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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
---------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 0-21904
CYRIX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2218250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2703 NORTH CENTRAL EXPRESSWAY, RICHARDSON, TX 75080
(Address of principal executive offices, including zip code)
972-968-8387
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
require to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $.004 PAR VALUE 19,908,039
(Title of Each Class) (Number of Shares Outstanding at
October 6, 1997)
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13, OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
CYRIX CORPORATION
FORM 10-Q/A
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997 as set forth in the
pages attached hereto:
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CYRIX CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth items from Cyrix's Consolidated
Statements of Income as percentages of net revenues:
<TABLE>
FISCAL QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net product sales 98.8 % 92.7 % 98.9 % 94.4 %
Royalty revenue 1.2 7.3 1.1 5.6
------------ ------------ ------------- ------------
Net revenues 100.0 100.0 100.0 100.0
Cost of sales 62.9 97.9 58.2 67.1
Marketing, general and administrative 28.0 51.6 19.8 34.3
Research and development 27.1 32.5 18.1 20.9
------------ ------------ ------------- ------------
Income (loss) from operations (18.0) (82.0) 3.9 (22.3)
Net interest expense (2.1) (6.7) (2.1) (4.4)
------------ ------------ ------------- ------------
Income (loss) before provision for income
taxes and extraordinary loss from early
extinguishment of debt ( 20.1) (88.7) 1.8 (26.7)
Provision (benefit) for income taxes (6.9) (31.9) 0.6 (9.7)
------------ ------------ ------------- ------------
Net income (loss) before extraordinary
loss from early extinguishment of debt (13.2) (56.8) 1.2 (17.0)
------------ ------------ ------------- ------------
Extraordinary loss from early
extinguishment of debt 0.0 (3.9) 0.0 (1.4)
============ ============ ============= ============
Net income (loss) (13.2) % (60.7) % 1.2 % (18.4) %
============ ============ ============= ============
</TABLE>
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RESULTS OF OPERATIONS
NET REVENUES. Net product sales of $39.5 million for the second quarter
of fiscal 1997 increased 57% compared with $25.1 million for the second quarter
of fiscal 1996. Net product sales of $114.4 million for the six months ended
June 30, 1997 increased 54% compared with $74.3 million for the same period of
fiscal 1996. Processor unit shipments for the quarter and six months ended June
30, 1997 increased by 57% and 14%, respectively, compared with unit shipments of
the same periods of fiscal 1996. During the six months ended June 30, 1997,
sales of MediaGXTM and 6x86TM microprocessors accounted for over 94% of the
Company's net product sales; sales of 6x86TM and 5x86TM microprocessors
represented over 92% of the Company's net product sales during the same period
of 1996. Net revenues for the quarter and six months ended June 30, 1997
included $500 thousand and $1.3 million of royalty payments, respectively. Net
revenues for the quarter and six months ended June 30, 1996 included $2.0
million and $4.4 million of royalty payments, respectively. Royalties are
received from Texas Instruments and SGS-Thomson based upon sales of products
licensed to them by the Company.
Sales of processors to international customers constituted 75% and 67%
of processor product sales in the second quarters of fiscal 1997 and 1996,
respectively. Sales of processors to international customer constituted 61% and
57% of processor product sales in the six months ended June 30, 1997 and 1996,
respectively. Sales of processors to international customers are made primarily
to customers in Europe, Taiwan, Hong Kong, Korea and Japan.
Demand for Cyrix's 6x86TM non-MMXTM technology product declined
significantly in the second quarter of 1997 compared to the first quarter of
1997. This decline was due largely to competition from both Intel's and AMD's
MMXTM technology products introduced in the fourth quarter of 1996 and the
first quarter of 1997. While Cyrix's 6x86MXTM with MMXTM technology was
introduced late in the second quarter of 1997 and initial sales results appear
promising, Cyrix's results in the second half will continue to be negatively
impacted as Cyrix reduces the average selling price of the 6x86TM non-MMXTM
product..
In addition, during the first fiscal quarter of 1997, Cyrix introduced
its MediaGXTM processor, which incorporates many of the functions performed by
peripheral components of traditional PCs into the processor and allows computer
manufacturers to sell complete personal computers at retail prices under one
thousand dollars. Although the product has been introduced and Cyrix has been
able to produce and sell commercial quantities of such processors, the Company's
success in the second half of 1997 is, in part, dependent upon continued success
of this product. Since the MediaGXTM processor requires a motherboard that
differs from the industry standard motherboard, the product's success is also
dependent upon personal computer manufacturers who have the ability and desire
to market a personal computer that uses such non-standard components. Although
the Company has been able to sell significant quantities of its MediaGXTM
product, continued revenue and margin growth will be dependent upon obtaining
additional customers for the product and minimizing the declines in average
sales prices over the remainder of the product's life cycle.
GROSS MARGINS. The Company's gross margin increased to $14.8 million
for the second fiscal quarter of 1997 from $0.6 million for the same period of
1996. The Company's gross margin increased to $48.3 million for the six months
ended June 30, 1997 from $25.9 million for the same period of 1996. Although
margins fell on the 6x86TM during the second fiscal quarter due to competitive
pressures and the product nearing the end of its lifecycle, the product mix in
the second fiscal quarter of 1997 was more diversified than in the same period
of 1996, containing products with higher margins representing approximately 50%
of unit sales for the second fiscal quarter of 1997 and approximately 30% of
units sales for the six months ended June 30, 1997. In addition, the increase in
gross margins for the six months ended June 30, 1997 was due to continued
improvements in manufacturing processes which reduced product die sizes and
provided better yields.
Cyrix's gross margin decreased from $25.3 million in the first quarter
of 1996 to $0.6 million in the second quarter of 1996 due to the transition to
Cyrix's 6x86TM product, related inventory reserves and a significant charge to
the allowance for uncollectible accounts. Price allowances granted in order to
sell existing products resulted in charges of $8.3 million. Inventory reserves
in the amount of $2.8 million were also recorded and a charge for losses on
uncollectible accounts in the amount of $2 million was recorded.
Quarterly growth, if any, in the Company's gross margin in the
remainder of fiscal 1997 is dependent upon the market acceptance of its
MediaGXTM and 6x86MXTM processors. Risks associated with enhancing the designs
of, ramping production of, and obtaining sales orders for such microprocessors
are discussed in NET REVENUES (above), RELIANCE ON THIRD-PARTY MANUFACTURERS
(below) and PRODUCT TRANSITIONS (below).
<PAGE>
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses for the second quarters of fiscal 1997 and 1996 were
$11.2 million and $14 million, respectively. Marketing, general and
administrative expenses for the six months ended June 30, 1997 and 1996 were
$22.9 million and $27 million, respectively. Marketing, general and
administrative expenses for the quarter and six months ended June 30, 1997
decreased compared with the same period of fiscal 1996 primarily due to a
decline in sales and marketing expenses associated with the personal computer
systems business from which the company has withdrawn.
RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and
development expenses for the second fiscal quarters of 1997 and 1996 were $10.8
million and $8.8 million, respectively. The Company's research and development
expenses for the six months ended June 30, 1997 and 1996 were $21 million and
$16.5 million, respectively. The increase of research and development expenses
in the quarter and six months ended June 30, 1997 compared with the same period
of 1996 was attributable to the expansion of the Company's engineering staff,
design equipment and prototype expenses to support the development of multiple
microprocessor products. The Company intends to continue to increase its
research and development expenses in an effort to enhance existing products and
develop technologically advanced products.
NET INTEREST EXPENSE. Interest expense for the fiscal quarter ended
June 30, 1997 increased to $2.5 compared to $2.2 million for the same period of
fiscal 1996. Interest expense for the six months ended June 30, 1997 increased
to $5.1 million compared to $4.3 million for the same fiscal period of fiscal
1996. Interest income for the fiscal quarter ended June 30, 1997 increased to
$1.6 million compared to approximately $400 thousand for the same period of
fiscal 1996. Interest income for the six months ended June 30, 1997 increased to
$2.7 million compared to approximately $800 thousand for the same period of
fiscal 1996. The increase in interest expense is due primarily to higher loan
balances partially offset by lower interest rates. The increase in interest
income is due primarily to higher cash and investment balances in the first six
months of 1997 compared to the first six months of 1996.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company's effective tax
rate was 33% and 36% in the six months ended June 30, 1997 and 1996,
respectively.
OTHER FACTORS AFFECTING RESULTS OF OPERATIONS.
RELIANCE ON THIRD-PARTY MANUFACTURERS. All of the Company's processors
produced in 1996 and the first six months of 1997 were manufactured and sold to
the Company by IBM. The Company's 6x86MXTM microprocessors are more complex than
its earlier generation microprocessors and such microprocessors require more
advanced manufacturing processes than those required for the Company's previous
products. Further, there can be no assurance that Cyrix will be able to
successfully ramp and sustain production of its MediaGXTM and 6x86MXTM products
at IBM without experiencing yield problems or performance issues in the
remainder of fiscal 1997 and beyond.
The Company's reliance on third party manufacturers creates risks that
the Company will not be able to obtain capacity to meet its manufacturing
requirements, will not be able to obtain products with acceptable performance
and cost, will not have access to necessary process technologies and the
possible breakdown in the relationship with the third-party manufacturers.
Further, the Company has licensed some of its intellectual property to SGS and
IBM to obtain access to specified levels of manufacturing capacity, and the
Company could be required to license more of its intellectual property and
product rights and proprietary technology to obtain additional manufacturing
capacity. Thus, the Company currently faces competition from IBM and may also
face additional competition from SGS in the future. The Company's reliance on
third party manufacturers could have a material adverse affect on the Company's
revenues and operating results.
SEASONALITY OF BUSINESS. In general, Cyrix's revenue would be expected
to follow the seasonal trends of the personal computer and related industries,
which reflect the lowest revenue in the second quarter, modest revenue growth in
the third quarter as PC makers build inventory for "back to school" promotions,
and strong revenues in the fourth and first quarters as PC makers build
inventory for holiday and post-holiday promotions. This seasonal trend is
expected to continue.
Although Cyrix's revenues have been affected somewhat by the seasonal
trends described above, other factors including the timing of new product
introduction, product life cycles, product availability, and competitive factors
have had a greater impact on revenues.
In 1994, no seasonal trends were evident as a shortage of product
availability allowed Cyrix to sell everything it produced. The fourth quarter of
1995 deviated from expected seasonal trends due to new product introductions by
competitors and the fact that the 5x86TM product was at the end of its product
life, resulting in lower average selling prices. In 1996, revenues followed more
closely the expected seasonal trends. For the year ended December 31, 1996,
annual sales distributed by quarter were as follows: first quarter 28%, second
quarter 15%, third quarter 18% and fourth quarter 39%.
<PAGE>
PRODUCT TRANSITIONS. Once current microprocessor products have been in
the market place for a period of time and begin to be replaced by higher
performance microprocessors (whether of the Company's or a competitor's design),
the Company expects the price of such earlier generation microprocessors to
decline and net sales and gross margins of such microprocessors to decrease. In
order to continue to maintain its then current gross margin and levels of
revenue growth, if any, the Company will therefore be required to design,
develop and successfully commercialize next generation microprocessors in a
timely manner. Although the Company is committed to its product development
efforts, there can be no assurance that the Company will be able to introduce
new products quickly enough to avoid adverse revenue transition patterns during
future product transitions.
During the first and second quarters of 1997, respectively, Cyrix
introduced its MediaGXTM processor and its 6x86MXTM processor, which contributed
to the decline in prices and margins for its 6x86TM processors. If the MediaGXTM
and 6x86MXTM products do not offer performance, features and pricing attractive
to the personal computer industry, the Company may build excess inventory or
experience net losses similar to those incurred in fiscal 1996. Additionally,
Intel and several of the Company's other competitors have substantially greater
financial, technical, manufacturing and marketing resources than the Company and
they may introduce new microprocessor designs with features or performance that
exceed those contained in the Company's new products. The success of the product
transition from 6x86TM to MediaGXTM and 6x86MXTM, as well as future products,
will continue to be dependent upon several factors including, but not limited
to, the following: Cyrix may experience performance difficulties with the new
product designs; Cyrix may not be able to successfully ramp production of new
products at IBM or other qualified foundries without yield problems or other
performance issues; and personal computer manufacturers may not design the
Company's new products into their notebook and desktop computers in a timely
manner or purchase the Company's products in the volumes and at the prices
necessary to offset the declining market, average selling prices and profit
margins of the Company's microprocessors.
PURCHASE COMMITMENTS. The Company has entered into two manufacturing
agreements with IBM. The Company entered into the first of such agreements (the
"original" agreement) on April 8, 1994. The original agreement provides for
IBM's Microelectronics division to manufacture specified quantities of wafers of
Cyrix-designed products for sale to Cyrix through December 1999 at defined
prices. Cyrix is responsible for the total production costs (including equipment
costs) of such specified quantities of products irrespective of the number of
products actually ordered by the Company. Cyrix made a capital equipment
investment of approximately $88 million in an IBM manufacturing facility
pursuant to the original agreement. The depreciation expense associated with
such capital equipment, which Cyrix owns, is reimbursed to the Company by IBM on
a monthly basis. In the event of expiration or termination of the original
agreement by either party, IBM has the option to purchase this capital equipment
from Cyrix at its then net book value, if any. Also, Cyrix made prepayments for
product purchases of approximately $30 million during fiscal 1994, $30 million
during fiscal 1995, $10 million on January 1, 1996 and $10 million on April 1,
1997. One additional prepayment of $10 million is due on January 1, 1998. Such
prepayments will be credited to Cyrix as it purchases wafers from IBM at defined
prices during the period from July 1, 1995 through December 31, 1999. In
addition to supplying microprocessors to Cyrix, IBM has the right to manufacture
an equivalent amount of wafers of Cyrix-designed products for use internally or
to sell on an OEM basis. The Company has submitted purchase orders to IBM for
further purchases of wafers during the third and fourth fiscal quarters of 1997
and expects to continue to purchase wafers under this agreement through December
1999.
The Company entered into a second agreement (the "foundry" agreement)
with IBM on May 17, 1996. The foundry agreement specifies that IBM's
Microelectronics division manufacture additional quantities of wafers of
Cyrix-designed products for sale to Cyrix through December 1997 at defined
prices. The foundry agreement originally provided that the Company purchase
wafers totaling approximately $45 million during the second half of 1996.
Although the foundry agreement specified significant penalties if the Company
did not purchase the entire commitment under the foundry agreement, the Company
negotiated a reduction in the commitment due to the lower than expected sales
volume in 1996 without incurring significant penalties. At the end of fiscal
1996, the Company had outstanding purchase commitments for 1997; however, such
commitments could be canceled without penalty within the terms of the foundry
agreement. The Company continued to purchase wafers under the foundry agreement
in first fiscal quarter 1997; however, the Company did not purchase wafers under
the agreement in second fiscal quarter 1997 and has no current plans to purchase
wafers under the agreement in the third and fourth fiscal quarters of 1997.
<PAGE>
GENERAL. The markets for the Company's products are characterized by a
highly competitive and rapidly changing environment in which operating results
are subject to the effects of frequent product introductions, manufacturing
technology innovations and rapid fluctuations in product demand. While the
Company attempts to identify and respond to these changes as soon as possible,
prediction of and reaction to such events is difficult.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments totaled $106
million at June 30, 1997 compared with $87.7 million at December 31, 1996. The
Company's primary source of cash in the six months ended June 30, 1997 was an
income tax refund received, net of payment, totaling $23.8 million. The primary
uses of cash in the six months ended June 30, 1997 consisted of a $10 million
prepayment for product purchases to IBM, a $7.8 million tax payment, a $3.5
million interest payment to the Company's convertible bondholders and increases
in receivables, inventories and deferred taxes.
Cyrix's long-term debt and capitalized lease obligations totaled $137.7
million and $136.7 million at June 30, 1997 and June 30, 1996, respectively.
Approximately $2.8 million of such debt is scheduled for payment during the next
twelve months. Additionally, the Company is obligated to make an interest
payment on the convertible subordinated bonds on December 1, 1997 totaling
approximately $3.5 million dollars. Cyrix expects that its current cash, cash
equivalents and investments will be sufficient to fund operations for the
remainder of fiscal 1997; however, if future cash requirements exceed available
cash resources, the Company may pursue additional financing. Due to the factors
noted above and elsewhere in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Company's future earnings, if any, and
stock price may be subject to significant volatility, particularly on a
quarterly basis. Past financial performance should not be considered a reliable
indicator of future performance and investors should not use historical trends
to anticipate results or trends in future periods. Any shortfall in revenue or
earnings from the levels anticipated by securities analysts could have an
immediate and significant effect on the trading price of the Company's common
stock in any given period. Also, the Company participates in a highly dynamic
industry which often results in volatility of the Company's common stock price.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report contains forward looking statements. The forward looking
statements with respect to the introduction, availability, cost, features,
performance, customer acceptance and revenue contribution of current and future
products, including the MediaGXTM and the 6x86MXTM, are subject to engineering,
manufacturing and market acceptance risks. Engineering difficulties such as the
failure to properly and timely design or debug such products could delay the
introduction of such products or adversely impact their performance or customer
acceptance. Manufacturing difficulties such as the failure to obtain required
capacity, technical problems with the manufacture of these complex products or
the inability to provide products at competitive cost to the Company could also
delay the introduction of these products or adversely affect their availability,
cost, features, performance or customer acceptance. Finally, the inability to
achieve sufficient customer design wins for the products could adversely affect
the Company's ability to market them in quantities sufficient to achieve its
revenue goals.
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SIGNATURE
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.
Cyrix Corporation
Date: October 16, 1997 By: /S/ JAMES W. SWENT, III
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James W. Swent, III
Senior Vice President of Finance
and Administration & CFO
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