<PAGE>
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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 September 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
September 30, 1996 was 12,548,583
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<PAGE>
OPTi, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
a) Condensed Consolidated Statements of Operations
for the three months and nine months ended September 30, 1996 and 1995 3
b) Condensed Consolidated Balance Sheets
as of September 30, 1996 and December 31, 1995 4
c) Condensed Consolidated Statements of Cash Flows
for the nine months ended September 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 8-9
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
</TABLE>
2
<PAGE>
OPTi INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30
----------------- -------------------
1996 1995 1996 1995
------- ------- -------- --------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net sales $27,908 $34,377 $ 90,408 $121,759
Costs and expenses:
Cost of sales 24,282 28,257 89,753 88,535
Research and development 3,711 2,753 10,235 7,895
Selling, general, and administrative 4,086 3,927 12,991 12,008
------- ------- -------- --------
Total costs and expenses 32,079 34,937 112,979 108,438
------- ------- -------- --------
Operating income (loss) (4,171) (560) (22,571) 13,321
Interest and other income, net 412 609 1,517 2,194
------- ------- -------- --------
Income (loss) before provision
for income taxes (3,759) 49 (21,054) 15,515
Provision (benefit) for income taxes (1,435) 18 (7,369) 5,530
------- ------- -------- --------
Net income (loss) $(2,324) $ 31 $(13,685) $ 9,985
======= ======= ======== ========
Net income (loss) per share $ (0.19) $ 0.00 $ (1.10) $ 0.76
======= ======= ======== ========
Weighted average common and common
equivalent shares outstanding 12,545 13,427 12,399 13,195
======= ======= ======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
OPTi INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
(000's omitted)
Current assets
Cash and cash equivalents $ 42,290 $ 61,362
Accounts receivable, net 20,192 26,479
Inventories 11,336 25,259
Other current assets 17,436 10,988
-------- --------
Total current assets 91,254 124,088
Property and equipment, net 17,049 15,126
Other assets 8,707 3,402
-------- --------
Total assets $117,010 $142,616
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,830 $ 21,453
Other current liabilities 7,763 7,084
-------- --------
Total current liabilities 15,593 28,537
Long-term liabilities
Long-term obligations under capital lease 4,826 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 -- 12,549 in 1996
11,606 in 1995 56,730 55,210
Retained earnings 39,861 53,546
-------- --------
Total shareholders' equity 96,591 108,756
-------- --------
Total liabilities and shareholders'
equity $117,010 $142,616
======== ========
</TABLE>
Note - 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
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended September 30,
1996 1995
-------------------------------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(13,685) $ 9,985
Adjustments:
Depreciation and amortization 3,759 1,841
Changes in assets and liabilities:
Accounts receivable 6,287 (11,563)
Inventories 13,923 (588)
Other current assets (6,448) 1,217
Accounts payable (13,623) (4,831)
Other liabilities (650) 7,739
-------- --------
Net cash provided by/(used in)
operating activities (10,437) 3,800
INVESTING ACTIVITES:
Purchase of equipment (3,755) (2,972)
Investment in Joint Foundry Venture (6,861) ---
Changes in other non-current assets 1,556 (2,589)
-------- --------
Net cash used in investing activities (9,060) (5,561)
FINANCING ACTIVITIES:
Net proceeds from sale of common stock 1,520 6,969
Changes in long-term liabilities (1,095) (976)
-------- --------
Net cash provided by
financing activities 425 5,993
Net increase (decrease) in cash and
cash equivalents (19,072) 4,232
Cash and cash equivalents,
beginning of period 61,362 50,302
-------- --------
Cash and cash equivalents,
end of period $ 42,290 $ 54,534
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Equipment leased under capital lease obligations $ 1,927 $ 1,977
Income tax benefit from stock option exercises $ 0 $ 10,103
</TABLE>
See accompanying notes.
5
<PAGE>
OPTi INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
1. BASIS OF PRESENTATION
The information at September 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 shares of common stock outstanding
during the period. The computations of earnings per share is as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
------- ------ -------- -------
(in thousands, except per share data)
Net income (loss) $(2,324) $ 31 $(13,685) $9,985
======= ====== ======== ======
Computation of weighted average
common and common equivalent
shares outstanding:
Common stock 12,545 11,391 12,399 10,835
Options -- 2,036 -- 2,360
------- ------ -------- ------
Total weighted average common and
common equivalent shares outstanding 12,545 13,427 12,399 13,195
======= ====== ======== ======
Net income (loss) per share $ (0.19) $ 0.00 $ (1.10) $ 0.76
======= ====== ======== ======
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 September 30, 1996, the company had no investments in debt or
equity securities.
6
<PAGE>
4. INVENTORIES
Inventories consist of finished goods and work in process.
(in thousands) September 30, 1996 December 31, 1995
-------------- ------------------ -----------------
Finished Goods $ 3,800 $ 9,731
Work in process 7,536 15,528
------- -------
$11,336 $25,259
======= =======
4. 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
Compnay 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 against such allegations.
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 September 30, 1996, the Company reported net sales of
$27,908,000, as compared to net sales of $34,377,000 for the quarter ended
September 30, 1995. This decrease in sales is directly attributable to reduced
desktop core logic sales. Desktop core logic sales fell to approximately 20% of
net sales for the quarter ended September 30, 1996 from approximately 65% of net
sales for the comparable quarter in 1995. This decline is primarily due to a
shift in demand away from the Company's Pentium-class desktop chipsets which
accounted for approximately 50% of net sales in the quarter ended September 30,
1995, and a complete shift away from the Company's 486-based desktop core logic
products which accounted for approximately 20% of net sales in the same period
in 1995. For the nine months ended September 30, 1996, the Company reported net
sales of $90,408,000 as compared with $121,759,000 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.
Cost of sales decreased to $24,282,000 representing a gross margin of 13.0%,
from $28,257,000, representing a gross margin of 17.8% for the quarters ended
September 30, 1996 and 1995, respectively. The decline in gross margin
percentage in the quarter ended September 30, 1996 is attributable to reduced
selling prices for the Company's desktop core logic products and higher overhead
costs as a percentage of revenue. Cost of sales for the first nine months of
1996 increased to $89,753,000, representing a gross margin of 0.7%, from
$88,535,000, representing a gross margin of 27.3%. This decline in gross margin
percentage is due to significant inventory devaluations, primarily to the
Company's desktop core logic products, higher than forecasted overhead costs in
relation to revenue, and reductions in selling prices for the Company's
products.
Research and development costs increased to $3,711,000 for the quarter ended
September 30, 1996 as compared with $2,753,000 for the quarter ended September
30, 1995 and to $10,235,000 for the first nine months of 1996 compared with
$7,895,000 for the first nine months of 1995. These increases are primarily
attributable to non-employee related expenses for new product development.
Selling, general, and administrative costs were $4,086,000 in the quarter
ended September 30, 1996 as compared with $3,927,000 in the quarter ended
September 30, 1995 and $12,991,000 in the first nine months of 1995 as compared
with $12,008,000 in the first nine months of 1995. These increases are primarily
attributable to non-employee related marketing expenses.
Interest and other income, net was $412,000 and $609,000 for the quarters
ended September 30, 1996 and 1995, respectively. Interest and other income, net
for the nine month period ended September 30, 1996, was $1,517,000 as compared
with $2,194,000 for the nine month period ended September 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 ended September 30, 1996 was
38.2% and 35% year to date. The effective tax rate for the quarter ended
September 30, 1995 was 35.6% and 35.6% on a year to date basis. The Company has
recorded a benefit tax rate for 1996 based on projected future taxable income
sufficient to realize its deferred tax assets.
The Company expects that the weakness experienced in its desktop core logic
business will continue at least through the end of 1996 as the Company continues
to develop and sample its next generation chipset for the Pentium-class
marketplace and continues to develop its first chipset designed for the Pentium
Pro market.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $19,072,000 to $42,290,000 at September
30, 1996 from $61,362,000 at December 31, 1995. Working capital for the same
period decreased to $75,661,000 as of September 30, 1996 from $95,551,000 at
December 31, 1995. During the first nine months of 1996, operating activities
used cash of $10.4 million. Cash used in operations was primarily due to the
Company's net loss as well as decreases in accounts payable, partially offset by
a decrease in inventory and accounts receivable balances.
8
<PAGE>
The Company's investing activities utilized $9.1 million in cash. The Company
made capital expenditures of $3.8 million for the first nine months of 1996.
These expenditures related primarily to enhancements to the Company's test
facilities and the acquisition of engineering design tools. 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 Microelectronics 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 September 30, 1996, the Company's principal sources of liquidity included
cash and cash equivalents of $42.3 million. The Company believes that its
existing funds 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.
See notes section on page 7 of this report.
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.
Not applicable and has been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit 27 -- Financial Data Schedule.
(b) No reports on Form 8-K were filed by the Company during the
quarter ended September 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: 11/13/96 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> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 42,290
<SECURITIES> 0
<RECEIVABLES> 21,342
<ALLOWANCES> (1,150)
<INVENTORY> 11,336
<CURRENT-ASSETS> 91,254
<PP&E> 26,745
<DEPRECIATION> (9,696)
<TOTAL-ASSETS> 117,010
<CURRENT-LIABILITIES> 15,593
<BONDS> 0
0
0
<COMMON> 56,730
<OTHER-SE> 39,861
<TOTAL-LIABILITY-AND-EQUITY> 117,010
<SALES> 27,908
<TOTAL-REVENUES> 27,908
<CGS> 24,282
<TOTAL-COSTS> 32,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (412)
<INCOME-PRETAX> (3,759)
<INCOME-TAX> (1,435)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,324)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
