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 28, 1997.
---------------
Or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
------ ------
Commission file number 0-11879
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
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(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 28, 1997:
45,866,436
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - unaudited
(thousands, except per share amounts)
<CAPTION>
Quarter Ended
-------------------------
March 28, March 29,
1997 1996
--------- ---------
<S> <C> <C>
Net revenues $177,684 $167,712
Cost of sales 100,905 104,979
-------- --------
Gross profit 76,779 62,733
-------- --------
Operating expenses:
Research and development 27,431 24,371
Marketing, general and administrative 34,630 34,997
-------- --------
Operating income 14,718 3,365
Interest income and other expenses, net 2,952 3,995
Interest expense (4,464) (2,480)
-------- --------
Income before provision for taxes on income 13,206 4,880
Provision for taxes on income 4,220 1,710
-------- --------
Net income $ 8,986 $ 3,170
======== ========
Net income per share $ .19 $ .07
======== ========
Weighted average common and common
equivalent shares outstanding 48,182 46,405
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited
(thousands)
<CAPTION>
March 28, December 27,
1997 1996
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 90,634 $139,074
Liquid investments 117,408 66,685
Accounts receivable, net of allowance
for doubtful accounts and customer
returns of $2,000
($2,200 at December 27, 1996) 102,767 112,508
Inventories:
Raw materials 2,858 3,095
Work-in-process 40,672 42,947
Finished goods 13,524 10,319
-------- --------
Total inventories 57,054 56,361
Deferred and refundable income taxes 64,451 68,638
Prepaid expenses and other current assets 6,605 5,240
-------- --------
Total current assets 438,919 448,506
Property, plant and equipment, at cost 794,269 772,565
Accumulated depreciation and amortization (369,267) (345,301)
-------- --------
Net property, plant and equipment 425,002 427,264
Deferred income taxes 7,621 7,621
Other assets 10,867 7,551
-------- --------
TOTAL ASSETS $882,409 $890,942
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited (Continued)
(thousands, except per share amounts)
<CAPTION>
March 28, December 27,
1997 1996
--------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 62,504 $ 61,586
Accrued compensation and benefits 23,103 23,762
Deferred income 9,128 8,930
Patent matters 21,137 22,028
Reserve for special charges 50,328 50,990
Other accrued liabilities 35,597 34,313
Current capital lease obligations 1,146 1,118
Current portion of long-term debt 7,804 7,763
-------- --------
Total current liabilities 210,747 210,490
Non-current capital lease obligations 2,049 2,346
Long-term debt 205,709 207,627
Stockholders' equity:
Preferred Shares, $.01 par value - -
Common Shares, $.01 par value 472 472
Treasury Common Shares, at cost (22,527) (8,349)
Additional paid-in capital 457,390 458,774
Retained earnings 28,569 19,582
-------- --------
Total stockholders' equity 463,904 470,479
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $882,409 $890,942
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - unaudited
(thousands)
<CAPTION>
Quarter Ended
---------------------------
March 28, March 29,
1997 1996
--------- ------------
Increase (decrease) in
cash and cash equivalents
<S> <C> <C>
Operating activities:
Net income $ 8,986 $ 3,170
Adjustments to reconcile net income
to cash generated by operations:
Depreciation and amortization 26,763 23,579
Deferred income taxes 4,511 -
Changes in operating assets and liabilities:
Accounts receivable 9,741 13,470
Inventories (693) (3,315)
Accounts payable, accrued liabilities
and deferred income 984 (9,830)
Other (5,616) (428)
-------- --------
Cash generated by operations 44,676 26,646
-------- --------
Investing activities:
Purchases of liquid investments (98,350) (80,348)
Proceeds from maturities of liquid investments 47,512 132,362
Purchases of property, plant and equipment (25,150) (100,399)
Other - (150)
-------- --------
Net cash flow used for investing activities (75,988) (48,535)
-------- --------
Financing activities:
Payments on debt and capital lease obligations (2,146) (2,679)
Repurchase Treasury Common Shares (15,838) (27,182)
Issuance of Common Shares, net 856 118
-------- --------
Net cash flow used for financing activities (17,128) (29,743)
-------- --------
Net decrease in cash and cash equivalents (48,440) (51,632)
Cash and cash equivalents, beginning of period 139,074 183,165
-------- --------
Cash and cash equivalents, end of period $ 90,634 $131,533
======== ========
Supplemental disclosures:
Cash outflows for property, plant and equipment $ 25,150 $100,399
Less: Decrease in accrual for property, plant
and equipment additions (1,024) (687)
-------- --------
Property, plant and equipment additions $ 24,126 $ 99,712
======== ========
Interest paid $ 2,038 $ 1,534
======== ========
Income taxes paid, net $ 1,344 $ 145
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
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 fiscal year ended December 27, 1996 (the 1996 Annual
Report). This Quarterly Report on Form 10-Q (Form 10-Q) should be read in
conjunction with the 1996 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 28,
1997 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 26, 1997.
2. The Company's tax rate was 32% and 35% in the first quarters of 1997 and
1996, respectively. The decrease is the result of more pre-tax income
flowing through lower tax jurisdictions.
3. Periodically, the Company is made aware that technology used by the Company
in the manufacture of some or all of its products may infringe on product
or process technology rights held by others. Resolution of whether the
Company's manufacture of products has infringed on valid rights held by
others could have a material adverse effect on the Company's financial
position or results of operations, and may require material changes in
production processes and products. Several companies, including Motorola,
have individually contacted the Company concerning its alleged use of
intellectual property belonging to them.
VLSI has entered into licensing agreements and technology exchange
agreements with various strategic partners and other third parties in order
to allow VLSI access to third party technology, or to allow third parties
access to VLSI's technology. The Company is unable to predict whether
license agreements can be obtained or renewed on terms acceptable to the
Company or the magnitude of the costs associated with such terms. Failure
to obtain or renew such licenses could have a material adverse effect on
the Company's financial position or results of operations.
The Company continually evaluates the adequacy of its reserve for asserted
and unasserted patent matters. There are many companies which may have
product and process technology rights that VLSI may have infringed. The
reserve for patent matters is based on the best available information at
the time that the reserve is established or re-evaluated, and it is
reasonably possible that the Company's estimate of the exposure for patent
matters could materially change in the near term as additional information
becomes available.
Texas Instruments, Inc. (TI) filed a lawsuit in 1990 claiming process
patent infringement by the Company 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 set aside the jury verdict and TI appealed. In July 1996, the
Court of Appeals for the Federal Circuit affirmed the trial judge's order.
TI has appealed the ruling to the U.S. Supreme Court. In the event that TI
is successful on the appeal, there can be no assurance that the amount of
the reserve will be sufficient if the Supreme Court were to award enhanced
damages (which by statute may be as high as treble damages), pre-judgment
interest and/or attorneys' fees. There can be no assurance that TI will not
prevail on its appeal or that, should TI ultimately lose on its appeal,
there would not be other claims asserted by TI against VLSI for patent
infringement.
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 any later date through certain of its employee stock
plans and/or to fund stock or asset acquisitions authorized by the Board.
By the end of 1996, the Company had repurchased 1.8 million shares at an
average price of $15.10 and had re-issued 1.2 million of these shares under
employee stock plans. During the first quarter of 1997 the Company
repurchased 930,000 shares at an average per share price of $17.03. The
Company may, from time to time, continue to repurchase additional shares.
5. The Company has established a reserve for special charges primarily based
on management's estimated costs associated with the decision to close the
San Jose facility. This estimate is based on the best information
available when the decision was made to close the facility. Although the
Company believes its estimates to be reasonable, actual costs associated
with these plans may differ materially. Particularly, the costs associated
with estimating losses on sales commitments and accommodating customers are
difficult to ascertain. Therefore, the Company may, in future periods, need
to change its estimated costs associated with the special charges as more
information becomes available.
6. In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December
26, 1997. At that time, the Company will be required to change the method
currently used to compute net income per share and to restate all prior
periods. Under the new requirements, the currently presented primary net
income per share will be replaced by basic net income per share. The
fundamental difference is that basic net income per share excludes the
dilutive effect of stock options. The computed basic net income per share
is not different from primary net income per share for the first quarters
ended March 28, 1997 and March 29, 1996. Additionally, fully diluted
income per share will be replaced by diluted income per share and will
always be required to be presented on the income statement. The computed
diluted income per share is not expected to be different from fully diluted
income per share for the first quarters ended March 28, 1997 and March 29,
1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS - FIRST QUARTER OF 1997 COMPARED TO THE FIRST QUARTER OF
1996
- --------------------------------------------------------------------------------
This Management's Discussion and Analysis of Financial Condition and Results
of Operations (MDA) should be read in conjunction with the MDA in the 1996
Annual Report.
This Form 10-Q 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 herein and in the 1996 Annual Report. Statements made herein are as
of the date of filing of this Form 10-Q with the Securities and Exchange
Commission. The Company disclaims any obligation to update the contents of
those statements subsequent to the filing of this Form 10-Q.
The following table summarizes the Company's operating results for the three-
month period ended March 28, 1997 as compared to the three-month period ended
March 29, 1996 (dollars in thousands):
First Quarter
---------------------------------------------------
1997 1996
------------------------------- -------------------
Percent Percemt Percent
of Net Change of Net
Amounts Revenues From 1996 Amounts Revenues
------- -------- --------- ------- --------
Net revenues $177,684 100.0% 5.9% $167,712 100.0%
Cost of sales 100,905 56.8 (3.9) 104,979 62.6
-------- ----- -------- -----
Gross profit 76,779 43.2 22.4 62,733 37.4
Research & development 27,431 15.4 12.6 24,371 14.5
Marketing, general and
administrative 34,630 19.5 (1.0) 34,997 20.9
-------- ----- -------- -----
Operating income 14,718 8.3 * 3,365 2.0
Interest income
(expense), net (1,512) (0.8) * 1,515 0.9
Income taxes 4,220 2.4 * 1,710 1.0
-------- ----- -------- -----
Net income $ 8,986 5.1 * $ 3,170 1.9
======== ===== ======== =====
* Not meaningful
The Company earned net income of $9.0 million in the first quarter of 1997,
compared to net income of $3.2 million in the first quarter of 1996. This
change primarily reflects increased gross profit in dollars and as a
percentage of net revenues (gross margin).
Net revenues in the first quarter of 1997 increased 5.9% from the comparable
1996 period and decreased 3.2% from the fourth quarter of 1996. The increase
over the first quarter of 1996 reflects strong demand for communications
products. This increase was offset in part by decreased demand for personal
computer (PC) products. The lower net revenues in the first quarter of 1997
from the fourth quarter of 1996 reflects decreased demand for PC products and
customer efforts to manage inventories due to seasonality in the set-top box
business. Software net revenues decreased significantly in the first quarter
of 1997 compared to the first quarter of 1996 and were comparable to the
fourth quarter 1996 net revenues. The decline reflects difficulties
developing new products and increased competition and consolidation among EDA
providers.
International net revenues (including export sales) increased, accounting for
54.5% of net revenues in the first quarter of 1997 compared to 48.4% of net
revenues in the first quarter of 1996, primarily due to increases in sales to
the European region. The growth in European net revenues reflects the
location of the major customers for VLSI's communications devices and the
success of GSM as the leading digital wireless standard in Europe. Export
sales to the Asia-Pacific area in the first quarter of 1997 decreased over the
first quarter of 1996, due to a decrease in shipments of devices for the PC
market.
Gross margins increased to 43.2% in the first quarter of 1997 from 37.4% in
the first quarter of 1996 and 41.5% in the fourth quarter of 1996, reflecting
improved product mix, expense controls and improved manufacturing yields.
First quarter 1996 gross margin reflected inventory charges taken for personal
computer devices and certain manufacturing inefficiencies as a result of
changes in the business mix from the higher 1995 concentration in PC products
to communications and consumer digital entertainment products.
R&D expenditures increased by $3.1 million in the first quarter of 1997 over
expenditures in the same 1996 period and increased as a percentage of net
revenues from 14.5% to 15.4%, reflecting continuing investment in new products
and package and process technologies. R&D expenditures in the first quarter
of 1997 focused on design environment, process development and development of
products for the consumer digital entertainment and communications markets.
Marketing, general and administrative expenses for the first quarter of 1997
decreased by $0.4 million from the the first quarter of the prior year and
decreased as a percentage of net revenues from 20.9% to 19.5%. The decrease
is due to a decrease in marketing expenses and tighter expense controls.
Interest income (expense), net shows expense of $1.5 million in the current
quarter as compared to income of $1.5 million in the same period a year ago,
reflecting lower interest income on lower average cash balances than in the
first quarter of 1996. Interest expense increased in the first quarter of 1997
over the first quarter of 1996 due to a lower level of capitalized interest.
The Company's tax rate was 32% and 35% in the first quarters of 1997 and 1996,
respectively. The decrease is the result of more pre-tax income flowing
through lower tax jurisdictions.
FACTORS AFFECTING FUTURE RESULTS
The Company's stock price, like that of other technology companies, is subject
to significant volatility. If revenue or earnings in any quarter fail to meet
the investment community's expectations, there could be an immediate impact on
the Company's stock price. The stock price may also be affected by broader
market trends unrelated to the Company's performance. Past financial
performance should not be considered a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.
During each of the years 1996, 1995 and 1994, VLSI's top 20 customers
represented approximately two thirds of the Company's net revenues. As a
result of the concentration of the Company's customer base, loss of business
or cancellation of orders 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 have a material adverse effect
on the Company's results of operations.
Due to the decline in the Company's X86 chip set business, the Company
experienced a shift in its business in 1996 away from the previously high
concentration of sales to the personal computer industry that was seen in 1995
to a concentration of sales to the communications and consumer digital
entertainment markets. The communications and consumer digital entertainment
markets are rapidly evolving and are characterized by intense competition of
suppliers, many of whom have substantially greater experience and resources
than the Company. If the Company, due to competition or other factors, is
unable to capture and maintain significant market share in these areas, there
could be a material adverse effect on the Company's results of operations.
The Company's 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. New product development
often requires long-term forecasting of markets, market trends, development
and implementation of new processes and technologies and substantial capital
commitments. If the Company is unable to design, develop, manufacture and
market new products successfully in a timely manner, its operating results
could be adversely affected. 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.
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 acceptable gross margins. Gross margins
also vary with the general condition of the economy, capacity utilization
levels in the semiconductor industry, customer acceptance of new technologies
and products, product functionality and capabilities, shifts in product mix,
manufacturing yields and the effect of ongoing manufacturing cost reduction
activities.
Software net revenues, primarily through COMPASS, are subject to various
factors, including pricing pressure, customers' capital budget approval cycles
and limited backlog, which create a high degree of variability from quarter to
quarter. Due to the high gross margin content of software net revenues and the
size of certain transactions, which are often concluded late in the quarter,
such variability can lead to unpredictability of financial and operating
results of the Company for any given period. Results in the first quarter of
1997 and from fiscal year 1996 operations for COMPASS were not satisfactory
and adversely affected VLSI's overall results of operations. Management is
considering strategic alternatives to deal with this issue. Until this issue
is resolved, COMPASS may continue to have a negative impact on VLSI's results
of operations.
The Company sells its products under terms and conditions customarily found in
the semiconductor industry. Sales of these products are subject to customer
cancellation with limited advance notice to the Company prior to scheduled
shipment. Due to the Company's relatively narrow customer base for certain
devices and the short product life cycles of such products, such cancellations
can leave the Company with significant inventory exposure, which could have a
material adverse effect on the Company's operating results.
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 overcapacity, which are
caused by the previously mentioned additions of manufacturing capacity in
large increments. The industry has moved from a period of capacity shortages
in 1995 to what appears to be a current period of excess capacity for the
immediate future. During a period of industry overcapacity, profitability can
drop sharply as factory utilization drops and high fixed costs of operating a
wafer fabrication facility are spread over a lower net revenue base. This risk
is increased due to the fact that the Company has shifted an even greater
percentage of its manufacturing to its own facilities (in the first quarter of
1997, VLSI produced more than 95% of its wafer requirements internally versus
approximately 95% and 80% in 1996 and 1995, respectively).
In November 1996, the Company announced its intention to close its San Jose
wafer manufacturing facility. The closure of the facility subjects the
Company's results of operations to numerous risks and uncertainties, including
uncertainty as to the exact timing, cost and effects of the proposed shutdown
of the facility; loss of business from the Company's customers whose devices
are currently manufactured at the San Jose plant and who choose to substitute
products from other manufacturers; unanticipated employee costs relating to
the shutdown; inability to retain employees during the phase-out period;
success in implementing cost reduction programs; and lower factory utilization
and excess capacity.
While the Company operates and maintains its own wafer manufacturing
facilities, the Company relies on three suppliers for the bulk of its assembly
and test operations. Allocations by these suppliers of assembly and test
capacity to the Company depend on VLSI's needs, supply availability during
periods of capacity shortages and excesses and pricing. The Company has no
long-term contractual commitments from these suppliers. Any reduction in
allocation from these suppliers could adversely affect the Company's
operations.
Periodically, the Company is made aware that technology used by the Company in
the manufacture of some or all of its products may infringe on product or
process technology rights held by others. Resolution of whether the Company's
manufacture of products has infringed on valid rights held by others could
have a material adverse effect on the Company's financial position or results
of operations, and may require material changes in production processes and
products. Several companies, including Motorola, have individually contacted
the Company concerning its alleged use of intellectual property belonging to
them.
VLSI has entered into licensing agreements and technology exchange agreements
with various strategic partners and other third parties in order to allow VLSI
access to third party technology, or to allow third parties access to VLSI's
technology. The Company is unable to predict whether license agreements can be
obtained or renewed on terms acceptable to the Company or the magnitude of the
costs associated with such terms. Failure to obtain or renew such licenses
could have a material adverse effect on the Company's financial position or
results of operations.
The Company continually evaluates the adequacy of its reserve for asserted and
unasserted patent matters. There are many companies which may have product and
process technology rights that VLSI may have infringed. The reserve for patent
matters is based on the best available information at the time that the
reserve is established or re-evaluated, and it is reasonably possible that the
Company's estimate of the exposure for patent matters could materially change
in the near term as additional information becomes available.
TI filed a lawsuit in 1990 claiming process patent infringement by the Company
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 set aside the jury verdict and TI appealed. In
July 1996, the Court of Appeals for the Federal Circuit affirmed the trial
judge's order. TI has appealed the ruling to the U.S. Supreme Court. In the
event that TI is successful on the appeal, there can be no assurance that the
amount of the reserve will be sufficient if the Supreme Court were to award
enhanced damages (which by statute may be as high as treble damages), pre-
judgment interest and/or attorneys' fees. There can be no assurance that TI
will not prevail on its appeal or that, should TI ultimately lose on its
appeal, there would be no other claims asserted by TI against VLSI for patent
infringement.
Other factors that may adversely affect VLSI's future results include
earthquakes, environmental and other governmental regulations and the ability
to attract and retain key employees. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors Affecting
Future Results" in Item 7 of Part II in the 1996 Annual Report.
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. Additionally, in 1997 and 1996, VLSI used cash
to reacquire shares of its common stock.
At March 28, 1997, total cash, cash equivalents and liquid investments
increased $2.3 million from the 1996 fiscal year-end balance due primarily to
a reduction in accounts receivable and to net income. Working capital
decreased to $228.2 million at March 28, 1997 compared to $238.0 million at
December 27, 1996.
During the three-month period ended March 28, 1997, the Company generated
$44.7 million of cash from operations, a 67.7% increase from the $26.6 million
of cash generated for the three-month period ended March 29, 1996. Accounts
receivable were $9.7 million lower at March 28, 1997 than at December 27,
1996, reflecting proportionately higher sales volumes in the latter part of
the fourth quarter of 1996. Accounts payable, accrued liabilities and deferred
income at March 28, 1997 increased by $1.0 million from December 26, 1996.
There were no significant net changes in the primary components of these
items.
Cash used for investing activities was $76.0 million for the three-month
period ended March 28, 1997, as compared to $48.5 million for the three-month
period ended March 29, 1996. The increase is primarily a result of net
purchases of liquid investments in the first quarter of 1997 compared to net
proceeds from maturities of liquid investments in the first quarter of 1996.
VLSI invested $24.1 million in property, plant and equipment during the first
three months of 1997 compared to $99.7 million in the comparable 1996 period.
VLSI currently estimates that total capital expenditures for 1997 could
approximate $140 million, which are anticipated to be used primarily for
equipment upgrades and for 0.35-micron wafer fabrication capability. The
Company expects to primarily utilize cash from operations for its 1997 capital
expenditures.
Cash used for financing activities was $17.1 million in the first three months
of 1997 compared to $29.7 million in the same 1996 period. The decrease is a
result of a decrease in the Company's repurchase of common stock. During the
first quarter of 1996, 1.8 million shares were repurchased for $27.2 million
compared to 0.9 million shares repurchased during the first quarter of 1997
for $15.8 million.
The Company currently does not have a committed credit agreement in place.
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 committed credit agreements, technology or manufacturing partnerships,
additional equipment financings and offerings of debt or equity securities.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of Part I of the Company's Annual Report on Form
10-K for the fiscal year ended December 27, 1996 (the 1996 Annual Report) 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
1996 Annual Report.
Item 6. Exhibits and Reports on form 8-K.
(a) Exhibits - See Index to Exhibits on Page 16.
(b) Reports on Form 8-K - None.
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 7, 1997 By: /s/ Balakrishnan S. Iyer
-------------------------- -------------------------------
Balakrishnan S. Iyer
Vice President, Finance,
Chief Financial Officer and
Controller
(Principal Financial and
Accounting Officer)
<PAGE>
VLSI TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
11.1 Calculation of Earnings Per Share
27.1 Financial Data Schedule
Exhibit 11.1
<TABLE>
VLSI TECHNOLOGY, INC.
CALCULATION OF EARNINGS PER SHARE - unaudited
(thousands except per share data)
<CAPTION>
Three Months Ended
------------------------
March 28, March 29,
Primary Earnings per Share 1997 1996
- --------------------------- --------- ---------
<S> <C> <C>
Net income $ 8,986 $ 3,170
======= =======
Average number of common and common
equivalent shares:
Average common shares outstanding 46,497 45,702
Dilutive options 1,685 703
------- ------
Average number of common and
common equivalent shares 48,182 46,405
======= =======
Earnings per common and common
equivalent share $ .19 $ .07
======= =======
Fully Diluted Earnings per Share
- ----------------------------------
Net income 8,986 $ 3,170
Add interest expense on convertible
debt, net of tax effect (1) - -
------- -------
Adjusted net income $ 8,986 $ 3,170
======= =======
Average number of common and common
equivalent shares on a fully diluted basis
Average common shares outstanding 46,497 45,702
Dilutive options 1,685 703
Conversion of convertible debt (1) - -
------- -------
Average number of common and
common equivalent shares on a fully
diluted $48,182 $46,405
======= =======
Fully diluted earnings per common
and common equivalent share $ .19 $ .07
======= =======
- -----------------------------------------------
(1) The convertible debt is not included in the calculation of fully diluted
earnings per share for the quarters ended March 28, 1997 and March 29,
1996 since its inclusion would have had an antidilutive effect.
</TABLE>
<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 28, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000704386
<NAME> VLSI TECHNOLOGY, INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> MAR-28-1997
<EXCHANGE-RATE> 1
<CASH> 90,634
<SECURITIES> 117,408
<RECEIVABLES> 104,767
<ALLOWANCES> (2,000)
<INVENTORY> 57,054
<CURRENT-ASSETS> 438,919
<PP&E> 794,269
<DEPRECIATION> (369,267)
<TOTAL-ASSETS> 882,409
<CURRENT-LIABILITIES> 210,747
<BONDS> 207,758
<COMMON> 472
0
0
<OTHER-SE> 463,432
<TOTAL-LIABILITY-AND-EQUITY> 882,409
<SALES> 177,684
<TOTAL-REVENUES> 177,684
<CGS> 100,905
<TOTAL-COSTS> 100,905
<OTHER-EXPENSES> 61,771
<LOSS-PROVISION> (290)
<INTEREST-EXPENSE> 4,464
<INCOME-PRETAX> 13,206
<INCOME-TAX> 4,220
<INCOME-CONTINUING> 8,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,986
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
