SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
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Commission File No. 0-14225
EXAR CORPORATION
(Exact Name of registrant as specified in its charter)
Delaware 94-1741481
- - - - ------------------------------------------------------------------------------
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
2222 Qume Drive, San Jose, California 95131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 434-6400
- - - - ------------------------------------------------------------------------------
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
--------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 31, 1994
- - - - --------------------------------------------------------------------------------
Common Stock, .0001 par value 8,921,404 shares
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3-5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
EXAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
DECEMBER 31, MARCH 31,
1994 1994
----------- ----------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and equivalents $ 47,223 $ 62,400
Short-term investments 5,000 5,254
Accounts receivable, net 34,828 25,128
Inventories 17,476 11,927
Prepaid expenses and other 1,245 1,576
Deferred income taxes 5,170 4,376
---------- ----------
Total current assets 110,942 110,661
PROPERTY AND EQUIPMENT, net 19,803 19,103
GOODWILL, net 4,151 -
OTHER ASSETS 3,517 2,455
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TOTAL ASSETS $ 138,413 $ 132,219
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---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,268 $ 16,174
Accrued compensation and related
benefits 4,204 4,496
Other accrued expenses 1,516 2,068
Income taxes payable 3,117 2,081
---------- ----------
Total current liabilities 30,105 24,819
---------- ----------
LONG-TERM LIABILITIES:
Long-term liabilities 2,668 -
Deferred income taxes 2,022 2,022
---------- ----------
Total long-term liabilities 4,690 2,022
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock; $.0001 par value;
2,250,000 shares authorized;
no shares outstanding - -
Common stock; $.0001 par value;
12,000,000 shares authorized;
8,921,404 and 10,376,142
shares outstanding 57,132 77,792
Cumulative translation adjustments 399 350
Retained earnings 46,087 50,881
Treasury stock; 1,151,368 shares at
cost - (23,645)
---------- ----------
Total stockholders' equity 103,618 105,378
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 138,413 $ 132,219
---------- ----------
---------- ----------
See notes to condensed consolidated financial statements.
EXAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
------------------------------------------------
NET SALES $ 40,029 $ 38,407 $ 118,842 $ 124,358
COST AND EXPENSES:
Cost of sales 24,316 25,667 73,629 84,207
Research and development 3,600 2,630 10,196 8,628
Selling, general and
administrative 5,944 4,923 18,063 15,130
Write-off of in-process
research and development - - 16,875 -
---------- ---------- ---------- ---------
Total costs and expenses 33,860 33,220 118,763 107,965
---------- ---------- ---------- ---------
OPERATING INCOME 6,169 5,187 79 16,393
OTHER INCOME (EXPENSE):
Interest income, net 662 584 1,593 1,839
Other, net (103) 469 96 717
---------- ---------- ---------- ---------
Total other income, net 559 1,053 1,689 2,556
---------- ---------- ---------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES AND CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 6,728 6,240 1,768 18,949
INCOME TAXES 2,372 2,274 6,562 7,035
---------- ---------- ---------- ---------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 4,356 3,966 (4,794) 11,914
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE - - - 200
NET INCOME (LOSS) $ 4,356 $ 3,966 $ (4,794) $ 12,114
---------- ---------- ---------- --------
---------- ---------- ---------- --------
PER SHARE:
Income (loss) before
cumulative effect of change
in accounting principle $ .47 $ .37 $ (.52) $ 1.12
Cumulative effect of change
in accounting principle - - - .02
---------- ---------- ---------- ---------
Net income (loss) $ .47 $ .37 $ (.52) $ 1.14
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
SHARES USED IN COMPUTATION 9,334 10,700 9,168 10,668
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
See notes to condensed consolidated financial statements.
EXAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
NINE MONTHS ENDED
DECEMBER 31
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(4,794) $ 12,114
Reconciliation to net cash provided by operating
activities:
Depreciation and amortization 3,979 2,715
Write-off of in-process research and development 16,875 -
Write-down of investments to estimated net
realizable value - 1,040
Deferred income taxes - (233)
Translation adjustment 49 (347)
Changes in operating assets and liabilities:
Accounts receivable (5,930) (304)
Inventories (1,549) (3,709)
Prepaid expenses and other 501 (423)
Accounts payable and accrued expenses (3,150) 818
Accrued compensation and related benefits (1,886) (890)
Income taxes payable 1,036 (2,019)
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Net cash provided by operating activities 5,131 8,762
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,554) (5,910)
Short-term investments, net 1,999 5,697
Other assets (470) -
Acquired companies (19,131) -
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Net cash used in investing activities (21,156) (213)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term liabilities (2,137) -
Proceeds from issuance of common stock 2,985 3,320
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Net cash provided by financing activities 848 3,320
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (15,177) 11,869
CASH AND EQUIVALENTS AT BEGINNING OF PERIO 62,400 70,092
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CASH AND EQUIVALENTS AT END OF PERIOD $47,223 $81,961
---------- ----------
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 4,958 $ 8,778
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See notes to condensed consolidated financial statements.
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries.Such financial
statements have been prepared in conformity with generally accepted accounting
principles consistent with those reflected in the Company's 1994 annual report
on Form 10-K, and include all adjustments (consisting only of normal, recurring
adjustments) necessary for a fair presentation of financial position, results of
operations and cash flows.The results of operations for three and nine month
periods ended December 31, 1994 are not necessarily indicative of the results of
operations to be expected for the full year.
Exar Corporation (Exar or the Company) designs, develops, manufactures and
markets analog and mixed-signal application specific integrated circuits for use
in communications, microperipherals, consumer electronics, and other selected
areas.
NOTE 2. CASH AND EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company's policy is to invest in various short-term instruments including
certificates of deposit, bankers acceptances and repurchase agreements of major
banks and institutions, obligations of the Treasury and U.S. Government
agencies, tax exempt municipal securities, money market preferred securities and
commercial paper with investment grade credit ratings.All highly liquid
investments with original maturities of three months or less, when purchased,
are classified as cash equivalents.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
April 1, 1994.The Company classifies its short-term investments as "available
for sale securities."At December 31, 1994, the difference between the cost and
the underlying fair market values of such securities was not significant.
NOTE 3. INVENTORIES
Inventories are stated at the lower of cost (average cost) or market and consist
of the following:
December 31, 1994 March 31, 1994
----------------- ---------------
Raw materials $ 396 $ 227
Work-in-process 10,490 6,597
Finished goods 6,590 5,103
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$17,476 $11,927
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----------------- ---------------
NOTE 4. INCOME TAXES
Effective April 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes," which requires an
asset and liability approach for financial accounting and reporting of income
taxes.The cumulative effect of adopting SFAS 109 was to increase net income for
the nine months ended December 31, 1993 by $200,000 ($.02 per share).
NOTE 5. LONG-TERM LIABILITIES
Long-term liabilities consist of contingent payments recorded in connection with
the acquisition of Origin Technology, Inc. and estimated remediation costs as a
result of certain environmental matters (see Management's Discussion and
Analysis of Financial Condition and Results of Operations).
NOTE 6. SHAREHOLDERS' EQUITY
On September 1, 1994, the Board of Directors declared a 3 for 2 stock dividend
for stockholders of record as of September 19, 1994.The stock dividend was
effected in the form of a stock split and the additional shares were distributed
on October 11, 1994.All share and per share amounts affected by the stock
dividend have been retroactively restated for comparative purposes.
In addition, the Company formally retired 1,151,368 shares of its common stock
in September 1994, which had previously been held as treasury shares.
NOTE 7. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated based on the weighted average number
of common and dilutive common share equivalents outstanding.Dilutive common
share equivalents reflect the dilutive effect of outstanding stock options.
NOTE 8. ACQUIRED COMPANIES
In May 1994, the Company acquired all of the outstanding common stock of Origin
Technology, Inc., (Origin) for $2.4 million in cash. The purchase agreement
includes provisions for adjustments to the purchase price, which may result in
additional payments of up to $1.5 million based on Origin's future operating
performance.Such contingent payments have been accrued and are included in long-
term liabilities at December 31, 1994.
In June 1994, the Company acquired all of the outstanding common stock of MPS
Holdings, Inc. (Micro Power) for $21.7 million in cash.
Both acquisitions have been accounted for as purchases.Accordingly, the results
of operations for the nine month period ended December 31, 1994 include the
operations of the acquired companies subsequent to the dates of acquisition.As a
result of these transactions, the Company recorded approximately $4.7 million of
goodwill which is being amortized over a period of five years.The remaining
portion of the excess purchase price (approximately $16.9 million) represented
in-process research and development which was charged to operations in the three
months ended June 30, 1994.
Had the acquisitions been effective at the beginning of the current fiscal year,
the impact would have been to increase revenues by $3.9 million and decrease
operating loss and net loss by $70,000 and $62,000 ($.01 per share),
respectively, compared to the actual reported results.
Had the acquisitions been effective at the beginning of fiscal 1994, the impact
would have been to increase revenues by $13.7 million, to increase operating
income by $543,000, and to increase net income by $927,000 ($.09 per share),
compared to the actual reported results.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL - The Company derives revenue principally from the sale of integrated
circuits to unaffiliated customers. In the past, a portion of the Company's
revenues were also derived from wafer services provided to Rohm Co. Ltd. (Rohm).
The Company's gross margins from sales of integrated circuits vary depending on
competition from other manufacturers, the volume of products manufactured and
sold, and the Company's ability to achieve certain manufacturing
efficiencies. The Company's newer analog and mixed-signal products have higher
gross margins than many of the Company's more mature products and margins of any
particular product may erode over time.The Company's business in Japan includes
the sale of integrated circuits for use in consumer electronics products.Sales
in Japan are made through the Company's wholly-owned subsidiaries, with sales
assistance from Rohm.Although sales of integrated circuits for use in consumer
electronics products are a high volume business, such products generally have
lower gross margins than the Company's other products.
Effective April 1, 1994, the Company transferred its wafer manufacturing
operations to Rohm.As a result of this transfer, the results of operations for
the nine months ended December 31, 1994 no longer include revenues from wafer
services provided to Rohm.
During the first quarter of fiscal 1995, the Company acquired Origin Technology,
Inc. (Origin) and Micro Power Systems, Inc. (Micro Power).The acquisitions have
been accounted for as purchases.Accordingly, the results of operations for the
nine months ended December 31, 1994 include the operations of the acquired
companies subsequent to the dates of acquisition.
RESULTS OF OPERATIONS - Net sales for the third quarter of fiscal 1995 were $40
million compared to $38.4 million for the corresponding period in fiscal 1994,
an increase of approximately 4%.During the same period, net sales of the
Company's proprietary products increased 38%.These increases were due primarily
to additional revenues associated with document imaging products as a result of
the Micro Power acquisition and significant increases in sales of consumer
electronic and hard disk drive products.Such increases were partially offset by
i) a significant decrease in sales of second source consumer products in Japan,
ii) a decrease in sales of modem products as a result of increased competition
within that market, iii) discontinued sales of certain multimedia products, and
iv) the termination of the arrangement under which the Company provided wafer
processing services to Rohm.
Net sales for the first nine months of fiscal 1995 decreased by 4% to $118.9
million compared to $124.4 million for the corresponding period in fiscal 1994
as the decreases in net sales discussed above more that offset the increases in
sales of the Company's proprietary products.
Cost of sales for the third quarter and first nine months of fiscal 1995
decreased to approximately 61% and 62% of net sales, respectively, compared to
68% in third quarter and first nine months of fiscal 1994.The increase in gross
margins is due primarily to changes in product mix, including the decrease in
wafer services provided to Rohm and the decrease in sales of second source
consumer products in Japan which provide lower gross margins than the Company
receives from the sale of its proprietary products.
Expenditures for research and development for the third quarter and first nine
months of fiscal 1995 represented approximately 9% of net sales compared to 7%
of net sales in the corresponding periods in fiscal 1994.The increase in
research and development expenses is primarily attributable to additional
research and development expenditures of acquired companies as well as changes
in product mix as the products of acquired companies displaced the wafer foundry
services previously provided to Rohm.
Selling, general and administrative expenses, as a percentage of net sales,
increased from approximately 12% of net sales in the third quarter and first
nine months of fiscal 1994 to 15% of net sales in the corresponding periods of
the current year.The increase as a percentage of net sales is due primarily to
the additional selling, general and administrative expenses of acquired
companies.
Net interest income for the first nine months of fiscal 1995 decreased
approximately 13% to $1.6 million as a result of lower levels of cash and short-
term investments.Other income in fiscal 1995 consists primarily of foreign
currency gains partially offset by charges for goodwill amortization.Other
income consisted primarily of foreign currency gains in fiscal 1994.
The Company's provision for income taxes is based on income from operations,
excluding the write-off of in-process research and development, as there was no
tax benefit associated with the write-off.The Company's effective tax rate for
the first nine months of fiscal 1995, excluding the write-off of in-process
research and development,was approximately 35% compared to the federal statutory
income tax rate of 34%.The Company's effective tax rate differs from the U.S.
statutory rate due primarily to state income taxes and foreign income which is
taxed at rates different from U.S. income tax rates, offset by tax advantaged
investment income and tax savings generated from utilization of the Company's
foreign sales corporation.
Net income for the first nine months of fiscal 1995, excluding the effects of
the one-time write-off of in-process research and development, was $12.1 million
($1.32 per share).
To date, inflation has not had a significant impact on the Company's operating
results.
The California Regional Water Quality Control Board for the San Francisco Bay
Region is conducting an investigation of contaminants detected in subsurface
groundwater at approximately 50 different sites in Santa Clara County,
California, including a location formerly leased by Exar.Ongoing studies
indicate that contaminants in the groundwater beneath such leased facility
result from the migration of contaminants released by other neighboring
manufacturers.Although this matter is subject to an unusual degree of
uncertainty, on the basis of the facts presently known, the ultimate outcome of
this matter is not expected to have a material adverse effect on the Company's
financial position or results of operations.
In 1987, Micro Power identified low-level groundwater contamination on its
principal manufacturing property.Although the area of contamination appears to
have been defined, the source of the contamination has not been identified.The
Company has reached an informal agreement with another entity to participate in
the cost of ongoing site investigations and the operation of remedial systems to
remove subsurface chemicals which is expected to continue for 10 to 15 years.The
accompanying financial statements include the Company's share of estimated
remediation costs of approximately $1.3 million.
The Company is in an industry which is characterized by intense competition,
rapid technological change, cyclical market patterns, occasional shortages of
materials, dependence upon highly skilled engineering and other personnel and
significant expenditures for product development.The Company's operations have
reflected, and may in the future reflect, substantial fluctuation from period-
to-period as a result of the above factors, as well as general economic
conditions, the timing of orders from major customers, variations in
manufacturing efficiencies, management decisions to commence or discontinue
certain product lines, and the Company's ability to design, introduce and
manufacture new products on a cost-effective and timely basis.
LIQUIDITY AND CAPITAL RESOURCES - During the first nine months of fiscal 1995,
the Company financed its operations primarily from existing cash balances and
cash flow from operations.At December 31, 1994, the Company had approximately
$52.2 million of cash and short-term investments.In addition, the Company has
available short-term, unsecured lines of credit totaling $35.5 million with
certain domestic and foreign banks, none of which were being utilized at
December 31, 1994.
In May 1994, the Company acquired all of the outstanding common stock of Origin
for approximately $1.4 million in cash and invested an additional $1 million in
newly issued common stock of Origin.The purchase agreement includes provisions
for adjustments to the final purchase price which may require additional
payments of up to $1.5 million based on Origin's future operating performance.In
June 1994, the Company acquired all of the outstanding common stock of Micro
Power for approximately $21.7 million in cash.
The building lease for the Company's primary manufacturing and administrative
facilities expires in November 1995.The Company's Board of Directors has
approved a plan to proceed with the construction of a new manufacturing and
administration facility on the Company's Fremont property.Management believes
that the estimated cost of such construction will require the use of
approximately $12 million in cash over the next twelve months.
The Company anticipates that it will finance its operations with cash flows from
operations, existing cash balances, borrowings under existing bank credit lines,
and some combination of long-term debt and lease financing and additional sales
of equity securities.The combination and sources of capital will be determined
by management based on the needs of the Company and prevailing market
conditions.
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11.1 - Statement re Computation of Per Share Earnings (Loss)
(b) During the quarter for which this report is filed the Registrant filed no
reports on Form 8-K.
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.
EXAR CORPORATION
By /s/ George D. Wells Date:January 26, 1995
-------------------------------------------
George D. Wells
Chief Executive Officer
By /s/ Ronald W. Guire Date:January 26, 1995
-------------------------------------------
Ronald W. Guire
Senior Vice President,
Chief Financial Officer
EXHIBIT INDEX
Exhibit Page
- - - - ------- ----
11.1 Statement re Computation of Per Share Earnings (Loss) 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Exar Corporation's Consolidated Financial Statements and is qualified
in its entirety by reference to such 10Q filing.
</LEGEND>
<CIK> 0000753568
<NAME> EXAR CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1994
<CASH> 47,223
<SECURITIES> 5,000
<RECEIVABLES> 34,828
<ALLOWANCES> 0
<INVENTORY> 17,476
<CURRENT-ASSETS> 110,942
<PP&E> 19,803
<DEPRECIATION> 0
<TOTAL-ASSETS> 138,413
<CURRENT-LIABILITIES> 30,105
<BONDS> 0
<COMMON> 57,132
0
0
<OTHER-SE> 46,486
<TOTAL-LIABILITY-AND-EQUITY> 138,413
<SALES> 40,029
<TOTAL-REVENUES> 118,842
<CGS> 73,629
<TOTAL-COSTS> 118,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,768
<INCOME-TAX> 6,562
<INCOME-CONTINUING> (4,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,794)
<EPS-PRIMARY> .47
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 11.1
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------- -----------------
1994 1993 1994 1993
NET INCOME (LOSS):
Income (loss) before cumulative
effect of change in accounting
principle $ 4,356 $ 3,966 $(4,794) $11,914
Cumulative effect ofchange in
accounting principle - - - 200
--------- --------- --------- ---------
Net Income (loss) $ 4,356 $ 3,966 $(4,794) $12,114
--------- --------- --------- ---------
--------- --------- --------- ---------
SHARES USED IN COMPUTATION:
Weighted average common shares
outstanding 8,890 10,320 8,890 10,338
Dilutive effect of stock options 444 380 278 330
--------- --------- --------- ---------
Shares used in computation 9,334 10,700 9,168 10,668
--------- --------- --------- ---------
--------- --------- --------- ---------
PER SHARE:
Income (loss) before cumulative
effect of change in
accounting principle $ .47 $ .37 $(.52) $1.12
Cumulative effect of change in
accounting principle - - - .02
--------- --------- --------- ---------
Net income (loss $ .47 $.37 $(.52) $1.14
--------- --------- --------- ---------
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