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 JULY 3, 1999, 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 IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
2575 AUGUSTINE DRIVE
SANTA CLARA, CALIFORNIA 95054-2914
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code is (408) 855-4900
-------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
Common Stock, par value $0.01 REGISTERED
NASDAQ
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 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 ____
As of November 12, 1999, there were 42,159,028 shares of Registrant's Common
Stock outstanding.
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<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 2, 1999
<TABLE>
<CAPTION>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
<S> <C>
Condensed unaudited Consolidated Balance Sheets as of September
30, 1999 and March 31, 1999...........................................3
Condensed unaudited Consolidated Statements of Operations for
the three and six months ended September 30, 1999 and 1998............4
Condensed unaudited Consolidated Statements of Cash Flows for
the six months ended September 30, 1999 and 1998......................5
Notes to unaudited Condensed Consolidated Financial Statements........6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................12
PART II OTHER INFORMATION
Item 1 Legal Proceedings....................................................22
Item 4 Submission of Matters to a Vote of Security Holders..................23
Item 5 Other Information....................................................23
Item 6 Exhibits and Reports on Form 8-K.....................................24
SIGNATURES...................................................................25
</TABLE>
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<PAGE>
================================================================================
Part I - Financial Information
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
ALLIANCE SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
September March 31,
30, 1999 1999
------------ ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 14,538 $6,219
Marketable securities 43,761 -
Restricted cash 3,675 5,175
Accounts receivable, net 9,614 8,943
Inventory 26,084 12,927
Related party receivables 1,888 1,815
Other current assets 2,072 1,709
------------ ------------
Total current assets 101,632 36,788
Property and equipment, net 8,631 9,943
Investment in Chartered 51,596 51,596
Semiconductor
Investment in United Semiconductor 87,886 77,310
Corporation
Investment in United Silicon, Inc. 16,799 16,799
Other investments 8,087 550
Other assets 684 571
============ ============
Total assets $275,295 $193,557
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $16,004 $8,046
Accrued liabilities 5,264 5,325
Deferred income taxes 554 -
Current portion of long term 744 1,315
obligations
------------ ------------
22,566 14,686
Total current liabilities
Long term liabilities:
Long term obligations 481 578
Deferred income taxes 14,069 14,723
------------ ------------
Total liabilities 37,116 29,987
------------ ------------
Stockholders' equity
Common stock 421 416
Additional paid-in capital 190,921 185,025
Retained earnings 54,356 (3,505)
Accumulated other comprehensive loss (7,519) (18,366)
------------ ------------
Total stockholders' equity 238,179 163,570
============ ============
Total liabilities and
stockholders' equity $275,295 $193,557
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
ALLIANCE SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
(unaudited)
Three months Six months ended
ended September 30,
September 30,
------------------ -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Net revenues $19,112 $10,472 $36,823 $20,622
Cost of revenues 12,304 13,544 24,774 41,035
--------- --------- --------- ---------
6,808 (3,072) 12,049 (20,413)
--------- --------- --------- ---------
Operating expenses:
Research and development 4,244 3,511 7,449 7,727
Selling, general and 3,108 2,797 5,854 6,808
administrative
--------- --------- --------- ---------
Total operating expenses 7,352 6,308 13,303 14,535
--------- --------- --------- ---------
Loss from operations (544) (9,380) (1,254) (34,948)
Gain on marketable securities 3,696 - 55,302 15,823
Other income (expense), net (269) (180) (148) (263)
--------- --------- --------- ---------
Income (loss) before income
taxes and equity in income of USC 2,883 (9,560) 53,900 (19,388)
Provision for income taxes 1,186 - 367 8,397
--------- --------- --------- ---------
Income (loss) before equity in 1,697 (9,560) 53,533 (27,785)
income of USC
Equity in income of USC 2,796 3,691 4,328 7,237
--------- --------- --------- ---------
Net income (loss) $4,493 ($5,869) $57,861 ($20,548)
========= ========= ========= =========
Net income (loss) per share
Basic $0.11 ($0.14) $1.39 ($0.50)
========= ========= ========= =========
Diluted $0.10 ($0.14) $1.36 ($0.50)
========= ========= ========= =========
Weighted average number of
common shares
Basic 41,812 41,456 41,715 41,209
========= ========= ========= =========
Diluted 42,995 41,456 42,572 41,209
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
ALLIANCE SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
September 30,
--------------------
1999 1998
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $57,861 ($20,548)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,193 1,900
Equity in income of USC (4,328) (7,237)
Gain on sale of long term investments
and marketable securities (55,302) (15,823)
Changes in assets and liabilities:
Accounts receivable (671) 9,653
Inventory (13,157) 13,867
Related party receivables (73) -
Other assets (467) (258)
Accounts payable 7,958 (29,476)
Accrued liabilities (61) (273)
Deferred income taxes and tax (2,097) 25,466
receivable
--------- --------
Net cash used in operating (8,144) (22,729)
activities
--------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Acquisition of equipment (796) (1,578)
Proceeds from sale of USC shares - 31,662
Proceeds from sale of Broadcom shares 18,063 -
Investment in United Silicon, Inc. - (3,098)
Other investments (7,537) -
--------- --------
Net cash provided by (used in) 9,730 26,986
investing activities
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common 5,901 46
stock
Repayments of long term obligations (668) (952)
Restricted cash 1,500 762
--------- --------
Net cash provided by financing 6,733 (144)
activities
--------- --------
Net increase (decrease) in cash and 8,319 4,113
cash equivalents
Cash and cash equivalents at beginning 6,219 3,010
of the period
--------- --------
Cash and cash equivalents at end of $14,538 $7,123
the period
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(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 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, 1999 and 1998 included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission on July 1, 1999.
For purposes of presentation, the Company has indicated the first six months of
fiscal 2000 and 1999 as ending on September 30, respectively; whereas, in fact,
the Company's fiscal quarters ended on October 2, 1999 and September 26, 1998,
respectively. The financial results for the second quarter of fiscal 2000 and
1999 were reported on a 13-week quarter.
The results of operations for the three months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000 and the Company makes no representations related thereto.
Note 2. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
September March 31,
30, 1999 1999
------------ -----------
Inventory:
<S> <C> <C>
Work in $11,337 $5,119
process
Finished 14,747 7,808
goods
============ ===========
$26,084 $12,927
============ ===========
</TABLE>
Note 3. INVENTORY CHARGES AND VALUATION ALLOWANCE
During the second quarter of fiscal 2000, the Company experienced an improvement
in the average selling prices for certain products and a higher demand for SRAM
and DRAM products. In the second quarter of fiscal 2000, the Company did not
require additional reserves for lower of cost or market, obsolete or excess
inventory. This compares to a pre-tax inventory valuation charge of $2.9 million
for the same period of fiscal 1999. During the first and second quarters of
fiscal 1999, the Company recorded pre-tax charges aggregating approximately $20
million. These pre-tax charges were made to reflect a further decline in market
value of certain inventory and to provide additional reserves for obsolete and
excess inventory. The Company is unable to predict future market prices for its
products. A decline in average selling prices for its products could result in
additional material inventory valuation adjustments and corresponding charges to
operations.
Note 4. INVESTMENTS
In February 1995, the Company agreed to purchase shares of Chartered
Semiconductor ("Chartered") for approximately US$10 million and entered into a
manufacturing agreement under which Chartered will provide a minimum number of
wafers from its 8-inch wafer fabrication facility known as "Fab2." In April
1995, the Company agreed to purchase additional shares in Chartered, bringing
the total agreed investment in Chartered to approximately US$51.6 million and
Chartered agreed to provide an increased minimum number of wafers to be provided
by Chartered from Fab2. The Company has paid all installments to Chartered.
Chartered went public on the NASDAQ stock exchange on October 26,1999. The
Company owns approximately 2.14 million American
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<PAGE>
Depository Shares, or ADSs. Each ADS represents the right to ten ordinary
shares, subject to a six-month "lock-up," or no trade period. Based on the
November 12, 1999 closing price for Chartered shares the estimated value of this
investment is $102 million.
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 ("USC"), for the purpose of building
and managing an 8-inch semiconductor manufacturing facility in Taiwan. The
Company paid approximately 1 billion New Taiwan Dollars ("NTD") (approximately
US$36.4 million) in September 1995, approximately NTD 450 million (approximately
US$16.4 million) in July 1996, and approximately NTD 492 million (approximately
US$17.6 million) in July 1997. After the last payment, the Company owned
approximately 190 million shares of USC, or approximately 19% of the outstanding
shares. In April 1998, the Company sold 35 million shares of USC to an affiliate
of UMC and received approximately US$31.7 million. In connection with the sale
of 35 million shares of USC, the Company has the right to receive up to another
665 million NTD (approximately US$20.9 million at the exchange rate prevailing
on October 1, 1999, which rate is subject to material change) upon the
occurrence of certain potential future events. After the April 1998 sale, the
Company owned approximately 15.50% of the outstanding shares of USC. In October
1998, USC issued 46 million shares to the Company by way of dividend
distribution. Additionally, USC made a stock distribution to its employees. As a
result of this distribution, the Company's ownership in USC was reduced to
15.06% of the outstanding shares. In April 1999, USC issued 46 million shares to
the Company by way of dividend distribution as well as distributions to other
entities. As a result of these distributions, the Company owned approximately
14.76% of the outstanding shares. To the extent USC experiences operating income
or losses and the Company maintains its current ownership percentage of
outstanding shares, the Company will recognize its proportionate share of such
income or losses. During the first six months of fiscal 2000, the Company
recorded $4.3 million of equity in income of USC, as compared to $7.2 million
recorded during the first six months of fiscal 1999.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon, Inc. ("USIC"), for
the purpose of building and managing an 8-inch semiconductor manufacturing
facility in Taiwan. The Company had originally committed to an investment of
approximately US$60 million or 10% ownership interest but subsequently requested
that its level of participation be reduced by 50%. The first installment of
approximately 50% of the revised investment was made in January 1996, and the
Company had, but did not exercise, the option to pay a second installment of
approximately 25% of the revised investment payable in December 1997. The
Company made a third installment payment of approximately 106 million NTD (or
approximately US$3.1 million) in July 1998. After the third installment, the
Company owns approximately 3.21% of the outstanding shares of USIC and has the
right to purchase approximately 3.70% of the manufacturing capacity of the
facility. The Company is accounting for this investment using the cost method of
accounting.
In June 1999, UMC announced plans to merge four semiconductor wafer foundry
units, USC, USIC, United Integrated Circuit Corporation and UTEK Semiconductor
Corporation, into UMC, a publicly traded company in Taiwan. According to the
proposed terms of the merger, Alliance will receive 247.7 million shares of UMC
stock for its 247.7 million shares or 14.76% ownership of USC and approximately
35.6 million shares of UMC stock for its 48.1 million shares or 3.21% ownership
of USIC. UMC has indicated that they expect to have approximately 8.8 billion
shares outstanding as of the closing date of the merger. Based on the November
12, 1999 closing price for UMC shares of NTD 86.00, and the then current U.S.
dollar exchange rate of 31.72, the estimated value of these investments is
approximately $768 million. At September 30, 1999 the book value for these
investments was approximately $105 million excluding currency translation
adjustment. The merger is subject to shareholders and government approval and is
expected to close in January 2000. According to Taiwanese laws and regulations,
50% of the 283.3 million UMC shares Alliance expects to receive will be subject
to a six-month "lock-up" or no trade period. Of the remaining 50%, or 141.6
million shares, approximately 28.3 million shares will become eligible for sale
two years from the closing date of the transaction, with 28.3 million shares
available for sale every six months thereafter during years three and four.
The Company has invested approximately $7.5 million during the first six months
of fiscal 2000 in a number of start-up companies whose focus is emerging
networking and internet market segments, where the Company can leverage its core
competencies in memory technology. The Company accounts each of theses
investments using the cost method of accounting.
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<PAGE>
Note 5. GAIN ON SALE OF USC SHARES
In April 1998, the Company sold 35 million shares of USC (representing
approximately 18% of the Company's interest in USC) to an affiliate of UMC for
net proceeds of $31.7 million, plus the right to receive a contingent payment of
up to 665 million NTD (approximately US$20.9 million at the exchange rate
prevailing on October 1, 1999, which rate is subject to material change) upon
the occurrence of certain potential future events. The net gain on the sale,
after deducting the cost basis plus a share of the equity in income of those
shares disposed, was $15.8 million, which was included in Other Income, net.
Note 6. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130 (SFAS
130), "Reporting Comprehensive Income" in fiscal 1999. SFAS 130 establishes
rules for the reporting and display of comprehensive income and its components.
The following are the components of comprehensive income:
<TABLE>
<CAPTION>
Three months Six months ended
ended September 30,
September 30,
------------------ ------------------
1999 1998 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $4,493 ($5,689) $57,861 ($20,548)
Unrealized gain on
marketable securities
(net of deferred taxes
of $2,652) (9,249) - 3,945 -
Cumulative translation
adjustments 2,508 (3,148) 6,902 (2,861)
======== ======= ======== =========
Comprehensive
income (loss) ($2,248) ($8,837) $68,708 ($23,409)
======== ======= ======== =========
</TABLE>
The components of accumulated other comprehensive loss are as follows:
<TABLE>
<CAPTION>
September March 31,
30, 1999 1999
----------- ------------
<S> <C> <C>
Unrealized gain on marketable
securities (net of deferred
taxes of $2,652) $3,945 -
Cumulative translation
adjustments (11,464) ($18,366)
=========== ============
Accumulated other
comprehensive loss ($7,519) ($18,366)
=========== ============
</TABLE>
Note 7. PURCHASE ORDER COMMITMENTS
At September 30, 1999, the Company had approximately $ 30.4 million of
non-cancelable purchase commitments with suppliers. The Company expects to sell
all products which it has committed to purchase from suppliers.
Note 8. LETTERS OF CREDIT
As of September 30, 1999, $ 3.7 million of standby letters of credit were
outstanding and expire on or before June 1, 2000, which are secured by
restricted cash and short-term investments.
Note 9. NET INCOME (LOSS) PER SHARE
Basic EPS is computed by dividing net income available to common stockholders
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period including stock options,
using the treasury stock method. In computing Diluted EPS, the average stock
price for the period is used in determining the number of shares assumed to be
purchased from the proceeds obtained upon exercise of stock options.
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<PAGE>
The computations for basic and diluted EPS are presented below:
<TABLE>
<CAPTION>
Three months Six months ended
ended September 30,
September 30,
------------------ -------------------
1999 1998 1999 1998
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $4,492 ($5,869) $57,860 ($20,548)
========= ======= ========= =========
Weighted average shares 41,812 41,456 41,715 41,209
outstanding
Effect of dilutive employee 1,174 - 857 -
stock options
--------- ------- --------- ---------
Average shares outstanding 42,986 41,456 42,572 41,209
assuming dilution
========= ======= ========= =========
Net income (loss) per share:
Basic $0.11 ($0.14) $1.39 ($0.50)
========= ======= ========= =========
Diluted $0.10 ($0.14) $1.36 ($0.50)
========= ======= ========= =========
</TABLE>
The following are not included in the above calculation as they were considered
anti-dilutive:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
----------------------- -----------------
1999 1998 1999 1998
---------- ----------- ------- --------
========== =========== ======= ========
<S> <C> <C> <C> <C>
Employee stock options 91 2,345 882 2,436
outstanding
========== =========== ======= ========
</TABLE>
Note 10. LEGAL MATTERS
In March 1996, a putative class action lawsuit was filed against the Company and
certain of its officers and directors and others in the United States District
Court for the Northern District of California, alleging violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder. The complaint alleged that the Company, N.D. Reddy and
C.N. Reddy also had liability under Section 20(a) of the Exchange Act. The
complaint, brought by an individual who claimed to have purchased 100 shares of
the Company's common stock on November 2, 1995, was putatively brought on behalf
of a class of persons who purchased the Company's common stock between July 11,
1995 and December 29, 1995. In April 1997, the Court dismissed the complaint,
with leave to file an amended complaint. In June 1997, plaintiff filed an
amended complaint against the Company and certain of its officers and directors
alleging violations of Sections 10(b) and 20(a) of the Exchange Act. In July
1997, The Company moved to dismiss the amended complaint. In March 1998, the
court ruled in defendants' favor as to all claims but one, and dismissed all but
one claim with prejudice. In April 1998, defendants requested reconsideration of
the ruling as to the one claim not dismissed. In June 1998, the parties
stipulated to dismiss the remaining claim without prejudice, on the condition
that in the event the dismissal with prejudice of the other claims is affirmed
in its entirety, such remaining claim shall be deemed dismissed with prejudice.
In June 1998, the court entered judgment dismissing the case pursuant to the
parties' stipulation. The Company intends to continue to defend vigorously
against any claims asserted against it, and believes it has meritorious
defenses. Due to the inherent uncertainty of litigation, the Company is not able
to reasonably estimate the potential losses, if any, that may be incurred in
relation to this litigation.
In December 1996, Alliance Semiconductor International Corporation ("ASIC"), a
wholly-owned subsidiary of the Company was served with a complaint filed in
Federal Court alleging that ASIC has infringed two patents owned by AMD related
to flash memory devices, and seeking injunctive relief and damages. In March
1997, the Company was added as a defendant. In April 1996, the Court allowed AMD
to expand its claims to include several new flash products which had been
recently announced by the Company. The Court has set a trial date for June 2000.
Each defendant has denied the allegations of the complaint and asserted a
counterclaim for declaration that each of the AMD patents is invalid and not
infringed by such defendant. The Company believes that the resolution of this
matter will not have a material adverse effect on the financial condition of the
Company.
In July 1998, the Company learned that a default judgment may be entered against
the Company in Canada, in the amount of approximately US$170 million, in a case
filed in 1985 captioned Prabhakara Chowdary Balla and TritTek Research Ltd. v.
Fitch Research Corporation, et al., British Columbia Supreme Court No. 85-2805
(Victoria Registry). The Company, which had previously not participated in the
case, believes that it never was properly served with process in this action,
and that the Canadian court lacks jurisdiction over the Company in this matter.
In addition to jurisdictional and procedural arguments, the Company also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's
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<PAGE>
bankruptcy in 1991. In February 1999, the court set aside the default judgment
against the Company. In April 1999, the plaintiffs were granted leave by the
Court to appeal this judgment. The appeal brief and reply briefs have been filed
and the parties are awaiting a decision by the appeals court.
In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United States International Trade Commission ("ITC") and United States
Department of Commerce ("DOC"), alleging that static random access memories
("SRAMs") fabricated in Taiwan were being sold in the United States at less than
fair value, and that the United States industry producing SRAMs was materially
injured or threatened with material injury by reason of imports of SRAMs
fabricated in Taiwan. After a final affirmative DOC determination of dumping and
a final affirmative ITC determination of injury, DOC issued an antidumping duty
order in April 1998. Under that order, the Company's imports into the United
States on or after approximately April 16,1998 of SRAMs fabricated in Taiwan are
subject to a cash deposit in the amount of 50.15% (the "Antidumping Margin") of
the entered value of such SRAMs. (The Company posted a bond in the amount of
59.06% (the preliminary margin) with respect to its importation, between
approximately October 1997 and April 1998, of SRAMs fabricated in Taiwan.) In
May 1998, the Company and others filed an appeal in the United States Court of
International Trade (the "CIT"), challenging the determination by the ITC that
imports of Taiwan-fabricated SRAMs were causing material injury to the U.S.
industry. On June 30, 1999 the CIT issued a decision remanding the ITC's
affirmative material injury determination to the ITC for reconsideration. The
ITC's remand determination reaffirmed its original determination and is
currently being considered by the CIT. The decision of the CIT can be further
appealed to the Court of Appeals for the Federal Circuit. The Company cannot
predict either the timing or the eventual results of the appeal. Until a final
judgment is entered in the appeal, no final duties will be assessed on the
Company's entries of SRAMs from Taiwan covered by the DOC antidumping duty
order. If the appeal is successful, the antidumping order will be terminated and
cash deposits will be refunded with interest. If the appeal is unsuccessful, the
Company's entries of Taiwan-fabricated SRAMs from October 1, 1997 through March
31, 1999 will be liquidated at the deposit rate in effect at the time of entry.
On subsequent entries of Taiwan-fabricated SRAMs, the Company will continue to
make cash deposits in the amount of 50.15% of the entered value. In April 2000,
the Company will have an opportunity to request a review of its sales of
Taiwan-fabricated SRAMs from April 1, 1999 through March 31, 2000 (the "Review
Period"). If it does so, the amount of antidumping duties, if any, owed on
imports from April 1999 through March 2000 will remain undetermined until the
conclusion of the review in early 2001. If the DOC found, based upon analysis of
the Company's sales during the Review Period, that antidumping duties either
should not be imposed or should be imposed at a lower rate than the Antidumping
Margin, the difference between the cash deposits made by the Company, and the
deposits that would have been made had the lower rate (or no rate, as the case
may be) been in effect, would be returned to the Company, plus interest. If, on
the other hand, the DOC found that higher margins were appropriate, the Company
would have to pay difference between the cash deposits paid by the Company and
the deposits that would have been made had the higher rate been in effect. A
material portion of the SRAMs designed and sold by the Company are fabricated in
Taiwan, and the cash deposit requirement and possibility of assessment of
antidumping duties could materially adversely affect the Company's ability to
sell Taiwan-fabricated SRAMs in the United States and have a material adverse
effect on the Company's operating results and financial condition. At September
30, 1999, the Company had posted a bond secured by a letter of credit in the
amount of approximately $1.7 million and made cash deposits in the amount of
$1.7 million relating to the Company's importation of Taiwan-manufactured SRAMs.
In October 1998, Micron Technology, Inc. filed an antidumping petition with the
DOC and the ITC, alleging that dynamic random access memories ("DRAMs")
fabricated in Taiwan are being sold in the United States at less than fair
value, and that the United States industry producing DRAMs is materially injured
or threatened with material injury by reason of imports of DRAMs fabricated in
Taiwan. The petition requests the United States government to impose antidumping
duties on imports into the United States of DRAMs fabricated in Taiwan. In
December 1998, the ITC preliminarily determined that there is a reasonable
indication that the imports of the products under investigation are injuring the
United States industry. The Company received a questionnaire from the DOC, and
responded to such questionnaire in accordance with the established deadline. In
January 1999, the DOC decided to limit the number of respondents investigated
and notified Alliance that it would not be separately investigated. In May 1999
the DOC issued a preliminary affirmative determination of dumping. Under that
determination, the Company's imports into the United States on or after May 28,
1999 of DRAMs fabricated in Taiwan were subject to an antidumping duty deposit
in the amount of 16.65% (the preliminary "all others" rate) of the entered value
of such DRAMs, an antidumping margin calculated by weight-averaging the
antidumping margins of individually investigated respondent companies. The
Company posted a bond to cover deposits on such entries. In October 1999 the DOC
issued a final affirmative determination of dumping. Under that determination,
the Company's imports into the United States on or after October 19, 1999 of
DRAMs fabricated in
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Taiwan are subject to an antidumping duty deposit in the amount of 21.35%, (the
final "all-others" rate). At September 30, 1999, the Company had posted a bond
secured by a letter of credit in the amount of $1.0 million to cover deposits on
such entries. The ITC final determination of injury is due December 2, 1999. If
the ITC final determination of injury is affirmative, the DOC will issue an
antidumping duty order. Under any such order, the Company's imports of
Taiwan-fabricated DRAMs into the United States on or after the date the order is
published will be subject to a cash deposit in the amount of the final "all
others" rate of the entered value of such DRAMs. If the ITC's final
determination is negative, the investigation will be terminated, the suspension
of liquidation lifted, and the bond released. If an antidumping duty order is
issued, in late 2000 the Company will have an opportunity to request a review of
its sales of Taiwan-fabricated DRAMs from approximately May 1999 through
December 2000 (the "Review Period"). If the Company makes such a request, the
amount of antidumping duties, if any, owed on entries during the Review Period
will remain undetermined until the conclusion of the review in late 2001, which
would determine a Company-specific antidumping duty margin. If the DOC found,
based upon analysis of the Company's sales during the Review Period, that
antidumping duties either should not be imposed or should be imposed at a lower
rate than the final "all others" rate determined in the original investigation,
the difference between the cash deposits made by the Company, and the deposits
that would have been made had the lower rate (or no rate, as the case may be)
been in effect, would be returned to the Company, with interest. If, on the
other hand, the DOC found a higher Company-specific rate, the Company would have
to pay the difference between the cash deposits paid by the Company and the
deposits that would have been made had the higher rate been in effect, with
interest. (The Company also would be responsible for antidumping duties in the
amount of the revised margin with respect to its imports covered by bond.) A
material portion of the DRAMs designed and sold by the Company are fabricated in
Taiwan, and the cash deposit requirement and possibility of assessment of
antidumping duties could materially adversely affect the Company's ability to
sell Taiwan-fabricated DRAMs in the United States and have a material adverse
effect on the Company's operating results and financial condition.
Note 11. ACQUISITION OF MAVERICK NETWORKS BY BROADCOM CORPORATION
On May 31, 1999, Maverick Networks (an entity in which the Company had a 28%
interest in) completed a transaction with Broadcom Corporation, resulting in the
Company selling its ownership interest in Maverick Networks in exchange for
538,961 shares of Broadcom's Class B common stock. Based on Broadcom's closing
share price on the date of sale, the Company recorded a pre-tax gain in the
first quarter of fiscal 2000 of approximately $51.6 million, which is included
in Other Income, net. Subsequent to the transaction date, the Company's
investment in Broadcom Corporation is being be accounted for as "available for
sale" securities in accordance with FAS 115. According to the Company's
agreement with Broadcom, 10% or 53,896 shares of Broadcom stock will be held in
escrow for six months until November 30,1999 to potentially compensate Broadcom
for losses, if any, Broadcom may incur if Maverick breaches the merger agreement
or misrepresented information in the transaction. During the first six months of
fiscal 2000, the Company sold 150,000 shares of Broadcom stock and realized a
pre-tax gain of approximately $3.7 million. At September 30, 1999, the Company's
unrealized gain in Broadcom is $6.6 million, which has been recorded, net of
tax, as other comprehensive income.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WHEN USED IN THIS REPORT, THE WORDS "EXPECTS," ANTICIPATES," "BELIEVES,"
"APPROXIMATES," "ESTIMATES" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
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. SUCH FORWARD-LOOKING STATEMENTS, WHICH INCLUDE STATEMENTS CONCERNING
THE TIMING OF NEW PRODUCT INTRODUCTIONS; THE FUNCTIONALITY AND AVAILABILITY OF
PRODUCTS UNDER DEVELOPMENT; TRENDS IN THE PERSONAL COMPUTER, NETWORKING,
TELECOMMUNICATIONS AND INSTRUMENTATION MARKETS, IN PARTICULAR AS THEY MAY AFFECT
DEMAND FOR OR PRICING OF THE COMPANY'S PRODUCTS; THE PERCENTAGE OF EXPORT SALES
AND SALES TO STRATEGIC CUSTOMERS; THE PERCENTAGE OF REVENUE BY PRODUCT LINE; AND
THE AVAILABILITY AND COST OF PRODUCTS FROM THE COMPANY'S SUPPLIERS; ARE SUBJECT
TO RISKS AND UNCERTAINTIES. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE SET
FORTH IN ITEM 2 (ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS") OF THIS REPORT, AND IN ITEM 1 (ENTITLED
"BUSINESS") OF PART I AND IN ITEM 7 (ENTITLED "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS") OF PART II OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED APRIL 3, 1999
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1999, AND THE
SUBSEQUENT QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDING JULY 3, 1999.
THESE RISKS AND UNCERTAINTIES, OR THE OCCURRENCE OF OTHER EVENTS, COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS
REPORT. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE
PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO
OR TO REFLECT ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY
SUCH FORWARD-LOOKING STATEMENT IS BASED, IN WHOLE OR IN PART.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
data as a percentage of net revenue:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
--------------------- ------------------
1999 1998 1999 1998
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 64.4 129.3 67.3 198.9
---------- --------- -------- --------
Gross profit (loss) 35.6 (29.3) 32.7 (98.9)
Operating expenses:
Research and development 22.2 33.5 20.2 37.5
Selling, general and 16.3 26.7 15.9 33.0
administrative
---------- --------- -------- --------
Total operating expenses 38.5 60.2 36.1 70.5
---------- --------- -------- --------
Loss from operations (2.8) (89.5) (3.4) (169.4)
Gain on Marketable Securities 19.3 150.2
Other income (expense), net (1.4) (1.7) (0.4) 75.4
---------- --------- -------- --------
Income (loss) before income
taxes and equity in income of
United Semiconductor
Corporation ("USC") 15.1 (91.2) 146.4 (94.0)
---------- --------- -------- --------
Provision for income taxes 6.2 - 1.0 40.7
---------- --------- -------- --------
Income (loss) before equity in 8.9 (91.2) 145.4 (134.7)
income of USC
Equity in income of USC 14.6 35.2 11.8 35.1
---------- --------- -------- --------
Net income (loss) 23.5% (56.0%) 157.1% (99.6%)
========== ========= ======== ========
</TABLE>
NET REVENUES
Net revenues increased by 82% to $19.1 million for the three months ended
September 1999 from $10.4 million for the similar period in 1998. This increase
in revenues was mainly due to the higher unit shipments of dynamic random access
memory ("DRAM") and static random access memory ("SRAM") products combined with
an overall increase in the average selling prices of the Company's products. Net
revenues for the six months ended September 1999 increased by 79% to $36.8
million compared to $20.6 million during the same period one year ago. Net
revenues for the second quarter of fiscal 2000 (September 1999 quarter)
increased 8% over net
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revenues reported in the first fiscal quarter (June 1999 quarter) and 38% over
the fourth quarter of fiscal 1999 (March 1999 quarter).
Revenues from the Company's DRAM products contributed approximately 61% of the
Company's net revenues for the September 1999 quarter and approximately 38% of
the Company's net revenues for the September 1998 quarter. The DRAM revenues
increased by 161% to $11.3 million for the September 1999 quarter from $4.0
million for the September 1998 quarter. The net increase was due to a
combination of higher average selling prices on some of the DRAM products and an
increase in unit shipments.
Revenues from the Company's SRAM products contributed approximately 38% of the
Company's net revenues for the September 1999 quarter and approximately 61% of
the Company's net revenues for the September 1998 quarter. The SRAM revenues
increased by 21% to $7.6 million for the September 1999 quarter from $6.3
million for the September 1998 quarter. The net increase was due to a
combination of higher average selling prices on some of the SRAM products and an
increase in unit shipments.
Revenues from the Company's graphics products contributed less than 1% of the
Company's net revenues for quarters ending September 1999 and September 1998.
Generally, the markets for the Company's products are characterized by volatile
supply and demand conditions, numerous competitors, rapid technological change
and product obsolescence. These conditions could require the Company to make
significant shifts in its product mix in a relatively short period of time.
These changes involve several risks, including, among others, constraints or
delays in timely deliveries of products from the Company's suppliers; lower than
anticipated wafer manufacturing yields; lower than expected throughput from
assembly and test suppliers; and less than anticipated demand and selling
prices. 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 profit of $6.8 million for the second quarter of
fiscal 2000, or 36% of net revenues compared to a gross loss of $3.1 million, or
(30%) of net revenues for the same period of fiscal 1999. The increase in gross
profits primarily resulted from higher overall average selling prices for the
Company's DRAM and SRAM products and higher unit shipments. The second quarter
of fiscal 1999 included a $2.9 million pre-tax inventory charge. The gross
profit was $12.0 million or 33% of net revenues for the first six months of
fiscal 2000 compared to a gross loss of $20.4 million, or (99%) for the first
six months of fiscal 1999. The first six months of fiscal 1999 included a $20.0
million pre-tax inventory charge.
The Company is subject to a number of factors which may have an adverse impact
on gross margins including the availability and cost of products from the
Company's suppliers; increased competition and related decreases in average unit
selling prices; changes in the mix of products sold; timing of new product
introductions and volume shipments; and antidumping duties related to the
importation of products from Taiwan. 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 consist principally of salaries and benefits
for engineering design, contracted development efforts, facilities costs,
equipment and software depreciation and amortization, wafer masks and tooling
costs, test wafers and other expense items.
Research and development expenses were $4.2 million, or 22% of net revenue in
the second quarter of fiscal 2000 compared to $3.5 million, or 33% of net
revenue in the same period of the prior fiscal year. Research and development
expenses in the first six months of fiscal 2000 were $7.4 million, or 20% of net
revenues compared to $7.7 million, or 37% for the same period one year ago. The
decrease in research and development expenses for the first six months of fiscal
2000 as compared to the same period last year, was the effect of headcount
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<PAGE>
reductions and the discontinuance of the MMUI accelerator product line offset by
an increase in masks and tooling costs for new products.
The Company believes that investments in research and development are necessary
to remain competitive in the marketplace and accordingly, research and
development expenses may increase in absolute dollars and may also increase as a
percentage of net revenue in future periods.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses generally include salaries and
benefits, sales commissions, marketing costs, travel, equipment depreciation and
software amortization, facilities costs, bad debt expense as well as insurance
and legal costs for the Company's sales, marketing, customer support and
administrative personnel.
Selling, general and administrative expenses were $3.1 million, or 16% of net
revenue in the second quarter of fiscal 2000 compared to $2.8 million, or 27% of
net revenue in the same period of the prior fiscal year. For the first six
months of fiscal 2000, expenses were $5.9 million, or 16% compared to $6.8
million, or 33% one year ago. The decrease in selling, general and
administrative expenses for the first six months of fiscal 2000 compared to one
year ago was primarily the result of lower headcount and personnel related
costs, lower legal and bad debt expenses, offset in part by higher sales
commissions due to increased revenue. Selling, general and administrative
expenses may increase in absolute dollars and may also increase as a percentage
of net revenue in future periods.
GAIN ON MARKETABLE SECURITIES
On May 31, 1999, Maverick Networks (an entity in which the Company had a 28%
interest in) completed a transaction with Broadcom Corporation, resulting in the
Company selling its ownership interest in Maverick Networks in exchange for
538,961 shares of Broadcom's Class B common stock. Based on Broadcom's closing
share price on the date of sale, the Company recorded a pre-tax gain in the
first quarter of fiscal 2000 of approximately $51.6 million, which is included
in Other Income, Net. Subsequent to the transaction date, the Company's
investment in Broadcom Corporation is being be accounted for as "available for
sale" securities in accordance with FAS 115. According to the Company's
agreement with Broadcom, 10% or 53,896 shares of Broadcom stock will be held in
escrow for six months until November 30,1999 to potentially compensate Broadcom
for losses, if any, Broadcom may incur if Maverick breaches the merger agreement
or misrepresented information in the transaction. During the first six months of
fiscal 2000, the Company sold 150,000 shares of Broadcom stock and realized a
pre-tax gain of approximately $3.7 million. At September 30, 1999, the Company's
unrealized gain in Broadcom is $6.6 million, which has been recorded, net of
tax, as other comprehensive income.
PROVISION FOR INCOME TAXES
During the first six months of fiscal 2000, the Company recorded a net tax
expense of $367,000. For the second quarter of fiscal 2000, the Company recorded
a $1.2 million tax expense on an estimated $2.9 million of taxable book income.
This was partially offset by approximately $819,000 in recognition of the tax
benefits associated with loss carryforwards and tax credits, which are available
to offset the gain on marketable securities related to the Broadcom shares.
EQUITY IN INCOME OF USC
As discussed in the section below entitled "Liquidity and Capital Resources",
the Company entered into an agreement with other parties to form a separate
Taiwanese company, USC. This investment is accounted for under the equity method
of accounting with a ninety-day lag in reporting the Company's share of results
for the entity. Equity in income of USC reflects the company's share of income
earned by USC for the previous quarter. Equity income from USC for the first six
months of fiscal 2000 was $4.3 million, or 11.8% of net revenues as compared to
$7.2 million or 35% of net revenues reported for the same period last year. The
decrease was primarily due to lower operating income well as a decrease in the
Company's ownership percentage from approximately 15.49% to 14.76%.
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IMPACT OF YEAR 2000 ISSUES
The Company uses a number of computer software programs and operating systems
and intelligent hardware devices in its internal operations, including
information technology (IT) and non-IT systems used in the design, manufacture
and marketing of Company products. These items are considered to be year 2000
"objects" and to the extent that these objects are unable to correctly recognize
and process date dependent information beyond the year 1999, some level of
modification or replacement is necessary. Most computer programs were designed
to perform data computations on the last two digits of the numerical value of a
year. When a computation referencing the year 2000 is performed, these systems
may interpret "00" as the year 1900 and could either stop processing
date-related computations or could process them incorrectly. Computations
referencing the year 2000 might be invoked at any time, but are likely to begin
occurring in the year 1999.
The Company has completed a company-wide year 2000 readiness assessment and has
completed implementing a new management information system, which the Company
believes is year 2000 compliant. The Company now believes that it is year 2000
ready to the best of its knowledge. During fiscal years 1999 and 1998, the
Company spent approximately $2.6 million in connection with implementing the new
information systems. The Company does not anticipate that it will incur material
expenditures for the resolution of any year 2000 issues relating to its IT or
non-IT systems in the current fiscal year.
The Company could possibly be materially adversely impacted by the year 2000
issues faced by major distributors, suppliers, subcontractors, customers,
vendors, and financial service organizations with which the Company interacts.
The Company is determining the impact of the Company's operations as a result of
the year 2000 readiness of these third parties. In the event 2000 issues
relating to key customers and suppliers are not successfully resolved, based on
information available to us at present, the Company believes that the most
reasonably likely worst case scenario is a temporary disruption in
infrastructure service, which could adversely impact supplier deliveries or
customer shipments. If severe disruptions occur in these areas and are not
corrected in a timely manner, a revenue or profit shortfall may result in fiscal
year 2000. The Company has completed its assessment of year 2000 readiness of
its major suppliers and vendors and believes that its major suppliers and
vendors are year 2000 ready based on discussions and representations.
Year 2000 compliance issues could have a significant impact on the Company's
operations and its financial results if unforeseen needs or problems arise; or,
if the systems operated by the Company's customers, vendors or subcontractors
are not year 2000 compliant. Due to the general uncertainty inherent in the year
2000 problem, resulting in part from the uncertainty of the year 2000 readiness
of third-parties and the interconnection of global businesses, the Company
cannot ensure its ability to timely and cost-effectively resolve problems
associated with the year 2000 issue that may affect its operations and business,
or expose it to third-party liability.
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: general economic conditions; changes in pricing
policies by the Company, its competitors or its suppliers; anticipated and
unanticipated decreases in unit average selling prices of the Company's
products; 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 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; and the timing of
significant orders. Operating results could also 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 to be able to support
increased sales levels, the Company's operating results will be adversely
affected if such increased sales levels are not achieved.
The markets for the Company's products are characterized by rapid technological
change, evolving industry standards, product obsolescence and significant price
competition and, as a result, are subject to decreases in average selling
prices. The Company has experienced significant deterioration in the average
selling prices for its SRAM and DRAM products during the past 3 years. The
Company is unable to predict when or if such decline
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<PAGE>
in prices will stabilize. Historically, average selling prices for semiconductor
memory products have declined and the Company expects that average selling
prices will decline in the future. 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 will also
adversely affect the Company's gross margins unless the Company is able to
significantly reduce its cost per unit in an amount to offset the declines in
average selling prices. There can be no assurance that the Company will be able
to increase unit sales volumes of existing products, develop, introduce and sell
new products or significantly reduce its cost per unit. There also can be no
assurance that even if the Company were to increase unit sales volumes and
sufficiently reduce its costs per unit, the Company would be able to maintain or
increase revenues or gross margins.
The Company usually ships more product in the third month of each quarter than
in either of the first two months of the quarter, with shipments in the third
month higher at the end of the month. This pattern, which is common in the
semiconductor industry, is likely to continue. The concentration of sales in the
last month of the quarter may cause the Company's quarterly results of
operations to be more difficult to predict. Moreover, a disruption in the
Company's production or shipping near the end of a quarter could materially
reduce the Company's net sales for that quarter. The Company's reliance on
outside foundries and independent assembly and testing houses reduces the
Company's ability to control, among other things, delivery schedules.
The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity such as the Company has
experienced 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, the Company must order products and build inventory substantially
in advance of products shipments, and there is a risk that because demand for
the Company's products is volatile and subject to rapid technology and price
change, the Company will forecast incorrectly and produce excess or insufficient
inventories of particular products. 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 the past produced excess
quantities of certain products, which has had a material 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 in
fiscal 1999, fiscal 1998 and fiscal 1997, when the Company recorded pre-tax
charges totaling approximately $20 million, $15 million and $17 million,
respectively, primarily to reflect a decline in market value of certain
inventory.
The Company currently relies on independent and joint venture 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
and costs and loss of production due to seismic activity, weather conditions and
other factors. In or about October 1997, a fire caused extensive damage to
United Integrated Circuits Corporation ("UICC"), a foundry joint venture between
UMC and various companies. UICC is located next to USIC and near USC and UMC in
the Hsin-Chu Science-Based Industrial Park. (The Company has products
manufactured at UMC and USC, and owns equity stakes in USC and USIC.) UICC
suffered an additional fire in January 1998, and since October 1996, there have
been at least two other fires at semiconductor manufacturing facilities in the
Hsin-Chu Science-Based Industrial Park.
In September 1999 a major earthquake occurred in Taiwan. At the time of the
earthquake, the Company had little material in production at UMC's Taiwan
foundry locations, since most of it's SRAM production is now manufactured by
Chartered Semiconductor in Singapore, and Alliance had recently shifted a large
percentage of it's DRAM production to UMC's foundry in Japan. The Company
experienced some short-term disruption at Taiwan assembly and test subcontract
houses. According to UMC, damage to the foundries was significantly less severe
than originally estimated, and all foundry installations and equipment are in
good condition with less than 10% of the total wafers in production at UMC Group
foundries affected.
There can be no assurance that fires, earthquakes or other disasters will not
have a material adverse effect on UMC, USC or USIC in the future. In addition,
as a result of the rapid growth of the semiconductor industry based in the
Hsin-Chu Science-Based Industrial Park, severe constraints have been placed on
the water and electricity
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<PAGE>
supply in that region. Any shortages of water or electricity could adversely
affect the Company's foundries' ability to supply the Company's products, which
could have a material adverse effect on the Company's results of operations or
financial condition. 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.
There can be no assurance that other problems affecting manufacturing yields of
the Company's products will not occur in the future.
There is an ongoing risk that the suppliers of wafer fabrication, wafer sort,
assembly and test services to the Company may increase the price charged to the
Company for the services they provide, to the point that the Company may not be
able to profitably have its products produced at such suppliers. The occurrence
of such price increases could have a material adverse effect on 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. Such risks
include 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. Because the Company conducts most
of its manufacturing operations in Asia, and receives a significant amount of
its net revenue from sales to Asian customers, the foregoing risks heightened in
light of the recent financial and economic crisis in Asia. Current or potential
customers of the Company in Asia, for instance, may become unwilling or unable
to purchase the Company's products, and the Company's Asian competitors may be
able to become more price-competitive relative to the Company due to declining
values of their national currencies. There can be no assurance that such factors
will not adversely impact the Company's operating results in the future or
require the Company to modify its current business practices.
Additionally, other factors may materially adversely affect the Company's
operating results. 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 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 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.
In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income.
"Comprehensive income is defined as the change in equity of a company during a
period from transactions and other events and circumstances, excluding
transactions resulting from investments by owners and distributions to owners.
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No.
14,"Financial Reporting for Segments of a Business Enterprise," and replaces the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of a
company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect results of operations or financial position or the
segments we reported in 1998 and 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133,"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow and foreign currency hedges, and establishes
respective accounting standards for reporting changes in the fair value of the
instruments. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Upon adoption of SFAS
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No. 133, we will be required to adjust hedging instruments to fair value in the
balance sheet, and recognize the offsetting gain or loss as transition
adjustments to be reported in net income or other comprehensive income, as
appropriate, and presented in a manner similar to the cumulative effect of a
change in accounting principle. We believe the adoption of this statement will
not have a significant effect on our results of operations.
Current pending litigation, administrative proceedings and claims are set forth
in Part II, Item 1 - Legal Proceedings. The Company intends to vigorously defend
itself in the litigation and claims and, subject to the inherent uncertainties
of litigation and based upon discovery completed to date, management believes
that the resolution of these matters will not have a material adverse effect on
the Company's financial position. However, should the outcome of any of these
actions be unfavorable, the Company may be required to pay damages and other
expenses, or may be enjoined from manufacturing or selling any products deemed
to infringe the intellectual property rights of others, which could have a
material adverse effect on the Company's financial position or operating
results. Moreover, the semiconductor industry is characterized by frequent
claims and litigation regarding patent and other intellectual property rights.
The Company has from time to time received, and believes that it likely will in
the future receive, 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 currently is
involved in patent litigation). In the event of litigation to determine the
validity of any third-party claims (such as the current patent litigation), or
claims against the Company for indemnification related to such third-party
claims, such litigation, whether or not determined in favor of the Company,
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from other matters. In the event of
an adverse ruling in such litigation, the Company might be required to cease the
manufacture, use and sale of infringing products, discontinue the use of certain
processes, expend significant resources to develop non-infringing technology or
obtain licenses to the infringing technology. In addition, depending upon the
number of infringing products and the extent of sales of such products, the
Company could suffer significant monetary damages. In the event of a successful
claim against the Company and the Company's failure to develop or license a
substitute technology, the Company's operating results could be materially
adversely affected.
The Company also, as a result of an antidumping proceeding commenced in February
1997, must pay a cash deposit equal to 50.15% of the entered value of any SRAMs
manufactured (wafer fabrication) in Taiwan, in order to import such goods into
the U.S. Although the Company may be refunded such deposits in the future, the
deposit requirement, and the potential that all entries of Taiwan-fabricated
SRAMs from October 1, 1997 through March 31, 1999 will be liquidated at the bond
rate or deposit rate in effect at the time of entry, may materially adversely
affect the Company's ability to sell in the United States SRAMs manufactured
(wafer fabrication) in Taiwan. The Company manufactures (wafer fabrication)
SRAMs in Singapore (and has manufactured SRAMs in Japan as well), and may be
able to support its U.S. customers with such products, which are not subject to
antidumping duties. There can be no assurance, however, that the Company will be
able to do so.
In October 1998, Micron Technology, Inc. filed an antidumping petition with the
DOC and the ITC, alleging that dynamic random access memories ("DRAMs")
fabricated in Taiwan are being sold in the United States at less than fair
value, and that the United States industry producing DRAMs is materially injured
or threatened with material injury by reason of imports of DRAMs fabricated in
Taiwan. The petition requests the United States government to impose antidumping
duties on imports into the United States of DRAMs fabricated in Taiwan. In
December 1998, the ITC preliminarily determined that there is a reasonable
indication that the imports of the products under investigation are injuring the
United States industry. The Company received a questionnaire from the DOC, and
responded to such questionnaire in accordance with the established deadline. In
January 1999, the DOC decided to limit the number of respondents investigated
and notified Alliance that it would not be separately investigated. In May 1999
the DOC issued a preliminary affirmative determination of dumping. Under that
determination, the Company's imports into the United States on or after
approximately May 28, 1999 of DRAMs fabricated in Taiwan are subject to an
antidumping duty deposit in the amount of 16.65% (the preliminary "all others"
rate) of the entered value of such DRAMs, an antidumping margin calculated by
weight-averaging the antidumping margins of individually investigated respondent
companies. The Company posted a bond to cover deposits on such entries. In
October 1999 the DOC issued a final affirmative determination of dumping. Under
that determination, the Company's imports into the United States on or after
October 19, 1999 of DRAMs fabricated in Taiwan are subject to an antidumping
duty deposit in the amount of 21.35%, (the final "all-others" rate). At
September 30, 1999, the Company had posted a bond secured by a letter of credit
in the amount of $1.0 million to cover deposits on such entries. The ITC final
determination of injury is due December 2, 1999. If the ITC final determination
of injury is affirmative, the DOC will issue an antidumping duty order. Under
any such
-16-
<PAGE>
order, the Company's imports of Taiwan-fabricated DRAMs into the United States
on or after the date the order is published will be subject to a cash deposit in
the amount of the final "all others" rate of the entered value of such DRAMs. If
the ITC's final determination is negative, the investigation will be terminated,
the suspension of liquidation lifted, and the bond released. If an antidumping
order is issued, in late 2000 the Company will have an opportunity to request a
review of its sales of Taiwan-fabricated DRAMs from approximately May 1999
through December 2000 (the "Review Period"). If the Company makes such a
request, the amount of antidumping duties, if any, owed on entries during the
Review Period will remain undetermined until the conclusion of the review in
late 2001, which would determine a company-specific antidumping duty margin. If
the DOC found, based upon analysis of the Company's sales during the Review
Period, that antidumping duties either should not be imposed or should be
imposed at a lower rate than the final "all others" rate determined in the
original investigation, the difference between the cash deposits made by the
Company, and the deposits that would have been made had the lower rate (or no
rate, as the case may be) been in effect, would be returned to the Company, with
interest. If, on the other hand, the DOC found a higher Company-specific margin,
the Company would have to pay the difference between the cash deposits paid by
the Company and the deposits that would have been made had the higher rate been
in effect, with interest. A material portion of the DRAMs designed and sold by
the Company are fabricated in Taiwan, and the cash deposit requirement and
possibility of assessment of antidumping duties could materially adversely
affect the Company's ability to sell Taiwan-fabricated DRAMs in the United
States and have a material adverse effect on the Company's operating results and
financial condition.
The Company has made and will continue to make investments in emerging, high
technology companies such as Maverick Networks and others. There is no guarantee
that these companies will be successful or that the Company will recover its
investments.
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.
Due to the foregoing factors, it is likely that in some future quarter or
quarters the Company's operating results may be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities utilized cash of $8.1 million in first six
months of fiscal 2000 compared to $22.7 million in the first six months of
fiscal 1999. Cash utilized in operating activities in the first six months of
fiscal 2000 was the result of an increase in inventory related to higher
anticipated sales and higher wafer prices. Cash utilized in operations in the
first six months of fiscal 1999 was primarily a result of a loss from operations
and changes in working capital accounts during the first six months.
Net cash provided by investing activities was $9.7 million for the first six
months of fiscal 2000 and net cash provided by investing activities was $27.0
million for the same period of fiscal 1999. Net cash provided by investing
activities in the for the first six months of fiscal 2000 was a result of the
proceeds from the sale of Broadcom shares of approximately $18.1 million
partially offset by investments of $7.5 million in a number of start-up
companies whose focus is emerging networking and internet market segments, where
the Company can leverage its core competencies in memory technology, and
equipment purchases of $0.8 million. Net cash provided by investing activities
in the first six months of fiscal 1999 reflects the proceeds from the sale of
USC shares of $31.7 million, partially offset by equipment purchases of $1.0
million and $3.1 million investment in United Silicon, Inc.
The Company's financing activities provided cash of $6.7 million in the first
six months of fiscal 2000 and used cash of $0.1 million in the first six months
of fiscal 1999. Net cash provided by financing activities in the first six
months of fiscal 2000 reflects proceeds from employee stock option exercises of
$5.9 million and restricted cash of $1.5 million, partially offset by repayment
of long-term obligations of $0.7 million.
-19-
<PAGE>
On May 31, 1999, Maverick Networks (an entity in which the Company had a 28%
interest in) completed a transaction with Broadcom Corporation, resulting in the
Company selling its ownership interest in Maverick Networks in exchange for
538,961 shares of Broadcom's Class B common stock. Based on Broadcom's closing
share price on the date of sale, the Company recorded a pre-tax gain in the
first quarter of fiscal 2000 of approximately $51.6 million, which is included
in Other Income, net. Subsequent to the transaction date, the Company's
investment in Broadcom Corporation is being be accounted for as "available for
sale" securities in accordance with FAS 115. According to the Company's
agreement with Broadcom, 10% or 53,896 shares of Broadcom stock will be held in
escrow for six months until November 30,1999 to potentially compensate Broadcom
for losses, if any, Broadcom may incur if Maverick breaches the merger agreement
or misrepresented information in the transaction. During the first six months of
fiscal 2000, the Company sold 150,000 shares of Broadcom stock and realized a
pre-tax gain of approximately $3.7 million. At September 30, 1999, the Company's
unrealized gain in Broadcom is $6.6 million, which has been recorded, net of
tax, as other comprehensive income.
At September 30, 1999, the Company had $14.5 million in cash, an increase of
$8.3 million from March 31, 1999, and working capital of $79.0 million, an
increase of $57.0 million from March 31, 1999. Included in this $79.0 million of
working capital is marketable securities of approximately $43.8 million. The
Company believes that these sources of liquidity, and other financing
opportunities available to it, 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 entered into and will
continue to consider various possible transactions, including equity investments
in or loans to foundries in exchange for guaranteed production capacity, 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 equity or debt 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.
In February 1995, the Company agreed to purchase shares of Chartered
Semiconductor ("Chartered") for approximately US$10 million and entered into a
manufacturing agreement under which Chartered will provide a minimum number of
wafers from its 8-inch wafer fabrication facility known as "Fab2." In April
1995, the Company agreed to purchase additional shares in Chartered, bringing
the total agreed investment in Chartered to approximately US$51.6 million and
Chartered agreed to provide an increased minimum number of wafers to be provided
by Chartered from Fab2. The Company has paid all installments to Chartered.
Chartered went public on the NASDAQ stock exchange on October 26,1999. The
Company owns approximately 2.14 million American Depository Shares, or ADSs.
Each ADS represents the right to ten ordinary shares, subject to a six-month
"lock-up," or no trade period. Based on the November 12, 1999 closing price for
Chartered shares the estimated value of this investment is $102 million.
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 ("USC"), for the purpose of building
and managing an 8-inch semiconductor manufacturing facility in Taiwan. The
Company paid approximately 1 billion New Taiwan Dollars ("NTD") (approximately
US$36.4 million) in September 1995, approximately NTD 450 million (approximately
US$16.4 million) in July 1996, and approximately NTD 492 million (approximately
US$17.6 million) in July 1997. After the last payment, the Company owned
approximately 190 million shares of USC, or approximately 19% of the outstanding
shares. In April 1998, the Company sold 35 million shares of USC to an affiliate
of UMC and received approximately US$31.7 million. In connection with the sale
of 35 million shares of USC, the Company has the right to receive up to another
665 million NTD (approximately US$20.9 million at the exchange rate prevailing
on October 1, 1999, which rate is subject to material change) upon the
occurrence of certain potential future events. After the April 1998 sale, the
Company owned approximately 15.5% of the outstanding shares of USC. In October
1998, USC issued 46 million shares to the Company by way of dividend
distribution. Additionally, USC made a stock distribution to its employees. As a
result of this distribution, the Company's ownership in USC was reduced to 15.1%
of the outstanding shares. In April 1999, USC issued 46 million shares to the
Company by way of dividend distribution as well as distributions to other
entities. As a result of these distributions, the Company owned approximately
14.8% of the outstanding
-20-
<PAGE>
shares. To the extent USC experiences operating income or losses and the Company
maintains its current ownership percentage of outstanding shares, the Company
will recognize its proportionate share of such income or losses. During the
first six months of fiscal 2000, the Company recorded $4.3 million of equity in
income of USC, as compared to $7.2 million recorded during the first six months
of fiscal 1999.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, USIC, for the purpose of building
and managing an 8-inch semiconductor manufacturing facility in Taiwan. The
Company had originally committed to an investment of approximately US$60 million
or 10% ownership interest but subsequently requested that its level of
participation be reduced by 50%. The first installment of approximately 50% of
the revised investment, or US$13.7 million, was made in January 1996, and the
Company had but did not exercise the option to pay a second installment of
approximately 25% of the revised investment payable in December 1997. The
Company made a third installment payment of approximately 106 million NTD (or
approximately US$3.1 million) in July 1998. After the third installment, the
Company owns approximately 3.21% of the outstanding shares of USIC and has the
right to purchase approximately 3.7% of the manufacturing capacity of the
facility.
In June 1999, UMC announced plans to merge four semiconductor wafer foundry
units, USC, USIC, United Integrated Circuit Corporation and UTEK Semiconductor
Corporation, into UMC, a publicly traded company in Taiwan. According to the
proposed terms of the merger, Alliance will receive 247.7 million shares of UMC
stock for its 247.7 million shares or 14.76% ownership of USC and approximately
35.6 million shares of UMC stock for its 48.1 million shares or 3.21% ownership
of USIC. UMC has indicated that they expect to have approximately 8.8 billion
shares outstanding as of the closing date of the merger. Based on the November
12, 1999 closing price for UMC shares of NTD 86.00, and the then current U.S.
dollar exchange rate of 31.72, the estimated value of these investments is
approximately $768 million. At September 30, 1999 the book value for these
investments was approximately $105 million. The merger is subject to
shareholders and government approval and is expected to close in January 2000.
According to Taiwanese laws and regulations, 50% of the 283.3 million UMC shares
Alliance expects to receive will be subject to a six-month "lock-up" or no trade
period. Of the remaining 50%, or 141.6 million shares, approximately 28.3
million shares will become eligible for sale two years from the closing date of
the transaction, with 28.3 million shares available for sale every six months
thereafter during years three and four.
The Company has invested approximately $7.5 million during the first six months
of fiscal 2000 in a number of start-up companies whose focus is emerging
networking and internet market segments, where the Company can leverage its core
competencies in memory technology. The Company accounts each of theses
investments using the cost method of accounting.
-21-
<PAGE>
================================================================================
Part II - Other Information
ITEM 1
LEGAL PROCEEDINGS
In March 1996, a putative class action lawsuit was filed against the Company and
certain of its officers and directors and others in the United States District
Court for the Northern District of California, alleging violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder. The complaint alleged that the Company, N.D. Reddy and
C.N. Reddy also had liability under Section 20(a) of the Exchange Act. The
complaint, brought by an individual who claimed to have purchased 100 shares of
the Company's common stock on November 2, 1995, was putatively brought on behalf
of a class of persons who purchased the Company's common stock between July 11,
1995 and December 29, 1995. In April 1997, the Court dismissed the complaint,
with leave to file an amended complaint. In June 1997, plaintiff filed an
amended complaint against the Company and certain of its officers and directors
alleging violations of Sections 10(b) and 20(a) of the Exchange Act. In July
1997, The Company moved to dismiss the amended complaint. In March 1998, the
court ruled in defendants' favor as to all claims but one, and dismissed all but
one claim with prejudice. In April 1998, defendants requested reconsideration of
the ruling as to the one claim not dismissed. In June 1998, the parties
stipulated to dismiss the remaining claim without prejudice, on the condition
that in the event the dismissal with prejudice of the other claims is affirmed
in its entirety, such remaining claim shall be deemed dismissed with prejudice.
In June 1998, the court entered judgment dismissing the case pursuant to the
parties' stipulation. The Company intends to continue to defend vigorously
against any claims asserted against it, and believes it has meritorious
defenses. Due to the inherent uncertainty of litigation, the Company is not able
to reasonably estimate the potential losses, if any, that may be incurred in
relation to this litigation.
In December 1996, Alliance Semiconductor International Corporation ("ASIC"), a
wholly-owned subsidiary of the Company was served with a complaint filed in
Federal Court alleging that ASIC has infringed two patents owned by AMD related
to flash memory devices, and seeking injunctive relief and damages. In March
1997, the Company was added as a defendant. In April 1996, the Court allowed AMD
to expand its claims to include several new flash products which had been
recently announced by the Company. A trial date has been set by the Court for
June 2000. Each defendant has denied the allegations of the complaint and
asserted a counterclaim for declaration that each of the AMD patents is invalid
and not infringed by such defendant. The Company believes that the resolution of
this matter will not have a material adverse effect on the financial condition
of the Company.
In July 1998, the Company learned that a default judgment may be entered against
the Company in Canada, in the amount of approximately US$170 million, in a case
filed in 1985 captioned Prabhakara Chowdary Balla and TritTek Research Ltd. v.
Fitch Research Corporation, et al., British Columbia Supreme Court No. 85-2805
(Victoria Registry). The Company, which had previously not participated in the
case, believes that it never was properly served with process in this action,
and that the Canadian court lacks jurisdiction over the Company in this matter.
In addition to jurisdictional and procedural arguments, the Company also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's bankruptcy in 1991. In February 1999, the
court set aside the default judgment against the Company. In April 1999, the
plaintiffs were granted leave by the Court to appeal this judgment. The appeal
brief and reply briefs have been filed and the parties are awaiting a decision
by the appeals court.
-22-
<PAGE>
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the stockholders of the Company was held on August 31,
1999. Company's stockholders elected the Board's nominees as directors by the
votes indicated:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES WITHHELD
<S> <C> <C>
N. Damodar Reddy 35,658,380 2,013,573
C. N. Reddy 35,445,030 2,226,923
Jon B. Minnis 35,443,691 2,228,262
Stanford L. Kane 35,444,341 2,227,612
</TABLE>
The proposal to amend the Company's 1992 Stock Plan to increase the number of
shares of common stock reserved for issuance by 2,000,000 shares, from 9,000,000
to 11,000,000 shares was ratified with 28,523,961 votes in favor, 9,084,828
against and 63,164 abstentions.
The selection of PricewaterhouseCoopers LLP as the Company's independent
auditors was ratified with 37,298,660 votes in favor, 328,318 against and 44,975
abstentions.
ITEM 5
OTHER INFORMATION
In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United States International Trade Commission ("ITC") and United States
Department of Commerce ("DOC"), alleging that static random access memories
("SRAMs") fabricated in Taiwan were being sold in the United States at less than
fair value, and that the United States industry producing SRAMs was materially
injured or threatened with material injury by reason of imports of SRAMs
fabricated in Taiwan. After a final affirmative DOC determination of dumping and
a final affirmative ITC determination of injury, DOC issued an antidumping duty
order in April 1998. Under that order, the Company's imports into the United
States on or after approximately April 16,1998 of SRAMs fabricated in Taiwan are
subject to a cash deposit in the amount of 50.15% (the "Antidumping Margin") of
the entered value of such SRAMs. (The Company posted a bond in the amount of
59.06% (the preliminary margin) with respect to its importation, between
approximately October 1997 and April 1998, of SRAMs fabricated in Taiwan.) In
May 1998, the Company and others filed an appeal in the United States Court of
International Trade (the "CIT"), challenging the determination by the ITC that
imports of Taiwan-fabricated SRAMs were causing material injury to the U.S.
industry. On June 30, 1999 the CIT issued a decision remanding the ITC's
affirmative material injury determination to the ITC for reconsideration. The
ITC's remand determination reaffirmed its original determination and is
currently being considered by the CIT. The decision of the CIT can be further
appealed to the Court of Appeals for the Federal Circuit. The Company cannot
predict either the timing or the eventual results of the appeal. Until a final
judgment is entered in the appeal, no final duties will be assessed on the
Company's entries of SRAMs from Taiwan covered by the DOC antidumping duty
order. If the appeal is successful, the antidumping order will be terminated and
cash deposits will be refunded with interest. If the appeal is unsuccessful, the
Company's entries of Taiwan-fabricated SRAMs from October 1, 1997 through March
31, 1999 will be liquidated at the deposit rate in effect at the time of entry.
On subsequent entries of Taiwan-fabricated SRAMs, the Company will continue to
make cash deposits in the amount of 50.15% of the entered value. In April 2000,
the Company will have an opportunity to request a review of its sales of
Taiwan-fabricated SRAMs from April 1, 1999 through March 31, 2000 (the "Review
Period"). If it does so, the amount of antidumping duties, if any, owed on
imports from April 1999 through March 2000 will remain undetermined until the
conclusion of the review in early 2001. If the DOC found, based upon analysis of
the Company's sales during the Review Period, that antidumping duties either
should not be imposed or should be imposed at a lower rate than the Antidumping
Margin, the difference between the cash deposits made by the Company, and the
deposits that would have been made had the lower rate (or no rate, as the case
may be) been in effect, would be returned to the Company, plus interest. If, on
the other hand, the DOC found that higher margins were appropriate, the Company
would have to pay difference between the cash deposits paid by the Company and
the deposits that would have been made had the higher rate been in effect. A
material portion of the SRAMs designed and sold by the Company are fabricated in
Taiwan, and the cash deposit requirement and possibility of assessment of
antidumping duties could materially adversely affect the Company's ability to
sell Taiwan-fabricated SRAMs in the United States and have a material
-23-
<PAGE>
adverse effect on the Company's operating results and financial condition. At
September 30, 1999, the Company had posted a bond secured by a letter of credit
in the amount of approximately $1.7 million and made cash deposits in the amount
of $1.7 million relating to the Company's importation of Taiwan-manufactured
SRAMs.
In October 1998, Micron Technology, Inc. filed an antidumping petition with the
DOC and the ITC, alleging that dynamic random access memories ("DRAMs")
fabricated in Taiwan are being sold in the United States at less than fair
value, and that the United States industry producing DRAMs is materially injured
or threatened with material injury by reason of imports of DRAMs fabricated in
Taiwan. The petition requests the United States government to impose antidumping
duties on imports into the United States of DRAMs fabricated in Taiwan. In
December 1998, the ITC preliminarily determined that there is a reasonable
indication that the imports of the products under investigation are injuring the
United States industry. The Company received a questionnaire from the DOC, and
responded to such questionnaire in accordance with the established deadline. In
January 1999, the DOC decided to limit the number of respondents investigated
and notified Alliance that it would not be separately investigated. In May 1999
the DOC issued a preliminary affirmative determination of dumping. Under that
determination, the Company's imports into the United States on or after May 28,
1999 of DRAMs fabricated in Taiwan are subject to an antidumping duty deposit in
the amount of 16.65% (the preliminary "all others" rate) of the entered value of
such DRAMs, an antidumping margin calculated by weight-averaging the antidumping
margins of individually investigated respondent companies. The Company posted a
bond to cover deposits on such entries. In October 1999 the DOC issued a final
affirmative determination of dumping. Under that determination, the Company's
imports into the United States on or after October 19, 1999 of DRAMs fabricated
in Taiwan are subject to an antidumping duty deposit in the amount of 21.35%,
(the final "all-others" rate). ). At September 30, 1999, the Company had posted
a bond secured by a letter of credit in the amount of $1.0 million to cover
deposits on such entries. The ITC final determination of injury is due December
2, 1999. If the ITC final determination of injury is affirmative, the DOC will
issue an antidumping duty order. Under any such order, the Company's imports of
Taiwan-fabricated DRAMs into the United States on or after the date the order is
published will be subject to a cash deposit in the amount of the final "all
others" rate of the entered value of such DRAMs. If the ITC's final
determination is negative, the investigation will be terminated, the suspension
of liquidation lifted, and the bond released. If an antidumping duty order is
issued, in late 2000 the Company will have an opportunity to request a review of
its sales of Taiwan-fabricated DRAMs from approximately May 1999 through
December 2000 (the "Review Period"). If the Company makes such a request, the
amount of antidumping duties, if any, owed on entries during the Review Period
will remain undetermined until the conclusion of the review in late 2001, which
would determine a Company-specific antidumping duty margin. If the DOC found,
based upon analysis of the Company's sales during the Review Period, that
antidumping duties either should not be imposed or should be imposed at a lower
rate than the final "all others" rate determined in the original investigation,
the difference between the cash deposits made by the Company, and the deposits
that would have been made had the lower rate (or no rate, as the case may be)
been in effect, would be returned to the Company, with interest. If, on the
other hand, the DOC found a higher Company-specific rate, the Company would have
to pay the difference between the cash deposits paid by the Company and the
deposits that would have been made had the higher rate been in effect, with
interest. (The Company also would be responsible for antidumping duties in the
amount of the revised margin with respect to its imports covered by bond.) A
material portion of the DRAMs designed and sold by the Company are fabricated in
Taiwan, and the cash deposit requirement and possibility of assessment of
antidumping duties could materially adversely affect the Company's ability to
sell Taiwan-fabricated DRAMs in the United States and have a material adverse
effect on the Company's operating results and financial condition.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit Document Description
Number
------------ ------------------------------------------------
27.01 Financial Data Schedule (filed only with the electronic
submission of Form 10-Q in accordance with the EDGAR
requirements)
(b) No reports on Form 8-K were filed during quarter ended October 2,
1999.
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<PAGE>
================================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
November 16, 1999 By: /S/ N. DAMODAR REDDY
-------------------------------------
N. Damodar Reddy
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
November 16, 1999 By: /S/ DAVID EICHLER
-------------------------------------
David Eichler
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Alliance Semiconductor Corporation Financial Data Schedule
</LEGEND>
<CIK> 0000913293
<NAME> Alliance Semiconductor
<MULTIPLIER> 1000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-1-2000
<PERIOD-START> APR-4-1999
<PERIOD-END> Oct-2-1999
<EXCHANGE-RATE> 1
<CASH> 14,538
<SECURITIES> 47,436
<RECEIVABLES> 9,912
<ALLOWANCES> 298
<INVENTORY> 26,084
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<DEPRECIATION> 14,567
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0
0
<COMMON> 421
<OTHER-SE> 237,758
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<SALES> 36,823
<TOTAL-REVENUES> 36,823
<CGS> 24,774
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<CHANGES> 4,328
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<EPS-BASIC> 1.39
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</TABLE>
