<PAGE>
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_______________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............... to ..............
Commission File 0-21904
CYRIX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2218250
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2703 NORTH CENTRAL EXPRESSWAY, RICHARDSON, TX 75080
----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
972-968-8387
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $.004 PAR VALUE 19,767,449
- ----------------------------- ----------
(Title of Each Class) (Number of Shares Outstanding at
August 1, 1997)
- -------------------------------------------------------------------------------
<PAGE>
CYRIX CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 3-4
Consolidated Statements of Income for the
three months and six months ended
June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CYRIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1997 1996
--------------------
Current assets:
Cash and cash equivalents $ 82,321 $ 65,712
Investments 23,566 22,035
Trade accounts receivable, net of valuation
allowances of $5,912 at June 30, 1997 and $4,236
at December 31, 1996 35,291 27,791
Inventories:
Raw materials 4,002 9,576
Work in process 9,932 14,204
Finished goods 26,481 652
-------------------
Total inventories 40,415 24,432
Prepayment for product purchases (Note 5) 22,064 20,471
Income taxes receivable 1,495 21,033
Deferred taxes 8,103 4,783
Other assets 499 1,184
-------------------
Total current assets 213,754 187,441
Property and equipment
Land 4,964 4,964
Buildings and improvements 11,798 11,154
Machinery and equipment 136,889 132,359
-------------------
153,651 148,477
Accumulated depreciation (76,052) (62,892)
-------------------
77,599 85,585
Prepayment for product purchases, less current
portion (Note 5) 16,326 22,465
Other assets 3,476 3,851
-------------------
Total assets $311,155 $299,342
-------------------
-------------------
3
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1997 1996
-------------------
Current liabilities:
Accounts payable $ 23,434 $ 17,504
Accrued salaries and benefits 5,118 5,454
Deferred income and distributor reserves 7,358 2,610
Income taxes payable 721 377
Current maturities of long-term debt and capitalized
lease obligations (Note 4) 2,781 3,075
Other accrued expenses 8,016 8,034
-------------------
Total current liabilities 47,428 37,054
Long-term debt and capitalized lease obligations, less
current maturities (Note 4) 134,944 136,156
Deferred income taxes 2,819 3,206
Commitments and contingencies (Notes 5 and 6)
Stockholders' equity:
Common stock, $.004 par value; authorized 60,000 shares,
issued 20,228 at June 30, 1997 and December 31, 1996 81 81
Additional capital 50,737 49,040
Retained earnings 75,184 73,850
Less treasury stock, at cost, 546 shares at June 30,
1997 and 717 shares at December 31, 1996 (38) (45)
-------------------
Total stockholders' equity 125,964 122,926
-------------------
Total liabilities and stockholders' equity $311,155 $299,342
-------------------
-------------------
SEE ACCOMPANYING NOTES.
4
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
FISCAL QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net product sales $39,517 $25,068 $114,374 $74,267
Royalty revenue (Note 3) 498 1,987 1,257 4,394
---------------------------------------------------------
Net revenues 40,015 27,055 115,631 78,661
Cost of sales 25,166 26,487 67,333 52,766
---------------------------------------------------------
14,849 568 48,298 25,895
---------------------------------------------------------
Expenses:
Marketing, general and administrative 11,191 13,971 22,891 26,983
Research and development 10,831 8,795 20,945 16,496
---------------------------------------------------------
22,022 22,766 43,836 43,479
---------------------------------------------------------
Income (loss) from operations (7,173) (22,198) 4,462 (17,584)
Other income and expense:
Interest income 1,646 407 2,654 842
Interest expense (2,502) (2,208) (5,125) (4,293)
---------------------------------------------------------
(856) (1,801) (2,471) (3,451)
---------------------------------------------------------
Income (loss) before provision for income taxes
and extraordinary loss from early
extinguishment of debt (8,029) (23,999) 1,991 (21,035)
---------------------------------------------------------
Provision (benefit) for income taxes (2,750) (8,639) 657 7,631
---------------------------------------------------------
Net income (loss) before extraordinary loss
from early extinguishment of debt ($5,279) ($15,360) 1,334 ($13,404)
Extraordinary loss from early extinguishment of debt ---- ($1,062) ---- ($1,062)
---------------------------------------------------------
Net income (loss) ($5,279) ($16,422) $1,334 ($14,466)
---------------------------------------------------------
---------------------------------------------------------
Net income (loss) per common and common
equivalent share - primary:
Income (loss) before extraordinary item ($0.27) ($0.79) $0.07 ($0.69)
Extraordinary item ---- ($0.06) ---- ($0.06)
---------------------------------------------------------
Net income (loss) per common share ($0.27) ($0.85) $0.07 ($0.75)
---------------------------------------------------------
---------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 19,656 19,371 20,259 19,333
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
SIX MONTHS ENDED JUNE 30,
1997 1996
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,334 ($14,466)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 13,619 13,658
Provision for doubtful accounts and OEM
customer returns 4,668 12,674
Deferred taxes (3,708) (3,333)
Changes in operating assets and liabilities:
Receivables (12,168) 1,343
Inventories (15,984) (17,094)
Income taxes receivable 19,538 -----
Other current assets 685 (401)
Accounts payable 5,931 (112)
Income taxes payable 344 (442)
Accrued expenses (355) 2,165
Deferred income and distributor reserves 4,749 (9,635)
Other assets 375 (3,348)
---------------------------
Net cash provided by (used in) operating activities 19,028 (18,991)
INVESTING ACTIVITIES
Prepayments for product purchases (10,000) (10,000)
Reduction in prepayments for product purchases 14,546 9,217
Purchases of property and equipment, net (5,633) (8,249)
Purchases of investments (28,478) -----
Proceeds from redemption of investments 26,948 -----
---------------------------
Net cash used in investing activities (2,617) (9,032)
FINANCING ACTIVITIES
Proceeds from issuance of 5.5% convertible subordinated notes ---- 126,500
Repayments of long-term debt and capitalized
lease obligations (1,506) (74,158)
Tax benefit from stock option exercises 674 359
Net proceeds from issuance of common stock 1,030 1,271
---------------------------
Net cash provided by financing activities 198 53,972
---------------------------
Increase in cash and cash equivalents 16,609 25,949
Cash and cash equivalents at beginning of period 65,712 44,334
---------------------------
Cash and cash equivalents at end of period $ 82,321 $70,283
---------------------------
---------------------------
FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH
Capital lease obligations incurred ----- 1,953
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
CYRIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Cyrix Corporation and
subsidiaries ("the Company" or "Cyrix") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, considered necessary for a fair presentation
have been included. Results of operations for the periods presented are not
necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1997. These consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements for the fiscal year ended December 31, 1996, and notes thereto
included in the Company's Form 10-K filed with the Securities and Exchange
Commission ("SEC") on March 10, 1997 and the Form 10-K/A filed with the SEC
on May 16, 1997.
The Company uses a 52/53 week fiscal year that ends on or about December
31 and 13/14 week fiscal quarters that end on or about March 31, June 30 and
September 30. The accompanying financial statements have been labeled as
though the Company's accounting periods ended on the respective calendar year
ended December 31 and the fiscal quarter ended June 30. Fiscal year 1996
ended December 29, 1996, the second fiscal quarter of 1997 ended June 29,
1997, and the second fiscal quarter of 1996 ended June 30, 1996. The second
fiscal quarters of 1997 and 1996 were each 13-week fiscal quarters.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" which becomes effective for the Company's 1997 consolidated financial
statements beginning in the fourth quarter of 1997. SFAS No. 128 will
eliminate the disclosure of primary earnings per share which includes the
dilutive effect of stock options, warrants and other convertible securities
("Common Stock Equivalents") and instead requires reporting of "basic"
earnings per share, which will exclude Common Stock Equivalents.
Additionally, SFAS No. 128 changes the methodology for fully diluted earnings
per share. In the opinion of the Company's management, it is not anticipated
that the adoption of this new accounting standard will have a material effect
on the reported earnings per share of the Company.
2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are computed by dividing
net income by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during each period. During each
period presented, common stock options were the only common stock equivalents
outstanding. The dilutive effects of common stock equivalents are calculated
using the treasury stock method. Common stock equivalents are not included
in the computation of earnings per share for any period in which their
inclusion would have the effect of increasing the earnings per share amount
or decreasing the loss per share amount otherwise computed.
3. ROYALTY REVENUE
During the second fiscal quarters ended June 30, 1997 and 1996, the
Company received royalty revenue in the amount of $500 thousand and $2.0
million, respectively, from Texas Instruments Incorporated ("TI") and SGS
Thomson Microelectronics, Inc. ("SGS") based on sales of licensed products.
During the first six months of fiscal 1997 and 1996, respectively, the
Company received royalty revenue of $1.3 million and $4.4 million.
4. LONG-TERM OBLIGATIONS
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.
Interest payments of approximately $3.5 million are due each June 1 and
December 1 until maturity.
7
<PAGE>
The Company has financed certain land, buildings and equipment under
financing agreements which contain restrictive covenants including
restriction on dividends, 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.
5. COMMITMENTS
The Company has entered into two manufacturing agreements with IBM. The
Company entered into the first of such agreements (the "original" agreement)
on April 8, 1994. The original agreement provides for IBM's Microelectronics
division to manufacture specified quantities of wafers of Cyrix-designed
products for sale to Cyrix through December 1999 at defined prices. Cyrix is
responsible for the total production costs (including equipment costs) of
such specified quantities of products irrespective of the number of products
actually ordered by the Company. Cyrix made a capital equipment investment
of approximately $88 million in an IBM manufacturing facility pursuant to the
original agreement. The depreciation expense associated with such capital
equipment, which Cyrix owns, is reimbursed to the Company by IBM on a monthly
basis. In the event of expiration or termination of the original agreement
by either party, IBM has the option to purchase this capital equipment from
Cyrix at its then net book value, if any. Also, Cyrix made prepayments for
product purchases of approximately $30 million during fiscal 1994, $30
million during fiscal 1995, $10 million on January 1, 1996 and $10 million on
April 1, 1997. One additional prepayment of $10 million is due on January 1,
1998. Such prepayments will be credited to Cyrix as it purchases wafers from
IBM at defined prices during the period from July 1, 1995 through December
31, 1999. In addition to supplying microprocessors to Cyrix, IBM has the
right to manufacture an equivalent amount of wafers of Cyrix-designed
products for use internally or to sell on an OEM basis. The Company has
submitted purchase orders to IBM for further purchases of wafers during the
third and fourth fiscal quarters of 1997 and expects to continue to purchase
wafers under this agreement through December 1999.
The Company entered into a second agreement (the "foundry" agreement)
with IBM on May 17, 1996. The foundry agreement specifies that IBM's
Microelectronics division manufacture additional quantities of wafers of
Cyrix-designed products for sale to Cyrix through December 1997 at defined
prices. The foundry agreement originally provided that the Company purchase
wafers totaling approximately $45 million during the second half of 1996.
Although the foundry agreement specified significant penalties if the Company
did not purchase the entire commitment under the foundry agreement, the
Company negotiated a reduction in the commitment due to the lower than
expected sales volume in 1996 without incurring significant penalties. At
the end of fiscal 1996, the Company had outstanding purchase commitments for
1997; however, such commitments could be canceled without penalty within the
terms of the foundry agreement. The Company continued to purchase wafers
under the foundry agreement in first fiscal quarter 1997; however, the
Company did not purchase wafers under the agreement in second fiscal quarter
1997 and has no current plans to purchase wafers under the agreement in the
third and fourth fiscal quarters of 1997.
6. 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 Texas Instruments ("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.
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
8
<PAGE>
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 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
9
<PAGE>
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-TM- 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-TM-
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-TM- 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-TM- 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 of 1996 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.
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.
MMX LITIGATION
On March 14, 1997, Intel filed in the US District Court for the District
of Delaware a complaint alleging that both Cyrix and Advanced Microdevices
Inc. ("AMD") were infringing Intel's trademark rights by promoting products
which Cyrix and AMD claimed were MMX-TM- compatible products. Although Cyrix
had distributed preliminary marketing materials that indicated its 6x86MX-TM-
processor is expected to be MMX-TM- compatible, Cyrix had not yet sold any
such parts. The complaint sought temporary and permanent relief from
additional marketing of products that used the term MMX-TM- without
recognizing it as an Intel trademark. However, on March 31, 1997, Cyrix and
Intel reached agreement that enables Cyrix to market its products that
implement MMX-TM- technology while providing appropriate attribution to Intel
for the MMX trademark and to describe Cyrix's 6x86MX-TM- processor as
compatible with MMX-TM- technology in all future advertising. In addition,
the settlement provided that if Intel settled with AMD, Cyrix would be
entitled to conform the terms of its settlement with Intel to the terms of
the Intel/AMD settlement. On April 21, 1997, Intel and AMD entered into a
settlement agreement regarding the MMX-TM- trademark. On August 4, 1997,
Cyrix and Intel entered into a settlement agreement that conforms to the
terms of the Intel/AMD agreement regarding use by Cyrix of the
MMX-TM- trademark.
CREATIVE LABS LITIGATION
On March 17, 1997, Creative Labs, Inc. ("Creative") filed an action
against Cyrix Corporation, Compaq Corporation, and Tiger Direct, Inc.
("Tiger") in the US District Court for the Northern District of California,
Oakland Division, alleging that each had sold and/or marketed products
incorporating the Company's MediaGX-TM- processor and that such processor,
when operated with Microsoft's Windows 95 software, caused the computers in
which the products were installed to indicate that a Sound Blaster card was
installed in the system when in fact no such card was installed.
Additionally, Creative claimed that certain of Creative's proprietary applet
software were inappropriately available on Cyrix's internet web page.
Creative sought a temporary restraining order to prevent Cyrix and the other
companies named in the suit from shipping products which caused systems to
identify its sound device as a Sound Blaster sound card and to prevent
further use of Creative's applet software in the Company's internet web page.
A temporary restraining order granted on March 28, 1997 was partially
vacated after a preliminary injunction hearing on May 2, 1997 in an order
issued by the Court on May 7, 1997. In an order issued on June 5, 1997, the
Court found that Creative agreed in its licensing agreement
10
<PAGE>
with Microsoft to allow its driver to be used with non-Creative hardware and
that Creative cannot use trademark law as a means of restricting others'
right to use Creative drivers. On July 3, 1997, Creative filed notice that
it intends to appeal to the 9th Circuit Court of Appeals and Cyrix filed
notice on July 15, 1997 that it intends to cross-appeal.
The Company has taken actions that it believes satisfy the requirements
of the preliminary injunction order. The Company has also agreed to
indemnify Tiger with regard to this action and Tiger has tendered its
defense to the Company. The ultimate outcome of this litigation cannot
presently be determined; however, the Company intends to defend the actions
vigorously and believes the ultimate outcome will not have a material adverse
effect on the financial condition or overall trends in the results of
operations of the Company.
INTEL LITIGATION
On May 13, 1997, Cyrix filed in the United States District Court for the
Eastern District of Texas, Sherman Division, CYRIX CORPORATION V. INTEL
CORPORATION, seeking a judgment that Intel infringes U.S. Patents 5,630,143
entitled "Microprocessor With Externally Controllable power Management" and
5,560,149 entitled "Pipelined Processor With Register Renaming Hardware to
Accommodate Multiple Size Registers", as well as a permanent injunction
against further infringement and unspecified damages for Intel's
infringement. Intel filed its answer July 3, 1997. The case is now in the
early stages of discovery. The ultimate outcome of this litigation cannot
presently be determined; however, the Company believes the ultimate outcome
of will not have a material adverse effect on the financial condition or
overall trends in the results of operations of the Company.
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.
7. SUBSEQUENT EVENTS
On July 28, 1997 Cyrix Corporation signed a definitive Agreement and
Plan of Merger (the "Merger Agreement") with National Semiconductor
Corporation ("National"). In addition to focusing on high performance
microprocessors, the merger will allow the combined companies to develop
system-on-a-chip technology for the rapidly growing entry-level PC, Net-PC
and information-appliance markets.
Under the terms of the Merger Agreement, each share of Cyrix common
stock will be exchanged for .825 shares of National common stock. Based on
the closing price of National's shares on July 25, 1997, the aggregate value
of the transaction to Cyrix stockholders is approximately $550 million.
The merger, approved by the Board of Directors of both companies,
requires the approval of Cyrix's stockholders and is subject to regulatory
approvals and other customary conditions. It is expected that the
transaction will be completed in the fourth quarter of 1997. The transaction
is intended to be accounted for as a "pooling of interests" and to qualify as
a tax-free exchange of shares.
As part of the Merger Agreement, Cyrix has granted National an option to
acquire up to 19.9 percent of the outstanding Cyrix common stock, exercisable
in certain circumstances. In addition, certain Cyrix officers and directors
have entered into an agreement with National, pursuant to which they have
agreed to vote the Cyrix shares owned or controlled by them in favor of the
merger.
There can be no assurances that such merger will be approved.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth items from Cyrix's Consolidated
Statements of Income as percentages of net revenues:
<TABLE>
FISCAL QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net product sales 98.8% 92.7% 98.9% 94.4%
Royalty revenue 1.2 7.3 1.1 5.6
---------- ---------- ---------- ----------
Net revenues 100.0 100.0 100.0 100.0
Cost of sales 62.9 97.9 58.2 67.1
Marketing, general and administrative 28.0 51.6 19.8 34.3
Research and development 27.1 32.5 18.1 20.9
---------- ---------- ---------- ----------
Income (loss) from operations (18.0) (82.0) 3.9 (22.3)
Net interest expense (2.1) (6.7) (2.1) (4.4)
---------- ---------- ---------- ----------
Income (loss) before provision for income
taxes and extraordinary loss from early
extinguishment of debt (20.1) (88.7) 1.8 (26.7)
Provision (benefit) for income taxes (6.9) (31.9) 0.6 (9.7)
---------- ---------- ---------- ----------
Net income (loss) before extraordinary
loss from early extinguishment of debt (13.2) (56.8) 1.2 (17.0)
---------- ---------- ---------- ----------
Extraordinary loss from early
extinguishment of debt 0.0 (3.9) 0.0 (1.4)
---------- ---------- ---------- ----------
Net income (loss) (13.2)% (60.7)% 1.2% (18.4)%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
- ---------------------------------------
RESULTS OF OPERATIONS
NET REVENUES. Net product sales of $39.5 million for the second quarter
of fiscal 1997 increased 57% compared with $25.1 million for the second
quarter of fiscal 1996. Net product sales of $114.4 million for the six
months ended June 30, 1997 increased 54% compared with $74.3 million for the
same period of fiscal 1996. Processor unit shipments for the quarter and six
months ended June 30, 1997 increased by 57% and 14%, respectively, compared
with unit shipments of the same periods of fiscal 1996. During the six
months ended June 30, 1997, sales of MediaGX-TM- and 6x86-TM- microprocessors
accounted for over 94% of the Company's net product sales; sales of 6x86-TM-
and 5x86-TM- microprocessors represented over 92% of the Company's net
product sales during the same period of 1996. Net revenues for the quarter
and six months ended June 30, 1997 included $500 thousand and $1.3 million of
royalty payments, respectively. Net revenues for the quarter and six months
ended June 30, 1996 included $2.0 million and $4.4 million of royalty
payments, respectively. Royalties are received from Texas Instruments and
SGS-Thomson based upon sales of products licensed to them by the Company.
Sales of processors to international customers constituted 75% and 67%
of processor product sales in the second quarters of fiscal 1997 and 1996,
respectively. Sales of processors to international customer constituted 61%
and 57% of processor product sales in the six months ended June 30, 1997 and
1996, respectively. Sales of processors to international customers are made
primarily to customers in Europe, Taiwan, Hong Kong, Korea and Japan.
The outlook for the Company's revenue is dependent upon the Company's
MediaGX-TM- and 6x86MX-TM- products. The MediaGX-TM- product was introduced
in the first quarter of fiscal 1997 and the 6x86MX-TM- product was introduced
in the second quarter of fiscal 1997. If these 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.
During the fourth quarter of 1996 and to a greater extent during the
first quarter of 1997, Intel spent considerable resources advertising its
processors that incorporate MMX-TM- technology. Additionally, AMD has
introduced its K6 processor that it claims is compatible with MMX-TM-. Cyrix
began manufacturing its 6x86MX-TM- product in commercial quantities at the end
of the second fiscal quarter of 1997. The Company's ability to compete with
AMD and Intel in the second half of fiscal 1997 will be dependent upon
manufacturing its 6x86MX-TM- product in sufficient quantities and with
acceptable yields and processor speeds to offer products similar to those of
its competitors.
12
<PAGE>
During the first fiscal quarter of 1997, Cyrix introduced its
MediaGX-TM- processor, which incorporates many of the functions performed by
peripheral components of traditional PCs into the processor and allows
computer manufacturers to sell complete personal computers at retail prices
under one thousand dollars. Although the product has been introduced and
Cyrix has been able to produce and sell commercial quantities of such
processors, the Company's success in the second half of 1997 is, in part,
dependent upon continued success of this product. Since the MediaGX-TM-
processor requires a motherboard that differs from the industry standard
motherboard, the product's success is also dependent upon personal computer
manufacturers who have the ability and desire to market a personal computer
that uses such non-standard components. Although the Company has been able
to sell significant quantities of its MediaGX-TM- product, continued revenue
and margin growth will be dependent upon obtaining additional customers for
the product and minimizing the declines in average sales prices over the
remainder of the product's life cycle.
GROSS MARGINS. The Company's gross margin increased to $14.8 million
for the second fiscal quarter of 1997 from $0.6 million for the same period
of 1996. The Company's gross margin increased to $48.3 million for the six
months ended June 30, 1997 from $25.9 million for the same period of 1996.
Although margins fell on the 6x86-TM- during the second fiscal quarter due to
competitive pressures and the product nearing the end of its lifecycle, the
product mix in the second fiscal quarter of 1997 was more diversified than in
the same period of 1996, containing products with higher margins representing
approximately 50% of unit sales for the second fiscal quarter of 1997 and
approximately 30% of units sales for the six months ended June 30, 1997. In
addition, the increase in gross margins for the six months ended June 30,
1997 was due to continued improvements in manufacturing processes which
reduced product die sizes and provided better yields.
Quarterly growth, if any, in the Company's gross margin in the remainder
of fiscal 1997 is dependent upon the market acceptance of its MediaGX-TM- and
6x86MX-TM- processors. Risks associated with enhancing the designs of,
ramping production of, and obtaining sales orders for such microprocessors
are discussed in NET REVENUES (above), RELIANCE ON THIRD-PARTY MANUFACTURERS
(below) and PRODUCT TRANSITIONS (below).
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses for the second quarters of fiscal 1997 and 1996 were
$11.2 million and $14 million, respectively. Marketing, general and
administrative expenses for the six months ended June 30, 1997 and 1996 were
$22.9 million and $27 million, respectively. Marketing, general and
administrative expenses for the quarter and six months ended June 30, 1997
decreased compared with the same period of fiscal 1996 primarily due to a
decline in sales and marketing expenses associated with the personal computer
systems business from which the Company has withdrawn.
RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and
development expenses for the second fiscal quarters of 1997 and 1996 were
$10.8 million and $8.8 million, respectively. The Company's research and
development expenses for the six months ended June 30, 1997 and 1996 were $21
million and $16.5 million, respectively. The increase of research and
development expenses in the quarter and six months ended June 30, 1997
compared with the same period of 1996 was attributable to the expansion of
the Company's engineering staff, design equipment and prototype expenses to
support the development of multiple microprocessor products. The Company
intends to continue to increase its research and development expenses in an
effort to enhance existing products and develop technologically advanced
products.
NET INTEREST EXPENSE. Interest expense for the fiscal quarter ended June
30, 1997 increased to $2.5 compared to $2.2 million for the same period of
fiscal 1996. Interest expense for the six months ended June 30, 1997
increased to $5.1 million compared to $4.3 million for the same fiscal period
of fiscal 1996. Interest income for the fiscal quarter ended June 30, 1997
increased to $1.6 million compared to approximately $400 thousand for the
same period of fiscal 1996. Interest income for the six months ended June
30, 1997 increased to $2.7 million compared to approximately $800 thousand
for the same period of fiscal 1996. The increase in interest expense is due
primarily to higher loan balances partially offset by lower interest rates.
The increase in interest income is due primarily to higher cash and
investment balances in the first six months of 1997 compared to the first six
months of 1996.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company's effective tax rate
was 33% and 36% in the six months ended June 30, 1997 and 1996, respectively.
OTHER FACTORS AFFECTING RESULTS OF OPERATIONS.
RELIANCE ON THIRD-PARTY MANUFACTURERS. All of the Company's processors
produced in 1996 and the first six months of 1997 were manufactured and sold
to the Company by IBM. The Company's 6x86MX-TM- microprocessors are more
complex than its earlier generation microprocessors and such microprocessors
require more advanced manufacturing processes than those required for the
Company's previous products. Further, there can be no assurance that Cyrix
will be
13
<PAGE>
able to successfully ramp and sustain production of its MediaGX-TM- and
6x86MX-TM- products at IBM without experiencing yield problems or performance
issues in the remainder of fiscal 1997 and beyond.
The Company's reliance on third party manufacturers creates risks that
the Company will not be able to obtain capacity to meet its manufacturing
requirements, will not be able to obtain products with acceptable performance
and cost, will not have access to necessary process technologies and the
possible breakdown in the relationship with the third-party manufacturers.
Further, the Company has licensed some of its intellectual property to SGS
and IBM to obtain access to specified levels of manufacturing capacity, and
the Company could be required to license more of its intellectual property
and product rights and proprietary technology to obtain additional
manufacturing capacity. Thus, the Company currently faces competition from
IBM and may also face additional competition from SGS in the future. The
Company's reliance on third party manufacturers could have a material adverse
affect on the Company's revenues and operating results.
PRODUCT TRANSITIONS. Once current microprocessor products have been in
the market place for a period of time and begin to be replaced by higher
performance microprocessors (whether of the Company's or a competitor's
design), the Company expects the price of such earlier generation
microprocessors to decline and net sales and gross margins of such
microprocessors to decrease. In order to continue to maintain its then
current gross margin and levels of revenue growth, if any, the Company will
therefore be required to design, develop and successfully commercialize next
generation microprocessors in a timely manner. Although the Company is
committed to its product development efforts, there can be no assurance that
the Company will be able to introduce new products quickly enough to avoid
adverse revenue transition patterns during future product transitions.
During the first and second quarters of 1997, respectively, Cyrix
introduced its MediaGX-TM- processor and its 6x86MX-TM- processor, which
contributed to the decline in prices and margins for its 6x86-TM-
processors. If the MediaGX-TM- and 6x86MX-TM- products do not offer
performance, features and pricing attractive to the personal computer
industry, the Company may build excess inventory or experience net losses
similar to those incurred in fiscal 1996. Additionally, Intel and several of
the Company's other competitors have substantially greater financial,
technical, manufacturing and marketing resources than the Company and they
may introduce new microprocessor designs with features or performance that
exceed those contained in the Company's new products. The success of the
product transition from 6x86-TM- to MediaGX-TM- and 6x86MX-TM-, as well as
future products, will continue to be dependent upon several factors
including, but not limited to, the following: Cyrix may experience
performance difficulties with the new product designs; Cyrix may not be able
to successfully ramp production of new products at IBM or other qualified
foundries without yield problems or other performance issues; and personal
computer manufacturers may not design the Company's new products into their
notebook and desktop computers in a timely manner or purchase the Company's
products in the volumes and at the prices necessary to offset the declining
market, average selling prices and profit margins of the Company's
microprocessors.
PURCHASE COMMITMENTS. The Company has entered into two manufacturing
agreements with IBM. The Company entered into the first of such agreements
(the "original" agreement) on April 8, 1994. The original agreement provides
for IBM's Microelectronics division to manufacture specified quantities of
wafers of Cyrix-designed products for sale to Cyrix through December 1999 at
defined prices. Cyrix is responsible for the total production costs
(including equipment costs) of such specified quantities of products
irrespective of the number of products actually ordered by the Company.
Cyrix made a capital equipment investment of approximately $88 million in an
IBM manufacturing facility pursuant to the original agreement. The
depreciation expense associated with such capital equipment, which Cyrix
owns, is reimbursed to the Company by IBM on a monthly basis. In the event
of expiration or termination of the original agreement by either party, IBM
has the option to purchase this capital equipment from Cyrix at its then net
book value, if any. Also, Cyrix made prepayments for product purchases of
approximately $30 million during fiscal 1994, $30 million during fiscal 1995,
$10 million on January 1, 1996 and $10 million on April 1, 1997. One
additional prepayment of $10 million is due on January 1, 1998. Such
prepayments will be credited to Cyrix as it purchases wafers from IBM at
defined prices during the period from July 1, 1995 through December 31, 1999.
In addition to supplying microprocessors to Cyrix, IBM has the right to
manufacture an equivalent amount of wafers of Cyrix-designed products for use
internally or to sell on an OEM basis. The Company has submitted purchase
orders to IBM for further purchases of wafers during the third and fourth
fiscal quarters of 1997 and expects to continue to purchase wafers under this
agreement through December 1999.
The Company entered into a second agreement (the "foundry" agreement)
with IBM on May 17, 1996. The foundry agreement specifies that IBM's
Microelectronics division manufacture additional quantities of wafers of
Cyrix-designed products for sale to Cyrix through December 1997 at defined
prices. The foundry agreement originally provided that the Company purchase
wafers totaling approximately $45 million during the second half of 1996.
Although the foundry agreement specified significant penalties if the Company
did not purchase the entire commitment under the foundry agreement, the
Company negotiated a reduction in the commitment due to the lower than
expected sales volume in 1996
14
<PAGE>
without incurring significant penalties. At the end of fiscal 1996, the
Company had outstanding purchase commitments for 1997; however, such
commitments could be canceled without penalty within the terms of the foundry
agreement. The Company continued to purchase wafers under the foundry
agreement in first fiscal quarter 1997; however, the Company did not purchase
wafers under the agreement in second fiscal quarter 1997 and has no current
plans to purchase wafers under the agreement in the third and fourth fiscal
quarters of 1997.
GENERAL. The markets for the Company's products are characterized by a
highly competitive and rapidly changing environment in which operating
results are subject to the effects of frequent product introductions,
manufacturing technology innovations and rapid fluctuations in product
demand. While the Company attempts to identify and respond to these changes
as soon as possible, prediction of and reaction to such events is difficult.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments totaled $106
million at June 30, 1997 compared with $87.7 million at December 31, 1996.
The Company's primary source of cash in the six months ended June 30, 1997
was an income tax refund received, net of payment, totaling $23.8 million.
The primary uses of cash in the six months ended June 30, 1997 consisted of a
$10 million prepayment for product purchases to IBM, a $7.8 million tax
payment, a $3.5 million interest payment to the Company's convertible
bondholders and increases in receivables, inventories and deferred taxes.
Cyrix's long-term debt and capitalized lease obligations totaled $137.7
million and $136.7 million at June 30, 1997 and June 30, 1996, respectively.
Approximately $2.8 million of such debt is scheduled for payment during the
next twelve months. Additionally, the Company is obligated to make an
interest payment on the convertible subordinated bonds on December 1, 1997
totaling approximately $3.5 million dollars. Cyrix expects that its current
cash, cash equivalents and investments will be sufficient to fund operations
for the remainder of fiscal 1997; however, if future cash requirements
exceed available cash resources, the Company may pursue additional financing.
Due to the factors noted above and elsewhere in Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Company's
future earnings, if any, and stock price may be subject to significant
volatility, particularly on a quarterly basis. Past financial performance
should not be considered a reliable indicator of future performance and
investors should not use historical trends to anticipate results or trends in
future periods. Any shortfall in revenue or earnings from the levels
anticipated by securities analysts could have an immediate and significant
effect on the trading price of the Company's common stock in any given
period. Also, the Company participates in a highly dynamic industry which
often results in volatility of the Company's common stock price.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report contains forward looking statements. The forward looking
statements with respect to the introduction, availability, cost, features,
performance, customer acceptance and revenue contribution of current and
future products, including the MediaGX-TM- and the 6x86MX-TM-, 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.
15
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
CURRENT LITIGATION
See Note 6 to the Consolidated Financial Statements included in Part I,
Item 1 for a description of material pending litigation and certain related
settlements.
The final outcome of one or more of the issues subject to litigation as
described in Note 6 to the Consolidated Financial Statements could have a
material adverse effect on the Company's results of operations during the
remainder of fiscal 1997 or a subsequent period.
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 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 MATTER TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on April 17, 1997, the
following persons were elected to the Board of Directors:
Affirmative Votes Broker
Votes Withheld Non-votes
----------- -------- ---------
Harvey B. Cash 16,309,875 501,467 0
L.J. Sevin 16,300,880 501,462 0
Gary A. Stimac 16,308,308 503,034 0
The following proposals were also approved at the Company's Annual Meeting of
Stockholders:
Affirmative Negative Broker
Votes Votes Abstentions Non-votes
----------- -------- ----------- ---------
Amendment of the 1988
Incentive Stock Plan to
increase the number of shares
available to be issued upon
the exercise of stock purchase
rights and options granted,
and stock bonuses awarded,
by 900,000 shares to
8,118,334 shares of Common
Stock. 14,305,159 2,194,082 44,418 267,683
Ratification of Ernst & Young
LLP as independent auditors
of the Company for the
fiscal year ending December
28, 1997. 16,764,483 22,546 24,314 0
16
<PAGE>
ITEM 5. OTHER INFORMATION
Effective May 2, 1997, Russell N. Fairbanks, Jr., Vice President and
General Counsel, resigned from the Company.
On July 28, 1997 Cyrix Corporation signed a definitive Agreement and
Plan of Merger (the "Merger Agreement") with National Semiconductor
Corporation ("National"). The merger will allow the combined companies to
develop system-on-a-chip technology for the rapidly growing entry-level PC,
Net-PC and information-appliance markets.
Under the terms of the Merger Agreement, each share of Cyrix common
stock will be exchanged for .825 shares of National common stock. Based on
the closing price of National's shares on July 25, 1997, the aggregate value
of the transaction to Cyrix stockholders is approximately $550 million.
The merger, approved by the Board of Directors of both companies,
requires the approval of Cyrix's stockholders and is subject to regulatory
approvals and other customary conditions. It is expected that the
transaction will be completed in the fourth quarter of 1997. The transaction
is intended to be accounted for as a "pooling of interests" and to qualify as
a tax-free exchange of shares.
As part of the Merger Agreement, Cyrix has granted National an option to
acquire up to 19.9 percent of the outstanding Cyrix common stock, exercisable
in certain circumstances. In addition, certain Cyrix officers and directors
have entered into an agreement with National, pursuant to which they have
agreed to vote the Cyrix shares owned or controlled by them in favor of the
merger.
There can be no assurances that such merger will be approved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 11. Earnings per Common and Common Equivalent Share
b. On August 4, 1997, the Company filed a report on Form 8-K
incorporating the July 28, 1997 joint press release for National
Semiconductor Corporation and Cyrix Corporation ("the Company")
announcing the Company's intention to merge with National
Semiconductor Corporation. Included in this Form 8-K are copies
of the Agreement and Plan of Merger between National Semiconductor
Corporation, Nova Acquisition Corporation, a wholly-owned
subsidiary of National Semiconductor Corporation, and Cyrix
Corporation dated July 28, 1997 and the Stock Option Agreement
between National Semiconductor Corporation and Cyrix Corporation
dated July 28, 1997.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Cyrix Corporation
Date: August 12, 1997 By: /s/ James W. Swent III
--------------------------------
James W. Swent III
Senior Vice President of Finance
and Administration
(Principal Financial Officer)
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- -----------------------------------------------------------------------------
11 Earnings per Common and Common Equivalent Share
27 FDS
<PAGE>
EXHIBIT 11
CYRIX CORPORATION AND SUBSIDIARIES
PRIMARY AND FULLY DILUTED EARNINGS PER
COMMON AND COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
FISCAL QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding
19,656 19,371 19,627 19,333
Incremental shares related to assumed
exercise of stock options ------- ------- 632 -------
--------------------------------------------------------------
Weighted average common and common
equivalent shares 19,656 19,371 20,259 19,333
--------------------------------------------------------------
--------------------------------------------------------------
Income (loss) before extraordinary item ($5,279) ($15,360) $1,334 ($13,404)
Extraordinary loss from early
extinguishment of debt ------- ($1,062) ------- ($1,062)
--------------------------------------------------------------
Net income (loss) ($5,279) ($16,422) $1,334 ($14,466)
--------------------------------------------------------------
--------------------------------------------------------------
Earnings (loss) per common and common
equivalent share - primary:
Income (loss) before extraordinary item ($0.27) ($0.79) $0.07 ($0.69)
Extraordinary item ------- (0.06) ------- (0.06)
--------------------------------------------------------------
Net income (loss) ($0.27) ($0.85) $0.07 ($0.75)
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 82,321
<SECURITIES> 23,566
<RECEIVABLES> 35,291
<ALLOWANCES> 5,912
<INVENTORY> 40,415
<CURRENT-ASSETS> 213,754
<PP&E> 153,651
<DEPRECIATION> 76,052
<TOTAL-ASSETS> 311,155
<CURRENT-LIABILITIES> 47,428
<BONDS> 137,725
0
0
<COMMON> 81
<OTHER-SE> 125,883
<TOTAL-LIABILITY-AND-EQUITY> 311,155
<SALES> 114,374
<TOTAL-REVENUES> 115,631
<CGS> 67,333
<TOTAL-COSTS> 43,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,668
<INTEREST-EXPENSE> 5,125
<INCOME-PRETAX> 1,991
<INCOME-TAX> 657
<INCOME-CONTINUING> 1,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,334
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
