<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
Form 10-Q
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(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------
EXCHANGE ACT OF 1934
For the Quarter ended September 27, 1997
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number: 0-19299
--------------------------------
Integrated Circuit Systems, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2000174
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2435 Boulevard of the Generals
Norristown, Pennsylvania 19403
(Address of principal executive offices)
(610) 630-5300
(Registrant's telephone number including area code)
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-- --
As of November 7, 1997, there were outstanding 12,449,130 shares of the
Registrant's Common Stock, no par value.
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1
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INTEGRATED CIRCUIT SYSTEMS, INC.
--------------------------------
INDEX
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Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets:
September 27, 1997 and June 28, 1997 3
Consolidated Statements of Operations:
Three Months Ended September 27, 1997 and
September 28, 1996 4
Consolidated Statements of Cash Flows:
Three Months Ended September 27, 1997 and
September 28, 1996 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($ and shares in thousands)
<TABLE>
<CAPTION>
September 27, June 28,
1997 1997
------------------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 21,242 $ 18,425
Marketable securities - current 13,024 7,981
Accounts receivable, net 25,844 20,690
Inventory, net 16,127 13,542
Deferred income taxes 1,816 1,139
Other current assets 3,469 4,435
----------- -----------
Total current assets 81,522 66,212
----------- -----------
Property and equipment, net 14,612 14,104
Deposits on purchase contracts 10,000 8,000
Goodwill, net 1,539 1,600
Marketable securities - non current 815 --
Other assets 703 706
----------- -----------
Total assets $ 109,191 $ 90,622
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations $ 196 $ 206
Accounts payable 18,752 12,565
Income tax payable 4,838 2,346
Accrued expenses and other current liabilities 3,292 2,835
----------- -----------
Total current liabilities 27,078 17,952
----------- -----------
Long-term debt, less current portion 1,473 1,503
Deferred income taxes and other liabilities 1,047 1,020
----------- -----------
Total liabilities 29,598 20,475
----------- -----------
Shareholders' Equity:
Preferred stock, authorized 5,000 shares, none issued -- --
Common stock, no par value, authorized 50,000 shares;
issued 12,715 and 12,445 shares as of
September 27, 1997 and June 28, 1997, respectively 49,823 45,366
Less: treasury stock, at cost (286 and 286 shares as of
September 27, 1997 and June 28, 1997, respectively (3,749) (3,749)
Currency translation adjustment (54) (1)
Retained Earnings 33,573 28,531
----------- -----------
Total shareholders' equity 79,593 70,147
----------- -----------
Total liabilities and shareholders' equity $ 109,191 $ 90,622
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
($ and shares in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
Sept 27, Sept 28,
1997 1996
--------------- --------------
<S> <C> <C>
Revenues: $ 38,585 $ 21,381
Cost and expenses:
Cost of sales 21,053 13,677
Research and development 4,236 2,851
Selling, general and administrative 5,093 4,030
Goodwill amortization 60 60
--------------- --------------
Operating income 8,143 763
--------------- --------------
Interest and other (income) (523) (488)
Interest expense 23 13
Minority interest -- (96)
--------------- --------------
Income before income taxes 8,643 1,334
Income taxes 3,601 338
--------------- --------------
Income from continuing operations 5,042 996
Discontinued operations: loss from operations -- (367)
--------------- --------------
Net income $ 5,042 $ 629
=============== ==============
Primary earnings per common and common equivalent shares:
Income from continuing operations $ 0.38 $ 0.09
Loss from discontinued operations -- (0.03)
--------------- --------------
Net income $ 0.38 $ 0.06
=============== ==============
Weighted common and common equivalent shares outstanding 13,337 11,346
</TABLE>
See accompanying notes to consolidated financial statements.
4
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
Sept 27, Sept 28,
1997 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,042 $ 629
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,013 835
Minority interest -- (96)
(Gain) loss on disposition of assets -- (497)
Loss from discontinued operations -- 427
Non-cash compensation -- 84
Deferred income taxes (650) 307
Accounts receivable (5,154) 240
Inventory (2,585) 545
Other assets, net 96 (390)
Accounts payable, accrued expenses and other current liabilities 6,644 1,788
Income taxes 2,492 2
---------------- ----------------
Net cash provided by operating activities 6,898 3,874
---------------- ----------------
Cash flows from investing activities:
Purchase of investments (12,951) --
Proceeds from sale/maturities of marketable securities 7,103 --
Capital expenditures (1,498) (380)
Change in deposits on purchase contracts (1,128) 244
Proceeds from sale of fixed assets -- 1
---------------- ----------------
Net cash used in investing activities (8,474) (135)
Cash flows from financing activities:
Exercise of stock options 2,852 28
Tax benefit of stock options exercised 1,605 --
Repayments of long-term debt (40) (30)
Net repayments under line of credit agreement -- (2,315)
Repurchase of common stock, net -- (678)
---------------- ----------------
Net cash provided by (used in) financing activities 4,417 (2,995)
---------------- ----------------
Effect of exchange rate changes on cash and cash equivalents (24) --
Net increase in cash and cash equivalents 2,817 744
Cash and cash equivalents:
Beginning of period 18,425 27,376
---------------- ----------------
End of period $ 21,242 $ 28,120
================ ================
</TABLE>
5
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Cont'd)
(Unaudited)
Three Months Ended
-----------------------------
Sept 27, Sept 28,
1997 1996
---------- ----------
Supplemental disclosures of cash flow
information: Cash payments during the
period for:
Interest $ 23 $ 13
========== ==========
Income taxes $ (96) $ 24
========== ==========
See accompanying notes to consolidated financial statements.
6
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) INTERIM ACCOUNTING POLICY
The accompanying financial statements have not been audited. In the opinion of
the Company's management, the accompanying consolidated financial statements
reflect all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Company's financial position at September 27, 1997 and
results of operations and cash flows for the interim periods presented. Certain
items have been restated to conform to current period presentation.
Certain footnote information has been condensed or omitted from these financial
statements. Therefore, these financial statements should be read in conjunction
with the consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended June 28, 1997. Results
of operations for the three months ended September 27, 1997 are not necessarily
indicative of results to be expected for the full year.
(2) CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of the
Company and all of its subsidiaries (wholly and majority-owned), after
elimination of all significant intercompany accounts and transactions.
(3) INVENTORY
Inventory is valued at the lower of standard cost which approximates actual
costs using the first-in, first-out (FIFO) method, or market.
The components of inventories are as follows (in thousands):
September 27, June 28,
1997 1997
------------- ------------
Work-in-process $ 11,884 $ 9,362
Finished parts 6,986 6,553
Less: Obsolescence reserve (2,743) (2,373)
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$ 16,127 $ 13,542
============= ============
(4) NEW ACCOUNTING PRONOUNCEMENTS
The Company has not adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", which will become effective for fiscal year
1999. The Company believes that the adoption of this statement will not have a
material financial impact.
The Company has not adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information", which
will become effective for fiscal year 1999. The Company believes that the
adoption of this statement will not have a material financial impact.
7
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(5) EARNINGS PER SHARE
The Company has not adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", which will become effective in the second quarter of
fiscal 1998. The following represents a pro forma earnings (loss) per share to
disclose the effects of this statement on the Company's reported amounts:
September 27, September 28,
1997 1996
------------- ------------
Net income $ 5,042 $ 629
Basic EPS: $ 0.41 $ 0.06
Basic weighted average shares outstanding 12,294 11,318
Diluted EPS: $ 0.38 $ 0.06
Weighted-average shares outstanding and
Dilutive potential common shares 13,337 11,346
(6) SUBSEQUENT EVENTS
On October 23, 1997, the Company's 1997 Equity Compensation Plan (the "1997
Plan") was adopted by the shareholders of the Company.
As previously disclosed in the Company's Form 10-K of fiscal 1997, Voyetra
Technologies, Inc. ("Voyetra") and the Company have asserted claims against each
other in connection with the merger of Turtle Beach and Voyetra in November
1996. Subsequently, on November 5, 1997, Voyetra filed a complaint in the
Supreme Court of the State of New York against the Company alleging
misrepresentation and breaches of warranty in connection with the aforesaid
merger. The Company believes that such claims are without merit and intends to
defend this action vigorously. Accordingly, the Company believes that resolution
of this dispute is not expected to have a material impact on the consolidated
financial statements of the Company.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to revenue of certain cost, expense and income items. The table and
the subsequent discussion should be read in conjunction with the financial
statements and the notes thereto:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
Sept 27, Sept 28,
1997 1996
--------------- -----------------
<S> <C> <C>
Revenues: 100.0% 100.0%
Cost and expenses:
Cost of sales 54.6 64.0
Research and development 11.0 13.3
Selling, general and administrative 13.2 18.8
Goodwill amortization 0.1 0.3
--------------- -----------------
Operating income 21.1 3.6
--------------- -----------------
Interest and other (income) (1.4) (2.3)
Interest expense 0.1 0.1
Minority interest -- (0.4)
--------------- -----------------
Income before income taxes 22.4 6.2
Income taxes 9.3 1.6
--------------- -----------------
Income from continuing operations 13.1 4.6
Discontinued operations:
Loss from operations -- (1.7)
Gain (loss) on disposal) -- --
--------------- -----------------
Loss from discontinued operations -- (1.7)
--------------- -----------------
Net income 13.1% 2.9%
=============== =================
</TABLE>
FIRST QUARTER 1997 AS COMPARED TO FIRST QUARTER 1996
Consolidated revenue increased $17.2 million or 80.5% for the first quarter
ended September 27, 1997 as compared to the prior year quarter. All product
lines experienced an increase and were partially offset by exclusion of Turtle
Beach as a result of the merger of Turtle Beach and Voyetra.
FTG component revenue increased $10.6 million for the first quarter of fiscal
1998, as compared to the prior year quarter. FTG unit volume increased 90.6%
while experiencing a slight increase in average selling prices ("ASP").
MicroClock, which was acquired in during the third quarter to expand the FTG
product range, attributed $3.9 million of the increase, or 36.8%. FTG component
revenue contributed 54.7% of consolidated revenue for the first quarter in
fiscal 1998 which represented an increase from 49.1 % for the prior year quarter
Data Communication component revenue increased $8.3 million for the first
quarter of fiscal 1998, as compared to the prior year quarter. While ASP has
declined by 26.8%, volume has increased by 720%. Data Communications component
revenue comprised 25.7% of consolidated revenue for the first quarter of fiscal
1998 as compared to 7.7% for the prior year quarter.
9
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Advanced Technologies component revenue increased $1.8 million for the first
quarter of fiscal 1998, as compared to the prior year quarter. Advanced
Technologies component revenue comprised 19.6% of consolidated revenue for the
first quarter of fiscal 1998 versus 27% for the prior year quarter. The decrease
as a percentage of revenue is primarily attributable to the larger increases in
the other product lines.
As a result of the merger of Turtle Beach and Voyetra, there were no
revenues in the first quarter of fiscal 1998 as compared to $3.5 million in the
prior year quarter.
Foreign revenue (which includes shipments of ICs to offshore subsidiaries of US
multinational companies) was 70% of total revenue for the first quarter of
fiscal 1998 as compared to 51% of total revenue in the prior year quarter. The
percentage increase represented growth in the Pacific Rim.
Cost of sales as a percentage of total revenue was 54.6% for the first quarter
of fiscal 1998 as compared to 64.0% in the prior year quarter. This decrease in
the cost of sales percentage was primarily the result of the de consolidation of
Turtle Beach and favorable product mix, and the decrease in the cost of the data
communication products.
Research and development expense increased $1.4 million to $4.2 million for the
first quarter of fiscal 1998 from $2.8 million in the prior year quarter. The
increase is primarily attributable to continued emphasis on research and
development.
Selling, general and administrative expense increased $1.1 million to $5.1
million for the first quarter of 1998 as compared to the prior year period . The
increase was attributable to expenses incurred for the start up of the Singapore
operations and reserving for Voyetra (see Liquidity and Capital Resources). As a
percentage of total revenue, selling, general and administrative expenses
decreased as a result of the allocation of these costs over substantially
increased sales volume.
The Company's effective income tax rate was 42% for the first quarter of 1998 as
compared to 25% in the prior year period. The increases in the tax rate is
primarily attributable to the non tax deductible start up costs of the Singapore
operations in the current year quarter and the sale of the Company's battery
charge controller business, which was treated as a tax-free transaction in the
prior year quarter.
INDUSTRY FACTORS
The Company's strategy has been to develop new products and introduce them ahead
of the competition in order to have them selected for design into products of
leading OEMs. The Company's newer components, which include advanced motherboard
FTG components, data communication components and PC multimedia audio and
graphics components, are examples of this strategy. However, there can be no
assurance that the Company will continue to be successful in these efforts or
that further competitive pressures would not have a material impact on revenue
growth or profitability.
The Company's backlog as of September 27, 1997 was $48.5 million as compared to
$25.8 million at September 28, 1996. The Company includes in its backlog
customer released orders, which may be canceled generally with 60 days advance
notice without significant penalty to the customers. Accordingly, the Company
believes that its backlog, at any time, should not be used as a measure of
future revenues.
The semiconductor and personal computer industry, in which the Company
participates, is generally characterized by rapid technological change, intense
competitive pressure, and, as a result, product price erosion. The Company's
operating results can be impacted significantly by the introduction of new
products, new manufacturing technologies, rapid changes in the demand for
products, decreases in the average selling price over the life of a product and
the Company's dependence on third-party wafer suppliers. The Company's operating
results are subject to quarterly fluctuations as a result of a number of
factors, including competitive pressures on selling prices, availability of
wafer supply, fluctuation in yields, changes in
10
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the mix of products sold, the timing and success of new product introductions
and the scheduling of orders by customers. The Company believes that its future
quarterly operating results may also fluctuate as a result of Company-specific
factors, including pricing pressures on its more mature FTG components as well
as the competitive pressure, continuing demand for its custom ASIC products and
acceptance of the Company's newly introduced Ics, board level and software
products and market acceptance of its customers' products. Due to the effect of
these factors on future operations, past performance may be a limited indicator
in assessing potential future performance.
LIQUIDITY AND CAPITAL RESOURCES
At September 27, 1997, the Company's principal sources of liquidity included
cash and investments of $34.3 million as compared to $26.4 at the June 28, 1997
balance. Net cash provided by operating activities was $6.9 million in the first
quarter of fiscal 1998, as compared to $3.9 million in the prior year quarter.
This increase represents increased operating results offset by increases in
accounts receivable as a result of revenue increases and inventory increases
relating to anticipated volume increases. Notwithstanding, the Company's days
sales outstanding was reduced from 51 days at June 28, 1997 to 46 days in the
first quarter of fiscal 1998, while inventory turns increased from 4.2 times in
fiscal 1997 to 5.2 times in the first quarter of fiscal 1998.
Expenditures for property and equipment were $1.5 million in the first quarter
of fiscal 1998 as compared to $0.4 million in the prior year quarter.
Expenditures in the first quarter of fiscal 1998 was attributable to the start
up of the Singapore facility.
The Company did not draw on its $20.0 million revolving line of credit during
the first quarter of fiscal 1998. During the first quarter of 1998, proceeds
from stock options exercised were $2.9 million as compared to $28,000 in the
prior year quarter.
On October 23, 1997, the Company's 1997 Equity Compensation Plan (the "1997
Plan") was adopted by the shareholders of the Company.
As previously disclosed in the Company's Form 10-K of fiscal 1997, Voyetra
Technologies, Inc. ("Voyetra") and the Company have asserted claims against each
other in connection with the merger of Turtle Beach and Voyetra in November
1996. Subsequently, on November 5, 1997, Voyetra filed a complaint in the
Supreme Court of the State of New York against the Company alleging
misrepresentation and breaches of warranty in connection with the aforesaid
merger. The Company believes that such claims are without merit and intends to
defend this action vigorously. Accordingly, the Company believes that resolution
of this dispute is not expected to have a material impact on the consolidated
financial statements of the Company.
The Company believes that existing sources of liquidity and funds expected to be
generated from operations will provide adequate cash to fund the Company's
anticipated working capital needs over the short term. Further expansion of the
Company's business or the completion of any material strategic acquisitions may
require additional funds which, to the extent not provided by internally
generated sources, could require the Company to seek access to debt or equity
market.
11
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The Company has not adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", (SFAS 128), which will become effective in the second
quarter of fiscal 1998. The Company believes that the adoption of this statement
will not have a material financial impact.
The Company has not adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", which will become effective for fiscal year
1999. The Company believes that the adoption of this statement will not have a
material financial impact.
The Company has not adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and related Information", which
will become effective for fiscal year 1999. The Company believes that the
adoption of this statement will not have a material financial impact.
12
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
11 Computation of Net Income Per Share for the three
months ended September 27, 1997 and September
28, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1997 INTEGRATED CIRCUIT SYSTEMS, INC.
By: /s/ Stavro Prodromou
----------------------------
Stavro Prodromou
President and Chief Executive Officer
Date: November 11, 1997 By: /s/ Hock E. Tan
----------------------------
Hock E. Tan
Senior Vice President and CFO
(principal financial & accounting
officer)
14
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EXHIBIT 11
INTEGRATED CIRCUIT SYSTEMS, INC.
Computation of Per Share Income
($ and shares in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended
-------------------------
Sept. 27, Sept. 28,
1997 1996
----------- -----------
<S> <C> <C>
Primary
Net income $ 5,042 $ 629
=========== ===========
Common and common equivalent shares outstanding:
Weighted average common shares outstanding 12,294 11,318
Assumed exercise of stock options 1,043 28
----------- -----------
13,337 11,346
=========== ===========
Earnings per common share and common equivalent
shares $ .38 $ .06
=========== ===========
Fully Diluted
- -------------
Net income $ 5,042 $ 629
=========== ===========
Common and common equivalent shares outstanding:
Weighted average common shares outstanding 12,294 11,318
Assumed exercise of stock options 1,194 174
----------- -----------
13,488 11,492
=========== ===========
Earnings per common share and common equivalent
shares $ .37 $ .05
=========== ===========
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<CASH> 21,242
<SECURITIES> 13,024
<RECEIVABLES> 26,758
<ALLOWANCES> 914
<INVENTORY> 16,127
<CURRENT-ASSETS> 81,522
<PP&E> 26,797
<DEPRECIATION> 12,185
<TOTAL-ASSETS> 109,191
<CURRENT-LIABILITIES> 27,078
<BONDS> 1,473
0
0
<COMMON> 49,823
<OTHER-SE> 29,770
<TOTAL-LIABILITY-AND-EQUITY> 109,191
<SALES> 38,585
<TOTAL-REVENUES> 38,585
<CGS> 18,960
<TOTAL-COSTS> 21,053
<OTHER-EXPENSES> 9,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 8,643
<INCOME-TAX> 3,601
<INCOME-CONTINUING> 5,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,042
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
