips incorporating Xicor's programmable technology which enable customers
to rapidly bring to market products with improved efficiency, features and
maintainability. To address the large E(2)PROM commodities market Xicor is also
redesigning certain key commodity products for cost reduction through smaller
chip sizes. Research and development activities are requiring an increasing
degree of complexity of design and manufacturing process and consequently a
significant percentage of revenues is again expected to be invested in research
and development in 1997.
During the years ended December 31, 1996, 1995 and 1994, Xicor expended
$15,074,000, $15,270,000 and $14,085,000, respectively, on research and
development. At December 31, 1996, 115 employees were engaged in research and
development activities.
PATENTS AND LICENSES
Xicor holds numerous United States patents and corresponding foreign
patents covering various circuit designs and the structure of its devices.
Further, additional patent applications for such products are pending in the
United States and abroad. However, there can be no assurance that the patents
granted or pending will provide Xicor with any meaningful protection. Similar to
other semiconductor manufacturers, Xicor has granted licenses under its patents
and may continue to do so in the future. Xicor believes that, due to the rapidly
changing technology in the semiconductor industry, its future success will be
dependent primarily upon the technical expertise and creative skills of its
personnel rather than patent protection.
As is the case with many companies in the semiconductor industry, it may
become necessary or desirable for Xicor to obtain licenses relating to its
products from others. Xicor has received notices claiming infringement of
patents from several semiconductor manufacturers and other patent holders with
respect to certain aspects of Xicor's processes, devices and equipment use and
these matters are under investigation and review. Although patent holders
typically offer licenses and Xicor has in prior years entered into license
agreements, there can be no assurance that licenses can be obtained on
acceptable terms or that in all cases the dispute will be resolved without
costly litigation.
COMPETITION
The semiconductor industry is highly competitive and characterized by
steadily declining product prices. Numerous companies are currently selling
products competitive with those of Xicor. Customers are extremely price
sensitive and competitors often lower prices in an attempt to gain market share,
causing responsive reductions by other manufacturers, including Xicor, and
resulting in reduced profitability or losses. In addition to price, important
elements of competition include product performance, quality and reliability,
delivery capability, diversity of product line, application support, financial
strength and the ability to respond rapidly to technological innovations. Xicor
may be at a disadvantage in competing with major domestic and foreign concerns
that have significant financial resources, established and diverse product
lines, worldwide vertically integrated production facilities and extensive
research and development staffs. Further, the industry is characterized by rapid
technological change and Xicor will be required to continually develop new and
improved manufacturing processes and products to remain competitive.
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EMPLOYEES
At December 31, 1996 Xicor had 750 employees. None of the employees are
represented by a labor organization and Xicor considers its employee relations
to be good. Many of Xicor's employees are highly skilled and Xicor's success
will depend in part on its ability to attract and retain such employees in the
highly competitive semiconductor industry.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth each executive officer of Xicor, their ages
(as of December 31, 1996) and office with Xicor:
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NAME AGE OFFICE
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Raphael Klein........... 53 President and Chairman of the Board
Joseph Drori............ 51 Vice President, Product Design, Engineering, Quality and
Reliability
Bruce Gray.............. 46 Vice President, Wafer Operations
Geraldine N. Hench...... 39 Vice President and Controller
Klaus G. Hendig......... 57 Vice President, Finance and Administration and Chief Financial
Officer
Timothy D. Kanemoto..... 50 Vice President, Product Operations
Bruce W. Mattern........ 53 Vice President, Sales and Marketing
William H. Owen, III.... 48 Vice President, Technology Development and Intellectual
Properties
</TABLE>
Raphael Klein, President and Chairman of the Board. Mr. Klein has been
Xicor's President and a director since founding Xicor in August 1978 and its
Chairman of the Board since August 1982, with overall responsibility as Chief
Executive Officer for implementing its business plan. Mr. Klein received the
degree of Master of Science in Physics from the Israeli Institute of Technology
("Technion") and is the inventor or co-inventor of two patented inventions.
Joseph Drori, Vice President, Product Design, Engineering, Quality and
Reliability. Mr. Drori has been employed by Xicor since October 1979 and became
a Vice President in June 1988. Mr. Drori received the degree of Master of
Science in Electrical Engineering from the University of California at Los
Angeles and is the inventor or co-inventor of several patented inventions in the
semiconductor field.
Bruce Gray, Vice President, Wafer Operations. Mr. Gray joined Xicor in
September 1996 as Vice President, Wafer Operations. Mr. Gray has 24 years of
experience in the semiconductor industry in engineering, manufacturing and
management. From September 1994 through September 1996, Mr. Gray served as the
Managing Director of the Advanced Technology Group at National Semiconductor
Corporation. From August 1989 through September 1994, Mr. Gray was the Director
of Santa Clara Operations and Services for National Semiconductor with
operational responsibility for four high-volume wafer fabrication lines. Mr.
Gray was also involved in advanced technology development and wafer foundry
activities. Mr. Gray has a Bachelor of Science Degree in Metallurgy and
Materials Science from the Massachusetts Institute of Technology (MIT).
Geraldine N. Hench, Vice President and Controller. Ms. Hench, a certified
public accountant, has been employed by Xicor as its Corporate Controller since
November 1987 and became a Vice President in June 1993. Ms. Hench received the
degree of Bachelor of Science in Accounting from Santa Clara University.
Klaus G. Hendig, Vice President, Finance and Administration and Chief
Financial Officer. Mr. Hendig, a certified public accountant, has been employed
by Xicor since February 1981 and became a Vice President in January 1983 and its
Chief Financial Officer in September 1987. Mr. Hendig received the degree of
Bachelor of Science in Accounting and Finance from San Jose State University.
Timothy D. Kanemoto, Vice President, Product Operations. Mr. Kanemoto
joined Xicor in January 1990, and became a Vice President in June 1994. He
received the Degree of Bachelor of Science in Business Administration from
California State University, Hayward.
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Bruce W. Mattern, Vice President, Sales and Marketing. Mr. Mattern has been
employed by Xicor since October 1983 and became a Vice President in April 1990.
Mr. Mattern received the degree of Bachelor of Science in Electrical Engineering
from Pennsylvania State University.
William H. Owen, III, Vice President, Technology Development and
Intellectual Properties. Mr. Owen, one of Xicor's founders, joined Xicor in
October 1978, shortly after its formation to aid in the development of its
advanced memory devices, with principal responsibility for circuit design. Mr.
Owen is presently involved in process development and patent activities. Mr.
Owen received the degree of Master of Science in Electrical Engineering from the
University of Wisconsin and is the inventor or co-inventor of several patented
inventions in the semiconductor field.
INSURANCE
Xicor presently carries various insurance coverages including property
damage, business interruption and general liability including certain product
liability coverage. Xicor has been unable to obtain pollution and earthquake
insurance at reasonable costs and limits.
ITEM 2. PROPERTIES
Xicor leases a 43,834 square foot facility in Milpitas, California which
contains Xicor's silicon wafer fabrication and process technology development
operations. The lease, which expires in 2001, provides for an annual base rental
of $626,145 and requires Xicor to pay all real estate taxes, utilities and
insurance and to maintain the building and premises. Xicor has two successive
five-year renewal options upon the same terms and conditions at increased rental
rates based on the consumer price index, not to exceed 15% for the prior
five-year period.
Xicor leases a 55,767 square foot facility near its wafer fabrication
facility which houses its product testing operations and a small quick-turn
assembly line. The lease, which expires in 1999, provides for an annual base
rental of $401,520. Xicor has a five-year renewal option upon the same terms and
conditions, except that the rental will be 95% of the then market rental rate in
the industrial park where the property is located.
Xicor also leases a 73,622 square foot facility constructed to its
specifications adjacent to its existing wafer fabrication facility. This
facility, which could potentially be used for future expansion of silicon wafer
fabrication, presently houses Xicor's design, research and development and
reliability operations and executive, marketing and administrative offices and
also serves as Xicor's main stockroom. This lease expires in 2000 and provides
for an annual base rental of $1,285,776 and requires Xicor to pay all real
estate taxes, utilities and insurance and to maintain the building and premises.
Xicor has three successive five-year renewal options upon the same terms and
conditions at increased rental rates based on the consumer price index, not to
exceed 15% for the prior five-year period.
Xicor believes that its existing facilities should be adequate for its
needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Xicor is not a party, nor is its property subject, to any material pending
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to page
17 of the Company's 1996 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1996,
which appears on page 16 of the Company's 1996 Annual Report to Shareholders, is
incorporated by reference in this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to pages
4 to 7 of the Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of Price
Waterhouse LLP dated January 22, 1997, appearing on pages 8 to 15 and the
unaudited financial information by quarter appearing on page 17 of the Company's
1996 Annual Report to Shareholders, are incorporated by reference in this Annual
Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
With the exception of the information incorporated in Items 5,6,7,8 and 14
of Parts II and IV of this Form 10-K, the Company's 1996 Annual Report to
Shareholders is not to be deemed filed as a part of this Annual Report on Form
10-K.
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the information contained in the section captioned
"Election of Directors" in the Company's Proxy Statement.
The information concerning the Company's executive officers required by
this Item is included in Part I hereof entitled "Executive Officers of the
Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
information contained in the section captioned "Executive Compensation" in the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
information contained in the section captioned "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
information contained in the section captioned "Election of Directors" in the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS. The following Consolidated Financial Statements
of Xicor, Inc. and the Report of Independent Accountants are
incorporated by reference from the indicated pages of the Company's
1996 Annual Report to Shareholders:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL
REPORT
-------
<S> <C>
Consolidated Statements of Operations for the three years ended December 31,
1996...................................................................... 9
Consolidated Balance Sheets as of December 31, 1996 and 1995................ 8
Consolidated Statements of Shareholders' Equity for the three years ended
December 31, 1996......................................................... 9
Consolidated Statements of Cash Flows for the three years ended December 31,
1996...................................................................... 10
Notes to Consolidated Financial Statements.................................. 11-14
Report of Independent Accountants........................................... 15
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULE.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants on Financial Statement Schedule............. 10
II -- Valuation and Qualifying Accounts....................................... 13
</TABLE>
All other schedules have been omitted since the required
information is not applicable, not significant or because the
information required is included in the consolidated financial
statements or notes thereto.
(3) EXHIBITS. The exhibits listed in the accompanying Index to Exhibits
are filed or incorporated by reference as part of this Annual Report.
(B) REPORTS ON FORM 8-K
None.
9
<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Xicor, Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 22, 1997, appearing on page 15 of the 1996 Annual Report to
Shareholders of Xicor, Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE LLP
San Jose, California
January 22, 1997
10
<PAGE> 12
XICOR, INC.
INDEX TO EXHIBITS
ITEM 14(A)3.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
3.1 -- Amended and Restated Articles of Incorporation dated December 9, 1987 filed as
Exhibit 3.1 with Form 10-K for the year ended December 31, 1987, is hereby
incorporated by reference.
3.2 -- By-laws, as amended to date, filed as Exhibit 3.2 with Form 10-K for the year ended
December 31, 1987, is hereby incorporated by reference.
10.1 -- Non-Qualified (Non-Incentive) and Incentive Stock Option Plan as amended as of
December 31, 1987 filed as Exhibit 10.1 with Form 10-K for the year ended December
31, 1987, is hereby incorporated by reference.
10.1A -- Amended and Restated Xicor, Inc. 1990 Incentive and Non-incentive Stock Option Plan
filed as Exhibit 10.1A with Form 10-K for the year ended December 31, 1995, is
hereby incorporated by reference.
10.2 -- Lease dated July 2, 1980, Exhibit 13-E of the Exhibits filed with Form S-1
Registration Statement, File No. 2-69109, is hereby incorporated by reference.
10.2A -- Amendment to lease dated July 2, 1980 filed as Exhibit 10.2A with Form 10-K for the
year ended December 31, 1990, is hereby incorporated by reference.
10.3 -- Lease dated November 23, 1983, Exhibit 1 of the Exhibits filed with Form 10-K for
the year ended December 31, 1983, is hereby incorporated by reference.
10.3A -- Amendment to lease dated November 23, 1983 filed as Exhibit 10.3A with Form 10-K
for the year ended December 31, 1990, is hereby incorporated by reference.
10.4 -- Lease dated February 15, 1984, Exhibit 10(v) of the Exhibits filed with Form 10-K
for the year ended December 31, 1984, is hereby incorporated by reference.
10.4A -- Amendment to lease dated February 15, 1984 filed as Exhibit 10.4A with Form 10-K
for the year ended December 31, 1994, is herein incorporated by reference.
10.6 -- Form of Indemnification Agreement entered into between Xicor, Inc. and each of its
Officers and Directors filed as Exhibit 10.6A with Form 10-Q for the quarterly
period ended June 30, 1996, is hereby incorporated by reference.
10.7 -- Lingsen-Xicor Dedicated Production Agreement dated September 21, 1988 as amended on
March 11, 1989, April 14, 1989 and September 8, 1989 filed as Exhibit 10.8 with
Form 10-K for the year ended December 31, 1989, is hereby incorporated by
reference.
10.8 -- Loan and Security Agreement dated March 10, 1993 with CoastFed Business Credit
Corporation filed as Exhibit 10.8 with Form 10-K for the year ended December 31,
1992, is hereby incorporated by reference.
10.8A -- Extension Agreement to Loan and Security Agreement dated February 21, 1997 is filed
herewith as Exhibit 10.8A.
10.9 -- Xicor, Inc. 1995 Director Option Plan filed as Exhibit 10.9 with Form 10-K for the
year ended December 31, 1995, is hereby incorporated by reference.
11.1 -- Statement of Computation of Earnings Per Share.
13.1 -- Pertinent pages of the 1996 Annual Report to Shareholders (to be deemed filed only
to the extent required by the instructions to exhibits for reports on Form 10-K).
21. -- List of Subsidiaries.
23. -- Consent of Price Waterhouse LLP.
24. -- Powers of Attorney (included on the signature pages hereof).
27. -- Financial Data Schedule.
</TABLE>
11
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Milpitas, State of California, on the 21st day of March 1997.
XICOR, INC.
Registrant
By /s/ RAPHAEL KLEIN
------------------------------------
Raphael Klein
Chairman of the Board and President
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Raphael Klein and Klaus G. Hendig, and
each of them, jointly and severally, his attorneys-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any and all
amendments to this Report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ----------------------------------------- ---------------
<S> <C> <C>
/s/ RAPHAEL KLEIN Chairman of the Board and President March 21, 1997
- ----------------------------------- (Principal Executive Officer)
(Raphael Klein)
/s/ JULIUS BLANK Director March 21, 1997
- -----------------------------------
(Julius Blank)
/s/ HANS G. DILL Director March 21, 1997
- -----------------------------------
(Hans G. Dill)
/s/ ANDREW W. ELDER Director March 21, 1997
- -----------------------------------
(Andrew W. Elder)
/s/ S. ALLAN KLINE Director March 21, 1997
- -----------------------------------
(S. Allan Kline)
/s/ KLAUS G. HENDIG Vice President, Finance and March 21, 1997
- ----------------------------------- Administration
(Klaus G. Hendig) (Principal Financial Officer)
/s/ GERALDINE N. HENCH Vice President and Controller March 21, 1997
- ----------------------------------- (Principal Accounting Officer)
(Geraldine N. Hench)
</TABLE>
12
<PAGE> 14
XICOR, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994................. $ 500,000 $ -- $ -- $ 500,000
Year ended December 31, 1995................. 500,000 -- -- 500,000
Year ended December 31, 1996................. 500,000 -- -- 500,000
</TABLE>
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
3.1 -- Amended and Restated Articles of Incorporation dated December 9, 1987 filed as
Exhibit 3.1 with Form 10-K for the year ended December 31, 1987, is hereby
incorporated by reference.
3.2 -- By-laws, as amended to date, filed as Exhibit 3.2 with Form 10-K for the year ended
December 31, 1987, is hereby incorporated by reference.
10.1 -- Non-Qualified (Non-Incentive) and Incentive Stock Option Plan as amended as of
December 31, 1987 filed as Exhibit 10.1 with Form 10-K for the year ended December
31, 1987, is hereby incorporated by reference.
10.1A -- Amended and Restated Xicor, Inc. 1990 Incentive and Non-incentive Stock Option Plan
filed as Exhibit 10.1A with Form 10-K for the year ended December 31, 1995, is
hereby incorporated by reference.
10.2 -- Lease dated July 2, 1980, Exhibit 13-E of the Exhibits filed with Form S-1
Registration Statement, File No. 2-69109, is hereby incorporated by reference.
10.2A -- Amendment to lease dated July 2, 1980 filed as Exhibit 10.2A with Form 10-K for the
year ended December 31, 1990, is hereby incorporated by reference.
10.3 -- Lease dated November 23, 1983, Exhibit 1 of the Exhibits filed with Form 10-K for
the year ended December 31, 1983, is hereby incorporated by reference.
10.3A -- Amendment to lease dated November 23, 1983 filed as Exhibit 10.3A with Form 10-K
for the year ended December 31, 1990, is hereby incorporated by reference.
10.4 -- Lease dated February 15, 1984, Exhibit 10(v) of the Exhibits filed with Form 10-K
for the year ended December 31, 1984, is hereby incorporated by reference.
10.4A -- Amendment to lease dated February 15, 1984 filed as Exhibit 10.4A with Form 10-K
for the year ended December 31, 1994, is herein incorporated by reference.
10.6 -- Form of Indemnification Agreement entered into between Xicor, Inc. and each of its
Officers and Directors filed as Exhibit 10.6A with Form 10-Q for the quarterly
period ended June 30, 1996, is hereby incorporated by reference.
10.7 -- Lingsen-Xicor Dedicated Production Agreement dated September 21, 1988 as amended on
March 11, 1989, April 14, 1989 and September 8, 1989 filed as Exhibit 10.8 with
Form 10-K for the year ended December 31, 1989, is hereby incorporated by
reference.
10.8 -- Loan and Security Agreement dated March 10, 1993 with CoastFed Business Credit
Corporation filed as Exhibit 10.8 with Form 10-K for the year ended December 31,
1992, is hereby incorporated by reference.
10.8A -- Extension Agreement to Loan and Security Agreement dated February 21, 1997 is filed
herewith as Exhibit 10.8A.
10.9 -- Xicor, Inc. 1995 Director Option Plan filed as Exhibit 10.9 with Form 10-K for the
year ended December 31, 1995, is hereby incorporated by reference.
11.1 -- Statement of Computation of Earnings Per Share.
13.1 -- Pertinent pages of the 1996 Annual Report to Shareholders (to be deemed filed only
to the extent required by the instructions to exhibits for reports on Form 10-K).
21. -- List of Subsidiaries.
23. -- Consent of Price Waterhouse LLP.
24. -- Powers of Attorney (included on the signature pages hereof).
27. -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.8A
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT is entered into on February 21, 1997 between
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association
("Coast") and XICOR, INC. ("Borrower"), with reference to the following facts:
A. Coast and Borrower have entered into that certain Loan and
Security Agreement dated March 10, 1993 (as amended from time
to time, the "Loan Agreement"). (The Loan Agreement and all
other written documents, instruments and agreements between
Coast and the Borrower are herein referred to as the "Loan
Documents". All capitalized terms which are not defined in
this Agreement shall have the meaning set forth in the Loan
Agreement.)
B. The term of the Loan Agreement is due to expire on March 31,
1997, and the parties desire to extend the term of the Loan
Agreement on the terms and conditions set forth in this
Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. EXTENSION. The "initial renewal date" in Section 8 of the Loan
Agreement, is hereby deleted from Section 8 and replaced by
"March 31, 1998."
2. EXTENSION FEE. In consideration for Coast entering into this
Extension Agreement, the Borrower agrees to pay Coast an
extension fee in the amount of $40,000 (the "Extension Fee"),
in addition to all interest and other sums payable to Coast
hereunder or under the other Loan Documents, is fully earned
as of the date hereof and is not refundable. The Extension Fee
shall be payable upon the execution hereof. The obligation to
pay the Extension Fee shall be included in the "Obligations"
for all purposes of the Loan Documents.
3. REPRESENTATIONS TRUE; NO DEFAULTS. Without limiting any of the
terms or provisions of the Loan Documents, Borrower represents
and warrants to Coast that all representations and warranties
of the Borrower in the Loan Documents are true and correct and
that no Event of Default and no event which, with notice or
passage of time or both, would constitute an Event or Default
under any of the Loan Documents has occurred.
4. GENERAL PROVISIONS. This Extension Agreement sets forth in
full all of the representations and agreements of the parties
with respect to the subject matter hereof and supersedes all
prior discussions, representations, agreements and
understandings between the parties with respect to the subject
hereof. This Extension Agreement may not be modified or
amended, nor may any rights hereunder be waived, except in a
writing signed by the parties hereto. Except as herein
expressly modified or amended, all of the terms and provisions
of the Loan Agreement, and all other Loan Documents shall
continue in full force and effect and the same are hereby
ratified and confirmed. This Agreement is being entered into,
and shall be governed by the laws of the State of California.
COAST BUSINESS CREDIT, a division of XICOR, INC.
Southern Pacific Thrift & Loan Association
By: /s/ Edit Kondorosi By: /s/ Klaus G. Hendig
--------------------- -------------------
Title: Senior Vice President Title: Vice President
--------------------- -------------------
<PAGE> 1
EXHIBIT 11.1
XICOR, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income $13,835,000 $10,036,000 $ 2,299,000
=========== =========== ===========
Weighted average number of
common shares outstanding
during the period 18,693,000 18,217,000 18,004,000
Equivalent common shares
attributed to dilutive
employee stock options 1,127,000 814,000 360,000
----------- ----------- -----------
Total common and common
equivalent shares 19,820,000 19,031,000 18,364,000
=========== ========== ===========
Earnings per share $ 0.70 $ 0.53 $ 0.13
=========== ========== ===========
</TABLE>
Fully diluted earnings per share do not differ significantly from primary
earnings per share.
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing on pages 8 to 14.
RESULTS OF OPERATIONS
Xicor's sales were $123.5 million in 1996 compared to $113.6 million in 1995
and $103.4 million in 1994. Xicor has been focusing its chip design efforts
toward the development of new proprietary products, with the intent of
increasing sales and gross profit margins, and the overall growth in sales in
1996 and 1995 reflects increased sales of proprietary products. Production and
test equipment brought on-line in late 1995 and 1996 increased capacity and
contributed to the 1996 sales increase.
Gross profit as a percentage of sales was 40% in 1996, 39% in 1995 and 34% in
1994. The sequential improvement from 1994 to 1996 was due primarily to
increased manufacturing efficiencies and a greater percentage of sales of
products with higher margins. A reduction in depreciation expense subsequent to
1994 also favorably impacted the gross profit margin. These improvements
continue to be partially offset by price erosion.
Research and development expenses were 12% of sales in 1996, 13% in 1995 and
14% in 1994. Xicor continues to invest substantial funds in the development of
innovative proprietary products and an advanced submicron manufacturing
process. Xicor has also started to redesign certain key commodity products for
cost reduction based on smaller chip sizes. Xicor's strategy is to develop new
innovative products and process technologies to facilitate long-term growth
through reduced product costs and higher gross margins. Research and
development activities require an increasing degree of complexity of design and
manufacturing process and consequently a larger amount of funds is expected to
be invested in research and development in 1997 than was invested in 1996.
Selling, general and administrative expenses represented 16% of sales in 1996,
17% in 1995 and 18% in 1994. Selling, general and administrative expenses
increased 4% in absolute dollars in both 1996 and 1995 to support higher sales,
but decreased as a percentage of sales due to higher sales and ongoing cost
control measures.
Interest expense increased in 1996 compared to 1995 after remaining flat from
1994 to 1995 due to the financing of $4.7 million of capital equipment
acquisitions during the latter part of 1995 and $15.9 million during 1996.
Interest expense is expected to increase further in 1997 due to the 1996
capital equipment financing and the planned financing of additional capital
equipment acquisitions in 1997.
Page 4
<PAGE> 2
Interest income increased in both 1996 and 1995 primarily due to an increase in
the average balance invested caused by funds generated from operations in 1996
and 1995.
The provision for income taxes for the three years ended December 31, 1996
consisted primarily of federal and state minimum taxes, which resulted from
limitations on the use of net operating loss carryforwards, and foreign taxes.
Net deferred tax assets of $30.7 million at the end of 1996 remain fully
reserved because of the uncertainty regarding the ultimate realization of these
assets as outlined below.
Net income increased sequentially in 1996 and 1995 primarily due to increased
sales and reduced depreciation expense. While production and test equipment
brought on-line in late 1995 and 1996 increased capacity and contributed to the
1996 sales increase, sales were constrained by insufficient product
availability mostly due to equipment issues, particularly in the fourth
quarter. Today's fast moving electronics market is characterized by an ordering
pattern requiring short-term deliveries. Thus Xicor's limited availability of
certain products contributed to reduced orders in the latter part of the fourth
quarter of 1996, affecting sales in that quarter with continuing impact on
first quarter 1997 sales.
Additionally, Xicor's cost level increased during 1996 as a result of upgrading
equipment and increasing the workforce in its wafer fabrication facility. To
cover these costs and further cost increases in 1997 due to plans to install
additional equipment, sales must grow substantially. To achieve such growth,
Xicor will more actively market commodity products, which represent the bulk of
the E2PROM market. However, competitive pressure on prices of commodity
products will generate lower gross margins until production and sales reach a
level sufficient to spread costs effectively. Xicor estimates it will take at
least half a year to substantially increase sales and anticipates that sales
for the first two quarters of 1997 will not be sufficient to maintain the
fourth quarter 1996 level of profitability unless orders for shipment in the
first two quarters of 1997 strengthen substantially. There can be no assurance
that sales will increase and product costs decrease sufficiently to maintain or
improve profitability in 1997.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
This Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding the expectation of
improved product availability, cost-effective utilization of our wafer
fabrication facility, successful development of a submicron manufacturing
process, increased production capacity, orders and gross margins, and sales
growth. Except for historical information, the matters discussed in this Annual
Report are forward-looking statements that are subject to certain risks and
uncertainties that
Page 5
<PAGE> 3
could cause the actual results to differ materially from those projected.
Factors that could cause actual results to differ materially include the
following: Xicor's ability to have an appropriate amount of production capacity
in a timely manner, fluctuations in customer demand, competitive factors such
as pricing pressures on existing products and the timing and market acceptance
of new product introductions, the timely development of new products and
processes, general economic conditions and conditions specific to the
semiconductor industry and the risk factors listed from time to time in Xicor's
SEC reports, including but not limited to the "Factors Affecting Future
Results" section below and Part I, Item 1. of the Form 10-K. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Xicor undertakes no obligation to
publicly release or otherwise disclose the result of any revision to these
forward-looking statements which may be made as a result of events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
FACTORS AFFECTING FUTURE RESULTS
The semiconductor industry is highly competitive and characterized by rapidly
changing technology and steadily declining product prices. Xicor's results of
operations are affected by a wide variety of factors, including general
economic conditions and conditions specific to the semiconductor industry,
decreases in average selling price over the life of any particular product, the
timing of new product introductions (both by Xicor and competitors),
availability of new manufacturing technologies, the ability to secure
intellectual property rights in a rapidly evolving market and the ability to
have an appropriate amount of production capacity in a timely manner. The sales
level in any specific quarter is also a function of orders received during that
quarter, as customers continue to shorten lead times for purchase commitments.
Consistent with industry practice, customer orders are generally subject to
cancellation by the customer without penalty. Xicor may be at a disadvantage in
competing with major domestic and foreign concerns that have significant
financial resources, established and diverse product lines, worldwide
vertically integrated production facilities and extensive research and
development capabilities.
Page 6
<PAGE> 4
The semiconductor industry is also characterized by substantial capital and
research and development investment for products and processes. The rapid rate
of technological change within the industry requires Xicor to continually
develop new and improved products and processes to maintain its competitive
position. Xicor expects to continue to invest in the research and development
of new products and manufacturing processes in 1997 and beyond, although there
can be no assurances that such research and development efforts or new products
will be successful.
Due to the foregoing and other factors, past results are a much less reliable
predictor of the future than is the case in many older, more stable and less
dynamic industries. In addition, the securities of many high technology
companies including those of Xicor have historically been subject to extensive
price and volume fluctuations that may adversely affect the market price of
their common stock.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, Xicor had $41.6 million in cash, cash equivalents and
short-term investments. Corresponding balances at the end of 1995 and 1994 were
$35.4 million and $20.6 million, respectively. During 1996, Xicor generated
$19.3 million of cash from operating activities and $1.1 million from the
exercise of employee stock options, resulting in a $6.2 million net increase in
Xicor's cash and short-term investment position after capital asset purchases
of $9.0 million and long-term debt repayments of $5.2 million. Xicor used
long-term financing to acquire additional capital assets of $15.9 million in
1996.
During 1997 Xicor expects to use cash to finance inventory growth, leasehold
improvements and certain equipment purchases. Capital expenditures for 1997 are
presently planned at approximately $25 million consisting principally of
production equipment. Xicor is presently investigating financing for a large
portion of the planned equipment additions. At December 31, 1996, Xicor had
entered into commitments for equipment purchases and leasehold improvements
aggregating approximately $8 million.
Xicor has a line of credit agreement with a financial institution that expires
March 31, 1998, provides for borrowings of up to $7.5 million against eligible
accounts receivable and is secured by all of Xicor's assets. Interest on
borrowings is charged at the prime lending rate plus 2% and is payable monthly.
At December 31, 1996, the entire $7.5 million was available to Xicor based on
the eligible accounts receivable balances and the borrowing formulas. To date,
no amounts have been borrowed under this line of credit. Management believes
that currently available cash, expected equipment financing and expected cash
flow from operations will be adequate to support Xicor's operations for the
next twelve months.
Page 7
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 20,414,000 $ 17,259,000
Short-term investments 21,159,000 18,136,000
Accounts receivable 11,611,000 13,430,000
Inventories 19,354,000 11,977,000
Prepaid expenses and other current assets 1,384,000 902,000
------------ ------------
Total current assets 73,922,000 61,704,000
Property, plant and equipment, at cost
less accumulated depreciation 33,992,000 17,369,000
Other assets 300,000 366,000
------------ ------------
$108,214,000 $ 79,439,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 9,979,000 $ 6,128,000
Accrued expenses 7,216,000 8,174,000
Deferred income on shipments to
distributors 13,725,000 13,394,000
Current portion of long-term obligations 5,868,000 3,483,000
------------ ------------
Total current liabilities 36,788,000 31,179,000
------------ ------------
Long-term obligations 13,469,000 5,229,000
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized -- --
Common stock; 75,000,000 shares authorized;
18,873,252 and 18,524,202 shares outstanding 123,522,000 122,431,000
Accumulated deficit (65,565,000) (79,400,000)
------------ ------------
57,957,000 43,031,000
------------ ------------
$108,214,000 $ 79,439,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 8
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Net sales $123,514,000 $113,550,000 $103,386,000
Cost of sales 74,303,000 69,214,000 68,056,000
------------ ------------ ------------
Gross profit 49,211,000 44,336,000 35,330,000
------------ ------------ ------------
Operating expenses:
Research and development 15,074,000 15,270,000 14,085,000
Selling, general and administrative 20,306,000 19,474,000 18,779,000
------------ ------------ ------------
35,380,000 34,744,000 32,864,000
------------ ------------ ------------
Income from operations 13,831,000 9,592,000 2,466,000
Interest expense (1,421,000) (605,000) (618,000)
Interest income 2,001,000 1,584,000 580,000
------------ ------------ ------------
Income before income taxes 14,411,000 10,571,000 2,428,000
Provision for income taxes 576,000 535,000 129,000
------------ ------------ ------------
Net income $ 13,835,000 $ 10,036,000 $ 2,299,000
============ ============ ============
Net income per share $ 0.70 $ 0.53 $ 0.13
============ ============ ============
Average common shares and equivalents 19,820,000 19,031,000 18,364,000
============ ============ ============
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 17,989,052 $120,767,000 $(91,735,000) $29,032,000
Exercise of stock options 33,675 53,000 - 53,000
Net income - - 2,299,000 2,299,000
----------- ------------ ------------ -----------
Balance at December 31, 1994 18,022,727 120,820,000 (89,436,000) 31,384,000
Exercise of stock options 501,475 1,611,000 - 1,611,000
Net income - - 10,036,000 10,036,000
----------- ------------ ------------ -----------
Balance at December 31, 1995 18,524,202 122,431,000 (79,400,000) 43,031,000
Exercise of stock options 349,050 1,091,000 - 1,091,000
Net income - - 13,835,000 13,835,000
----------- ------------ ------------ -----------
Balance at December 31, 1996 18,873,252 $123,522,000 $(65,565,000) $57,957,000
=========== ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 9
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $13,835,000 $10,036,000 $ 2,299,000
Adjustments to reconcile net
income to cash provided
by operating activities:
Depreciation and amortization 8,220,000 7,482,000 12,425,000
Changes in assets and liabilities:
Accounts receivable 1,819,000 (2,370,000) 3,433,000
Inventories (7,377,000) 3,257,000 (2,293,000)
Prepaid expenses and other
current assets (482,000) (292,000) (213,000)
Other assets 66,000 (10,000) 9,000
Accounts payable and accrued
expenses 2,893,000 1,447,000 (2,189,000)
Deferred income on shipments
to distributors 331,000 1,204,000 1,442,000
----------- ----------- ------------
Net cash provided by operating activities 19,305,000 20,754,000 14,913,000
----------- ----------- ------------
Cash flows from investing activities:
Investments in plant and
equipment, net (8,977,000) (4,762,000) (1,290,000)
Purchases of short-term
investments (46,856,000) (26,315,000) (10,893,000)
Maturities of short-term
investments 43,833,000 14,065,000 7,017,000
----------- ----------- -----------
Net cash used for investing activities (12,000,000) (17,012,000) (5,166,000)
----------- ----------- -----------
Cash flows from financing activities:
Repayments of long-term obligations (5,241,000) (2,848,000) (3,393,000)
Proceeds from sale of common stock
to employees 1,091,000 1,611,000 53,000
----------- ----------- -----------
Net cash used for financing activities (4,150,000) (1,237,000) (3,340,000)
----------- ----------- -----------
Increase in cash and cash equivalents 3,155,000 2,505,000 6,407,000
Cash and cash equivalents at
beginning of year 17,259,000 14,754,000 8,347,000
----------- ----------- -----------
Cash and cash equivalents at
end of year $20,414,000 $17,259,000 $14,754,000
=========== =========== ===========
Supplemental information:
Cash paid during the year for:
Interest expense $ 1,421,000 $ 608,000 $ 619,000
Income taxes 682,000 248,000 134,000
Equipment acquired pursuant to
long-term obligations 15,866,000 4,706,000 3,402,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 10
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
Xicor, Inc. (Xicor) operates in a single industry segment and is engaged in the
development, manufacture and sale of semiconductor memory devices.
Export sales, principally to customers in Europe and the Far East, were
$56,000,000 in 1996, $53,136,000 in 1995 and $51,882,000 in 1994. One customer
accounted for 14% of Xicor's sales in 1996 and 1995 and 12% in 1994.
Xicor has adopted accounting practices which are generally accepted in the
industry in which it operates. Following are Xicor's significant accounting
policies:
FISCAL YEAR
Xicor's fiscal year ends on the Sunday nearest December 31. For purposes of
financial statement presentation, each fiscal year is deemed to have ended on
December 31.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Xicor and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents and short-term investments consist principally of United
States Government Treasury Bills and certificates of deposit. Highly liquid
investments with a maturity of three months or less at the time of purchase are
considered cash equivalents. All investments are classified as
"held-to-maturity securities" and are valued at amortized cost, which
approximates fair market value.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject Xicor to concentrations of
credit risk consist principally of cash equivalents and short-term investments
and accounts receivable. Xicor invests primarily in United States Government
Treasury Bills and certificates of deposit and places its investments with
high-credit-quality financial institutions. Xicor's accounts receivable are
derived from sales to original equipment manufacturers and distributors serving
a variety of industries located primarily in the United States, Europe and the
Far East. Xicor performs ongoing credit evaluations of its customers and to
date has not experienced any material losses.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out basis for raw materials and supplies, and a
standard cost basis (which approximates first-in, first-out) for work in
process and finished goods.
PROPERTY AND EQUIPMENT
Depreciation for financial reporting purposes is computed using the
straight-line method and the assets' estimated useful lives, principally five
years. Amortization of capitalized leased building and building improvements,
and of leasehold improvements, is computed over the shorter of the remaining
terms of the leases or the estimated useful lives of the improvements.
Construction in progress consists of leasehold improvements not completed and
equipment received but not yet placed in service.
REVENUE RECOGNITION
Certain of Xicor's sales are made to distributors under agreements allowing
rights of return and price protection on unsold merchandise. Such sales are
not recognized until the merchandise is sold by the distributors. Amounts
billed to the distributors are included as accounts receivable and the related
gross profit is deferred and reflected as a current liability until the
merchandise is sold by the distributors. Revenue from all other product sales
is recognized upon shipment.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
shares and dilutive common equivalent shares outstanding during the period.
ACCOUNTING FOR STOCK OPTIONS
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," Xicor applies Accounting Principles
Board Opinion No. 25 for purposes of determining net income. Note 5 includes
the calculation of estimated compensation cost for stock-based employee
compensation and related pro forma net income and net income per share.
Page 11
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--BALANCE SHEET DETAIL:
<TABLE>
<CAPTION> DECEMBER 31,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
INVENTORIES:
Raw materials and supplies $ 4,952,000 $ 3,996,000
Work in process 8,568,000 3,497,000
Finished goods 5,834,000 4,484,000
------------ ------------
$ 19,354,000 $ 11,977,000
============ ============
PROPERTY, PLANT AND EQUIPMENT:
Leased building and building improvements $ 1,602,000 $ 1,602,000
Leasehold improvements 16,947,000 16,679,000
Equipment 101,140,000 76,981,000
Furniture and fixtures 1,722,000 1,699,000
Construction in progress 2,815,000 5,245,000
------------ ------------
124,226,000 102,206,000
Accumulated depreciation (90,234,000) (84,837,000)
------------ ------------
$ 33,992,000 $ 17,369,000
============ ============
ACCRUED EXPENSES:
Accrued wages and employee benefits $ 3,421,000 $ 4,089,000
Other accrued expenses 3,795,000 4,085,000
------------ ------------
$ 7,216,000 $ 8,174,000
============ ============
</TABLE>
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1996 and 1995 are presented net of an
allowance for doubtful accounts of $500,000.
NOTE 3--LEASING ARRANGEMENTS AND COMMITMENTS:
Xicor leases its facilities and certain equipment under non-cancelable lease
agreements. Xicor's major facilities leases expire at various dates through 2001
and provide for renewal options to extend the leases for up to 15 years. These
leases provide for increased rental rates, generally based on the Consumer Price
Index with specified limitations, at various times during the lease terms and
during the renewal periods. Equipment leases are generally for terms of four to
five years and require Xicor to pay property taxes, insurance and maintenance
and repair costs.
Leases which meet certain specific criteria are considered capital leases and,
accordingly, are accounted for as the acquisition of an asset and the incurrence
of a liability. Upon expiration of the related lease, the then fully
depreciated asset (and the related accumulated depreciation) are removed from
the accounts. Assets recorded under capital leases were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
----------- ------------
<S> <C> <C>
Leased building and building improvements $ 1,602,000 $ 1,602,000
Equipment 27,917,000 13,618,000
----------- -----------
29,519,000 15,220,000
Accumulated depreciation (9,657,000) (6,650,000)
----------- -----------
$19,862,000 $ 8,570,000
=========== ===========
</TABLE>
Minimum future lease payments under non-cancelable leases as of December 31,
1996 were as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- ------------
<S> <C> <C>
Years:
1997 $ 7,306,000 $ 3,858,000
1998 5,693,000 3,759,000
1999 5,657,000 3,661,000
2000 2,415,000 2,302,000
2001 1,221,000 673,000
2002 242,000 --
----------- -----------
Total minimum lease payments 22,534,000 $14,253,000
===========
Less amount representing interest (3,197,000)
-----------
Present value of minimum lease payments 19,337,000
Less current portion (5,868,000)
-----------
Long-term lease obligation $13,469,000
===========
</TABLE>
Total rental expense under non-capitalized leases was as follows (including
month-to-month rentals): 1996--$3,652,000, 1995--$2,423,000, 1994-- $2,604,000.
NOTE 4--LINE OF CREDIT AGREEMENT:
Xicor has a line of credit agreement with a financial institution which expires
on March 31, 1998 and provides for borrowings of up to 80% of eligible accounts
receivable, not to exceed $7.5 million. Interest is charged at the prime
lending rate plus 2%, with a minimum rate of 8%, and is payable monthly. This
credit facility is secured by all the assets of Xicor. The agreement contains
restrictions which, among other things, preclude the payment of dividends,
stock repurchases and the sale of assets other than in the normal course of
business. At December 31, 1996, there were no borrowings outstanding under
this line of credit.
Page 12
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--STOCK OPTIONS:
Xicor has two stock option plans for its employees, the 1979 Plan, under which
no further options may be granted, and the 1990 Plan. In 1995, Xicor adopted
the 1995 Director Option Plan which provides for an initial grant of 20,000
options to each of the Company's directors and automatic annual grants of 5,000
options thereafter. The total number of shares of common stock authorized for
issuance under the 1990 Employee Plan and the 1995 Director Plan are 3,200,000
and 200,000, respectively. Options under all plans generally are exercisable
in 25% annual increments and expire no later than ten years from date of grant.
All outstanding options were granted at 100% of the fair market value of the
stock at the date of grant. The following table summarizes the option activity
under all plans.
<TABLE>
<CAPTION>
Number Average
of Option Price
Shares Per share
--------- -------------
<S> <C> <C>
Outstanding at December 31, 1993 1,779,463 $ 2.76
Granted 50,000 2.34
Exercised (33,675) 1.56
Canceled (213,213) 3.46
--------
Outstanding at December 31, 1994 1,582,575 2.68
Granted 818,000 4.40
Exercised (501,475) 3.21
Canceled (215,662) 3.18
--------
Outstanding at December 31, 1995 1,683,438 3.29
Granted 733,900 7.02
Exercised (349,050) 3.12
Canceled (115,188) 5.15
---------
Outstanding at December 31, 1996 1,953,100 4.61
=========
</TABLE>
The number of common stock options available for grant as of December 31, 1996,
1995 and 1994 were 1,124,950, 950,400 and 537,075, respectively. At December
31, 1996, 3,078,050 shares of common stock were reserved for issuance of stock
options. Options outstanding at December 31, 1996 and related weighted average
price and life information follows:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Options Remaining Average Average
Exercisable Out- Life Exercise Options Exercise
Prices standing (Years) Price Exercisable Price
- ------------ -------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.69-$ 0.69 9,000 3.42 $0.69 9,000 $0.69
$1.19-$ 1.69 418,250 3.76 $1.34 327,225 $1.33
$1.87-$ 2.62 276,500 5.21 $2.17 94,250 $2.19
$3.44-$ 4.25 171,700 4.87 $3.75 89,950 $3.97
$5.37-$ 7.87 886,650 8.63 $6.04 140,050 $5.87
$8.12-$11.50 191,000 9.58 $9.61 200 $8.12
--------- -------
$0.69-$11.50 1,953,100 6.84 $4.61 660,675 $2.77
========= =======
</TABLE>
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected life (years) 5 5
Interest rate 5.55% 6.39%
Volatility 70.0% 70.0%
Dividend yield 0.0% 0.0%
</TABLE>
The estimated stock-based compensation cost calculated using the assumptions
indicated totaled $1,487,000 and $474,000 in 1996 and 1995, respectively. The
pro forma net income resulting from the increased compensation cost was
$12,348,000 ($0.63 per share) and $9,562,000 ($0.50 per share) in 1996 and
1995, respectively. The effect of stock-based compensation on net income for
1996 and 1995 may not be representative of the effect on pro forma net income
in future years because compensation expense related to grants made prior to
1995 is not considered.
NOTE 6--EMPLOYEE INCENTIVE CASH BONUS PROFIT SHARING PROGRAM:
Xicor has an Employee Incentive Cash Bonus Profit Sharing Program (the
"Program"). Under the Program, twice a year (two profit sharing periods) 5% to
15% of Xicor's consolidated operating income, excluding certain non-product
revenues, is distributed to employees. The exact percentage to be distributed
is determined by a Committee of the Board of Directors; however, in no event
may the distribution result in a net loss after taxes to Xicor for any profit
sharing period. Profit sharing bonuses relating to 1996, 1995 and 1994 totaled
$1,225,000, $1,062,000 and $370,000, respectively.
Page 13
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7--INCOME TAXES:
The current income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Federal $322,000 $171,000 $ 49,000
State 192,000 72,000 9,000
Foreign 62,000 292,000 71,000
-------- -------- --------
$576,000 $535,000 $129,000
======== ======== ========
</TABLE>
The reconciliation between the amount computed by applying the U.S. Federal
statutory rate and the reported tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Utilization of previously reserved
net operating losses (24.4) (24.3) (27.8)
Other (6.6) (5.4) (1.9)
----- ----- -----
4.0% 5.3% 5.3%
===== ===== =====
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
-------------------------
<S> <C> <C>
Deferred tax assets:
Federal and state loss and credit
carryforwards $ 16,700,000 $ 21,056,000
Capitalized research and development 1,899,000 2,946,000
Inventory reserves and basis
differences 5,732,000 4,948,000
Deferred income on shipments
to distributors 2,516,000 2,112,000
Depreciation 2,786,000 2,041,000
Other 2,581,000 2,282,000
------------ ------------
32,214,000 35,385,000
Deferred tax liabilities (1,516,000) (1,196,000)
Deferred tax assets valuation
allowance (30,698,000) (34,189,000)
----------- ------------
Net deferred taxes $ -- $ --
============ ============
</TABLE>
The deferred tax assets valuation allowance is attributed to U.S. Federal and
state deferred tax assets. Management believes sufficient uncertainty exists
regarding the realizability of the net deferred tax assets such that a full
valuation allowance is required.
At December 31, 1996, Xicor had Federal tax net operating loss carryforwards
and general business credit carryforwards of approximately $34,000,000 and
$2,800,000, respectively. These carryforwards expire in varying amounts from
1997 through 2010. The net operating loss carryforward includes approximately
$7,000,000 resulting from employee exercises of non-incentive stock options,
the tax benefit of which, when realized, will be accounted for as an addition
to common stock rather than as a reduction of the provision for income taxes.
At December 31, 1996, Xicor also had California state tax credit carryforwards
of approximately $2,000,000 that expire in varying amounts subsequent to 2004.
Availability of the net operating loss and credit carryforwards may potentially
be reduced in the event of certain substantial changes in equity ownership.
NOTE 8--CONTINGENCIES:
In the normal course of business, Xicor receives and makes inquiries with
regard to possible patent infringement. Where deemed advisable, Xicor may seek
to enter into or extend licenses or negotiate settlements. Outcomes of such
negotiations may not be determinable at any one point in time; however,
management currently does not believe that such licenses or settlements will
materially affect Xicor's financial position or results of operations.
Page 14
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF XICOR, INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Xicor, Inc. and its subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
January 22, 1997
Page 15
<PAGE> 13
FINANCIAL OPERATING INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net sales $123,514,000 $113,550,000 $103,386,000 $104,415,000 $ 93,017,000
Cost of sales 74,303,000 69,214,000 68,056,000 78,725,000 73,792,000
------------ ------------ ------------ ------------ ------------
Gross profit 49,211,000 44,336,000 35,330,000 25,690,000 19,225,000
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and
development 15,074,000 15,270,000 14,085,000 12,847,000 22,448,000
Selling, general and
administrative 20,306,000 19,474,000 18,779,000 18,026,000 17,960,000
Restructuring charge -- -- -- -- 7,979,000
------------ ------------ ------------ ------------ ------------
35,380,000 34,744,000 32,864,000 30,873,000 48,387,000
------------ ------------ ------------ ------------ ------------
Income (loss) from
operations 13,831,000 9,592,000 2,466,000 (5,183,000) (29,162,000)
Interest expense (1,421,000) (605,000) (618,000) (840,000) (849,000)
Interest income 2,001,000 1,584,000 580,000 206,000 506,000
------------ ------------ ------------ ------------ ------------
Income (loss) before
income taxes 14,411,000 10,571,000 2,428,000 (5,817,000) (29,505,000)
Provision for income
taxes 576,000 535,000 129,000 -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 13,835,000 $ 10,036,000 $ 2,299,000 $ (5,817,000) $(29,505,000)
============ ============ ============ ============ ============
Net income (loss) per
share $ 0.70 $ 0.53 $ 0.13 $ (0.32) $ (1.64)
============ ============ ============ ============ ============
Average common shares
and equivalents 19,820,000 19,031,000 18,364,000 17,988,000 17,988,000
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 37,134,000 $ 30,525,000 $ 19,831,000 $ 9,627,000 $ 5,913,000
Total assets 108,214,000 79,439,000 63,283,000 61,669,000 68,316,000
Long-term debt 13,469,000 5,229,000 4,186,000 4,076,000 6,843,000
Accumulated deficit (65,565,000) (79,400,000) (89,436,000) (91,735,000) (85,918,000)
Shareholders' equity 57,957,000 43,031,000 31,384,000 29,032,000 34,848,000
</TABLE>
Page 16
<PAGE> 14
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
The following table sets forth unaudited financial information for each
quarterly reporting period in the fiscal years ended December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996(1)
----------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $28,642,000 $31,306,000 $33,054,000 $30,512,000
Cost of sales 17,771,000 18,947,000 19,474,000 18,111,000
Research and development 3,460,000 3,726,000 3,971,000 3,917,000
Selling, general and administrative 4,651,000 5,252,000 5,478,000 4,925,000
Net income 2,879,000 3,375,000 4,062,000 3,519,000
Net income per share 0.15 0.17 0.20 0.18
Common Stock Market price range(2) High 7-3/4 14-1/8 12-1/2 13-1/8
Low 5-3/8 6-9/16 6-5/8 9-1/4
</TABLE>
<TABLE>
<CAPTION>
1995(1)
----------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $23,535,000 $25,683,000 $27,931,000 $36,401,000
Cost of sales 14,562,000 15,696,000 16,569,000 22,387,000
Research and development 3,458,000 3,459,000 3,981,000 4,372,000
Selling, general and administrative 4,342,000 4,592,000 4,718,000 5,822,000
Net income 1,233,000 2,026,000 2,766,000 4,011,000
Net income per share 0.07 0.11 0.14 0.21
Common Stock Market price range(2) High 2-15/16 7-5/8 9 8-11/16
Low 2 2-1/4 5-1/2 6-1/16
</TABLE>
(1) Xicor's quarterly accounting periods have historically consisted of
three 12-week quarters and one 16-week fourth quarter. To make
comparative analysis easier for Xicor shareholders and other potential
investors, beginning in 1996 Xicor's quarterly accounting periods were
changed to four even 13-week quarters. Xicor's fiscal year, which ends
on the Sunday nearest December 31, did not change. In 1996, Xicor's
quarters ended on March 31, June 30, September 29 and December 29. In
1995, Xicor's quaters ended on March 26, June 18, September 10 and
December 31. For purposes of financial statement presentation, each
fiscal year is deemed to have ended on December 31. Fiscal years 1996
and 1995 each consisted of 52 weeks.
(2) Xicor's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol: XICO. The above table sets
forth the high and low sales prices for the Common Stock as reported by
Nasdaq for each calendar quarter. There were approximately 1,510
shareholders of record on December 31, 1996. Xicor has never paid
dividends and does not anticipate paying any dividends in the
foreseeable future.
Page 17
<PAGE> 1
EXHIBIT 21
XICOR, INC.
LIST OF SUBSIDIARIES(1)
STATE OR
OTHER JURISDICTION
NAME OF INCORPORATION
---- ----------------
Xicor GmbH Germany
Xicor Japan K.K. Japan
Xicor Korea, Ltd. Korea
Xicor Limited United Kingdom
(1) All subsidiaries are wholly-owned.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-17806, 33-39627, 33-46687, 33-81986, 33-60947
and 333-08597) of Xicor, Inc. of our report dated January 22, 1997, appearing on
page 15 of the 1996 Annual Report to Shareholders which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which appears on page 10 of this
Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 20,414,000
<SECURITIES> 21,159,000
<RECEIVABLES> 12,111,000
<ALLOWANCES> 500,000
<INVENTORY> 19,354,000
<CURRENT-ASSETS> 73,922,000
<PP&E> 124,226,000
<DEPRECIATION> 90,234,000
<TOTAL-ASSETS> 108,214,000
<CURRENT-LIABILITIES> 36,788,000
<BONDS> 0
0
0
<COMMON> 123,522,000
<OTHER-SE> (65,565,000)
<TOTAL-LIABILITY-AND-EQUITY> 108,214,000
<SALES> 123,514,000
<TOTAL-REVENUES> 123,514,000
<CGS> 74,303,000
<TOTAL-COSTS> 74,303,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,421,000
<INCOME-PRETAX> 14,411,000
<INCOME-TAX> 576,000
<INCOME-CONTINUING> 13,835,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,835,000
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0
</TABLE>
