U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
OR
[ ] 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 0-22594
ALLIANCE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0057842
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3099 North First Street
San Jose, California 95134-2006
(Address of principal executive offices) (Zip code)
(408) 383-4900
(Registrant's telephone number, including area code)
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 past 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 .
---- ----
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No .
---- ----
The number of shares outstanding of the Registrant's Common Stock on
August 9, 1996 was 38,478,100 shares.
Page 1 of 21, including exhibits
The Exhibit Index is located on page 15.
<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1996 and March 31, 1996 3
Consolidated Statements of Income
Three months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Defaults upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of
Security Holders Not Applicable
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
Part I. Financial Information
Item I. Consolidated Financial Statements
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<CAPTION>
June 30, March 31,
1996 1996
--------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 66,087 $ 80,566
Accounts receivable, net 6,751 4,724
Inventory 32,822 30,152
Deferred taxes 29,423 25,578
Other current assets 2,708 9,008
-------- --------
Total current assets 137,791 150,028
Property and equipment, net 11,850 11,231
Investment in Chartered Semiconductor 51,596 51,596
Investment in United Semiconductor Corp. 36,438 36,438
Investment in United Silicon, Inc. 13,701 13,888
Other assets 65 57
-------- --------
$251,441 $263,238
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,048 $ 32,358
Accrued liabilities 9,931 11,499
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Total current liabilities 41,979 43,857
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Stockholders' equity
Preferred stock -- --
Common stock 384 383
Additional paid-in capital 178,167 178,052
Retained earnings 30,911 40,946
-------- --------
Total stockholders' equity 209,462 219,381
-------- --------
$251,441 $263,238
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended
June 30,
----------------------------
1996 1995
-------- --------
Net revenue $ 14,108 $ 57,035
Cost of revenue 24,331 26,823
-------- --------
Gross profit (loss) (10,223) 30,212
-------- --------
Operating expenses:
Research and development 3,439 3,707
Selling, general and administrative 2,492 3,974
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Total operating expenses 5,931 7,681
-------- --------
Income (loss) from operations (16,154) 22,531
Other income, net 716 1,923
-------- --------
Income (loss) before income taxes (15,438) 24,454
Provision (benefit) for income taxes (5,403) 9,537
-------- --------
Net income (loss) ($10,035) $ 14,917
======== ========
Net income (loss) per share ($ 0.26) $ 0.36
======== ========
Weighted average common shares
and equivalents 38,416 41,485
======== ========
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended
June 30,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 10,035) $ 14,917
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 700 591
Changes in assets and liabilities:
Accounts receivable (2,027) (9,467)
Inventory (2,670) (4,910)
Other assets 6,292 (440)
Accounts payable (310) (322)
Accrued liabilities (1,568) 1,796
Income taxes including
deferred income taxes (3,845) 6,927
--------- ---------
Net cash provided by (used in) operating activities (13,463) 9,092
--------- ---------
Cash used in investing activities:
Acquisition of equipment (1,319) (711)
Investment in Chartered Semiconductor -- (28,153)
Investment in United Silicon, Inc. 187 --
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Net cash used in investing activities (1,132) (28,864)
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Cash flows from financing activities:
Net proceeds from issuance of common stock 116 96,381
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Net cash provided by financing activities 116 96,381
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Net increase (decrease) in cash and cash equivalents (14,479) 76,609
Cash and cash equivalents at beginning of the period 80,566 75,557
--------- ---------
Cash and cash equivalents at end of the period $ 66,087 $ 152,166
========= =========
Supplemental disclosures:
Income taxes paid (refunded) ($ 7,962) $ 2,634
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Alliance Semiconductor Corporation (the "Company") in accordance
with the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted in accordance with such rules and regulations. In
the opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position of
the Company and its subsidiaries, and their consolidated results of operations
and cash flows. These financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the fiscal
years ended March 31, 1996 and 1995 included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on June 28, 1996.
For purposes of presentation, the Company has indicated the first three
months of fiscal 1997 and 1996 as ending on June 30, respectively; whereas, in
fact the Company's fiscal quarters end on the Saturday nearest the end of the
calendar quarter.
The results of operations for the three months ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending March 31, 1997, and the Company makes no representations related thereto.
Note 2. Balance Sheet Components
June 30, March 31,
1996 1996
------- -------
Inventory: (in thousands)
Work in process $15,957 $10,823
Finished goods 16,865 19,329
-------- -------
$32,822 $30,152
======== =======
Note 3. Inventory Charge
During the first quarter of fiscal 1997, the Company continued to
experience a significant deterioration in the average selling prices and a
slowing in demand for certain of its SRAM products. As a result of this
deterioration, the Company recorded a pre-tax charge of approximately $16.0
million primarily to reflect a further decline in market value of the Company's
inventory. The Company is unable to predict when or if such decline in prices or
demand will stabilize. A continued decline in average selling prices or demand
for SRAM products could result in additional material inventory valuation
adjustments and corresponding charges to operations.
6
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Note 4. Commitments
At June 30, 1996, the Company had approximately $14.4 million of
noncancelable purchase commitments with suppliers. The Company expects to sell
all products which it has committed to purchase from suppliers. During the first
quarter of fiscal 1997, the average selling prices of the Company's SRAM
products deteriorated significantly. As a result of this deterioration, the
Company recorded a pre-tax charge of approximately $2.3 million for adverse
purchase commitments related to these SRAM products, which is included in the
$16.0 million charge recorded in the first quarter of fiscal 1997 (see Note 3).
In July 1995, the Company entered into an agreement with United
Microelectronics Corporation ("UMC") and S3 Incorporated ("S3") to form a
separate Taiwanese company, United Semiconductor Corporation, for the purpose of
building and managing a semiconductor manufacturing facility in Taiwan.
Alliance's investment, which is payable in New Taiwan Dollars ("NTD"), will be
up to approximately US$70 million at the cash for an equity ownership of up to
approximately 19%. Alliance paid approximately NTD 1 billion (approximately
US$36.4 million) in September 1995 and approximately NTD 450 million
(approximately $16.4 million) in July 1996, and has the option to pay, on or
before December 31, 1996, an additional NTD 450 million, plus interest at a rate
of 8.5% on such amount from and after July 4, 1996. If the option is exercised,
Alliance will have an equity ownership of approximately 19% and will receive 25%
of the manufacturing capacity in this facility.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon Inc., for the
purpose of building and managing a semiconductor manufacturing facility in
Taiwan. Alliance's investment, which is payable in New Taiwan Dollars, will be
approximately US$60 million cash payable in three installments, representing an
equity ownership of approximately 10%. The first installment of US$13.9 million
was made in January 1996, the second installment of US$30 million is due on or
before the start of clean room construction and the final installment of US$15
million is due on or before fab production ramp-up. In return for their
investment, Alliance and the other parties will receive a significant portion of
the manufacturing capacity in this facility.
As of June 30, 1996, $10 million of standby letters of credit were
outstanding and expire through August 1996.
Note 5. Net Income Per Share
Net income per share is based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Common
equivalent shares include common stock options using the treasury stock method.
7
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion contains trend analysis and other forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Actual results could differ materially from those
projected in the forward looking statements as a result of the factors set forth
in this Report, particularly in the section below entitled, "Factors That May
Affect Future Results," and the factors set forth in the Company's other reports
filed with the Securities and Exchange Commission (the "Commission") including,
but not limited to, the Company's Annual Report on Form 10-K for the fiscal year
ended March 30, 1996 filed with the Commission on June 28, 1996, particularly in
Item 7 thereof entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Results of Operations
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net revenue:
Three Months Ended
June 30,
--------
1996 1995
------- -------
Net revenue 100.0% 100.0%
Cost of revenue 172.5 47.0
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Gross profit (loss) (72.5) 53.0
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Operating expenses:
Research and development 24.4 6.5
Selling, general and administrative 17.6 7.0
------- -------
Total operating expenses 42.0 13.5
------- -------
Income (loss) from operations (114.5) 39.5
Other income, net 5.1 3.4
------- -------
Income (loss) before income taxes (109.4) 42.9
Provision (benefit) for income taxes (38.3) 16.7
------- -------
Net income (loss) (71.1)% 26.2%
======= =======
Net Revenue
During the periods presented above, the Company's net revenue was
principally derived from the sale of SRAM products. Net revenue for the first
quarter of fiscal 1997 was $14.1 million, or 75% lower than the $57.0 million of
revenue for the first quarter of fiscal 1996. During the first quarter of fiscal
1997, one customer accounted for 10% of net revenue. During the first quarter of
fiscal 1996, no customer accounted for more than 10% of net revenue. The
decrease in net revenue in the first quarter of fiscal 1997 was due to a number
of factors, including decreases in the average selling prices for the Company's
SRAM products and a decrease in demand for certain of the Company's SRAM
products. The Company believes the decreases in price and demand resulted from
an oversupply situation which began in the latter half of fiscal 1996 due to an
increased supply from foreign and domestic competitors and weakening unit demand
for SRAM products. The Company is unable to predict when or if such price and
demand declines will stabilize. A continued decline in average selling prices or
unit demand could have a material adverse effect on the Company's operating
results.
The markets for the Company's products are characterized by rapid
technological change and product obsolescence, conditions which could require
the Company to make significant shifts in its product mix in a relatively short
period of time. To diversify its product offerings, the Company has recently
begun to manufacture volume quantities of 4 megabit DRAM products. Average
selling prices for 4 megabit DRAM products have
8
<PAGE>
recently experienced declines. The Company is unable to predict when or if such
price declines will stabilize. A continued decline in average selling prices
could have a material adverse effect on the Company's operating results. In
addition, the Company has also recently introduced and manufactured volume
quantities of new MMUI accelerators and flash products. The introduction of new
products involves several risks, including, among others, failure of the new
products to obtain acceptance in the market, constraints or delays in timely
deliveries of products from the Company's suppliers, lower than anticipated
yields and lower than expected throughput from assembly and test suppliers. The
occurrence of any problems resulting from these risks could have a material
adverse effect on the Company's operating results.
Gross Profit (Loss)
The Company experienced a gross loss for the first quarter of fiscal 1997
of $10.2 million, or (72.5)% of net revenue compared to gross profit of $30.2
million, or 53.0% of net revenue for the same period of fiscal 1996. The loss
and decrease in gross margin resulted primarily from pre-tax inventory and
purchase commitment related charges of approximately $16.0 million to reflect
recent declines in the market value for certain of the Company's products. As a
result of the significant deterioration in the average selling prices for its
SRAM products, the Company's gross margin declined significantly and became a
significant gross loss during the first quarter of fiscal 1997. The Company is
unable to predict when or if such price declines will stabilize. A continued
decline in average selling prices could result in further adverse impacts on the
Company's gross margins.
The Company is subject to a number of factors which may have an adverse
impact on gross margins, including increased competition and related decreases
in average unit selling prices, the availability and cost of products from the
Company's suppliers, changes in the mix of products sold and the timing of new
product introductions and volume shipments. In addition, the Company may seek to
add additional foundry suppliers and transfer existing and newly developed
products to more advanced manufacturing processes. The commencement of
manufacturing at a new foundry is often characterized by lower yields as the
manufacturing process is refined. There can be no assurance that one or more of
the factors set forth in this paragraph will not have a material adverse effect
on the Company's gross margins in future periods.
Research and Development
Research and development expenses were $3.4 million, or 24.4% of net
revenue in the first quarter of fiscal 1997 compared to $3.7 million, or 6.5% of
net revenue in the same period of the prior year. The decrease in research and
development expenses was due to decreased expenditures for materials utilized in
the Company's development activities which are dependent on the timing of new
product development and introduction, and decreased expenses related to reserves
recorded in the first quarter of fiscal 1996, offset in part by increases in
personnel related costs. Research and development expenses are expected to
increase in absolute dollars and may also increase as a percentage of net
revenue.
Selling, General and Administrative
Selling, general and administrative expenses were $2.5 million, or 17.6% of
net revenue in the first quarter of fiscal 1997 compared to $4.0 million, or
7.0% of net revenue in the first quarter of fiscal 1996. The decrease in
selling, general and administrative expenses was primarily the result of
decreased sales commissions due to decreased revenue and utilization of reserves
for legal fees in connection with certain legal proceedings, which reserves were
provided for during the first quarter of fiscal 1996, offset in part by higher
personnel-related costs. Selling, general and administrative expenses are
expected to increase in absolute dollars and may also increase as a percentage
of net revenue.
9
<PAGE>
Other Income, Net
Net other income was $0.7 million for the first quarter of fiscal 1997
compared to $1.9 million for the same period of fiscal 1996. Net other income
for the first quarter of fiscal 1997 primarily represents interest and dividend
income from investments.
Provision (Benefit) for Income Taxes
The Company's effective tax rate was 35.0% for the first quarter of fiscal
1997 and 39.0% for the first quarter of fiscal 1996. The effective tax rate for
the first quarter of fiscal 1997 represents amounts which may be carried back to
offset taxes paid in prior years, resulting in a tax refund to the Company. The
effective tax rate for the first quarter of fiscal 1996 represents taxes accrued
at applicable statutory rates, partially offset by the effect of research and
development tax credits.
Factors That May Affect Future Results
The Company's quarterly and annual operating results have historically
been, and will continue to be, subject to quarterly and other fluctuations due
to a variety of factors, including anticipated and unanticipated decreases in
average selling prices of the Company's products, changes in pricing policies by
the Company, its competitors or its suppliers, fluctuations in manufacturing
yields, availability and cost of products from the Company's suppliers, the
timing of new product announcements and introductions by the Company or its
competitors, changes in the product mix of products sold, the cyclical nature of
the semiconductor industry, the gain or loss of significant customers, increased
research and development expenses associated with new product introductions,
market acceptance of new or enhanced versions of the Company's products,
seasonal customer demand, the timing of significant orders and general economic
conditions. Operating results could be adversely affected by economic conditions
generally or in various geographic areas, other conditions affecting the timing
of customer orders and capital spending, a downturn in the market for personal
computers, or order cancellations or rescheduling. Additionally, because the
Company is continuing to increase its operating expenses for personnel and new
product development, the Company's operating results will be adversely affected
if increased sales levels are not achieved.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards, rapid product obsolescence
and significant price competition and, as a result, are subject to decreases in
average selling prices. The Company has recently experienced, and expects it
will continue to experience, significant deterioration in average selling prices
for its SRAM products. In addition, the Company has recently begun to
manufacture and sell volume quantities of 4 megabit DRAM products. Average
selling prices for 4 megabit DRAMs have recently experienced significant
declines. Accordingly, the Company's ability to maintain or increase revenues
will be highly dependent on its ability to increase unit sales volume of
existing products and to successfully develop, introduce and sell new products.
Declining average selling prices could also adversely affect the Company's gross
margins unless the Company is able to reduce its cost per unit in an amount
sufficient to offset the declines in average selling prices. There can be no
assurance the Company will be able to increase unit sales volumes of existing
products, develop, introduce and sell new products or sufficiently reduce its
cost per unit to offset declines in average selling prices, and, even if the
Company were to increase unit sales volumes and sufficiently reduce its cost per
unit, that the Company would be able to maintain or increase revenues or gross
margins.
The Company has recently introduced and manufactured volume quantities of
new DRAM, MMUI accelerators and flash products. The introduction of new products
involves several risks, including, among others,
10
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failure of the new products to obtain acceptance in the market, constraints or
delays in timely deliveries of products from the Company's suppliers, lower than
anticipated yields and lower than expected throughput from assembly and test
suppliers. The occurrence of any problems resulting from these risks could have
a material adverse effect on the Company's operating results.
The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity such as the Company
experiences from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products to meet future demand, and any inability of the Company to maintain
adequate inventory levels may adversely affect its relations with its customers.
In addition, because the Company must order products and build inventory
substantially in advance of products shipments, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories of
particular products because demand for the Company's products is volatile and
subject to rapid technology and price change. This inventory risk is heightened
because certain of the Company's key customers place orders with short lead
times. The Company's customers' ability to reschedule or cancel orders without
significant penalty could adversely affect the Company's liquidity, as the
Company may be unable to adjust its purchases from its independent foundries to
match such customer changes and cancellations. The Company has in past produced
excess quantities of certain products which has had an adverse effect on the
Company's operating results. There can be no assurance that the Company in the
future will not produce excess quantities of any of its products. To the extent
the Company produces excess or insufficient inventories of particular products,
the Company's operating results could be adversely affected, as was the case
during the last half of fiscal 1996 and the first quarter of fiscal 1997, during
which periods the Company took significant charges largely to reflect a decline
in the market value of inventory.
The Company currently relies on outside foundries to manufacture all of the
Company's products. Reliance on these foundries involves several risks,
including constraints or delays in timely delivery of the Company's products,
reduced control over delivery schedules, quality assurance, costs and loss of
production due to seismic activity, weather conditions and other factors.
Although the Company continuously evaluates sources of supply and may seek to
add additional foundry capacity, there can be no assurance that such additional
capacity can be obtained at acceptable prices, if at all. The occurrence of any
supply or other problem resulting from these risks could have a material adverse
effect on the Company's operating results, as was the case during the third
quarter of fiscal 1996, during which period manufacturing yields of one of the
Company's products were materially adversely affected by manufacturing problems
at one of the Company's foundry suppliers.
Additionally, other factors may materially adversely affect the Company's
operating results. The Company conducts a significant portion of its business
internationally and is subject to a number of risks resulting from such
operations, including political and economic instability and changes in
diplomatic and trade relationships, foreign currency fluctuations, unexpected
changes in regulatory requirements, delays resulting from difficulty in
obtaining export licenses for certain technology, tariffs and other barriers and
restrictions, and the burdens of complying with a variety of foreign laws. The
Company relies on domestic and offshore subcontractors for die assembly and
testing of products, and is subject to risks of disruption in adequate supply of
such services and quality problems with such services. The Company is party to
certain legal proceedings, and is subject to the risk of adverse developments in
such proceedings. The semiconductor industry is characterized by frequent claims
and litigation regarding patent and other intellectual property rights, and
although the Company has not to date been involved in patent or other
intellectual property rights litigation, the Company has from time to time
received, and believes that it likely will in the future, notices alleging that
the Company's products, or the processes used to manufacture the Company's
products, infringe the intellectual property rights of third parties; and the
Company is subject to the risk that it may become party to litigation involving
such claims. The Company is subject to the risks of shortages of goods or
services and increases in the cost of raw materials used in the manufacture or
assembly of the Company's products. The Company faces intense competition, and
many of its principal competitors and potential competitors have substantially
greater financial, technical, marketing, distribution and other resources,
broader product lines and longer-standing relationships with customers than does
the Company, any of which
11
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factors may place such competitors and potential competitors in a stronger
competitive position than the Company. The Company's corporate headquarters are
located near major earthquake faults, and the Company is subject to the risk of
damage or disruption in the event of seismic activity. There can be no assurance
that any of the foregoing factors will not materially adversely affect the
Company's operating results.
As a result of the foregoing factors, as well as other factors affecting
the Company's operating results, past performance should not be considered to be
a reliable indicator of future performance and investors should not use
historical trends to anticipate results or trends in future periods. In
addition, stock prices for many technology companies are subject to significant
volatility, particularly on a quarterly basis. If revenues or earnings fail to
meet expectations of the investment community, there could be an immediate and
significant impact on the market price of the Company's common stock.
Liquidity and Capital Resources
The Company's operating activities used cash of $13.5 million in the first
quarter of fiscal 1997 and generated cash of $9.1 million in the first quarter
of fiscal 1996. Cash used in operations in the first quarter of fiscal 1997 was
the result of net loss generated during the period and a net increase in certain
working capital components. Cash generated from operations in the first quarter
of fiscal 1996 was primarily a result of net income generated during the period
partially offset by a net increase in certain working capital components.
Net cash used in investing activities was $1.1 million for the first
quarter of fiscal 1997 and $28.9 million for the same period of fiscal 1996. Net
cash used in investing activities in the first quarter of fiscal 1997 reflects
equipment purchases of $1.3 million, partially offset by a reduction in the
investment of United Silicon, Inc. of $0.2 million. Net cash used in investing
activities in the first quarter of fiscal 1996 reflects equipment purchases of
$0.7 million and investments in Chartered Semiconductor Manufacturing Ptd. Ltd.
("Chartered") of $28.2 million.
Net cash provided by financing activities was $0.1 million in the first
quarter of fiscal 1997 and $96.4 million in the first quarter of fiscal 1996.
Net cash provided by financing activities in the first quarter of fiscal 1997
reflects net proceeds from the sales of common stock in connection with the
exercise of stock options. Net cash provided by financing activities in the
first quarter of fiscal 1996 reflects net proceeds from the sales of common
stock in connection with the Company's public offering completed in April 1995
and the exercise of stock options.
At June 30, 1996, the Company had $66.1 million in cash, a decrease of
$14.5 million from March 31, 1996, and working capital of $95.8 million, a
decrease of $10.4 million from March 31, 1996. The Company believes that these
sources of liquidity, together with anticipated equipment financings, will be
sufficient to meet its projected working capital and other cash requirements for
the foreseeable future.
In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has considered and
will continue to consider various possible transactions, including equity
investments in or loans to foundries in exchange for guaranteed production, the
formation of joint ventures to own and operate foundries, or the usage of "take
or pay" contracts that commit the Company to purchase specified quantities of
wafers over extended periods. Manufacturing arrangements such as these may
require substantial capital investments, which may require the Company to seek
additional debt or equity financing. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be on satisfactory terms. Additionally, the Company has entered
into and will continue to enter into various transactions, including the
licensing of its integrated circuit designs in exchange for royalties, fees or
guarantees of manufacturing capacity.
12
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In July 1995, the Company entered into an agreement with United
Microelectronics Corporation ("UMC") and S3 Incorporated ("S3") to form a
separate Taiwanese company, United Semiconductor Corporation, for the purpose of
building and managing an 8-inch semiconductor manufacturing facility in the
Science Based Industrial Park in Hsin Chu City, Taiwan, Republic of China. The
facility is expected to commence production utilizing advanced submicron
semiconductor processes in the second half of 1996, although there can be no
assurance that production will begin on schedule. Alliance's investment, which
is payable in New Taiwan Dollars ("NTD"), will be up to approximately US$70
million cash for an equity ownership of up to approximately 19%. Alliance paid
approximately NTD 1 billion (approximately US$36.4 million) in September 1995
and approximately NTD 450 million (approximately $16.4 million) in July 1996,
and has the option to pay, on or before December 31, 1996, an additional NTD 450
million, plus interest at a rate of 8.5% on such amount from and after July 4,
1996. If the option is exercised, Alliance will have an equity ownership of
approximately 19% and will receive 25% of the manufacturing capacity in this
facility.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon Inc., for the
purpose of building and managing an 8-inch semiconductor manufacturing facility
in the Science Based Industrial Park in Hsin Chu City, Taiwan, Republic of
China. The facility is expected to commence production utilizing advanced
submicron semiconductor manufacturing processes in late 1997, although there can
be no assurance that production will begin on schedule. The contributions of
Alliance and other parties shall be in the form of equity investments,
representing an initial ownership interest of approximately 10% for each US$60
million invested. The Alliance investment, which is payable in New Taiwan
Dollars, will be approximately US$60 million cash payable in three installments.
The first installment of US$13.9 million was made in January 1996, the second
installment of approximately US$30 million is due on or before the start of
clean room construction and the final installment of approximately US$15 million
is due on or before fab production ramp-up. In return for their investment,
Alliance and the other parties will receive a significant portion of the
manufacturing capacity in this facility.
In addition, the Company believes that success in its industry requires
substantial capital in order to maintain the flexibility to take advantage of
opportunities as they may arise. Accordingly, the Company may, from time to
time, as market and business conditions warrant, invest in or acquire
complementary businesses, products or technologies. The Company may seek
additional equity or debt financings to fund such activities or to otherwise
take advantage of favorable financing opportunities. The sale of additional
equity or convertible debt securities could result in additional dilution to the
Company's stockholders. There can be no assurance that such additional
financing, if required, can be obtained on terms acceptable to the Company, if
at all.
13
<PAGE>
Part II. Other Information
Item 5. Other Information
On July 30, 1996, the Superior Court of the State of California in and for
the County of Santa Clara granted in part and denied in part defendants' motion
for summary adjudication in an action filed against the Company and its
President by two individuals, James A. Kennedy and Robert S. Reid. The Court
dismissed plaintiffs' claims based on contract and certain other causes of
action alleging an entitlement to 750,000 shares (pre-split) each of Common
Stock of the Company (the equivalent of 1,687,500 shares each as a result of the
3-for-2 stock splits effected in January 1995 and July 1995, respectively). The
court denied defendants' motion for summary adjudication of plaintiffs' claims
based on fraud, and defendants did not move for summary judgment with respect to
plaintiffs' claims based on quantum meruit. Defendants currently intend to move
for reconsideration of the ruling as to the fraud claims. Defendants believe
plaintiffs currently to intend to file for a writ of mandamus to seek reversal
of the Superior Court's ruling as to the dismissed claims. The matter has been
scheduled for jury trial to commence in September 1996. The Company intends to
defend vigorously against the claims made against it, and believes that it has
meritorious defenses against the asserted claims.
14
<PAGE>
<TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<CAPTION>
Number Title Filing Status
------ ----- -------------
<S> <C> <C>
3.01 Registrant's Certificate of Incorporation (A)
3.02 Registrant's Bylaws (A)
3.03 Registrant's Certificate of Elimination of Series A Preferred Stock (A)
3.04 Registrant's Certificate of Amendment of Certificate of (B)
Incorporation
4.01 Specimen of Common Stock Certificate of Registrant (A)
10.33* Letter Agreement dated June 26, 1996, between Registrant,
S3 Incorporated and United Microelectronics Corporation
11.01 Statement re: Computation of Earnings per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<FN>
- ---------------------------------
* Confidential treatment has been requested with respect to certain
portions of this document.
(A) The document referred to is hereby incorporated by reference from the
Company's Registration Statement on Form SB-2 (File No. 33-69956-LA)
declared effective by the Commission on November 30, 1993.
(B) The document referred to is hereby incorporated by reference from the
Company's Quarterly Report on Form 10-Q (File No. 0-22594) filed with
the Commission on November 14, 1995.
</FN>
</TABLE>
15
<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.
Alliance Semiconductor Corporation
(Registrant)
Date: August 12, 1996 /s/ N. D. Reddy
--------------------------
N. Damodar Reddy
President and Principal Executive Officer
Date: August 12, 1996 /s/ Ronald K. Shelton
--------------------------
Ronald K. Shelton
Vice President - Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
16
[UMC Letterhead]
Confidential Treatment Requested.
26 June 1996
Alliance Semiconductor Corporation
3099 N. First Street
San Jose, CA 95134
Attention: N.D. Reddy, President
fax (408) 383-4990; fon (408) 383-4900
S3 Incorporated
2770 San Thomas Expressway
Santa Clara, CA 95051
Attention: Terry Holdt, President
fax (408) 980-5445; fon (408) 980-5400
Dear Dan and Terry:
We greatly appreciated the chance to discuss with you the various
issues during our telephone conference today. On behalf of UMC and USC, I would
like to confirm the agreements we reached.
First, S3, Alliance and UMC each committed to enter binding purchase
orders with USC for wafers in their respective amounts according to the "W/O
Plan By Customer" dated June 24, 1996. For your convenience, a duplicate copy of
this wafer purchase commitment is attached.
Second, at the request of S3 and Alliance and based on the above
capacity commitments, UMC agreed to "finance" their respective final
installments under the Foundry Venture Agreement. In particular, S3 and Alliance
each confirmed that they will pay one-half of their current commitments for
receipt in Taiwan on or before July 4, 1996. This means S3 will pay NTD 700
Million; Alliance will pay NTD 450 Million. UMC will purchase the remainder of
the shares, in an amount equal to a total of NTD 2.85 Billion.
As part of this arrangement, UMC agreed to extend S3 and Alliance an
option to "repurchase" before the end of 1996, the shares involved in the
one-half reduction as described above. In particular, upon advance written
notice, S3 will have the option to purchase from UMC up to 70 Million standard
shares of USC, and Alliance will have the option to purchase from UMC up to 45
Million standard shares. As discussed, the purchase price under these options
will
17
<PAGE>
be at NTD 10 per share, plus interest on the total purchase amount. This
interest will be calculated at a cumulative rate of 8.5% [CONFIDENTIAL MATERIAL
DELETED*] with interest accruing as of July 4, 1996. As agreed, UMC will keep
these options open until the end of this year, but the options will expire if
not fully exercised (including full payment for the shares involved) prior to
December 31, 1996. Alliance and S3 can exercise these options all at once, or in
installments, and thus can select their closing dates (so long as they occur
before the end of 1996) at times which they find convenient.
UMC also agreed that through the end of 1996, S3 may retain its
production capacity percentage of 31.25% and Alliance may retain its production
capacity percentage of 25%. Of course, to the extent Alliance and S3 exercise
their options in full, these capacity allocations will continue as described
under the Foundry Capacity and Foundry Venture Agreements.
We are quite pleased with the cooperation shown in these agreements,
and request that you confirm our arrangements in the space provided below. Of
course, we will forward the formal stock purchase agreements (incorporating the
changes discussed today) later this week.
Your sincerely,
/s/
Robert H.C. Tsao
Agreed on behalf of Alliance Semiconductor
/s/
N.D. Reddy, President
Agreed on behalf of S3 Incorporated:
/s/
Terry Holdt, President
* Confidential treatment requested for deleted material. All such deleted
material has been filed separately with the Commission pursuant to Rule
24b-2 promulgated under the Exchange Act ("Rule 24b-2").
18
<PAGE>
<TABLE>
DATE: 6/24/1996
W/O PLAN BY CUSTOMER
UNIT:PCS
<CAPTION>
- ------------------ ------------- ------------- ------------- -------------- ------------- ------------- -------------
Customer/ Jun Jul Aug Sep Oct Nov Dec
Mon
- ------------------ ------------- ------------- ------------- -------------- ------------- ------------- -------------
<S> <C>
UMC
- ------------------
S3
- ------------------
ALLIANCE [CONFIDENTIAL MATERIAL DELETED*]
- ------------------
TOTAL
- ------------------
CAPACITY
- ------------------
LOADING
(%)
- ------------------ ------------- ------------- ------------- -------------- ------------- ------------- -------------
<FN>
* Confidential treatment requested for deleted material. All such deleted
material has been filed separately with the Commission pursuant to Rule
24b-2.
</FN>
</TABLE>
19
<TABLE>
ALLIANCE SEMICONDUCTOR CORPORATION
COMPUTATION OF NET INCOME PER SHARE
AND COMMON EQUIVALENT SHARES
<CAPTION>
Quarter Ended June 30,
1996 1995
-------------------- ---------------------
(in thousands, except per share data)
<S> <C> <C>
Net income (loss)................................. $(10,035) $14,917
========= =======
Weighted average number of common shares
outstanding during the quarter................ 38,416 37,564
Weighted-average common stock
equivalents (calculated using the "treasury
stock" method) representing shares
issuable upon exercise of employee stock
options....................................... -- 3,921
Weighted-average common stock equivalents from
warrants, calculated by the treasury stock
method applied to warrants issued............. -- --
Weighted-average common stock equivalents from
dilutive convertible preferred stock,
calculated using the if converted method -- --
--------- --------
Weighted-average common shares and
equivalents...................................
38,416 41,485
========= =======
Net income (loss) per share....................... ($0.26) $ 0.36
========= =======
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 29, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 66,087
<SECURITIES> 0
<RECEIVABLES> 6,751
<ALLOWANCES> 0
<INVENTORY> 32,822
<CURRENT-ASSETS> 137,791
<PP&E> 15,168
<DEPRECIATION> 3,318
<TOTAL-ASSETS> 251,441
<CURRENT-LIABILITIES> 41,979
<BONDS> 0
<COMMON> 384
0
0
<OTHER-SE> 209,078
<TOTAL-LIABILITY-AND-EQUITY> 251,441
<SALES> 14,108
<TOTAL-REVENUES> 14,108
<CGS> 24,331
<TOTAL-COSTS> 24,331
<OTHER-EXPENSES> 3,439
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,438)
<INCOME-TAX> (5,403)
<INCOME-CONTINUING> (10,035)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,035)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
