<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE:
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------------- -------------
COMMISSION FILE NUMBER 0-11879
VLSI TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2597282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1109 MCKAY DRIVE, SAN JOSE, CALIFORNIA 95131
(Address of principal executive offices) (Zip Code)
(408) 434-3100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
Shares outstanding of the Registrant's Common Stock as of March 29, 1996:
45,422,432
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - unaudited
(thousands except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------
March 29, March 31,
1996 1995
------------ ------------
<S> <C> <C>
Net revenues $ 167,712 $ 163,035
Cost of sales 104,979 98,961
------------ ------------
Gross profit 62,733 64,074
------------ ------------
Operating expenses:
Research and development 24,371 20,668
Marketing, general and administrative 34,997 27,775
------------ ------------
Operating income 3,365 15,631
Interest income and other expenses, net 3,995 881
Interest expense (2,480) (1,862)
------------ ------------
Income before provision for taxes on income 4,880 14,650
Provision for taxes on income 1,710 4,400
------------ ------------
Net income $ 3,170 $ 10,250
============ ============
Net income per share $ .07 $ .27
============ ============
Weighted average common and
common equivalent shares
outstanding 46,405 38,445
============ ============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE> 3
PART I. (CONTINUED)
Item 1. Financial Statements (continued)
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited
(thousands)
<TABLE>
<CAPTION>
March 29, December 29,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 131,533 $ 183,165
Liquid investments 130,341 182,416
Accounts receivable, net of allowance for doubtful
accounts and customer returns of $2,150
($2,100 at December 29, 1995) 106,168 119,638
Inventories:
Raw materials 5,841 4,683
Work-in-process 47,971 47,069
Finished goods 10,351 9,096
--------- ---------
Total inventories 64,163 60,848
Deferred and refundable income taxes 47,286 47,706
Prepaid expenses and other current assets 5,314 4,362
--------- ---------
Total current assets 484,805 598,135
Property, plant and equipment, at cost 797,040 698,213
Accumulated depreciation and amortization (367,739) (346,172)
--------- ---------
Net property, plant and equipment 429,301 352,041
Other assets 8,888 9,711
--------- ---------
TOTAL ASSETS $ 922,994 $ 959,887
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 4
PART I. (CONTINUED)
Item 1. Financial Statements (continued)
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited (continued)
(thousands except per share amounts)
<TABLE>
<CAPTION>
March 29, December 29,
1996 1995
--------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 87,973 $ 100,099
Accrued compensation and benefits 21,934 24,802
Deferred income 9,110 9,067
Litigation reserve 18,543 18,543
Other accrued liabilities 41,103 36,367
Current capital lease obligations 1,039 1,552
Current portion of long-term debt 7,581 7,608
--------- ---------
Total current liabilities 187,283 198,038
Non-current capital lease obligations 3,195 3,465
Long-term debt 213,514 215,382
Deferred income taxes 12,373 12,373
Stockholders' equity:
Preferred Shares, $.01 par value -- --
Common Shares, $.01 par value 472 472
Treasury Common Shares, at cost (27,182) --
Additional paid-in capital 461,040 461,028
Retained earnings 72,299 69,129
--------- ---------
Total stockholders' equity 506,629 530,629
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 922,994 $ 959,887
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
PART I. (CONTINUED)
Item I. Financial Statements (continued)
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - unaudited
(thousands)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------
March 29, March 31,
1996 1995
--------- ---------
Increase (decrease) in cash
and cash equivalents
<S> <C> <C>
Operating activities:
Net income $ 3,170 $ 10,250
Adjustments to reconcile net income
to cash generated by operations:
Depreciation and amortization 23,579 16,631
Changes in operating assets and liabilities:
Accounts receivable 13,470 (12,874)
Inventories (3,315) 4,099
Accounts payable, accrued liabilities
and deferred income (9,830) 6,847
Other (428) 590
--------- ---------
Cash generated by operations 26,646 25,543
--------- ---------
Investing activities:
Purchases of liquid investments (80,348) (21,704)
Proceeds from maturities of liquid investments 132,362 8,300
Purchases of property, plant and equipment (100,399) (25,931)
Other (150) (151)
--------- ---------
Net cash flow used for investing activities (48,535) (39,486)
--------- ---------
Financing activities:
Payments on debt and capital lease obligations (2,679) (4,266)
Repurchase Treasury Shares (27,182) --
Issuance of Common Shares, net 118 1,527
--------- ---------
Net cash flow used for financing activities (29,743) (2,739)
--------- ---------
Net decrease in cash and cash equivalents (51,632) (16,682)
Cash and cash equivalents, beginning of period 183,165 93,310
--------- ---------
Cash and cash equivalents, end of period $ 131,533 $ 76,628
========= =========
Supplemental disclosure:
Cash outflows for property, plant and equipment $ 100,399 $ 25,931
Less: Decrease in accrual for property, plant
and equipment additions (687) --
--------- ---------
Property, plant and equipment additions $ 99,712 $ 25,931
========= =========
Interest paid $ 1,534 $ 877
========= =========
Income taxes paid, net $ 145 $ 769
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 6
PART I. (CONTINUED)
Item I. Financial Statements (continued)
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying interim consolidated condensed financial statements
have been prepared in conformance with generally accepted accounting
principles, consistent with those applied in the VLSI Technology, Inc.
Annual Report on Form 10-K for the year ended December 29, 1995 (the
1995 Annual Report). This Quarterly Report on Form 10-Q (Form 10-Q)
should be read in conjunction with the 1995 Annual Report. The interim
financial statements are unaudited, but reflect all normal recurring
adjustments that are, in the opinion of management, necessary to a fair
statement of results for the interim periods presented. The results for
the quarter ended March 29, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 27, 1996.
2. The Company's tax provisions of 35% and 30% in the first quarters of
1996 and 1995, respectively, reflect utilization of tax credits and, in
the first quarter of 1995, a reduction in valuation reserve for U.S.
deferred taxes.
3. The Company is a named defendant in a lawsuit filed by Texas
Instruments Incorporated (TI) in 1990 claiming patent infringement. For
more information, see Note 4 of Notes to Consolidated Financial
Statements on pages 32 and 33 of the Company's 1995 Annual Report and
Item 1 in Part II of this Form 10-Q.
4. In January 1996, the Board of Directors (Board) authorized the Company
to repurchase shares of the Company's Common Stock on the open market
or in privately negotiated transactions. The Board authorized the
Company to re-issue these shares at a later date through certain of its
employee stock plans and/or to fund stock or asset acquisitions
authorized by the Board. As of March 29, 1996, the Company had
repurchased 1.8 million shares at an average per share price of $15.10,
and had not yet re-issued any of these shares.
5. The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (FAS 121) and Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123) with the commencement of fiscal 1996. Initial
adoption of FAS 121 did not have a material effect on the Company's
consolidated financial statements. The Company has elected to adopt the
disclosure requirements of FAS 123 rather than the accounting
requirements of FAS 123.
6. On April 30, 1996, the Company elected to terminate its committed
Credit Agreement, which was due to expire on June 7, 1996. There were
no borrowings outstanding at the termination date.
6
<PAGE> 7
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS - FIRST QUARTER OF 1996 COMPARED TO THE FIRST QUARTER OF
1995
This Management's Discussion and Analysis of Financial Condition and Results of
Operations (MDA) should be read in conjunction with the MDA in the 1995 Annual
Report.
This MDA 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 set forth below in
this MDA and in the 1995 Annual Report.
The following table summarizes the Company's operating results for the
three-month period ended March 29, 1996 as compared to the three-month period
ended March 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER
------------------------------------------------------------------------
1996 1995
------------------------------------------ ---------------------------
PERCENT PERCENT PERCENT
OF NET CHANGE OF NET
AMOUNTS REVENUES FROM 1995 AMOUNTS REVENUES
--------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues $ 167,712 100.0% 2.9% $ 163,035 100.0%
Cost of sales 104,979 62.6 6.1 98,961 60.7
--------- --------- --------- ---------
Gross profit 62,733 37.4 (2.1) 64,074 39.3
Research & development 24,371 14.5 17.9 20,668 12.7
Marketing, general and
administrative 34,997 20.9 26.0 27,775 17.0
--------- --------- --------- ---------
Operating income 3,365 2.0 (78.5) 15,631 9.6
Interest income
(expense), net 1,515 0.9 * (981) 0.6
Income taxes 1,710 1.0 (61.1) 4,400 2.7
--------- --------- --------- ---------
Net income $ 3,170 1.9 (69.1) $ 10,250 6.3
========= ========= ========= =========
</TABLE>
* Not meaningful
The Company earned net income of $3.2 million in the first quarter of 1996,
compared to net income of $10.3 million in the first quarter of 1995. This
change reflects decreased gross profit in dollars and as a percentage of net
revenues (gross margin) and higher operating expenses.
In the first quarter of 1996, revenues from the Company's X86-based personal
computer (PC) devices decreased dramatically from the fourth quarter of 1995.
For the remainder of 1996 X86-based revenue is anticipated to represent less
than 10% of total Company revenue. This loss of market share in the PC chip set
market is a result of Intel's expansion in scope of its business from
microprocessors to motherboards and core logic chip sets. The decrease in the
Company's X86-based revenue led to underutilization at the Company's San Jose,
California fabrication facility, which in turn led to certain manufacturing
inefficiencies. In order to respond to the loss of a substantial portion of its
X86 business, the Company instituted a reduction in force in March 1996 in both
the San Jose fabrication facility and in the Company's Tempe, Arizona test
facility. The under utilization and the reduction in force negatively affected
gross margins in the first quarter of 1996 significantly. See the discussion of
revenues and gross margins below.
Net revenues in the first quarter of 1996 increased 2.9% from the comparable
1995 period and decreased 9.0% from the fourth quarter of 1995. The increase
over the first quarter of 1995
7
<PAGE> 8
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
RESULTS OF OPERATIONS - FIRST QUARTER OF 1996 COMPARED TO THE FIRST QUARTER OF
1995 (Continued)
reflects increased unit volumes and higher average sales prices of
Application-Specific Integrated Circuits, especially communications and consumer
digital entertainment devices, which were substantially offset by the decrease
in unit volumes of X86-based PC devices. The lower revenue in the first quarter
of 1996 from the fourth quarter of 1995 reflects significantly decreased unit
volumes for X86-based devices and for devices shipped for incorporation into
Apple products. Software net revenues were up approximately 20% compared to both
1995 periods. The software revenues in the fourth quarter of 1995 were lower
than had been expected.
International net revenues (including export sales) decreased, accounting for
48.4% of net revenues in the first quarter of 1996 compared to 51.3% of net
revenues in the first quarter of 1995, primarily due to decreases in sales to
the Asia-Pacific region. Export sales to the Asia-Pacific area in the first
quarter of 1996 decreased over the first quarter of 1995, due to a decrease in
shipments of devices for the PC market, in particular Apple and X86-based
devices, to that area. European net revenues increased from the comparable 1995
period due to growth in the Company's shipments of communications and consumer
digital entertainment devices in that region.
Gross margins decreased to 37.4% in the first quarter of 1996 from 39.3% in the
first quarter of 1995 and 40.6% in the fourth quarter of 1995. This result was
driven in large part by inventory charges taken during the first quarter of 1996
for certain X86 devices as a result of the change in the business outlook for
those products as well as manufacturing inefficiencies associated with
underutilization of the San Jose facility and a March 1996 reduction in force.
For further discussion of the inventory charges and manufacturing issues, see
"Factors Affecting Future Results".
R&D expenditures increased $3.7 million (17.9%) in the first quarter of 1996
over expenditures in the same 1995 period and increased as a percentage of net
revenues from 12.7% to 14.5%, reflecting continuing investment in new products
and package and process technologies. R&D expenditures in the first quarter of
1996 focused on design environment and process development and development of
products for the consumer digital entertainment and communications markets.
Marketing, general and administrative expenses for the first quarter of 1996
increased $7.2 million (26.0%) from the first quarter of the prior year and
increased as a percentage of net revenues from 17.0% to 20.9%. The increase
primarily reflects increased costs associated with revenue levels consistent
with revenue levels of the fourth quarter of 1995 and increased marketing
activities.
Interest income (expense), net, shows income of $1.5 million in the current
quarter as compared to $1.0 million of net expense in the same period a year
ago, reflecting higher interest income on higher average cash balances than in
the first quarter of 1995. Interest expense increased in the first quarter of
1996 over the first quarter of 1995 due to a higher amount of debt outstanding,
partially offset by a higher level of capitalized interest.
The Company's tax provision of 35% and 30% in the first quarters of 1996 and
1995, respectively, reflect utilization of tax credits and, in the first quarter
of 1995, a reduction in valuation reserve for U.S. deferred taxes.
8
<PAGE> 9
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
FACTORS AFFECTING FUTURE RESULTS
As described by the following factors, past financial performance should not be
considered to be a reliable indicator of future performance, and investors
should not use historical trends to anticipate results or trends in future
periods.
In late 1995, Apple announced delays to certain of its products in development
and excessive amounts of inventories. This reduction in Apple's operations
resulted in lower than expected VLSI revenues from Apple in the fourth quarter
of 1995 as well as the first quarter of 1996, which VLSI anticipates will
continue into at least the second quarter of 1996, as Apple has not yet
announced its intentions regarding certain of its products that contain VLSI
devices. Any actions taken by Apple to further reduce or eliminate those
products could materially impact the Company.
Approximately two-thirds of the Company's net revenues for the first quarter of
1996 were derived from sales to its top 20 customers. Shipments to a single
customer in the communications business accounted for 11% of net revenues in the
first quarter of 1996 as compared to less than 10% in the first quarter of 1995.
Due to the decline in the Company's X86 chip set business, the Company
experienced a shift in its top 20 customers in the first quarter of 1996 away
from the high concentration of personal computer industry companies that was
seen in 1995 and expects to continue this shift towards customers in the
communications and consumer digital entertainment markets as the year
progresses.
The Company is a sole source of products to many of its customers. As a result
of the concentration of the Company's customer base, loss or cancellation of
business from any of these customers, significant changes in scheduled
deliveries to any of these customers or decreases in the prices of products sold
to any of these customers could materially adversely affect the Company's
results of operations.
The Company sells its Application-Specific Standard Products (ASSPs) under terms
and conditions customarily found in the semiconductor industry. Sales of these
products are subject to customer cancellation with limited advance notice prior
to shipment. Due to the Company's relatively narrow customer base for certain
ASSPs and the short product life cycles of such products, the Company could be
left with significant inventory exposure, which could have a material adverse
effect on the Company's operating results. An example of this potential
inventory exposure occurred in the first quarter of 1996 with the previously
mentioned X86-based inventory.
The semiconductor industry has a history of cyclicality and is characterized by
short product life cycles, continuous evolution of process technology, high
fixed costs, additions of manufacturing capacity in large increments and wide
fluctuations in product supply and demand. These product supply and demand
fluctuations have historically been characterized by periods of manufacturing
capacity shortages immediately followed by periods of excess capacity, which are
caused by the previously mentioned additions of manufacturing capacity in large
increments. Due to the high fixed costs of the industry, profitability can drop
sharply as utilization drops during periods of overcapacity. To the extent
customer needs and markets served by the Company have shifted to require
advanced process technologies, there are no assurances that the Company will
have sufficient demand to fully utilize the San Jose fabrication facility or
have ultimate use for its trailing edge technology. In an attempt to increase
utilization of the San Jose facility, the Company has contracted to act as a
foundry for an additional customer. In this current period of excess
manufacturing capacity in the
9
<PAGE> 10
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
FACTORS AFFECTING FUTURE RESULTS (continued)
semiconductor industry, the Company may have difficulty attracting enough
foundry business to maintain full utilization of the San Jose fabrication
facility until such time as a significant portion of its capacity is converted
to 0.6-micron process technology. Even at 0.6-micron process technology, intense
competitive pricing pressures could lead to reduced margins on foundry product.
There can be no assurance that such foundry activities will be successful.
The Company's products are susceptible to severe pricing pressures and the
Company continually attempts to pursue cost reductions, including process
enhancements, in order to maintain favorable gross profit margins. Future gross
margins will also vary with the general condition of the economy, customer
acceptance of new technologies and products, product functionality and
capabilities, shifts in product mix, manufacturing yields, utilization of high
fixed cost fabrication capacity and the effect of ongoing manufacturing cost
reduction activities. The Company's COMPASS subsidiary, like other companies in
the electronic design automation business, is particularly subject to
significant fluctuations in revenues due to limited backlog and its reliance on
large orders placed late in quarters.
Due to the industry-wide manufacturing capacity shortage experienced during
1995, the Company accelerated the expansion and upgrading of its manufacturing
capacity. These activities require substantial investments in capital equipment
and facilities. Significant lead time is required to acquire and install
additional wafer fabrication equipment. Any significant expansion or upgrade of
semiconductor manufacturing capacity has attendant risks. Specifically, the
Company has recently completed a program at its San Antonio, Texas facility to
convert production to 100% sub-0.8-micron CMOS processes and steps to facilitize
and equip the third and fourth modules at that facility are in process. In the
first quarter of 1996, inefficiencies caused by underutilization of the
Company's San Jose fabrication facility had a negative effect on the Company's
overall gross profit. The work efforts associated with these facilities has
resulted in lower wafer yields and could cause further disruption to
manufacturing output, negatively impacting the Company's revenues and gross
profit for the balance of 1996. As the semiconductor industry has begun to
experience a period of over capacity with the progression of 1996, the Company
is manufacturing a higher percentage of its products in its own facilities (in
the first quarter of 1996, VLSI produced approximately 90% of its wafer
requirements internally as compared to approximately 80% of both its first
quarter 1995 and entire year 1995 wafer requirements). Any delays, problems or
lack of successful completion of the Company's facilities improvement efforts
could have a material adverse impact on future operating results.
The Company's future success depends on its ability to continue to develop and
introduce new products that compete effectively on the basis of price and
performance and that satisfy customer requirements. The Company expects to
continue to invest in the research and development of new products for all of
its market segments in 1996. New product development often requires long-term
forecasting of markets, market trends, development and implementation of new
processes and technologies and substantial capital commitments. No assurance can
be given that the Company's product and process development efforts will be
successful, that new product introductions will achieve market acceptance or
that the markets in question will develop.
Other factors that may adversely effect VLSI's future results include pending
litigation and contingencies, environmental regulations and earthquakes. (See
the 1995 Annual Report for a more detailed discussion of Factors Affecting
Future Results).
10
<PAGE> 11
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
FACTORS AFFECTING FUTURE RESULTS (continued)
The status of the Company's pending material legal proceeding is set forth in
Item 1, Part II of this Form 10-Q. The Company cannot accurately predict the
final outcome of this matter with TI. As part of its appeal, TI has requested
that it be awarded enhanced damages, pre-judgment interest and attorneys' fees.
An unfavorable outcome could have an adverse effect on VLSI's future operations
and/or liquidity and could be material to any particular quarter's results of
operations. Additionally, the ongoing effort of defending the Company against
lawsuits utilizes cash and management resources.
LIQUIDITY AND CAPITAL RESOURCES
VLSI generates cash from operations, debt and equipment financings and sales of
its securities. Principal uses of cash include purchases of capital equipment
needed for semiconductor manufacturing and engineering and payments of debt and
lease obligations.
At March 29, 1996, total cash, cash equivalents and liquid investments decreased
$103.7 million from the 1995 fiscal year-end balance due primarily to purchases
of property, plant and equipment, the repurchase of Common Stock and payments of
debt and capital leases in the first three months of 1996. Working capital
decreased to $297.5 million at March 29, 1996 compared to $400.1 million at
December 29, 1995.
During the three-month period ended March 29, 1996, the Company generated $26.6
million of cash from operations, a 4.3% increase from the $25.5 million of cash
generated for the three-month period ended March 31, 1995. Accounts receivable
were $13.5 million lower at March 29, 1996 than at December 29, 1995, reflecting
proportionately higher sales volumes in the latter part of the fourth quarter of
1995. Inventory levels increased $3.3 million from December 29, 1995 levels.
Accounts payable and accrued liabilities at March 29, 1996 decreased by $9.8
million from December 29, 1995 as a result of lower accruals due to less volume
with outside wafer suppliers and assembly and test operations.
Cash used for investing activities was $48.5 million for the three-month period
ended March 29, 1996, as compared to $39.5 million for the three-month period
ended March 31, 1995. The increase is a result of the Company's increasing
capital expenditures. VLSI invested $99.7 million in property, plant and
equipment during the first three months of 1996 compared to $25.9 million in the
comparable 1995 period. Capital additions during 1996 were financed by cash. The
1996 three-month investments in property, plant and equipment included, for the
most part, equipment for sub-micron wafer fabrication. The 1995 three-month
investments in property, plant and equipment included acquisition of equipment
for sub-micron wafer fabrication, upgrades to manufacturing and office
facilities and computers and software to support research and development
activity. VLSI currently estimates that total capital expenditures for 1996
could approximate $300 million, which will primarily be used in equipping the
third and fourth modules of the Company's San Antonio fabrication facility. The
Company expects to utilize cash from operations and equipment financing for its
1996 capital expenditures.
Cash used for financing activities was $29.7 million in the first three months
of 1996 compared to $2.7 million in the same 1995 period. The large increase is
a result of the Company's repurchase of Common Stock. Unused committed credit
facilities approximated $52.5 million at March 29, 1996. On April 30, 1996, the
Company elected to terminate such facilities.
11
<PAGE> 12
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Due to the previously mentioned expected use of cash for capital expenditures,
the Company's cash balances are expected to decline significantly throughout
1996. While the Company believes that its current capital resources are
sufficient to meet its near-term needs, in order to meet its longer-term needs,
VLSI continues to investigate the possibility of generating financial resources
through technology or manufacturing partnerships, as well as from equity or debt
financing based on market conditions. There can be no assurance that the Company
will be able to obtain future financing when needed or on favorable terms.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 1995 (the 1995 Form 10-K) for a discussion of
certain pending legal proceedings. There have been no material developments in
any of such matters since the filing of the Company's 1995 Form 10-K.
Texas Instruments
The Company is a named defendant in a lawsuit filed by TI in 1990 claiming
patent infringement of now expired U.S. patents. In May 1995, a jury found
against the Company in the amount of $19.4 million. Although contesting the jury
verdict, the Company recorded a charge to earnings of $19.4 million in the
second quarter of 1995. The trial judge subsequently issued an order overturning
and setting aside the jury verdict. TI is pursuing an appeal seeking reversal of
the trial judge's order as well as enhanced damages, pre-judgment interest and
attorneys' fees. The litigation charge is shown as a separate liability on the
balance sheet, net of TI litigation expenditures incurred, pending resolution of
this and related intellectual property matters. In the event that TI's appeal is
successful and enhanced damages (which by statute may be as high as treble
damages), pre-judgment interest and/or attorney's fees are awarded, such a
judgment could result in a material reduction in liquidity, as well as an
adverse impact on the Company's reported results of operations. For more
information, refer to the Company's 1995 Form 10-K page 10 and Note 4 of Notes
to Consolidated Financial Statements on pages 32 and 33.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - See Index to Exhibits on Page 15.
(b) Reports on Form 8-K - None.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VLSI TECHNOLOGY, INC.
(Registrant)
Date May 9, 1996 By: Gregory K. Hinckley
-------------------------------- -----------------------
Gregory K. Hinckley
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date May 9, 1996 By: Balakrishnan S. Iyer
------------------------------- -----------------------------
Balakrishnan S. Iyer
Vice President, Controller and Chief
Accounting Officer
(Principal Accounting Officer)
14
<PAGE> 15
VLSI TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
11.1 Calculation of Earnings Per Share
27.1 Financial Data Schedule
15
<PAGE> 1
Exhibit 11.1
VLSI TECHNOLOGY, INC.
CALCULATION OF EARNINGS PER SHARE - unaudited
(thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 29, March 31,
Primary earnings per share 1996 1995
- - -------------------------- ------- -------
<S> <C> <C>
Net income $ 3,170 $10,250
======= =======
Average number of common and common equivalent shares:
Average common shares outstanding 45,702 36,744
Dilutive options 703 1,701
------- -------
Average number of common and
common equivalent shares 46,405 38,445
======= =======
Earnings per common and common
equivalent share $ .07 $ .27
======= =======
Fully diluted earnings per share
Net income $ 3,170 $10,250
Add interest expense on convertible
debt, net of tax effect (1) -- 704
------- -------
Adjusted net income $ 3,170 $10,954
======= =======
Average number of common and common
equivalent shares on a fully diluted
basis:
Average common shares outstanding 45,702 36,744
Dilutive options 703 2,440
Conversion of convertible debt (1) -- 2,614
------- -------
Average number of common and
common equivalent shares on a fully
diluted basis 46,405 41,798
======= =======
Fully diluted earnings per common
and common equivalent share $ .07 $ .26
======= =======
</TABLE>
- - ---------------
(1) The convertible debt is not included in the calculation of fully diluted
earnings per share for the quarter ended March 29, 1996 since their
inclusion would have had an antidilutive effect.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF VLSI TECHNOLOGY,
INC. FOR THE QUARTER ENDED MARCH 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> MAR-29-1996
<CASH> 131,533
<SECURITIES> 130,341
<RECEIVABLES> 108,318
<ALLOWANCES> (2,150)
<INVENTORY> 64,163
<CURRENT-ASSETS> 484,805
<PP&E> 797,040
<DEPRECIATION> (367,739)
<TOTAL-ASSETS> 922,994
<CURRENT-LIABILITIES> 187,283
<BONDS> 216,709
0
0
<COMMON> 472
<OTHER-SE> 506,157
<TOTAL-LIABILITY-AND-EQUITY> 922,994
<SALES> 167,712
<TOTAL-REVENUES> 167,712
<CGS> 104,979
<TOTAL-COSTS> 104,979
<OTHER-EXPENSES> 59,347
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 2,480
<INCOME-PRETAX> 4,880
<INCOME-TAX> 1,710
<INCOME-CONTINUING> 3,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,170
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
