UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended July 1, 1995
Commission file Number 0-17795
CIRRUS LOGIC, INC.
(Exact name of registrant as specified in its charter.)
CALIFORNIA 77-0024818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 West Warren Avenue, Fremont, CA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(510) 623-8300
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 [ ]
The number of shares of the registrant's common stock, no par value, was
62,114,476 as of July 1, 1995. (On June 1, 1995, the Board of Directors
approved a two-for-one split of the Company's Common Stock. Shareholders of
record as of June 19, 1995 received certificates reflecting the
additional shares. These certificates were distributed on July 17, 1995.
All references to the number of shares of Common Stock, warrants and
options to purchase shares of Common Stock, weighted average common and
common equivalent shares outstanding, and share prices have been restated to
reflect the two-for-one split.)
<PAGE>
<TABLE>
Part 1. Financial Information
Item 1. Financial Statements
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Quarter Ended
July 1, July 2,
1995 1994
--------- ---------
<S> <C> <C>
Net sales $300,269 $184,997
Costs and expenses:
Cost of sales 177,689 96,627
Research and development 53,950 38,030
Selling, general and administrative 38,064 28,914
--------- ---------
Total costs and expenses 269,703 163,571
Income from operations 30,566 21,426
Interest and other income, net 2,626 1,424
--------- ---------
Income before provision for income taxes 33,192 22,850
Provision for income taxes 10,455 7,275
--------- ---------
Net income $22,737 $15,575
========= =========
Net income per common and common equivalent share $0.34 $0.24
========= =========
Weighted average common and common
equivalent shares outstanding 67,775 63,740
========= =========
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<CAPTION>
July 1, April 1,
1995 1995
(Unaudited)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $127,528 $106,882
Short-term investments 67,430 80,144
Accounts receivable, net 194,035 161,333
Inventories 124,054 103,642
Other current assets 82,089 27,931
--------- ---------
Total current assets 595,136 479,932
Property and equipment, net 120,476 100,244
Joint venture manufacturing agreement, net 49,449 49,935
Investment in joint venture 13,800 13,800
Deposits and other assets 31,793 29,623
--------- ---------
$810,654 $673,534
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Short-term borrowing $41,000 $ -
Accounts payable and accrued liabilities 221,807 162,002
Accrued salaries and benefits 20,566 32,508
Obligations under equipment loans and
capital leases, current portion 11,543 11,481
Income taxes payable 25,888 22,322
--------- ---------
Total current liabilities 320,804 228,313
Obligations under equipment loans and
capital leases, non-current 29,572 26,205
Commitments and contingencies
Shareholders' equity:
Capital stock 302,266 283,741
Retained earnings 158,012 135,275
--------- ---------
Total shareholders' equity 460,278 419,016
--------- ---------
$810,654 $673,534
========= =========
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
-- Quarter Ended --
July 1, July 2,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operations:
Net income $22,737 $15,575
Adjustments to reconcile net income to net
cash flows from operations:
Depreciation and amortization 12,752 7,957
Net change in operating assets and liabilities (49,867) (5,387)
--------- ---------
Net cash flows (used) provided by operations (14,378) 18,145
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments (51,817) (46,484)
Proceeds from sale of short-term investments 64,531 49,974
Additions to property and equipment (29,037) (12,874)
Increase in deposits and other assets (5,588) (6,582)
--------- ---------
Net cash flows used by investing activities (21,911) (15,966)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 12,506 3,258
Short-term borrowing 41,000 -
Borrowings on equipment loans 6,888 3,510
Principal payments on capital leases and loans (3,459) (2,619)
--------- ---------
Net cash flows provided by financing activities 56,935 4,149
--------- ---------
Increase in cash and cash equivalents 20,646 6,328
Cash and cash equivalents - beginning of period 106,882 193,825
--------- ---------
Cash and cash equivalents - end of period $127,528 $200,153
========= =========
Supplemental disclosure of cash flow information:
Interest paid $592 $548
Income taxes paid $872 $2,797
Tax benefit of stock option exercises $5,976 $ -
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
CIRRUS LOGIC, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The Consolidated Condensed 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 the Company, the financial
statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the
financial position, operating results and cash flows for those
periods presented. These consolidated condensed financial
statements should be read in conjunction with the consolidated
financial statements, and notes thereto for the year ended
April 1, 1995, included in the Company's 1995 Annual Report on
Form 10-K. The results of operations for the interim periods
presented are not necessarily indicative of the results that may
be expected for the entire year.
On June 1, 1995, the Board of Directors approved a two-for-one split
of the Company's Common Stock. Shareholders of record as of June 19,
1995 received certificates reflecting the additional shares. These
certificates were distributed on July 17, 1995. All references to the
number of shares of Common Stock, warrants and options to purchase
shares of Common Stock, weighted average common and common equivalent
shares outstanding, and share prices have been restated to reflect the
two-for-one split.
2. Cash Equivalents and Investments
At July 1, 1995, the Company's cash equivalents and short-term
investments consisted primarily of U.S. Government Treasury and
agency securities, commercial paper, auction preferred stock,
municipal bonds and certificates of deposit. Cash equivalents
and short-term investments held at July 1, 1995 approximate fair
market value.
3. Inventories
Inventories are comprised of the following:
July 1, April 2,
1995 1995
--------- ---------
(In thousands)
Work-in-process $ 105,443 $ 84,920
Finished goods 18,611 18,722
--------- ---------
Total $ 124,054 $ 103,642
========= =========
4. Income Taxes
The Company provides for income taxes during interim reporting
periods based upon an estimate of the annual effective tax rate.
Such estimate reflects an effective tax rate lower than the
federal statutory rate primarily because of the research and
development credit and certain foreign operations taxed at lower
rates.
5. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent 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. Dual presentation of primary
and fully diluted earnings per share is not shown on the face of
the income statement because the differences are insignificant.
6. Commitments and Contingencies
Under the terms of the MiCRUS equipment lease agreement, the
Company is jointly and severally liable with IBM to pay an
approximate $145 million lease obligation if MiCRUS does not pay.
Crystal has been named in a suit alleging infringement of a patent
and claiming damages of $4.8 million before trebling. Crystal
has filed a counterclaim alleging infringement of three of its
patents. A jury trial is scheduled to begin later in August 1995,
unless a settlement is reached by the two parties. While the
Company cannot accurately predict the eventual outcome of the
suit, management believes that the likelihood of an outcome
resulting in a material adverse effect on the Company's
consolidated financial position, results of operations, or cash
flows is remote.
On May 7, 1993, the Company was served with two shareholder class
action lawsuits filed in the United States District Court for the
Northern District of California. The lawsuits, which name the
Company and several of its officers and directors as defendants,
allege violations of the federal securities laws in connection
with the announcement by Cirrus Logic of its financial results for
the quarter ended March 31, 1993. The complaints do not specify
the amounts of damages sought. The Company believes that the
allegations of the complaints are without merit, and the Company
intends to vigorously defend itself. The Company believes that
the ultimate resolution of this matter will not have a material
adverse effect on its financial position, results of operations,
or cash flows.
<PAGE>
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This information should be read along with the unaudited
consolidated condensed financial statements and the notes thereto
included in Item 1 of this Quarterly Report and the audited
consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and
Results of Operations for the fiscal year ended April 1, 1995,
contained in the Annual Report to Shareholders. On June 1, 1995,
the Board of Directors approved a two-for-one split of the
Company's Common Stock. Shareholders of record as of June 19,
1995 received certificates reflecting the additional shares.
These certificates were distributed on July 17, 1995. All
references to the number of shares of Common Stock, warrants and
options to purchase shares of Common Stock, weighted average
common and common equivalent shares outstanding, and share prices
have been restated to reflect the two-for-one split.
Results of Operations
The following table discloses the percentages that income
statement items are to net sales and the percentage change in the
dollar amounts for the same items compared to the similar period
in the prior fiscal year.
<TABLE>
<CAPTION>
Percentage of Net Sales
Quarter Ended
-------------------
July 1, July 2, Percent
1995 1994 change
--------- --------- ---------
<S> <C> <C> <C>
Net sales 100% 100% 62%
Gross margin 41% 48% 39%
Research and development 18% 21% 42%
Selling, general and administrative 13% 16% 32%
Income from operations 10% 12% 43%
Income before income taxes 11% 12% 45%
Income taxes 3% 4% 44%
Net income 8% 8% 46%
</TABLE>
Net Sales
Net sales for the first quarter of fiscal 1996 were $300.3
million, an increase of 62% from the $185.0 million reported for
the first quarter of fiscal 1995. The net sales increase in the
first quarter of fiscal 1996 compared to the same period in fiscal
1995 was largely due to an increase in sales of graphics, audio,
mass storage and wireless communications products. Graphics and
mass storage product revenue grew because of an increase in unit
sales to the desktop personal computer market segment. Audio
product sales grew because of an increase in sales of 16-bit audio
codec products. Wireless communications product sales grew
because of Cellular Digital Packet Data (CDPD) base station
installations and wireless communications chips.
For the first quarter of fiscal year 1996, export sales (including
sales to U.S.-based customers with manufacturing plants overseas)
were 61% of total sales compared to 55% for the corresponding
period in fiscal year 1995. The Company's sales are currently
denominated primarily in U.S. dollars. The Company may purchase
hedging instruments to reduce short-term foreign currency exposure
related to trade receivables denominated in foreign currencies.
No customer accounted for 10% or more of sales during the first
quarter of fiscal year 1996 or fiscal year 1995.
Gross Margin
The gross margin was 41% in the first quarter of fiscal year 1996,
compared to 48% for the first quarter of fiscal year 1995. The
decline in the gross margin percentage was mostly the result of
expediting expenses related to premiums paid to suppliers to
increase production of the Company's products, higher wafer costs
caused by the increased use of more expensive suppliers, yield
loss on new products ramping into production, and lower selling
prices on certain graphics and audio parts. Exacerbating the
gross margin decline in the quarter was the insufficient supply of
0.6 micron wafers which made necessary the use of less cost
effective 0.8 micron wafers to meet expanded unit shipments.
Research and Development
Research and development expenditures increased $15.9 million over
the first quarter of fiscal year 1995 to $54.0 million in the
first quarter of fiscal year 1996. The expenditures were
approximately 18% of net sales in the first quarter of fiscal year
1996 compared to 21% in the first quarter of fiscal year 1995.
Expenses increased in absolute amounts as the Company continues to
invest in new product development. The Company intends to continue
making substantial investments in research and development and
expects these expenditures will continue to increase in absolute
amounts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represented
approximately 13% and 16% of net sales in the first quarter of
fiscal year 1996 and 1995, respectively. The absolute spending
increase in fiscal year 1996 reflects increased direct expenses
for the expanding sales force, increased marketing expenses for
promotions and advertising, and increased administrative and legal
expenses. The Company expects these expenses to increase in
absolute terms during the remainder of fiscal year 1996.
Income Taxes
The Company's effective tax rate was 31.5% for the first quarter
of fiscal year 1996, as against 31.8% for the comparable period
in fiscal year 1995. The 31.5% annual effective tax rate for
fiscal year 1996 is less than the U.S. federal statutory rate
primarily because of research and development tax credits and
certain foreign earnings taxed at lower rates.
Liquidity and Capital Resources
During the first quarter of fiscal year 1996, the Company used
approximately $14.4 million of cash and cash equivalents in its
operating activities, compared to generating approximately $18.1
million during the first quarter of fiscal year 1995. The
decrease was primarily caused by the net change in operating
assets and liabilities, offset somewhat by increased income from
operations, and an increase in the non-cash effect of depreciation
and amortization.
During the first quarter of fiscal year 1996, $21.9 million in
cash was used in investing activities compared to $16.0 million
used in investing activities during the same period last fiscal
year. Short-term investments were the principal investing
activities generating or using cash along with additions to
property and equipment.
During the first quarter of fiscal year 1996, $56.9 million in
cash was provided by financing activities compared to $4.1 million
during the same period last fiscal year. Short-term borrowing and
proceeds from the issuance of common stock were the principal
financing activities generating cash. The Company has a bank line
of credit for up to a maximum of $65 million available through
December 1995, at the bank's prime rate. As of July 1, 1995,
$41.0 million was borrowed under the arrangement.
During September 1994, the Company and IBM completed a series of
agreements pertaining to joint manufacturing. In January 1995,
under the terms of the agreements, a new joint venture called
MiCRUS, began manufacturing semiconductor wafers for each parent
company using IBM's submicron wafer processing technology.
Focusing initially on manufacturing CMOS wafers with line widths
in the 0.6 to 0.5 micron range, the joint venture plans to be in
volume production of both IBM and Cirrus Logic products by the end
of fiscal year 1996. IBM and Cirrus Logic own 52% and 48% of
MiCRUS, respectively. The term of the joint venture, initially
set for eight years, may be extended by mutual accord. The
Company has a commitment to purchase 50% of the output of the
facility over the life of the joint venture. Activities of the
joint venture are focused on the manufacture of semiconductor
wafers and do not encompass direct product licensing or product
exchanges between the Company and IBM.
In January 1995, MiCRUS leased approximately $145 million of wafer
fabrication and infrastructure equipment pursuant to a lease with
a third party and guaranteed jointly and severally by the Company
and IBM. In addition, Cirrus Logic expects to provide MiCRUS with
approximately $178 million of additional capital equipment for the
expansion of operations. The Company expects to use lease
financing to fund this expansion. Also, the State of New York has
offered to provide Cirrus Logic with up to $40 million in
long-term loans to fund a portion of the expansion in addition to
low cost power and certain tax abatements for new investment in
the State.
The Company's future capital requirements include financing the
growth of working capital items such as accounts receivable and
inventory, and the purchase of manufacturing and test equipment.
In addition, the Company is continuing to pursue potential
transactions to satisfy its future production requirements,
including equity investments in, loans to or joint ventures with
wafer manufacturing companies and acquisition or construction of
wafer fabrication facilities. The Company has acquired technology
companies in the past and may do so in the future. Such potential
transactions may require substantial capital resources, which may
require the Company to seek additional debt and equity financing.
Future Operating Results
The Company's products are in various stages of their product life
cycles. The Company's success is highly dependent upon its
ability to develop complex new products, to introduce them to the
marketplace ahead of the competition, and to have them selected
for design into products of leading systems manufacturers. These
factors have become increasingly important to the Company's
results of operations because the rate of change in the markets
served by the Company continues to accelerate. Since product life
cycles are continually becoming shorter, revenues may be affected
quickly if new product introductions are delayed. The Company's
gross margins also will depend on the Company's success at
introducing new products quickly and effectively because the gross
margins of semiconductor products decline as competitive products
are introduced. Also, the Company must deliver product to
customers according to customer schedules. If delays occur, then
revenues and gross margins for current and follow-on products may
be affected as customers may shift to competitors to meet their
requirements. There can be no assurance that the Company will
continue to compete successfully because of these factors.
The 2D graphics accelerators have replaced graphics controllers as
the mainstream PC graphics product. The market is now changing to
include accelerated CD ROM video playback along with accelerated
graphics and, eventually, 3D acceleration capability. The Company
is striving to bring products to market for these needs, but there
is no assurance that it will succeed in doing so in a timely
manner. If the market for these products does not develop or is
delayed, or if these products are not brought to the market in a
timely manner or do not address the market needs or cost or
performance requirements, then net sales would be adversely
affected. Currently, the Company continues to experience intense
competition in the sale of graphics products. If competitors are
successful in supplanting the Company's products, the Company's
market share may not be sustainable and net sales, gross margin,
and earnings would be adversely affected.
The Company has a large share of the market for desktop graphics
controllers and graphics accelerators. The Company believes that
it is unlikely to increase its market share further, and that
future growth in revenues from desktop graphics products is likely
only if the size of the market continues to increase or if
competitors fail or are delayed in introducing new products.
Several competitors have recently introduced products and adopted
pricing strategies that have increased competition in the desktop
graphics market and put additional pressure on prices and gross
margins. These factors may adversely affect revenues and gross
margins for graphics accelerator products.
Most of the Company's revenues in the multimedia audio market
derive from sales of 16-bit audio codecs for PCs. However, the
market for these products is currently highly concentrated. Most
purchases of the Company's audio codecs are made by a small number
of add-in card manufacturers that produce after-market sound cards
for PCs. To date, sales of multimedia audio products have been
primarily in the consumer market, which is a smaller and more
volatile segment of the PC market. Future increases in revenues
from these products are likely to depend on the continuing growth
in the use of audio products in consumer and business applications
in the PC industry and selection of the Company's audio products
by more add-in card manufacturers and PC OEMs. If a competitor
succeeded in supplanting the Company's products at any of these
customers, the Company's market share could decline suddenly and
materially.
In the past, the Company's mass storage revenues have been derived
almost exclusively from disk drive controllers. Several major
disk drive customers source or are planning to source some or all
of their disk controller requirements internally. The Company has
recently expanded its line of disk drive products to include
read/write and motion controller chips. Future mass storage
revenues will be heavily dependent on the acceptance and
qualification of new controller chips as well as the read/write
and motion controller chips by the Company's customers. Volume
shipments of motion controller chips are not expected to occur in
the short term because the Company's customers must make a
substantial investment in new software development before they can
use this product.
The disk drive market has historically been characterized by a
relatively small number of disk drive manufacturers and by periods
of rapid growth followed by periods of oversupply and contraction.
As a result, suppliers to the disk drive industry experience
large and sudden fluctuations in product demand. Furthermore, the
price competitive nature of the disk drive industry continues to
put pressure on the price of all disk drive components.
Sales of the Company's CDPD products commenced during the quarter
ended October 1, 1994, but the growth of the business remains
dependent on various factors, many of which are outside the
Company's control. The Company's subsidiary, PCSI, is investing
heavily in research and development and is now manufacturing and
selling CDPD base stations to carriers to provide the
communication infrastructure in anticipation of a developing
market for the use of CDPD technology. If the CDPD market does
not develop, then future net sales, gross margin, and earnings
would be adversely affected.
Sales of digital cordless phone products, which were developed by
PCSI for the Japanese market, will depend upon the establishment
of infrastructure and services which are beyond PCSI's control.
All sales will be conducted through the Company's Japanese
marketing partners, which will limit the Company's gross margins
for its digital cordless products.
As is common in the computer industry, the Company frequently
ships more product in the third month of each quarter than in
either of the first two months of the quarter, and shipments in
the third month are higher at the end of that month. This pattern
is likely to continue. The concentration of sales in the last
month of the quarter may cause the Company's quarterly results of
operations to be more difficult to predict. Moreover, if
sufficient turns business does not materialize or a disruption in
the Company's production or shipping occurs near the end of a
quarter, the Company's revenues for that quarter could be
materially reduced.
The Company must order wafers and build inventory well in advance
of product shipments. There is a risk that the Company will
forecast incorrectly and produce excess or insufficient
inventories of particular products because the Company's markets
are volatile and subject to rapid technology and price changes.
This inventory risk is heightened because certain of the Company's
customers place orders with short lead times and because sales to
these customers have increased as a percentage of total sales. To
the extent the Company produces excess or insufficient inventories
of particular products, the Company's revenues and earnings could
be adversely affected.
Most of the Company's wafers currently are manufactured to the
Company's specifications by outside suppliers. The Company uses
other outside vendors to package the wafer die into integrated
circuits, and the Company tests most of its semiconductor products
at its Fremont, California and Austin, Texas facilities. The
Company's reliance on third party suppliers involves several
risks, including the absence of adequate guaranteed capacity, the
possible unavailability of or delays in obtaining access to
certain process technologies, and reduced control over delivery
schedules, manufacturing yields and costs. The Company may be
particularly sensitive to these risks because its wafer suppliers
are currently producing at or near their full scheduled capacity.
The Company's results of operations could be adversely affected if
new suppliers are not qualified in time to meet production
requirements or if particular suppliers are unable to provide a
sufficient and timely supply of product, whether because of
capacity constraints, unexpected disruptions at the plants, or
other reasons, or if the Company is forced to purchase wafers from
higher cost foundries or to pay expediting charges to obtain
additional supply, or if the Company's test facilities were
disrupted for an extended period of time. Certain of the
Company's products are manufactured using 0.8 and 0.6-micron CMOS
process technologies. Industry demand for these process
technologies is strong and, continuing through fiscal year 1996,
the Company believes that there is a shortage of manufacturing
capacity to produce wafers using these processes. In addition,
the Company believes there is a shortage of assembly capacity for
packaging wafer die. Since the Company does not have guaranteed
manufacturing commitments from most vendors, there is a risk that
these vendors could suddenly decide not to supply wafers or
package die. Because of this supply shortage, there is an
increased risk that certain products will not be readily available
for sale according to customer schedules and a risk that the
Company's wafer cost will increase. Net sales and gross margin
could be adversely affected by the supply shortage, which could be
exacerbated if vendors encounter delivery problems. The Company's
results of operations also could be adversely affected if the
Company's suppliers are subject to injunctions arising from
alleged violations of third party intellectual property rights.
The enforcement of such an injunction could impede a supplier's
ability to provide wafers to the Company.
The Company is contractually committed to purchase one-half of the
wafers produced by MiCRUS. If MiCRUS is able to produce wafers at
or below prices generally prevalent in the market, the Company
will benefit. If, however, MiCRUS is not able to produce wafers at
competitive prices, the Company's results of operations will be
correspondingly affected. The ramp-up of such a large operation
inevitably involves risks, and there can be no assurance that
MiCRUS' manufacturing costs will be competitive.
As a party to the MiCRUS joint venture, the Company also will
share in the risks encountered by wafer manufacturers generally,
including timely development of products using the manufacturing
technology, unexpected disruptions to the manufacturing process,
the difficulty of maintaining quality and consistency,
particularly at the smaller submicron levels, dependence on
equipment suppliers, high capital costs, environmental hazards and
regulation, and technological obsolescence.
In order to obtain an adequate supply of wafers, the Company has
considered and will continue to consider various possible
transactions, including the increased use of "take or pay"
contracts that commit the Company to purchase specified quantities
of wafers over extended periods, equity investments in or loans to
wafer manufacturing companies in exchange for guaranteed
production, the formation of joint ventures to own and operate
wafer manufacturing facilities and the acquisition or construction
of wafer fabrication facilities.
During September 1993, the Company entered into a 3-year volume
purchase agreement with a wafer vendor. Under the terms of the
agreement, the Company must purchase certain minimum quantities of
wafers. If the Company does not purchase these minimum
quantities, it may be required to pay a reduced amount for any
shortfall not sold by the vendor to other customers.
The Company and certain of its customers from time to time have
been notified that they may be infringing certain patents and
other intellectual property rights of others. Because successive
generations of the Company's products tend to offer an increasing
number of functions, there is a likelihood that more of these
claims will occur as the products become more highly integrated.
Further, customers have been named in suits alleging infringement
of patents by customer products. Certain components of these
products have been purchased from the Company and may be subject
to indemnification provisions made by the Company to the
customers. The Company has not been named in any such suits.
Although licenses are generally offered in such situations, there
can be no assurance that litigation will not be commenced in the
future regarding patents, mask works, copyrights, trademarks,
trade secrets, or indemnification liability, or that any licenses
or other rights can be obtained on acceptable terms.
Crystal Semiconductor has been named in a suit alleging
infringement of a patent and claiming damages of $4.8 million
before trebling. Crystal has filed a counterclaim alleging
infringement of three of its patents. A jury trial is scheduled
to begin later in August 1995, unless a settlement is reached by
the two parties.
While the Company cannot accurately predict the eventual outcome
of the suit or other alleged infringement matters mentioned above,
management believes that the likelihood of an outcome resulting in
a material adverse effect on the Company's consolidated financial
position, results of operations, or cash flows is remote. Should
an unfavorable outcome occur, it could have an adverse effect on
the Company's future operations and/or liquidity. Also, efforts
of defending the Company against future lawsuits, if any, would
use cash and management resources.
Sales of the Company's products depend largely on sales of PCs.
The Company believes that a slowdown in sales in the PC market
would adversely affect the Company's sales and earnings. The
growth in the PC market was exceptionally strong during fiscal
year 1995 and the first quarter of fiscal year 1996. This growth
has created a strong demand for the Company's products. However,
should the PC market decline or experience slower growth, then a
decline in the order rate for the Company's products could occur
during a period of inventory correction by the PC and peripheral
device manufacturers. This could result in a decline in revenue
or a slower rate of revenue growth during the inventory correction
period. The Company could likewise experience a concomitant
decrease in gross margin and operating profit. A downturn in the
PC market could also affect the financial health of some of the
Company's customers, which could affect the Company's ability to
collect outstanding accounts receivable from these customers.
Furthermore, the intense price competition in the PC industry is
expected to continue to put pressure on the price of all PC
components.
Because most of the Company's subcontractors are located in Japan
and other Asian countries, the Company's business is subject to
risks associated with many factors beyond its control, such as
fluctuation in foreign currency rates, instability of foreign
economies and governments, and changes in U.S. and foreign laws
and policies affecting trade and investment. Although the Company
buys limited amounts of hedging instruments to reduce its exposure
to currency exchange rate fluctuations, the Company's competitive
position can be affected by the exchange rate of the U.S. dollar
against other currencies, particularly the yen.
The semiconductor and communication technologies industries are
intensely competitive and are characterized by price erosion and
rapid technological change. Competitors consist of major domestic
and international companies, many of which have substantially
greater financial and other resources than the Company with which
to pursue engineering, manufacturing, marketing and distribution
of their products. Emerging companies are also increasing their
participation in the market, as well as customers who develop
their own integrated circuit products. The ability of the Company
to compete successfully in the rapidly evolving area of
high-performance integrated circuit technology depends
significantly on factors both within and outside of its control,
including but not limited to, success in designing, manufacturing
and marketing new products, protection of Company products by
effective utilization of intellectual property laws, product
quality, reliability, ease of use, price, diversity of product
line, efficiency of production, the pace at which customers
incorporate the Company's integrated circuits into their products,
success of the customers' products and general economic
conditions. Also, the Company's future success will depend, in
part, on its ability to continue to retain, attract and motivate
highly qualified personnel. Because of this and other factors,
past results may not be a useful predictor of future results.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On August 1, 1995, the Company held its Annual Meeting of
Shareholders. The matters voted upon at the meeting and the
results of those votes were as follows:
1. Election of Directors:
Votes
Votes For Withheld
---------- --------
Michael L. Hackworth 55,586,166 73,750
Suhas S. Patil 55,584,214 75,702
C. Gordon Bell 55,587,124 72,792
D. James Guzy 55,574,996 84,920
David L. Lyon 55,583,250 76,666
C. Woodrow Rea, Jr. 55,584,486 75,430
Walden C. Rhines 55,586,914 73,002
Robert H. Smith 55,583,946 75,970
2. Approve amendment to the 1989 Employee Stock Purchase Plan:
For Against Abstain No Vote
---------- ------- ------- -------
54,569,812 917,830 108,668 63,606
3. Approve amendment to the 1987 Stock Option Plan:
For Against Abstain No Vote
---------- ---------- ------- -------
39,763,236 15,706,220 126,854 63,606
4. Approve amendment to the 1990 Directors' Stock Option Plan:
For Against Abstain No Vote
---------- ---------- ------- -------
42,643,628 12,777,080 175,602 63,606
5. Approve the Company's Executive Variable Compensation Plan:
For Against Abstain No Vote
---------- --------- ------- -------
53,454,876 1,414,922 172,256 617,862
6. Approve appointment of Ernst & Young LLP as Auditors:
For Against Abstain No Vote
---------- ------- ------- -------
55,520,170 42,462 97,284 -
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11. Statement re: Computation of Earnings
per share
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
None.
<PAGE>
CIRRUS LOGIC, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange
Act of 1934, the registrant has duly cause this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
CIRRUS LOGIC, INC.
(Registrant)
August 15, 1995 /s/ Sam S. Srinivasan
Date Sam S. Srinivasan
Senior Vice President, Finance and
Administration, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)
August 15, 1995 /s/ Michael L. Hackworth
Date Michael L. Hackworth
President, Chief Executive Officer
and Director (Principal Executive Officer)
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
Part II. Other information, Item 6a.
Exhibit 11
CIRRUS LOGIC, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<CAPTION>
Quarter Ended
July 1, July 2,
1995 1994
--------- ---------
<S> <C> <C>
Primary:
Weighted average shares outstanding 61,258 59,268
Dilutive common stock equivalents:
Common stock options, using treasury stock
or modified treasury stock method 6,494 4,464
Common stock warrants, using treasury
stock or modified treasury stock method 23 8
--------- ---------
Common and common equivalent shares used in
the calculation of net income per share 67,775 63,740
========= =========
Net income $22,737 $15,575
========= =========
Earnings per share $0.34 $0.24
========= =========
Fully diluted:
Weighted average shares outstanding 61,258 59,268
Dilutive common stock equivalents:
Common stock options, using treasury stock
or modified treasury stock method 7,471 4,464
Common stock warrants, using treasury
stock or modified treasury stock method 27 8
--------- ---------
Common and common equivalent shares used in
the calculation of net income per share 68,756 63,740
========= =========
Net income $22,737 $15,575
========= =========
Earnings per share $0.33 $0.24
========= =========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Mar-30-1996
<PERIOD-START> Apr-02-1995
<PERIOD-END> Jul-01-1995
<PERIOD-TYPE> 3-MOS
<CASH> 127,528
<SECURITIES> 67,430
<RECEIVABLES> 194,035
<ALLOWANCES> 0
<INVENTORY> 124,054
<CURRENT-ASSETS> 595,136
<PP&E> 120,476
<DEPRECIATION> 0
<TOTAL-ASSETS> 810,654
<CURRENT-LIABILITIES> 320,804
<BONDS> 0
0
0
<COMMON> 302,266
<OTHER-SE> 158,012
<TOTAL-LIABILITY-AND-EQUITY> 810,654
<SALES> 300,269
<TOTAL-REVENUES> 300,269
<CGS> 177,689
<TOTAL-COSTS> 177,689
<OTHER-EXPENSES> 92,014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,192
<INCOME-TAX> 10,455
<INCOME-CONTINUING> 22,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,737
<EPS-PRIMARY> $0.34
<EPS-DILUTED> $0.34
</TABLE>
