<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: February 27, 1998
APPLIED MICRO CIRCUITS CORPORATION
(Exact name of registrant as specified in its charter)
000-23193
(Commission File Number)
DELAWARE 94-2586591
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
6290 SEQUENCE DRIVE
SAN DIEGO, CA 92121
(Address of principal executive offices, with zip code)
(619) 450-9333
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
Applied Micro Circuits Corporation (the "Company") filed a Registration
Statement on Form S-1 (Registration No. 333-46071) (the "Registration
Statement") with the Securities Exchange Commission (the "Commission") on
February 11, 1998 in connection with the public offering of shares of its
Common Stock. The Registration Statement, which was subsequently amended on
February 20, 1998, included audited consolidated financial statements for the
three year periods ended March 31, 1997 and unaudited financial statements for
the nine month periods ended December 31, 1996 and 1997, respectively (the
"Financial Statements")and Schedule. With the filing of this Form 8-K, the
Company hereby files the Financial Statements and Schedule with the
Commission.
-2-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
APPLIED MICRO CIRCUITS CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... 4
Consolidated Balance Sheets as of March 31, 1996 and 1997 and December 31,
1997 (Unaudited)......................................................... 5
Consolidated Statements of Operations for each of the three years in the
period ended March 31, 1997 and for the nine months ended December 31,
1996 and 1997 (Unaudited)................................................ 6
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended March 31, 1997 and for the nine months ended
December 31, 1997 (Unaudited)............................................ 7
Consolidated Statements of Cash Flows for each of the three years in the
period ended March 31, 1997 and for the nine months ended December 31,
1996 and 1997 (Unaudited)................................................ 8
Notes to Consolidated Financial Statements................................ 9
</TABLE>
-3-
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Applied Micro Circuits Corporation
We have audited the accompanying consolidated balance sheets of Applied
Micro Circuits Corporation as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended March 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Applied Micro Circuits Corporation at March 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Diego, California
April 25, 1997, except footnote 4, as to which the date is
February 9, 1998
-4-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------- ------------
1996 1997 1997
-------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 4,277 $ 5,488 $ 9,923
Short-term investments -- available-for-
sale....................................... 4,541 8,109 26,307
Accounts receivable, net of allowance for
doubtful accounts of $90 and $200 at March
31, 1996 and 1997, respectively, and $350
at December 31, 1997 (unaudited)........... 9,476 8,418 10,529
Inventories................................. 6,836 7,530 8,002
Deferred income taxes....................... -- -- 1,813
Notes receivable from officer and employee.. 150 8 21
Other current assets........................ 574 690 927
-------- ------- -------
Total current assets....................... 25,854 30,243 57,522
Notes receivable from officer and employees... 53 803 908
Property and equipment, net................... 11,929 10,768 15,427
-------- ------- -------
Total assets................................. $ 37,836 $41,814 $73,857
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 3,981 $ 2,428 $ 5,010
Accrued payroll and related expenses........ 1,291 3,102 3,407
Other accrued liabilities................... 2,130 1,881 934
Deferred revenue............................ 831 806 1,261
Current portion of long-term debt........... 582 37 --
Current portion of capital lease obliga-
tions...................................... 3,062 2,625 2,215
-------- ------- -------
Total current liabilities.................. 11,877 10,879 12,827
Long-term debt, less current portion.......... 37 -- --
Long-term capital lease obligations, less cur-
rent portion................................. 4,410 3,192 1,675
Commitments and contingencies (Notes 6 and 10)
Stockholders' equity:
Preferred Stock, $0.01 par value:
2,000,000 shares authorized, none issued
and outstanding............................ -- -- --
Convertible preferred stock, $0.01 par val-
ue:
Authorized shares -- 1,350,000..............
Issued and outstanding shares -- 1,223,594
at March 31, 1996 and 1997.................
Liquidation value -- $25,695 at March 31,
1996 and 1997 and none at December 31,
1997....................................... 12 12 --
Common stock, $0.01 par value:
Authorized shares -- 34,500,000 at March 31,
1996 and 1997 and 60,000,000 at December
31, 1997 (unaudited)
Issued and outstanding shares -- 4,968,316
and 5,025,357 at March 31, 1996 and 1997,
respectively, and 20,870,368 at December
31, 1997, (unaudited)...................... 49 50 208
Additional paid-in capital.................. 36,971 36,974 59,716
Deferred compensation....................... -- -- (512)
Retained earnings (deficit)................. (15,444) (9,235) 444
Notes receivable from stockholders.......... (76) (58) (501)
-------- ------- -------
Total stockholders' equity................. 21,512 27,743 59,355
-------- ------- -------
Total liabilities and stockholders' equity... $ 37,836 $41,814 $73,857
======== ======= =======
</TABLE>
See accompanying notes.
-5-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------- ---------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues........................ $46,950 $50,264 $57,468 $42,464 $54,874
Cost of revenues.................... 27,513 34,169 30,057 22,800 25,370
------- ------- ------- ------- -------
Gross profit........................ 19,437 16,095 27,411 19,664 29,504
Operating expenses:
Research and development.......... 10,108 8,283 7,870 5,668 9,339
Selling, general and administra-
tive............................. 10,112 11,232 12,537 8,986 10,260
------- ------- ------- ------- -------
Total operating expenses........ 20,220 19,515 20,407 14,654 19,599
------- ------- ------- ------- -------
Operating income (loss)............. (783) (3,420) 7,004 5,010 9,905
Interest income (expense), net...... (358) (242) (29) 5 294
------- ------- ------- ------- -------
Income (loss) before income taxes... (1,141) (3,662) 6,975 5,015 10,199
Provision (benefit) for income tax-
es................................. (70) 32 659 474 262
------- ------- ------- ------- -------
Net income (loss)................... $(1,071) $(3,694) $ 6,316 $ 4,541 $ 9,937
======= ======= ======= ======= =======
Primary net income (loss) per share. $ (0.06) $ (0.20) $ 0.33
======= ======= =======
Shares used in calculating primary
net income (loss) per share........ 18,380 18,580 19,185
======= ======= =======
Pro forma basic earnings per share:
Earnings per share................ $ 0.25 $ 0.57
======= =======
Shares used in calculating basic
earnings per share............... 17,824 17,499
======= =======
Diluted earnings per share:
Earnings per share................ $ 0.25 $ 0.51
======= =======
Shares used in computing diluted
earnings per share............... 17,897 19,306
======= =======
</TABLE>
See accompanying notes.
-6-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED RECEIVABLE TOTAL
------------------ ------------------ PAID-IN DEFERRED EARNINGS FROM STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) STOCKHOLDERS EQUITY
---------- ------ ---------- ------ ---------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1994................ 1,223,594 $ 12 4,247,977 $ 42 $36,655 $ -- $(10,646) $(234) $25,829
Issuance of stock
pursuant to exer-
cise of stock op-
tions............. -- -- 204,558 2 91 -- -- -- 93
Repurchase of com-
mon stock......... -- -- (26,278) -- (13) -- (33) -- (46)
Net loss........... -- -- -- -- -- -- (1,071) -- (1,071)
---------- ----- ---------- ---- ------- ----- -------- ----- -------
Balance, March 31,
1995................ 1,223,594 12 4,426,257 44 36,733 -- (11,750) (234) 24,805
Issuance of stock
pursuant to exer-
cise of stock op-
tions............. -- -- 547,767 5 251 -- -- -- 256
Repurchase of com-
mon stock......... -- -- (5,708) -- (13) -- -- -- (13)
Payments on and
forgiveness of
notes............. -- -- -- -- -- -- -- 158 158
Net loss........... -- -- -- -- -- -- (3,694) -- (3,694)
---------- ----- ---------- ---- ------- ----- -------- ----- -------
Balance, March 31,
1996................ 1,223,594 12 4,968,316 49 36,971 -- (15,444) (76) 21,512
Issuance of stock
pursuant to exer-
cise of stock op-
tions............. -- -- 92,680 1 41 -- -- -- 42
Repurchase of com-
mon stock......... -- -- (35,639) -- (38) -- (107) -- (145)
Payment on notes... -- -- -- -- -- -- -- 18 18
Net income......... -- -- -- -- -- -- 6,316 -- 6,316
---------- ----- ---------- ---- ------- ----- -------- ----- -------
Balance, March 31,
1997................ 1,223,594 12 5,025,357 50 36,974 -- (9,235) (58) 27,743
Issuance of Common
Stock, net of is-
suance costs (un-
audited).......... -- -- 3,538,448 36 25,076 -- -- -- 25,112
Conversion of pre-
ferred stock to
common (unau-
dited)............ (1,051,294) (11) 10,717,317 107 (96) -- -- -- --
Issuance of stock
pursuant to exer-
cise of stock op-
tions. (unau-
dited)............ -- -- 1,535,975 15 781 -- -- (455) 341
Exercise of war-
rants (unaudited). -- -- 53,271 -- -- -- -- -- --
Payments on notes
(unaudited)....... -- -- -- -- -- -- -- 12 12
Repurchase of pre-
ferred stock on
June 20, 1997
(unaudited)....... (172,300) (1) -- -- (3,618) -- (258) -- (3,877)
Deferred compensa-
tion related to
stock options
(unaudited)....... -- -- -- -- 599 (599) -- -- --
Amortization of de-
ferred compensa-
tion (unaudited).. -- -- -- -- -- 87 -- -- 87
Net income (unau-
dited)............ -- -- -- -- -- -- 9,937 -- 9,937
---------- ----- ---------- ---- ------- ----- -------- ----- -------
Balance at December
31, 1997 (unau-
dited).............. -- $ -- 20,870,368 $208 $59,716 $(512) $ 444 $(501) $59,355
========== ===== ========== ==== ======= ===== ======== ===== =======
</TABLE>
See accompanying notes.
-7-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------- ---------------
1995 1996 1997 1996 1997
------- ------- ------- ------ -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)................. $(1,071) $(3,694) $ 6,316 $4,541 $ 9,937
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization..... 5,092 5,311 5,185 3,999 4,053
Write-offs of inventories......... 1,227 3,663 452 378 598
Amortization of deferred compen-
sation........................... -- -- -- -- 87
Loss on debt forgiveness.......... -- 150 -- -- --
Changes in assets and liabili-
ties:
Accounts receivable.............. 2,021 (594) 1,058 451 (2,111)
Inventories...................... (2,312) (1,776) (1,146) (630) (1,070)
Other current assets............. (224) 320 (116) (1,066) (237)
Accounts payable................. (2,079) 1,853 (1,553) (905) 2,582
Accrued payroll and other ac-
crued liabilities............... (1,290) 1,047 1,562 1,274 (642)
Deferred income taxes............ -- -- -- -- (1,813)
Deferred revenue................. 30 416 (25) 128 455
------- ------- ------- ------ -------
Net cash provided by operating
activities..................... 1,394 6,696 11,733 8,170 11,839
Investing activities
Proceeds from sales and maturities
of short-term investments........ 1,500 11,238 7,944 6,466 23,268
Purchase of short-term invest-
ments............................ (1,677) (10,859) (11,512) (8,061) (41,466)
Notes receivable from officer and
employees........................ -- (203) (608) (608) (118)
Purchase of property and equip-
ment............................. (2,761) (1,427) (2,855) (1,907) (8,431)
------- ------- ------- ------ -------
Net cash used for investing ac-
tivities....................... (2,938) (1,251) (7,031) (4,110) (26,747)
Financing activities
Proceeds from issuance of common
stock, net....................... 93 256 42 29 25,454
Repurchase of common stock........ (46) (13) (145) (24) --
Repurchase of preferred stock..... -- -- -- -- (3,877)
Payments on notes receivable from
stockholders..................... -- 8 18 18 12
Payments on capital lease obliga-
tions............................ (3,224) (2,750) (2,824) (2,594) (2,209)
Payments on long-term debt........ (800) (864) (582) (337) (37)
------- ------- ------- ------ -------
Net cash provided by (used for)
financing activities........... (3,977) (3,363) (3,491) (2,908) 19,343
------- ------- ------- ------ -------
Net increase (decrease) in cash
and cash equivalents........... (5,521) 2,082 1,211 1,152 4,435
Cash and cash equivalents at begin-
ning of period.................... 7,716 2,195 4,277 4,277 5,488
------- ------- ------- ------ -------
Cash and cash equivalents at end of
period............................ $ 2,195 $ 4,277 $ 5,488 $5,429 $ 9,923
======= ======= ======= ====== =======
Supplemental disclosure of cash
flow information:
Cash paid for:
Interest.......................... $ 799 $ 715 $ 656 $ 459 $ 358
======= ======= ======= ====== =======
Income taxes...................... $ 48 $ 48 $ 770 $ 411 $ 2,559
======= ======= ======= ====== =======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations of approximately $3.4 million, $1.2 million and
$1.2 million were incurred during fiscal years 1995, 1996 and 1997,
respectively, and $1.2 million and $282,000 during the nine month periods ended
December 31, 1996 and 1997, respectively. During the nine months ended December
31, 1997, notes were received for the exercise of stock options totalling
$455,000.
See accompanying notes.
-8-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
AMCC designs, develops, manufactures and markets high-performance, high-
bandwidth silicon solutions for the world's communications infrastructure.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
Interim Financial Information (Unaudited)
The accompanying consolidated financial statements at December 31, 1997 and
for the nine months ended December 31, 1996 and 1997 are unaudited but include
all adjustments (consisting of normal recurring accruals) which, in the
opinion of management, are necessary for a fair statement of the financial
position and the operating results and cash flows for the interim date and
periods presented. Results for the interim period ended December 31, 1997 are
not necessarily indicative of results for the entire year or future periods.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist of highly liquid debt instruments with
original maturities of three months or less at date of acquisition, or money
market type funds. Short-term investments consist of United States treasury
notes, obligations of U.S. government agencies and corporate bonds. The
Company maintains its excess cash in financial institutions with strong credit
ratings and has not experienced any significant losses on its investments. The
estimated fair value of each investment security approximates cost and,
therefore, no unrealized gains or losses existed as of March 31, 1997 and 1996
or at December 31, 1997.
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------- DECEMBER 31,
1996 1997 1997
------ ------ ------------
<S> <C> <C> <C>
U.S. treasury securities and obligations of
U.S. government agencies.................... $2,502 $4,189 $12,683
U.S. corporate debt securities............... 1,743 3,628 13,124
Other........................................ 296 292 500
------ ------ -------
$4,541 $8,109 $26,307
====== ====== =======
</TABLE>
Available-for-sale securities by contractual maturity are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C>
Due in one year or less............................ $5,005 $21,860
Due after one year through two years............... 3,104 3,047
Greater than two years............................. -- 1,400
------ -------
$8,109 $26,307
====== =======
</TABLE>
-9-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
Concentration of Credit Risk
The Company believes that the concentration of credit risk in its trade
receivables is mitigated by the Company's credit evaluation process,
relatively short collection terms and dispersion of its customer base. The
Company generally does not require collateral. The Company has not experienced
significant losses on trade receivables from any particular customer or
geographic region for any period presented.
The Company invests its excess cash in debt instruments of the U.S.
Treasury, governmental agencies and corporations with strong credit ratings.
The Company has established guidelines relative to diversification and
maturities that attempt to maintain safety and liquidity. These guidelines are
periodically reviewed and modified to take advantage of trends in yields and
interest rates. The Company has not experienced any significant losses on its
cash equivalents or short-term investments.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the financial statements. These
estimates include assessing the collectability of accounts receivable, the use
and recoverability of inventory, estimates to complete engineering contracts,
costs of future product returns under warranty and provisions for
contingencies expected to be incurred. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. The Company's inventory valuation process is done
on a part-by-part basis. Lower of cost to market adjustments, specifically
identified on a part-by-part basis, reduce the carrying value of the related
inventory and take into consideration reductions in sales prices, excess
inventory levels and obsolete inventory. Once established, these adjustments
are considered permanent and are not reversed until the related inventory is
sold or disposed.
Property and Equipment
Property and equipment are stated at cost and depreciated over the estimated
useful lives of the assets (3 to 7 years) using the straight-line method.
Leasehold improvements are stated at cost and amortized over the shorter of
the useful life of the asset or the lease term. Property and equipment under
capital leases are recorded at the net present value of the minimum lease
payments and are amortized over the shorter of the useful life of the assets
or the lease term. Leased assets purchased at the expiration of the lease term
are capitalized at acquisition cost.
Impairment of Long-Lived Assets
On April 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. The adoption of SFAS No. 121 did
not impact the financial position or results of operations of the Company.
Advertising Cost
Advertising costs are expensed as incurred.
-10-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
Revenues
Revenues related to product sales are generally recognized when the products
are shipped to the customer. Recognition of revenues and the related cost of
revenues on shipments to distributors that are made under agreements allowing
for price protection and right of return on products unsold by the distributor
are deferred until the distributor ships the product to its customer. Revenues
on engineering design contracts are recognized using the percentage-of-
completion method based on actual cost incurred to date compared to total
estimated costs of the project. Deferred revenue represents the margin on
shipments of products to distributors that will be recognized when the
distributors ship the products to their customers and billings in excess of
costs and estimated earnings on uncompleted engineering design contracts.
Warranty Reserves
Estimated expenses for warranty obligations are accrued as revenue is
recognized. Reserve estimates are adjusted periodically to reflect actual
experience.
Research and Development
Research and development costs are expensed as incurred. Substantially all
research and development expenses are related to new product development,
designing significant improvements to existing products and new process
development.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee and director stock options
because the alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123") requires the use of option valuation models that
were not developed for use in valuing employee and director stock options.
Under SFAS 123 compensation cost is determined using the fair value of stock-
based compensation determined as of the grant date, and is recognized over the
periods in which the related services are rendered. The statement also permits
companies to elect to continue using the current implicit value accounting
method specified in APB 25 to account for stock-based compensation and
disclose in the footnotes to the financial statements the pro forma effect of
using the fair value method for its stock based compensation.
Reclassification
Certain prior period amounts have been reclassified to conform with the
current period presentation.
Earnings (Loss) Per Share
Earnings (loss) per share is computed using the weighted average number of
common shares and common equivalent shares outstanding during the periods
presented. Common equivalent shares result from stock options and warrants.
For loss periods, common equivalent shares are excluded from the computation
as their effect would be antidilutive, except that the Securities and Exchange
Commission (SEC) has historically required common and common share equivalents
issued during the twelve-month period prior to the initial filing of a
proposed public offering, to be included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method and the
initial public offering price).
-11-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
In February 1997, the Financial Accounting Standards Board issued SFAS 128.
"Earnings per Share," which supersedes APB Opinion No. 15. SFAS 128 replaces
the presentation of primary earnings per share (EPS) with "Basic EPS" which
includes no dilution and is based on weighted-average common shares
outstanding for the period. Companies with complex capital structures,
including AMCC, will also be required to present "Diluted EPS" that reflects
the potential dilution of securities such as employee stock options and
warrants to purchase common stock. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997. On February 3,
1998, the SEC issued Staff Accounting Bulletin (SAB) No. 98 which revised the
previous instructions for determining the dilutive effects in earnings per
share computations of common stock and common stock equivalents issued at
prices below the IPO price prior to the effectiveness of the IPO.
Earnings (loss) per share computed under SFAS No. 128 and SAB 98 would be as
follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH
31, NINE MONTHS ENDED
---------------------- -------------------------
DECEMBER 31, DECEMBER 31,
1995 1996 1997 1996 1997
------ ------ ------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Earnings (loss) per share:
Basic....................... $ (.06) $(0.21) $ 0.35 $ 0.25 $ 0.57
Diluted..................... $ (.06) $(0.21) $ 0.35 $ 0.25 $ 0.51
Average shares outstanding:
Basic (in thousands)........ 17,194 17,394 17,834 17,824 17,499
Diluted (in thousands)...... 17,194 17,394 17,907 17,897 19,306
</TABLE>
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Segment Information. Both of
these standards are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances
from non-owner sources. Net income and other comprehensive income, including
foreign currency translation adjustments, and unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company does not believe that comprehensive income
or loss has been materially different than net income or loss. SFAS No. 131
amends the requirements for public enterprises to report financial and
descriptive information about its reportable operating segments. Operating
segments, as defined in SFAS No. 131, are components of an enterprise for
which separate financial information is available and is evaluated regularly
by the Company in deciding how to allocate resources and in assessing
performance. The financial information is required to be reported on the basis
that is used internally for evaluating the segment performance. The Company
believes it operates in one business and operating segment and does not
believe adoption of SFAS No. 131 will have a material impact on the Company's
financial statements.
-12-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
2. CERTAIN FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
MARCH 31,
------------------ DECEMBER 31
1996 1997 1997
-------- -------- -----------
<S> <C> <C> <C>
Inventories (in thousands):
Finished goods............................ $ 2,631 $ 1,076 $ 2,347
Work in process........................... 2,651 4,279 4,344
Raw materials............................. 1,554 2,175 1,311
-------- -------- -------
$ 6,836 $ 7,530 $ 8,002
======== ======== =======
Property and equipment (in thousands):
Machinery and equipment................... $ 19,168 $ 21,211 $24,390
Leasehold improvements.................... 5,588 5,789 6,758
Computers, office furniture and equipment. 11,396 11,701 14,475
-------- -------- -------
36,152 38,701 45,623
Less accumulated depreciation and amortiza-
tion....................................... (24,223) (27,933) (30,196)
-------- -------- -------
$ 11,929 $ 10,768 $15,427
======== ======== =======
</TABLE>
The cost and accumulated amortization of machinery and equipment under
capital leases at March 31, 1997 were approximately $12.2 million and $7.3
million, respectively ($14.9 million and $7.8 million, at March 31, 1996).
Amortization of assets held under capital leases is included with depreciation
expense.
During the years ended March 31, 1995, 1996 and 1997 and the nine month
periods ended December 31, 1996 and 1997 the Company earned interest income of
$441,000, $473,000, $627,000, $444,000 and $648,000, respectively, and
incurred interest expense of $799,000, $715,000, $656,000, $439,000 and
$355,000, respectively.
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31
------------
1996 1997
----- -----
<S> <C> <C>
Notes payable with interest rates ranging from 8.3% to 10.5%,
paid in January 1997........................................ $ 162 $ --
10.0% notes payable, paid in April 1997...................... 457 37
----- -----
619 37
Less current portion......................................... (582) (37)
----- -----
$ 37 $ --
===== =====
</TABLE>
-13-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY
Common Stock
On October 6, 1997, the Board of Directors authorized, which the
stockholders subsequently approved, a two for three reverse stock split of all
outstanding common stock. All share and per share amounts and stock option
data have been restated to retroactively reflect a stock split.
During the quarter ending December 31, 1997, the Company completed its
initial public offering of 3,538,448 shares of common stock (including an
exercised underwriters' over-allotment option for 832,950 shares) at a price
of $8.00 per share, providing the Company with net proceeds of approximately
$25.1 million, after deducting underwriting discounts and commissions of
approximately $2.0 million and offering costs of approximately $1.2 million.
During November 1997, the certificate of incorporation of the Company was
amended to provide that the authorized number of shares of common and
preferred stock issuable by the Company was 60,000,000 shares of common stock
($0.01 par value) and 2,000,000 shares of preferred stock ($0.01 par value).
Convertible Preferred Stock
A summary of the shares of convertible preferred stock issued and
outstanding at March 31 which were converted into 10,717,317 shares of common
stock in November 1997 (unaudited) is as follows (in thousands, except share
data):
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------
SHARES PREFERENCE
PAR ISSUED AND IN
VALUE OUTSTANDING LIQUIDATION
----- ----------- -----------
<S> <C> <C> <C>
Series 1....................................... $ 4 408,692 $ 8,582
Series 2....................................... 2 238,096 5,000
Series 3....................................... 6 576,806 12,113
--- --------- -------
Total........................................ $12 1,223,594 $25,695
=== ========= =======
</TABLE>
Each share of Series 1, 2 and 3 preferred stock was convertible at the
option of the holder into approximately 16, 7 and 8 shares of common stock,
respectively, subject to certain anti-dilution adjustments. The Series 1, 2
and 3 preferred shares may have been redeemed upon approval of the Company's
Board of Directors and only with the vote of 60% of the outstanding preferred
stock at a redemption price of $23.10 per share.
Each share of preferred stock was entitled to one vote for each share of
common stock into which it would convert. No dividends were allowed to be paid
to common stockholders unless equivalent dividends were paid to preferred
stockholders. Additionally, the preferred stockholders had certain rights of
first refusal on any new securities offering (other than certain securities
issued to employees), which rights of first refusal terminated upon completion
of the Company's initial public offering, and certain registration rights.
On April 24, 1997 the Board authorized the Company to repurchase up to $4
million of convertible preferred stock, with priority given to the holders of
convertible preferred stock that submitted bids for the sale of their shares
of convertible preferred stock at the lowest price per share. On June 20,
1997, the Company repurchased an aggregate of 172,300 shares of convertible
preferred stock for approximately $3.9 million at prices between $1.20 and
$2.61 per share on as converted to common stock basis.
-14-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
Preferred Stock
On October 6, 1997, the Board of Directors adopted, which the stockholders
subsequently approved, an amendment to the Certificate of Incorporation to
allow the issuance of up to 2,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restriction thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders.
Stock Options
The Company's 1992 Stock Option Plan provides for the granting of incentive
stock options to employees. Generally, options are granted at prices at least
equal to fair value of the Company's common stock on the date of grant as
determined by the Company's Board of Directors. In addition, certain officers
and directors have been granted nonqualified stock options. The Company's 1982
Employee Incentive Stock Option Plan expired in 1992. Options to purchase an
aggregate of 83,309 shares of common stock under the 1982 Plan remain
outstanding as of December 31, 1997 (unaudited).
Options under both plans expire not more than ten years from the date of
grant and are immediately exercisable after the date of grant but are subject
to certain repurchase rights by the Company, at the Company's option, until
such ownership rights have vested. Vesting generally occurs over four years.
At March 31, 1997 and December 31, 1997, 42 shares and 729,007 (unaudited)
shares of common stock were subject to repurchase, respectively.
Pursuant to an executive employment agreement between the Company and an
executive, the Company granted an option to purchase 800,000 shares of the
Company's common stock at $0.53 per share under the 1992 Stock Option Plan.
The option vests ratably over four years. In the event the Company is
acquired, the agreement stipulates that under certain circumstances the
executive is eligible for certain additional compensation. These options as
well as 66,667 additional options issued in April 1997 were exercised in July
1997. The exercise was paid for with various notes which aggregate $455,000 at
interest rates between 5.98% and 6.54% which are due at the earlier of
February 12, 2000 ($420,000) and April 9, 2001 ($35,000) or the termination of
employment.
Certain other option agreements provide for the exercise of stock options
with long-term promissory notes. These notes bear interest at rates ranging
from 5.32% to 5.91%, are payable at the earlier of termination of employment
or January 1998 and are secured by the shares of common stock purchased with
the notes.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method of
that statement. The fair value of these options was estimated at the date of
grant using the minimum value method using the following weighted average
assumptions for fiscal year 1997 and 1996, respectively: risk free interest
rate of 6.20% and 6.15%; an expected option life of four years; and no annual
dividends.
-15-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expenses over the vesting period of such options. The
effects of applying Statement 123 for pro forma disclosure purposes are not
likely to be representative of the effects on pro forma net income in future
years because they do not take into consideration pro forma compensation
expenses related to grants made prior to 1996. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Pro forma net income (loss)............................ $(3,718,000) $6,225,000
Pro forma net income (loss) per share.................. $ (0.22) $ 0.33
Weighted average fair value of options granted during
the year.............................................. $ 0.12 $ 0.15
</TABLE>
A summary of the Company's stock option activity, including those issued
outside of the plans, and related information are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------------
1995 1996 1997 DECEMBER 31, 1997
-------------------- -------------------- -------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- --------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 1,911,566 $0.48 1,633,054 $0.50 1,690,160 $0.51 2,842,293 $0.51
Granted............... 195,332 0.53 1,017,000 0.53 1,457,285 0.53 1,140,082 $2.36
Exercised............. (204,558) 0.45 (547,767) 0.47 (92,680) 0.45 (1,535,975) $0.52
Forfeited............. (269,286) 0.50 (412,127) 0.51 (212,472) 0.53 (258,124) $0.53
--------- ----- --------- ----- --------- ----- ---------- -----
Outstanding at end of
period................. 1,633,054 $0.50 1,690,160 $0.51 2,842,293 $0.51 2,188,276 $1.48
========= ===== ========= ===== ========= ===== ========== =====
Vested at end of period. 917,449 $0.48 349,337 $0.51 851,764 $0.51 657,148 $1.48
========= ===== ========= ===== ========= ===== ========== =====
</TABLE>
The weighted-average remaining contractual life of the options outstanding
at March 31, 1997 is 8.4 years. Exercise prices of all options outstanding as
of March 31, 1997 range from $0.45 to $0.53. The weighted-average remaining
contractual life of the vested options is 6.5 years as of March 31, 1997. The
range of exercise prices for options outstanding as of December 31, 1997 was
$0.45 to $8.25 per share (unaudited).
From April 1, 1997 through September 30, 1997, the Company recorded deferred
compensation expense for the difference between the exercise price and the
deemed fair value for financial statement presentation purposes of the
Company's common stock, as determined by the Board of Directors, for all
options granted in the first and second quarters of fiscal 1998. This deferred
compensation aggregates to $599,000, which is being amortized over the four
year vesting period of the related options.
Warrants
In connection with certain notes payable secured by equipment, capital
leases for equipment and revolving lines of credit issued in 1989 and 1990,
the Company had outstanding warrants to purchase 83,807 shares of common stock
at $2.63 to $3.00 per share, subject to certain anti-dilution adjustments and
adjustments in the event of certain mergers or acquisitions. No value was
placed on the warrants at the time
-16-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
of issuance as it was deemed to be immaterial. These warrants expired not more
than ten years from date of grant or five years after the Company's initial
public offering, whichever is later. In November 1997 53,271 shares of common
stock were issued upon the net exercise of these warrants at the initial
public offering price of $8.00 per share.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors on October 6, 1997 which the
stockholders subsequently approved. A total of 400,000 shares of Common Stock
are reserved for issuance under the 1997 Purchase Plan.
1997 Directors' Stock Option Plan
The Company's 1997 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Board of Directors on October 6, 1997, which the stockholders
subsequently approved. A total of 200,000 shares of Common Stock are reserved
for issuance under the Directors' Plan. The Directors' Plan provides for the
grant of non-statutory options to nonemployee directors of the Company.
Common Shares Reserved for Future Issuance
At December 31, 1997, shares of the Company's common stock are reserved for
issuance upon the conversion or exercise of the following equity instruments
(unaudited):
<TABLE>
<S> <C>
Stock options:
Issued and outstanding........................................... 2,188,276
Authorized for future grants..................................... 2,628,464
Stock purchase plan................................................ 400,000
---------
5,216,740
</TABLE>
5. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1995 1996 1997
------- ------ -------
<S> <C> <C> <C>
CURRENT
Federal.......................................... $ -- $ 27 $ 380
State............................................ (70) 5 279
------- ------ -------
$ (70) $ 32 $ 659
======= ====== =======
</TABLE>
-17-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
The provision (credit) for income taxes reconciles to the amount computed by
applying the federal statutory rate (35%) to income before income taxes as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Tax at federal statutory rate......................... $(399) $(1,282) $ 2,441
Net operating loss without benefit.................... 399 1,282 --
Utilization of net operating loss and research and de-
velopment tax credit carryforwards................... -- -- (2,061)
State taxes, net of federal benefit and credits....... (70) 5 279
Federal alternative minimum tax....................... -- 27 --
----- ------- -------
$ (70) $ 32 $ 659
===== ======= =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of March 31, 1997 and 1996 are as shown
below. As of March 31, 1997, a valuation allowance had been recognized to
offset the deferred tax assets as realization of such assets was uncertain.
The estimated annualized effective tax rate for fiscal 1998, which was used to
determine the provision for the nine month period ended December 31, 1997, is
computed based on the Company's projected 1998 income which will allow for a
full reduction of the valuation allowance and realization of the deferred tax
asset.
<TABLE>
<CAPTION>
MARCH 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets (in thousands):
Reserves................................................... $ 2,512 $ 2,233
Capitalization of inventory and research and development
costs..................................................... 334 226
Research and development credit carryforwards.............. 2,405 1,667
Depreciation and amortization.............................. 335 200
Net operating loss carryforwards........................... 2,102 --
Other credit carryforwards................................. 886 768
------- -------
Subtotal..................................................... 8,574 5,094
Valuation allowance.......................................... (8,574) (5,094)
------- -------
Net deferred taxes........................................... $ -- $ --
======= =======
</TABLE>
At March 31, 1997, the Company has federal alternative minimum tax,
investment and research and development tax credit carryforwards of
approximately $366,000, $270,000 and $1.6 million, respectively, which will
begin to expire in 1998 unless previously utilized.
Under Internal Revenue Code Section 382, the Company's use of its tax credit
carryforwards could be limited in the event of certain cumulative changes in
the Company's stock ownership.
For the nine months ended December 31, 1996 and 1997, income taxes have been
provided based on the estimated annual effective tax rate applied to pre tax
income for the interim period.
-18-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
6. LEASE COMMITMENTS
The Company leases its present manufacturing facilities under a long-term
operating lease expiring in March 1998. The lease expiring is renewable for up
to ten years. This lease requires the Company to pay property taxes and
incidental maintenance expenses and contains escalation clauses based upon
increases in the Consumer Price Index.
In September 1997, the Company moved into a new administration and
manufacturing facility which is leased under a long-term operating lease. This
lease expires in September 2007, requires the Company to pay property taxes
and incidental maintenance expenses and is renewable for up to ten years. The
lease provides for defined rent increases over the term of the lease.
Annual future minimum lease payments, including machinery and equipment
under capital leases and the Company's commitment relating to its new
administration and manufacturing facility, as of March 31, 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR ENDING MARCH 31, LEASES LEASES
---------------------------- --------- -------
<S> <C> <C>
1998..................................................... $1,037 $2,980
1999..................................................... 848 2,170
2000..................................................... 848 759
2001..................................................... 870 320
2002..................................................... 889 225
Thereafter............................................... 5,070 --
------ ------
Total minimum lease payments........................... $9,562 6,454
======
Less amount representing interest......................... 637
------
Present value of remaining minimum capital lease payments
(including current portion of $2,625).................... $5,817
======
</TABLE>
Rent expense (including short-term leases and net of sublease income) for
the years ended March 31, 1995, 1996 and 1997 was $1.7 million, $2.3 million
and $1.2 million, respectively. Rent expense for the nine months ended
December 31, 1996 and 1997 was $876,000 and $879,000, respectively. Included
in the 1996 rent expense is an accrual of $565,000 for losses on facilities
for which sublease income was expected to be less than the remaining minimum
lease payments. Sublease income was $16,000, $0 and $208,000 for the years
ended March 31, 1995 1996 and 1997, respectively.
7. RELATED PARTY TRANSACTIONS
As of March 31, 1996, the Company had advanced $203,000 to an officer of the
Company. During 1997, an additional $750,000 was advanced to this officer and
$142,000 of the advances made during 1996 were repaid. Notes were received by
the Company providing for interest on the balance at rates from 5.32% to
5.76%. Principal and interest under the notes are due on or before February
28, 1999 and $750,000 of the balance is secured by marketable securities owned
by the officer.
-19-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO DECEMBER 31, 1997 AND THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
8. EMPLOYEE RETIREMENT PLAN
Effective January 1, 1986, the Company established a 401(k) defined
contribution retirement plan (the "Retirement Plan") covering all full-time
employees with greater than three months of service. The Retirement Plan
provides for voluntary employee contributions from 1% to 20% of annual
compensation, subject to a maximum limit allowed by Internal Revenue Service
guidelines. The Company may contribute such amounts as determined by the Board
of Directors. Employer contributions vest to participants at a rate of 20% per
year of service, provided that after five years of service all past and
subsequent employer contributions are 100% vested. The contributions charged
to operations totalled $116,000, $182,000 and $318,000 for the years ended
March 31, 1995, 1996 and 1997, respectively, and $202,000 and $241,000 for the
nine months ended December 31, 1996 and 1997, respectively.
9. SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION
During the years ended March 31, 1995, 1996 and 1997 and the nine month
periods ended December 31, 1996 and 1997, 17%, 20% and 20% and 21% and 20%,
respectively, of net revenues were from one customer. No other customer
accounted for more than 10% of revenues in any period.
Revenue by geographic region for the years ended March 31, 1995, 1996 and
1997, and the nine months ended December 31, 1996 and 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------- ---------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues:
United States...................... $32,554 $28,134 $34,424 $24,508 $32,183
Canada............................. 8,030 10,116 10,943 8,976 9,693
Europe and Israel.................. 4,075 6,525 8,216 5,892 9,434
Asia............................... 2,291 5,489 3,885 3,088 3,564
------- ------- ------- ------- -------
Total............................ $46,950 $50,264 $57,468 $42,464 $54,874
======= ======= ======= ======= =======
</TABLE>
10. CONTINGENCIES
The Company is party to various claims and legal actions arising in the
normal course of business, including notification of possible infringement on
the intellectual property rights of third parties. In addition, since 1993 the
Company has been named as a potentially responsible party ("PRP") along with a
large number of other companies that used Omega Chemical Corporation ("Omega")
in Whittier, California to handle and dispose of certain hazardous waste
material. The Company is a member of a large group of PRPs that has agreed to
fund certain remediation efforts at the Omega site for which the Company has
accrued approximately $50,000. Although the ultimate outcome of these matters
is not presently determinable, management believes that the resolution of all
such pending matters, net of amounts accrued, will not have a material adverse
affect on the Company's financial position or liquidity; however, there can be
no assurance that the ultimate resolution of these matters will not have a
material impact on the Company's results of operations in any quarter.
-20-
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
(1) (2)
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS- DEDUCTIONS- AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nine Months Ended December 31, 1997: $200 $157 $ -- $ 7 $350
Allowance for doubtful accounts
- -----------------------------------------------------------------------------------------------------
Year ended March 31, 1997: $ 90 $198 $ 88 $ -- $200
Allowance for doubtful accounts
- -----------------------------------------------------------------------------------------------------
Year ended March 31, 1996: $115 $ -- $ -- $ 25 $ 90
Allowance for doubtful accounts
- -----------------------------------------------------------------------------------------------------
Year ended March 31, 1995 $ 60 $ 81 $ -- $ 26 $115
Allowance for doubtful accounts
- -----------------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
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 hereunto duly authorized.
APPLIED MICRO CIRCUITS CORPORATION
Date: February 27, 1998 By: /s/ Joel O. Holliday
-------------------------------
Joel O. Holliday
Chief Financial Officer
-22-
