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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the Quarter ended December 28, 1996
___ 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
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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)
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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________
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As of February 7, 1997, there were outstanding 11,818,716 shares of the
Registrant's Common Stock, no par value.
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1
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INTEGRATED CIRCUIT SYSTEMS, INC.
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INDEX
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<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets:
December 28, 1996 and June 29, 1996 3
Consolidated Statements of Operations:
Three and Six Months Ended December 28, 1996
and December 30, 1995 4
Consolidated Statements of Cash Flows:
Six Months Ended December 28, 1996 and
December 30, 1995 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
</TABLE>
OTHER INFORMATION
Submission of Matter to a Vote of Security Holders
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 SUBSIDIARY COMPANIES
Consolidated Balance Sheets
($ and shares in thousands)
<TABLE>
<CAPTION>
December 28, June 29,
1996 1996
------------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 28,379 $ 30,457
Marketable securities - current 524 24
Accounts receivable, net 12,782 15,405
Inventory, net 14,884 17,059
Deferred income taxes 1,834 1,976
Other current assets 2,343 3,054
---------- ----------
Total current assets 60,746 67,975
---------- ----------
Property and equipment, net 13,729 14,628
Deposits on purchase contracts 8,526 5,575
Goodwill 4,539 1,813
Equity investment and advances 3,790 -
Other assets 127 976
---------- ----------
Total assets $ 91,457 $ 90,967
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Note payable to bank $ - $ 2,315
Accounts payable 11,649 10,221
Income tax payable 2,719 -
Accrued payroll 1,459 449
Accrued expenses and other current liabilities 2,056 2,472
---------- ----------
Total current liabilities 17,883 15,457
---------- ----------
Long-term debt, less current portion 1,571 1,631
Deferred income taxes 1,028 788
---------- ----------
Total liabilities 20,482 17,876
---------- ----------
Minority interest 1,946 3,927
Shareholders' Equity:
Preferred stock, authorized 5,000 shares, none issued
Common stock, no par value, authorized 50,000 shares;
issued and outstanding 11,568 and 11,389 shares as of
December 28, 1996 and June 29, 1996, respectively 34,403 32,674
Retained earnings 39,825 36,950
Less: treasury stock, at cost (452 and 35 shares as of
December 28, 1996 and June 29, 1996. respectively (5,199) (460)
----------- -----------
Total shareholders' equity 69,029 69,164
---------- ----------
Total liabilities and shareholders' equity $ 91,457 $ 90,967
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Operations
($ and shares in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six Months ended
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues: $ 28,020 $ 33,123 49,894 61,413
Cost and expenses:
Cost of sales 16,948 19,136 31,147 33,526
Research and development expense 3,709 3,392 6,945 5,914
Selling, general and administrative expense 4,453 5,093 8,766 9,902
Non-recurring charges:
Facility closing - 1,757 - 1,757
Write off of in-process research and
development costs - 1,500 - 1,500
----------- ---------- --------- ---------
Operating income 2,910 2,245 3,036 8,814
----------- ---------- --------- ---------
Interest and other (income) (350) (434) (865) (668)
Interest expense 116 253 211 432
Minority interest (502) (680) (923) (595)
Losses from equity investments 146 - 146 -
----------- ---------- --------- ---------
Income before income taxes 3,500 3,106 4,467 9,645
----------- ---------- --------- ---------
Income taxes 1,254 1,212 1,592 3,590
----------- ---------- --------- ---------
Net income $ 2,246 $ 1,894 $ 2,875 $ 6,055
=========== ========== ========= =========
Net income per common share $ 0.20 $ 0.16 $ 0.25 $ 0.51
=========== ========== ========= =========
Common and common equivalent shares 11,379 11,682 11,346 11,814
</TABLE>
See accompanying notes to consolidated financial statements.
4
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended,
Dec. 28, Dec. 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,875 $ 6,055
Adjustments to reconcile net income to net
cash provided by operating activities:
Non-recurring charge - 3,257
Depreciation and amortization 1,762 1,543
Minority interest (923) (595)
(Gain) loss on disposition of assets (335) 29
Deferred income taxes (198) 1,230
Tax benefit of stock option exercises 90 426
Losses from equity investments 146 -
Non-cash compensation 84 -
Accounts receivable 156 (1,481)
Due from Voyetra (173) -
Inventory (1,150) (5,633)
Other assets, net 4 (47)
Accounts payable, accrued expenses and other current liabilities 3,068 3,950
Income taxes 1,654 229
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Net cash provided by operating activities 7,060 8,963
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,301) (1,213)
Sales, maturities (purchases) of marketable securities (500) 5,826
Increase in net deposits on contracts (2,756) -
Other (82) (264)
--------- ---------
Net cash provided by (used in) investing activities (4,639) 4,349
--------- ---------
Cash flows from financing activities:
Net repayments under line of credit agreement (2,315) -
Repayments of long-term debt (60) (153)
Repurchase of common stock (3,950) -
Exercise of stock options 1,826 2,036
--------- ---------
Net cash provided by (used in) financing activities (4,499) 1,883
--------- ---------
Net increase (decrease) in cash and cash equivalents (2,078) 15,195
Cash and cash equivalents:
Beginning of period 30,457 9,960
--------- ---------
End of period $28,379 $25,155
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows (Cont'd)
(Unaudited)
<TABLE>
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 77 $ 234
========= ==========
Income taxes $ 20 $ 1,387
========= ==========
Supplemental disclosures of non-cash investing activities:
Issuance of Turtle Beach common stock - acquisition
of Value Media $ - $ 2,673
========= ==========
See footnote 3 and 7 for non-cash financing activities
</TABLE>
See accompanying notes to consolidated financial statements.
6
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
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 December 28, 1996 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 29, 1996. Results
of operations for period ended December 28, 1996 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) MERGER
On November 29, 1996, the Company signed an Agreement and Plan of Merger, (the
"Merger Agreement") to sell its approximately 87% interest in Turtle Beach
Systems, Inc. ("Turtle Beach") to Voyetra Technologies Inc. ("Voyetra"), in
exchange for an approximately 35% equity interest in Voyetra. Voyetra is a
supplier of music and audio software. No gain or loss was recorded on this
transaction. The Company's proportionate share of underlying equity in Voyetra
is approximately $3.5 million. The excess of the Company's carrying value over
their proportionate share of underlying equity of approximately $4.3 million
will be amortized as goodwill.. The Company accounts for its investment in
Voyetra under the equity method of accounting. For the one month ended December
28, 1996, the Company's share of losses from Voyetra was $146,000. In connection
with the merger, the Company also entered into a Revolving Credit Agreement and
Note (the "Credit Agreement") with Voyetra, pursuant to which the Company has
agreed to make loans to Voyetra up to an aggregate of $3.5 million. See Related
Party footnote (7).
7
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
(4) INVENTORY
Inventory is valued at the lower of standard cost which approximates actual cost
(FIFO basis),or market.
The components of inventories are as follows (in thousands):
December 28, June 29,
1996 1996
-------------- -------------
Work-in-process $ 2,484 $ 4,430
Finished parts 14,451 14,864
Less: Obsolescence reserve (2,051) (2,235)
-------------- -------------
$ 14,884 $ 17,059
============== =============
(5) PURCHASE COMMITMENTS
Pursuant to the Company's purchase commitment agreement with Chartered
Semiconductor Manufacturing PTE, Ltd. ("CSM"), in November 1996, the Company
deposited $3.0 million. The remaining $5.0 million due under the agreement will
be paid by the end of the first quarter of fiscal 1998.
(6) COMMON STOCK
In December, the Board of Directors authorized the continuation of its
repurchase of up to 1.0 million shares of the Company's common stock at various
times over the next twelve months. The timing and amount of shares repurchased
will be determined at the discretion of the Company's management. As of
December 28, 1996, the Company has repurchased 384,000 shares valued at $4.4
million, using the cost method.
(7) RELATED PARTY
The Company currently has a receivable due from Voyetra of $456,000 as a
result of letters of credit and benefits paid by the Company for Turtle Beach in
December. In the fiscal quarter, the Company entered into a Revolving Credit
Agreement and Note (the "Credit Agreement") with Voyetra. The Credit Agreement
is subject to certain covenants , including maintenance of certain financial
objectives. As of December 28, 1996, Voyetra has not made any draws on the
line, the line of credit available for future borrowings is $3.5 million.
Advances under the Credit Agreement bear interest at 9.0% annually. The Credit
Agreement will expire as of December 31, 1997, subject to extension under
certain circumstances.
8
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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
(7) RELATED PARTY (CONT'D)
On September 25, 1996, the Company sold its battery charge controller business
to Edward H. Arnold, a former director and former CEO of the Company. Although
the Company had been involved in the battery charge business since 1991, it was
not considered a core business and the associated products did not materially
contribute to the Company's revenue. In making this sale, the Company
determined that further investment in such business was not consistent with the
strategic direction of the Company. Under the terms of such tax-free sale, Mr.
Arnold acquired all outstanding shares of the Company's wholly-owned subsidiary
which owned the intellectual property rights and other assets for this business
in exchange for 68,387 shares of the Company's common stock as valued at $11.537
per share ( the average closing price for 10 days prior to the sale). The sale
price of $.8 million was based upon a valuation made by a reputable independent
appraiser and involved a premium over such valuation. In addition, the Company
will receive a royalty of 2% of the gross revenue received for all sales during
the three year period after September 25, 1996, of the products comprising the
business, as consideration for a license to the subsidiary of a trademark
associated with such products. The Company has recorded the gain in the
statement of operations as follows: the battery charge controller inventory
sold is recorded as other revenue ($.6 million) with its corresponding costs in
cost of sales ($.3 million), the gain on the remaining assets is recorded as
other income ($.2 million).
9
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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 Six months ended
------------------ ----------------
Dec. 28, Dec. 30, Dec. 28, Dec. 30,
----------- ----------- ----------- ------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of sales 60.5 57.8 62.4 54.6
Research and development 13.2 10.2 13.9 9.6
Selling, general and administrative 15.9 15.4 17.6 16.1
Non-recurring charge - 9.8 - 5.3
----------- ----------- ----------- ------------
Operating income 10.4 6.8 6.1 14.4
Interest and other (income) (1.2) (1.3) (1.7) (1.1)
Interest expense 0.4 0.8 0.4 0.7
Minority interest (1.8) (2.1) (1.9) (0.9)
Losses from equity investment 0.5 - 0.3 -
----------- ----------- ----------- ------------
Income before income taxes 12.5 9.4 9.0 15.7
Income tax expense 4.5 3.7 3.2 5.8
----------- ----------- ----------- ------------
Net income 8.0% 5.7% 5.8% 9.9%
=========== =========== =========== ============
</TABLE>
Second Quarter 1997 as Compared to Second Quarter 1996
Consolidated revenue decreased $5.1 million or 15.4% for the second quarter
ended December 28, 1996 as compared to the prior year quarter. The decrease in
revenue was primarily attributable to the Advanced Technologies product line,
Turtle Beach Systems and Ark Logic, partially offset by increases from the FTG
product line and diatom product line.
The Company's FTG component revenue increased $4.0 million to $15.5 million for
the second quarter of fiscal 1997 as compared to the prior year quarter. Total
FTG component revenue contributed 55.3% of consolidated revenue for the second
quarter in fiscal 1997 which represented an increase with respect to 34.9% for
the prior year quarter as a result of introduction of motherboard chips into the
Taiwan market and the declines at Turtle Beach and Ark Logic.
10
<PAGE>
Data Communication component revenue was $2.7 million for the second quarter of
fiscal 1997. Data Communications component revenue comprised 9.6% of
consolidated revenue for the second quarter of fiscal 1997 with no corresponding
revenue in the prior year quarter as a result of the introduction of its 1890
family of phyceiver chips in the third quarter of fiscal 1996.
Advanced Technologies component revenue decreased $3.3 million for the second
quarter of fiscal 1997, as compared to the prior year quarter. The decrease
represents a decline in custom ASIC components. Advanced Technologies component
revenue comprised 20.4% of consolidated revenue for the second quarter of fiscal
1997 versus 27.1% for the prior year quarter.
Revenue from Turtle Beach decreased $5.4 million during the second quarter of
fiscal 1997, as compared to the prior year quarter. Only two months of revenue
from Turtle Beach Systems, Inc. are included in the consolidated statement of
operations as a result of the merger of Turtle Beach with Voyetra Technologies,
Inc. in November. The Company accounts for its investment in Voyetra under
the equity method of accounting. Turtle Beach contributed 11.9% of consolidated
revenue in the second quarter of fiscal 1997, as compared to 26.3% in the prior
year quarter.
Ark Logic revenues decreased $3.1 million for the second quarter of fiscal 1997,
as compared to the prior year quarter. The decrease largely reflects the delay
in the introduction of new video graphics motherboard solutions. Ark Logic
contributed 2.8% of consolidated revenue in the second quarter of fiscal 1997,
as compared to 11.7% in the prior year quarter.
Foreign revenue (which includes shipments of ICs to offshore subsidiaries of US
multinational companies) was 63.6% of total revenue for the second quarter of
fiscal 1997 and compared to 43.7% of total revenue in the prior year quarter.
The percentage increase reflects growth in the Far East.
Cost of sales as a percentage of total revenue was 60.5% for the second quarter
of fiscal 1997 as compared to 57.8% in the prior year quarter. The increase in
the cost of sales percentage was primarily the result of declining sales prices
in the PC component business, price protection at Turtle Beach and declining
sales prices at Ark Logic.
Research and development expense increased $.3 million to $3.7 million for the
second quarter of fiscal 1997, as compared to the prior year quarter. The
increase is primarily attributable to increased investment in new FTGs and
applications support for the 1890 chip.
Selling, general and administrative expense decreased $.6 million to $4.5 in the
second quarter of fiscal 1997 as compared to the prior year quarter as a result
of continued emphasis on tighter fiscal control.
During the second quarter of fiscal 1996, the Company took a one-time charge in
connection with the acquisition of the multimedia and communications peripheral
products lines of Value Media, Inc. by Turtle Beach and the consolidation of
Turtle Beach's operations. The one-time charge, net of minority interest and tax
was $2.0 million, or $.17 per share. The major components of these charges were:
* 1.8 million for severance, fixed asset write-off, buy out of building lease
and write-down of inventory in connection with the closing of the York,
Pennsylvania facility of Turtle Beach.
* 1.5 million related to the write-off of in-process research and development
projects at Value Media arising from the acquisition.
11
<PAGE>
Six Months Ended December 28, 1996 as compared to Six Months Ended December 30,
1995
Consolidated revenue decreased $11.5 million or 18.8% for the six months ended
December 28, 1996 as compared to the prior year period. The decrease in
revenues were primarily attributable to the FTG product line, Advanced
Technologies product line, Turtle Beach Systems and Ark Logic. The introduction
of the 1890 family of phyceiver slightly offset these decreases.
The Company's FTG component revenue decreased $1.1 million to $26.0 million for
the six months of fiscal 1997 as compared to the prior year period. The
decrease is primarily related to the decline in average selling prices ("ASP")
in the beginning of 1997 offset by introduction of motherboard chips to the
Taiwan market and overall declines in other product lines. Total FTG component
revenue contributed 52.1% of consolidated revenue in fiscal 1997 which
represented an increase with respect to 44.1% for the prior year period.
Data Communication component revenue was $4.3 million for the six months of
fiscal 1997. Data Communications component revenue comprised 8.7% of
consolidated revenue in fiscal 1997 with no corresponding revenue in the prior
year period as a result of the introduction of its 1890 family of phyceiver
chips in the third quarter of fiscal 1996.
Advanced Technologies component revenue decreased $4.4 million for the six
months of fiscal 1997, as compared to the prior year period. The decrease
represents a decline in custom ASIC components. Advanced Technologies component
revenue comprised 22.9% of consolidated revenue in fiscal 1997 versus 25.8% for
the prior year period.
Revenue from Turtle Beach decreased $4.4 million during the six months of fiscal
1997, as compared to the prior year period. Only five months of revenue from
Turtle Beach Systems, Inc. are included in the consolidated statements of
operation as a result of the merger of Turtle Beach with Voyetra Technologies,
Inc. in November. The Company accounts for its investment in Voyetra under the
equity method of accounting. See merger footnote 3 in notes to consolidated
financial statements. Turtle Beach contributed 13.6% of consolidated revenue in
fiscal 1997, as compared to 18.2% in the prior year period.
Ark Logic revenues decreased $6.0 million during the six months of fiscal 1997,
as compared to the prior year period. The decrease largely reflects the delay
in the introduction of new video graphics motherboard solutions. Ark Logic
contributed 2.7% of consolidated revenue in fiscal 1997, as compared to 12.0% in
the prior year period.
Foreign revenue (which includes shipments of ICs to offshore subsidiaries of US
multinational companies) was 58.1% of total revenue for the six months of
fiscal 1997 and compared to 44.8% of total revenue in the prior year period.
The percentage increase reflects growth in the Far East.
Cost of sales as a percentage of total revenue was 62.4% for the six months of
fiscal 1997 as compared to 54.6% in the prior year period. The increase in the
cost of sales percentage was primarily the result of continued declining sales
prices in the PC component business, price protection at Turtle Beach and
declining sales prices at Ark Logic.
Research and development expense increased $1.0 million to $6.9 million for the
six months of fiscal 1997, as compared to the prior year period. Research and
development spending continues increased because of acceleration placed on FTGs
programs and applications support to the 1890 chip.
Selling, general and administrative expense decreased $1.1 million to $8.8 for
the six months of fiscal 1997 as compared to the prior year period as a result
of continued emphasis on tighter fiscal control.
12
<PAGE>
During the second quarter of fiscal 1996, the Company took a one-time charge in
connection with the acquisition of the multimedia and communications peripheral
products lines of Value Media, Inc. by Turtle Beach and the consolidation of
Turtle Beach's operations. The one-time charge, net of minority interest and
tax was $2.0 million, or $.17 per share. The major components of these charges
were:
* 1.8 million for severance, fixed asset write-off, buy out of building lease
and write-down of inventory in connection with the closing of the York,
Pennsylvania facility of Turtle Beach.
* 1.5 million related to the write-off of in-process research and development
projects at Value Media arising from the acquisition.
Income Taxes
The Company's effective income tax rate was 35.8% for the six months ended
December 28, 1996 compared to 39.6% in the prior year period. The decrease in
the tax rate is primarily attributable to the sale of the Company's battery
charge controller business in the second quarter of fiscal 1997, which was
treated as a tax-free transaction. In the prior year period, a valuation
allowance was created to fully reserve against Turtle Beach's deferred tax
asset.
Industry Factors
The Company continues to experience pricing pressures and increased competition
in its more mature products. 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 and timing and
communication 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 December 28, 1996 was $27.8 as compared to $30.0
million in the prior year period. 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 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
and lower gross margins for its multimedia products, continuing demand for its
custom ASIC products and acceptance of the Company's newly introduced ICs and
board level, 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.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 28, 1996, the Company's principal sources of liquidity included cash
and cash equivalents of $28.4 million as compared to $30.5 million at June
29,1996. Net cash provided operating activities was $7.1 million for the six
months of fiscal 1997, as compared to $9.0 million in prior year period. This
decrease represents reduced operating results offset by improved inventory
turns and accounts receivable collections.
Net cash used by investing activities was $4.6 million for the six months of
fiscal 1997, as compared to net cash provided by investing activities of $4.3
million in the prior year period. Expenditures for property and equipment were
comparable in both periods. In connection with a purchase commitment agreement
with a wafer supplier (see footnote 5 of the notes to consolidated financial
statements), the Company increased their deposit by $3.0 million, this was
slightly offset by refunds of the deposit with another wafer supplier. Purchases
of marketable securities was $.5 million for the current period as compared to
sales of marketable securities of $5.8 million in the prior year period. The
Company's approach to asset and liability management requires flexibility and
therefore, majority of investments are now in short term instruments.
The Company did not draw on its $20.0 million revolving line of credit during
the first six months of fiscal 1997. The Company repaid the $2.3 million from
the advances on the facility in fiscal 1996. The Company repurchased 384,000 of
its outstanding shares valued at $4.0 million, using the cost method. Through
exercise of stock options by various employees, equity capital increased $1.8
million in fiscal 1997, as compared to $2.0 million in the prior year period.
On November 29, 1996, the Company signed an Agreement and Plan of Merger, (the
"Merger Agreement") to sell its approximately 87% interest in Turtle Beach
Systems, Inc. ("Turtle Beach") to Voyetra Technologies Inc. ("Voyetra"), in
exchange for an approximately 35% equity interest in Voyetra. Voyetra is a
supplier of music and audio software. There was no gain or loss was recorded on
this transaction. The Company's proportionate share of underlying equity in
Voyetra is approximately $3.5 million. The excess of the Company's carrying
value over their proportionate share of underlying equity of approximately $4.3
million will be amortized as goodwill.. The Company accounts for its investment
in Voyetra under the equity method of accounting. For the one month ended
December 28, 1996, the Company's share of losses from Voyetra was $146,000. In
connection with the merger, the Company also entered into a Revolving Credit
Agreement and Note (the "Credit Agreement") with Voyetra, pursuant to which the
Company has agreed to make loans to Voyetra aggregating $3.5 million The Credit
Agreement is subject to certain covenants , including maintenance of certain
financial items. As of December 28, 1996, Voyetra has not made any draws on the
line, the line of credit available for future borrowings was $3.5 million.
Advances under the Credit Agreement bear interest at 9.0% annually. The
expiration of the Credit Agreement is December 31, 1997, subject to extension
under certain circumstances.
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
markets.
14
<PAGE>
The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS 121). The adoption has not had a material financial
impact.
The Company has not adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). The Company believes that
the adoption of this statement will not have a material financial impact.
15
<PAGE>
UPDATE ON IMPACT OF ONE-TIME CHARGES TAKEN IN FY1996 AND FY1995
In connection with the fiscal 1995 charge, the Company has paid approximately
$100,000 in consulting payments through the six months ended December 28, 1996,
with the balance of approximately $100,000 remaining.
In connection with the fiscal 1996 charge, the Company has paid approximately
$48,000 for the York facility lease through the six months ended December 28,
1996.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 25, 1996, at the Company's annual meeting, the stockholders approved
a proposal to amend the Company's 1992 Stock Option Plan (the "1992 Plan") to
increase the number of shares of the Company's common stock, no par value,
authorized for the grant of options under the 1992 Plan by an additional 300,000
shares, for an aggregate of 3,600,000 shares. At the meeting, 7,894,028 votes
(representing 77% of the shares outstanding) were cast in favor of the proposal,
with 2,182,823 votes against and 75,987 abstentions. In addition, all of the
nominees for election as director were elected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
11 Computation of Net Income Per Share for the three and
six months ended December 28, 1996 and December 30,
1995.
27 Financial Data Schedule
(b) Reports on Form 8-K:
A report Form 8-K, dated November 29, 1996, was filed to report the
merger of Turtle Beach Systems, Inc. and Voyetra Technologies, Inc. under Item 2
of the form and the financial information required pursuant to Item 7 of the
form. Pursuant to Item 7 (b) of the form, the Company filed unaudited pro forma
condensed consolidated statements of operations for the year ended June 29, 1996
and the three month period ended September 28, 1996. Pursuant to Item 7 (c) of
the form, the Company filed as an exhibit to the form, the Agreement and Plan of
Merger and the Revolving Credit Agreement and Note, dated November 29, 1996.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 11, 1997 INTEGRATED CIRCUIT SYSTEMS, INC.
By: /S/ Henry Boreen
------------------
Henry Boreen
President and Chief Executive Officer
Date: February 11, 1997
By: /S/ Hock E. Tan
-----------------
Hock E. Tan
Senior Vice President and CFO
(principal financial & accounting officer)
18
<PAGE>
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 Six months ended
---------------------- -------------------
Dec. 28, Dec. 30, Dec. 28, Dec. 30,
1996 1995 1996 1995
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Primary
- -------
Net income $ 2,246 $ 1,894 $ 2,875 $ 6,055
========== ========= ========= ========
Common and common equivalent shares outstanding:
Weighted average common shares outstanding 11,211 11,286 11,265 11,233
Assumed exercise of stock options 168 395 81 581
---------- --------- --------- --------
11,379 11,682 11,346 11,814
========== ========= ========= ========
Earnings per common share and common equivalent shares $ .20 $ .16 $ .25 $ .51
========== ========= ========= ========
Fully Diluted
- -------------
Net income $ 2,246 $ 1,894 $ 2,875 $ 6,055
========== ========= ======== ========
Common and common equivalent shares outstanding:
Weighted average common shares outstanding 11,211 11,286 11,265 11,233
Assumed exercise of stock options 277 401 280 590
---------- --------- -------- --------
11,488 11,687 11,545 11,823
========== ========= ======== ========
Earnings per common share and common equivalent shares $ .20 $ .16 $ .25 $ .51
========== ========= ======== ========
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> DEC-28-1996
<CASH> 28,379
<SECURITIES> 524
<RECEIVABLES> 15,036
<ALLOWANCES> 2,254
<INVENTORY> 14,884
<CURRENT-ASSETS> 60,746
<PP&E> 23,344
<DEPRECIATION> 9,614
<TOTAL-ASSETS> 91,457
<CURRENT-LIABILITIES> 17,883
<BONDS> 1,571
0
0
<COMMON> 34,403
<OTHER-SE> 34,626
<TOTAL-LIABILITY-AND-EQUITY> 91,457
<SALES> 49,894
<TOTAL-REVENUES> 49,894
<CGS> 31,147
<TOTAL-COSTS> 31,147
<OTHER-EXPENSES> 15,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211
<INCOME-PRETAX> 4,467
<INCOME-TAX> 1,592
<INCOME-CONTINUING> 2,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,875
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
