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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, 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)
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<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)
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 $49,376,905 on
March 20, 1998.
The aggregate number of outstanding shares of Common Stock, without par
value, of the Registrant was 19,097,852 on March 20, 1998.
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, 1997 and (2) Proxy Statement
for Registrant's 1998 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 to the registrant's Annual Report to Shareholders
for the fiscal year ended December 31, 1997 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
Manufacturers have introduced a variety of nonvolatile semiconductor
memories offering different degrees of programming flexibility. Currently
available nonvolatile memory devices 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 nonvolatile 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 enhanced and standard E(2)PROMs,
SerialFlash memory devices and NOVRAMs as described above, together with 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 controlled 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. Xicor uses the complementary metal
oxide silicon ("CMOS") technology to manufacture Xicor's devices due to its low
power consumption. 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 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
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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, 1997, 1996 and 1995, Xicor's export
sales constituted 44%, 45% and 47%, respectively, of revenues. Xicor's export
sales are generally denominated in US dollars. Due to the magnitude of its
international sales, Xicor is subject to risks common to all export activities,
including currency fluctuations, 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 16% of Xicor's revenues in 1997 and 14% in
both 1996 and 1995. 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
non-functional, 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, the Philippines, China and Malaysia 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, the Philippines and China. 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 over time as 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
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necessitate the acquisition of more costly equipment or require more costly
procedures or process changes to be initiated.
RESEARCH AND DEVELOPMENT
Xicor believes the continuing development of new and improved processes and
products is essential in order to maintain and enhance 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 1998.
During the years ended December 31, 1997, 1996 and 1995, Xicor expended
$18,475,000, $15,074,000 and $15,270,000, respectively, on research and
development. At December 31, 1997, 100 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 such 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 which compete 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 determining success in 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
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technological change and Xicor will be required to continually develop new and
improved manufacturing processes and products to remain competitive.
EMPLOYEES
At December 31, 1997 Xicor had 738 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 significant 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, 1997) and office with Xicor:
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NAME AGE OFFICE
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Raphael Klein 54 Chairman of the Board and Chief Executive Officer
Bruce Gray 47 President and Chief Operating Officer
Joseph Drori 52 Vice President, Product Design, Engineering,
Quality and Reliability
Geraldine N. Hench 40 Vice President, Finance and Chief Financial
Officer
Klaus G. Hendig 58 Vice President, Administration
Timothy D. Kanemoto 51 Vice President, Product Operations
Michael P. Levis 40 Vice President, Marketing
William H. Owen, III 49 Vice President, Technology Development and
Intellectual Properties
</TABLE>
Raphael Klein, Chairman of the Board and Chief Executive Officer. From
August 1987 until January 1998 Mr. Klein was Xicor's President and Chief
Executive Officer. Since January 1998 Mr. Klein has shared the Office of the
President with Mr. Bruce Gray. Mr. Klein is Xicor's Chief Executive Officer with
primary responsibility for marketing, finance and administration and shared
responsibility for the direction of the company. Mr. Klein has been a director
of the Company since founding Xicor in August 1978 and its Chairman of the Board
since August 1982. 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.
Bruce Gray, President and Chief Operating Officer. Mr. Gray joined Xicor in
September 1996 as Vice President, Wafer Operations and since January 1998 has
shared the Office of the President with Mr. Raphael Klein. Mr. Gray is Xicor's
President and Chief Operating Officer with principal profit and loss
responsibility and shared responsibility for the direction of the Company. Mr.
Gray has 26 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) and is the inventor or co-inventor of three 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.
Geraldine N. Hench, Vice President, Finance and Chief Financial Officer.
Ms. Hench, a certified public accountant, joined Xicor in November 1987 as its
Corporate Controller. Ms. Hench became a Vice President
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in June 1993 and Xicor's Chief Financial Officer in January 1998. Ms. Hench
received the degree of Bachelor of Science in Accounting from Santa Clara
University.
Klaus G. Hendig, Vice President, Administration. Mr. Hendig, a certified
public accountant, has been employed by Xicor since February 1981 and became a
Vice President in January 1983. Mr. Hendig served as Xicor's Chief Financial
Officer from September 1987 until January 1998. 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.
Michael P. Levis, Vice President, Marketing. Mr. Levis joined Xicor in
January 1998 as Vice President, Marketing. Mr. Levis has 15 years of experience
in marketing and business development. From 1996 through 1997, Mr. Levis served
as General Partner at ASCII of America, a venture capital firm. From 1993
through 1996, Mr. Levis was the Vice President of Marketing at Crosspoint
Solutions, Inc., a semiconductor company. Prior to 1993 Mr. Levis held various
marketing and business development positions at Crosspoint Solutions, Inc.,
Samsung Semiconductors and Zilog, Inc. Mr. Levis received the degree of Bachelor
of Science in Electrical Engineering from Purdue and the degree of Master of
Science in Electrical Engineering from Stanford 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.
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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
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
19 of the Company's 1997 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1997,
which appears on page 18 of the Company's 1997 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
6 to 9 of the Company's 1997 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 21, 1998, appearing on pages 10 to 17 and the
unaudited financial information by quarter appearing on page 19 of the Company's
1997 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 1997 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 under the caption "Executive Officers of
the Registrant".
8
<PAGE> 10
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.
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 1997 Annual
Report to Shareholders:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL
REPORT
--------
<S> <C>
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1997............... 11
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 10
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1997..... 11
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1997............... 12
Notes to Consolidated Financial Statements.................. 13-16
Report of Independent Accountants........................... 17
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULE.
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants on Financial Statement
Schedule.................................................. 10
II -- Valuation and Qualifying Accounts..................... 12
</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 21, 1998, appearing on page 17 of the 1997 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 21, 1998
10
<PAGE> 12
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 20th day of March 1998.
XICOR, INC.
Registrant
By: /s/ RAPHAEL KLEIN
------------------------------------
Raphael Klein
Chairman of the Board and Chief
Executive Officer
(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
--------- ----- ----
<C> <S> <C>
/s/ RAPHAEL KLEIN Chairman of the Board and Chief Executive Officer March 20, 1998
------------------------------- (Principal Executive Officer)
(Raphael Klein)
/s/ JULIUS BLANK Director March 20, 1998
-------------------------------
(Julius Blank)
/s/ HANS G. DILL Director March 20, 1998
-------------------------------
(Hans G. Dill)
/s/ ANDREW W. ELDER Director March 20, 1998
-------------------------------
(Andrew W. Elder)
/s/ S. ALLAN KLINE Director March 20, 1998
-------------------------------
(S. Allan Kline)
/s/ GERALDINE N. HENCH Vice President, Finance and Chief Financial March 20, 1998
------------------------------- Officer (Principal Financial Officer and Principal
(Geraldine N. Hench) Accounting Officer)
</TABLE>
11
<PAGE> 13
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, 1995................. $500,000 $-- $-- $500,000
Year ended December 31, 1996................. 500,000 -- -- 500,000
Year ended December 31, 1997................. 500,000 -- -- 500,000
</TABLE>
12
<PAGE> 14
XICOR, INC.
INDEX TO EXHIBITS
ITEM 14(A)3.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<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.
10.9 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 1997 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>
13
<PAGE> 1
EXHIBIT 11.1
XICOR, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) available to common shareholders
(1)............................................... $(2,531,000) $13,835,000 $10.036,000
=========== =========== ===========
Shares used for per share calculation:
Basic calculation:
Weighted average number of common shares
outstanding during the period.................. 18,967,000 18,693,000 18,216,000
=========== =========== ===========
Diluted calculation:
Weighted average number of common shares
outstanding during the period.................. 18,967,000 18,693,000 18,216,000
Equivalent common shares attributed to dilutive
employee stock options (2)..................... -- 1,127,000 815,000
----------- ----------- -----------
Total common and common equivalent
shares.................................. 18,967,000 19,820,000 19,031,000
=========== =========== ===========
Earnings per share:
Basic............................................. $ (0.13) $ 0.74 $ 0.55
=========== =========== ===========
Diluted........................................... $ (0.13) $ 0.70 $ 0.53
=========== =========== ===========
</TABLE>
- ---------------
(1) The same net income amounts were used for basic earnings per share and
diluted earnings per share for each of the three years in the period ended
December 31, 1997.
(2) Equivalent common shares of 626,280 were not included for the year ended
December 31, 1997 as they were antidilutive.
<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 10 to 16.
RESULTS OF OPERATION
Xicor's sales were $122.5 million in 1997 compared to $123.5 million in 1996 and
$113.6 million in 1995. Sales in 1997 were essentially flat compared to 1996 as
unit order levels did not increase sufficiently to offset lower average selling
prices. The overall growth in sales in 1996 compared to 1995 reflects increased
sales of advanced products. Production and test equipment brought on-line in
late 1995 and 1996 increased capacity and contributed to the 1996 sales
increase, but also increased depreciation expense.
Gross profit as a percentage of sales was 31% in 1997, 40% in 1996 and 39% in
1995. As a result of the rapidly evolving liquidity crisis in Asia and declining
global sales prices due to intense competition, in the fourth quarter of 1997,
Xicor established reserves of $6.2 million for inventories built for certain
Asian customers and to write down inventory values due to lower expected selling
prices. Excluding the inventory write down, 1997 gross profit as a percentage of
sales was 36% compared to 40% in 1996. This decline in the gross profit
percentage in 1997 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. This was partially offset by increased manufacturing
volumes and efficiencies. The gross margin improvement from 1995 to 1996 was due
primarily to increased manufacturing efficiencies and a greater percentage of
sales of products with higher margins. The 1998 gross profit percentage is
expected to be negatively impacted by continued global pricing pressures and
factory underutilization.
Research and development expenses were 15% of sales in 1997, 12% in 1996 and 13%
in 1995. Research and development spending in 1997 increased 23% over 1996
primarily due to an increase in the number of new products under development and
increases in advanced submicron manufacturing process technology development
efforts. Xicor's strategy is to develop new innovative products and process
technologies to facilitate long-term growth through reduced product costs and
diversification into higher margin product lines. Research and development
activities require an increasing degree of complexity of design and
manufacturing processes and consequently a larger amount of funds is expected to
be invested in research and development in 1998 than was invested in 1997.
Selling, general and administrative expenses represented 18% of sales in 1997,
16% in 1996, and 17% in 1995. Selling, general and administrative expenses
increased in 1997 compared to 1996 primarily due to increased sales promotion
activities and costs
6
<PAGE> 2
related to streamlining Xicor's sales organization. Selling, general and
administrative expenses increased in absolute dollars in 1996 compared to 1995
to support higher sales, but decreased as a percentage of sales due to higher
sales and cost control measures.
Interest expense increased in both 1997 and 1996 compared to the prior year due
to the financing of $15.9 million of capital equipment acquisitions during 1996
and $12.3 million during 1997. Interest expense is expected to increase further
in 1998 due to the 1997 capital equipment financing and the planned financing of
additional capital equipment acquisitions in 1998.
Interest income decreased in 1997 compared to 1996 due to a decrease in the
average balance invested caused primarily by funds used to purchase equipment.
Interest income increased in 1996 compared to 1995 primarily due to an increase
in the average balance invested caused by funds generated from operations in
1996.
The provision for income taxes for each of the three years in the period ended
December 31, 1997 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 $33.9 million at the end of 1997
remain fully reserved because of the uncertainty regarding the ultimate
realization of these assets as outlined below.
Xicor ended 1997 with a loss of $2.5 million compared to a profit of $13.8
million in 1996 primarily due to the $6.2 million inventory write down, lower
1997 average selling prices, higher manufacturing cost levels, increased
research and development expenses and, to a lesser extent, higher sales and
marketing costs. Net income increased in 1996 compared to 1995 primarily due to
increased sales and reduced depreciation expense.
The economic difficulties in Asia and the continuing global pricing pressures
pose major challenges for Xicor in 1998. In addition, orders booked and shipped
in the same quarter continue to constitute a large portion of Xicor's sales and
thus limit Xicor's visibility of sales levels in future quarters. Furthermore,
Xicor's manufacturing cost level increased 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 level to cover these costs and anticipated continued declining global sales
prices due to increased competition. The related factory underutilization and
lower gross margins will result in operating losses in the near term until
production and sales reach a level sufficient to spread costs effectively. In
the longer term, benefits are expected from products manufactured using Xicor's
submicron technology, which is planned to be in production by the end of 1998,
and from diversification into higher margin product lines. There can be no
assurance that sales will increase and product costs decrease sufficiently to
achieve profitability in 1998.
"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
efficiencies in the manufacturing operations, increased sales of new products
introduced in 1997, diversification into higher margin product lines, financing
of additional capital equipment and products manufactured using Xicor's
submicron technology, which is planned to be in production by the end of 1998.
In addition, during 1997 Xicor announced 45 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. Except for historical information, the matters discussed
in this Annual Report are forward-looking statements that 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 (including without
limitation continuing economic difficulties in Asia) and conditions
7
<PAGE> 3
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 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. The current business
climate has and will continue to result in less than optimum utilization of
Xicor's wafer fabrication factory, which will adversely affect Xicor's business
and results of operations. 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 economies of certain countries in the Asia-Pacific region have been and are
continuing to experience considerable economic instability and downtowns. As a
result, Xicor has experienced reduced demand for its products, which has
adversely affected its sales. Continuing reduced demand resulting from the
economic crisis in the Asia-Pacific region (or otherwise) will have a material
adverse effect on Xicor's business, financial condition and results of
operations.
8
<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 1998 and beyond, although there can
be no assurances that such research and development efforts or new products will
be successful.
Xicor uses a significant number of computer software programs and operating
systems in its internal operations, including applications used in financial
business systems, manufacturing operations and various administrative functions.
To the extent that these software applications are unable to appropriately
interpret the upcoming calendar year 2000, some level of modification and
replacement of such software or applications will be necessary. Xicor has
installed and is continuing to install Year 2000 compliant software in its major
systems. Ongoing efforts are being devoted to complete this activity for the
balance of Xicor's systems. The incremental costs associated with these efforts
are currently not expected to be material. Xicor presently believes the Year
2000 issue will not pose significant operational problems. However, Year 2000
issues could have a significant impact on Xicor's operations and its financial
results if modifications cannot be completed in a timely manner; unforeseen
needs or problems arise; or, if the systems operated by our customers, vendors
or subcontractors are not Year 2000 compliant.
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, 1997, Xicor had $32.5 million in cash, cash equivalents and
short-term investments. Corresponding balances at the end of 1996 and 1995 were
$41.6 million and $35.4 million, respectively. During 1997, Xicor generated $8.1
million of cash from operating activities and $0.7 million from the exercise of
employee stock options while using $11.8 million for capital asset purchases and
$6.1 million to repay long-term debt, resulting in a $9.1 million net decrease
in Xicor's cash and short-term investment position. Xicor used long-term
financing to acquire additional capital assets of $12.3 million in 1997.
During 1998 Xicor expects to use cash to finance additional leasehold
improvements and certain equipment purchases. Capital expenditures for 1998 are
presently planned at approximately $15 million consisting principally of
equipment necessary for volume production using its submicron technology which
is in the latter stages of development. Xicor is presently investigating
financing for a large portion of the planned equipment additions, but there is
no assurance that such financing will be available. At December 31, 1997, Xicor
had entered into commitments for equipment purchases and leasehold improvements
aggregating approximately $7.5 million.
Xicor has a line of credit agreement with a financial institution that
expires March 31, 1999, 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, 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.
9
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21,106,000 $ 20,414,000
Short-term investments 11,372,000 21,159,000
Accounts receivable 11,003,000 11,611,000
Inventories 23,933,000 19,354,000
Prepaid expenses and other current assets 1,013,000 1,384,000
------------------------------------
Total current assets 68,427,000 73,922,000
Property, plant and equipment, at cost
less accumulated depreciation 46,628,000 33,992,000
Other assets 206,000 300,000
------------------------------------
$ 115,261,000 $ 108,214,000
====================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 11,596,000 $ 9,979,000
Accrued expenses 8,133,000 7,216,000
Deferred income on shipments to distributors 13,913,000 13,725,000
Current portion of long-term obligations 6,537,000 5,868,000
------------------------------------
Total current liabilities 40,179,000 36,788,000
------------------------------------
Long-term obligations 18,974,000 13,469,000
------------------------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized -- --
Common stock; 75,000,000 shares authorized;
19,091,727 and 18,873,252 shares outstanding 124,204,000 123,522,000
Accumulated deficit (68,096,000) (65,565,000)
------------------------------------
56,108,000 57,957,000
------------------------------------
$ 115,261,000 $ 108,214,000
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Net sales $122,453,000 $123,514,000 $113,550,000
Cost of sales 84,603,000 74,303,000 69,214,000
-------------------------------------------------
Gross profit 37,850,000 49,211,000 44,336,000
-------------------------------------------------
Operating expenses:
Research and development 18,475,000 15,074,000 15,270,000
Selling, general and administrative 21,753,000 20,306,000 19,474,000
-------------------------------------------------
40,228,000 35,380,000 34,744,000
-------------------------------------------------
Income (loss) from operations (2,378,000) 13,831,000 9,592,000
Interest expense (1,834,000) (1,421,000) (605,000)
Interest income 1,901,000 2,001,000 1,584,000
-------------------------------------------------
Income (loss) before income taxes (2,311,000) 14,411,000 10,571,000
Provision for income taxes 220,000 576,000 535,000
-------------------------------------------------
Net income (loss) $(2,531,000) $13,835,000 $10,036,000
=================================================
Net income (loss) per share:
Basic $(0.13) $0.74 $0.55
=================================================
Diluted $(0.13) $0.70 $0.53
=================================================
Shares used in per share calculation:
Basic 18,967,000 18,693,000 18,216,000
=================================================
Diluted 18,967,000 19,820,000 19,031,000
=================================================
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
Common Stock
--------------------------- Accumulated
Shares Amount Deficit Total
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 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
Exercise of stock options 218,475 682,000 -- 682,000
Net loss -- -- (2,531,000) (2,531,000)
--------------------------------------------------------------
Balance at December 31, 1997 19,091,727 $124,204,000 $(68,096,000) $ 56,108,000
==============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE> 7
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,531,000) $13,835,000 $10,036,000
Adjustments to reconcile net
income (loss) to cash provided
by operating activities:
Depreciation and amortization 11,380,000 8,220,000 7,482,000
Changes in assets and liabilities:
Accounts receivable 608,000 1,819,000 (2,370,000)
Inventories (4,579,000) (7,377,000) 3,257,000
Prepaid expenses and other
current assets 371,000 (482,000) (292,000)
Other assets 94,000 66,000 (10,000)
Accounts payable and accrued
expenses 2,534,000 2,893,000 1,447,000
Deferred income on shipments
to distributors 188,000 331,000 1,204,000
------------------------------------------------
Net cash provided by
operating activities 8,065,000 19,305,000 20,754,000
------------------------------------------------
Cash flows from investing activities:
Investments in plant and
equipment, net (11,761,000) (8,977,000) (4,762,000)
Purchases of short-term
investments (28,395,000) (46,856,000) (26,315,000)
Maturities of short-term
investments 38,182,000 43,833,000 14,065,000
------------------------------------------------
Net cash used for investing activities (1,974,000) (12,000,000) (17,012,000)
------------------------------------------------
Cash flows from financing activities:
Repayments of long-term obligations (6,081,000) (5,241,000) (2,848,000)
Proceeds from sale of common stock
to employees 682,000 1,091,000 1,611,000
------------------------------------------------
Net cash used for financing activities (5,399,000) (4,150,000) (1,237,000)
------------------------------------------------
Increase in cash and cash equivalents 692,000 3,155,000 2,505,000
Cash and cash equivalents at
beginning of year 20,414,000 17,259,000 14,754,000
------------------------------------------------
Cash and cash equivalents at
end of year $21,106,000 $20,414,000 $17,259,000
================================================
Supplemental information:
Cash paid during the year for:
Interest expense $1,713,000 $1,421,000 $608,000
Income taxes 415,000 682,000 248,000
Equipment acquired pursuant to
long-term obligations 12,255,000 15,866,000 4,706,000
</TABLE>
See accompanying notes to consolidated financial statements.
12
<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 semi-conductor memory devices.
Export sales, principally to customers in Europe and the Far East, were
$54,244,000 in 1997, $56,000,000 in 1996 and $53,136,000 in 1995. One customer
accounted for 16% of Xicor's sales in 1997 and 14% of sales in both 1996 and
1995.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Xicor measures its financial assets and liabilities in accordance with generally
accepted accounting principles. For financial instruments, including cash and
cash equivalents, short-term investments, accounts receivable, accounts payable
and accrued expenses, the carrying amounts approximate fair value due to their
short maturities. The amounts shown for long-term obligations also approximate
fair value.
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 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 (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding. Diluted net income (loss) per share is computed
using the weighted average number of common shares and all dilutive potential
common shares outstanding.
ACCOUNTING FOR STOCK OPTIONS
In accordance with Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation", Xicor applies Accounting
Principles Board Opinion No. 25 for purposes of accounting for employee stock
options. Because the exercise prices of Xicor's employee stock options equal the
market price of the underlying stock on the date of grant, no compensation
expense is recognized in the financial statements. Xicor provides additional pro
forma disclosures as required under SFAS 123 in Note 5.
13
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--BALANCE SHEET DETAIL:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1996
--------------------------------
<S> <C> <C>
INVENTORIES:
Raw materials and supplies $ 4,229,000 $ 4,952,000
Work in process 13,012,000 8,568,000
Finished goods 6,692,000 5,834,000
--------------------------------
$ 23,933,000 $ 19,354,000
================================
PROPERTY, PLANT AND EQUIPMENT:
Leased building and building
improvements $ -- $ 1,602,000
Leasehold improvements 17,518,000 16,947,000
Equipment 116,349,000 101,140,000
Furniture and fixtures 1,817,000 1,722,000
Construction in progress 8,104,000 2,815,000
--------------------------------
143,788,000 124,226,000
Accumulated depreciation (97,160,000) (90,234,000)
--------------------------------
$ 46,628,000 $ 33,992,000
================================
ACCRUED EXPENSES:
Accrued wages and employee
benefits $ 3,984,000 $ 3,421,000
Other accrued expenses 4,149,000 3,795,000
--------------------------------
$ 8,133,000 $ 7,216,000
================================
</TABLE>
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and 1996 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 for terms of four to six 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,
------------------------------
1997 1996
------------------------------
<S> <C> <C>
Leased building and building
improvements $ -- $ 1,602,000
Equipment 33,645,000 27,917,000
------------------------------
33,645,000 29,519,000
Accumulated depreciation (8,278,000) (9,657,000)
------------------------------
$ 25,367,000 $ 19,862,000
==============================
</TABLE>
Minimum future lease payments under non-cancelable leases as of December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------------------------
<S> <C> <C>
Years:
1998 $ 8,363,000 $ 4,208,000
1999 8,032,000 4,122,000
2000 4,789,000 2,713,000
2001 3,991,000 1,074,000
2002 3,579,000 91,000
2003 1,386,000 --
------------------------------
Total minimum lease payments $ 30,140,000 $ 12,208,000
============
Less amount representing interest (4,629,000)
------------
Present value of minimum lease
payments 25,511,000
Less current portion (6,537,000)
------------
Long-term obligations $ 18,974,000
============
</TABLE>
Total rental expense under non-capitalized leases was as follows (including
month-to-month rentals): 1997--$4,492,000, 1996--$3,652,000, 1995--$2,423,000.
NOTE 4--LINE OF CREDIT AGREEMENT:
Xicor has a line of credit agreement with a financial institution which expires
on March 31, 1999 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, 1997, there were no borrowings outstanding under this line of
credit.
14
<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
-------------------------
Outstanding at
<S> <C> <C>
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
Granted 462,600 6.80
Exercised (218,475) 3.12
Canceled (198,150) 5.82
---------
Outstanding at
December 31, 1997 1,999,075 $5.16
=========
</TABLE>
The number of common stock options available for grant as of December 31, 1997,
1996 and 1995 were 827,000, 1,124,950 and 950,400, respectively. At December 31,
1997, 2,826,075 shares of common stock were reserved for issuance upon exercise
of stock options. Options outstanding at December 31, 1997 and related weighted
average price and life information follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- -------------------
Range of Remaining
Exercise Prices Shares Price Life Shares Price
- --------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.69-$0.69 8,500 $0.69 2.37 8,500 $0.69
$1.19-$1.62 326,225 $1.34 2.85 326,225 $1.34
$1.87-$2.62 221,500 $2.18 4.30 125,125 $2.20
$3.44-$4.25 115,425 $3.65 5.47 60,925 $3.78
$5.31-$7.87 1,157,025 $6.34 8.46 277,564 $6.11
$9.00-$11.50 170,400 $9.63 8.59 42,600 $9.63
----------------------------------------------------
$0.69-$11.50 1,999,075 $5.16 6.90 840,939 $3.63
====================================================
</TABLE>
The fair value of options at date of grant was estimated using the Black-Scholes
model. The weighted average grant date fair value of options granted was $3.59,
$3.68 and $2.30 for each of the three years in the period ended December 31,
1997. The estimated stock-based compensation cost calculated using the
assumptions indicated below totaled $1,364,000, $1,487,000 and $474,000 for each
of the three years in the period ended December 31, 1997. The pro forma net
income (loss) resulting from the increased compensation cost was ($3,895,000) or
($0.21) per share, $12,348,000 or $0.63 per share and $9,562,000 or $0.50 per
share for each of the three years in the period ended December 31, 1997. The
effect of stock-based compensation on net income (loss) for each of the three
years in the period ended December 31, 1997 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.
The following weighted average assumptions are included in the estimated fair
value grant date calculation of Xicor's stock options:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------
<S> <C> <C> <C>
Expected life (years) 5 5 5
Interest rate 5.99% 5.55% 6.39%
Volatility 70% 70% 70%
Dividend yield 0% 0% 0%
</TABLE>
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 1997, 1996 and 1995 totaled
$250,000, $1,225,000 and $1,062,000, respectively.
15
<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,
----------------------------------
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Federal $ 45,000 $322,000 $171,000
State 25,000 192,000 72,000
Foreign 150,000 62,000 292,000
----------------------------------
$220,000 $576,000 $535,000
==================================
</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,
---------------------------------
1997 1996 1995
---------------------------------
<S> <C> <C> <C>
Federal statutory rate (35.0%) 35.0% 35.0%
Operating losses with no
current benefit 35.0 -- --
Utilization of previously
reserved net operating losses -- (24.4) (24.3)
Foreign and alternative
minimum taxes and other 9.5 (6.6) (5.4)
---------------------------------
9.5% 4.0% 5.3%
=================================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------------------------
<S> <C> <C>
Deferred tax assets:
Federal and state loss and
credit carryforwards $ 16,700,000 $ 16,700,000
Capitalized research and
development 3,966,000 1,899,000
Inventory reserves and basis
differences 8,060,000 5,732,000
Deferred income on shipments
to distributors 995,000 2,516,000
Depreciation 3,003,000 2,786,000
Other 2,860,000 2,581,000
------------------------------
35,584,000 32,214,000
Deferred tax liabilities (1,732,000) (1,516,000)
Deferred tax assets valuation
allowance (33,852,000) (30,698,000)
------------------------------
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, 1997, Xicor had Federal tax net operating loss carryforwards and
general business credit carryforwards of approximately $32,000,000 and
$3,000,000, respectively. These carryforwards expire in varying amounts from
1998 through 2011. 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, 1997, Xicor also had California state tax credit carryforwards of
approximately $2,500,000 that expire in varying amounts subsequent to 2005.
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--EARNINGS PER SHARE:
Xicor adopted Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" for the year ended December 31, 1997. The same net income amounts were
used for Basic Earnings Per Share (EPS) and Diluted EPS for each of the three
years in the period ended December 31, 1997. For the year ended December 31,
1997, the number of shares used in the calculations of both EPS amounts were the
same since stock options were excluded as they were antidilutive. Common stock
equivalents of 1,127,000 and 815,000 were the only reconciling items between the
number of shares used to calculated Basic EPS and Diluted EPS for the years
ended December 31, 1996 and 1995, respectively.
NOTE 9--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.
16
<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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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.
/s/ PRICE WATERHOUSE LLP
San Jose, California
January 21, 1998
17
<PAGE> 13
FINANCIAL OPERATING INFORMATION
- -------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net sales $ 122,453,000 $ 123,514,000 $ 113,550,000 $ 103,386,000 $ 104,415,000
Cost of sales 84,603,000 74,303,000 69,214,000 68,056,000 78,725,000
-------------------------------------------------------------------------------------
Gross profit 37,850,000 49,211,000 44,336,000 35,330,000 25,690,000
=====================================================================================
Operating expenses:
Research and
development 18,475,000 15,074,000 15,270,000 14,085,000 12,847,000
Selling, general and
administrative 21,753,000 20,306,000 19,474,000 18,779,000 18,026,000
-------------------------------------------------------------------------------------
40,228,000 35,380,000 34,744,000 32,864,000 30,873,000
-------------------------------------------------------------------------------------
Income (loss) from
operations (2,378,000) 13,831,000 9,592,000 2,466,000 (5,183,000)
Interest expense (1,834,000) (1,421,000) (605,000) (618,000) (840,000)
Interest income 1,901,000 2,001,000 1,584,000 580,000 206,000
-------------------------------------------------------------------------------------
Income (loss) before
income taxes (2,311,000) 14,411,000 10,571,000 2,428,000 (5,817,000)
Provision for income
taxes 220,000 576,000 535,000 129,000 --
-------------------------------------------------------------------------------------
Net income (loss) $ (2,531,000) $ 13,835,000 $ 10,036,000 $ 2,299,000 $ (5,817,000)
=====================================================================================
Net income (loss) per share:
Basic $ (0.13) $ 0.74 $ 0.55 $ 0.13 $ (0.32)
=====================================================================================
Diluted $ (0.13) $ 0.70 $ 0.53 $ 0.13 $ (0.32)
=====================================================================================
Shares used in per share
calculations:
Basic 18,967,000 18,693,000 18,216,000 18,004,000 17,988,000
=====================================================================================
Diluted 18,967,000 19,820,000 19,031,000 18,364,000 17,988,000
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 28,248,000 $ 37,134,000 $ 30,525,000 $ 19,831,000 $ 9,627,000
Total assets 115,261,000 108,214,000 79,439,000 63,283,000 61,669,000
Long-term debt 18,974,000 13,469,000 5,229,000 4,186,000 4,076,000
Accumulated deficit (68,096,000) (65,565,000) (79,400,000) (89,436,000) (91,735,000)
Shareholders' equity 56,108,000 57,957,000 43,031,000 31,384,000 29,032,000
</TABLE>
18
<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, 1997 and 1996:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
First Second Third Fourth
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $29,513,000 $31,970,000 $29,566,000 $31,404,000
Cost of sales 17,718,000 19,827,000 18,935,000 28,123,000
Research and development 4,613,000 4,598,000 4,425,000 4,839,000
Selling, general and administrative 5,158,000 5,401,000 5,252,000 5,942,000
Net income (loss) 2,010,000 2,067,000 919,000 (7,527,000)
Net income (loss) per share:
Basic 0.11 0.11 0.05 (0.39)
Diluted 0.10 0.11 0.05 (0.39)
Shares used in per share calculations:
Basic 18,888,000 18,910,000 18,985,000 19,084,000
Diluted 19,683,000 19,510,000 19,731,000 19,084,000
Common Stock Market price range(1) High 10-1/2 7-1/8 9-3/8 7-1/2
Low 6-5/8 5-1/8 5-11/16 2-11/16
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
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:
Basic 0.16 0.18 0.22 0.19
Diluted 0.15 0.17 0.20 0.18
Shares used in per share calculations:
Basic 18,533,000 18,646,000 18,756,000 18,840,000
Diluted 19,429,000 19,903,000 19,861,000 19,990,000
Common Stock Market price range(1) 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>
(1) Xicor's Common Stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market(SM) 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 1,430
shareholders of record on December 31, 1997. Xicor has never paid
dividends and does not anticipate paying any dividends in the
foreseeable future.
19
<PAGE> 1
EXHIBIT 21
XICOR, INC.
LIST OF SUBSIDIARIES(1)
<TABLE>
<CAPTION>
STATE OR
OTHER JURISDICTION
NAME OF INCORPORATION
---- ------------------
<S> <C>
Xicor GmbH.................................................. Germany
Xicor Hong Kong Limited..................................... Hong Kong
Xicor Japan K.K............................................. Japan
Xicor Korea, Ltd............................................ Korea
Xicor Limited............................................... United Kingdom
</TABLE>
- ---------------
(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 21, 1998, appearing on
page 17 of the 1997 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 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 21,106,000
<SECURITIES> 11,372,000
<RECEIVABLES> 11,503,000
<ALLOWANCES> 500,000
<INVENTORY> 23,933,000
<CURRENT-ASSETS> 68,427,000
<PP&E> 143,788,000
<DEPRECIATION> 97,160,000
<TOTAL-ASSETS> 115,261,000
<CURRENT-LIABILITIES> 40,179,000
<BONDS> 0
0
0
<COMMON> 124,204,000
<OTHER-SE> (68,096,000)
<TOTAL-LIABILITY-AND-EQUITY> 115,261,000
<SALES> 122,453,000
<TOTAL-REVENUES> 122,453,000
<CGS> 84,603,000
<TOTAL-COSTS> 84,603,000
<OTHER-EXPENSES> 18,475,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,834,000
<INCOME-PRETAX> (2,311,000)
<INCOME-TAX> 220,000
<INCOME-CONTINUING> (2,531,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,531,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
