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 September 28, 1996
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
64,957,178 as of September 28, 1996.
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<TABLE>
Part 1. Financial Information
Item 1. Financial Statements
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Quarter Ended Two Quarters Ended
------------------- --------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $236,030 $317,820 $450,928 $618,089
Costs and expenses and gain on sale of assets:
Cost of sales 145,870 176,494 278,277 354,183
Research and development 58,491 54,540 119,709 108,490
Selling, general and administrative 30,892 38,365 61,460 76,429
Gain on sale of assets (6,913) - (6,913) -
--------- --------- ---------- ---------
Total costs and expenses and gain on sale of assets 228,340 269,399 452,533 539,102
--------- --------- ---------- ---------
Income (loss) from operations 7,690 48,421 (1,605) 78,987
Interest and other (expense) income, net (3,496) (193) (4,837) 2,433
--------- --------- ---------- ---------
Income (loss) before provision (benefit) for income taxes 4,194 48,228 (6,442) 81,420
Provision (benefit) for income taxes 1,196 15,191 (1,835) 25,646
--------- --------- ---------- ---------
Net income (loss) $2,998 $33,037 ($4,607) $55,774
========= ========= ========== =========
Net income (loss) per common and common equivalent share $0.05 $0.47 ($0.07) $0.80
========= ========= ========== =========
Weighted average common and common
equivalent shares outstanding 64,776 70,997 64,468 69,386
========= ========= ========== =========
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
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<TABLE>
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<CAPTION>
Sept. 28, March 30,
1996 1996
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $53,661 $155,979
Short-term investments 12,219 19,279
Accounts receivable, net 139,051 133,718
Inventories 142,089 134,502
Deferred tax assets 52,662 52,662
Payments for joint venture equipment to be leased 182,688 94,683
Other current assets 1,615 4,004
--------- ---------
Total current assets 583,985 594,827
Property and equipment, net 161,416 170,248
Joint venture manufacturing agreements, net
and investment in joint ventures 131,178 104,463
Deposits and other assets 42,252 48,039
--------- ---------
$918,831 $917,577
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Short-term borrowing $90,000 $80,000
Accounts payable and accrued liabilities 228,815 242,901
Accrued salaries and benefits 28,332 41,845
Obligations under equipment loans and
capital leases, current portion 28,242 26,575
Income taxes payable 34,998 20,863
--------- ---------
Total current liabilities 410,387 412,184
Obligations under equipment loans and
capital leases, non-current 68,129 71,829
Other long-term 4,961 4,898
Commitments and contingencies
Shareholders' equity:
Capital stock 340,869 329,574
Retained earnings 94,485 99,092
--------- ---------
Total shareholders' equity 435,354 428,666
--------- ---------
$918,831 $917,577
========= =========
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
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<TABLE>
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Two Quarters Ended
-------------------
Sept. 28, Sept. 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operations:
Net (loss) income ($4,607) $55,774
Adjustments to reconcile net (loss) income to net
cash flows from operations:
Depreciation and amortization 44,352 27,627
Net change in operating assets and liabilities (110,620) (69,542)
--------- ---------
Net cash flows (used) provided by operations (70,875) 13,859
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments (2,008) (181,692)
Proceeds from sale of short-term investments 9,068 213,800
Additions to property and equipment (11,269) (64,521)
Joint venture manufacturing agreements and
investment in joint ventures (29,000) -
Increase in deposits and other assets (5,595) (12,924)
--------- ---------
Net cash flows used by investing activities (38,804) (45,337)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 9,667 21,948
Borrowings on short-term debt 162,000 41,000
Payments on short-term debt (152,000) (41,000)
Borrowings on long-term debt 1,596 23,615
Payments on long-term debt and capital lease obligations (14,185) (6,257)
Increase in other long-term liabilities 283 -
--------- ---------
Net cash flows provided by financing activities 7,361 39,306
--------- ---------
(Decrease) increase in cash and cash equivalents (102,318) 7,828
Cash and cash equivalents - beginning of period 155,979 66,718
--------- ---------
Cash and cash equivalents - end of period $53,661 $74,546
========= =========
Supplemental disclosure of cash flow information:
Interest paid $4,531 $1,586
Income taxes (refunded) paid ($17,351) $15,769
Equipment purchased under capitalized leases $10,556 $594
Tax benefit of stock option exercises $1,380 $14,692
<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 March 30, 1996, included in the Company's 1996
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.
2. Inventories
Inventories are comprised of the following:
Sept. 28, March 30,
1996 1996
--------- ---------
(In thousands)
Work-in-process $ 102,290 $ 69,244
Finished goods 39,799 65,258
--------- ---------
Total $ 142,089 $ 134,502
========= =========
3. Gain on Sale of Assets
During August 1996, the Company completed the sale of the PicoPower product
line to National Semiconductor, Inc. In connection with the transaction, the
Company recorded a gain of approximately $6.9 million.
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
foreign operating results which are taxed at rates other than the U.S.
statutory rate, federal and state research tax credits, and state investment
tax credits.
5. Net Income (Loss) Per Common and Common Equivalent Share
Net income (loss) 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 when
appropriate. 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
As of September 28, 1996, the Company is contingently liable for MiCRUS
equipment leases which have remaining payments of approximately $325 million,
payable through fiscal 2002.
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
complaint are without merit, and the Company intends to defend itself
vigorously. The Company believes the likelihood is remote that the ultimate
resolution of this matter will have a material adverse effect on its financial
position, results of operations or cash flows.
Between November 7 and November 21, 1995, five shareholder class action
lawsuits were filed in the United States District Court for the Northern
District of California against the Company and several of its officers and
directors. A consolidated amended complaint was filed on February 20, 1996 and
an amended consolidated supplemental complaint was filed on May 3, 1996. This
complaint alleges that certain statements made by defendants during the period
from July 23, 1995 through December 21, 1995 were false and misleading and in
violation of the federal securities laws. The complaint does not specify the
amounts of damages sought. The Company believes that the allegations of the
complaint are without merit, and the Company intends to defend itself
vigorously. The Company believes the likelihood is remote that the ultimate
resolution of this matter will have a material adverse effect on its financial
position, results of operations or cash flows.
On February 21, 1996, a shareholder class action lawsuit was filed in the
Superior Court of California in and for the County of Alameda against the
Company and numerous fictitiously named defendants alleged to be officers or
agents of the Company. An amended complaint, which added certain of the
Company's officers and directors as defendants, was filed on April 18, 1996.
On October 28, 1996, an indentical class action lawsuit was filed in the same
court by the same plantiffs' lawyers on behalf of an additional plantiff.
These lawsuits allege that certain statements made by the Company and the
individual defendants during the period from October 1, 1995 through February
14, 1996 were false and misleading and that the defendants breached their
fiduciary duties in making such statements and violated California state
common and statutory law. 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 defend itself vigorously. The
Company believes the likelihood is remote that the ultimate resolution of this
matter will have a material adverse effect on its financial position, results
of operations or cash flows.
On September 16, 1996, a shareholder derivative lawsuit was filed in the
United States District Court for the Northern District of California against
the Company and several of its officers and directors. The complaint alleges
the individual defendants breached their fiduciary duties to the Company
between July 26, 1995 and February 13, 1996. The complaint does not specify
the amounts of damages sought. The Company believes the allegations in the
complaint are without merit, and the Company intends to defend itself
vigorously. The Company believes the likelihood is remote that the ultimate
resolution of this matter will 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 March 30, 1996, contained in the Annual
Report to Shareholders on Form 10-K.
This Discussion and Analysis contains forward-looking statements. Such
statements are subject to certain risks and uncertainties, including those
discussed below or in the Company's Form 10-K for the fiscal year ended March
30, 1996, that could cause actual results to differ materially from the
Company's expectations. The Form 10-K referred to in this paragraph is
expressly incorporated herein by reference. Readers are cautioned not to place
undue reliance on any forward-looking statements, as they reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revision to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
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 Percentage of Net Sales
Quarter Ended Two Quarters Ended
------------------- -------------------
Sept. 28, Sept. 30, Percent Sept. 28, Sept. 30, Percent
1996 1995 change 1996 1995 change
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100% 100% -26% 100% 100% -27%
Gross margin 38% 44% -36% 38% 43% -35%
Research and development 25% 17% 7% 27% 18% 10%
Selling, general and administrative 13% 12% -19% 14% 12% -20%
Gain on sale of assets -3% 0% N/A -2% 0% N/A
Income (loss) from operations 3% 15% -84% -0% 13% N/A
Income (loss) before income taxes 2% 15% -91% -1% 13% N/A
Provision (benefit)for income taxes 1% 5% -92% -0% 4% N/A
Net income (loss) 1% 10% -91% -1% 9% N/A
</TABLE>
Net Sales
Net sales for the second quarter of fiscal 1997 were $236.0 million, a decrease
of 26% from the $317.8 million reported for the second quarter of fiscal 1996.
Net sales for the first two quarters of fiscal 1997 were $450.9 million, a
decrease of 27% from the $618.1 million reported for the comparable period of
fiscal 1996. Sales of graphics, audio and mass storage products decreased in
the second quarter and the first two quarters of fiscal 1997 over the
comparable periods in fiscal 1996. Sales of fax/modem products increased
slightly in the second quarter of fiscal 1997 over the second quarter of fiscal
1996, but decreased in the first two quarters of fiscal 1997 compared to the
comparable quarters in fiscal 1996.
For the second and first two quarters of fiscal 1997, export sales (including
sales to U.S.-based customers with manufacturing plants overseas) were 64% of
total sales compared to 58% and 59%, respectively, for the corresponding
periods in fiscal 1996.
The Company's sales are currently denominated primarily in U.S. dollars. The
Company may enter into foreign currency forward exchange and option contracts
to hedge certain of its foreign currency exposures.
Sales to one customer were approximately 10% of net sales during the first two
quarters of fiscal 1997. No other customers accounted for 10% or more of sales
during the first two quarters of fiscal 1997 or fiscal 1996.
Gross Margin
The gross margin was 38% in the second quarter of fiscal 1997, compared to 44%
for the second quarter of fiscal 1996. The gross margin was 38% in the first
two quarters of fiscal 1997, compared to 43% for the first two quarters of
fiscal 1996. The gross margin decline in fiscal 1997 was the result, in part,
of sales of older products with prices lower relative to prices in the second
quarter of fiscal 1996 and the first two quarters of fiscal 1996. The gross
margin was also reduced by under-loading charges in the second quarter of
fiscal 1997 at the MiCRUS facility.
Research and Development
Research and development expenditures increased $4.0 million over the second
quarter of fiscal 1996 to $58.5 million in the second quarter of fiscal 1997.
The expenditures in the second quarter and the first two quarters of fiscal
1997 were approximately 25% and 27%, respectively, of net sales compared to 17%
and 18% in the comparable periods of fiscal 1996. Expenses increased in
absolute amounts as the Company continued to invest in new product development.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represented approximately 13% and
14% of net sales in the second quarter and the first two quarters of fiscal
1997, respectively, compared to 12% in the corresponding periods in fiscal
1996. The dollar amount of such expenses decreased as a result of reductions
in compensation expenses, marketing expenses for promotions and advertising,
and administrative expenses.
Gain on Sale of Assets
During August 1996, the Company completed the sale of the PicoPower product
line to National Semiconductor, Inc. In connection with the transaction, the
Company recorded a gain of approximately $6.9 million.
Income Taxes
The Company's effective tax rate was 28.5% for the first and second quarters
of fiscal 1997, as against 31.5% for the comparable periods of fiscal 1996.
The 28.5% estimated annual effective tax rate is less than the U.S. federal
statutory rate of 35%, and less than the effective tax rate of 31.5% for the
second quarter of fiscal 1996, primarily because of foreign operating results
which are taxed at rates other than the U.S. statutory rate, federal and state
research tax credits, and state investment tax credits.
Liquidity and Capital Resources
The Company used approximately $70.9 million of cash and cash equivalents in
its operating activities during the first two quarters of fiscal 1997 as
compared to generating approximately $13.9 million during the first two
quarters of fiscal 1996. The increased use of cash was primarily caused by the
loss from operations and the net change in operating assets and liabilities
(primarily the increase in payments for joint venture equipment to be leased)
offset somewhat by an increase in the non-cash effect of depreciation and
amortization.
The Company used $38.8 million in cash in investing activities during the first
two quarters of fiscal 1997, and $45.3 million during the comparable period of
fiscal 1996. The Company reduced short-term investment activities and
additions to property and equipment and increased investing in joint venture
manufacturing agreements and joint ventures in fiscal 1997 over fiscal 1996.
Financing activities provided $5.8 million in cash during the first two
quarters of fiscal 1997 and $39.3 million during the comparable period of
fiscal 1996. Net short-term borrowings increased and payments on long-term
debt and capital lease obligations increased during the first two quarters of
fiscal 1997 along with a decrease in the proceeds from the issuance of common
stock compared to the comparable period in fiscal 1996.
Cash, cash equivalents and short-term investments decreased $109.4 million from
$175.3 million at March 30, 1996, to $65.9 million at September 28, 1996.
During the same period accounts receivable, inventories and payments for joint
venture equipment to be leased increased $5.3 million, $7.6 million and $88.0
million, respectively, and accounts payable, accrued salaries and benefits,
income taxes payable and other accrued liabilities decreased $13.5 million.
The semiconductor industry is extremely capital intensive. To remain
competitive, the Company believes it must continue to invest in advanced wafer
manufacturing and in test equipment. The Company estimates that its total
financial obligations for the IBM, Lucent Technologies, UMC and TSMC
transactions (excluding wafer purchases) may total $438 million in fiscal 1997
and $397 million in the following three fiscal years. The Company intends to
obtain most of the necessary capital through direct or guaranteed equipment
lease financing and the balance through debt and/or equity financing, and cash
generated from operations. On November 1, 1996, the Company completed a
portion of equipment lease financing at the Cirent Semiconductor joint venture
with Lucent Technologies for approximately $112 million.
In addition to its investments in the various external manufacturing
arrangements, the Company estimates that capital expenditures for its own
facilities will be substantial through fiscal 2000. The Company expects to
finance seventy to eighty percent of these capital expenditures through
equipment lease or loan financing.
There can be no assurance that financing will be available or, if available,
will be on satisfactory terms. Failure to obtain adequate financing would
restrict the Company's ability to expand its manufacturing infrastructure, to
make other investments in capital equipment, and to pursue other initiatives.
Future Operating Results
Quarterly Fluctuations
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. The Company's operating results are affected by a wide
variety of factors, many of which are outside of the Company's control,
including but not limited to, economic conditions and overall market demand in
the United States and worldwide, the Company's ability to introduce new
products and technologies on a timely basis, changes in product mix,
fluctuations in manufacturing costs which affect the Company's gross margins,
declines in market demand for the Company's and its customers' products, sales
timing, the level of orders which are received and can be shipped in a quarter,
the cyclical nature of both the semiconductor industry and the markets
addressed by the Company's products, product obsolescence, price erosion, and
competitive factors. The Company's operating results in the rest of fiscal
1997 are likely to be affected by these factors as well as others.
The Company must order wafers and build inventory well in advance of product
shipments. Because the Company's markets are volatile and subject to rapid
technology and price changes, there is a risk that the Company will forecast
incorrectly and produce excess or insufficient inventories of particular
products. This inventory risk is heightened because many of the Company's
customers place orders with short lead times. Such inventory imbalances have
occurred in the past and in fact contributed significantly to the Company's
operating losses in fiscal 1996. These factors increase not only the inventory
risk but also the difficulty of forecasting quarterly operating results.
Moreover, as is common in the semiconductor 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. The concentration of sales in the last month of the
quarter contributes to the difficulty in predicting the Company's quarterly
revenues and results of operations.
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 system
manufacturers. Both revenues and margins may be affected quickly if new
product introductions are delayed or if the Company's products are not designed
into successive generations of products of the Company's customers. 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.
Issues Relating to Manufacturing and Manufacturing Investment
In the first two quarters of fiscal 1997, manufacturing supply exceeded demand
for certain of the Company's products. One consequence was the Company
incurred charges at its MiCRUS facility for failing to purchase sufficient
wafers, negatively impacting gross margins.
Although the Company believes that its efforts to increase its source of wafer
supply through joint ventures (MiCRUS with IBM and Cirent Semiconductor with
Lucent Technologies) and other arrangements have significant potential benefits
to the Company, there are also risks, some of which materialized in the third
and fourth quarter of fiscal 1996 and the second quarter of fiscal 1997.
These arrangements reduce the Company's flexibility to reduce the amount of
wafers it is committed to purchase and increase the Company's fixed
manufacturing costs as a percentage of overall costs of sales. As a result,
the operating results of the Company are becoming more sensitive to
fluctuations in revenues. In the case of the Company's joint ventures,
overcapacity results in underabsorbed fixed cost, which adversely affects gross
margins and earnings. In the case of the Company's "take or pay" contracts
with foundries, the Company must pay contractual penalties if it fails to
purchase its minimum commitments.
Moreover, the Company will benefit from the MiCRUS and Cirent Semiconductor
joint ventures if they are able to produce wafers at or below prices generally
prevalent in the market. If, however, either of these ventures is not able to
produce wafers at competitive prices, the Company's results of operations will
be materially adversely affected. The process of beginning production and
increasing volume with the joint ventures inevitably involves risks, and there
can be no assurance that the manufacturing costs of such ventures will be
competitive.
Certain provisions of the MiCRUS and Cirent Semiconductor agreements may cause
the termination of the joint venture in the event of a change in control of the
Company. Such provisions could have the effect of delaying, deferring or
preventing a change of control of the Company.
In connection with the financing of its operations, the Company has borrowed
money and entered into substantial equipment lease obligations and is likely to
expand such commitments in the future. Such indebtedness could cause the
Company's principal and interest obligations to increase substantially. The
degree to which the Company is leveraged could adversely affect the Company's
ability to obtain additional financing for working capital, acquisitions or
other purposes and could make it more vulnerable to industry downturns and
competitive pressures. The Company's ability to meet its debt service and
other obligations will be dependent upon the Company's future performance,
which will be subject to financial, business and other factors affecting the
operations of the Company, many of which are beyond its control. An inability
to obtain financing to meet these obligations could cause the Company to
default on such obligations.
Although the Company has increased its future wafer supplies from the MiCRUS
and Cirent Semiconductor joint ventures, the Company expects to continue to
purchase substantial portions of its wafers from, and to be reliant upon,
outside merchant wafer suppliers for at least the next two years. The Company
also uses other outside vendors to package the wafer die into integrated
circuits.
The Company's results of operations could be adversely affected in the future,
and has been in the past, if particular suppliers are unable to provide a
sufficient and timely supply of product, whether because of raw material
shortages, capacity constraints, unexpected disruptions at the plants, delays
in qualifying new suppliers or other reasons, or if the Company is forced to
purchase wafers or packaging from higher cost suppliers or to pay expediting
charges to obtain additional supply, or if the Company's test facilities are
disrupted for an extended period of time. Because of the concentration of
sales at the end of each quarter, a disruption in the Company's production or
shipping near the end of a quarter could materially reduce the Company's
revenues for that quarter. Production may be constrained even though capacity
is available at one or more wafer manufacturing facilities because of the
difficulty of moving production from one facility to another. Any supply
shortage could adversely affect sales and operating profits.
The greater integration of functions and complexity of operations of the
Company's products also increase the risk that latent defects or subtle faults
could be discovered by customers or end users after volumes of product have
been shipped. If such defects were significant, the Company could incur
material recall and replacement costs for product warranty.
Dependence on PC Market
Sales of most of the Company's products depend largely on sales of personal
computers (PCs). Reduced growth in the PC market could affect the financial
health of the Company as well as its customers. Moreover, as a component
supplier to PC OEMs and to peripheral device manufacturers, the Company is
likely to experience a greater magnitude of fluctuations in demand than the
Company's customers themselves experience. In addition, many of the Company's
products are used in PCs for the consumer market, and the consumer PC market is
more volatile than other segments of the PC market.
Other IC makers, including Intel Corporation, have expressed their interest in
integrating through hardware functions, adding through special software
functions, or kitting components to provide some multimedia or communications
features into or with their microprocessor products. Successful integration of
these functions could substantially reduce the Company's opportunities for IC
sales in these areas. The intense price competition in the PC industry is
expected to continue to put pressure on the price of all PC components.
A number of PC OEMs buy products directly from the Company and also buy
motherboards, add-in boards or modules from suppliers who in turn buy products
from the Company. Accordingly, a significant portion of the Company's sales
may depend directly or indirectly on the sales to a particular PC OEM. Since
the Company cannot track sales by motherboard, add-in board or module
manufacturers, the Company may not be fully informed as to the extent or even
the fact of its indirect dependence on any particular PC OEM, and, therefore,
may be unable to assess the risk of such indirect dependence.
Issues Relating to Graphics Products
The Company continues to experience intense competition in the sale of graphics
products. Several competitors introduced products and adopted pricing
strategies that have increased competition in the desktop graphics market, and
new competitors continue to enter the market. These competitive factors
affected the Company's market share, gross margins, and earnings in the second
quarter of fiscal 1997 and are likely to affect revenues and gross margins for
graphics accelerator products in the future.
The PC graphics market today consists primarily of two-dimensional (2D)
graphics accelerators, and 2D graphics accelerators with video features.
Revenues from the sale of graphics products in fiscal 1997 are significantly
dependent on the success of the Company's 2D graphics accelerator, the CL-
GD5446.
3D graphics acceleration is expected to become an important capability in late
fiscal 1997 and fiscal 1998, primarily in PC products for the consumer
marketplace. Several competitors have already introduced 3D accelerators.
During the second quarter of fiscal 1997, the Company introduced and began
shipping its first 3D accelerator for the mainstream PC market. The Company is
striving to bring additional products with 3D acceleration to market, but there
is no assurance that it will succeed in doing so in a timely manner. If these
products are not brought to market in a timely manner or do not address the
market needs or cost or performance requirements, then graphics market share
and sales would be adversely affected.
Issues Relating to Audio Products
Most of the Company's revenues in the multimedia audio market derive from the
sales of 16-bit audio codecs and integrated 16-bit codec plus controller
solutions for the consumer PC market. Pricing pressures are forcing a
transition from multi-chip solutions to products that integrate the codec,
controller and synthesis integrated into a single IC. The Company's revenues
from the sale of audio products in fiscal 1997 are likely to be significantly
affected by the success of its recently introduced fully-integrated, single-
chip audio IC. Moreover, aggressive competitive pricing pressures are expected
to continue and may adversely affect the Company's revenues and gross margins
from the sale of this product.
Three-dimensional spatial effects audio is expected to become an important
feature in late fiscal 1997 and in fiscal 1998, primarily in products for the
consumer marketplace. The Company has begun shipping such products. If the
Company's spatial effects audio products do not meet the cost or performance
requirements of the market, revenues from the sale of audio products would be
adversely affected.
Issues Relating to Mass Storage Market
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. Growth in the mass storage market is
directly affected by growth in the PC market. Furthermore, the price
competitive nature of the disk drive industry continues to put pressure on the
price of all disk drive components. In addition, consolidation in the disk
drive industry has reduced the number of customers for the Company's mass
storage products and increased the risk of large fluctuations in demand.
The Company believes that excess inventories held by its customers limited
sales of the Company's mass storage products in the second quarter of fiscal
1997 and are likely to limit sales of the Company's optical disk drive products
in the third quarter of fiscal 1997. Revenues from mass storage products in
the second half of fiscal 1997 are likely to depend heavily on the success of
certain 3.5 inch disk drive products selected for use by various customers,
which in turn depends upon obtaining timely customer qualification of the new
products and upon bringing the products into volume production timely and cost-
effectively.
Intellectual Property Matters
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. 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. In addition,
customers have been named in suits alleging infringement of patents or other
intellectual property rights 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 its customers. Although
licenses are generally offered in situations where the Company or its customers
are named in suits alleging infringement of patents or other intellectual
property rights, there can be no assurance that any licenses or other rights
can be obtained on acceptable terms. 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. The Company cannot accurately predict the eventual outcome
of any suit or other alleged infringement of intellectual property. An
unfavorable outcome occurring in any such suit could have an adverse effect on
the Company's future operations and/or liquidity.
Foreign Operations and Markets
Because many of the Company's subcontractors and several of the Company's key
customers, which customers collectively account for a significant percentage of
the Company's revenues, are located in Japan and other Asian countries, the
Company's business is subject to risks associated with many factors beyond its
control. International operations and sales may be subject to political and
economic risks, including political instability, currency controls, exchange
rate fluctuations, and changes in import/export regulations, tariff and freight
rates. Although the Company buys 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 Japanese yen.
Competition
The Company's business is intensely competitive and is characterized by new
product cycles, price erosion, and rapid technological change. Competitors
include 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 as well as emerging companies. 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, wafer supply, 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, the Company's
ability to attract, retain and motivate qualified personnel, and general
economic conditions. Because of these and other factors, past results may not
be a useful predictor of future results.
Part II. Other Information
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 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.
CIRRUS LOGIC, INC.
(Registrant)
November 12, 1996 /s/ Thomas F. Kelly
Date Thomas F. Kelly
Executive Vice President, Finance and
Administration, Chief Financial Officer,
and Treasurer
(Principal Financial and Accounting Officer)
November 12, 1996 /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 Two Quarters Ended
------------------- -------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 64,776 62,697 64,468 61,978
Dilutive common stock equivalents:
Common stock options, using treasury stock
or modified treasury stock method 0 * 8,300 N/A 7,397
Common stock warrants, using treasury
stock or modified treasury stock method - - - 11
--------- --------- --------- ---------
Common and common equivalent shares used in
the calculation of net income (loss) per share 64,776 70,997 64,468 69,386
========= ========= ========= =========
Net income (loss) $2,998 $33,037 ($4,607) $55,774
========= ========= ========= =========
Net income (loss) per share $0.05 $0.47 ($0.07) $0.80
========= ========= ========= =========
Fully diluted:
Weighted average shares outstanding 64,776 62,697 64,468 61,978
Dilutive common stock equivalents:
Common stock options, using treasury stock
or modified treasury stock method 1,890 8,848 N/A 8,159
Common stock warrants, using treasury
stock or modified treasury stock method - - - 13
--------- --------- --------- ---------
Common and common equivalent shares used in
the calculation of net income (loss) per share 66,666 71,545 64,468 70,150
========= ========= ========= =========
Net income (loss) $2,998 $33,037 ($4,607) $55,774
========= ========= ========= =========
Net income (loss) per share $0.04 $0.46 ($0.07) $0.80
========= ========= ========= =========
<FN>
* For the quarter ended September 28, 1996, under the modified treasury
stock method, more common stock would have been repurchased than
issued. Since the effect of this would have increased net income per
share, the exercise of options is not assumed.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Mar-29-1997
<PERIOD-START> Mar-31-1996
<PERIOD-END> Sep-28-1996
<PERIOD-TYPE> 6-MOS
<CASH> 53,661
<SECURITIES> 12,219
<RECEIVABLES> 139,051
<ALLOWANCES> 0
<INVENTORY> 142,089
<CURRENT-ASSETS> 583,985
<PP&E> 161,416
<DEPRECIATION> 0
<TOTAL-ASSETS> 918,831
<CURRENT-LIABILITIES> 410,387
<BONDS> 0
0
0
<COMMON> 340,869
<OTHER-SE> 94,485
<TOTAL-LIABILITY-AND-EQUITY> 918,831
<SALES> 450,928
<TOTAL-REVENUES> 450,928
<CGS> 278,277
<TOTAL-COSTS> 278,277
<OTHER-EXPENSES> 174,256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,442)
<INCOME-TAX> (1,835)
<INCOME-CONTINUING> (4,607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,607)
<EPS-PRIMARY> ($0.07)
<EPS-DILUTED> ($0.07)
</TABLE>
