<PAGE> 1
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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, 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 0-21422
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) 486-8000
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, 1997 was 12,998,705
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1
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OPTI, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
a) Condensed Consolidated Statements of Operations for the three
months and nine months ended September 30, 1997 and 1996 3
b) Condensed Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996 4
c) Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 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> 3
OPTI INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1997 1996 1997 1996
-------- -------- -------- ---------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net Sales $ 15,196 $ 27,908 $ 54,211 $ 90,408
Costs and expenses:
Cost of sales 11,251 24,282 40,579 89,753
Research and development 3,039 3,711 9,874 10,235
Selling, general, and
administrative 3,685 4,086 11,448 12,991
Restructuring ---- ---- 1,213 ----
-------- -------- -------- ---------
Total costs and expenses 17,975 32,079 63,114 112,979
-------- -------- -------- ---------
Operating loss (2,779) (4,171) (8,903) (22,571)
Interest and other income, net 676 412 1,987 1,517
-------- -------- -------- ---------
Loss before benefit
of income taxes (2,103) (3,759) (6,916) (21,054)
Benefit of income taxes ---- (1,435) (137) (7,369)
-------- -------- -------- ---------
Net loss ($ 2,103) ($ 2,324) ($ 6,779) ($ 13,685)
======== ======== ======== =========
Net loss
per share ($ 0.16) ($ 0.19) ($ 0.53) ($ 1.10)
======== ======== ======== =========
Shares used in per
share calculation 12,851 12,545 12,762 12,399
======== ======== ======== =========
</TABLE>
See accompanying notes.
3
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OPTI INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
(Unaudited) (See Note 1)
ASSETS
(000's omitted)
Current assets
Cash and cash equivalents $ 55,835 $ 56,372
Accounts receivable, net 10,570 17,950
Inventories 5,807 4,946
Other current assets 12,235 11,401
-------- --------
Total current assets 84,447 90,669
Property and equipment, net 12,947 16,240
Other assets 8,229 8,592
-------- --------
Total assets $105,623 $115,501
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,278 $ 9,718
Other current liabilities 4,849 4,763
-------- --------
Total current liabilities 11,127 14,481
Long term liabilities
Long-term obligations under capital lease 3,771 4,649
Commitments and contingencies
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 -- 12,999 in 1997
12,661 in 1996 58,016 56,883
Retained earnings 32,709 39,488
-------- --------
Total shareholders' equity 90,725 96,371
-------- --------
Total liabilities and shareholders'
equity $105,623 $115,501
======== ========
</TABLE>
Note 1 - The consolidated balance sheet at December 31, 1996 has been
derived from the audited financial statements.
See accompanying notes.
4
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OPTI INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended September 30,
1997 1996
-------- --------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($ 6,779) ($13,685)
Adjustments:
Depreciation 3,946 3,535
Amortization 381 224
Changes in assets and liabilities:
Accounts receivable 7,380 6,287
Inventories (861) 13,923
Other assets (471) (4,892)
Accounts payable (3,440) (13,623)
Other current liabilities 86 (650)
-------- --------
Net cash provided by (used in)
operating activities 242 (8,881)
INVESTING ACTIVITES:
Purchase of property and equipment (1,034) (3,755)
Investment in Joint Foundry Venture ----- (6,861)
-------- --------
Net cash used in
investing activities (1,034) (10,616)
FINANCING ACTIVITIES:
Net proceeds from sale of common stock 1,133 1,520
Payment of long-term liabilities (878) (1,095)
-------- --------
Net cash provided by (used in)
financing activities 255 425
-------- --------
Net decrease in
cash and cash equivalents (537) (19,072)
Cash and cash equivalents,
beginning of period 56,372 61,362
-------- --------
Cash and cash equivalents,
end of period $ 55,835 $ 42,290
======== ========
</TABLE>
See accompanying notes.
5
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OPTI INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
1. BASIS OF PRESENTATION
The information at September 30, 1997 and 1996 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, 1996.
2. NET LOSS PER SHARE
Net loss per share is based upon the weighted average number of common stock
outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. The impact will
not result in any change in primary or fully diluted earnings per share for the
three months and nine months periods ended September 30, 1997 and September 30,
1996.
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, 1997, the Company had no material investments in
debt or equity securities.
4. INVENTORIES
Inventories consist of finished goods and work in process:
<TABLE>
<CAPTION>
(in thousands) September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Finished Goods $2,533 $2,422
Work in process 3,274 2,524
------ ------
$5,807 $4,946
------ ------
</TABLE>
6
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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. In
March of 1997, the United States District Court for the Northern California
District of California entered an order granting the defendants a motion to
dismiss the Securities Class Action suit brought against the Company. The motion
to dismiss was granted with prejudice and without leave to amend. The plaintiffs
in the case have filed a notice of appeal of the judgement. 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.
In January 1997, a patent infringement claim was brought against the
Company by Crystal Semiconductor (a subsidiary of Cirrus Logic). The claim
alleges that the Company and Tritech Microelectronics International infringed
upon patents held by Crystal. These patents relate to the "Codec" module
incorporated in various audio controller devices. 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 flows.
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. RESTRUCTURING
During the second quarter of 1997 the Company incurred $1,213,000 of
charges relating to a restructuring of its operations. These charges included
approximately $140,000 associated with the termination of approximately 30
employees primarily at the Company's headquarters in Milpitas, CA, approximately
$335,000 for the costs associated with vacating leased facilities, approximately
$600,000 for the write-down of capital assets, and approximately $138,000 in
other charges. The Company expects the only significant cash outlays in the
future quarters to be approximately $165,000 associated with the leased
facilities.
8. TAXES
The Company recorded no tax provision during the third quarter of 1997 and
a benefit of 38.2% for the third quarter of 1996. The Company has recorded
deferred tax assets through the first quarter of 1997 based on projected future
taxable income and did not record a tax benefit for the second or third quarters
of 1997 due to the uncertainty of projected future taxable income necessary to
realize additional deferred tax assets. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced.
7
<PAGE> 8
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, 1997, the Company reported net sales of
$15,196,000, as compared to net sales of $27,908,000 for the quarter ended
September 30, 1996. Net sales for the nine months ended September 30, 1997 and
1996 were $54,211,000 and $90,408,000, respectively. This decrease for the three
months and nine months ended September 30, 1997 is due primarily to reductions
in sales for both the Company's audio controller chips and desktop core logic
chipsets as compared to the corresponding periods of the prior year.
Cost of sales for the quarter ended September 30, 1997 decreased to
$11,251,000 which resulted in a gross margin of approximately 26.0%, as compared
to $24,282,000, which resulted in a gross margin of approximately 13.0% for the
quarter ended September 30, 1996. Cost of sales for the first nine months of
1997 was $40,579,000, which resulted in a gross margin of approximately 25.1%,
as compared with $89,753,000, which resulted in a gross margin of approximately
0.7% for the comparable period of 1996. This increase in gross margin for both
the three months and nine months periods ended September 30, 1997 as compared to
the similar periods ended September 30, 1996 is primarily due to write-downs of
certain inventories in the June and September quarters of 1996. In addition,
gross margins benefited from product mix changes, costs improvements achieved
with more advanced wafer technologies, and reduced wafer pricing. Due to the
price erosion on its audio products and its anticipated revenue levels, the
Company anticipates that its gross margin level for the fourth quarter of 1997
will be flat to slightly down as compared to the third quarter of 1997.
Research and development costs decreased to $3,039,000 for the quarter
ended September 30, 1997, as compared with $3,711,000 for the quarter ended
September 30, 1996, and decreased to $9,874,000 for the first nine months of
1997 as compared with $10,235,000 for the first nine months of 1996. These
decreases are primarily attributable to decreasing costs for non-employee
related expenses for new product development.
Selling, general, and administrative costs were $3,685,000 in the quarter
ended September 30, 1997 as compared with $4,086,000 in the quarter ended
September 30, 1996, and were $11,448,000 for the first nine months of 1997 as
compared to $12,991,000 for the first nine months of 1996. This decrease is
primarily attributable to lower sales related expenses as a result of decreased
sales and lower non-employee related expenses.
Interest and other income, net was $676,000 and $412,000 for the quarters
ended September 30, 1997 and 1996, respectively. For the nine months ended
September 30, 1997 and 1996 interest and other income, net was $1,987,000 and
$1,517,000, respectively. This increase is primarily due to higher levels of
cash as well as higher interest rates during 1997 as compared to the
corresponding periods of the prior year.
The Company recorded no tax provision during the third quarter of 1997 and a
benefit of 38.2% for the third quarter of 1996. The Company has recorded
deferred tax assets through the first quarter of 1997 based on projected future
taxable income and did not record a tax benefit for the second or third quarters
of 1997 due to the uncertainty of projected future taxable income necessary to
realize additional deferred tax assets. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced.
The Company currently believes that its net sales will remain relatively flat
for the fourth quarter of 1997 as compared with the third quarter. The Company
anticipates that the net operating loss in the fourth quarter of 1997 will be
lower as compared with the third quarter of 1997. This anticipated reduction in
the net operating loss in the fourth quarter is expected to result from lower
operating expenses in the fourth quarter as compared to the third quarter.
8
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $55,835,000 at September 30, 1997 from
$56,372,000 at December 31, 1996. Working capital for the same period decreased
to $73,320,000 from $76,188,000 at December 31, 1996. During the first nine
months of 1997, operating activities provided cash of $0.2 million. Cash
provided by operations was primarily due to a decrease in accounts receivable,
partially offset by a decrease in accounts payable and the net loss adjusted for
non cash items. In addition, investing activities related to capital equipment
used $1.0 million and financing activities, net provided $0.3 million of cash
during the nine month period ended September 30, 1997.
At September 30, 1997 the Company's principal sources of liquidity included
cash and cash equivalents of approximately $55.8 million and working capital of
approximately $73.3 million. The Company believes that its existing sources of
liquidity will satisfy the Company's projected working capital and other cash
requirements through at least the next twelve months.
9
<PAGE> 10
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS.
See notes section of this report 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:
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 September 30, 1997.
10
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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.
OPTi Inc.
Date: 11/13/97 By: \s\ David Zacarias
-------------------------------
David Zacarias
Signing on behalf of the Registrant
and as Chief Financial Officer
11
<PAGE> 12
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 55,835 55,835
<SECURITIES> 0 0
<RECEIVABLES> 12,170 12,170
<ALLOWANCES> 1,600 1,600
<INVENTORY> 5,807 5,807
<CURRENT-ASSETS> 84,447 84,447
<PP&E> 27,790 27,790
<DEPRECIATION> 14,843 14,843
<TOTAL-ASSETS> 105,623 105,623
<CURRENT-LIABILITIES> 11,127 11,127
<BONDS> 0 0
0 0
0 0
<COMMON> 58,016 58,016
<OTHER-SE> 32,709 32,709
<TOTAL-LIABILITY-AND-EQUITY> 105,623 105,623
<SALES> 15,196 54,211
<TOTAL-REVENUES> 15,196 54,211
<CGS> 11,251 40,579
<TOTAL-COSTS> 17,975 63,114
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 115 351
<INCOME-PRETAX> (2,103) (6,779)
<INCOME-TAX> 0 137
<INCOME-CONTINUING> (2,103) (6,779)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,103) (6,779)
<EPS-PRIMARY> (0.16) (0.53)
<EPS-DILUTED> (0.16) (0.53)
</TABLE>
