<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 0-21422
OPTI INC.
(Exact name of registrant as specified in this charter)
CALIFORNIA 77-0220697
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
888 TASMAN DRIVE MILPITAS, CALIFORNIA 95035
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (408) 980-8178
Indicate by check mark whether the registrant (1) has filed all reports 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 [_]
The number of shares outstanding of the registrant's common stock as of June 30,
1996 was 12,538,469
===============================================================================
<PAGE>
OPTI, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
a) Condensed Consolidated Statements of Operations
for the three months and six months ended
June 30, 1996 and 1995 3
b) Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 4
c) Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1996 and 1995 5
d) Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults on Senior Securities 10
Item 4. Submission of Matters to a Vote of Shareholders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
<PAGE>
OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------
1996 1995 1996 1995
-------- ------- ------- -------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net Sales $ 26,185 $44,674 $ 62,500 $87,382
Costs and expenses:
Cost of sales 31,384 30,771 65,471 60,278
Research and development 3,335 2,666 6,524 5,142
Selling, general, and
administrative 4,468 4,106 8,905 8,081
-------- ------- -------- -------
Total costs and expenses 39,187 37,543 80,900 73,501
-------- ------- -------- -------
Operating Income (loss) (13,002) 7,131 (18,400) 13,881
Interest and other Income, net 442 1,010 1,105 1,585
-------- ------- -------- -------
Income (loss) before provision
for income taxes (12,560) 8,141 (17,295) 15,466
Provision (benefit) for income taxes (4,324) 2,890 (5,934) 5,512
-------- ------- -------- -------
Net Income (loss) ($8,236) $5,251 ($11,361) $9,954
======== ======= ======== =======
Net Income (loss)
per share ($0.66) $0.40 ($0.92) $0.76
======== ======= ======== =======
Weighted average common
and common equivalent
shares outstanding 12,483 13,282 12,326 13,079
======== ======= ======== =======
</TABLE>
See accompanying notes.
3
<PAGE>
OPTi Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- -----------
(Unaudited)
(000's omitted)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 43,813 $ 61,362
Accounts receivable, net 13,389 26,479
Inventories 19,374 25,259
Other current assets 15,842 10,988
-------- --------
Total Current Assets 92,418 124,088
Property and equipment, net 17,469 15,126
Other assets 9,535 3,402
-------- --------
Total Assets $119,422 $142,616
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 10,451 $ 21,453
Other current liabilities 6,840 7,084
-------- --------
Total Current Liabilities 17,291 28,537
Long-term liabilities
Long-term obligations under capital lease 3,492 3,994
Other long-term liabilities --- 1,329
Shareholders' Equity:
Preferred stock, no par value:
Authorized shares -- 5,000
No shares issued or outstanding --- ---
Common stock, no par value:
Authorized shares -- 50,000
Issued and outstanding shares -- 12,538 in 1996
11,176 in 1995 56,454 55,210
Retained earnings 42,185 53,546
-------- --------
Total Shareholders' Equity 98,639 108,756
-------- --------
Total Liabilities and Shareholders'
equity $119,422 $142,616
======== ========
</TABLE>
Note 1 - The consolidated balance sheet at December 31, 1995 has been derived
from the audited financial statements.
See accompanying notes.
4
<PAGE>
OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six months Ended June 30,
1996 1995
----------------------------
(000's omitted)
<S> <C> <C>
Operating Activities:
Net Income (loss) ($11,361) $ 9,954
Adjustments:
Depreciation and amortization 2,301 1,380
Changes in assets and liabilities:
Accounts Receivable 13,090 (8,956)
Inventories 5,885 7,843
Other Current Assets/Other Assets (3,126) (2,094)
Accounts Payable (11,002) (7,265)
Other Liabilities (1,573) 3,643
-------- -------
Net cash provided by/(used in)
operating activities (5,786) 4,505
Investing Activites:
Purchase of property and equipment (4,644) (2,584)
Investment in Joint Foundry Venture/Other Investments (7,861) --
-------- -------
(12,505) (2,584)
Financing Activities:
Net proceeds from sale of common stock 1,244 4,931
Payment of long-term liabilities (502) (538)
-------- -------
Net cash provided by
financing activities 742 4,393
-------- -------
Net increase/(decrease) in
cash and cash equivalents (17,549) 6,314
Cash and cash equivalents,
beginning of period 61,362 50,302
-------- -------
Cash and cash equivalents,
end of period $ 43,813 $56,616
========= =======
Supplemental Cash Flow Information
Income tax benefit from stock option exercises ---- $ 7,168
</TABLE>
See accompanying notes.
5
<PAGE>
OPTI INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
1. BASIS OF PRESENTATION
- -------------------------
The information at June 30, 1996 and 1995 and for the periods then ended,
is unaudited, but includes all adjustments (consisting of normal recurring
accruals) which the Company's management believes to be necessary for the fair
presentation of the financial position, results of operations and cash flows for
the periods presented. Interim results are not necessarily indicative of results
for a full year. The accompanying financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1995.
2. NET INCOME (LOSS) PER SHARE
- -------------------------------
Net income per share is based upon the weighted average number of shares
of common stock outstanding and dilutive common equivalent shares from stock
options (using the modified treasury stock method). Net loss per share is based
upon the weighted average number of common stock outstanding during the period.
The computation of earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------- -------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net Income (loss) ($8,236) $ 5,251 ($11,361) $ 9,954
Computation of shares used in per share
calculation:
Common Stock 12,483 10,850 12,326 10,557
Options -- 2,432 -- 2,522
------- ------- ------- -------
Total weighted average common and
common equivalent shares outstanding 12,483 13,282 12,326 13,079
Net Income (loss) per share ($0.66) $ 0.40 ($0.92) $ 0.76
</TABLE>
3. INVESTMENT IN DEBT AND EQUITY SECURITIES
- -------------------------------------------
The Company considers highly liquid investments with maturities of three
months or less from the acquisition date of the instrument to be cash
equivalents. At June 30, 1996, the Company has no investments in debt or equity
securities.
6
<PAGE>
4. INVENTORIES
- ---------------
Inventories consist of finished goods and work in process.
<TABLE>
<CAPTION>
(in thousands) June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Finished Goods $7,200 $9,731
Work in process 12,174 15,528
------- -------
$19,374 $25,259
------- -------
</TABLE>
5. LITIGATION
- -------------
In September and October 1995, the Company was served with multiple shareholder
class action lawsuits filed in the United States District Court for the Northern
California District of California. The lawsuits, which name the Company and
several of its officers and directors as defendants, allege violations of the
federal securities laws in connection with the announcement by OPTi Inc. of its
financial results for the quarter ended September 30, 1995. The Company believes
that the allegations of the complaints are without merit, and the Company
intends to vigorously defend itself. The Company believes that the ultimate
resolution of this matter will not have a material adverse effect on its
financial position, results of operations, or cash flow.
6. USE OF ESTIMATES
- -------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Information set forth herein constitutes and includes forward looking
information. The accuracy of such information is subject to a variety of risks
and uncertainties, including product mix, the Company's ability to obtain or
maintain design wins, market conditions in the personal computer and
semiconductor industries, product development schedules and other matters.
For the quarter ended June 30, 1996, the Company reported net sales of
$26,185,000, as compared to net sales of $44,674,000 for the quarter ended June
30, 1995. This decrease in sales is directly attributable to reduced desktop
core logic sales. Desktop core logic sales fell to approximately 24% of net
sales for the quarter ended June 30, 1996 from approximately 60% of net sales
for the comparable quarter in 1995. This decline is primarily due to a shift in
demand away from the Company's 486-based desktop core logic products, which
comprised approximately 75% of the Company's total desktop core logic net sales
in the period ending June 30, 1995. Net sales for the Company's Pentium-class
desktop core logic products were approximately the same between the quarter
ended June 30, 1996 and the comparable period of 1995. For the six months ended
June 30, 1996 the Company reported net sales of $62,500,000 as compared to
$87,382,000 for the comparable period of 1995. This reduction in net sales is
predominantly due to softness in demand for the Company's desktop core logic
products and a general slow down in the personal computer marketplace. Net sales
decreased to $26,185,000 in the most recent quarter from $36,315,000 in the
quarter ended March 31, 1996. The decrease in net sales was driven by a sharp
decrease in the sales of the Company's Viper M chipsets, which accounted for
approximately 50% of net sales in the March quarter.
Cost of sales for the quarter ended June 30, 1996 was $31,384,000, which
resulted in a negative gross margin of approximately (19.9%), as compared with
$30,771,000, which resulted in a gross margin of approximately 31.1% for the
quarter ended June 30, 1995. Cost of sales for the first half of 1996 was
$65,471,000, which resulted in a negative gross margin of approximately (4.8%),
as compared with $60,278,000, which resulted in a gross margin of approximately
31.0% for the comparable period of 1995. This reduction in gross margin is
primarily due to significant inventory devaluations of the Company's desktop
core logic products and certain other inventories, shipments of older
generation, lower yielding products, higher than forecasted overhead in relation
to revenue and reductions in the selling prices for the Company's products.
Research and development costs increased to $3,335,000 for the quarter ended
June 30, 1996 as compared with $2,666,000 for the quarter ended June 30, 1995,
and increased to $6,524,000 for the first six months of 1996 as compared with
$5,142,000 for the first half of 1995. These increases are primarily
attributable to the additional hiring of development engineers and non-employee
related expenses for new product development.
Selling, general, and administrative costs increased to $4,468,000 in the
quarter ended June 30, 1996 as compared with $4,106,000 in the quarter ended
June 30, 1995, and increased to $8,905,000 for the first six months of 1996 as
compared with $8,081,000 for the first half of 1995. These increases are
primarily attributable to additional headcount and non-employee related
marketing expenses.
Interest and other income, net was $442,000 and $1,010,000 for the quarters
ended June 30, 1996 and 1995, respectively. Interest and other income, net for
the six month period ended June 30, 1996 was $1,105,000 as compared with
$1,585,000 for the six month period ended June 30, 1995. These decreases are
primarily due to lower average cash balances and lower interest rates.
The Company's effective tax rate for the quarter and the first half of 1996
was 34% as compared to 36% for the comparable periods of 1995.
The Company expects that the weakness experienced in its desktop core logic
business will continue through the end of 1996 as the Company continues to
develop its next generation chipset for the Pentium class marketplace and first
chipset designed for the Pentium Pro market. The Company plans to sample these
products in the second half of 1996.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $17,549,000 to $43,813,000 at June 30,
1996 from $61,362,000 at December 31, 1995. Working capital for the same period
decreased to $75,127,000 at June 30, 1996 from $95,551,000 at December 31, 1995.
During the first six months of 1996, operating activities used cash of $5.8
million. Cash used in operations was primarily due to the Company's net loss as
well as a decrease in accounts payable and an increase in other current assets,
partially offset by decreases in accounts receivable and inventory balances.
The Company's investing activities utilized $12.5 million in cash. The Company
made capital expenditures of $4.6 million for the six months ended June 30,
1996. These capital expenditures related primarily to enhancements to the
Company's test facilities and to the acquisition of engineering design tools.
The rate of the Company's capital spending over the next twelve months is
expected to be below the rate experienced in the first half of 1996. The
Company also made an investment of approximately $6.9 million as its first
payment in a joint venture to develop a foundry with United Microlelectronics
Inc. (UMC) of Taiwan and several other partners. This payment to UMC represents
the first twenty-five percent of the Company's total commitment to the foundry
venture. The second installment, representing fifty percent of the total
commitment is projected for late 1996 or early 1997. The final twenty-five
percent is projected for the second half of 1997.
At June 30, 1996 the Company's principal sources of liquidity included cash and
cash equivalents of approximately $43.8. The Company believes that its existing
funds and funds available under its $10 million line of credit will satisfy the
Company's anticipated working capital and other cash requirements through at
least the next twelve months.
9
<PAGE>
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS.
In September and October 1995, the Company was served with multiple
shareholder lawsuits filed in the United States District Court for the Northern
California District of California. The lawsuits, which name the Company and
several of its officers and directors as defendants, allege violations of the
federal securities laws in connection with the announcement by OPTi Inc. of its
financial results for the quarter ended September 30, 1995. The Company
believes that the ultimate resolution of this matter will not have a material
adverse effect on its financial position, results of operations, or cash flow.
ITEM 2. CHANGES IN SECURITIES.
Not applicable and has been omitted.
ITEM 3. DEFAULTS ON SENIOR SECURITIES.
Not applicable and has been omitted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
The annual Meeting of Shareholders was held on May 30, 1996, for the
purposes of electing directors of the Company, ammending the 1993 director stock
option plan, and confirming the appointment of Ernst & Young LLP as auditors of
the company for the fiscal year ended December 31, 1996. The voting on each
matter is set forth below.
Election of Directors:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Jerry Chang 10,791,665 227,580
Stephen A. Dukker 10,792,424 226,821
David Lin 10,794,921 224,324
Tor R. Braham 10,631,124 388,121
Bernard T. Marren 10,784,521 234,724
Kapil K. Nanda 10,781,621 237,624
</TABLE>
Proposal to ammend the 1993 Director stock Option Plan:
For Against Abstain No Vote
--- ------- ------- -------
9,497,452 640,838 98,030 782,925
Proposal to ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for fiscal year 1996.
For Against Abstain No Vote
--- ------- ------- -------
10,897,740 46,424 75,081 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
10
<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.
OPTi Inc.
Date: 8/13/96 By: \s\ David Zacarias
--------------------------
David Zacarias
Signing on behalf of the Registrant and as
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 43,813
<SECURITIES> 0
<RECEIVABLES> 14,539
<ALLOWANCES> (1,150)
<INVENTORY> 19,374
<CURRENT-ASSETS> 92,418
<PP&E> 25,707
<DEPRECIATION> (8,238)
<TOTAL-ASSETS> 119,422
<CURRENT-LIABILITIES> 17,291
<BONDS> 0
0
0
<COMMON> 56,454
<OTHER-SE> 42,185
<TOTAL-LIABILITY-AND-EQUITY> 119,422
<SALES> 26,185
<TOTAL-REVENUES> 26,185
<CGS> 31,384
<TOTAL-COSTS> 39,187
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (442)
<INCOME-PRETAX> (12,560)
<INCOME-TAX> (4,324)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,236)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
