<PAGE> 1
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 quarterly period ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-15012
CHIPS AND TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0047943
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
2950 Zanker Road, San Jose, California 95134
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (408)434-0600
________________________________________________________________________________
Former name, former address and former fiscal year. If changed since last
report.
Indicate by check 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
--- ---
At December 31, 1996, the registrant had 21,874,590 shares of common
stock outstanding.
================================================================================
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Unaudited Condensed Consolidated Financial Statements 3
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Not applicable
Item 2. Changes in Securities Not applicable
Item 3. Defaults upon Senior Securities Not applicable
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information Not applicable
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
Page 2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHIPS AND TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
In thousands, except share amounts 1996 1996
- ------------------------------------------------------------ ------------ -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,981 $ 23,989
Short-term investments 47,888 35,356
Accounts receivable, net of allowance for
doubtful accounts of $1,394 and $1,203, respectively 12,711 12,189
Inventory 14,929 10,197
Prepaid and other assets 2,662 2,574
-------- --------
Total current assets 111,171 84,305
Property and equipment, net 12,849 11,223
Other assets 18,379 12,543
-------- --------
TOTAL ASSETS $142,399 $108,071
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,006 $ 12,820
Current capital lease obligations 1,286 1,630
Other accrued liabilities 11,059 9,436
-------- --------
Total current liabilities 28,351 23,886
Long-term capital lease obligations 826 796
-------- --------
Total liabilities 29,177 24,682
-------- ---------
Stockholders' equity:
Common stock, 21,875,000 and 20,620,000 shares issued
and outstanding 219 206
Capital in excess of par value 85,074 77,769
Note receivable from officer (51) (80)
Unrealized gain on investments 6,648 3,421
Retained earnings 21,332 2,073
-------- -------
Total stockholders' equity 113,222 83,389
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $142,399 $108,071
======== =========
</TABLE>
See notes to Unaudited Condensed Consolidated Financial Statements
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CHIPS AND TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
In thousands, except per share amounts 1996 1995 1996 1995
- ---------------------------------------- ------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $48,231 $38,259 $92,717 $75,478
Cost of sales 25,782 23,301 48,985 46,159
------- ------- ------- -------
Gross margin 22,449 14,958 43,732 29,319
Operating expenses
Research and development 5,653 4,811 10,187 9,716
Selling, general and administrative 6,930 5,214 13,801 10,118
------- ------- ------ -------
Total operating expenses 12,583 10,025 23,988 19,834
Income from operations 9,866 4,933 19,744 9,485
Interest income and other, net 1,032 1,297 1,655 1,665
------- ------- ------- -------
Income before taxes 10,898 6,230 21,399 11,150
Provision for income taxes 1,090 623 2,140 1,115
------- ------- ------- -------
Net Income $ 9,808 $ 5,607 $19,259 $10,035
======= ======= ======= =======
Net income per share $0.42 $0.26 $0.83 $0.46
======= ========= ======= =======
Shares used in per share calculation 23,609 21,804 23,328 21,991
======= ========= ======= =======
</TABLE>
See notes to Unaudited Condensed Consolidated Financial Statements
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CHIPS AND TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
In thousands 1996 1995
- -------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $19,259 $10,035
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 1,487 1,303
Gain on sale of land -- (949)
Changes in operating assets and liabilities:
Accounts receivable (522) 2,359
Inventory (4,732) 2,362
Accounts payable 3,186 (1,172)
Other assets and liabilities 1,579 (3,101)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $20,257 $10,837
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,677) (826)
Deposits for capacity agreement (5,880) (2,000)
Purchase of short-term investments (9,305) (8,461)
Proceeds from sale of land -- 2,759
------- --------
NET CASH USED IN INVESTING ACTIVITIES 17,862) (8,528)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for capital lease obligations (750) (555)
Proceeds from issuance of stock 7,318 3,636
Repayment of officers' loans 29 28
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,597 3,109
------- -------
Net increase in cash and cash equivalents 8,992 5,418
Cash and cash equivalents at beginning of year 23,989 22,385
------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $32,981 $27,803
======= =======
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 103 $ 125
Income taxes 753 148
Additions under capital lease obligations 436 778
</TABLE>
See notes to Unaudited Condensed Consolidated Financial Statements
Page 5
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The Unaudited Condensed Consolidated Financial Statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position, operating results and cash flows for
those periods presented. These unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended June 30, 1996, included in the
Company's 1996 Annual Report on Form 10-K.
The results of operations for interim periods are not necessarily indicative of
the results that may be expected for the entire year.
NOTE 2. SHORT-TERM INVESTMENTS
The Company classified all investments on December 31, 1996 and June 30, 1996 as
available-for-sale. The fair market value and the amortized cost of the
investments are presented in the table below. The investments are adjusted to
fair market value as of the balance sheet date and any unrealized gains are
recorded as a separate component of stockholders' equity. The AMD common stock
was received in exchange for Nexgen common stock as a result of the merger of
the two companies.
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------
Unrealized Fair
(In thousands) Amortized Holding Market
Cost Gain Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AMD Common Stock $ -- $6,549 $ 6,549
U.S. Government and Corporation Obligations 41,240 99 41,339
- ---------------------------------------------------------------------------------------------------------------
Total $41,240 $6,648 $ 47,888
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------
Unrealized Fair
(In thousands) Amortized Holding Market
Cost Gain/(Loss} Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AMD Common Stock $ -- $3,465 $ 3,465
U.S. Government and Corporation Obligations 31,935 (44) 31,891
- --------------------------------------------------------------------------------------------------------------
Total $31,935 $3,421 $35,356
==============================================================================================================
</TABLE>
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NOTE 3. INVENTORY
<TABLE>
<CAPTION>
Inventory consists of the following:
(In thousands)
December 31, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
Work-in-process $ 9,662 $ 7,693
Finished goods 5,267 2,504
------- -------
$14,929 $10,197
------- -------
</TABLE>
NOTE 4. INCOME TAXES
The Company provides for income taxes during interim reporting periods based
upon an estimate of the annual effective tax rate at approximately 10%. This
rate is lower than the statutory income tax rate, reflecting the expected
utilization of the Company's net operating loss carryforwards and the change in
valuation allowance for the Company's deferred tax assets. The Company expects
that its effective tax rate will increase to reflect full statutory rates net of
ongoing taxable deductions in fiscal year 1998.
NOTE 5. NET INCOME PER SHARE
Net income per share is based on the weighted average common shares outstanding
and dilutive common equivalent shares (using the treasury stock or modified
treasury stock method, whichever applies). Common equivalent shares include
stock options and warrants.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including in particular those discussed below or in the Company's annual report
on Form 10-K for the fiscal year ended June 30, 1996, which could cause actual
results to differ materially from historical results or those anticipated. In
this report, the words "expect," "anticipate" and similar expressions identify
forward-looking statements. These forward-looking statements speak only as of
the date hereof. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of net
sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 53.5 60.9 52.8 61.2
----- ----- ----- -----
Gross margin 46.5 39.1 47.2 38.8
----- ----- ----- -----
Operating expenses
Research and development 11.7 12.6 11.0 12.8
Selling, marketing and administrative 14.3 13.6 14.9 13.4
----- ----- ----- -----
Total operating expenses 26.0 26.2 25.9 26.2
----- ----- ----- -----
Income from operations 20.5 12.9 21.3 12.6
Interest income and other, net 2.1 3.4 1.8 2.2
----- ----- ----- -----
Income before taxes 22.6 16.3 23.1 14.8
Provision for income taxes 2.3 1.6 2.3 1.5
----- ----- ----- -----
Net income 20.3 14.7 20.8 13.3
===== ===== ===== =====
</TABLE>
NET SALES
Net sales for the second quarter of fiscal 1997 were $48.2 million, an increase
of $9.9 million or 26.1% from $38.3 million reported for the second quarter of
fiscal 1996. Net sales for the first half of fiscal 1997 were $92.7 million, an
increase of $17.2 million from $75.5 million for the same period of fiscal 1996.
The increase in net sales was due to increases in unit shipments of portable
graphics accelerators. Revenue from portable graphics accelerator products
comprised 93% of the Company's net sales in the second quarter of fiscal 1997,
compared to 87% of net sales in the same quarter of fiscal 1996. The Company
expects the portable computer market to experience a slowdown of 5% to 10% in
the first calendar quarter as compared to the quarter just completed.
Consequently, the Company expects its net sales will decrease in the third
fiscal quarter, in an amount up to 5% to 10%, as compared to the second quarter
of fiscal 1997.
GROSS MARGIN
The gross margin percentage was 46.5% in the second quarter of fiscal 1997,
compared to 39.1% for the second quarter of fiscal 1996. For the first half of
fiscal 1997, the gross margin was 47.2%, compared to 38.8% for the same period
of fiscal 1996. The improvement in gross margin percentage was primarily due to
an improved mix of products, including higher margin portable graphics
accelerators, and declining wafer costs. The Company expects its gross margins
for the
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third quarter will decrease moderately to the mid-40 percent range, due to a
decline in average selling prices, partially offset by expected lower wafer
costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses of $5.7 million in the second quarter of
fiscal 1997 were $0.8 million higher than in the second quarter of fiscal 1996.
The expenditures were approximately 12% of net sales in the second quarter of
fiscal 1997, compared to 13% in the second quarter of fiscal 1996. For the first
half of fiscal 1997, research and development expenses were approximately 11% of
net sales, compared to 13% in the same period of fiscal 1996. Research and
development expenses increased in absolute dollars mainly due to higher
engineering staffing and product prototyping costs. To maintain its present
market position and to expand the markets in which the Company can participate,
the Company expects to increase its investment in hardware and software
engineering, particularly in the areas of 3D graphics, integrated memory, and
MPEG II technology. The Company expects its research and development expenses to
increase in both absolute dollars and as a percentage of net sales during the
next fiscal quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses of $6.9 million in the second
quarter of fiscal 1997 were $1.7 million higher than in the second quarter of
fiscal 1996. Selling, general and administrative expenses were approximately 14%
of net sales in the second quarter of fiscal 1997, compared to 14% in the second
quarter of fiscal 1996. For the first half of fiscal 1997, selling, general and
administrative expenses were approximately 15% of net sales, compared to 13% in
the same period of fiscal 1996. Selling, general and administrative expenses
increased in absolute dollars mainly due to higher commissions paid to sales
representatives as the result of higher sales. The Company expects these
expenses will decline slightly in absolute dollars during the next quarter as
the result of expected lower sales.
INCOME TAXES
The Company provides for income taxes during interim reporting periods based
upon an estimate of the annual effective tax rate at approximately 10%. This
rate is lower than the statutory income tax rate, reflecting the expected
utilization of the Company's net operating loss carryforwards and the change in
valuation allowance for the Company's deferred tax assets. The Company expects
that its effective tax rate will increase to reflect full statutory rates net of
ongoing taxable deductions in fiscal year 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $80.9 million on December
31, 1996, $21.6 million higher than $59.3 million on June 30, 1996. This
increase was primarily attributable to cash generated from operating activities
and proceeds from issuance of stock due to stock option exercises. The increase
was partially offset by a cash deposit to a foundry. Short term investments as
of December 31, 1996 included $6.5 million of AMD Common Stock, the market value
of which increased from $3.5 million at June 30, 1996.
During the first half of fiscal 1997, other assets increased $5.8 million from
$12.5 million on June 30, 1996. The increase was primarily attributable to the
payment of a cash deposit under a foundry capacity agreement. The Company has
foundry agreements with Taiwan Semiconductor Manufacturing Company and Chartered
Semiconductor Manufacturing PTE LTD, which initially required deposits totaling
$43.5 million to be paid by the Company. The Company has made deposits totaling
$19.8 million under these two agreements, and the obligation to pay the
remaining deposits has been reduced by $11.7 million to $12.0 million. The
Company will pay the remaining balance of $12.0 million in two $6.0 million
payments, one in each of calendar years 1997 and 1998. A portion of the deposits
will be recovered over the term of the contracts as rebates or credits against
wafer purchases, and the remainder is expected to be recovered at the expiration
of the agreements.
Pgae 9
<PAGE> 10
The Company's capital requirements consist primarily of financing working
capital items and funding operational activities. The Company has agreements
with three banking institutions for a combined total of $21.0 million in
unsecured lines of credit. These line of credit agreements will expire at
various times from August 1997 through October 1998. There was no borrowing
against these lines of credit as of December 31, 1996. These agreements contain
certain covenants related to financial performance and condition, and the
ability to borrow under such lines is subject to compliance with such covenants.
The Company expects that its existing cash, cash equivalents, short-term
investments, bank lines of credit and funds generated from operations will be
sufficient to meet the Company's capital and operating requirements for at least
the remainder of this fiscal year.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's revenues, gross margin and other operating results have been and
will continue to be affected by a wide variety of factors that could have a
material adverse effect on the Company's operations and business during any
particular period. These factors include: the level of orders that are received
and can be shipped in a quarter, the rescheduling or cancellation of orders by
the Company's customers, gain or loss of any strategic relationships or design
wins with customers, the Company's ability to predict product demand and manage
its inventory, fluctuations in manufacturing yields, the timing of its
customers' qualification of the Company's products from different foundry
suppliers, new product introductions by the Company's competitors, the Company's
ability and timing in introducing new products and technologies, market
acceptance of the Company's and its customers' products, supply constraints and
price or other fluctuations for other components (such as portable display
screens and memory devices) incorporated into its customers' products, pressures
on selling prices, changes in product or customer mix, and the amount and timing
of expenditures for research and development and for selling, general and
administrative functions.
A limited number of customers account for a substantial portion of the Company's
net sales. The proportion of revenues from the Company's largest customer
increased significantly in the first half of fiscal 1997 compared to fiscal
1996. The Company's revenues from any specific customer can fluctuate from
period to period depending on the demand for that customer's computers, market
share gains or decreases, inventory holding strategy for both purchased
components and completed computers, and distribution channel policies. The
Company expects that sales to relatively few customers will account for a high
percentage of its net sales for the foreseeable future. In the event that one or
more of the Company's major customers were to reduce its level of purchases or
cancel and/or substantially reschedule orders for significant quantities of
product, the Company's results of operations could be materially adversely
affected.
The Company relies on obtaining and maintaining design wins for its products
with leading personal computer manufacturers. In the event that the Company's
competitors have or introduce product features and/or performance that are
perceived as valuable by the market but are not in the Company's products, the
Company could lose current design wins or not acquire new design wins. In
addition, other factors such as product development delays, aggressive
competition and intangible factors affecting customer relationships could also
adversely impact design wins. To the extent that the Company is unable to retain
existing design wins or obtain new design wins, particularly with major
customers, there could be a material adverse effect on the Company's business,
financial condition and results of operations.
In order for the Company to remain competitive in the market, the Company must
continuously develop more advanced products. As the Company and/or its
competitors introduce more advanced products, the Company's older product lines
may face a decline in orders which could adversely affect the Company's
revenues. Since the Company purchases its inventory from independent foundries
in advance of its customers orders, the Company also faces the risk of declining
or canceled customer orders on products already built. To the extent that the
Company does not anticipate these changes, the Company could experience
unexpected excess product inventory and/or revenue declines. A reduction of
revenue and/or excess inventory could have a material adverse effect on the
Company's business, financial condition and results of operation.
The Company's business is more dependent than it has been in the past on
strategic partnerships and licensing arrangements for certain technologies that
are to be incorporated in the Company's products. To the extent that
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the Company relies on third parties to deliver technologies in a time frame
consistent with the needs of the Company and its customers, factors outside the
Company's control could impact the timing of the Company's introduction and
delivery of new products. Should the Company's time to market with any of its
new products be adversely affected, there could be a material adverse impact on
the Company's business and results of operations.
The Company does not own or operate a wafer fabrication facility, and all of its
semiconductor device requirements are supplied by third party foundries. All of
the Company's semiconductor products are currently assembled and tested by third
party vendors. The Company's reliance on subcontractors to manufacture, assemble
and test its products involves significant risks, including reduced control over
delivery schedules, quality assurance, the availability of advanced process
technologies, manufacturing yields and cost. Delays in delivery of the Company's
products, problems with quality or yields, cost increases and other factors
beyond the Company's control could result in the loss of customers, reductions
in the Company's revenues or margins or other material adverse effects on the
Company's business, financial condition and operating results.
The Company's manufacturing and assembly subcontractors are primarily in Asia.
Many of the Company's customers also manufacture in Asia or subcontract their
manufacturing to Asian companies. The concentration of the Company's
manufacturing and selling activities in Asia poses risks that could adversely
affect demand for and supply of the Company's products, including foreign
currency fluctuations and economic and trade policies which could affect the
relative competitiveness of customers' end products.
During the Company's customers' initial or pre-production phase of
manufacturing, the customer performs its own manufacturing validation and
testing which qualify the Company's products for production use. The Company's
products are extremely complex semiconductor devices. The Company establishes
and implements test specifications and imposes quality standards upon its
suppliers and also performs separate application-based compatibility and system
testing for its products. However, customers may discover defects in the
Company's products related to their particular applications. To the extent that
the Company is unable to remedy defects or provide product that meets its
customers' manufacturing qualification requirements, the Company may experience
lower revenues and excess inventories which could have an adverse effect on the
Company's results of operations.
The PC semiconductor market is generally characterized by price declines over
time as new competitors enter and as new semiconductor process technologies
enable lower cost manufacturing. In addition, rapid price declines may occur
when current supply exceeds demand. As the leading supplier of graphics
controllers to the portable computer market, the Company expects to experience
increased price competition, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
expects its competitors to aggressively price alternative solutions to attempt
to gain or maintain market share. To the extent that the Company must reduce
prices to meet competition, maintain market share or meet customer requirements,
the gross margin percentages will be adversely impacted.
The current market for third party wafer production is characterized by ample
capacity and aggressive price reductions on 0.6u and 0.5u wafers. While the
Company has secured price reductions, there can be no assurance such reductions
are equivalent to those achieved by competitors. To the extent that the
Company's competitors are able to achieve greater cost reductions than those the
Company can achieve, that could adversely affect the Company's competitive
position.
During the first half of fiscal 1997, 93% of the Company's sales were of
portable graphics accelerators. The Company expects that the vast majority of
its revenues will continue to be from sales of those products during the
remainder of fiscal 1997. While the market for PCs in general and portable
computers in particular has recently experienced substantial growth, the overall
industry has historically been cyclical and seasonal. The first calendar quarter
has traditionally shown a slight downturn in sales, and the Company expects to
see a corresponding 5% to 10% downturn in revenues in its third fiscal quarter.
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PART II - OTHER INFORMATION
<TABLE>
<C> <C> <C>
Item 1. Legal Proceedings Not applicable
Item 2. Changes in Securities Not applicable
Item 3. Defaults upon Senior Securities Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders of Chips and
Technologies, Inc. was held on November 7, 1996 in Milpitas,
California. 17,726,200 shares of common stock or 85.9% of the
total outstanding shares were present or represented by
proxies at the meeting. The matters voted upon at the meeting
and the results of those votes were as follows:
1. Election of two class III directors, Jim Stafford and Henri
Jarrat. Mr. Stafford received 17,273,786 affirmative votes and 452,434
votes were withheld. Mr. Jarrat received 17,270,951 affirmative votes
and 455,269 votes were withheld.
2. Approval of increase in the share reserve under the 1994 stock
option plan by 1,000,000 shares. The proposal received 13,723,032
affirmative votes, 3,346,510 negative votes and 104,179 abstentions.
The brokers' non-vote totaled 552,499.
3. Appointment of Price Waterhouse LLP as the independent accountants
of the Company. The proposal received 17,652,283 affirmative votes,
29,782 negative votes and 44,155 abstentions.
Item 5. Other Information Not applicable
Item 6. Exhibits - The exhibits listed in the Exhibit Index set forth on page 14
page 14 of this report are incorporated herein by reference.
Reports on Form 8-K Not applicable
</TABLE>
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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.
CHIPS AND TECHNOLOGIES, INC.
(Registrant)
/s/ James F. Stafford
---------------------------------------
James F. Stafford
President & Chief Executive Officer
/s/ Timothy R. Christoffersen
---------------------------------------
Timothy R. Christoffersen
Vice President of Finance
Chief Financial Officer and
Principal Accounting Officer
Date: February 3, 1997
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C>
3.1 (1) Amended Certificate of Incorporation of Chips and Technologies,
Inc.
3.2 (2) Restated By-laws of Chips and Technologies, Inc.
4.1 (3) Stockholders' Rights Agreement dated August 23, 1989.
10.1 (6) * First Amended 1988 Nonqualified Stock Option Plan for Outside
Directors dated October 1, 1993 (as amended through November
9, 1995) .
10.2 (1) * Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.3 (4) * Promissory note to the Company from Keith Angelo dated August
1, 1994.
10.4 (4) * Independent Contractor Services Agreement between the Company
and Henri Jarrat dated August 11, 1994.
10.5 (6) * Amended and Restated 1994 Stock Option Plan dated November 10,
1994 (as amended through November 9, 1995).
10.6 (5) * Executive Bonus Plan dated September 21, 1995.
10.7 (6) Option Agreement between the Company and Taiwan Semiconductor
Manufacturing Company dated November 6, 1995. (**)
10.8 (6) Deposit Agreement between the Company and Chartered
Semiconductor Manufacturing PTE LTD dated November 16, 1995.
(**)
10.9 Amendment to Deposit Agreement between the Company and
Chartered Semiconductor Manufacturing PTE LTD dated October
17, 1996. (**)
27.0 Financial Data Schedule for the quarter ended December 31, 1996
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 90.
(2) Incorporated by reference to Registration Statement No. 33-8005
effective October 8, 1986.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1989.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended June 30, 1994.
(5) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995.
(6) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the period ended December 31, 1995.
* Denotes management contracts or compensatory plans or arrangements
covering executive officers or directors of Chips and Technologies,
Inc.
** Confidential treatment has been requested for a portion of this
document.
</TABLE>
Page 14
<PAGE> 1
"[ ]" indicates that the
confidential portion has been
omitted and filed separately
with the Commission.
Confidential
Treatment
Requested
Dated this 17th day of October, 1996
Between
CHARTERED SEMICONDUCTOR MANUFACTURING LTD.
AND
CHIPS AND TECHNOLOGIES, INC.
-----------------------------------------------------------------------
AMENDMENT AGREEMENT (NO. 1)
TO
DEPOSIT AGREEMENT DATED 16 NOVEMBER 1995
-----------------------------------------------------------------------
<PAGE> 2
AMENDMENT AGREEMENT (NO. 1)
THIS AMENDMENT AGREEMENT (NO. 1) is made the 17th day of October, 1996, by
and between:
(1) CHARTERED SEMICONDUCTOR MANUFACTURING LTD (formerly known as Chartered
Semiconductor Manufacturing Pte Ltd), a Singapore corporation having a
place of business at 60 Woodlands Industrial Park D, Street 2,
Singapore 738406 ("CSM"); and
(2) CHIPS AND TECHNOLOGIES, INC., a California corporation having a place
of business at 2950 Zanker Road, San Jose, CA 95134, United States of
America ("Customer").
WHEREAS
(A) CSM and Customer had entered into a Deposit Agreement dated 16 November
1995 (the "Deposit Agreement") for the purpose of Customer depositing
certain funds with CSM and to procure CSM to make available to Customer
certain wafer manufacturing capacity.
(B) CSM and Customer hereto are entering into this Amendment Agreement to
vary the Deposit Agreement with effect from the date hereof.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
1. INTERPRETATION
All terms and references used in the Deposit Agreement and which are
defined or construed in the Deposit Agreement but are not defined or
construed in this Amendment Agreement shall have the same meaning and
construction in this Amendment Agreement.
2. AMENDMENT TO THE DEPOSIT AGREEMENT
The Parties agree that with effect from the date of this Amendment
Agreement, the Deposit Agreement shall be amended as follows:
1
<PAGE> 3
2.1 Clause 1.3 (The Deposit)
The entire Clause 1.3 shall be deleted in its entirety and
replaced with the following:
"1.3 Upon the expiry of the term of this Agreement or the
earlier termination thereof in accordance with Clause
5 or Clause 6.2, CSM will return to Customer the
Deposit, without interest and subject to any
deductions or refunds made by CSM pursuant to the
terms of this Agreement."
2.2 Clause 2 (CSM Supply Commitment)
The provisions of Clause 2 shall be amended as follows:
i) The word "second" appearing at the end of the fourth
line of Clause 2.1 shall be deleted and the word
"third" substituted therefor.
ii) The word "Clause 8.6" appearing at the third line of
Clause 2.4 shall be deleted and the word "Clause 7.6"
substituted therefor.
2.3 Clause 3.3 (Customer Loading Commitment)
Clause 3.3 shall be deleted in its entirety.
2.4 Clause 4 (Liquidated Damages)
The heading 4. and Clauses 4.1, 4.2, 4.3, 4.4 and 4.5 shall be
deleted in their entirety.
2.5 Clause 5 (Set Off and Maintenance of Deposit)
The provisions of Clause 5 shall be amended as follows:
i) by renumbering the heading 5. as "4.".
ii) by deleting Clause 5.1 in its entirety and replacing
it with the following new Clause 4.1:
"4.1 CSM shall be entitled to deduct from and
set-off against the Deposit, any payment
falling due and remaining unpaid by Customer
under the Foundry Agreement."
iii) by deleting Clause 5.2 in its entirety and replacing
it with the following new Clause 4.2:
2
<PAGE> 4
Confidential
Treatment
Requested
"4.2 At the end of each calendar quarter, CSM shall issue
a written notice to Customer stating the amount of
the overdue payments and Customer shall pay the
relevant sum to CSM within 30 days of the date of
such notice, so as to maintain the Deposit at
US$20,000,000.00 less the amounts that may have been
refunded by CSM to Customer pursuant to Clause 4.4 or
Clause 4.5 below."
iv) by renumbering Clause 5.3 as Clause "4.3"; by deleting the
word "Clause 5.2" appearing in the first line and substituting
the word "Clause 4.2" therefor; and by deleting the words
"liquidated damages and/or" appearing in the second line.
v) by inserting the following new Clauses 4.4 and 4.5:
"4.4 From the period:
(a) [ ] provided that (i) the
Customer Actual Loading quantity for each
calendar year is equal to the quantity for
such calendar year specified in Annex B (the
"Customer Loading Commitment"), AND (ii)
Customer pays the Deposit installment(s) in
accordance with the Payment Schedule set out
in Annex A, then CSM will [ ]
Customer the [ ] on [
] of the year in which Customer has
fulfilled both conditions stated in Clause
4.4(a)(i) and (ii) above.
By way of illustration, if Customer (i)
purchases the quantities for [ ]
as specified in Annex B and (ii) pays the
Deposit installment of [ ] on
[ ], then CSM will [ ] Customer
on [ ].
(b) [ ] to the expiry of this
Agreement or to such time as the Deposit
balance is reduced to zero (whichever is
earlier), provided that (i) the Customer
Actual Loading quantity for each calendar
year is equal to the quantity for such
calendar year specified in Annex B (the
"Customer Loading Commitment"), AND (ii)
Customer has paid the Deposit installment(s)
in accordance with the Payment Schedule set
out in
3
<PAGE> 5
Confidential
Treatment
Requested
Annex A, then CSM will [ ] Customer
the [ ] on [ ] of the year
in which Customer has fulfilled both
conditions stated in Clause 4.4(b)(i) and
(ii) above.
By way of illustration, if Customer (i)
purchases the quantities for [ ] as
specified in Annex B and (ii) has paid the
Deposit installments of [ ] each on
[ ], then CSM will [
] Customer on [ ].
4.5 From the period:
(a) [ ], provided that (i) the
Customer Actual Loading quantity for each
calendar year exceeds the quantity specified
in Annex B (the "Customer Loading
Commitment") for such calendar year by
[ ] or more, AND (ii)
Customer pays the Deposit installment(s) in
accordance with the Payment Schedule set out
in Annex A, then CSM will [ ]
Customer the [ ] on
[ ] of the year in which Customer
has fulfilled both conditions stated in
Clause 4.5(a)(i) and (ii) above.
By way of illustration, if Customer (i)
purchases [ ] or more of the
quantities for [ ] as specified
in Annex B and (ii) pays the Deposit
installment of [ ] on
[ ], then CSM will [ ]
Customer on [ ].
(b) [ ] to the expiry of this
Agreement or to such time as the Deposit
balance is reduced to zero (whichever is
earlier), provided that (i) the Customer
Actual Loading quantity for each calendar
year exceeds the quantity specified in Annex
B (the "Customer Loading Commitment") for
such calendar year by [ ] or
more, AND (ii) Customer has paid the Deposit
installment(s) in accordance with the
Payment Schedule set out in Annex A, then
CSM will [ ] Customer the
[ ] on [ ]
of the year in which Customer has
4
<PAGE> 6
fulfilled both conditions stated in Clause
4.5(b)(i) and (ii) above.
5
<PAGE> 7
Confidential
Treatment
Requested
By way of illustration, if Customer (i)
purchases [ ] or more of the
quantities for [ ] as specified
in Annex B and (ii) has paid the Deposit
installments of [ ] each on
[ ], then CSM will
[ ] Customer on
[ ]."
2.6 Clause 6 (Term and Termination)
The provisions of Clause 6 shall be amended as follows:
i) by renumbering the heading 6. as "5.".
ii) by renumbering Clause 6.1 as Clause "5.1"; and by
deleting the word "termination" appearing in the
second line and substituting the word "terminated"
therefor.
iii) By deleting the word "Clause 5.2" appearing in the
third line of subclause 6.1(a) and substituting the
word "Clause 4.2" therefor.
iv) By renumbering Clause 6.2 as Clause "5.2"; and by
deleting the word "Clause 6.1" appearing in the first
line and substituting the word "Clause 5.1" therefor.
2.7 Clause 7 (Force Majeure)
i) The heading 7. and Clause 7.1 shall be renumbered as
"6." and Clause "6.1" respectively.
ii) Clause 7.2 shall be renumbered as Clause "6.2"; and
the word "Clause 7" appearing in the first line shall
be deleted and the word "Clause 6" substituted
therefor.
2.8 Clause 8 (Warranty and Indemnity)
i) The heading 8. and Clause 8.1 shall be renumbered as
"7." and Clause "7.1" respectively.
ii) Clause 8.2 shall be renumbered as Clause "7.2"; and
the word "Clause 8.4" appearing in the first line
shall be deleted and the word "Clause 7.4"
substituted therefor.
6
<PAGE> 8
iii) Clauses 8.3, 8.4, 8.5 and 8.6 shall be renumbered as
Clauses "7.3", "7.4", "7.5" and "7.6" respectively.
2.9 Clause 9 (Confidentiality)
The heading 9. and Clauses 9.1, 9.2 and 9.3 shall be
renumbered as "8.", and Clauses "8.1", "8.2" and "8.3"
respectively.
2.10 Clause 10 (Notices)
By amending Clause 10 as follows:
i) By renumbering the heading 10. as "9.".
ii) By renumbering Clause 10.1 as Clause "9.1" and by
deleting the address and facsimile number for CSM in
its entirety and replacing it with the following:
"CSM
60 Woodlands Industrial Park D, Street 2
Singapore 738406
Facsimile no: (65) 3622908
Attn: Mr. Tan Bock Seng
President"
iii) By renumbering Clause 10.2 as Clause "9.2".
2.11 Clause 11 (Waiver and Remedies)
The heading 11. and Clauses 11.1 and 11.2 shall be renumbered
as "10.", Clauses "10.1" and "10.2" respectively.
2.12 Clause 12 (Severance)
The heading 12. shall be renumbered as "11.".
2.13 Clause 13 (Entire Agreement)
The heading 13. shall be renumbered as "12.".
2.14 Clause 14 (Governing Law)
The heading 14. shall be renumbered as "13.".
7
<PAGE> 9
2.15 Clause 15 (Renewal Option)
The heading 15. shall be renumbered as "14.".
3. SAVING AND INCORPORATION
3.1 Save as expressly amended by this Amendment Agreement, the
terms and conditions of the Deposit Agreement shall continue
to be in full force and effect in all other respects.
3.2 The Deposit Agreement and this Amendment Agreement shall be
construed as one document and this Amendment Agreement shall
be deemed to be part of the Deposit Agreement. Where the
context so permits, references in the Deposit Agreement and in
this Amendment Agreement to "the Deposit Agreement" or "this
Agreement" shall be read and construed as references to the
Deposit Agreement as amended and supplemented by this
Amendment Agreement.
4. GOVERNING LAW
This Amendment Agreement shall be governed by and construed in
accordance with the laws of Singapore. The parties hereby irrevocably
submit to the nonexclusive jurisdiction of the courts of Singapore.
IN WITNESS WHEREOF the Parties have hereunto entered into this Agreement the
date first above written.
Signed by Tan Bock Seng, President )
CHARTERED SEMICONDUCTOR )
MANUFACTURING LTD )
in the presence of: )_______________________
Name:
Signed by_____________________________ )
CHIPS AND TECHNOLOGIES, INC. )
in the presence of: )________________________
WITNESS:
______________________________________
Name:
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the second
quarter of fiscal 1997 10Q financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 32,981
<SECURITIES> 47,888
<RECEIVABLES> 12,711
<ALLOWANCES> 1,394
<INVENTORY> 14,929
<CURRENT-ASSETS> 111,171
<PP&E> 40,062
<DEPRECIATION> 27,213
<TOTAL-ASSETS> 142,399
<CURRENT-LIABILITIES> 28,351
<BONDS> 0
0
0
<COMMON> 85,293
<OTHER-SE> 27,929
<TOTAL-LIABILITY-AND-EQUITY> 142,399
<SALES> 48,231
<TOTAL-REVENUES> 48,231
<CGS> 25,782
<TOTAL-COSTS> 25,782
<OTHER-EXPENSES> 12,583
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> 10,898
<INCOME-TAX> 1,090
<INCOME-CONTINUING> 9,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,808
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
