<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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 NO. 0-25298
OAK TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0161486
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
139 KIFER COURT
SUNNYVALE, CALIFORNIA 94086
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(408) 737-0888
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 .
--- ---- --------
As of March 31, 1997, there were outstanding 40,699,264 shares of the
Registrant's Common Stock, par value $0.001 per share.
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
Part I - Financial Information Page
- ------------------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
and June 30, 1996............................................ 3
Consolidated Statements of Income for the
Three Months and Nine Months ended
March 31, 1997 and 1996...................................... 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1997 and 1996.................... 5
Notes to Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 10
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings............................................ 22
Item 6. Exhibits and Reports on Form 8-K............................. 23
SIGNATURES ............................................................. 26
EXHIBIT INDEX ............................................................. 27
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents............................................ $ 69,982 $ 44,934
Short-term investments............................................... 58,335 68,350
Accounts receivable, net of allowance for doubtful accounts of
$534 and $916, respectively...................................... 24,258 20,172
Inventories.......................................................... 12,915 14,763
Current portion of foundry deposits.................................. 8,846 4,595
Deferred tax asset................................................... 13,893 13,889
Prepaid expenses and other current assets............................ 4,614 3,809
--------- ---------
Total current assets............................................. 192,843 170,512
Property and equipment, net............................................ 18,903 18,212
Foundry deposits....................................................... 32,985 52,000
Investment in joint venture............................................ 39,618 13,696
Other assets........................................................... 1,315 1,888
---------- ----------
Total assets..................................................... $ 285,664 $ 256,308
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt.................. $ 5,657 $ 22,062
Accounts payable..................................................... 18,642 7,887
Accrued expenses..................................................... 5,377 4,824
Income taxes payable................................................. 11,113 -
Deferred revenue..................................................... 447 1,053
-------- -------
Total current liabilities........................................ 41,236 35,826
Long-term debt......................................................... 2,718 2,858
Deferred income taxes.................................................. 6,435 6,435
Deferred rent.......................................................... 310 362
-------- -------
Total liabilities................................................ 50,699 45,481
-------- -------
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 2,000,000 shares
authorized; none issued and outstanding as of March 31, 1997
and June 30, 1996................................................ - -
Common stock, $0.001 par value; 60,000,000 shares authorized;
40,699,264 and 40,196,796 shares issued and outstanding as
of March 31, 1997 and June 30, 1996, respectively................ 41 40
Additional paid-in capital........................................... 158,813 155,751
Retained earnings.................................................... 76,111 55,036
--------- --------
Total stockholders' equity....................................... 234,965 210,827
--------- --------
Total liabilities and stockholders' equity....................... $ 285,664 $ 256,308
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
1997 1996 1997 1996
------------------- -------------------
<S> <C> <C> <C> <C>
Net revenues..................................... $ 50,634 $ 88,359 $ 117,171 $ 228,566
Cost of revenues................................. 22,829 39,964 48,270 104,022
--------- --------- --------- ---------
Gross profit................................. 27,805 48,395 68,901 124,544
Research and development expenses................ 8,552 8,323 24,506 21,726
Selling, general and administrative expenses..... 5,720 4,548 15,100 13,410
In-process research and development expenses..... - - - 4,837
--------- --------- --------- ---------
Operating income............................. 13,533 35,524 29,295 84,571
Nonoperating income.............................. 1,143 2,202 3,127 6,641
--------- --------- --------- ---------
Income before income taxes................... 14,676 37,726 32,422 91,212
Income taxes..................................... 5,136 15,543 11,347 37,579
--------- --------- --------- ---------
Net income................................... $ 9,540 $ 22,183 $ 21,075 $ 53,633
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share............................. $ 0.22 $ 0.52 $ 0.49 $ 1.26
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing net income per share.... 42,801 42,755 42,630 42,717
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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OAK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 21,075 $ 53,633
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 4,020 2,325
Inventory related adjustments.................................... (20,154) 3,791
Equity in (income) or loss of unconsolidated affiliates.......... 292 (2,415)
In-process research and development.............................. - 4,837
Deferred income taxes............................................ 277 135
Changes in operating assets and liabilities:
Accounts receivable............................................ (4,086) (42,532)
Inventories.................................................... 19,002 (26,928)
Prepaid expenses and other current assets...................... (805) (2,652)
Accounts payable and accrued expenses.......................... 14,672 6,236
Income taxes payable, deferred revenue and other liabilities... 11,704 8,733
--------- ---------
Net cash provided by operating activities.................... 45,997 5,163
--------- ---------
Cash flows from investing activities:
Purchases of short-term investments.............................. (31,022) (86,783)
Proceeds from matured short-term investments..................... 41,037 43,845
Additions to property and equipment, net......................... (4,456) (10,731)
Acquisition of Pixel Magic, Inc., net of cash acquired........... - (5,126)
Investment in foundry deposits................................... - (44,320)
Investment in foundry joint venture.............................. (25,922) (13,696)
Other assets..................................................... 26 270
--------- ---------
Net cash provided by (used in) investing activities.......... (20,337) (116,541)
--------- ---------
Cash flows from financing activities:
Issuance of debt................................................... 31,976 50,239
Repayment of debt.................................................. (34,121) (11,778)
Issuance of common stock, net...................................... 1,533 2,219
--------- ---------
Net cash provided by (used in) financing activities.............. (612) 40,680
--------- ---------
Net increase (decrease) in cash and cash equivalents.................. 25,048 (70,698)
Cash and cash equivalents, beginning of period........................ 44,934 125,136
--------- ---------
Cash and cash equivalents, end of period.............................. $ 69,982 $ 54,438
--------- ---------
--------- ---------
Supplemental information:
Cash paid during the period:
Interest........................................................ $ 102 $ 485
--------- ---------
--------- ---------
Income taxes.................................................... $ 1,508 $ 28,566
--------- ---------
--------- ---------
Noncash investing and financing activities:
Benefit related to stock plans.................................... $ 1,530 $ 7,421
--------- ---------
--------- ---------
Adjustment to foundry commitments................................. $ (14,400) $ -
--------- ---------
--------- ---------
Utilization of foundry deposits................................... $ 3,364 $ -
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). In the opinion of management, the consolidated
financial statements reflect all adjustments considered necessary for a fair
presentation of the consolidated financial position, operating results and cash
flows for those periods presented. The results of operations for the interim
periods presented are not necessarily indicative of the results that may be
expected for the full fiscal year or in any future period. This quarterly
report on Form 10-Q should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended June 30, 1996,
included in the Oak Technology, Inc. (the "Company") 1996 Annual Report on Form
10-K filed with the Commission.
2. EQUITY AND NET INCOME PER SHARE
Net income per share has been computed using the weighted average number of
shares of common stock and dilutive common equivalent shares from stock options
and warrants outstanding (using the treasury stock method).
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128
requires the presentation of basic earnings per share ("EPS") and, for companies
with complex capital structures, diluted EPS. SFAS No. 128 is effective for
annual and interim periods ending after December 15, 1997. The Company expects
that basic EPS will be higher than primary earnings per share as presented in
the accompanying consolidated financial statements and that diluted EPS will not
differ materially from fully diluted earnings per share as presented in the
accompanying consolidated financial statements.
3. BALANCE SHEET COMPONENTS
INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or market
and consisted of the following (in thousands):
March 31, June 30,
1997 1996
----------- ------------
Purchased parts and work in process........ $ 8,024 $ 5,888
Finished goods............................. 4,891 8,875
----------- ------------
$ 12,915 $ 14,763
----------- ------------
----------- ------------
6
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OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
4. INVENTORIES AND RELATED COSTS
Margins for the quarter ended March 31, 1997 were favorably affected
by an adjustment of approximately $5.2 million to cost of revenues associated
with the sale of CD-ROM controller products which had been fully reserved in the
fourth quarter of fiscal 1996.
Margins for the nine month period ended March 31, 1997 were favorably
affected by adjustments of approximately $18.7 million to cost of revenues
associated with the sale of products which had been fully reserved in a prior
period as well as manufacturing cost adjustments of $3.0 million related to
foundry agreements.
5. CONTINGENCIES
The Company and various of its current and former officers and Directors
are parties to several lawsuits which purport to be class actions filed on
behalf of all persons who purchased or acquired the Company's stock (excluding
the defendants and parties related to them) for the period July 27, 1995 through
May 22, 1996. The first, a state court proceeding designated as IN RE OAK
TECHNOLOGY SECURITIES LITIGATION, in Santa Clara County Superior Court in Santa
Clara, California, consolidates five putative class actions. This lawsuit also
names as defendants several of the Company's venture capital fund investors, two
of its investment bankers and two securities analysts. The plaintiffs allege
violations of California securities laws and statutory deceit provisions as well
as breach of fiduciary duty and abuse of control.
The Company and various of its current and former officers and Directors
are also parties to four putative class action lawsuits pending in the U.S.
District Court for the Northern District of California. These actions have been
consolidated as IN RE OAK TECHNOLOGY, INC. SECURITIES LITIGATION, Case No.
C-96-20552-SW(PVT). This action alleges certain violations of federal
securities laws and is brought on behalf of purchasers of the Company's stock
for the period July 27, 1995 through May 22, 1996. This action also names as a
defendant one of the Company's investment bankers.
Additionally, various of the Company's current and former officers and
Directors are defendants in three consolidated derivative actions pending in
Santa Clara County Superior Court in Santa Clara, California, entitled IN RE OAK
TECHNOLOGY DERIVATIVE ACTION. This lawsuit asserts a claim for breach of
fiduciary duty and a claim under California securities law based upon the
officers' and Directors' trading in securities of the Company.
In all of the putative state and federal class actions, the plaintiffs are
seeking monetary damages and equitable relief. In the derivative action, the
plaintiffs are also seeking an accounting for the defendants' sales of Company
stock and the payment of monetary damages to the Company.
7
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
All of these actions are in the early stages of proceedings and the Company is
currently investigating the allegations. Based on its current information,
the Company believes the suits to be without merit and will defend its position
vigorously. No provision for any liability that may result upon adjudication
has been made in the Company's Consolidated Financial Statements.
In connection with these legal proceedings, the Company has incurred,
and expects to continue to incur, substantial legal and other expenses.
Shareholder suits of this kind are highly complex and can extend for a
protracted period of time, which can substantially increase the cost of such
litigation and divert the attention of the Company's management.
6. FOUNDRY AGREEMENTS AND INVESTMENT IN JOINT VENTURE
In June and November 1995, the Company entered into agreements with Taiwan
Semiconductor Manufacturing Company ("TSMC") and Chartered Semiconductor
Manufacturing Ptd. Ltd. ("Chartered") to obtain certain additional wafer
capacity through the year 2001. The agreements called for the Company to
deposit funds with the suppliers as either a portion of the price of the
additional wafers in advance of their delivery or as a non-interest bearing
deposit to secure the availability of additional wafers.
In October 1996 the Company amended its previous agreement with TSMC. In
September 1996 and April 1997 the Company amended its previous agreement with
Chartered. The amendments resulted in a reduction and deferral of the Company's
future wafer purchase commitments and the elimination of required future cash
deposits of approximately $73 million under the original foundry arrangements.
The execution of these agreements reduced the Company's wafer purchase
commitments during calendar 1996 and therefore resulted in a favorable
manufacturing cost adjustment recorded to cost of revenues of $1.5 million
during each of the quarters ended December 31, 1996 and September 30, 1996.
Deposits paid under the amended agreements are recorded at cost and total
approximately $41.8 million as of March 31, 1997. Pursuant to the terms of the
amended agreements, this entire amount represents deposits to be used as a
portion of the price to be paid for future wafers. If the Company is not able
to use, assign, or sell the additional wafer quantities, all or a portion of
certain deposits may be forfeited which would result in a charge to cost of
revenues. The amended Chartered agreement requires future cash deposits of
approximately $36 million which could be reinstated if certain conditions are
not met. The Company currently believes the terms and conditions of the
agreement as amended will be met and that these commitments will not be
reinstated although no assurance can be given in this regard.
8
<PAGE>
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
In October 1995, the Company entered into a series of agreements with
United Microelectronics Corporation to form, along with other investors, a
separate Taiwanese company, United Integrated Circuits Corporation "UICC", for
the purpose of building and managing a semiconductor manufacturing facility in
the Science Based Industrial Park in Hsin Chu City, Taiwan, Republic of China.
The Company has agreed to invest approximately $60 million for a 10% equity
position in the venture. In January 1996, the Company made an initial payment
of $13.7 million and in January 1997, the Company made a second payment of $25.9
million due under this agreement. The final payment of $15.0 million under this
agreement is due in fiscal 1998.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL FINANCIAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-Q MAY BE CONSIDERED
"FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES ACT OF 1934, AS
AMENDED. SUCH STATEMENTS INCLUDE DECLARATIONS REGARDING THE INTENT, BELIEF OR
CURRENT EXPECTATIONS OF THE COMPANY AND ITS MANAGEMENT. PROSPECTIVE INVESTORS
ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES; ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS. AMONG THE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS ARE:
(I) THAT THE INFORMATION IS OF A PRELIMINARY NATURE AND MAY BE SUBJECT TO
FURTHER ADJUSTMENT, (II) VARIABILITY IN THE COMPANY'S QUARTERLY OPERATING
RESULTS, (III) GENERAL CONDITIONS IN THE SEMICONDUCTOR INDUSTRY, (IV) RISKS
RELATED TO PENDING LEGAL PROCEEDINGS, (V) DEVELOPMENT BY COMPETITORS OF NEW OR
SUPERIOR PRODUCTS OR ENTRY INTO THE COMPANY'S MARKETS OF NEW COMPETITORS, (VI)
THE COMPANY'S ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS WITHIN DESIGNATED
MARKET WINDOWS AT COMPETITIVE PRICE AND PERFORMANCE LEVELS, (VII) WILLINGNESS OF
PROSPECTIVE CUSTOMERS TO DESIGN THE COMPANY'S PRODUCTS INTO THEIR PRODUCTS,
(VIII) AVAILABILITY OF ADEQUATE FOUNDRY CAPACITY AND ACCESS TO PROCESS
TECHNOLOGIES, (IX) THE COMPANY'S ABILITY TO PROTECT ITS PROPRIETARY INFORMATION
AND OBTAIN ADEQUATE LICENSES OF THIRD PARTY TECHNOLOGY ON ACCEPTABLE TERMS, (X)
RISKS RELATED TO USE OF INDEPENDENT MANUFACTURERS AND THIRD PARTY ASSEMBLY AND
TEST VENDORS, (XI) DEPENDENCE ON KEY PERSONNEL, (XII) RELIANCE ON A LIMITED
NUMBER OF LARGE CUSTOMERS, (XIII) DEPENDENCE ON SALES OF CD-ROM CONTROLLER
PRODUCTS, (XIV) RISKS RELATED TO INTERNATIONAL BUSINESS OPERATIONS, (XV) ABILITY
OF THE COMPANY TO MAINTAIN ADEQUATE PRICE LEVELS AND MARGINS WITH RESPECT TO ITS
PRODUCTS, (XVI) MANAGEMENT OF CHANGING OPERATIONS, (XVII) RISKS RELATED TO
PRODUCT DEFECTS, (XVIII) THE ABILITY TO ATTRACT AND RETAIN QUALIFIED MANAGEMENT
AND TECHNICAL PERSONNEL AND (XIX) OTHER RISKS IDENTIFIED FROM TIME TO TIME IN
THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, INCLUDING THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
JUNE 30, 1996.
The Company designs, develops and markets high performance multimedia
semiconductors and related software to original equipment manufacturers that
serve the multimedia PC, digital video consumer electronics and digital office
equipment markets. The Company develops semiconductor products based on five
core technologies: optical storage, MPEG imaging, video/graphics,
audio/communications and digital imaging. The Company's products typically
consist of hardware, firmware and software to provide a complete solution for
customers.
The Company contracts with independent foundries to manufacture all of its
products, enabling the Company to focus on its design strengths, minimize fixed
costs and capital expenditures and gain access to advanced manufacturing
facilities. Except as described in Note 6 of Notes to Consolidated Financial
Statements, the foundries generally are not obligated to supply products to the
Company for any specific period, in any specific quantity or at a specific
price.
10
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
NET REVENUES. The Company's net revenues in the comparison periods were
primarily derived from product sales. Net revenues decreased 43% to $50.6
million in the three months ended March 31, 1997 from $88.4 million in the
comparable period of fiscal 1996. This decrease was primarily attributable to a
decrease in unit sales and overall average selling prices ("ASPs") of CD-ROM
controllers. The decrease in unit sales resulted from the Company receiving
substantially fewer orders for its CD-ROM controller products than in the
comparable period of fiscal 1996. The Company believes the decline in orders is
primarily attributable to a change in the ordering patterns of the CD-ROM drive
manufacturers and the continued maturation of the CD-ROM industry. In addition,
the Company has continued to experience increased competition in the CD-ROM
drive and controller market. See "Factors That May Affect Future Results"
below.
GROSS MARGIN. Cost of revenues includes the cost of wafer fabrication,
assembly and testing performed by third-party vendors and direct and indirect
costs associated with the procurement, scheduling and quality assurance
functions performed by the Company. The Company's gross margin increased to
54.9% in the three month period ended March 31, 1997 as compared to 54.8% during
the comparable period in the prior year. Margins for the three month period
ended March 31, 1997 were favorably affected by an adjustment of approximately
$5.2 million to cost of revenues associated with the sale of products which had
been fully reserved in a prior period. Excluding the impact of this adjustment,
gross margin for the three month period ended March 31, 1997 would have been
approximately 44.7%. This adjusted gross margin decreased from the comparable
period in fiscal 1996 primarily as a result of a decrease in the ASPs of the
Company's CD-ROM controller products. The Company's overall gross margin is
subject to change due to various factors, including, among others, competitive
product pricing, yields, wafer costs, assembly and test costs and product mix.
The Company expects that ASPs for its existing products will continue to decline
over time and that ASPs for each new product will decline significantly over the
life of the product. The Company is currently experiencing severe price
pressure on its CD-ROM decoder products and expects such price erosion to
continue. A decline in ASPs that is not offset by a reduction in production
costs or by sales of new products with higher gross margins would decrease the
Company's overall gross margin and could materially and adversely affect the
Company's operating results.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are
expensed as incurred. Research and development expenses increased 3% to $8.6
million in the three months ended March 31, 1997 from $8.3 million in the
comparable period in the prior year. This increase was principally the result
of the hiring of additional technical personnel and associated expenses.
Research and development expenses increased as a percentage of net revenues to
16.9% during the three months ended March 31, 1997 from 9.4% in the comparable
period in the prior year due primarily to the significant decrease in the
Company's net revenues in the current period compared to the comparable period
of fiscal 1996. The Company will continue to invest substantial resources in
research and development, including hiring additional technical personnel, in an
effort to maintain its technological leadership in the CD-ROM controller market
and diversify its product development in its other core technologies:
video/graphics, MPEG imaging, audio/communication and digital imaging. As a
result, the Company expects to incur higher absolute research and development
expenses in the remainder of fiscal 1997.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 26% to $5.7 million in the three months ended
March 31, 1997 from $4.5 million in the comparable period in the prior year.
This increase was principally the result of the hiring of additional personnel
and associated expenses. Selling, general and administrative expenses increased
as a percentage of net revenues to 11.3% in the three months ended March 31,
1997 from 5.1% during the comparable period in fiscal 1996, due primarily to a
significant decrease in the Company's net revenues in the comparison periods.
As a result of the continuing efforts to develop the Company's support
infrastructure, the Company expects to incur higher absolute administrative
expenses in the remainder of fiscal 1997.
NONOPERATING INCOME. During the three months ended March 31, 1997,
nonoperating income decreased to $1.1 million from $2.2 million during the
comparable three months of fiscal 1996. This decrease was primarily the result
of a gain of approximately $1.0 million recorded during the three months ended
March 31, 1996 on an equity investment in an unconsolidated affiliate which did
not recur in the current quarter.
INCOME TAXES. The overall effective tax rate for the three months ended
March 31, 1997 was 35.0%. The effective tax rate for the comparable period of
the prior fiscal year was approximately 41.2%. The decrease in the effective
tax rate from the comparable period of the prior year is primarily attributable
to the effect of the reinstituted research and development tax credit on fiscal
1997 results as well as a geographical shift in the sources of taxable income
from the comparable quarter of fiscal 1996. There can be no assurance that the
research and development tax credit will remain in effect and be available to
the Company in future periods.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
NET REVENUES. The Company's net revenues in the comparison periods were
primarily derived from product sales. Net revenues decreased 49% to $117.2
million in the nine months ended March 31, 1997 from $228.6 million in the
comparable period of fiscal 1996. This decrease was primarily attributable to a
decrease in unit sales and overall ASPs of CD-ROM controllers. The decrease in
unit sales resulted from the Company receiving substantially fewer orders for
its CD-ROM controller products than in the comparable period of fiscal 1996. The
Company believes the decline in orders is primarily attributable to a change in
the ordering patterns of the CD-ROM drive manufacturers and the continued
maturation of the CD-ROM industry. In addition, the Company has continued to
experience increased competition in the CD-ROM drive and controller market. See
"Factors That May Affect Future Results" below.
GROSS MARGIN. Cost of revenues includes the cost of wafer fabrication,
assembly and testing performed by third-party vendors and direct and indirect
costs associated with the procurement, scheduling and quality assurance
functions performed by the Company. The Company's gross margin increased to
58.8% in the nine month period ended March 31, 1997 as compared to 54.5% during
the comparable period in the prior year. Margins for the nine month period
ended March 31, 1997 were favorably affected by adjustments of approximately
$18.7 million to cost of revenues associated with the sale of products which had
been fully reserved in a prior period as well as manufacturing cost adjustments
of $3.0 million related to foundry agreements. Excluding the impact of these
adjustments, gross margin for the nine month period ended March 31, 1997 would
have been approximately 40.0%. This adjusted gross margin decreased from the
comparable period in fiscal 1996 primarily as a result of a decrease in ASPs
12
<PAGE>
of the Company's CD-ROM controller products. The Company's overall gross margin
is subject to change due to various factors, including, among others,
competitive product pricing, yields, wafer costs, assembly and test costs and
product mix. The Company expects that ASPs for its existing products will
continue to decline over time and that ASPs for each new product will decline
significantly over the life of the product. A decline in ASPs that is not
offset by a reduction in production costs or by sales of new products with
higher gross margins would decrease the Company's overall gross margin and could
materially and adversely affect the Company's operating results.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are
expensed as incurred. Research and development expenses increased 13% to $24.5
million in the nine months ended March 31, 1997 from $21.7 million in the
comparable period in the prior year. This increase was principally the result
of the hiring of additional technical personnel and associated expenses.
Research and development expenses increased as a percentage of net revenues to
20.9% during the nine months ended March 31, 1997 from 9.5% in the comparable
period in the prior year due primarily to the significant decrease in the
Company's net revenues in the current period compared to the comparable period
of fiscal 1996. The Company will continue to invest substantial resources in
research and development, including hiring additional technical personnel, in an
effort to maintain its technological leadership in the CD-ROM controller market
and diversify its product development in its other core technologies:
video/graphics, MPEG imaging, audio/communication and digital imaging. As a
result, the Company expects to incur higher absolute research and development
expenses in the remainder of fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 13% to $15.1 million in the nine months ended
March 31, 1997 from $13.4 million in the comparable nine months of fiscal 1996.
This increase was primarily the result of the hiring of additional personnel and
associated expenses. Selling, general and administrative expenses increased as
a percentage of net revenues to 12.9% in the nine months ended March 31, 1997
from 5.9% during the comparable period in fiscal 1996, due primarily to a
significant decrease in the Company's net revenues in the comparison periods.
As a result of the continuing efforts to develop the Company's support
infrastructure, the Company expects to incur higher absolute administrative
expenses in the remainder of fiscal 1997.
IN-PROCESS RESEARCH AND DEVELOPMENT. In November 1995, the Company acquired
Pixel Magic, a privately-held company based in Andover, Massachusetts for $10.5
million in cash, of which $5.0 million is contingent upon the achievement of
certain performance criteria over a three-year period. The Company believes it
is reasonably possible this amount will be earned and paid by the end of fiscal
1998. Approximately $4.8 million of the initial cash payment was allocated to
in-process research and development and was charged to operations in the quarter
ended December 31, 1995.
NONOPERATING INCOME. During the nine months ended March 31, 1997,
nonoperating income decreased to $3.1 million from $6.6 million during the
comparable nine months of fiscal 1996. This decrease was primarily the result
of a gain of approximately $2.4 million recorded during the nine months ended
March 31, 1996 on an equity investment in an unconsolidated affiliate which did
not recur in the current period as well as a decrease in net interest income of
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approximately $0.9 million resulting from a lower average cash balance and lower
interest rates during the comparison periods.
INCOME TAXES. The overall effective tax rate for the nine months ended
March 31, 1997 was 35.0%. The effective tax rate for the comparable period of
the prior fiscal year was approximately 41.2%. The decrease in the effective
tax rate from the comparable period of the prior year is primarily attributable
to the effect of the reinstituted research and development tax credit on fiscal
1997 results as well as a geographical shift in the sources of taxable income
from the comparable period in fiscal 1996. There can be no assurance that the
research and development tax credit will remain in effect and be available to
the Company in future periods.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The following factors should be carefully considered in evaluating the
Company and its business.
The Company's operating results are subject to quarterly and other
fluctuations due to a variety of factors, including the gain or loss of
significant customers, increased competitive pressures, the timing of new
product announcements and introductions by the Company or its competitors and
market acceptance of new or enhanced versions of the Company's and its
customers' products. Other factors include the availability of foundry
capacity, fluctuations in manufacturing yields, availability and cost of raw
materials, changes in the mix of products sold, the cyclical nature of the
semiconductor industry, the market for PCs and the markets addressed by the
Company's products, seasonal customer demand, the Company's ability to diversify
its product offerings, the competitiveness of the Company's customers, the
timing of significant orders, significant increases in expenses associated with
the expansion of operations and development of the Company's support
infrastructure, and changes in pricing policies by the Company, its competitors
or its suppliers, including decreases in ASPs of the Company's products. In
addition, the Company's quarterly operating results could be materially
adversely affected by legal expenses incurred in connection with, or any adverse
judgment in, the Company's ongoing shareholder legal proceedings. The Company's
operating results could also be adversely affected by economic conditions
generally in various geographic areas where the Company or its customers do
business, or by order cancellations or rescheduling. These factors are
difficult to forecast, and these or other factors could materially affect the
Company's quarterly or annual operating results. There can be no assurance as
to the level of sales or earnings that may be attained by the Company in any
given period in the future.
The Company currently places noncancelable orders to purchase its products
from independent foundries on an approximately three month rolling basis and is
currently committed with two of its foundries for certain minimum amounts of
capacity for the next several years, while its customers generally place
purchase orders with the Company less than four weeks prior to delivery that may
be canceled without significant penalty. Consequently, if anticipated sales and
shipments in any quarter are canceled or do not occur as quickly as expected,
expense and inventory levels could be disproportionately high and the Company's
business, financial condition and results of operations for that quarter or for
the year would be materially adversely affected.
The semiconductor industry has historically been characterized by rapid
technological change, cyclical market patterns, significant price erosion,
periods of over-capacity and production
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shortages, variations in manufacturing costs and yields and significant
expenditures for capital equipment and product development. In addition, the
industry has experienced significant economic downturns at various times,
characterized by diminished product demand and accelerated erosion of product
prices. The Company may experience substantial period-to-period fluctuations in
operating results due to general semiconductor industry conditions.
The Company and various of its current and former officers and Directors
are parties to certain legal proceedings. See Note 5 of Notes to Consolidated
Financial Statements. Based on its current information, the Company believes
the suits to be without merit and will defend its position vigorously. No
provision for any liability that may result upon adjudication has been made in
the Company's Consolidated Financial Statements. In connection with these legal
proceedings, the Company has incurred, and expects to continue to incur,
substantial legal and other expenses. Shareholder suits of this kind are highly
complex and can extend for a protracted period of time, which can substantially
increase the cost of such litigation and divert the attention of the Company's
management.
The markets in which the Company competes are intensely competitive and are
characterized by rapid technological change, declining unit ASPs and rapid
product obsolescence. The Company expects competition to increase in the future
from existing competitors and from other companies that may enter the Company's
existing or future markets with solutions that may be less costly or provide
higher performance or additional features. The Company's existing and potential
competitors include many large domestic and international companies that have
substantially greater financial, manufacturing, technical, marketing,
distribution and other resources, broader product lines and longer standing
relationships with customers than the Company. The Company's competitors also
include a number of emerging companies as well as some of the Company's own
customers and suppliers. Certain of the Company's principal competitors
maintain their own semiconductor foundries and may therefore benefit from
certain capacity, cost and technological advantages. The Company is currently
trying to enter several new markets in which the Company is a relative unknown.
These markets are intensively competitive and the Company will have to compete
with large domestic and international companies that have long standing
relationships with the Company's targeted customers. The Company believes that
its ability to compete successfully depends on a number of factors, both within
and outside of its control, including the price, quality and performance of the
Company's and its customers' products, the timing and success of new product
introductions by the Company, its customers and its competitors, the Company's
ability to establish a market presence in certain new markets it is attempting
to enter, the emergence of new PC standards, the development of technical
innovations, the ability to obtain adequate foundry capacity and sources of raw
materials, the efficiency of production, the rate at which the Company's
customers design the Company's products into their products, the market
acceptance of the products of the Company's customers, the number and nature of
the Company's competitors in a given market, the assertion of intellectual
property rights and general market and economic conditions. There can be no
assurance that the Company will be able to compete successfully in the future.
The willingness of prospective customers to design the Company's products
into their products depends to a significant extent upon the ability of the
Company to have product available at the appropriate market window and price its
products at a level that is cost effective for such customers. The markets for
most of the applications for the Company's products, particularly the PC market
and the digital video consumer electronics market, are characterized by intense
price
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competition. As the markets for the Company's products mature and competition
increases, the Company anticipates that ASPs on its products will decline. If
the Company is unable to reduce its costs sufficiently to offset declines in
ASPs or is unable to successfully introduce new higher performance products with
higher ASPs, the Company's operating margins and results will be materially
adversely affected. If the Company experiences yield or other production
problems or shortages of supply that increase its manufacturing costs, or fails
to reduce its manufacturing costs, the result would be a material adverse effect
on the Company's business, financial condition and operating results.
The markets for the Company's products are characterized by evolving
industry standards, rapid technological change and product obsolescence. The
Company's performance is highly dependent upon the successful development and
timely introduction of new products at competitive price and performance levels.
Currently, the Company's financial performance is dependent upon the Company's
level of success in the CD-ROM controller market. In an effort to diversify its
product and market base, the Company has invested substantial resources in
optical storage as well as a number of other core technologies: video/graphics,
MPEG imaging, audio/communication and digital imaging. There can be no
assurance that products currently under development in these new core
technologies and optical storage or any other new products will be successfully
developed or will achieve market acceptance thereby affecting the Company's
ability to achieve diversification of its product and market bases. The failure
of the Company to introduce new products successfully or the failure of new
products to achieve market acceptance would have a material adverse effect on
the Company's business, financial condition and results of operations. The
success of new product introductions is dependent on several factors, including
recognition of market requirements, product cost, timely completion and
introduction of new product designs, securing sufficient foundry capacity for
volume manufacturing of wafers, quality of new products and achievement of
acceptable manufacturing yields from the Company's contract manufacturers. Due
to the design complexity of its products, the Company has experienced delays in
completing development and introduction of new products, and there can be no
assurance that the Company will not encounter such delays in the development and
introduction of future products. There can be no assurance that the Company
will successfully identify new product opportunities and develop and bring new
products to market in a timely manner, that the Company's products will be
competitively priced and selected for design into the products of its targeted
customers or that products or technologies developed by others will not render
the Company's products or technologies obsolete or noncompetitive. The failure
of the Company's new product development efforts or the failure of the Company
to achieve market acceptance of its new products would have a material adverse
effect on the Company's business, financial condition and operating results.
The Company's ability to compete is affected by its ability to protect its
proprietary information. The Company considers its technology to be proprietary
and relies on a combination of patents, trademarks, copyrights, trade secret
laws, confidentiality procedures and licensing arrangements to protect its
intellectual property rights. The Company currently has two patents granted,
eleven patents pending and eighteen patents in preparation in the United States
and two international patents pending. The Company intends to seek additional
international and United States patents on its technology. There can be no
assurance that additional patents will issue from any of the Company's pending
applications or applications in preparation, or be issued in all countries where
the Company's products can be sold, or that any claims allowed from pending
applications or applications in preparation will be of sufficient scope or
strength to provide meaningful protection or any commercial advantage to the
Company. Additionally, competitors of
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the Company may be able to design around the Company's patents or may seek to
assert their own patent rights against the Company. The laws of certain foreign
countries in which the Company's products are or may be manufactured or sold,
including various countries in Asia, may not protect the Company's products or
intellectual property rights to the same extent as do the laws of the United
States and thus make the possibility of piracy of the Company's technology and
products more likely. There can be no assurance that the steps taken by the
Company to protect its proprietary information will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which have resulted in
significant and often protracted and expensive litigation. Although there is
currently no pending intellectual property litigation against the Company, the
Company or its foundries may from time to time be notified of claims that the
Company may be infringing patents or other intellectual property rights owned by
third parties. If it is necessary or desirable, the Company may seek licenses
under such patents or other intellectual property rights. However, there can be
no assurance that licenses will be offered or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain a license
from a third party for technology used by the Company could cause the Company to
incur substantial liabilities and to suspend the manufacture of products or the
use by the Company's foundries of processes requiring the technology.
Furthermore, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Litigation by or against the
Company could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel, whether or not such
litigation results in a favorable determination for the Company. In the event
of an adverse result in any such litigation, the Company could be required to
pay substantial damages, cease the manufacture, use and sale of infringing
products, expend significant resources to develop non-infringing technology,
discontinue the use of certain processes or obtain licenses to the infringing
technology. There can be no assurance that the Company would be successful in
such development or that such licenses would be available on reasonable terms,
or at all, and any such development or license could require expenditures by the
Company of substantial time and other resources. Patent disputes in the
semiconductor industry have often been settled through cross-licensing
arrangements. Because the Company has a limited portfolio of patents, the
Company may not be able to settle an alleged patent infringement claim through a
cross-licensing arrangement. If a successful claim is made against the Company
or its customers and a license is not made available to the Company on
commercially reasonable terms or if the Company is required to pay substantial
damages or awards, the Company's business, financial condition and operating
results would be materially adversely affected.
The Company generally enters into confidentiality agreements with its
employees and confidentiality and license agreements with its customers and
potential customers, and limits access to and distribution of the source and
object code of its software and other proprietary information. Under some
circumstances, the Company grants licenses that give its customers limited
access to the source code of the Company's software which increases the
likelihood of misappropriation or misuse of the Company's technology.
Accordingly, despite precautions taken by the Company, it may be possible for
unauthorized third parties to copy certain portions of the Company's technology
or to obtain and use information that the Company regards as proprietary. There
can be no assurance that the steps taken by the Company will be adequate to
prevent misappropriation of
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its technology or to provide an adequate remedy in the event of a breach or
misappropriation by others.
Certain technology used in the Company's products is licensed from third
parties. In addition, certain of the Company's products require that certain
copy protection software or other software be obtained if the product is to be
marketable. There can be no assurance that such licenses will continue to be
available on terms acceptable to the Company, if at all. The inability of the
Company to enter such license arrangements on acceptable terms could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company contracts with independent foundries to manufacture all of its
products, enabling the Company to focus on its design strengths, minimize fixed
costs and capital expenditures and gain access to advanced manufacturing
facilities. However, certain of the Company's foundry agreements require
up-front, nonrefundable payments and these fixed costs could adversely affect
the Company's operating margins if the Company is unable to maintain the minimum
wafer usage required under the agreements. The Company is dependent on its
foundries to allocate to the Company a portion of their foundry capacity
sufficient to meet the Company's needs to produce products of acceptable quality
and with acceptable manufacturing yields and to deliver products to the Company
in a timely manner. These foundries fabricate products for other companies and
some manufacture products of their own design. The loss of any of these
foundries as a supplier, the inability of the Company in a period of increased
demand for its products to expand the foundry capacity of its current suppliers
or qualify other wafer manufacturers for additional foundry capacity, any
inability to obtain timely and adequate deliveries from the Company's current or
future suppliers or any other circumstances that would require the Company to
seek alternative sources of supply could delay shipments of the Company's
products, which could damage relationships with its current and prospective
customers, provide an advantage to the Company's competitors and have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's reliance on independent manufacturers and third party
assembly and testing vendors involves a number of additional risks, including
the unavailability of, or interruption in access to, certain process
technologies and reduced control over delivery schedules, quality assurance and
costs. In addition, as a result of the Company's dependence on foreign
subcontractors, the Company is subject to the risks of conducting business
internationally, including foreign government regulation and general political
risks, such as political and economic instability, potential hostilities,
changes in diplomatic and trade relationships, currency fluctuations, unexpected
changes in, or imposition of, regulatory requirements, tariffs, import and
export restrictions, and other barriers and restrictions, potentially adverse
tax consequences, the burdens of complying with a variety of foreign laws and
other factors beyond the Company's control.
The manufacture of semiconductors is a highly complex and precise process.
Minute levels of contaminants in the manufacturing environment, defects in the
masks used to print circuits on a wafer, difficulties in the fabrication process
or other factors can cause a substantial percentage of wafers to be rejected or
a significant number of die on each wafer to be nonfunctional. Many of these
problems are difficult to diagnose and time consuming or expensive to remedy.
The Company's products are particularly complex and difficult to manufacture.
There can be no assurance that the Company's foundries will not experience
irregularities, adverse yield fluctuations in their manufacturing processes or
even temporary shutdowns due to environmental, mechanical or
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labor problems. Any yield or other production problems or shortages of supply
experienced by the Company or its foundries could have a material adverse effect
on the Company's business, financial condition and results of operations.
Sales of the Company's CD-ROM controller products comprised 86% and 93% of
the Company's net revenues in the three months ended March 31, 1997 and 1996,
respectively. Sales of CD-ROM controller products are expected to continue to
account for a substantial portion of the Company's total revenues for the
foreseeable future. The market for CD-ROM controller products continues to
mature and, therefore, it is expected that sales of such products will not
necessarily continue to grow at historical rates and will be influenced by the
traditional seasonality associated with the PC market. In addition, given the
continued maturation of the CD-ROM controller product, the products will
continue to experience increased price pressure. In addition, there can be no
assurance that the Company will be able to sustain the current level of such
product sales or current operating margins. There can be no assurance that the
market for CD-ROM controller products in general, or the Company's CD-ROM
controller products in particular, will support the Company's planned operations
in the future. It is anticipated that the introduction of DVD-ROM drives will
impact the demand for CD-ROM controller products. Any decrease in the overall
level of sales of, or the prices for, the Company's CD-ROM controller products,
due to introductions of products by present or future competitors, a decline in
demand for CD-ROM controller products, product obsolescence or any other reason
would have a material adverse effect on the Company's business, financial
condition and results of operations.
International sales, principally to Taiwan, Japan, Korea and Singapore,
accounted for approximately 98% of the Company's net revenues in each of the
three months ended March 31, 1997 and 1996, respectively. A substantial portion
of the Company's international revenues in the comparison periods were derived
from Japanese, Taiwanese and Korean manufacturers of CD-ROM drives.
Accordingly, the Company is subject to the risks of conducting business outside
of the United States. These risks include unexpected changes in, or impositions
of, legislative or regulatory requirements, delays resulting from difficulty in
obtaining export licenses for certain technology, tariffs, quotas and other
trade barriers and restrictions, longer payment cycles, greater difficulty in
accounts receivable collection, potentially adverse tax rates, the burdens of
complying with a variety of foreign laws and other factors beyond the Company's
control. The Company is also subject to general geopolitical risks in
connection with its international operations, such as political, social and
economic instability, potential hostilities and changes in diplomatic and trade
relationships. There can be no assurance that such factors will not adversely
affect the Company's operations in the future or require the Company to modify
its current business practices. In addition, the laws of certain foreign
countries in which the Company's products are or may be developed, manufactured
or sold, including various countries in Asia, may not protect the Company's
products or intellectual property rights to the same extent as do the laws of
the United States and thus make the possibility of piracy of the Company's
technology and products more likely. Most of the Company's foreign sales are
negotiated in U.S. dollars; however, invoicing is often done in local currency.
As a result, the Company may be subject to the risks of currency fluctuations.
There can be no assurance that one or more of the foregoing factors will not
have a material adverse effect on the Company's business, financial condition or
results of operations or require the Company to modify its current business
practices.
A limited number of customers historically has accounted for a substantial
portion of the Company's net revenues. In the three months ended March 31, 1997
and 1996, sales to the
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Company's top ten customers accounted for approximately 78% and 81%,
respectively, of the Company's net revenues. The Company expects that sales to a
limited number of customers will continue to account for a substantial portion
of its net revenues for the foreseeable future. The Company has experienced
significant changes from year to year in the composition of its major customer
base and believes this pattern will continue. The Company does not have
long-term purchase agreements with any of its customers. Customers generally
purchase the Company's products pursuant to cancelable short-term purchase
orders. The loss of, or significant reduction in purchases by, current major
customers would have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurances that
the Company's current customers will continue to place orders or that existing
orders will not be canceled. If sales to current customers cease or are
reduced, there can be no assurance that the Company will be able to continue to
obtain the orders from new customers necessary to offset any such losses or
reductions.
The Company's future performance depends, to a significant degree, on the
continued retention and contribution of members of the Company's senior
management as well as other key personnel. In addition, the Company is in the
process of recruiting additional senior managers and technical personnel.
Competition for these persons is intense and there can be no assurance that the
Company will be able to attract and retain qualified managers and other
personnel.
In January 1997, Donald R. Bryson, the Company's Chief Operating Officer,
resigned as an officer and Director of the Company. Mr. Bryson continued as an
employee of the Company through April 1997, as director of special projects.
The Company is in the process of recruiting Mr. Bryson's successor.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its cash requirements from
cash generated from operations, the sale of equity securities, bank lines of
credit and long-term and short-term debt. The Company's principal sources of
liquidity as of March 31, 1997 consisted of approximately $128.3 million in
cash, cash equivalents and short-term investments, approximately $25.0 million
in lines of credit with two Japanese financial institutions, of which $18.1
million was available as of March 31, 1997 and approximately $12.8 million in
lines of letters of credit with Taiwanese financial institutions all of which
was available as of March 31, 1997.
During the nine months ended March 31, 1997, operating activities provided
net cash of approximately $46.0 million. This cash resulted primarily from net
income of $21.1 million, an increase in accounts payable and accrued expenses of
$14.7 million, and an increase in income taxes payable, deferred revenue and
other liabilities of $11.7 million. Investing and financing activities utilized
cash of approximately $20.9 million consisting primarily of an investment in a
foundry joint venture of $25.9 million, purchases of property and equipment of
$4.5 million, and a net decrease of debt of $2.1 million partially offset by net
proceeds from matured short term investments of $10.0 million and benefit
related to stock plans of $1.5 million.
The Company believes that its existing cash, cash equivalents, short-term
investments and credit facilities will be sufficient to provide adequate working
capital and to fund necessary purchases of property and equipment through at
least the next twelve months. Capital expenditures for the remainder of fiscal
1997 are anticipated to be approximately $1.5 million. The Company
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may also utilize cash to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies. From time to
time, in the ordinary course of business, the Company evaluates potential
acquisitions of such businesses, products or technologies. However, the Company
has no present understandings, commitments or agreements with respect to any
material acquisition of other businesses, products or technologies.
In June and November 1995, the Company entered into agreements with Taiwan
Semiconductor Manufacturing Company ("TSMC") and Chartered Semiconductor
Manufacturing Ptd. Ltd. ("Chartered") to obtain certain additional wafer
capacity through the year 2001. The agreements called for the Company to
deposit funds with the suppliers as either a portion of the price of the
additional wafers in advance of their delivery or as a non-interest bearing
deposit to secure the availability of additional wafers.
In October 1996 the Company amended its previous agreement with TSMC. In
September 1996 and April 1997 the Company amended its previous agreement with
Chartered. The amendments resulted in a reduction and deferral of the Company's
future wafer purchase commitments and the elimination of required future cash
deposits of approximately $73 million under the original foundry arrangements.
The execution of these agreements reduced the Company's wafer purchase
commitments during the remainder of calendar 1996 and thereafter and resulted in
a favorable manufacturing cost adjustment recorded to cost of revenues of $1.5
million during each of the quarters ended December 31, 1996 and September 30,
1996.
Deposits paid under the amended agreements are recorded at cost and total
approximately $41.8 million as of March 31, 1997. Pursuant to the terms of the
amended agreements, this entire amount represents deposits to be used as a
portion of the price to be paid for future wafers. If the Company is not able
to use, assign, or sell the additional wafer quantities, all or a portion of
certain deposits may be forfeited which would result in a charge to cost of
revenues. The amended Chartered agreement, requires future cash deposits of
approximately $36 million which could be reinstated if certain conditions are
not met. The Company currently believes the terms and conditions of the
agreement as amended will be met and that these commitments will not be
reinstated although no assurance can be given in this regard.
In October 1995, the Company entered into a series of agreements with
United Microelectronics Corporation to form, along with other investors, a
separate Taiwanese company, United Integrated Circuits Corporation "UICC", for
the purpose of building and managing a semiconductor manufacturing facility in
the Science Based Industrial Park in Hsin Chu City, Taiwan, Republic of China.
The Company has agreed to invest approximately $60 million for a 10% equity
position in the venture. In January 1996, the Company made an initial payment
of $13.7 million and in January 1997, the Company made a second payment of $25.9
million due under this agreement. The final payment of $15.0 million under this
agreement is due in fiscal 1998.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and various of its current and former officers and Directors are
parties to several lawsuits which purport to be class actions filed on behalf of
all persons who purchased or acquired the Company's stock (excluding the
defendants and parties related to them) for the period July 27, 1995 through
May 22, 1996. The first, a state court proceeding designated as IN RE OAK
TECHNOLOGY SECURITIES LITIGATION, in Santa Clara County Superior Court in Santa
Clara, California, consolidates five putative class actions. This lawsuit also
names as defendants several of the Company's venture capital fund investors, two
of its investment bankers and two securities analysts. The plaintiffs allege
violations of California securities laws and statutory deceit provisions as well
as breach of fiduciary duty and abuse of control.
The Company and various of its current and former officers and Directors
are also parties to four putative class action lawsuits pending in the U.S.
District Court for the Northern District of California. These actions have been
consolidated as IN RE OAK TECHNOLOGY, INC. SECURITIES LITIGATION, Case No.
C-96-20552-SW(PVT). This action alleges certain violations of federal
securities laws and is brought on behalf of purchasers of the Company's stock
for the period July 27, 1995 through May 22, 1996. This action also names as a
defendant one of the Company's investment bankers.
Additionally, various of the Company's current and former officers and
Directors are defendants in three consolidated derivative actions pending in
Santa Clara County Superior Court in Santa Clara, California, entitled IN RE OAK
TECHNOLOGY DERIVATIVE ACTION. This lawsuit asserts a claim for breach of
fiduciary duty and a claim under California securities law based upon the
officers' and Directors' trading in securities of the Company.
In all of the putative state and federal class actions, the plaintiffs are
seeking monetary damages and equitable relief. In the derivative action, the
plaintiffs are also seeking an accounting for the defendants' sales of Company
stock and the payment of monetary damages to the Company. All of these actions
are in the early stages of proceedings and the Company is currently
investigating the allegations. Based on its current information, the Company
believes the suits to be without merit and will defend its position vigorously.
No provision for any liability that may result upon adjudication has been made
in the Company's Consolidated Financial Statements.
In connection with these legal proceedings, the Company has incurred,
and expects to continue to incur, substantial legal and other expenses.
Shareholder suits of this kind are highly complex and can extend for a
protracted period of time, which can substantially increase the cost of such
litigation and divert the attention of the Company's management.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated by reference
herein.
Exhibit
Number Exhibit Title
------- -------------
3.01 The Company's Restated Certificate of Incorporation,
amended (1)
3.02 The Company's Restated Bylaws (2)
4.01 Form of Specimen Certificate for the Company's
Common Stock (3)
4.02 Amended and Restated Registration Rights Agreement
dated as of October 15, 1993 among the Company and
various investors (3)
4.03 The Company's Restated Certificate of Incorporation,
as amended (See Exhibit 3.01)
4.04 The Company's Restated Bylaws (See Exhibit 3.02)
10.01 1988 Stock Option Plan, as amended and related documents
(3)*
10.02 1994 Stock Option Plan and related documents (3) and
amendment thereto dated February 1, 1996 (4)*
10.03 1994 Outside Directors' Stock Option Plan and related
documents (3)*
10.04 1994 Employee Stock Purchase Plan (3)*
10.05 401(k) Plan and related documents (3) and Amendment Number
One and Supplemental Participation Agreement thereto (5)*
10.06 Lease Agreement dated August 3, 1988 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (John
Arrillaga Separate Property Trust) as amended and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust) as amended, and
Justin Jacobs, Jr., dba Siri-Kifer Investments, a joint
venture, and the Company, as amended June 1, 1990, and
Consent to Alterations dated March 26, 1991 (lease agreement
for 139 Kifer Court, Sunnyvale, California) (3), and
amendments thereto dated June 15, 1995 and July 19, 1995 (5)
23
<PAGE>
10.07 Lease Agreement dated August 22, 1994 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (John
Arrillaga Separate Property Trust) as amended and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust) as amended, and
Justin Jacobs, Jr., dba Siri-Kifer Investments, a joint
venture, and the Company (lease agreement for 140 Kifer
Court, Sunnyvale, California) (3), and amendment thereto
dated June 15, 1995 (5)
10.08 Form of Indemnification Agreement, between the Company and
each of its Directors and executive officers (14)
10.09 VCEP Agreement dated July 30, 1990 between the Company and
Advanced Micro Devices, Inc. (3)
10.10 Product License Agreement dated April 13, 1993 between the
Company and Media Chips, Inc., as amended September 16, 1993
(3)
10.11 Resolutions of the Board of Directors of the Company dated
July 27, 1994 setting forth the provisions of the Executive
Bonus Plan (3) (12)*
10.12 Employee Incentive Plan effective January 1, 1995 (3)*
10.13 Option Agreement between Oak Technology, Inc., and Taiwan
Semiconductor Manufacturing Co., Ltd. dated as of August 8,
1996 (14)**
10.14 Foundry Venture Agreement between the Company and United
Microelectronics Corporation dated as of October 2, 1995
(6) (12)
10.15 Fab Ven Foundry Capacity Agreement among the Company, Fab
Ven and United Microelectronics Corporation dated as of
October 2, 1995 (7) (12)
10.16 Written Assurances Re: Foundry Venture Agreement among the
Company, United Microelectronics Corporation and Fab Ven
dated as of October 2, 1995 (8) (12)
10.17 Lease Agreement dated June 15, 1995 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (John
Arrillaga Separate Property Trust) as amended and Richard
T. Peery, Trustee, or his Successor Trustee, UTA dated
7/20/77 (Richard T. Peery Separate Property Trust) as
amended, and the Company (lease agreement for 130 Kifer
Court,Sunnyvale, California) (9), and amendments thereto
dated June 15, 1995 and August 18, 1995 (10)
24
<PAGE>
10.18 Deposit Agreement dated November 8, 1995 between Chartered
Semiconductor Manufacturing Ltd. and the Company (11), and
Amendment Agreement (No. 1) thereto dated September 25, 1996
(13)**
10.19 Amendment Agreement (No. 2) dated April 7, 1997 to Deposit
Agreement dated November 8, 1995 between Chartered
Semiconductor Manufacturing Ltd. and the Company**
11.01 Statement regarding computation of net income per share
27.01 Financial Data Schedule
- -------------------
(1) Incorporated herein by reference to exhibit 3.01 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
(2) Incorporated herein by reference to exhibit 3.05 filed with the Company's
Registration Statement on Form S-1 (File No. 33-87518) declared effective
by the Securities and Exchange Commission on February 13, 1995 (the
"February 1995 Form S-1").
(3) Incorporated herein by reference to the exhibit with the same number filed
with the February 1995 Form S-1.
(4) Incorporated herein by reference to Exhibit 10.1 filed with the Company's
Registration Statement on Form S-8 (File No. 333-4334) on May 2, 1996.
(5) Incorporated herein by reference to the exhibit with the same number filed
with the Company's Annual Report on Form 10-K for the year ended June 30,
1996.
(6) Incorporated herein by reference to Exhibit 2.1 filed with the Company's
Form 8-K dated October 2, 1995 (the "October 1995 form 8-K").
(7) Incorporated herein by reference to Exhibit 2.2 filed with the October 1995
Form 8-K.
(8) Incorporated herein by reference to Exhibit 2.3 filed with the October 1995
Form 8-K.
(9) Incorporated herein by reference to Exhibit 10.08 filed with the Company's
Annual Report on Form 10-K for the year ended June 30, 1995.
(10)Incorporated herein by reference to Exhibit 10.08 filed with the Company's
Annual Report on Form 10-K for the year ended June 30, 1996.
(11)Incorporated herein by reference to Exhibit 10.04 filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.
(12)Confidential treatment has been granted with respect to portions of this
exhibit.
(13)Incorporated herein by reference to Exhibit 10.17 filed with the Company's
Annual Report on Form 10-K for the year ended June 30, 1996.
(14)Incorporated herein by reference to the exhibit with the same number filed
with the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
* Indicates Management incentive plan.
** Confidential treatment granted and/or requested as to portions of the
exhibit.
(b) The Company did not file any reports on Form 8-K during the three
months ended March 31, 1997.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OAK TECHNOLOGY, INC.
(Registrant)
Date: May 13, 1997
/s/ SIDNEY S. FAULKNER
-------------------------
Sidney S. Faulkner
Vice President, Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
26
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
------ -------------
10.19 Amendment Agreement (No. 2) dated April 7, 1997 to Deposit
Agreement dated November 8, 1995 between Chartered
Semiconductor Manufacturing Ltd. and the Company**
11.01 Statement regarding computation of net income per share
27.01 Financial Data Schedule
- -----------------
** Confidential treatment granted and/or requested as to portions of the
exhibit.
27
<PAGE>
* CONFIDENTIAL TREATMENT - EDITED COPY
EXHIBIT 10.19
DATED THIS 7TH DAY OF APRIL 1997
BETWEEN
CHARTERED SEMICONDUCTOR MANUFACTURING LTD
AND
OAK TECHNOLOGY, INC.
-----------------------------------------------------------
AMENDMENT AGREEMENT (NO. 2)
TO
DEPOSIT AGREEMENT DATED 8 NOVEMBER 1995
-----------------------------------------------------------
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
BRACKETED PORTIONS WHICH HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
<PAGE>
[ * ] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
BRACKETED PORTIONS WHICH HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
AMENDMENT AGREEMENT (NO. 2)
THIS AMENDMENT AGREEMENT (NO. 2) is made the 7th day of April 1997, by and
between:-
(1) CHARTERED SEMICONDUCTOR MANUFACTURING LTD, a company incorporated in
Singapore and having its place of business at 60 Woodlands Industrial
Park D, Street 2, Singapore 738406 ("CSM"); and
(2) OAK TECHNOLOGY, INC., a company incorporated in Delaware and having its
place of business at 139 Kifer Court, Sunnyvale, CA 94086, United States
of America ("Customer").
WHEREAS
(A) CSM and Customer had entered into a Deposit Agreement dated 8 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 had entered into an Amendment Agreement (No. 1) dated
25 September 1996 to effect the suspension and variation of certain
provisions of the Deposit Agreement upon the terms and conditions set
out therein.
(C) CSM and Customer are entering into this Amendment Agreement (No. 2) to
supersede the Amendment Agreement (No. 1) and to effect the suspension
and variation of certain provisions of the Deposit Agreement upon the
terms and conditions set out herein.
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 (No. 2) shall have the same
meaning and construction in this Amendment Agreement (No.2).
2. AMENDMENT AGREEMENT (NO. 1) SUPERSEDED
With effect from the date of this Amendment Agreement (No. 2), the terms
and conditions of Amendment Agreement (No. 1) shall be superseded by the
terms
<PAGE>
[ * ] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
BRACKETED PORTIONS WHICH HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
and conditions of this Amendment Agreement (No. 2) and shall cease to
have any force or effect.
3. CONDITION PRECEDENT
The provisions of Clause 5 herein, are subject to and conditional upon
each of the following condition precedents being satisfied, and the
provisions of Clause 5 herein shall cease to have any force or effect if
any of the following condition precedents are not satisfied:
3.1 by [ * ] Customer shall tape out a [ * ] Logic "[ * ]" product
("[ * ] Product") at CSM's wafer fabrication facilities situated in
Singapore; and
3.2 During the period commencing from the date of this Amendment
Agreement (No. 2) to [ * ], Customer shall place purchase orders
with CSM and take delivery of an aggregate total of [ * ] wafers for
any [ * ] logic products (including but not limited to the "[ * ]"
Product) from CSM; and
3.3 by [ * ], Customer shall tape out a [ * ] Logic product ("[ * ]
Logic Product") at CSM's wafer fabrication facilities situated in
Singapore.
4. EFFECTIVE DATE
The Parties agree that the term "Effective Date" shall refer to [ * ], if
Customer fulfills each of the condition precedents set out in Clauses
3.1, 3.2 and 3.3 above.
5. SUSPENSION OF CERTAIN TERMS OF DEPOSIT AGREEMENT
The Parties agree that subject to the terms of this Amendment Agreement
(No. 2) and provided that each of the condition precedents set out in
Clauses 3.1, 3.2 and 3.3 above are satisfied, for the period from the
Effective Date until [ * ] (hereinafter known as the "Suspension
Period"), certain provisions of the Deposit Agreement shall be suspended
and shall not apply to the Parties and in place of the same, the
following provisions shall apply during the Suspension Period instead:
5.1 CLAUSE 1 (THE DEPOSIT)
(a) Clause 1.1 shall be suspended and in its place, the following
provision shall apply:
<PAGE>
[ * ] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
BRACKETED PORTIONS WHICH HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
"1.1 As at the date of this Agreement, Customer has deposited
with CSM the sum of [ * ] (the "Deposit").
(b) Clause 1.2 shall be suspended.
(c) Clause 1.3 shall be suspended and in its place, the following
provision shall apply:
"1.3 Upon the expiry of the term of this Agreement or the
earlier termination thereof in accordance with Clause 6
or Clause 7.2, 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."
5.2 CLAUSE 2 (CSM SUPPLY COMMITMENT)
(a) Clause 2.1 shall be suspended and in its place, the following
provision shall apply:
"2.1 CSM agrees that for the duration of the Suspension Period,
CSM will make available to Customer wafer manufacturing
capacity for [ * ] wafers of a sufficient quantity so that
Customer is able to utilise the [ * ] Deposit amount given
the credit rate set forth in Clause 5.4 below during the
Suspension Period."
(b) Clause 2.3 shall be suspended and in its place, the following
provision shall apply:
"2.3 CSM reserves the right to adjust the pricing of wafers to
be supplied by CSM from time to time depending on
prevailing market conditions, provided however that CSM
shall give Customer not less than 3 months' prior written
notice of such adjustment. In any event, the price of
wafers supplied to Customer shall be based upon then
prevailing market conditions as compared to prices
provided by other independent wafer foundries for similar
products, processes and quantities. An "independent wafer
foundry" means a company which engages in the business of
manufacturing semiconductor integrated circuits for sale
only to third parties. Accordingly, a company which
manufactures semiconductor integrated circuits for use in
its own proprietary semiconductor
<PAGE>
[ * ] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
BRACKETED PORTIONS WHICH HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
products or end-products is not considered an independent
wafer foundry."
5.3 CLAUSE 3 (CUSTOMER LOADING COMMITMENT)
Clauses 3.1, 3.2 and 3.3 shall be suspended.
5.4 CLAUSE 4 (LIQUIDATED DAMAGES)
Clauses 4.1, 4.2, 4.3, 4.4 and 4.5 shall be suspended.
5.5 CLAUSE 5 (SET OFF AND MAINTENANCE OF DEPOSIT)
Clauses 5.1, 5.2 and 5.3 shall be suspended and in their place, the
following provisions shall apply:
"5.1 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.
5.2 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
[ * ] less such amounts that may have been refunded by CSM to
Customer pursuant to Clause 5.4 below.
5.3 CSM's right of deduction and set-off pursuant to Clause 5.2
shall be in addition to CSM's right to claim the aforesaid
overdue payments separately as a debt due from Customer and
shall not in any way prejudice such right or any other rights
or remedies which CSM may have at law or in equity.
5.4 For the period:
(a) the date of this Amendment Agreement (No. 2) to [ * ], for
every [ * ] logic [ * ] wafer that CSM ships to Customer,
CSM will refund to Customer the sum of [ * ] from the
Deposit within 30 days from [ * ];
(b) [ * ] to [ * ] (i) for every [ * ] Logic [ * ] wafer (up
to [ * ] wafers) that CSM ships to Customer, Customer is
entitled to a wafer credit of the
<PAGE>
[ * ] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
BRACKETED PORTIONS WHICH HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
sum of [ * ] from the Deposit; and (ii) for every [ * ]
Logic [ * ] wafer in excess of [ * ] wafers that CSM
ships to Customer, Customer is entitled to a wafer credit
of the sum of [ * ] from the Deposit;
(c) [ * ] to [ * ], (i) for every [ * ] Logic [ * ] wafer (up
to [ * ] wafers) that CSM ships to Customer, Customer is
entitled to a wafer credit of the sum of [ * ] from the
Deposit; and (ii) for every [ * ] Logic [ * ] wafer in
excess of [ * ] wafers that CSM ships to Customer,
Customer is entitled to a wafer credit of the sum of [ * ]
from the Deposit;
For the purpose of clarity, the provisions set out in Clauses
5.4(b) and (c) above are represented in the following table:
---------------------------------------------------------------
Period No. of wafers Amount
purchased deductible
---------------------------------------------------------------
[ * ] to [ * ] [ * ] to [ * ] [ * ] per wafer
[ * ]
---------------------------------------------------------------
[ * ] and more [ * ] per wafer
---------------------------------------------------------------
[ * ] to [ * ] [ * ] to [ * ] [ * ] per wafer
[ * ]
---------------------------------------------------------------
[ * ] and more [ * ] per wafer
---------------------------------------------------------------
(d) The wafer credits referred to in Clauses 5.4(b) and (c)
above will be paid out of the Deposit. CSM shall issue
Customer a credit note for such wafer credits within 30
days of the date of the invoices for [ * ] Logic [ * ]
wafer purchases made in accordance with Clauses 5.4(b)
and (c), save that for any [ * ] Logic [ * ] wafer
purchases made by Customer for the period from [ * ] to
[ * ] pursuant to Clause 5.4(b), CSM shall issue a credit
note for the wafer credits relating to such purchases
within 30 days of [ * ];
(e) In no event will the aggregate amount of the refunds or
wafer credits granted to Customer pursuant to the
provisions set out in Clauses 5.4(a), (b) or (c) above
exceed the existing Deposit of [ * ]; and
(f) In the event that Embedded Memory technology is available
at CSM's wafer fabrication facilities situated in
Singapore, Customer is entitled to elect to purchase
<PAGE>
[ * ] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
BRACKETED PORTIONS WHICH HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
wafers in either [ * ] Logic or [ * ] Embedded Memory or
both, on the provisions set out in Clauses 5.4(b) and (c)
above. CSM shall use best efforts to make CSM's [ * ]
libraries available to Customer and Customer shall be
permitted to access and utilise CSM's [ * ] libraries
provided that such access and utilisation shall be only to
the extent that is permitted by the relevant licensors
who may have granted CSM a license over such libraries."
5.6 CLAUSE 6 (TERM AND TERMINATION)
Clauses 6.1(a), (b) and (c) shall be suspended.
5.7 ANNEX A (PAYMENT SCHEDULE)
Annex A shall be suspended.
5.8 ANNEX B (CSM SUPPLY COMMITMENT/CUSTOMER LOADING COMMITMENT)
Annex B shall be suspended except as provided in Clause 2.1 of the
Deposit Agreement.
5.9 In addition to the suspension of Clause 1.1 and Annex A of the
Deposit Agreement, provided that each of the condition precedents
set out in Clause 2 of this Amendment Agreement (No. 2) are
satisfied, the Deposit amounts due and payable by Customer on 2
January 1996, 2 January 1997 and 2 January 1998 as specified in
Annex A, shall be suspended for the duration of the Suspension
Period.
5.10 The provisions of Clauses 11.1, 11.2 and 11.3 of the Deposit
Agreement are subject to the provisions of this Amendment Agreement
(No. 2).
6. ASSISTANCE TO TAPE OUT
CSM shall use its best efforts to provide reasonable assistance to
Customer to tape out [ * ] logic products, as well as a [ * ] Logic
Product at CSM's wafer fabrication facilities situated in Singapore.
7. TERMINATION OF DEPOSIT AGREEMENT
7.1 Provided that each of the condition precedents in Clauses 3.1, 3.2
and 3.3 above have been fulfilled, the Deposit Agreement shall be
automatically
<PAGE>
[ * ] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
BRACKETED PORTIONS WHICH HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
terminated on [ * ] if the Deposit is reduced to zero by [ * ] as a
result of Customer obtaining refunds or utilising the Deposit
towards payment of wafers in accordance with the provisions in
Clause 5.5 above.
7.2 In the event the Deposit is not reduced to zero by [ * ], all the
terms of the Deposit Agreement shall apply for the period [ * ] to
the expiry of the Deposit Agreement, in full force and effect
without any amendments or suspensions.
8. SAVING AND INCORPORATION
8.1 Save as expressly varied by the terms of this Amendment Agreement
(No. 2), the terms and conditions of the Deposit Agreement shall
continue to be in full force and effect in all other respects.
8.2 The Deposit Agreement and this Amendment Agreement (No. 2) shall be
construed as one document and this Amendment Agreement (No. 2) 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 (No. 2) 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 (No. 2).
9. GOVERNING LAW
This Amendment Agreement (No. 2) shall be governed by and construed in
accordance with the laws of Singapore. The Parties hereby irrevocably
submit to the non-exclusive jurisdiction of the courts of Singapore.
<PAGE>
IN WITNESS WHEREOF the Parties have hereunto entered into this Amendment
Agreement (No. 2) the date first above written.
Signed by Tan Bock Seng, )
President & CEO, )
CHARTERED SEMICONDUCTOR )
MANUFACTURING LTD ) /s/ Tang Bock Seng
in the presence of: ) --------------------------------
/s/ Patricia Yong
- -----------------------------------
Name: Patricia Yong, Legal Officer
Signed by David D. Tsang, )
President, )
OAK TECHNOLOGY, INC. ) /s/ David D. Tsang
in the presence of: ) --------------------------------
- -----------------------------------
Name: Shawn M. Soderberg,
General Counsel
<PAGE>
EXHIBIT 11.01
OAK TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- -------
Statement of operations data:
Net income....................... $ 9,540 $ 22,183 $ 21,075 $ 53,633
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common
and dilutive common equivalent
shares used in computations:
Common stock.................. 40,532 39,166 40,469 39,010
Stock options and other
common stock equivalents.... 2,269 3,589 2,161 3,707
-------- -------- -------- --------
Shares used in computing net income
per share...................... 42,801 42,755 42,630 42,717
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share (1)............ $ 0.22 $ 0.52 $ 0.49 $ 1.26
-------- -------- -------- --------
-------- -------- -------- --------
(1) The difference between the primary and fully diluted shares used in
computing net income per share is not material.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Income found
on pages 3 and 4 of the Company's Form 10-Q for the year to date and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 69,982
<SECURITIES> 58,335
<RECEIVABLES> 24,792
<ALLOWANCES> 534
<INVENTORY> 12,915
<CURRENT-ASSETS> 192,843
<PP&E> 20,526
<DEPRECIATION> 9,623
<TOTAL-ASSETS> 285,664
<CURRENT-LIABILITIES> 41,236
<BONDS> 2,718
0
0
<COMMON> 41
<OTHER-SE> 234,924
<TOTAL-LIABILITY-AND-EQUITY> 285,664
<SALES> 117,171
<TOTAL-REVENUES> 117,171
<CGS> 48,270
<TOTAL-COSTS> 48,270
<OTHER-EXPENSES> 39,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 371
<INCOME-PRETAX> 32,422
<INCOME-TAX> 11,347
<INCOME-CONTINUING> 21,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,075
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
