<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 June 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 June 30, 1997 was 12,788,685
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1
<PAGE> 2
OPTi, Inc.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
Page
----
<S> <C>
a) Condensed Consolidated Statements of Operations 3
for the three months and six months ended June 30, 1997 and 1996
b) Condensed Consolidated Balance Sheets 4
as of June 30, 1997 and December 31, 1996
c) Condensed Consolidated Statements of Cash Flows 5
for the six months ended June 30, 1997 and 1996
d) Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and 8-9
Results of Operations
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 Six Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net Sales $ 15,394 $ 26,185 $ 39,015 $ 62,500
Costs and expenses:
Cost of sales 11,911 31,384 29,328 65,471
Research and development 3,647 3,335 6,835 6,524
Selling, general, and
administrative 3,792 4,468 7,763 8,905
Restructuring 1,213 -- 1,213 --
-------- -------- -------- --------
Total costs and expenses 20,563 39,187 45,139 80,900
-------- -------- -------- --------
Operating loss (5,169) (13,002) (6,124) (18,400)
Interest and other income, net 752 442 1,311 1,105
-------- -------- -------- --------
Loss before benefit
of income taxes (4,417) (12,560) (4,813) (17,295)
Benefit of income taxes -- (4,324) (137) (5,934)
-------- -------- -------- --------
Net loss ($ 4,417) ($ 8,236) ($ 4,676) ($11,361)
======== ======== ======== ========
Net loss per share ($ 0.35) ($ 0.66) ($ 0.37) ($ 0.92)
======== ======== ======== ========
Shares used in per
share calculation 12,750 12,483 12,718 12,326
======== ======== ======== ========
</TABLE>
See accompanying notes.
3
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OPTi Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
(Unaudited) (See Note 1)
<S> <C> <C>
ASSETS
(000's omitted)
Current assets
Cash and cash equivalents $ 57,765 $ 56,372
Accounts receivable, net 10,607 17,950
Inventories 9,307 4,946
Other current assets 11,631 11,401
-------- --------
Total current assets 89,310 90,669
Property and equipment, net 14,176 16,240
Other assets 8,341 8,592
-------- --------
Total assets $111,827 $115,501
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 10,088 $ 9,718
Other current liabilities 5,529 4,763
-------- --------
Total current liabilities 15,617 14,481
Long term liabilities
Long-term obligations under capital lease 4,069 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 -- 12,789 in 1997
12,661 in 1996 57,329 56,883
Retained earnings 34,812 39,488
-------- --------
Total shareholders' equity 92,141 96,371
-------- --------
Total liabilities and shareholders'
equity $111,827 $115,501
======== ========
</TABLE>
Note 1 - The consolidated balance sheet at December 31, 1996 has been
derived from the audited financial statements.
See accompanying notes.
4
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OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months Ended June 30,
1997 1996
--------------------
(000's omitted)
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($ 4,676) ($11,361)
Adjustments:
Depreciation and amortization 2,975 2,301
Changes in assets and liabilities:
Accounts receivable 7,343 13,090
Inventories (4,361) 5,885
Other assets 21 (4,126)
Accounts payable 370 (11,002)
Other current liabilities 766 (1,573)
-------- --------
Net cash provided by (used in)
operating activities 2,438 (6,786)
INVESTING ACTIVITES:
Purchase of property and equipment (911) (4,644)
Investment in Joint Foundry Venture -- (6,861)
-------- --------
Net cash used in
investing activities (911) (11,505)
FINANCING ACTIVITIES:
Net proceeds from sale of common stock 446 1,244
Payment of long-term liabilities (580) (502)
-------- --------
Net cash provided by (used in)
financing activities (134) 742
-------- --------
Net increase (decrease) in
cash and cash equivalents 1,393 (17,549)
Cash and cash equivalents,
beginning of period 56,372 61,362
-------- --------
Cash and cash equivalents,
end of period $ 57,765 $ 43,813
======== ========
</TABLE>
See accompanying notes.
5
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OPTi Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
1. BASIS OF PRESENTATION
The information at June 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. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is not expected to result in any
change in primary earnings per share for the second quarter ended June 30, 1997
and June 30, 1996. The impact of Statement 128 on the calculation of fully
diluted earnings per share for these quarters is also not expected to be
material.
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, 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) June 30, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Finished Goods $8,078 $2,422
Work in process 1,229 2,524
------ ------
$9,307 $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 he Company's headquarters in Milpitas, CA, approximately
$335,000 for 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 future
quarters to be the $335,000 associated with the leased facilities.
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 June 30, 1997, the Company reported net sales of
$15,394,000, as compared to net sales of $26,185,000 for the quarter ended June
30, 1996. This decrease is due primarily to reductions in sales for both the
Company's audio controller chips and desktop core logic chipsets. The Company
believes that the reduction in sales for its audio controller chips is a result
of excess inventory in the channels and a transition of market share from PC
clone manufacturers, who purchase OEM add on card audio solutions, to tier one
PC manufacturers who utilize motherboard based solutions. The decline in the
Company's desktop chipsets is a result of a shift in demand away from its
Pentium-class product.
Cost of sales for the quarter ended June 30, 1997 decreased to $11,911,000
which resulted in a gross margin of approximately 22.6%, from $31,384,000, which
resulted in a negative gross margin of approximately (19.9%) for the quarter
ended June 30, 1996. Cost of sales for the first six months of 1997 was
$29,328,000, which resulted in a gross margin of approximately 24.8%, as
compared with $65,471,000, which resulted in a negative gross margin of
approximately (4.8%) for the comparable period of 1996. This increase in gross
margin for both the three months and six months periods ended June 30, 1997 as
compared to the similar periods ended June 30, 1996 is primarily due to
write-down of certain inventories in the June quarter 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 third quarter of 1997
will be flat to slightly down as compared to the second quarter of 1997.
Research and development costs increased to $3,647,000 for the quarter ended
June 30, 1997, as compared with $3,335,000 for the quarter ended March 31, 1996,
and increased to $6,835,000 for the first six months of 1997 as compared with
$6,524,000 for the first half of 1996. These increases are primarily
attributable to increasing costs for engineering headcount and non-employee
related expenses for new product development.
Selling, general, and administrative costs were $3,792,000 in the quarter
ended June 30, 1997 as compared with $4,468,000 in the quarter ended June 30,
1996, and were $7,763,000 for the first six months of 1996 as compared to
$8,905,000 for the first half of 1995. This decrease is primarily attributable
to lower sales related expenses as a result of decreased sales and lower
non-employee related marketing expenses.
Interest and other income, net was $752,000 and $442,000 for the quarters
ended June 30, 1997 and 1996, respectively. This increase is primarily due to
higher levels of cash for the quarter ended June 30, 1997 as compared to the
second quarter of 1996 and higher interest rates during the period ended June
30, 1997.
The Company recorded no tax provision during the second quarter of 1997 and a
benefit of 34.4% for the second 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 quarter 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.
During the second quarter of 1997 the Company initiated a restructuring
program as a result of decisions by its Chief Executive Officer and Board of
Directors to adjust the Company's organizational structure in order to align
resources with a revised business model and to lower the Company's cost
structure. The restructuring actions resulted in a charge of $1,213,000 and
included reducing headcount, vacating leased facilities, reducing the value of
certain assets as the Company moves forward with it revised strategic business
model, and other activities.
The Company currently believes that its net sales will remain relatively
flat for the third quarter of 1997 as compared with the second quarter. The
Company anticipates that the loss per share in the third quarter of 1997 will
be lower as compared with the second quarter of 1997, due to the actions taken
in the second quarter.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $1,393,000 to $57,765,000 at June 30,
1997 from $56,372,000 at December 31, 1996. Working capital for the same period
decreased to $73,693,000 from $76,188,000 at December 31, 1996. During the first
six months of 1997, operating activities provided cash of $2.4 million. Cash
provided by operations was primarily due to decreases in accounts receivables,
partially offset by increases in inventories and the net loss adjusted for non
cash items. In addition, investing activities related to capital equipment and
financing activities used $0.9 million and $0.1 million, respectively.
At June 30, 1997 the Company's principal sources of liquidity included cash
and cash equivalents of approximately $57.8 million and working capital of
approximately $73.7 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.
The annual meeting of Shareholders was held on May 29, 1997, for
the purposes of electing directors of the Company and confirming the appointment
of Ernst & Young LLP as auditors of the Company for the fiscal year ended
December 31, 1997. The voting on each matter is set forth below.
Election of Directors:
<TABLE>
<CAPTION>
Nominee For Withheld
- ------- ---- --------
<S> <C> <C>
Jerry Chang 11,185,824 267,931
Stephen A. Dukker 11,185,324 268,431
Tor R. Braham 11,178,424 275,331
Bernard T. Marren 11,177,424 276,331
Kapil K. Nanda 11,178,424 275,331
</TABLE>
Proposal to ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for fiscal year 1997.
<TABLE>
<CAPTION>
For Against Abstain No Vote
---- ------- ------- -------
<S> <C> <C> <C>
11,383,435 42,680 27,640 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
three months ended June 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: 8/13/97 By: \s\ David Zacarias
---------------------
David Zacarias
Signing on behalf of the Registrant and as
Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 57,765 57,765
<SECURITIES> 0 0
<RECEIVABLES> 11,882 11,882
<ALLOWANCES> 1,275 1,275
<INVENTORY> 9,307 9,307
<CURRENT-ASSETS> 89,310 89,310
<PP&E> 27,783 27,783
<DEPRECIATION> 13,607 13,607
<TOTAL-ASSETS> 111,827 111,827
<CURRENT-LIABILITIES> 15,617 15,617
<BONDS> 0 0
0 0
0 0
<COMMON> 57,329 57,329
<OTHER-SE> 34,812 34,812
<TOTAL-LIABILITY-AND-EQUITY> 111,827 111,827
<SALES> 15,394 39,015
<TOTAL-REVENUES> 15,394 39,015
<CGS> 11,911 29,328
<TOTAL-COSTS> 20,563 45,139
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 109 236
<INCOME-PRETAX> (4,417) (4,813)
<INCOME-TAX> 0 137
<INCOME-CONTINUING> (4,417) (4,676)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,417) (4,676)
<EPS-PRIMARY> (0.35) (0.37)
<EPS-DILUTED> (0.35) (0.37)
</TABLE>
