<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
---------------
Commission File Number 0-9653
XICOR, INC.
(Exact name of registrant as specified in its charter)
California 94-2526781
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1511 Buckeye Drive, Milpitas, California 95035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 432-8888
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
NUMBER OF SHARES OUTSTANDING AT SEPTEMBER 28, 1997
19,073,502
<PAGE> 2
XICOR, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 28, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 28, 1997 1
and December 31, 1996
Consolidated Statements of Operations for the three 2
and nine months ended September 28, 1997 and
September 29, 1996
Consolidated Statements of Cash Flows for the nine 3
months ended September 28, 1997 and September 29, 1996
Notes to Consolidated Financial Information 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 5
CONDITION AND RESULTS OF OPERATIONS
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 9
SIGNATURES 9
</TABLE>
-i-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
XICOR, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 28, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,886,000 $ 20,414,000
Short-term investments 14,611,000 21,159,000
Accounts receivable 10,951,000 11,611,000
Inventories 28,205,000 19,354,000
Prepaid expenses and other current assets 1,902,000 1,384,000
------------- -------------
Total current assets 75,555,000 73,922,000
Property, plant and equipment,
at cost less accumulated depreciation 44,406,000 33,992,000
Other assets 246,000 300,000
------------- -------------
$ 120,207,000 $ 108,214,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,108,000 $ 9,979,000
Accrued expenses 7,583,000 7,216,000
Deferred income on shipments to distributors 13,772,000 13,725,000
Current portion of long-term obligations 6,049,000 5,868,000
------------- -------------
Total current liabilities 38,512,000 36,788,000
------------- -------------
Long-term obligations 18,123,000 13,469,000
------------- -------------
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized - -
Common stock; 75,000,000 shares authorized;
19,073,502 and 18,873,252 shares outstanding 124,141,000 123,522,000
Accumulated deficit (60,569,000) (65,565,000)
------------- -------------
63,572,000 57,957,000
------------- -------------
$ 120,207,000 $ 108,214,000
============= =============
</TABLE>
See accompanying notes to consolidated financial information
-1-
<PAGE> 4
XICOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------- -----------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 29,566,000 $ 33,054,000 $ 91,049,000 $ 93,002,000
Cost of sales 18,935,000 19,474,000 56,480,000 56,192,000
------------ ------------ ------------ ------------
Gross profit 10,631,000 13,580,000 34,569,000 36,810,000
------------ ------------ ------------ ------------
Operating expenses:
Research and development 4,425,000 3,971,000 13,636,000 11,157,000
Selling, general and
administrative 5,252,000 5,478,000 15,811,000 15,381,000
------------ ------------ ------------ ------------
9,677,000 9,449,000 29,447,000 26,538,000
------------ ------------ ------------ ------------
Income from operations 954,000 4,131,000 5,122,000 10,272,000
Interest expense (475,000) (416,000) (1,342,000) (998,000)
Interest income 488,000 517,000 1,478,000 1,472,000
------------ ------------ ------------ ------------
Income before income taxes 967,000 4,232,000 5,258,000 10,746,000
Provision for income taxes 48,000 170,000 262,000 430,000
------------ ------------ ------------ ------------
Net income $ 919,000 $ 4,062,000 $ 4,996,000 $ 10,316,000
============ ============ ============ ============
Net income per common share $ 0.05 $ 0.20 $ 0.25 $ 0.52
============ ============ ============ ============
Average common
shares and equivalents 19,731,000 19,861,000 19,644,000 19,762,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial information
-2-
<PAGE> 5
XICOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 28, 1997 September 29, 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,996,000 $ 10,316,000
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 8,175,000 5,809,000
Changes in assets and liabilities:
Accounts receivable 660,000 42,000
Inventories (8,851,000) (4,286,000)
Prepaid expenses and other current assets (518,000) (668,000)
Other assets 54,000 30,000
Accounts payable and accrued expenses 1,496,000 3,766,000
Deferred income on shipments to distributors 47,000 303,000
------------ ------------
Net cash provided by operating activities 6,059,000 15,312,000
------------ ------------
Cash flows from investing activities:
Investments in plant and equipment, net (9,042,000) (6,560,000)
Purchases of short-term investments (20,925,000) (33,704,000)
Maturities of short-term investments 27,473,000 30,766,000
------------ ------------
Net cash used for investing activities (2,494,000) (9,498,000)
------------ ------------
Cash flows from financing activities:
Repayments of long-term obligations (4,712,000) (3,695,000)
Proceeds from sale of common stock to employees 619,000 826,000
------------ ------------
Net cash used for financing activities (4,093,000) (2,869,000)
------------ ------------
Increase (decrease) in cash and cash equivalents (528,000) 2,945,000
Cash and cash equivalents at beginning of year 20,414,000 17,259,000
------------ ------------
Cash and cash equivalents at end of quarter $ 19,886,000 $ 20,204,000
============ ============
Supplemental information:
Cash paid for:
Interest expense $ 1,342,000 $ 998,000
Income taxes 269,000 501,000
Equipment acquired pursuant to long-term obligations 9,547,000 14,097,000
</TABLE>
See accompanying notes to consolidated financial information
-3-
<PAGE> 6
XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
NOTE 1 - THE COMPANY:
In the opinion of management, all adjustments necessary for a fair
statement of the results of the interim periods presented (consisting only of
normal recurring adjustments) have been included. These financial statements,
notes and analyses should be read in conjunction with Xicor's Annual Report on
Form 10-K for the year ended December 31, 1996 filed with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
NOTE 2 - BALANCE SHEET DETAIL: September 28, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Inventories:
Raw materials and supplies $ 4,740,000 $ 4,952,000
Work in process 16,943,000 8,568,000
Finished goods 6,522,000 5,834,000
------------- -------------
$ 28,205,000 $ 19,354,000
============= =============
Property, plant and equipment:
Leased building and building improvements $ 1,602,000 $ 1,602,000
Leasehold improvements 17,410,000 16,947,000
Equipment 113,223,000 101,140,000
Furniture and fixtures 1,769,000 1,722,000
Construction in progress 6,318,000 2,815,000
------------- -------------
140,322,000 124,226,000
Less accumulated depreciation (95,916,000) (90,234,000)
------------- -------------
$ 44,406,000 $ 33,992,000
============= =============
Accrued expenses:
Accrued wages and employee benefits $ 3,383,000 $ 3,421,000
Other accrued expenses 4,200,000 3,795,000
------------- -------------
$ 7,583,000 $ 7,216,000
============= =============
</TABLE>
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENT:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share." This
statement will be effective for the Company's fiscal year ending December 31,
1997. Under the new standard, primary income per share is replaced by basic
income per share and fully diluted income per share is replaced by diluted
income per share. If the Company had adopted this Statement, income per share
would have been as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------ ------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic income per share $ 0.05 $ 0.22 $ 0.26 $ 0.55
Diluted income per share $ 0.05 $ 0.20 $ 0.25 $ 0.52
</TABLE>
-4-
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Quarterly Financial Information and Notes thereto and Xicor's
Annual Report on Form 10-K for the year ended December 31, 1996 and is qualified
in its entirety by the foregoing. The results of operations for the three and
nine months ended September 28, 1997 are not necessarily indicative of results
to be expected in future periods.
RESULTS OF OPERATIONS
Sales for the third quarter of 1997 were $29.6 million compared to $33.1
million for the third quarter of 1996 and $32.0 million for the second quarter
of 1997. Sales for the nine months ended September 28, 1997 were $91 million
compared to $93 million for the comparable 1996 period. Sales declined in the
third quarter of 1997 as bookings during the summer were lower than expected and
orders booked for shipment within the same quarter continue to represent about
half of total orders.
Gross profit as a percentage of sales was 36% for the third quarter of
1997, down from 41% for the third quarter of 1996 and 38% for the second quarter
of 1997. The decline in the gross profit percentage was primarily due to lower
average selling prices as a result of competitive price pressures and Xicor's
increased manufacturing cost level associated with increased production capacity
and upgrading of the wafer fabrication operations, partially offset by increased
manufacturing volumes and efficiencies. Maintaining or improving the gross
profit percentage is contingent upon increasing sales, improving product mix,
maintaining stable prices and successfully executing Xicor's plans to further
improve manufacturing efficiencies.
Research and development expenses were 15% of sales for the third
quarter and nine months ended September 28, 1997 compared to 12% for the
comparable 1996 periods. Research and development spending for the first nine
months of 1997 increased 22% over the comparable 1996 period primarily due to
an increase in the number of new products under development and increases in
advanced manufacturing process technology development efforts. Research and
development activities are requiring an increasing degree of complexity of
design and manufacturing process, and Xicor expects to invest a similar amount
in research and development during the fourth quarter of 1997.
Due to the decreased sales level, selling, general and administrative
expenses increased to 18% of sales in the third quarter of 1997 from 17% of
sales for the third quarter of 1996 and the nine month period of both 1997 and
1996. As a result of ongoing cost control measures, third quarter 1997 costs
were slightly below third quarter 1996 costs.
Interest expense increased in the third quarter and nine months ended
September 28, 1997 compared to the comparable prior year periods due to the
financing of $15.9 million of capital equipment acquisitions during 1996 and
$9.5 million during the nine months ended September 28, 1997. Interest expense
for the fourth quarter of 1997 is expected to increase in absolute dollars over
the third quarter level due to continuing increases in financed capital
equipment acquisitions.
-5-
<PAGE> 8
Interest income decreased in the third quarter of 1997 compared to the
prior year's quarter due to a decrease in the average balance invested caused
primarily by funds used to purchase equipment and finance inventory growth.
Interest income is expected to decrease during the fourth quarter of 1997
principally due to the utilization of funds for working capital purposes,
leasehold improvements and equipment purchases.
The provision for income taxes for the three and nine month periods of
both 1997 and 1996 consisted primarily of federal and state minimum taxes, which
result from limitations on the use of net operating loss carryforwards, and
foreign taxes. Net deferred tax assets of $30.7 million at December 31, 1996
remain fully reserved because of the uncertainty regarding the ultimate
realization of these assets.
Net income for the third quarter of 1997 was lower than the prior year's
quarter primarily due to the lower sales, the lower gross profit percentage and,
to a lesser extent, the 11% increase in research and development expenses
related to the development of new products and technology. Xicor's manufacturing
cost level is higher in 1997 as a result of increasing the workforce in its
wafer fabrication facility in 1996 and upgrading and adding manufacturing
equipment in 1996 and 1997. Sales must grow substantially over the 1997 third
quarter level to cover these costs and anticipated cost increases, including
depreciation on additional equipment. There can be no assurance Xicor will
achieve such increased sales.
Orders booked and shipped in the same quarter constitute a large portion
of Xicor's sales and thus limit Xicor's visibility of sales levels in future
quarters. However, Xicor plans to further increase inventories during the fourth
quarter, despite the risks associated with higher inventories. Xicor's
management believes this business decision will allow Xicor to respond to orders
requiring quick deliveries, which are needed to increase sales in the fourth
quarter and thereafter. In addition, Xicor is actively marketing
undifferentiated products which represent the bulk of the EEPROM market.
However, competitive pressure on prices of undifferentiated products will
generate lower gross margins until production and sales reach a level sufficient
to spread costs effectively. There can be no assurance that sales and production
efficiencies will increase sufficiently to maintain or improve profitability in
the fourth quarter of 1997 compared to the third quarter of 1997. Furthermore,
if fourth quarter sales do not increase substantially from third quarter sales,
Xicor will decrease production levels which will adversely impact operating
results.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This quarterly 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 quick delivery
business opportunities, cost effective utilization of Xicor's wafer fabrication
facility and Xicor's plans to improve manufacturing efficiencies. In addition,
during the nine months ended September 28, 1997 Xicor announced 36 new products,
including products from two innovative product families. The success of these
new products is dependent on a number of factors, including Xicor's ability to
achieve design wins for these products and to manufacture the products
efficiently and in sufficient quantities.
-6-
<PAGE> 9
Forward-looking statements are subject to certain risks and
uncertainties that could cause the actual results to differ materially from
those projected. Factors that could cause Xicor's actual results to differ
materially include the following: general economic conditions and conditions
specific to the semiconductor industry, fluctuations in customer demand,
competition, competitive factors such as pricing pressures on existing products
and the timing and market acceptance of new product introductions, Xicor's
ability to have available an appropriate amount of production capacity in a
timely manner, manufacturing efficiencies, the timely development of new
products and processes, currency fluctuations, changes in laws, 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 in 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 and affordability 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 available
in a timely manner. The sales level in any specific quarter is also in large
part 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.
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 the remainder of 1997 and beyond,
although there can be no assurance that such research and development efforts or
resulting new products or processes 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 Xicor, have historically been subject to extensive price
and volume fluctuations that may adversely affect the market price of their
common stock.
-7-
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
At September 28, 1997, Xicor had $34.5 million in cash, cash equivalents
and short-term investments compared to $41.6 million at December 31, 1996.
During the first nine months of 1997, Xicor used funds to purchase $9 million of
equipment and repay $4.7 million of long-term obligations, while generating $6.1
million of cash from operating activities. Xicor used long-term financing to
acquire additional capital assets of $9.5 million during the first nine months
of 1997.
During the balance of 1997, Xicor expects to use additional cash to
finance inventory growth, leasehold improvements and certain equipment
purchases. Capital expenditures for the balance of 1997 are planned at
approximately $6 million, $2 million of which had been committed as of September
28, 1997. The acquisitions consist principally of production equipment to
increase manufacturing capacity and capabilities. Lease financing has been
arranged for approximately $0.5 million of the equipment commitments. Xicor is
investigating additional equipment financing for a portion of the planned fourth
quarter capital expenditures.
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 September 28, 1997, 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.
-8-
<PAGE> 11
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended September 28,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XICOR, INC., a
California Corporation
By /s/ Raphael Klein
-------------------------------
Raphael Klein
President
(Principal Executive Officer)
By /s/ Klaus G. Hendig
-------------------------------
Klaus G. Hendig
Vice President, Finance
and Administration
(Principal Financial Officer)
Date: November 4, 1997
-9-
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 19,886,000
<SECURITIES> 14,611,000
<RECEIVABLES> 11,451,000
<ALLOWANCES> 500,000
<INVENTORY> 28,205,000
<CURRENT-ASSETS> 75,555,000
<PP&E> 140,322,000
<DEPRECIATION> 95,916,000
<TOTAL-ASSETS> 120,207,000
<CURRENT-LIABILITIES> 38,512,000
<BONDS> 0
0
0
<COMMON> 124,141,000
<OTHER-SE> (60,569,000)
<TOTAL-LIABILITY-AND-EQUITY> 120,207,000
<SALES> 91,049,000
<TOTAL-REVENUES> 91,049,000
<CGS> 56,480,000
<TOTAL-COSTS> 56,480,000
<OTHER-EXPENSES> 13,636,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,342,000
<INCOME-PRETAX> 5,258,000
<INCOME-TAX> 262,000
<INCOME-CONTINUING> 4,996,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,996,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0
</TABLE>
