<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 June 29, 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 JUNE 29, 1997
18,921,177
<PAGE> 2
XICOR, INC.
FORM 10-Q
QUARTER ENDED JUNE 29, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 29, 1997 1
and December 31, 1996
Consolidated Statements of Operations for the three 2
and six months ended June 29, 1997 and June 30, 1996
Consolidated Statements of Cash Flows for the six 3
months ended June 29, 1997 and June 30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 9
SIGNATURES 10
</TABLE>
-i-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
XICOR, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 29, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,161,000 $ 20,414,000
Short-term investments 16,429,000 21,159,000
Accounts receivable 11,618,000 11,611,000
Inventories 24,252,000 19,354,000
Prepaid expenses and other current assets 1,404,000 1,384,000
------------ ------------
Total current assets 74,864,000 73,922,000
Property, plant and equipment,
at cost less accumulated depreciation 41,971,000 33,992,000
Other assets 244,000 300,000
------------ ------------
$117,079,000 $108,214,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,856,000 $ 9,979,000
Accrued expenses 7,449,000 7,216,000
Deferred income on shipments to distributors 14,460,000 13,725,000
Current portion of long-term obligations 5,916,000 5,868,000
------------ ------------
Total current liabilities 37,681,000 36,788,000
------------ ------------
Long-term obligations 17,207,000 13,469,000
------------ ------------
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized - -
Common stock; 75,000,000 shares authorized;
18,921,177 and 18,873,252 shares outstanding 123,679,000 123,522,000
Accumulated deficit (61,488,000) (65,565,000)
------------ ------------
62,191,000 57,957,000
------------ ------------
$117,079,000 $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 Six months ended
------------------------------- ------------------------------
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $31,970,000 $31,306,000 $61,483,000 $59,948,000
Cost of sales 19,827,000 18,947,000 37,545,000 36,718,000
----------- ----------- ----------- -----------
Gross profit 12,143,000 12,359,000 23,938,000 23,230,000
----------- ----------- ----------- -----------
Operating expenses:
Research and development 4,598,000 3,726,000 9,211,000 7,186,000
Selling, general and
administrative 5,401,000 5,252,000 10,559,000 9,903,000
----------- ----------- ----------- -----------
9,999,000 8,978,000 19,770,000 17,089,000
----------- ----------- ----------- -----------
Income from operations 2,144,000 3,381,000 4,168,000 6,141,000
Interest expense (457,000) (348,000) (867,000) (582,000)
Interest income 488,000 482,000 990,000 955,000
----------- ----------- ----------- -----------
Income before income taxes 2,175,000 3,515,000 4,291,000 6,514,000
Provision for income taxes 108,000 140,000 214,000 260,000
----------- ----------- ----------- -----------
Net income $ 2,067,000 $ 3,375,000 $ 4,077,000 $ 6,254,000
=========== =========== =========== ===========
Net income per common share $ .11 $ .17 $ .21 $ .32
=========== =========== =========== ===========
Average common
shares and equivalents 19,510,000 19,903,000 19,604,000 19,709,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial information
-2-
<PAGE> 5
XICOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
June 29, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,077,000 $ 6,254,000
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 5,323,000 3,662,000
Changes in assets and liabilities:
Accounts receivable (7,000) 186,000
Inventories (4,898,000) (2,259,000)
Prepaid expenses and other current assets (20,000) (899,000)
Other assets 56,000 (53,000)
Accounts payable and accrued expenses 110,000 768,000
Deferred income on shipments to distributors 735,000 951,000
------------ ------------
Net cash provided by operating activities 5,376,000 8,610,000
------------ ------------
Cash flows from investing activities:
Investments in plant and equipment, net (6,418,000) (3,882,000)
Purchases of short-term investments (16,743,000) (22,387,000)
Maturities of short-term investments 21,473,000 21,505,000
------------ ------------
Net cash used for investing activities (1,688,000) (4,764,000)
------------ ------------
Cash flows from financing activities:
Repayments of long-term obligations (3,098,000) (2,254,000)
Proceeds from sale of common stock to employees 157,000 590,000
------------ ------------
Net cash used for financing activities (2,941,000) (1,664,000)
------------ ------------
Increase in cash and cash equivalents 747,000 2,182,000
Cash and cash equivalents at beginning of year 20,414,000 17,259,000
------------ ------------
Cash and cash equivalents at end of quarter $ 21,161,000 $ 19,441,000
============ ============
Supplemental information:
Cash paid for:
Interest expense $ 867,000 $ 582,000
Income taxes 136,000 331,000
Equipment acquired pursuant to long-term obligations 6,884,000 13,073,000
</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.
NOTE 2 - BALANCE SHEET DETAIL:
<TABLE>
<CAPTION>
June 29, December 31,
1997 1996
---- ----
<S> <C> <C>
Inventories:
Raw materials and supplies $ 4,492,000 $ 4,952,000
Work in process 13,293,000 8,568,000
Finished goods 6,467,000 5,834,000
------------ ------------
$ 24,252,000 $ 19,354,000
============ ============
Property, plant and equipment:
Leased building and building improvements $ 1,602,000 $ 1,602,000
Leasehold improvements 17,297,000 16,947,000
Equipment 104,851,000 101,140,000
Furniture and fixtures 1,750,000 1,722,000
Construction in progress 10,515,000 2,815,000
------------ ------------
136,015,000 124,226,000
Less accumulated depreciation (94,044,000) (90,234,000)
------------ ------------
$ 41,971,000 $ 33,992,000
============ ============
Accrued expenses:
Accrued wages and employee benefits $ 3,475,000 $ 3,421,000
Other accrued expenses 3,974,000 3,795,000
------------ ------------
$ 7,449,000 $ 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 Six months ended
---------------------------- ----------------------------
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic income per share $.11 $.18 $.22 $.34
Diluted income per share $.11 $.17 $.21 $.32
</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
six months ended June 29, 1997 are not necessarily indicative of results to be
expected in future periods.
RESULTS OF OPERATIONS
Sales for the second quarter of 1997 were $32.0 million compared to $31.3
million for the second quarter of 1996 and $29.5 million for the first quarter
of 1997. Sales for the first half of 1997 were $61.5 million compared to $59.9
million for the first half of 1996. First quarter 1997 sales were constrained by
reduced orders in the latter part of the fourth quarter of 1996. Sales grew 8%
sequentially in the second quarter of 1997 due to increased international sales.
Gross profit as a percentage of sales was 38% for the second quarter of
1997, down from 39% for the second quarter and first half of 1996 and 40% for
the first 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, 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 14% of sales for the second quarter
and 15% for the first half of 1997 compared to 12% for the second quarter and
first half of 1996 . The 28% increase in R&D spending for the first half of 1997
compared to the first half of 1996 was due primarily 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 percentage of revenues in
research and development during the balance of 1997.
Selling, general and administrative expenses increased in absolute
dollars, but remained constant at 17% of sales for the second quarter and first
half of both 1997 and 1996 due to ongoing cost control measures and the
increased sales levels.
Interest expense increased in the second quarter and first half of 1997
compared to the second quarter and first half of 1996 due to the financing of
$15.9 million of capital equipment acquisitions during 1996 and $6.9 million
during the first half of 1997. Interest expense for the remaining 1997 quarters
is expected to increase in absolute dollars over the second quarter level due to
continuing increases in financed capital equipment acquisitions.
-5-
<PAGE> 8
Interest income increased in the second quarter and first half of 1997
compared to the second quarter and first half of 1996 due to an increase in the
average balance invested caused primarily by funds generated in 1996. Interest
income is expected to decrease during the remaining 1997 quarters principally
due to the utilization of funds for working capital purposes, leasehold
improvements and equipment purchases.
The provision for income taxes for the second quarter and first half 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.
While sales for the second quarter of 1997 were essentially flat with the
prior year's quarter, net income was lower primarily due to a 23% increase in
research and development expenses related to the development of new products and
technology. Xicor's manufacturing cost level is also 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 to cover these costs and further cost increases, including
depreciation on additional equipment, during the balance of 1997.
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 third
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 third
quarter and the balance of the year. 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 second half of 1997 compared to the first half of 1997.
"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 increased orders
and sales, quick delivery business opportunities, and cost effective utilization
of Xicor's wafer fabrication facility. In addition, during the first half of
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, 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, 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.
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 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 June 29, 1997, Xicor had $37.6 million in cash, cash equivalents and
short-term investments compared to $41.6 million at December 31, 1996. During
the first half of 1997, Xicor used funds to purchase $6.4 million of equipment
and repay $3.1 million of long-term obligations, while generating $5.4 million
of cash from operating activities. Xicor used long-term financing to acquire
additional capital assets of $6.9 million during the first half of 1997.
During the balance of 1997, Xicor expects to use further cash to finance
inventory growth, leasehold improvements and certain equipment purchases.
Capital expenditures for the balance of 1997 are planned at approximately $12
million, $5.5 million of which had been committed as of June 29, 1997. The
acquisitions consist principally of production equipment to support planned
sales growth. Lease financing has been arranged for approximately $3.3 million
of the equipment commitments.
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 June 29, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 30, 1997 the shareholders of Xicor held their annual meeting
in Milpitas, California. The holders of 16,732,661 shares of Common
Stock were present or represented by proxy, and accordingly, a
quorum was present and matters were voted upon as follows:
(a) The following persons were elected directors:
<TABLE>
<CAPTION>
Votes for Votes withheld
--------- --------------
<S> <C> <C>
Raphael Klein 16,256,354 476,307
Julius Blank 16,254,004 478,657
Hans G. Dill 16,255,004 477,657
Andrew W. Elder 16,257,504 475,157
S. Allan Kline 16,253,004 479,657
</TABLE>
(b) A resolution was submitted to a vote of the shareholders at
the meeting to ratify the designation of Price Waterhouse LLP
as independent accountants for the period ending December 31,
1997. The resolution was passed, 16,365,999 shares voting in
favor, 295,147 shares voting against and 71,515 shares
abstaining.
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 June 29, 1997.
-9-
<PAGE> 12
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 __________________________________
Raphael Klein
President
(Principal Executive Officer)
By __________________________________
Klaus G. Hendig
Vice President, Finance
and Administration
(Principal Financial Officer)
Date: August 1, 1997
-10-
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------ --------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 21,161,000
<SECURITIES> 16,429,000
<RECEIVABLES> 12,118,000
<ALLOWANCES> 500,000
<INVENTORY> 24,252,000
<CURRENT-ASSETS> 74,864,000
<PP&E> 136,015,000
<DEPRECIATION> 94,044,000
<TOTAL-ASSETS> 117,079,000
<CURRENT-LIABILITIES> 37,681,000
<BONDS> 0
0
0
<COMMON> 123,679,000
<OTHER-SE> (61,488,000)
<TOTAL-LIABILITY-AND-EQUITY> 117,079,000
<SALES> 61,483,000
<TOTAL-REVENUES> 61,483,000
<CGS> 37,545,000
<TOTAL-COSTS> 37,545,000
<OTHER-EXPENSES> 9,211,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 867,000
<INCOME-PRETAX> 4,291,000
<INCOME-TAX> 214,000
<INCOME-CONTINUING> 4,077,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,077,000
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0
</TABLE>
