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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
---------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
(Zip Code)
Registrant's telephone number, including area code: 972-968-8387
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.004 PAR VALUE
(Title of Class)
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 31, 1997 was approximately $463,312,617. As of
January 31, 1997, there were 19,577,957 outstanding shares of the registrant's
Common Stock.
Portions of the registrant's Proxy Statement to be furnished to
stockholders in connection with its 1997 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Cyrix Corporation (the "Company" or "Cyrix"), founded in 1988, designs,
develops and markets IBM personal computer software-compatible ("IBM
compatible") microprocessors for the personal computer industry. The X86
architecture, originally developed by Intel Corporation ("Intel"), has been the
leading architecture for IBM compatible personal computer microprocessors. Cyrix
seeks to serve the needs of the personal computer marketplace as an alternative
source for X86 microprocessors of original design with competitive
price/performance characteristics.
Advanced processors such as those designed and sold by the Company impact
the functionality, performance, reliability and cost of today's personal
computers. The demand for increased performance from microprocessor-based
personal computers and the proliferation of sophisticated, advanced software
applications are forcing manufacturers of personal computers to bring
increasingly complex, faster, smaller and less expensive products to market
rapidly. Their ability to do so is largely dependent upon the designers,
developers and manufacturers of microprocessors (such as Cyrix) and other
complex integrated circuits.
PRODUCT DESIGN
The Company's design system is based on a methodology that refines product
specifications through an architectural modeling process. The modeling process
consists of a behavioral modeling process to produce detailed design
specifications and a logic design process to create schematic specifications
from the detailed design specifications. The schematic specifications become the
basis for the final stages of the design process, integrated circuit design,
chip simulation and layout.
The Cyrix design system involves integration of industry standard and Cyrix
proprietary hardware and software components. The proprietary components are
used throughout the design process primarily for simulation and testing for IBM
compatibility. The use of these proprietary tools throughout the process and the
refinement of specifications based on their output have enabled the Company to
design and develop products that are IBM compatible.
PRODUCTS
The Company competes primarily in the microprocessor segment of the
semiconductor market. A microprocessor is a single integrated circuit that is
responsible for the control of data flowing through the personal computer, the
manipulation of data as specified by software running the personal computer and
the coordination of all hardware functions within the system. As a result of
these functions, the microprocessor is the primary component that determines
whether a personal computer is IBM compatible. In 1992, the Company introduced
microprocessors that were, to the Company's knowledge, the first microprocessors
that were both 486 instruction-set compatible and 386 socket compatible. In
1993, the Company introduced its single-chip 486 microprocessor upgrades
designed for 386DX and 386SX desktop personal computers and introduced the
Cx486DX(TM) and Cx486DX2(TM) microprocessors, its first 486 socket compatible
microprocessors with math coprocessing functionality on the chip. In 1995, the
Company introduced its 5x86(TM) and 6x86(TM) microprocessors designed for
portable and desktop computers. The 5x86 microprocessors provide system-level
performance similar to systems containing Intel's entry level Pentium
processors. The 6x86 microprocessors deliver performance in desktop computers
which the Company believes to be competitive with most of the leading
performance processors currently in the market.
<PAGE>
During fiscal 1997, the Company plans to introduce two new product designs,
the MediaGX(TM) and the M2 processors. These new products are expected to
provide the majority of the Company's revenue in the second half of fiscal 1997.
Although the Company plans to sell significant quantities of 6x86 products in
the first half of 1997, declining sales prices, continued pressure to introduce
higher speed products and new functionality provided by competitive products
make it necessary for the Company to produce and sell significant quantities of
the next generation MediaGX and M2 products to achieve sales growth. The M2
processor is a socket seven compatible design that will compete with other x86
processors. As with any new product design, market acceptance depends on whether
the product offers features that are attractive to the market and at a price
that offers a clear price advantage to the Company's customers when compared
with competitive products. Based on these factors, there is a risk that the
Company's engineering resources will not be able to design in such features in a
timely fashion and that it cannot build such next generation processors in
enough quantity or at a cost that is competitive with other products in the
market. In addition, the Company's MediaGX product utilizes a proprietary
motherboard and chipset. Therefore, the Company must work more closely with
suppliers of the motherboards, chip sets, software vendors and OEMs to ensure
that the final product will deliver the performance and functionality that the
OEM customer desires. Growth in revenue during 1997 can occur only if the
Company successfully overcomes the risks inherent in these new products and
develops sales of such products sufficient to replace the declines in 6x86
revenue expected in the latter half of the year.
Since all of the Company's products are used in personal computers, the
Company's business is closely tied to the performance of the personal computer
industry. Further, the outlook for the Company's microprocessor products is
highly dependent on the timing of new product introductions by the Company and
its competitors and other microprocessor market conditions. Intel currently has
a dominant microprocessor market share, dictates the performance standards
required to compete in the microprocessor market and influences product life
cycles through frequent product introductions, product enhancements and price
competition. In addition to its dominant microprocessor market share, Intel is
also beginning to dominate the entire personal computer platform. For example,
Intel has obtained a dominant market share in sales of 64-bit or Pentium-class
core logic chip sets and has emerged as the world's largest motherboard
manufacturer. In fiscal 1995, Intel purchased an equity interest in Phoenix
Technologies Ltd., a company which has approximately 30% of the market for BIOS
(basic input/output system) software, which translates signals from the personal
computer's operating system software to interface with the computer's hardware
devices. Further, Intel manufactures personal computers, incorporating Intel
microprocessors, chip sets, motherboards and other Intel-designed components,
for resale by third-party original equipment manufacturers ("OEM") under such
OEMs' names.
To compete with Intel at higher levels of integration as required by many
personal computer OEMs and dealers, Cyrix is dependent upon the infrastructure
of third-party designers and manufacturers of core logic chip sets,
motherboards, BIOS software and other components of personal computers. As Intel
has become the dominant competitor in these segments of the personal computer
industry, third-party designers and manufacturers of core logic chip sets,
motherboards, BIOS software and other components to support non-Intel
microprocessors have lost market share to Intel, which owns the microprocessor
designs and enjoys significantly greater financial, technical, manufacturing and
marketing resources than such parties. Further, as Intel expanded its role in
designing and setting standards for personal computer systems, many personal
computer OEMs reduced their system development expenditures and now require
processor technologies to be provided at various levels of integration.
Therefore, to compete with Intel and deliver the higher levels of integration
required by many OEMs and dealers in 1997 and beyond, the Company maintains
close relationships with third-party designers and manufacturers of core logic
chip sets, motherboards, BIOS software and other components, expends
considerable resources on its chip set and system design capabilities and sells
a portion of the Company's processors at higher levels of integration
incorporated into modules, boards and systems. There can be no assurance that
the infrastructure which supports non-Intel personal computer platforms will be
competitive with Intel or continue to support the Company's products.
<PAGE>
MANUFACTURING
The Company's manufacturing strategy is to develop relationships with
qualified semiconductor manufacturers which offer leading complementary
metal-oxide semiconductor ("CMOS") process technologies. The Company has focused
its resources on product design, market development and customer support, rather
than on developing process technologies and operating manufacturing facilities.
Microprocessor manufacturing cost per unit is primarily a function of die
size (since the potential number of good die per wafer increases with reduced
die size), number of mask layers, and the yield of acceptable die produced on
each wafer. Other contributing factors include number of fabrication steps,
costs and sophistication of the manufacturing equipment, package type, process
complexity, and cleanliness. The manufacture of the Company's microprocessor
products is a complex process and involves a number of precise steps, including
wafer fabrication, assembly and burn-in and final test which are performed by
the Company.
The wafers fabricated by semiconductor manufacturers and purchased by the
Company are sent to assembly subcontractors in the United States, Canada, Japan,
Korea, Hong Kong and other locations where each silicon wafer is separated into
individual die. Functional die are then connected to external leads by extremely
fine wire and are assembled into plastic or ceramic packages. High temperature
burn-in and circuit testing are performed by the Company to verify that outgoing
production meets Cyrix quality standards and specifications.
RELATIONSHIP WITH INTERNATIONAL BUSINESS MACHINES CORPORATION ("IBM"). The
Company currently has two manufacturing agreements with IBM. The Company entered
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 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
this 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 and $10 million on January 1, 1996. Two
additional product prepayments of $10 million each were to be due on January 1,
1997 and January 1, 1998; however, Cyrix reached agreement with IBM to defer the
January 1, 1997 prepayment until April 1, 1997. 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 entered into a second agreement (the "Foundry" agreement) with
IBM on May 17, 1996. The foundry agreement specifies that IBM 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. The Company may continue to purchase wafers under the
foundry agreement in fiscal 1997. At the end of fiscal 1996 the Company had
outstanding purchase commitments for the second half of 1997; however, such
commitments could be canceled without penalty within the terms of the foundry
agreement.
<PAGE>
RELATIONSHIP WITH SGS-THOMSON MICROELECTRONICS, INC. ("SGS"). The Company
began purchasing wafers from SGS in 1990 and entered into an agreement with SGS
on January 11, 1994. The agreement between Cyrix and SGS provides that SGS
commit its best efforts to manufacture wafers of Cyrix-designed products for
sale to Cyrix through December 1997 up to specified maximum quantities of wafers
per year at agreed upon prices.
Also pursuant to the January 11, 1994 agreement, as amended, Cyrix granted
SGS a license to manufacture and sell under its own name specified maximum
quantities per year of certain current and future Cyrix-designed
microprocessors. Further, Cyrix granted SGS the right to use certain
Cyrix-designed chips as part of the SGS libraries to design application specific
integrated circuits in which such Cyrix-designed chips would represent only a
portion of the functionality of such products ("ASIC products"). SGS is able to
manufacture and sell such ASIC products under its own name in unlimited
quantities, with Cyrix receiving a royalty based on SGS's quarterly net revenue
derived from the sale of such ASIC products, if any. The agreement also provides
the terms under which ASIC product rights based on other Cyrix-designed products
may be granted to SGS by Cyrix in the future. Further, the agreement gives Cyrix
the right to sell SGS-designed ASIC products, if any, under its own name. To
date, SGS has not manufactured and sold any ASIC products in which a
Cyrix-designed chip is a portion of the functionality of such product.
PROCESS TECHNOLOGY. The Company's products are manufactured using CMOS
process technology. CMOS technology is generally reliable, cost-effective and
capable of producing high volumes of processors and has the additional advantage
of providing high performance products which operate at low power. The Company
currently uses 0.35 micron, five-level metal processes for its 6x86 products.
The Company's primary competitors, Intel and Advanced Micro Devices, Inc.
("AMD"), own fabrication facilities and have access to process technologies that
have historically been more advanced than those available to Cyrix. Their access
to these technologies potentially results in improved product performance and
decreased manufacturing costs as compared to the Company.
The Company's reliance on third-party manufacturers involves several
material risks, including the possible unavailability of or delays in obtaining
access to necessary process technologies, the absence of controllable product
delivery schedules, manufacturing yields and production costs and the possible
breakdown in the relationship with the third-party manufacturers. Additionally,
all of the production wafers that the Company purchased in fiscal 1996 were
purchased from IBM. Although the Company intends to continue its relationship
with SGS and to pursue relationships with other third-party manufacturers, the
Company may continue to purchase all of its wafers from IBM during fiscal 1997.
Any disruption in the relationship with IBM or IBM's ability to deliver wafers
to the Company could have a severe impact on the Company's results of operations
in fiscal 1997 and beyond.
RESEARCH AND DEVELOPMENT
The Company emphasizes research and development and believes that it must
continually invest in the development of new products to take advantage of
market trends and be competitive. Rapid technological change and intense price
competition place a premium on new product development efforts. The Company's
continued ability to compete in the microprocessor market will depend to a
significant degree on its ability to continue to develop technologically
advanced products. The Company's research and development activities are
directed toward (i) the design of high performance microprocessors with
multimedia functionality, (ii) designing microprocessors that use advanced
process technologies, (iii) cost reduction and performance improvements in
existing and future products, (iv) the design of core logic chip sets and
personal computer platforms and (v) enhancing the Company's design systems.
<PAGE>
In fiscal years 1996, 1995 and 1994, the Company's research and development
expenses were $32.4 million, $29.1 million and $24.8 million, respectively. Such
research and development expenses are charged to operations as incurred. Cyrix
believes that technological leadership is essential to its success and expects
that it will continue to expend substantial resources on research and
development. However, there can be no assurance that such research and
development efforts will result in the design and development of competitive
products in a timely manner.
INTELLECTUAL PROPERTY AND LICENSES
The Company has expended and will continue to expend considerable resources
to protect its intellectual property by filing patent applications, in both the
United States and foreign countries. As of December 31, 1996, Cyrix had 42
United States patents, and an additional 141 (excluding 44 foreign) patents were
pending. The Company is committed to protecting its intellectual property rights
through patents, mask-work registrations, copyrights, trademarks, non-disclosure
agreements and litigation where appropriate. However, there can be no assurance
that the Company will be able to protect its intellectual property.
As described above, the Company has supply agreements with SGS and IBM,
pursuant to which both SGS and IBM have the right to manufacture and sell
certain current and future Cyrix-designed products, including the Company's 6x86
microprocessors. In return, SGS and IBM have agreed to manufacture and sell
wafers of Cyrix-designed products to the Company at defined prices and in
certain quantities. To obtain additional manufacturing capacity, the Company
could be required to license more of its intellectual property, product rights
and proprietary technology. In addition, Cyrix licensed Texas Instruments
Incorporated ("TI") to manufacture and sell certain Cyrix-designed products
under the TI name pursuant to an agreement effective February 21, 1991 ("the TI
Agreement"). From December 1993 to November 1994, TI and Cyrix were in
litigation regarding certain disputes that had arisen under the TI Agreement,
including a dispute as to which Cyrix products were licensed under the TI
Agreement. Such disputes were settled in November 1994, and TI was granted
licenses to certain Cyrix-designed 486 products and the option to take licenses
under certain future Cyrix patents. However, TI does not have product rights or
licenses to manufacture the Company's 5x86, 6x86 or future generation
microprocessors.
From time to time, Cyrix has been notified that it may infringe
intellectual property rights of others. If any such claims are asserted against
the Company, the Company may seek to obtain a license under the third-party's
intellectual property rights. The Company could decide, however, to resort to
litigation to challenge such claims. Such challenges could be extremely
expensive and time consuming and could materially adversely affect the Company's
business, financial condition and results of operations. No assurance can be
given that all necessary licenses can be obtained on reasonable terms or that
litigation can be avoided. See "Legal Proceedings."
MARKETING AND SALES
DISTRIBUTION CHANNELS. The Company markets and sells its products primarily
to OEMs of personal computers and distributors who service small OEMs and
personal computer integrators. The Company believes that a direct sales force is
the most effective way of interacting with large OEMs and has organized its own
customer support teams consisting of a service oriented sales force, technical
design consultants and a sales support team. The technical design consultants
work with OEMs beginning in the early stages of the design process to simplify
the incorporation of Cyrix products into personal computers, while providing
technical know-how to work through various engineering issues. Cyrix's sales
support staff is trained in the operation and design of the Company's products
and works with the direct sales force and technical design consultants in
support of the customer base. Cyrix also sells its products through a limited
number of distributors and representatives in an effort to access certain
domestic and international markets.
<PAGE>
The Company has both exclusive and non-exclusive agreements with its
distributors. These distributors typically maintain an inventory of Cyrix
products. The Company, pursuant to its agreements with certain distributors,
provides protection to the distributors for their inventory of Cyrix products
against price reductions as well as products that are slow-moving or have been
discontinued by the Company. Certain of these agreements, which generally may be
canceled by either party upon notice, provide for the return of Cyrix products
to the Company if the agreement is terminated. With respect to these contracts,
the Company records revenue from the sale of products to distributors when
shipments are made and invoiced to the distributor, and the Company maintains
reserves for estimated product returns and price allowances.
SALES ORGANIZATION. In addition to the Company's domestic sales staff, the
Company maintains an international sales staff in the United Kingdom, Taiwan,
Hong Kong, Singapore and Japan to support the Company's international marketing
and sales efforts. In fiscal 1996, 1995, and 1994, the Company's sales to
international customers were 54%, 66% and 52% respectively, of its net product
sales. The Company's international sales operations subject the Company to
political and economic risks including expropriation, currency controls,
exchange fluctuations, and changes in rates and exemptions for taxes and
tariffs. To date, the Company has not experienced any material adverse effects
associated with such risks.
WARRANTY POLICY. Depending upon the customer, the Company offers warranties
for all of its products, the terms of which the Company believes are standard
for the industry. Under such warranties, the Company may be obligated to replace
defective products or products that do not perform to applicable industry
standards or refund the purchase price of any such products. To date, warranty
claims have been immaterial; however, there can be no assurance that future
warranty claims will not have a material adverse effect on the Company's
business and results of operations.
BACKLOG
The Company's business, and to a large extent that of a significant portion
of the semiconductor industry, is characterized by short-term order and shipment
schedules. Orders are subject to changes in quantities and delivery schedules or
to cancellation at the option of the purchaser without significant penalty. The
Company believes that only a small portion of its order backlog is
noncancellable and that the dollar amount associated with the noncancellable
portion is immaterial. In light of current industry practice and experience, the
Company does not believe that backlog as of any particular date is indicative of
future results.
COMPETITION
The microprocessor business is characterized by short product cycles,
intense price competition and rapid advances in product design and process
technology resulting in rapidly occurring product obsolescence. Intel is the
dominant company in the IBM compatible microprocessor market. Intel's dominant
market position has to date allowed it to set IBM compatible processor industry
performance standards and thus dictate the type of product the market requires
from Intel's competitors. In prior years, Intel responded to the entry of
competition into the IBM compatible microprocessor market with an aggressive
product proliferation program for its 486 instruction-set family of
microprocessors. In 1995, Intel successfully employed a similar strategy with
its Pentium family of microprocessors. Intel also has a strategy to maintain its
dominant market position through aggressive investments in manufacturing
capacity and research and development. During 1996, Intel spent an estimated
$1.8 billion on research and development and $3 billion on property and
equipment. It also has consolidated its dominant market position through an
intensive advertising campaign designed to strengthen brand loyalty to Intel by
the personal computer end-user. In addition to its dominant microprocessor
market share, Intel is also beginning to dominate the personal computer
platform. For example, Intel has obtained a dominant market share in sales of
64-bit or Pentium-
<PAGE>
class core logic chip sets, has emerged as the world's largest motherboard
manufacturer, has purchased an equity interest in Phoenix Technologies Ltd., a
company which has approximately 30% of the market for BIOS software, and
manufactures personal computers, incorporating Intel microprocessors, chip sets,
motherboards and other Intel-designed components, for resale by third-party OEMs
under such OEMs' names. The Company does not have the financial resources to
compete with Intel on such a large scale. As long as Intel remains in this
dominant position, its product introduction timing and product pricing will
materially affect the Company's operating results.
Other competitors in the IBM compatible microprocessor market include AMD,
IBM, SGS and TI. Under a technology exchange agreement and patent cross-license
agreement between AMD and Intel, AMD historically competed in the microprocessor
market with products which use intellectual property developed by Intel. But
during 1995, AMD acquired Nexgen, Inc. and has incorporated their designs into
their current generation of products. In recent years, IBM, SGS and TI have
entered the market using Cyrix's microprocessor designs and may compete with
their own designs in the future. The Company may also face competition from
manufacturers of processors that are not currently IBM compatible, such as
manufacturers of IBM's, Motorola's and Apple's Power PC system processors. The
Company believes that other semiconductor manufacturers may enter the market
resulting in even greater competition. Further, the rapid pace of technological
change in the industry means that companies other than Cyrix could develop a
design or process that radically advances microprocessor standards using a
proprietary or patent-protected design or process.
The Company's ability to compete in the advanced processor market is
dependent on its timely introduction of products that are competitive in
performance, features and offer pricing advantages when compared to competitive
products. During fiscal 1996, the Company was not able to gain market acceptance
for its 6x86 processors when priced similarly to Intel's products. Therefore,
the Company's revenues declined significantly during the first three fiscal
quarters of 1996 compared to the same periods of fiscal 1995 and the Company
incurred a net loss for the year. In order to gain market acceptance for its
6x86 product, the Company found it necessary to price such products at a
discount to competitive Intel products. Continued market acceptance of the
Company's products may require it to continue to price its products at a
discount to competitive products marketed by Intel. However, there can be no
assurances that the Company can successfully supply products with competitive
performance and price in adequate commercial volumes or that manufacturers of
personal computers will design the Company's products into computers or purchase
the Company's products in sufficient volumes to maintain or increase Cyrix's
quarterly revenues.
In the recent past Intel and other competitors have increased the frequency
of product introductions and enhancements and have used price decreases to
protect or improve their market share. The Company expects that Intel, AMD and
other competitors will continue to improve the performance of their
microprocessor products and use price decreases to protect or improve their
market share. There can be no assurance that the Company will be able to
successfully improve the performance of its microprocessors at the rate required
to remain competitive with the leading performance processors in the market or
compete against price decreases, since Intel and several of the Company's other
competitors have substantially greater financial, technical, manufacturing and
marketing resources than the Company.
OEMs generally select processors for inclusion in their personal computer
products based on the processors' price/performance characteristics, feature mix
and projected market acceptance with respect to the market segments targeted by
such OEMs. In addition, OEMs consider the ability of processor vendors to supply
adequate volumes of processors which meet their performance requirements in a
timely and reliable manner. Even after a Cyrix product has been designed into an
OEM's personal computer, a "design win," the Company still faces competition to
keep its products in the OEM's design. Generally, an OEM can qualify another
source for any of the Company's products because SGS, IBM and TI each have
licenses to manufacture certain Cyrix-designed products. As the Company does not
have exclusive rights to the products it designs, revenue and gross margin for
such products could be reduced.
<PAGE>
To date, the Company has been unable to sell significant quantities of its
microprocessors to most large OEMs such as Compaq, Packard Bell, Gateway and
Dell. Since the Company intends to introduce two new products in fiscal 1997,
the MediaGX and the M2, the Company's revenues and income will be highly
dependent upon gaining market acceptance for such products. There can be no
assurance that the Company will be able to convince its OEM customers to design
such new products into their designs. Any delay in the introduction or market
acceptance of the Company's MediaGX and M2 products could have a material
adverse effect on the Company's results of operations.
To compete with Intel at higher levels of integration as required by many
personal computer OEMs and dealers, Cyrix is dependent upon the infrastructure
of third-party designers and manufacturers of core logic chip sets,
motherboards, BIOS software, and other components of personal computers. Since
Intel has emerged as a competitor in these segments of the personal computer
industry, third-party designers and manufacturers of core logic chip sets,
motherboards, BIOS software and other components to support non-Intel
microprocessors have lost market share and many personal computer OEMs have
reduced their system development expenditures by requiring processor
technologies to be provided at various levels of integration. In order to ensure
that the non-Intel related infrastructure will continue to support the Company's
products, Cyrix strives to form close relationships with third-party designers
and manufacturers of core logic chip sets, motherboards, BIOS software and other
components, and expends considerable resources on its chip set and system design
capabilities. Nevertheless, there can be no assurance that the infrastructure
which supports non-Intel personal computer platforms will continue to be
competitive with Intel or continue to support the Company's products.
EMPLOYEES
As of December 31, 1996, the Company had a total of 391 employees, of which
357 were based in the United States, 11 were based in Europe and 23 were based
in Asia. Of the Company's 391 employees as of such date, 107 were engaged in
marketing, sales and related customer support services, 176 were engaged in
research and development, 56 were engaged in manufacturing and 52 were engaged
in administration and finance.
The Company believes that attracting and retaining competent employees and
motivating them to meet corporate objectives are essential elements of its
success. Since its inception in 1988, the Company has implemented policies
designed to create a favorable working environment for its employees. For
example, the Company has a stock option plan, a stock purchase plan, a profit
sharing program and a 401(k) plan matching program, all with broad based
eligibility and participation, and the Company funds competitive health
insurance policies. As competent employees are in high demand in the
semiconductor industry, at times the Company has difficulty hiring experienced
personnel at a pace consistent with the Company's objectives. While the Company
intends to use whatever forms of compensation, benefits and other incentives
that are necessary and cost effective to attract and retain qualified personnel,
there can be no assurance that the Company will be able to do so.
None of the Company's employees are represented by a labor union. Cyrix has
not experienced any work stoppages and considers relations with its employees to
be good.
<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters are located in Richardson, Texas. The Company
owns two buildings that give it a total of 172,000 square feet for research and
development, sales and marketing, administration and finance, as well as final
test operations. Cyrix bought one building in 1992 for $3.6 million which was
financed by the former owner of the building. The Company constructed its second
building during 1996 at a cost of $5.5 million. Both buildings are located at
its Richardson, Texas headquarters. Cyrix also leases office space for a systems
design center in Longmont, Colorado. In addition, Cyrix leases offices for sales
and marketing operations in Yokohama, Japan; Taipei, Taiwan; Swindon, United
Kingdom; and Singapore. The Company believes that its existing facilities will
be adequate to meet its requirements through 1997.
ITEM 3. LEGAL PROCEEDINGS
CURRENT LITIGATION
See Note 5 to the Consolidated Financial Statements included in Part II,
Item 8, for a description of certain settlements of litigation during fiscal
1996.
POTENTIAL FUTURE LITIGATION
The Company believes that Intel has a strategy of protecting its market
share by filing intellectual property lawsuits against its competitors and that
Intel may assert additional patent infringement or intellectual property claims
against the Company. Potential additional Intel litigation would likely involve
different patents with new combination or system claims. In addition, new patent
applications are continually being filed by Intel and by others. Since pending
United States patent applications are confidential until patents are issued, it
is impossible to ascertain all potential patent infringement claims. If the
Company is alleged to infringe one or more patents, it may seek a license to the
patent. However, there can be no assurance that a license will be available on
reasonable terms. In such event, the Company may be forced to litigate the
matter. The damages and legal and other expenses of any resulting litigation
could have a material adverse effect on future operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Nasdaq National Market tier of
the Nasdaq Stock Market under the symbol: CYRX.
The following table sets forth the range of high and low last reported
sales prices for the Company's common stock as reported by the Nasdaq National
Market for each quarter of fiscal 1996 and fiscal 1995. At February 7, 1997, the
number of record holders of the Company's common stock was approximately 660.
1996 1995
------------------------- -------------------------
HIGH LOW HIGH LOW
----------- ----------- ----------- -----------
1st Quarter $29.13 $18.88 $26.00 $17.00
2nd Quarter $36.38 $13.94 $28.00 $20.25
3rd Quarter $18.56 $12.25 $48.19 $22.25
4th Quarter $22.38 $14.88 $42.50 $22.50
The Company has not paid cash dividends on its common stock and intends to
continue a policy of retaining any earnings for reinvestment in its business.
ITEM 6. SELECTED FINANCIAL DATA
The Company has a 52/53 week fiscal year that ends on or about December 31
and a 13/14 week fiscal quarter that ends on or about March 31, June 30 and
September 30. The information in this Report has been labeled as though all
fiscal years ended December 31 and fiscal quarters ended March 31, June 30 and
September 30. Set forth below is selected financial data for the Company for
each of the last five fiscal years.
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Per Share Year Ended December 31,
Amounts)
----------------------------------------------------------------------------
Operating Data 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues....................... $183,825 $228,012 $246,098 $125,108 $72,898
Gross margin....................... 52,372 85,949 125,377 76,100 44,895
Income (loss) from operations...... (33,101) 17,735 55,764 29,855 13,190
Net income (loss).................. (25,862) 15,612 37,577 19,615 8,413
Net income (loss) per common and common
equivalent share............. (1.33) 0.78 1.88 1.06 0.49
Balance Sheet Data
Total assets....................... $299,342 $268,785 $196,134 $114,728 $50,270
Long-term debt and capitalized lease
obligations, including current
maturities................... 139,231 82,378 22,797 7,856 5,508
Total liabilities.................. 176,416 122,792 70,406 30,742 18,805
Total stockholders' equity......... 122,926 145,993 125,728 83,986 31,465
</TABLE>
Approximately 47% of net product revenue (net revenues excluding royalty
revenue) in fiscal 1992 was derived from sales of microprocessors with the
remaining 53% of net product revenue attributable to sales of the Company's math
coprocessor products. In 1993, sales of microprocessor products reached 75% of
net product revenues. Since 1993, microprocessor sales have represented more
than 90% of the Company's net product revenue.
<PAGE>
The selected financial data for each of the past five years may not be
indicative of the Company's future financial condition or results of operations
due to (1) the risk that the Company will not be able to successfully develop
and introduce on a timely basis price-competitive microprocessor products that
embody new features, meet evolving industry standards and achieve market
acceptance and (2) the risk that the Company will not be able to obtain capacity
to meet its manufacturing requirements, will not be able to obtain products with
acceptable yields or will not have access to necessary process technologies due
to the Company's reliance on third-party manufacturers.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth items from Cyrix's Consolidated Statements of
Income as percentages of net revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Net product sales................................. 96.3% 92.2% 100.0%
Royalty revenue................................... 3.7 7.8 --
------------- ------------ ------------
Net revenues...................................... 100.0 100.0 100.0
Cost of sales..................................... 71.5 62.3 49.1
------------- ------------ ------------
Gross margin...................................... 28.5 37.7 50.9
Marketing, general and administrative............. 28.9 17.1 18.2
Research and development.......................... 17.6 12.8 10.1
------------- ------------ ------------
Income (loss) from operations..................... (18.0) 7.8 22.6
Net interest income (expense)..................... (4.0) (1.8) 0.5
Income from litigation settlement................. 1.1 4.4 0.2
------------- ------------ ------------
Income (loss) before provision for income taxes
and extraordinary item....................... (20.9) 10.4 23.3
Provision (benefit) for income taxes.............. (7.5) 3.6 8.0
------------- ------------ ------------
Net income (loss) before extraordinary item....... (13.4) 6.8 15.3
Extraordinary loss from early extinguishment of
debt, net of tax benefit..................... (0.6) -- --
------------- ------------ ------------
Net income (loss)................................. (14.0)% 6.8% 15.3%
------------- ------------ ------------
</TABLE>
NET REVENUES. Net product sales decreased approximately 15.8% in fiscal 1996
compared to fiscal 1995 due to the Company's difficulty in gaining market
acceptance of the Company's 6x86 products during the first three fiscal quarters
of 1996. Unit shipments declined 48% in fiscal 1996 compared with shipments in
1995. 6x86 products accounted for 65% of unit shipments in fiscal 1996. 41% of
fiscal 1996 product revenue was recognized in the fourth quarter of the year.
The increased product sales volume resulted from price decreases enacted at the
end of the third quarter that improved the attractiveness of the 6x86 product.
Net product sales decreased approximately 14.5% in fiscal 1995 compared to
fiscal 1994 as a 35% increase in unit volume was more than offset by significant
erosion of the average selling prices for 486 microprocessors. During fiscal
1995, most OEMs of desktop personal computers transitioned from the 486 family
of microprocessors to the next generation of microprocessors, such as Intel's
Pentium microprocessors. The Company did not have available for sale a large
enough volume of products with performance competitive with Intel's Pentium
microprocessors to offset the declining demand for and average selling prices of
486 microprocessors. During fiscal 1994, sales of 486DX and 486DX2
microprocessors represented over 75% of the Company's net product sales with the
remaining sales attributable to 486DLC and 486SLC microprocessors.
<PAGE>
Sales to international customers were 54%, 66% and 52% of net product sales in
fiscal years 1996, 1995 and 1994, respectively. Sales to international customers
are made primarily to customers in Europe, Taiwan, Korea and Japan.
Royalty revenue of $6.7 million and $17.7 million was recognized in fiscal years
1996 and 1995, respectively. No royalty revenue was recognized in fiscal year
1994 due to a contractual dispute with Texas Instruments Incorporated ("TI"). In
fiscal year 1995, royalty revenue included a $15 million payment received in
settlement of the contractual dispute with TI. The payment was for past
royalties and a fully paid-up license on the Company's 486DLC and 486SLC
microprocessors.
GROSS MARGINS. The Company's gross margins as a percentage of net product sales
for fiscal 1996, 1995 and 1994 were 26%, 32% and 51%, respectively. Declines in
unit quantities produced and sold resulted in higher product costs since a
portion of the Company's costs of goods manufactured are fixed costs.
Additionally, some of the wafers used to produce the Company's products in the
second half of 1996 were obtained under the foundry agreement with IBM which has
a significantly higher wafer cost than the original agreement with IBM.
During fiscal 1995, average selling prices and gross margins of the Company's
486DX2 products declined during each quarter as the market continued its
transition to higher performance products and the Company priced its products
aggressively to compete in the low end of the microprocessor market. Further,
during the fourth quarter of fiscal 1995, the average selling prices of 486DX2
microprocessors fell below the Company's cost to purchase these products causing
the Company to write off substantially all of its 486 inventory, which exceeded
$10 million. The Company did not have available for sale a large enough volume
of products in fiscal 1995 with performance competitive with Intel's Pentium
microprocessors to offset the declining demand for and average selling prices
and gross margins of 486 microprocessors.
During fiscal 1994, the average selling prices of the Company's 486DLC and
486SLC microprocessors and math coprocessors decreased significantly when
compared to fiscal 1993 due to price competition and the shift in the x86 market
to higher performance products. During fiscal 1994, approximately 75% of the
Company's revenues were generated through sales of its 486DX 33 MHz, 40 MHz and
50 MHz products as well as 486DX2 25/50 MHz and 33/66 MHz products. The Company
priced its 486DX and 486DX2 products aggressively in fiscal 1994 to compete in
the low end of the microprocessor market.
Gross margins in fiscal 1997 will be heavily dependent upon obtaining wafers at
costs that are favorable to the Company. Gross margins, as well as sales, during
the early part of the year will result primarily from the sale of 6x86
processors. Should selling prices of such 6x86 processors fall at a faster rate
than the Company expects, margins generated by the 6x86 product will be
impacted. In the second half of fiscal 1997, the Company expects most of its
sales and gross margins to be derived from its MediaGX and M2 products.
Additionally, the Company may obtain a portion of the wafers for these new
products from qualified sources other than IBM. The amount of margin generated
from these products, if any, will be dependent upon the cost of the wafers
received from alternative sources.
MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, general and administrative
expenses for fiscal 1996, 1995 and 1994 were $53.1 million, $39.1 million and
$44.9 million, respectively. Marketing, general and administrative expenses for
fiscal 1996 increased compared to the same period of fiscal 1995 primarily due
to an increase in sales and marketing expenses associated with the Company's
efforts to gain market acceptance of its 6x86 processors. In order to speed the
market acceptance of the 6x86 processor, the Company expended considerable
resources in qualifying platforms for the 6x86 processors and sold some
processors at higher levels of integration (i.e. - on motherboards and in IBM
compatible systems). Such efforts required the Company to increase its
marketing, general and administrative expenses significantly. Legal expenses
increased to $3.6 million in fiscal 1996 compared to $2.8 million in fiscal
1995.
<PAGE>
Marketing, general and administrative expenses for fiscal 1995 decreased
compared to the same period of fiscal 1994 primarily due to a reduction in legal
expenses to $2.8 million from $7.7 million when comparing the same periods.
Legal expenses for fiscal 1997 and beyond could continue to be significant
despite the fact that the Company has reached settlements in most of the matters
that were outstanding during fiscal 1996 since the Company could be subject to
additional future litigation. See Item 3. Legal Proceedings and Note 5 to the
Consolidated Financial Statements in Part II, Item 8.
RESEARCH AND DEVELOPMENT. The Company's research and development expenses during
fiscal 1996, 1995 and 1994 were $32.4 million, $29.1 million and $24.8 million,
respectively. The increase in research and development expenses for fiscal 1996
and 1995 was attributable to the expansion of the Company's engineering staff,
design equipment and prototype expenses to support the development of new
microprocessor designs. The Company intends to increase its research and
development expenses in fiscal 1997 in an effort to enhance existing products
and develop new technologically advanced products.
NET INTEREST INCOME (EXPENSE). Interest income declined in fiscal 1996 to $2.1
million compared with $2.7 million for fiscal year 1995 but increased over the
$1.9 million interest income recorded in fiscal 1994. The decline in interest
income for fiscal 1996 is primarily due to lower interest rates.
Interest expense for fiscal 1996 increased to $9.5 million compared with $6.7
million in fiscal 1995 and $721 thousand in fiscal 1994. The increase in
interest expense during fiscal 1996 was due primarily to the issuance of the
5.5% convertible subordinated notes which, in turn, caused the Company's
outstanding debt to increase significantly. When comparing fiscal 1995 to fiscal
1994, interest expense increased primarily due to long-term debt and capitalized
lease obligations incurred to purchase equipment under the IBM agreement.
LITIGATION SETTLEMENTS. Other income for fiscal 1996 included two $1 million
settlement payments from Intel related to certain microprocessor actions
described in Note 5 to the Consolidated Financial Statements. Other income for
fiscal 1995 included a one-time settlement of $10 million from Intel related to
litigation concerning the Company's microprocessor products. In addition, as
described previously, the Company resolved a contractual dispute with TI in
November 1994 and recognized $17.7 million in royalty income from TI during
fiscal 1995. Other income for fiscal 1994 included a one-time settlement payment
of $500 thousand from Intel related to litigation concerning the Company's math
coprocessor products.
The final outcome of any issue currently subject to dispute or potential future
litigation could have a material effect on the Company's results of operations
during fiscal 1997 and beyond.
PROVISION (BENEFIT) FOR INCOME TAXES. The effective rate used to record the
Company's fiscal 1996 income tax benefit was 35.6% compared to effective income
tax rates of 34.3% in fiscal 1995 and 34.5% in fiscal 1994.
OTHER FACTORS AFFECTING RESULTS OF OPERATIONS
RELIANCE ON THIRD-PARTY MANUFACTURERS. During fiscal 1996, all of the Company's
products were manufactured and sold to the Company by IBM. See Manufacturing in
Part I, Item 1 for descriptions of the Company's relationships with IBM and SGS.
The Company's reliance on third-party manufacturers creates risks that the
Company will not be able to obtain capacity to meet its sales requirements, will
not be able to obtain products with acceptable yields or will not have access to
necessary process technologies. 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. If the Company were to experience difficulty
in obtaining wafers with acceptable yields and at prices favorable to the
Company from its third-party manufacturers, such difficulty could have a
material adverse effect on the Company's revenues and operating results.
<PAGE>
PRODUCT TRANSITIONS. Once current microprocessor products have been in the
marketplace 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 fiscal 1997, the Company expects to introduce its MediaGX and its M2
products. Once such introductions are made and these products are designed into
personal computers, the Company expects prices and margins for its 6x86
processors to decline. However, if the MediaGX and M2 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. If the Company experiences a delay in transitioning to
its MediaGX and M2 processors, the period of time and the impact on profit
margins during this product transition will 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 6x86 processors. Further, Intel, AMD
and other competitors could significantly decrease the price of products which
compete with the Company's products to protect or gain market share.
The Company must order wafers and build inventory in advance of product
shipments. There is a risk that the Company will forecast incorrectly and
produce excess inventories as product life cycles become shorter and more
difficult to predict and price changes and transitions to new products become
more rapid. This inventory risk is heightened because the Company's customers
place orders with short lead times and minimal, if any, cancellation penalties.
To the extent the Company produces excess inventories, the Company's earnings
could be adversely affected.
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 an ongoing challenge.
<PAGE>
The Company's future results of operations and financial condition could be
impacted by the following factors, among others: trends in the personal computer
market, introduction of new products by competitors, delay in the Company's
introduction of higher performance products, chip set, motherboard and BIOS
infrastructure support for the Company's products, market acceptance of new
products introduced by the Company, intense price competition, interruption in
the supply of low-cost microprocessor products from third-party manufacturers,
intellectual property disputes and adverse changes in general economic
conditions in any of the countries in which the Company does business.
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 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 contributes to the volatility of the Company's
common stock price.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investments totaled $87.7 million and $44.3 million
at December 31, 1996 and 1995, respectively. Sources of cash in fiscal 1996
included proceeds from issuance of the Company's 5.5% convertible subordinated
notes due June 1, 2001 and utilization of product prepayments. Uses of cash in
fiscal 1996 consisted primarily of funds utilized by operating activities,
repayments of long-term debt and capitalized lease obligations and purchases of
investments.
The Company's primary sources of cash in fiscal 1995 consisted of funds provided
from operations, proceeds from redemption of investments and proceeds from the
issuance of debt to finance capital equipment purchases. The Company's primary
uses of cash in fiscal 1995 consisted of capital equipment purchases and product
prepayments pursuant to the Company's agreement with IBM (see Manufacturing in
Part I, Item 1 for terms of the agreement between IBM and the Company),
principal payments on long-term debt and capitalized lease obligations and funds
used to increase accounts receivable and decrease accounts payable.
Expenditures for capital equipment purchases decreased in fiscal 1996 when
compared to fiscal 1995 since the Company purchased substantially all of the
equipment required by the agreement with IBM in fiscal 1995. The Company plans
to purchase additional capital equipment in fiscal 1997 in order to expand its
manufacturing capacity and to support its planned research and development
activities. Such purchases will require the Company to use its existing working
capital or to obtain additional financing. Due to the highly capital intensive
nature of the semiconductor industry, capital expenditures are expected to be
significant in fiscal 1997 and beyond.
The Company's long-term debt and capitalized lease obligations outstanding at
December 31, 1996 totaled $139.2 million. Approximately $3.1 million of such
debt is scheduled for payment during fiscal 1997. These debt agreements contain
provisions regarding the maintenance of certain net income per quarter, net
worth, working capital and other financial ratios.
The Company's current capital plan and estimated working capital requirements
are based on various product mix, selling price and unit demand assumptions and
are, therefore, subject to revision due to future market conditions. If the
Company is successful in achieving its business plan during fiscal 1997, the
Company believes that cash flows from operations, current cash and investment
balances and anticipated available equipment financing will be sufficient to
fund operations, capital investments and research and development projects
currently planned. The
<PAGE>
Company's ability to achieve its business plan in fiscal 1997 is dependent upon,
among other factors previously discussed, continued favorable pricing of the
Company's 6x86 products and successful introduction and market acceptance of the
Company's MediaGX and M2 processors. If the Company's cash flows from
operations, current cash and investment balances and anticipated available
equipment financing are not sufficient to fund operations, capital investments
and research and development projects currently planned, the Company may attempt
to sell additional equity securities or issue debt to meet any such
requirements.
The Company's success during fiscal 1997 is dependent upon getting its MediaGX
and M2 processors into production and achieving market acceptance of these new
products. The Company's revenue in 1996 was generated primarily by sales of its
6x86 products. Although the Company plans to sell significant quantities of 6x86
products in the first half of 1997, declining sales prices, continued pressure
to introduce higher speed products and new functionality provided by competitive
products make it necessary for the Company to produce and sell significant
quantities of the next generation MediaGX and M2 products to achieve sales
growth. The M2 processor is a socket seven compatible design that will compete
with other x86 processors. As with any new product design, market acceptance
depends on whether the product offers features that are attractive to the market
and at a price that offers a clear price advantage when compared with
competitive products. Based on these factors, there is a risk that the Company
cannot build such next generation processors in enough quantity or at a cost
that is competitive with other products in the market. In addition, the
Company's MediaGX product utilizes a proprietary motherboard and chipset.
Therefore, the Company must work more closely with suppliers of the
motherboards, chip sets, software vendors and OEMs to ensure that the final
product will deliver the performance and functionality that the OEM customer
desires. Growth in revenue during 1997 can occur only if the Company
successfully overcomes the risks inherent in these new products and develops
sales of such products sufficient to replace the declines in 6x86 revenue
expected in the latter half of the year.
"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 future products, including the
MediaGX and the M2, 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.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SUPPLEMENTARY FINANCIAL DATA AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Financial Statements:
<S> <C>
Report of Independent Auditors................................................................. 19
Consolidated Balance Sheets as of December 31, 1996 and 1995................................... 20
Consolidated Statements of Income for the three years ended December 31, 1996.................. 22
Consolidated Statements of Cash Flows for the three years ended December 31, 1996.............. 23
Consolidated Statements of Changes in Stockholders' Equity for the three years ended December
31, 1996................................................................................. 24
Notes to Consolidated Financial Statements..................................................... 25
Supplementary Financial Data......................................................................... 38
Financial Statement Schedule:
For the three years ended December 31, 1996:
Schedule II - Valuation and Qualifying Accounts................................................ S-1
</TABLE>
All other schedules and financial statements are omitted because they are
not applicable or the required information is shown in the financial
statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cyrix Corporation
We have audited the accompanying consolidated balance sheets of
Cyrix Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three fiscal years in the period ended December 31,
1996. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cyrix Corporation and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
January 16, 1997
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995
---------------- ----------------
Current assets:
<S> <C> <C>
Cash and cash equivalents......................................... $ 65,712 $ 44,334
Investments....................................................... 22,035 --
Trade accounts receivable, net of valuation allowances of
$4,236 at December 31, 1996 and $4,500 at
December 31, 1995 (Note 1)................................... 27,791 44,727
Inventories (Note 1).............................................. 24,432 12,273
Deferred taxes (Note 3)........................................... 4,783 10,845
Prepayment for product purchases.................................. 20,471 13,333
Income taxes receivable........................................... 21,033 3,089
Other ............................................................ 1,184 377
---------------- ----------------
Total current assets.................................................... 187,441 128,978
Property and equipment (Note 1):
Land ............................................................. 4,964 4,964
Buildings and improvements........................................ 11,154 5,634
Machinery and equipment........................................... 132,359 125,050
---------------- ----------------
148,477 135,648
Accumulated depreciation.......................................... 62,892 37,341
---------------- ----------------
85,585 98,307
Prepayment for product purchases, less current portion.................. 22,465 40,698
Other assets............................................................ 3,851 802
---------------- ----------------
Total assets............................................................ $ 299,342 $ 268,785
---------------- ----------------
</TABLE>
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1995
----------------- -----------------
Current liabilities:
<S> <C> <C>
Accounts payable................................................... $ 17,504 $ 15,239
Accrued salaries and benefits...................................... 5,454 3,469
Deferred income and distributor reserves (Note 1).................. 2,610 15,526
Income taxes payable (Note 3)...................................... 377 536
Current maturities of long-term debt and capitalized lease
obligations (Note 2).......................................... 3,075 20,053
Other accrued expenses............................................. 8,034 5,497
----------------- -----------------
Total current liabilities............................................... 37,054 60,320
Long-term debt and capitalized lease obligations (Note 2)............... 136,156 62,325
Deferred income taxes (Note 3).......................................... 3,206 147
Commitments and contingencies (Notes 2 and 5)
Stockholders' equity (Note 4):
Common stock, $.004 par value; authorized 60,000 shares, issued 20,228
shares at December 31, 1996 and December 31, 1995 ............ 81 81
Additional capital................................................. 49,040 46,256
Retained earnings.................................................. 73,850 99,712
Less treasury stock, at cost, 717 shares at December 31, 1996
and 991 shares at December 31, 1995........................... (45) (56)
----------------- -----------------
Total stockholders' equity.............................................. 122,926 145,993
----------------- -----------------
Total liabilities and stockholders' equity.............................. $ 299,342 $ 268,785
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net product sales........................................... $ 177,101 $ 210,294 $ 246,098
Royalty revenue (Note 1) ................................... 6,724 17,718 --
---------------- ---------------- ----------------
Net revenues................................................ 183,825 228,012 246,098
Cost of sales............................................... 131,453 142,063 120,721
---------------- ---------------- ----------------
52,372 85,949 125,377
Expenses:
Marketing, general and administrative.................. 53,102 39,099 44,858
Research and development............................... 32,371 29,115 24,755
---------------- ---------------- ----------------
85,473 68,214 69,613
---------------- ---------------- ----------------
Income (loss) from operations............................... (33,101) 17,735 55,764
Other income and expense:
Income from litigation settlement...................... 2,000 10,000 500
Interest income........................................ 2,113 2,752 1,855
Interest expense....................................... (9,511) (6,711) (721)
---------------- ---------------- ----------------
(5,398) 6,041 1,634
---------------- ---------------- ----------------
Income (loss) before provision for income taxes and
extraordinary item........................................ (38,499) 23,776 57,398
Provision (benefit) for income taxes (Note 3)............... (13,699) 8,164 19,821
---------------- ---------------- ----------------
Net income (loss) before extraordinary item................. (24,800) 15,612 37,577
Extraordinary loss from early extinguishment of debt, net
of income tax benefit of $598............................. (1,062) -- --
---------------- ---------------- ----------------
Net income (loss) .......................................... $ (25,862) $ 15,612 $ 37,577
---------------- ---------------- ----------------
Net income (loss) per common and common equivalent share:
Net income (loss) before extraordinary item............... $ (1.27) $ .78 $ 1.88
Extraordinary item........................................ (0.06) -- --
---------------- ---------------- ----------------
Net income (loss) per common and
common equivalent share.............................. $ (1.32) $ .78 $ 1.88
---------------- ---------------- ----------------
Weighted average common and common equivalent shares
outstanding............................................... 19,408 19,985 19,986
---------------- ---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994
---------------- --------------- ---------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) ................................................. $ (25,862) $ 15,612 $ 37,577
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization.................................... 27,094 19,417 9,045
Provision for doubtful accounts and OEM customer returns......... 16,089 9,362 8,999
Deferred income taxes and other noncash charges.................. 9,121 (3,447) (3,130)
Changes in operating assets and liabilities:
Receivables................................................... 847 (12,094) (22,699)
Inventories................................................... (12,159) 6,203 (8,315)
Income taxes receivable....................................... (17,944) (3,089) --
Other current assets.......................................... (807) (3,229) 1,198
Accounts payable.............................................. 2,265 (11,941) 14,271
Deferred litigation settlement................................ -- (5,000) 5,000
Accrued expenses.............................................. 4,522 454 1,880
Income taxes payable.......................................... (159) (2,108) 1,532
Deferred income and distributor reserves...................... (12,916) 11,253 2,039
Other assets.................................................. (3,049) 3,173 (549)
---------------- --------------- ---------------
Net cash provided (used) by operating activities................... (12,958) 24,566 46,848
INVESTING ACTIVITIES
Prepayment for product purchases................................... (10,000) (32,367) (30,000)
Reduction in prepayment for product purchases...................... 21,095 8,336 --
Purchases of property and equipment................................ (12,634) (79,677) (23,986)
Purchases of investments........................................... (22,035) -- (32,234)
Proceeds from redemption of investments............................ -- 16,178 30,147
---------------- --------------- ---------------
Net cash used in investing activities.............................. (23,574) (87,530) (56,073)
FINANCING ACTIVITIES
Proceeds from issuance of 5.5% convertible subordinated notes...... 126,500 -- --
Proceeds from issuance of long-term debt........................... 6,941 72,553 13,876
Repayments of long-term debt and capitalized lease obligations..... (78,326) (12,972) (1,751)
Proceeds from issuance of treasury stock........................... 2,308 2,964 2,321
Tax benefit from stock options exercised and disqualifying
dispositions..................................................... 487 1,691 1,854
Repurchases of stock............................................... -- (2) (10)
---------------- --------------- ---------------
Net cash provided by financing activities.......................... 57,910 64,234 16,290
---------------- --------------- ---------------
Net increase in cash and cash equivalents.......................... 21,378 1,270 7,065
Cash and cash equivalents at beginning of fiscal year.............. 44,334 43,064 35,999
---------------- --------------- ---------------
Cash and cash equivalents at end of fiscal year.................... $ 65,712 $ 44,334 $ 43,064
---------------- --------------- ---------------
FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH
Capital lease obligations incurred................................. $ 1,739 $ -- $ 2,817
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK RETAINED
------------------------- --------------------------
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS TOTAL
------------ ----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 19,378,870 $ 78 $ 37,435 1,032,789 $ (50) $ 46,523 $ 83,986
Issuance of common stock on
exercise of stock options 474,434 2 2,319 -- -- -- 2,321
Common stock repurchases -- -- -- 62,833 (10) -- (10)
Tax benefit of stock options
exercised and disqualifying
dispositions -- -- 1,854 -- -- -- 1,854
Net income -- -- -- -- -- 37,577 37,577
------------ ----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1994 19,853,304 80 41,608 1,095,622 (60) 84,100 125,728
Issuance of common stock and
treasury stock on exercise of
stock options 374,574 1 2,957 (154,128) 6 -- 2,964
Common stock repurchases -- -- -- 49,168 (2) -- (2)
Tax benefit of stock options
exercised and disqualifying
dispositions -- -- 1,691 -- -- -- 1,691
Net income -- -- -- -- -- 15,612 15,612
------------ ----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 20,227,878 81 46,256 990,662 (56) 99,712 145,993
Issuance of treasury stock on
exercise of stock options
of stock options -- -- 2,297 (273,384) 11 -- 2,308
Tax benefit of stock options
exercised and disqualifying
dispositions -- -- 487 -- -- -- 487
Net loss -- -- -- -- -- (25,862) (25,862)
------------ ----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 20,227,878 $ 81 $ 49,040 717,278 $ (45) $ 73,850 $ 122,926
------------ ----------- ------------ ------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Cyrix Corporation ("the Company") is engaged principally in the design,
development and marketing of high-performance advanced processors for IBM
compatible personal computers which it sells principally through its direct
sales force, independent representatives and distributors. Manufacturing of
products is performed primarily through third parties.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
FISCAL YEAR
The Company's fiscal year ends on a Sunday on or about December 31. Fiscal year
1996, a 52-week year, ended December 29, 1996. Fiscal years 1995 and 1994 ended
December 31, 1995, and January 1, 1995, respectively. The accompanying financial
statements have been labeled as though the Company's accounting periods ended on
the respective calendar year-end.
RECLASSIFICATIONS
Certain reclassifications of the financial statements for prior years have been
made to conform to the 1996 presentation.
INVESTMENTS
Investments are carried at cost, which approximates market. The Company invests
primarily in bankers' acceptances, commercial paper, municipal bond funds,
government agency securities, corporate obligations and money market funds. All
investments are classified as available-for-sale and no realized or unrealized
gains or losses have been incurred with respect to such investments due to their
nature. The Company considers all highly liquid investments with insignificant
interest rate risk and original maturities of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates actual
cost, determined on a first-in, first-out basis, or market. Inventories are
stated net of lower of cost or market allowances of $5.3 million and $14.7
million as of December 31, 1996 and 1995, respectively. Inventories consist of
the following at December 31:
(In thousands) 1996 1995
---------------- ----------------
Raw materials................. $ 9,576 $ 1,330
Work-in-process............... 14,204 6,482
Finished goods................ 652 4,461
---------------- ----------------
$ 24,432 $ 12,273
---------------- ----------------
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Provisions for depreciation are
calculated using the straight-line method over the estimated useful lives of the
related assets or the term of the lease, if shorter, for assets recognized
pursuant to capitalized leases.
REVENUE RECOGNITION
Sales are recognized upon shipment to distributors and to original equipment
manufacturer ("OEM") customers. Sales and receivables are reduced for estimated
uncollectible accounts, estimated returns from OEM customers and estimated
future price allowances to be granted to OEM customers. Sales to distributors
are made under distributor agreements which provide the distributors rights of
return and price protection on unsold merchandise held by the distributors.
Accordingly, sales are reduced for estimated returns from distributors and
estimated future price reductions of unsold merchandise held by distributors.
Provisions for warranty are made at the time of sale.
ROYALTY REVENUE
Royalty revenue based on the sale by third-party licensees of licensed products
is recognized by the Company upon fulfillment of its contractual obligations and
determination of a royalty amount based on units sold. Royalty revenue of $6.7
million was recognized in fiscal 1996. Total royalty revenue for fiscal 1995 of
$17.7 million included a $15 million payment received in settlement of a
contractual dispute with Texas Instruments Incorporated ("TI"). The $15 million
payment was for past royalties and a fully paid-up license on the Company's
486DLC and 486SLC microprocessors. No royalty revenue was recognized in 1994.
VALUATION ALLOWANCES
Valuation allowances related to net product sales consist of the following at
December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---------------- ----------------
<S> <C> <C>
Allowance for uncollectible accounts................ $ 1,661 $ 1,155
Allowance for returns from and price allowances to
be granted to OEM customers....................... 2,575 3,345
---------------- ----------------
Valuation reserves related to net receivables....... 4,236 4,500
Deferred income and estimated gross profits related
to returns from and price allowances to be
granted to distributors........................... 2,610 15,526
---------------- ----------------
$ 6,846 $ 20,026
---------------- ----------------
</TABLE>
Management estimates the allowance for uncollectible accounts receivable. The
Company performs ongoing credit evaluations of its customers and requires
advanced payments or secures transactions when deemed necessary. The Company
also requires many of its international customers to provide letters of credit
and purchases credit insurance for the majority of its international sales in an
effort to limit the amount of credit risk associated with the Company's accounts
receivable. Therefore, the Company's credit losses have been within management's
estimates.
<PAGE>
ACCOUNTING FOR STOCK OPTIONS
The Company grants stock options for a fixed number of shares to employees and
directors with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, because the
alternative fair value accounting method provided for under FASB Statement No.
123, "Accounting for Stock-based Compensation," requires the use of valuation
models that were not developed for use in valuing employee stock options.
Accordingly, the Company does not recognize compensation expense for stock
option grants.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income (loss) per common and common equivalent share were computed by
dividing net income (loss) by the weighted average number of shares of common
stock and common stock equivalents outstanding during each period. Common stock
options are considered common stock equivalents. The dilutive effects of common
stock equivalents are calculated using the treasury stock method. Fully diluted
net income per share, for applicable years, is substantially the same as primary
net income per share.
ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from the assumptions used by management in
preparation of the financial statements.
<PAGE>
2. LONG-TERM OBLIGATIONS
Long-term debt and capitalized lease obligations consist of the following at
December 31:
<TABLE>
<CAPTION>
(In thousands)
1996 1995
------------- -------------
<S> <C> <C>
5.5% convertible subordinated notes due June 1, 2001 requiring interest
payments semiannually on June 1 and December 1. The notes are convertible
into shares of the Company's common stock at the conversion rate of 25.1572
shares per $1,000 principal amount of the notes (equivalent to a conversion
price of $39.75 per share) $ 126,500 $ --
Note payable, 8.875%, due in monthly installments of $45,686 including
interest through September 1, 2006, with remaining principal and interest
payable on October 1, 2006, collateralized by land and buildings located in
Richardson, Texas 5,485 --
Notes payable with interest rates ranging from 8.69% to 11.1% due in
installments through 2002 and collateralized by substantially all the
assets of the Company -- 75,482
Note payable, 7.125%, due in quarterly installments of $106,000 including
interest through October 31, 1998, with remaining principal and interest due
upon maturity date of November 5, 1998, collateralized by land located in
Richardson, Texas and any improvements made thereto 2,301 2,550
Note payable, 8.3%, due in equal monthly installments of $45,356 including
interest through June 1, 1999, collateralized by specific equipment 1,225 --
Note payable, 6.57%, due in 48 equal monthly installments of $56,745
including interest through April 1, 1998, collateralized by specific equipment 815 1,420
Note payable, 11.5%, due in 36 equal monthly installments of $25,589
including interest through December 31, 1997, collateralized by
specific equipment 289 546
------------- -------------
Total debt 136,615 79,998
Capitalized lease obligations 2,616 2,380
------------- -------------
Total long-term debt and capitalized lease obligations 139,231 82,378
Less current portion 3,075 20,053
------------- -------------
$ 136,156 $ 62,325
------------- -------------
</TABLE>
In May 1996, the Company issued $126.5 million of 5.5% convertible
subordinated notes ("notes") due June 1, 2001. The notes are convertible into
shares of the Company's common stock at the conversion rate of 25.1572 shares
per $1,000 principal amount of notes (equivalent to a conversion price of $39.75
per share). The notes are subordinated to present and future senior indebtedness
of the Company, and the notes are redeemable at the option of the Company, in
whole or in part, on or after June 1, 1999. The Company used approximately $66.6
million of the net proceeds of the offering to repay outstanding notes payable.
<PAGE>
The Company has certain land, buildings and equipment under financing
agreements which contain restrictive covenants including restriction on
additional debt and certain other transactions and which include the maintenance
of certain net worth, net income per quarter, working capital and other
financial ratios.
For each of the next five years and beyond, long-term debt and capital
lease obligations are payable as follows:
<TABLE>
<CAPTION>
(In thousands) LONG-TERM DEBT
(PRINCIPAL CAPITAL
ONLY) LEASES
---------------- --------------
<S> <C> <C> <C>
1997 $ 1,267 $ 2,081
1998 2,272 1,547
1999 76 594
2000 83 --
2001 126,591 --
Thereafter 5,101 --
---------------- --------------
Total 135,390 4,222
Less amount representing interest -- 381
---------------- --------------
Total present value $ 135,390 $ 3,841
---------------- --------------
</TABLE>
Interest paid by the Company related to its notes payable during 1996,
1995 and 1994 amounted to $8.6 million, $6.2 million and $554 thousand,
respectively. Of the total payments under capital leases in fiscal 1996, 1995
and 1994, $353 thousand, $244 thousand and $230 thousand, respectively,
represented interest.
The Company leases office space and equipment under operating leases.
Total rent expense for the fiscal years ended December 31, 1996, 1995, and 1994,
was $3.8 million, $2.0 million and $1.2 million, respectively. Minimum rental
commitments under noncancellable operating leases are as follows:
(In thousands)
YEAR OPERATING LEASES
-----------------
1997............................... $ 4,188
1998............................... 2,826
1999............................... 1,040
2000............................... 101
2001............................... 81
Thereafter......................... 1,221
-----------------
$ 9,457
-----------------
<PAGE>
3. INCOME TAXES
PROVISION (BENEFIT) FOR INCOME TAXES
The provision for income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-----------------------------------------------
Federal:
<S> <C> <C> <C>
Current................................................. $ (23,484) $ 11,095 $ 21,025
Deferred - current...................................... 6,062 (5,443) (2,516)
Deferred - noncurrent................................... 3,060 1,849 (639)
-----------------------------------------------
(14,362) 7,501 17,870
State..................................................... -- 404 1,385
Foreign.................................................... 65 259 566
------------------------------------------------
Total provision (benefit) for income taxes................. $ (14,297) $ 8,164 $ 19,821
------------------------------------------------
</TABLE>
Included in the tax provisions reflected above are $0.5 million, $1.7 million
and $1.9 million for 1996, 1995, and 1994, respectively, of tax benefits related
to stock options exercised and disqualifying dispositions recorded as credits to
stockholders' equity.
The provision (benefit) for income taxes reconciles to the amount computed by
applying the statutory U.S. federal rate of 35% to income before provision for
income taxes as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate............................. $ (14,056) $ 8,321 $ 20,089
Effect of foreign subsidiary transactions........................ 442 (372) (588)
State taxes, net of federal benefit.............................. -- 263 900
Research and development credits................................. (683) (542) (1,117)
Other, net....................................................... -- 494 537
-----------------------------------------------
Provision (benefit) for income taxes............................. $ (14,297) $ 8,164 $ 19,821
-----------------------------------------------
</TABLE>
No federal income tax provision has been made for income taxes on approximately
$1.3 million of cumulative undistributed earnings of certain foreign
subsidiaries because it is the Company's intention to permanently reinvest such
earnings. If such earnings were distributed, it is expected that no additional
taxes would be due after giving effect to available tax credits.
The Company made income tax payments of $0.5 million in 1996, $15.1 million in
1995, and $19.6 million in 1994.
<PAGE>
ANALYSIS OF DEFERRED TAX ASSETS (LIABILITIES)
Significant components of the Company's deferred tax assets (liabilities)
consist of the following at December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
-------------------------------
Deferred tax assets - current:
<S> <C> <C>
Allowance for doubtful accounts..................................................... $ 500 $ 404
Other receivable allowances......................................................... 1,024 1,354
Inventory valuation................................................................. 1,801 3,739
Deferred income and distributor reserves............................................ 759 4,843
Other current, net.................................................................. 699 505
-------------------------------
4,783 10,845
Deferred tax liability - noncurrent:
Depreciation........................................................................ (3,349) (474)
Other noncurrent, net............................................................... 143 327
-------------------------------
(3,206) (147)
-------------------------------
Net deferred tax assets............................................................... $ 1,577 $ 10,698
-------------------------------
</TABLE>
At December 31, 1996 and December 31, 1995 no valuation allowance was recorded
to offset deferred tax assets.
It is management's expectation that the deferred tax assets will be recoverable
through the generation of future taxable income from ordinary and recurring
operations. However, if future taxable income is not generated, the majority of
the deferred tax assets would be recoverable by a carryback refund of taxes paid
in the current or prior years. It is more likely than not that the remainder of
the deferred tax assets will be realized.
4. STOCKHOLDERS' EQUITY
Stock option transactions for the Company's 1988 Incentive Stock Plan and the
Company's Non-Employee Directors Stock Plan during fiscal years 1994, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES WEIGHTED AVERAGE OPTION PRICE
EXERCISE PRICE RANGE PER SHARE
------------------ ----------------- -----------------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1993 1,794,374 $0.16- $35.75
Granted 780,800 $20.00- $45.25
Terminated 202,730 $0.16- $35.75
Exercised 435,531 $0.16- $27.75
------------------
Options outstanding at December 31, 1994 1,936,913 $12.57 $0.16- $45.25
Granted 1,070,125 $28.53 $20.75- $39.50
Terminated 489,730 $28.23 $2.37- $44.875
Exercised 435,875 $4.52 $0.64- $31.00
------------------
Options outstanding at December 31, 1995 2,081,433 $18.78 $0.16- $45.25
Granted 1,577,600 $19.05 $13.00- $28.375
Terminated 602,226 $22.77 $2.32- $45.25
Exercised 190,800 $5.25 $0.64- $27.75
------------------
Options outstanding at December 31, 1996 2,866,007 $18.99 $0.16- $45.25
</TABLE>
<PAGE>
Price ranges of outstanding and exercisable options as of December 31, 1996 were
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- -----------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE NUMBER OF AVERAGE
RANGE OF EXERCISE PRICES OPTIONS CONTRACTUAL EXERCISE PRICE OPTIONS EXERCISE PRICE
LIFE
--------------------------- ----------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.16- $14.19 676,197 6 yrs $6.64 415,702 $3.10
$17.25- $30.00 2,006,910 9 yrs $21.36 681,221 $22.11
$31.00- $44.88 182,900 8 yrs $38.61 69,995 $38.30
----------------- ---------------- ----------------- ----------------- -----------------
$0.16- $44.88 2,866,007 8 yrs $18.99 1,166,918 $16.31
</TABLE>
1988 INCENTIVE STOCK PLAN
The Company's 1988 Incentive Stock Plan, as amended ("the Plan"), provides for
reservation, restriction, and issuance of up to 7,218,334 shares of common stock
to employees, officers, directors, and consultants of the Company. The Plan
provides for issuance of common stock upon the exercise of stock options and
stock purchase rights, which may be granted under the Plan with exercise prices
not less than the fair market value of the common stock on the date of grant.
The proceeds received by the Company upon the exercise of stock options and
stock purchase rights increase the Company's cash and equity balances. Shares
issued are subject to a repurchase option in favor of the Company of unvested
shares upon discontinued employment. Shares issued generally vest over and are
fully vested four years from the date of grant. At December 31, 1996, there were
1,170,613 shares available for future grants.
NON-EMPLOYEE DIRECTORS STOCK PLAN
On April 27, 1995 the stockholders approved the Non-Discretionary Non-Employee
Directors Stock Plan ("the Non-Employee Directors Stock Plan"), which provides
for the issuance of up to 200,000 shares of common stock to non-employee
directors of the Company. The plan provides for issuance of common stock upon
the exercise of stock options, which are granted with an exercise price equal to
the fair market value of the common stock on the date of grant and vest over 4
years. The number of options granted to a non-employee director under the plan
in any year is dependent on his attendance of board and board committee meetings
during the prior year, with the maximum shares subject to options granted in any
one year to any one director being 10,000. At December 31, 1996, there were
158,750 shares available for future grant.
EMPLOYEE STOCK PURCHASE PLAN
An Employee Stock Purchase Plan ("the Employee Stock Purchase Plan"), as
amended, provides for reservation and issuance of up to 500,000 shares of the
Company's common stock. Eligible employees may purchase common stock through
payroll deductions, which may not exceed 10% of an employee's base salary. The
purchase price is the lesser of 85% of the fair market value at the commencement
of the purchase period or 85% of the fair market value on the last day of the
purchase period. Each purchase period is six months. During fiscal 1996, 1995
and 1994, 71,584, 54,867 and 39,903 shares of stock, respectively, were issued
to employees under the Employee Stock Purchase Plan for an aggregate purchase
price of $1,198 thousand, $915 thousand and $687 thousand. No shares were issued
under the Employee Stock Purchase Plan prior to fiscal 1994.
<PAGE>
FAIR VALUE OF STOCK OPTIONS
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-based Compensation," and has been
determined as if the Company had accounted for its employee stock options using
the fair value method of that Statement. The fair value for each of the
Company's options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1996
and 1995: a risk-free interest rate ranging from 5.8% to 6.4% for 1996 and 5.6%
to 6.7% for 1995 based on a six-month weighted average of interest rates
available on zero-coupon United States Government issued securities with terms
equal to the expected life of the options; dividend yields of zero; volatility
factors of the expected market price of the Company's common stock of .70; and a
weighted average expected life of the options of 1.2 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. Additionally, because
options vest over several years and additional option grants are expected, the
effects of the valuation models are not likely to be representative of similar
future calculations.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
1996 1995
-------------- ---------------
Pro forma net income (loss) $ (31,556) $ 13,368
Pro forma net income (loss) per common share $ (1.63) $ 0.67
The weighted average fair value of options granted in the fiscal years ended
December 31, 1996 and 1995 were $10.92 and $15.71, respectively.
5. CONTINGENCIES
MICROPROCESSOR LITIGATION
Since March 1992, the Company and Intel Corporation ("Intel") have been engaged
in litigation related to certain of the Company's microprocessor products. On
January 21, 1994, the United States District Court for the Eastern District of
Texas, Sherman Division ruled in favor of the Company with respect to
microprocessor products which were made and sold to the Company by certain Intel
licensees, SGS-Thomson Microelectronics, Inc. ("SGS") and TI. Intel appealed the
ruling on April 8, 1994. On December 8, 1994, the Court of Appeals for the
Federal Circuit affirmed the district court's January 21, 1994 ruling. On
December 23, 1994, Intel filed a petition for reconsideration of that decision
and a motion for rehearing en banc with the Court of Appeals. In February 1995,
the Court of Appeals for the Federal Circuit denied Intel's motion for a
rehearing en banc.
<PAGE>
On January 24, 1994, the United States District Court for the Eastern District
of Texas, Sherman Division began to try the Company's allegations that Intel
violated certain antitrust statutes and misused its patents and Intel's
allegations that the Company infringed certain Intel patents. Effective January
31, 1994, the Company and Intel entered into a settlement agreement which
provides for the dismissal of the claims which were to be litigated in the
January 24, 1994 trial. Pursuant to the settlement agreement, Intel granted the
Company a fully paid-up, irrevocable license under claims 2 and 6 of Intel's
United States patent 4,972,338 ("the Crawford patent") and certain other system
patents for products sold after January 31, 1994. Intel also acknowledged that
products purchased by the Company from certain licensees exhaust Intel device
claims including claim 1 of the Crawford patent. Further, Intel paid $5 million
to the Company. The Company and Intel agreed that if the January 21, 1994
ruling, insofar as it relates to SGS, was reversed after final adjudication or
was remanded for additional findings and subsequently reversed so that Cyrix did
not have a right to use claims 2 and 6 of the Crawford patent based on the SGS
license, Cyrix would return the $5 million plus interest to Intel. Cyrix
deferred recognition as income of the $5 million settlement payment received in
February 1994 until final resolution of this issue. Intel agreed to pay the
Company an additional $5 million if the January 21, 1994 SGS ruling was upheld
after final adjudication. As noted previously, in December 1994, the Court of
Appeals for the Federal Circuit upheld the district court's January 21, 1994
ruling and later denied Intel's motion for a rehearing en banc. The time period
during which Intel had the right to appeal the case to the United States Supreme
Court expired without such appeal, and the Company received the additional $5
million settlement payment in the second quarter of 1995. Therefore, the Company
recognized settlement income of $10 million in the second quarter of 1995.
As part of the settlement agreement, the Company and Intel agreed to litigate in
the United States District Court for the Eastern District of Texas, Sherman
Division, whether products manufactured by SGS affiliates under the "have-made"
provision in the SGS-Intel license, sold to SGS, and then sold to the Company
fall within the scope of the SGS license. On December 30, 1994, the district
court ruled that SGS was licensed by Intel to exercise have-made rights by
having third parties (including SGS affiliates) manufacture and sell
microprocessors to Cyrix free of claims of patent infringement by Intel. Intel
appealed the ruling on March 7, 1995. On March 5, 1996, the Court of Appeals for
the Federal Circuit affirmed the district court's December 1994 ruling. On March
18, 1996 Intel filed a petition for a rehearing of that decision with the Court
of Appeals. In April 1996, the Court of Appeals denied Intel's petition for a
rehearing. The time period during which Intel had the right to appeal the case
to the United States Supreme Court expired without such appeal, and the Company
received a $1 million settlement payment on July 30, 1996. Therefore, the
Company recognized settlement income of $1 million in the third quarter of 1996.
Similarly, the Company and Intel agreed to litigate in the United States
District Court for the Eastern District of Texas, Sherman Division, whether IBM
is licensed under claim 1 of the Crawford patent when manufacturing products
that are primarily designed by the Company. On April 5, 1994, the district court
granted IBM's motion to intervene, and on December 8, 1994, the district court
ruled that IBM was licensed by Intel to act as a semiconductor foundry for Cyrix
free of claims of patent infringement by Intel. Intel appealed the ruling on
March 7, 1995. On March 5, 1996, the Court of Appeals for the Federal Circuit
affirmed the district court's December 1994 ruling. The time period during which
Intel had the right to appeal the case to the United States Supreme Court
expired without such appeal, and the Company received a $1 million settlement
payment on July 30, 1996. Therefore, the Company recognized settlement income of
$1 million in the third quarter of 1996.
STOCKHOLDERS CLASS ACTION
In December 1994, eleven class actions were filed in the United States District
Court for the Northern District of Texas, purportedly on behalf of purchasers of
the Company's common stock, alleging that the Company and various of its
officers and directors violated sections of the Securities Exchange Act of 1934
and Rule 10b-5
<PAGE>
promulgated thereunder, by issuing false and misleading statements concerning
the introduction and production of the Company's Cx486DX2 40/80 MHz
microprocessors. The complaints also allege that the conduct of the Company and
certain of its officers and directors constituted fraud and negligent
misrepresentation and that certain of such officers and directors sold shares of
the Company's common stock while in possession of material undisclosed
information.
In June 1995, all of the actions were consolidated into one complaint in the
federal district court in Dallas, Texas. The Company moved to dismiss the
consolidated amended class action complaint in July 1995. On August 20, 1996,
the United States District Court for the Northern District of Texas, Dallas
Division, entered an order dismissing plaintiffs' complaint for failure to
properly plead a cause of action. The court, however, dismissed plaintiffs'
complaint "without prejudice," and permitted plaintiffs leave to amend their
complaint by September 10, 1996 to cure its deficiencies. No such amendment was
filed and on September 26, 1996, the U.S. District Court in Dallas entered a
judgment dismissing the securities class action lawsuit against the Company and
various of its officers.
GATEWAY TRADEMARK LITIGATION
By letter dated May 17, 1996, Gateway 2000, Inc. ("Gateway") alleged that Cyrix
"is infringing valuable trademark and trade dress rights of Gateway 2000" in
advertisements promoting Cyrix's 6x86(TM) personal computer systems. Gateway
asserts that Cyrix's "reproduction, copy and colorable imitation of Gateway's
registered trademark and trade dress in connection with advertising Cyrix's
goods is likely to cause confusion, mistake or deceive the public within the
meaning of the Lanham Act." The letter threatens Cyrix with actions for
trademark infringement, false advertising and trade disparagement, and unfair
competition. Finally, the letter suggests that Gateway might assert its rights
in other nations if the advertisements have been distributed on the
international market.
On May 24, 1996, Cyrix filed in the United States District Court for the
Northern District of Texas, Dallas Division, CYRIX CORPORATION V. GATEWAY 2000,
INC., seeking a declaratory judgment: (i) that none of Cyrix's actions or
omissions relating to its advertisements of the Cyrix 6x86 computers has
violated any provisions of the Lanham Act; (ii) that none of Cyrix's actions or
omissions relating to its advertisements of the Cyrix 6x86 computers has
violated the common law of the State of Texas or any provisions of the Texas
Trademark Act, Texas Business & Commerce Code Sections 16.01 et seq., including
but not limited to those provisions relating to trademark infringement, trade
dress infringement and dilution; (iii) that Cyrix has not engaged in any false
or unlawful advertising; (iv) that Cyrix has not engaged in any unfair
competition or trade disparagement; (v) that Cyrix's conduct relating to its
advertisements of the Cyrix 6x86 computers is speech protected by the U.S.
Constitution and the Texas Constitution of 1876; (vi) that none of Cyrix's
actions or omissions relating to its advertisements of the Cyrix 6x86 computers
has violated any state or federal laws; (vii) that Cyrix's acts are privileged
and/or excused by: (a) the defense of fair use; (b) the defense of opinion and
parody; and (c) the defense of truth; and (viii) that Cyrix is free to use
images of Holstein cows to signify Gateway (even in an unflattering fashion) in
advertising of personal computers that is not factually false, deceptive or
misleading.
Subsequently, in late June and early July Gateway filed actions in state court
in New York, New Jersey, Connecticut, Massachusetts and California. The state
court cases are essentially the same and allege that Cyrix violated
anti-dilution laws, deceptive trade practices laws, trademark infringement laws,
and unfair competition laws. Cyrix believes that Gateway also made claims under
the Federal Trademark Act and certain state law claims preempted by the Federal
Copyright law. Gateway requested, among other relief, preliminary and permanent
injunctions, as well as actual and punitive damages. In each of the five cases,
Gateway sought actual damages (typically asserting such amount is at least one
million dollars) and punitive damages.
<PAGE>
On December 20, 1996, the Company and Gateway agreed to a settlement of all of
the claims in the state and federal court actions and the dismissal with
prejudice of those actions. The settlement, the terms of which are confidential
by agreement between the parties, had no material impact upon the Company's
results of operations in the current or future years.
OTHER MATTERS
The Company is a defendant in various other actions which arose in the normal
course of business. In the opinion of management, the ultimate disposition of
these other matters will not have a material adverse effect on the financial
condition or overall trends in the results of operations of the Company.
6. FOREIGN OPERATIONS
The Company operates in one business segment, advanced processors. Operations
outside the United States include both product testing and sales. Sales entities
are located in the United Kingdom, Japan, Singapore, Taiwan and Hong Kong.
Generally, revenues between geographic areas are based on prevailing market
prices or an approximation thereof. Identifiable assets are those associated
with geographic area operations, excluding unallocated cash and short-term
investments and internal company investments and receivables. A summary of the
Company's operations by geographic area is presented below:
<TABLE>
<CAPTION>
(In thousands) ASIA AND INTERCOMPANY
UNITED STATES EUROPE PACIFIC ELIMINATIONS CONSOLIDATED
--------------- -------------- ------------- -------------- ---------------
FISCAL YEAR ENDED DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers....... $ 183,825 $ -- $ -- $ -- $ 183,825
Inter-area sales to affiliates........ 24,761 3,782 4,225 (32,768) --
Income (loss) from operations......... (33,160) 96 (37) -- (33,101)
Identifiable assets................... 296,779 1,793 770 -- 299,342
FISCAL YEAR ENDED DECEMBER 31, 1995
Sales to unaffiliated customers....... $ 228,012 $ -- $ -- $ -- $ 228,012
Inter-area sales to affiliates........ 15,160 4,196 7,493 (26,849) --
Income from operations................ 15,795 446 955 539 17,735
Identifiable assets................... 264,378 1,361 3,046 -- 268,785
FISCAL YEAR ENDED DECEMBER 31, 1994
Sales to unaffiliated customers....... $ 169,420 $ 76,678 $ -- $ -- $ 246,098
Inter-area sales to affiliates........ 71,208 -- 5,873 (77,081) --
Income from operations................ 52,799 2,035 758 172 55,764
Identifiable assets................... 173,770 17,718 5,185 (539) 196,134
</TABLE>
Gross export sales to unaffiliated customers in Asia and the Pacific region by
domestic operations in fiscal years 1996, 1995 and 1994 were $39 million, $100
million and $53.8 million, respectively. Also, gross export sales to
unaffiliated customers in Europe by domestic operations in fiscal years 1996 and
1995 were $48.6 million and $44.1 million, respectively.
<PAGE>
7. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS. The carrying amount approximates fair value.
INVESTMENTS. The carrying amount approximates fair value because of the short
maturity and nature of these instruments. The Company places its cash
investments only in high credit quality financial instruments and limits the
amount invested in any one institution or in any one type of instrument. The
Company has not experienced any significant losses on its investments.
ACCOUNTS RECEIVABLE. The carrying amount, which is net of valuation allowances
for credit losses and returns from and price allowances to be granted to certain
OEM customers, approximates fair value.
ACCOUNTS PAYABLE. The carrying amount approximates fair value because of the
short-term nature of these instruments.
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS, INCLUDING CURRENT MATURITIES.
The carrying value of the Company's long-term debt and capitalized lease
obligations is $12.7 million and $82.4 million at December 31, 1996 and 1995,
respectively. The fair value of the outstanding debt and capitalized lease
obligations does not differ materially from the carrying values based upon a
comparison of the weighted average interest rates of such borrowings compared
with the Company's currently available incremental borrowing rate.
5.5% SUBORDINATED NOTES DUE JUNE 1, 2001. The fair value of the $126.5 million
of subordinated convertible notes is approximately $89.2 million based upon
reported trading activity for January 1, 1997.
8. RISKS AND UNCERTAINTIES
Cyrix currently obtains all of the wafers it uses in production of the Company's
products from IBM Microelectronics. The purchase agreement with IBM continues
through December 1999. Cyrix also has a purchase agreement with SGS-Thomson
Microelectronics, Inc. which continues through December 1997. However, Cyrix did
not purchase wafers under the SGS agreement during 1996. Due to the complex
processes involved in fabrication of the wafers, it is possible that the Company
would have difficulty in locating other supply sources capable of fabricating
its wafers if it could no longer purchase its wafers from IBM. Any loss of wafer
capacity or delay in obtaining an alternative source of wafers due to such
problems would have a severe impact on the Company's results of operations.
From time to time, Cyrix has been notified that it may infringe intellectual
property rights of others. If any such claims are asserted against the Company,
the Company may seek to obtain a license under the third-party's intellectual
property rights. The Company could decide, however, to resort to litigation to
challenge such claims. Such challenges could be extremely expensive and time
consuming and could materially adversely affect the Company's business,
financial condition and results of operations. No assurance can be given that
all necessary licenses can be obtained on reasonable terms nor that litigation
can be avoided. The Company's inability to obtain licenses on favorable terms or
avoid litigation related to such licenses could have a severe impact on the
future operations of the Company.
<PAGE>
SUPPLEMENTARY FINANCIAL DATA (UNAUDITED)
The following summarizes the unaudited operating results of the Company for the
fiscal years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
(In thousands) THREE MONTHS ENDED
--------------------------------------------------------------------------
1996 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net revenues.......................... $ 51,606 $ 27,055 $ 33,106 $ 72,058
Gross margin ......................... 25,327 568 11,295 15,182
Income (loss) from operations......... 4,614 (22,198) (10,648) (4,869)
Income (loss) before provision
(benefit) for income taxes and
extraordinary item................ 2,964 (23,999) (10,524) (6,940)
Net income (loss) .................... 1,956 (16,422) (6,946) (4,450)
Net income (loss) per common and
common equivalent share:
Net income (loss) before extraordinary
item.............................. .10 (.79) (.36) (.23)
Extraordinary item ................... -- (.06) -- --
--------------- ---------------- ---------------- ----------------
Net income (loss)..................... $ .10 $ (.85) $ (.36) $ (.23)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
1995 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net revenues......................... $ 85,144 $ 50,238 $ 53,572 $ 39,058
Gross margin ........................ 45,077 19,325 18,590 2,957
Income (loss) from operations........ 27,416 2,296 2,264 (14,241)
Income before provision (benefit) for
income taxes..................... 27,111 11,444 848 (15,628)
Net income (loss).................... 17,485 7,494 557 (9,924)
Net income (loss) per common and common
equivalent share................. $ .88 $ .38 $ .03 $ (.49)
</TABLE>
The Company's quarterly operating results are subject to fluctuations as a
result of a number of factors, including general economic conditions, conditions
in the semiconductor or personal computer industries, decreases in average
selling prices over the life of any product, the timing of new product
introductions and related expenses, changes in demand for the Company's
products, changes in product mix, manufacturing capacity available to the
Company, manufacturing yields, and the commencement of, developments in or
outcome of litigation.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the headings "Election of Directors,"
"Management of the Company" and "Compliance with Section 16(a) of the Exchange
Act" contained in the Company's definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Securities Exchange Act of 1934, as amended ("the
Exchange Act"), in connection with the Company's 1997 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the heading "Executive Compensation" contained
in the Company's definitive Proxy Statement to be filed pursuant to Regulation
14A of the Exchange Act in connection with the Company's 1997 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the headings "Security Ownership of Directors
and Executive Officers" and "Principal Stockholders" contained in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act in connection with the Company's 1997 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the headings "Election of Directors," "Executive
Compensation" and "Other Matters" contained in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A of the Exchange Act in
connection with the Company's 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
(a) (1) - The financial statements filed as part of this Report at Item 8 are listed in the Index to Financial
Statements, Supplementary Financial Data and Financial Statement Schedules on page 18 of this Report.
(a) (2) - The financial statement schedule filed as part of this Report at Item 8 are listed in the Index to
Financial Statements, Supplementary Financial Data and Financial Statement Schedules on page 18 of this
Report.
(a) (3) - The following documents are filed or incorporated by reference as exhibits to this Report:
3.1 - Restated Certificate of Incorporation filed May 15, 1996. (1)
3.2 - Bylaws of the Company as adopted by the Board of Directors of the Company as of February 12, 1988,
together with Certificate of Amendment of Bylaws of the Company as adopted by the Board of Directors as
of March 16, 1988 and Certificate of Amendment of Bylaws of the Company as adopted by the Board of
Directors as of April 15, 1993. (2)
3.3 - Certificate of Amendment of Bylaws of the Registrant as adopted by the Board of Directors as of August
26, 1993. (3)
3.4 - Certificate of Amendment of Bylaws of the Registrant as adopted by the Board of Directors as of March
10, 1994. (4)
3.5 - Certificate of Amendment of Bylaws of the Registrant as adopted by the Board of Directors as of March
24, 1995. (1)
3.6 - Certificate of Amendment of Bylaws of the Registrant as adopted by the Board of Directors as of January
26, 1996. (1)
4.1 - Form of Certificate for the Common Stock. (2)
4.2 - Indenture, dated as of May 28, 1996 between the Registrant and Bank of Montreal Trust Company as
Trustee. (1)
4.3 - Registration Rights Agreement, dated as of May 28, 1996 between the Registrant and Goldman, Sachs & Co.
(1)
10.1 - License and Production Agreement entered into as of January 11, 1994 between SGS-Thomson
Microelectronics, Inc. and Cyrix Corporation. (PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION IN RELIANCE ON RULE 24B-2 AND THE REGISTRANT'S REQUEST FOR CONFIDENTIAL TREATMENT). (5)
10.2 - Form of Proprietary Information and Non-competition Agreement (all employees). (2)
10.3 - Cyrix Corporation 1988 Incentive Stock Plan, as amended and restated as of January 26, 1996. (6)
10.4 - Cyrix Corporation Profit Sharing Plan. (2)
10.5 - Cyrix Corporation Executive Cash Compensation Plan. (2)
10.6 - Cyrix Corporation Employee Stock Purchase Plan, as amended and restated as of January 26, 1995. (7)
10.7 - Real Estate Note dated September 3, 1996, in the principal amount of $5,500,000 by Cyrix Corporation in
favor of Safeco Life Insurance Company.
10.8 - Promissory Note and Letter Loan Agreement dated November 5, 1993, in the principal amount of $3,000,000
by Cyrix Corporation in favor of Bank One, Texas, National Association. (5)
10.9 - Settlement Agreement effective January 31, 1994, between Cyrix Corporation and Intel Corporation.
(PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION IN RELIANCE ON RULE 24B-2 AND THE
REGISTRANT'S REQUEST FOR CONFIDENTIAL TREATMENT). (5)
10.10 - Agreement for Purchase of Products entered into as of April 8, 1994 between IBM Microelectronics
and Cyrix Corporation. (PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
IN RELIANCE ON RULE 24B-2 AND THE REGISTRANT'S REQUEST FOR CONFIDENTIAL TREATMENT).(8)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.11 - Amended and Restated Agreement for Purchase of Products entered into as of April 8, 1994 between IBM
Microelectronics and Cyrix Corporation. (PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION IN RELIANCE ON RULE 24B-2 AND THE REGISTRANT'S REQUEST FOR CONFIDENTIAL TREATMENT). (9)
10.12 - Amendment dated September 30, 1994 to License and Production Agreement entered into as of January 11,
1994 between SGS-Thomson Microelectronics, Inc. and Cyrix Corporation. (PORTIONS HAVE BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION IN RELIANCE ON RULE 24B-2 AND THE REGISTRANT'S REQUEST FOR
CONFIDENTIAL TREATMENT). (10)
10.13 - Secured Revolving Credit Agreement by and among Cyrix Corporation, First Interstate Bank of Texas,
N.A., National Bank of Canada, and The Boatmen's National Bank of St. Louis dated September 23, 1994.
(PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION IN RELIANCE ON RULE 24B-2 AND THE
REGISTRANT'S REQUEST FOR CONFIDENTIAL TREATMENT). (10)
10.14 - Cyrix Corporation Non-Discretionary Non-Employee Directors Stock Plan (11)
10.15 - Agreement for Purchase of Products (Foundry) entered into as of May 17, 1996 between IBM
Microelectronics and Cyrix Corporation. (12)
11 - Earnings Per Common and Common Equivalent Share.
21 - Subsidiaries.(13)
23 - Consent of Ernst & Young LLP.
------------------------------------------------------
(1) - Filed as an Exhibit to the Company's Registration Statement on Form S-3 (File No. 333-10669) and
incorporated herein by reference.
(2) - Filed as an Exhibit to the Company's Registration Statement on Form S-1 (File No. 33-63144) and
incorporated herein by reference.
(3) - Filed as an Exhibit to the Company's Registration Statement on Form S-8 (File No. 33-68004) and
incorporated herein by reference
(4) - Filed as an Exhibit to the Company's Registration Statement on Form S-8 (File No. 33-87064) and
incorporated herein by reference.
(5) - Filed as an Exhibit to the Company's Form 10-K for the fiscal year ended January 2, 1994 and
incorporated herein by reference.
(6) - Filed as an Exhibit to the Company's Registration Statement on Form S-8 (File No. 333-18579) and
incorporated herein by reference.
(7) - Filed as an Exhibit to the Company's Registration Statement on Form S-8 (File No. 33-99492) and
incorporated herein by reference.
(8) - Filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended April 3, 1994 and
incorporated herein by reference.
(9) - Filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended July 3, 1994 and
incorporated herein by reference.
(10) - Filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended October 2, 1994 and
incorporated herein by reference.
(11) - Filed as an Exhibit to the Company's Registration Statement on Form S-8 (File No. 33-99488) and
incorporated herein by reference.
(12) - Filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 1996.
(13) - Filed as an Exhibit to the Company's Form 10-K/A Amendment No. 1 for the fiscal year ended December 31,
1995.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By:/s/ JAMES W. SWENT, III
-----------------------
James W. Swent, III
Office of the President
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ JAMES W. SWENT, III Office of the President March 10, 1997
----------------------------------------------
(James W. Swent, III) (principal executive officer)
Senior Vice President of Finance
/s/ JAMES W. SWENT, III and Administration March 10, 1997
----------------------------------------------
(James W. Swent, III) (principal financial officer and
principal accounting officer)
/s/ HARVEY B. CASH Chairman of the Board March 10, 1997
----------------------------------------------
(Harvey B. Cash)
/s/ L.J. SEVIN Director March 10, 1997
----------------------------------------------
(L.J. Sevin)
/s/ GERALD D. ROGERS Director March 10, 1997
----------------------------------------------
(Gerald D. Rogers)
/s/ GARY A. STIMAC Director March 10, 1997
----------------------------------------------
(Gary A. Stimac)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
CYRIX CORPORATION AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
DESCRIPTION FISCAL YEAR EXPENSES DEDUCTIONS OF FISCAL YEAR
- ---------------------------------------------------- ---------------- ---------------- --------------- ----------------
Allowance for losses from uncollectible accounts (deducted from accounts
receivable in balance sheet):
<S> <C> <C> <C> <C>
Fiscal year ended December 31, 1994 $ 585 $ 881 $ 312 $ 1,154
---------------- ---------------- --------------- ----------------
Fiscal year ended December 31, 1995 $ 1,154 $ 99 $ 98 $ 1,155
---------------- ---------------- --------------- ----------------
Fiscal year ended December 31, 1996 $ 1,155 $ 3,661 $ 3,155 $ 1,661
---------------- ---------------- --------------- ----------------
Allowance for returns from and price allowances to be granted to original
equipment manufacturer customers (deducted from accounts receivable in balance
sheet):
Fiscal year ended December 31, 1994 $ 1,494 $ 8,118 $ 7,209 $ 2,403
---------------- ---------------- --------------- ----------------
Fiscal year ended December 31, 1995 $ 2,403 $ 9,263 $ 8,321 $ 3,345
---------------- ---------------- --------------- ----------------
Fiscal year ended December 31, 1996 $ 3,345 $ 12,428 $ 13,198 $ 2,575
---------------- ---------------- --------------- ----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
EXHIBIT 11
- ---------------------------------------------------------------------------------------------------------------------------
CYRIX CORPORATION AND SUBSIDIARIES
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
------------- ------------- -------------
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
<S> <C> <C> <C>
Weighted average common shares outstanding 19,408 19,052 18,515
Incremental shares related to assumed exercise of
common stock options, if dilutive: -- 933 1,471
------------- ------------- -------------
Weighted average common and common equivalent shares 19,408 19,985 19,986
------------- ------------- -------------
Net Income (Loss) $ (25,862) $ 15,612 $ 37,577
------------- ------------- -------------
Earnings (loss) per common and common equivalent share:
Income (loss) before extraordinary item $ (1.27) $ 0.78 $ 1.88
Extraordinary item (0.06) -- --
------------- ------------- -------------
Net income (loss) per common and common
equivalent share $ (1.33) $ 0.78 $ 1.88
------------- ------------- -------------
</TABLE>
The computations of earnings per share do not give effect to common stock
equivalents for any period in which their inclusion would have the effect of
decreasing the loss per share otherwise computed.
The computations of earnings per share on a fully diluted basis do not differ
significantly from the amounts calculated on a primary basis shown above.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Registration Statement
(Form S-3 No. 333-10669) of Cyrix Corporation and the related Prospectus, (ii)
the Registration Statement (Form S-8 No. 33-99490) pertaining to the Cyrix
Corporation 1988 Incentive Stock Plan, (iii) the Registration Statement (Form
S-8 No. 33-99492) pertaining to the Cyrix Corporation Employee Stock Purchase
Plan and (iv) the Registration Statement (Form S-8 No. 33-99488) pertaining to
the Cyrix Corporation Non-Employee Director Stock Plan of our report dated
January 16, 1997, with respect to the consolidated financial statements and
schedule of Cyrix Corporation included in the Annual Report (Form 10-K) for the
year ended December 31, 1996.
ERNST & YOUNG LLP
Dallas, Texas
March 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 65,712
<SECURITIES> 22,035
<RECEIVABLES> 27,791
<ALLOWANCES> 4,236
<INVENTORY> 24,432
<CURRENT-ASSETS> 187,441
<PP&E> 148,477
<DEPRECIATION> 62,892
<TOTAL-ASSETS> 299,342
<CURRENT-LIABILITIES> 37,054
<BONDS> 139,231
0
0
<COMMON> 81
<OTHER-SE> 122,845
<TOTAL-LIABILITY-AND-EQUITY> 299,342
<SALES> 177,101
<TOTAL-REVENUES> 183,825
<CGS> 131,453
<TOTAL-COSTS> 85,473
<OTHER-EXPENSES> 5,398
<LOSS-PROVISION> 3,661
<INTEREST-EXPENSE> 9,511
<INCOME-PRETAX> (38,499)
<INCOME-TAX> (13,699)
<INCOME-CONTINUING> (24,800)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,062)
<CHANGES> 0
<NET-INCOME> (25,862)
<EPS-PRIMARY> (1.33)
<EPS-DILUTED> (1.33)
</TABLE>
