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 1, 2000, 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
Registrant's website address is HTTP://WWW.ALSC.COM
-------------------
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
------------------- ------------------------------
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 August 11, 2000, there were 41,241,780 shares of Registrant's Common Stock
outstanding.
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<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JULY 1, 2000
<TABLE>
<CAPTION>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets (unaudited) as of
June 30, 2000 and March 31, 2000......................................3
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended June 30, 2000 and 1999.....................4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended June 30, 2000 and 1999.....................5
Notes to Condensed Consolidated Financial Statements (unaudited)......6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................13
PART II OTHER INFORMATION
Item 1Legal Proceedings....................................................21
Item 5Other Information....................................................21
Item 6Exhibits and Reports on Form 8-K.....................................24
SIGNATURES...................................................................25
</TABLE>
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<PAGE>
===============================================================================
Part I - Financial Information
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ALLIANCE SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
June 30, March 31,
2000 2000
----------- ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $42,066 $34,770
Restricted cash 2,822 2,804
Short term investments 747,164 883,300
Accounts receivable, net 26,660 15,858
Inventory 50,520 37,439
Related party receivables 1,801 1,778
Other current assets 1,833 1,958
----------- ------------
Total current assets 872,866 977,907
Property and equipment, net 10,464 9,990
Investment in United Microelectronics 505,478 505,478
Alliance Ventures Investments 40,319 26,646
Other assets 349 421
----------- ------------
Total assets $1,429,476 $1,520,442
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $34,574 $27,133
Accrued liabilities 8,624 10,388
Income taxes payable 13,266 6,641
Deferred income taxes 265,789 316,903
Current portion of capital lease 1,017 905
----------- ------------
Total current liabilities 323,270 361,970
Long term obligations 1,416 1,517
Long term capital lease obligation 1,300 1,197
Deferred income taxes 191,803 191,803
----------- ------------
Total liabilities 517,789 556,487
----------- ------------
Stockholders' equity:
Common stock 425 424
Additional paid-in capital 194,019 193,260
Treasury stock (17,787) (12,468)
Retained earnings 677,860 644,595
Accumulated other comprehensive income 57,170 138,144
----------- ------------
Total stockholders' equity 911,687 963,955
----------- ------------
Total liabilities and $1,429,476 $1,520,442
stockholders' equity =========== ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three months ended
June 30,
------------------------
2000 1999
------------ -----------
Revenue:
<S> <C> <C>
Net revenues $47,404 $17,711
Cost of revenues 29,883 12,470
------------ -----------
Gross profit 17,521 5,241
------------ -----------
Operating expenses:
Research and development 3,591 3,206
Selling, general and 4,514 2,745
------------ -----------
Total operating expenses 8,105 5,951
------------ -----------
Income (loss) from operations 9,416 (710)
Gain on investments 47,517 51,606
Other income, net 340 121
------------ -----------
Income before income taxes 57,273 51,017
Provision (benefit) for income 23,310 (819)
taxes
------------ -----------
Income before equity in income 33,963 51,836
(loss) of investees
Equity in income (loss) of (698) 1,532
investees
------------ -----------
Net income $33,265 $53,368
============ ===========
Net income per share
Basic $0.80 $1.28
============ ===========
Diluted $0.78 $1.27
============ ===========
Weighted average number of common
shares
Basic 41,543 41,608
============ ===========
Diluted 42,778 42,149
============ ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended
June 30,
--------------------
2000 1999
--------- --------
Cash flows from operating activities:
<S> <C> <C>
Net income $33,265 $53,368
Adjustments to reconcile net income
Depreciation and amortization 1,038 1,079
Equity in income (loss) of investees 698 (1,532)
Gain on investments (47,517) (51,606)
Changes in assets and liabilities:
Accounts receivable (10,802) (2,291)
Inventory (13,081) (14,283)
Related party receivables (23) (31)
Other assets 197 79
Accounts payable 7,441 14,734
Accrued liabilities 1,206 (360)
Deferred income tax 4,459 (2,926)
Income tax payable 7,057 -
--------- --------
Net cash used in operating activities (16,062) (3,769)
--------- --------
Cash provided by (used in) investing
Purchase of property and equipment (1,044) (269)
Proceeds from sale of marketable 45,582 -
Purchase of other investments (16,350) (953)
--------- --------
Net cash provided by (used in) 28,188 (1,222)
investing activities
--------- --------
Cash provided by (used in) financing
Net proceeds from issuance of common 760 2,702
Principal payments on lease (253) (396)
Repurchase of common stock (5,319) -
Restricted cash (18) -
--------- --------
Net cash provided by (used in) (4,830) 2,306
--------- --------
Net increase (decrease) in cash and 7,296 (2,685)
Cash and cash equivalents at beginning 34,770 6,219
of the period
--------- --------
Cash and cash equivalents at end of $42,066 $3,534
the period
========= ========
Schedule of noncash financing activities:
Property and equipment leases $468 $-
========= ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-5-
<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 condensed consolidated financial statements have been
prepared by Alliance Semiconductor Corporation (the "Company") in accordance
with the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted in accordance with such rules and regulations. In
the opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments, consisting only of normal, recurring
adjustments, necessary to present fairly the consolidated financial position of
the Company and its subsidiaries, and their consolidated results of operations
and cash flows. These financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the fiscal
years ended March 31, 2000 and 1999 included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on June 30, 2000.
For purposes of presentation, the Company has indicated the first three months
of fiscal 2001 and 2000 as ending on June 30, respectively; whereas, in fact,
the Company's fiscal quarters ended on July 1, 2000 and July 3, 1999,
respectively. The financial results for the first quarter of fiscal 2001 and
2000 were reported on a 13-week quarter.
The results of operations for the three months ended July 1, 2000, are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2001, and the Company makes no representations related thereto.
Note 2. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
------------ -----------
Inventory:
<S> <C> <C>
Work in $34,711 $20,737
Finished 15,809 16,702
------------ -----------
$50,520 $37,439
============ ===========
</TABLE>
Note 3. INVESTMENTS
In February and April 1995, the Company purchased shares of Chartered
Semiconductor ("Chartered") for approximately $51.6 million and entered into a
manufacturing agreement whereby Chartered agreed to provide a minimum number of
wafers from its 8-inch wafer fabrication facility known as "Fab2", if Alliance
so chooses. In October 1999, Chartered successfully completed an initial public
offering in Singapore and the United States. At March 31, 2000, the Company
owned approximately 21.4 million ordinary shares or approximately 2.14 million
American Depository Shares or "ADSs."
These shares were subject to a six-month "lock-up", or no trade period, which
expired in April 2000. In May 2000, Chartered completed a secondary public
offering, which Alliance decided not to participate in and as a result, the
Company's shares are now subject to an additional three-month "lock-up" which
expires in August 2000. In June 2000, the underwriter of the secondary offering
released the Company from the lock-up, and the Company started selling some of
its shares. The Company owns less than 2% of the outstanding equity of
Chartered. If the Company sells more that 50% of its original holdings in
Chartered, the Company will start to lose a proportionate share of its wafer
production capacity rights, which could materially affect its ability to conduct
its business. Additionally, because of the potential loss of its wafer
production capacity rights if the Company sells more than 50% of its original
holdings in Chartered, there can be no assurance that the Company can realize
the maximum return on its investment in Chartered.
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<PAGE>
In June 2000, the Company sold 500,000 shares of Chartered, recording a realized
gain of approximately $33.5 million. As a result of the sale, at June 30, 2000,
the Company owned approximately 16.4 million ordinary shares or approximately
1.64 million American Depository Shares or "ADSs."
Prior to the fiscal third quarter of fiscal year 2000, the Company recorded its
investment in Chartered as a long-term investment using the cost method of
accounting. The Company currently accounts for its investment in Chartered as an
available-for-sale marketable security in accordance with SFAS 115. At June 30,
2000, the Company has recorded an unrealized gain of approximately $64.1
million, which is net of deferred tax of approximately $44.0 million, as part of
accumulated other comprehensive income in the stockholder's equity section of
the balance sheet.
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. Between
September 1995 and July 1997 the Company invested approximately $70.4 million in
USC in exchange for 190 million shares or 19.0% of the outstanding shares and
25% of the total wafer capacity. 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, the Company had the right to receive an additional
NTD 665 million upon the occurrence of certain potential future events, which
included the sale or transfer of USC shares by USC in an arms length
transaction, or by a public offering of USC stock, or by the sale of all or
substantially all of the assets of USC. In March 2000, Alliance received
approximately NTD 665 million (US$21.5 million) as a result of the merger
between USC and UMC, described below.
Subsequent to the April 1998 USC stock 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 a dividend distribution. Additionally, USC also
made a stock distribution to its employees thereby reducing the Company's
ownership in USC to 14.8% of the outstanding shares.
Prior to the merger with UMC, the Company, as part of its investment in USC, was
entitled to 25% of the output capacity of the wafer fabrication facility
operated by USC as well as a seat on the board of directors of USC. As a result
of the capacity rights, the board seat, and certain contractual rights, Alliance
had participated in both strategic and operating decisions of USC on a routine
basis, had rights of approval with respect to major business decisions and
concluded that it had significant influence on financial and operating decisions
of USC. Accordingly, the Company accounted for its investment in USC using the
equity method with a ninety-day lag in reporting the Company's share of results
for the entity. In fiscal years 2000, 1999 and 1998 the Company reported its
proportionate share of equity income of USC of $9.5 million, $10.9 million, and
$15.5 million, net of tax, respectively.
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. Between January 1996 and July 1998, the Company invested
approximately $16.8 million and owned approximately 3.2% of the outstanding
shares of USIC and had the right to purchase approximately 3.7% of the
manufacturing capacity of the facility. The Company accounted for its investment
in USIC using the cost method of accounting prior to the merger with UMC in
January 2000.
In June 1999, UMC, a publicly traded company in Taiwan, announced plans to merge
four semiconductor wafer foundry units, USC, USIC, United Integrated Circuit
Corporation and UTEK Semiconductor Corporation, into UMC and subsequently
completed the merger in January 2000. Through its representation on USC's board,
the Company had the right to choose whether to consent to the merger and
concluded it to be in the Company's best interest to do so. Alliance received
247.7 million shares of UMC stock for its 247.7 million shares, or 14.8%
ownership of USC, and approximately 35.6 million shares of UMC stock for its
48.1 million shares, or 3.2% ownership of USIC. At March 31, 2000 Alliance
Semiconductor owned approximately 283.3 million shares, or approximately 3.2% of
UMC, and maintained its 25% and 3.7% wafer capacity allocation rights in the
former USC and USIC foundries, respectively. As a result of the merger in
January 2000, the Company no longer recorded its proportionate share of equity
income in USC, as the Company no longer has an ability to exercise significant
influence over UMC's operations. The investment in UMC is accounted for as a
cost method investment.
During the fiscal fourth quarter of 2000, the Company recognized a $908 million
pre-tax, non-operating gain as a result of the merger. The gain was computed
based on the share price of UMC at the date of the merger (i.e.
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<PAGE>
NTD 112, or US$ 3.5685), as well as the approximately $21.5 million additional
gain related to the sale of the USC shares in April 1998. The Company has
accrued approximately $2.8 million for the Taiwan securities transaction tax in
connection with the shares received by the Company. This transaction tax will be
paid, on a per share basis, when the securities are sold.
In May 2000, the Company received an additional 20% or 56.7 million shares of
UMC by way of a stock dividend. At June 30, 2000, the Company owned
approximately 340 million shares of UMC.
According to Taiwanese laws and regulations, 50% of the 340 million Alliance's
UMC shares are subject to a six-month "lock-up" or no trade period. This lock-up
period expired in July 2000. Of the remaining 50%, or 170 million shares,
approximately 34 million shares will become eligible for sale two years from the
closing date of the transaction (i.e. January 2002), with approximately 34
million shares available-for-sale every six months thereafter, during years
three and four (i.e. calendar 2002-2004).
Subsequent to the completion of the merger, the Company accounts for the portion
(approximately 50% at June 30, 2000) of its investment in UMC which becomes
unrestricted within twelve months as an available-for-sale marketable security
in accordance with SFAS 115. At June 30, 2000, the Company has recorded an
unrealized loss of approximately $19.2 million, which is net of deferred tax of
$13.2 million, as part of accumulated other comprehensive income in the
stockholders' equity section of the balance sheet with respect to the short-term
portion of the investments. The portion of the investment in UMC which is
restricted beyond twelve months (approximately 50% of the Company's holdings at
June 30, 2000) is accounted for as a cost method investment and is classified as
a long-term investment. As this long-term portion becomes current over time, the
investment will be transferred to short-term investments and will be accounted
for as an available-for-sale marketable security in accordance with SFAS 115.
The long-term portion of the investment becomes unrestricted between 2002 and
2004.
Given the market risk for securities, when these shares are ultimately sold, it
is possible that additional gain or loss will be reported.
In 1998, the Company was approached by a startup company, Maverick Networks,
Inc. ("Maverick"), regarding their need for imbedded memory in a internet router
semiconductor that Maverick was designing. Because the Company was also
interested in eventually entering the internet router semiconductor market, the
Company entered into an agreement with Maverick which called for the Company to
provide memory technology access to the Company's wafer production rights, and
cash to Maverick, in exchange for certain rights to Maverick's technology and
stock in Maverick. On May 31, 1999, Maverick completed a transaction with
Broadcom Corporation, resulting in the Company selling its 39% ownership
interest in Maverick 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, non-operating gain in the first quarter of fiscal 2000 of
approximately $51.6 million based on the closing share price of Broadcom at the
date of the merger. During fiscal 2000, the Company sold 275,600 shares of
Broadcom stock and realized an additional pre-tax, non-operating gain of
approximately $23.7 million. In February 2000, Broadcom Corporation announced a
two for one stock split.
The Company records its investment in Broadcom as an available-for-sale
marketable security in accordance with SFAS 115. At June 30, 2000, the Company
owned 487,522 shares of Broadcom and recorded an unrealized gain of
approximately $22.2 million, which is net of deferred tax of approximately $15.2
million, as part of accumulated other comprehensive income in the stockholders
equity section of the balance sheet.
In October 1999, the Company formed Alliance Venture Management, LLC ("Alliance
Venture Management"), a California limited liability corporation, to manage and
act as the general partner in the investment funds the Company intended to form.
Alliance Venture Management does not directly invest in the investment funds
with the Company, but is entitled to a management fee out of the net profits of
the investment funds. This management company structure was created to provide
incentives to the individuals who participate in the management of the
investment funds, by allowing them limited participation in the profits of the
various investment funds, through the management fees paid by the investment
funds.
In November 1999, the Company formed Alliance Ventures I, LP ("Alliance Venture
I") and Alliance Ventures II ("Alliance Venture II"), both California limited
partnerships. The Company, as the sole limited partner, owns 100% of the limited
partnership interests of each partnership. Alliance Venture Management acts as
the general partner of these partnerships and receives a management fee of 15%
of the profits from these partnerships for its
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<PAGE>
managerial efforts. In February 2000, the Company formed Alliance Ventures III
("Alliance Venture III"), a California limited partnership. The Company, as the
sole limited partner, owns 100% of the limited partnership interests of this
partnership. Alliance Venture Management acts as the general partner of this
partnership and receives a management fee of 16% of the profits from this
partnership for its managerial efforts. Several of the Company's senior
management hold a majority of the units of Alliance Venture Management.
After Alliance Ventures I was formed, the Company contributed all its then
current investments, except Chartered, UMC and Broadcom, to Alliance Ventures I
to allow Alliance Venture Management to manage these investments. As of June 30,
2000, Alliance Ventures I, whose focus is investing in networking and
communication start-up companies, has invested approximately $19.8 million in 9
companies with a total fund allocation of $20 million, and Alliance Ventures II,
whose focus is in investing in internet start-up ventures has approximately $8.0
million in 10 companies, with a total fund allocation of $15 million. As of June
30, 2000, Alliance Ventures III, whose focus is investing in emerging companies
in the networking and communication market areas, has invested approximately
$14.7 million in 9 companies, with a total fund allocation of $100 million.
Several of these investments are accounted for pursuant to the equity method due
to the Company's ability to exercise its influence on the operations of
investees resulting primarily from ownership interest and/or board
representation. The total equity in the net losses of the equity investees of
these venture funds was approximately $698,000, net of tax for the quarter ended
June 30, 2000.
In August 1999, the Company made an investment in Orologic Corporation
("Orologic"), a fabless semiconductor company that develops high performance
system on a chip solutions. In November 1999, the Company transferred its
interest in Orologic to Alliance Ventures I, to allow it to be managed by
Alliance Venture Management. Subsequently, in March 2000, Vitesse Semiconductor
Corporation ("Vitesse") acquired Orologic. In connection with this merger,
Alliance Ventures I received 852,447 shares of Vitesse for its equity interest
in Orologic. As a result of the merger, the Company recognized a $69 million
pre-tax, non-operating gain in its fiscal fourth quarter ending March 31, 2000,
based on the closing share price of Vitesse of $96.25 on March 31, 2000, the
closing date of the merger. In May, Alliance Ventures I made a distribution of
the shares received from Vitesse to Alliance Venture Management and the Company.
The Company records its investment in Vitesse Semiconductor Corporation as an
available-for-sale marketable security in accordance with SFAS 115. At June 30,
2000, the Company owns 728,293 shares of Vitesse and recorded an unrealized loss
of approximately $9.7 million, which is net of deferred tax of approximately
$6.7 million, as part of accumulated other comprehensive income in the
stockholders equity section of the balance sheet.
On June 27, 2000, PMC-Sierra, Inc. ("PMC"), acquired Malleable Technologies,
Inc. ("Malleable"). In connection with the merger, the Company received 68,152
shares of PMC after distribution to Alliance Venture Management for its 7%
interest in Malleable. In the first fiscal quarter of 2001, the Company reported
a pre-tax non-operating gain of approximately $11.0 million based on the closing
share price of PMC of $182.875 on June 27, 2000, the closing date of the merger.
The Company records its investment in PMC-Sierra, Inc. as an available-for-sale
marketable security in accordance with SFAS 115. At June 30, 2000, the Company
owns 68,152 shares of PMC-Sierra and recorded an unrealized loss of
approximately $210,000, which is net of deferred tax of $144,000, as part of
accumulated other comprehensive income in the stockholders equity section of the
balance sheet.
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<PAGE>
Note 6. COMPREHENSIVE INCOME
The following are the components of comprehensive income:
<TABLE>
<CAPTION>
Three months ended
June 30,
---------------------
2000 1999
---------- ---------
<S> <C> <C>
Net income $33,265 $53,368
Unrealized gain (loss) on
marketable securities (net
of deferred taxes of (80,974) 13,194
$55,576 and $9,054 at June
30, 2000 and 1999,
respectively)
Cumulative translation - 4,394
---------- ---------
Comprehensive income (loss) ($47,709) $70,956
========== =========
</TABLE>
The components of accumulated other comprehensive income are as follows:
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
----------- ------------
<S> <C> <C>
Unrealized gain on $57,170 $138,144
marketable securities
(net of deferred taxes of
$39,238 at June 30, 2000
and $94,814 at March 31,
2000)
----------- ------------
Accumulated other $57,170 $138,144
comprehensive income
=========== ============
</TABLE>
Note 7. LETTERS OF CREDIT
As of June 30, 2000, approximately $1 million of standby letters of credit were
outstanding and expire on or before September 1, 2000, which are secured by
restricted cash.
Note 8. NET INCOME 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.
The computations for basic and diluted EPS are presented below:
<TABLE>
<CAPTION>
Three months ended
June 30,
----------------------
2000 1999
----------- ---------
<S> <C> <C>
Net income $33,265 $53,368
=========== =========
Weighted average shares 41,543 41,608
outstanding
Effect of dilutive employee 1,235 541
stock options
----------- ---------
Average shares outstanding 42,778 42,149
assuming dilution
=========== =========
Net income per share:
Basic $0.80 $1.28
=========== =========
Diluted $0.78 $1.27
=========== =========
</TABLE>
The following are not included in the above calculation, as they were considered
anti-dilutive:
<TABLE>
<CAPTION>
Three months ended
June 30,
-----------------------
2000 1999
---------- -----------
<S> <C> <C>
Employee stock options 108 1,241
outstanding
========== ===========
</TABLE>
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<PAGE>
Note 9. 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. Plaintiffs have appealed the court's ruling dismissing the
claims and the parties have filed appeal briefs. In August 2000, the parties
settled the litigation and the appeal was dismissed.
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 had 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. In January and February 2000, both parties
filed for motions for summary judgment. 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. A trial
date is currently set for January 2001. The Company believes the resolution of
this matter will not have a material adverse effect on its financial condition
and its results of operations.
In July 1998, the Company learned that a default judgment was 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. Oral
arguments were made before the Court of Appeals in June 2000. In July 2000, the
Court of Appeals instructed the lower Court to allow the parties to take
depositions regarding the issue of service of process, while also setting aside
the default judgment against the Company.
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 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. The CIT considered the
remand determination and remanded it back to the ITC for further
reconsideration. On June 12, 2000, in its second remand determination the ITC
voted negative on injury, thereby reversing its original determination that
Taiwan-fabricated SRAMs were causing material injury to the U.S. industry. The
second remand determination will be transmitted to
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the CIT on June 26, 2000 for consideration. 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, 2000 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 2001,
the Company will have an opportunity to request a review of its sales of
Taiwan-fabricated SRAMs from April 1, 2000 through March 31, 2001 (the "Review
Period"). If it does so, the amount of antidumping duties, if any, owed on
imports from April 2000 through March 2001 will remain undetermined until the
conclusion of the review in early 2002. 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. At
March 31, 2000, 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.
Note 10. SUBSEQUENT EVENTS
In August 2000, the Company agreed to invest $20 million in Solar Venture
Partners, LP., a venture capital partnership whose focus is in investing in
early stage companies in the following areas; networking, telecommunications,
wireless, software infrastructure enabling efficiencies of the Web and
e-commerce, semiconductors for emerging markets and design automation. The
Company also has the option during the next six months of investing an
additional $30 million to $55 million in Solar Venture Partners, LP. A number of
the Company's executives have or are planning to personally invest in Solar
Venture Partners, LP.
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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,"
"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, ARE SUBJECT TO RISKS AND UNCERTAINTIES AND
INCLUDE THE FOLLOWING STATEMENTS CONCERNING THE TIMING OF NEW PRODUCT
INTRODUCTIONS; THE FUNCTIONALITY AND AVAILABILITY OF PRODUCTS UNDER DEVELOPMENT;
TRENDS IN THE PERSONAL COMPUTER, NETWORKING, TELECOMMUNICATIONS, INSTRUMENTATION
AND CONSUMER 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; THE AVAILABILITY AND COST
OF PRODUCTS FROM THE COMPANY'S SUPPLIERS; CHANGES IN STOCK PRICE OF BROADCOM
CORPORATION, CHARTERED SEMICONDUCTOR, UNITED MICROELECTRONICS CORPORATION,
VITESSE SEMICONDUCTOR CORPORATION AND PMC-SIERRA, INC.; ADVERSE CHANGES IN VALUE
OF INVESTMENTS MADE BY ALLIANCE VENTURE MANAGEMENT, LLC; AND THE COMPANY'S
POTENTIAL STATUS AS INVESTMENT ACT OF 1940 REPORTING COMPANY. 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 1, 2000 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 30, 2000. 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 percentage of net revenues represented by certain line items in the
Company's consolidated statements of operations for the years indicated, are set
forth in the table below.
<TABLE>
<CAPTION>
Percentage of Net
Revenues for Three
Months Ended June 30,
-------------------------
2000 1999
----------- ------------
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of revenues 63.0 70.4
----------- ------------
Gross profit 37.0 29.6
Operating expenses:
Research and development 7.6 18.1
Selling, general and 9.5 15.5
administrative
----------- ------------
Income(loss) from operations 19.9 (4.0)
Gain on investments 100.2 291.4
Other income, net 0.7 0.7
----------- ------------
Income (loss) before income taxes 120.8 288.1
Provision (benefit) for income 49.2 (4.6)
taxes
----------- ------------
Income before equity in income 71.6 292.7
(loss) of investees
Equity in income (loss) of (1.5) 8.6
investees
----------- ------------
Net income 70.1% 301.3%
=========== ============
</TABLE>
NET REVENUES
The Company's net revenues for the June 2000 were $47.4 million, an increase of
$29.7 million or approximately 168% over the June 1999 quarter. The increase in
net revenues was due to an overall increase in average selling prices and
increase in unit volume of 90% which was driven by sales of newer products as
well as higher overall average selling prices for the Company's SRAM and DRAM
products. For the June 2000 quarter, no customer accounted for more than 10% of
the Company's net revenues, where one customer accounted for 25% of the
Company's net revenue in the June 1999 quarter.
Net revenue from the Company's DRAM product family in the June 2000 quarter
contributed $26.5 million or approximately 56% of Company's revenues, In
absolute dollars, this was an increase of $17 million but as a
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<PAGE>
percent of total revenues was down 2% from $9.5 million or approximately 53.8%
of total revenues for the June 1999 quarter. During the June 2000 quarter, sales
of the Company's 16-Mbit DRAM in 4-Mbit x 4 configuration, increased
significantly along with an overall increase in the average selling prices.
Net revenue from the Company's SRAM product family in the June 2000 quarter
contributed $20.8 million or approximately 44% of the Company's revenues. This
was an increase of $13.2 million from $7.6 million or approximately 42% of the
Company's revenues for the June 1999 quarter. SRAM average selling prices and
units sales increased during the June 2000.
The Company continues to focus its effort in selling in the non-PC market. Net
sales to non-PC segments of the market, such as telecommunications, networking,
datacom and consumer for the June 2000 quarter accounted for approximately 78%
of the net revenues compared to approximately 57% during June 1999 quarter.
International net revenues in the June 2000 quarter were approximately 62% of
the Company's net revenues compared to 51% of total revenues for the June 1999
quarter. International net revenues are derived from customers in Europe, Asia
and the rest of the world. The largest increase in international net revenues
were to customers in Taiwan and Europe, which increased approximately 392% and
200%, respectively, over the June 1999 quarter. The increase was due to an
overall increase in product demand and higher selling prices.
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, which 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 results of operations.
GROSS PROFIT
The Company's gross profit for the June 2000 quarter was approximately $17.5
million or 37.0% of net revenues as compared to $5.2 million or 29.6% of net
revenues for the June 1999 quarter. The dramatic improvement in gross profits
during the June 2000 quarter was primarily the result of higher average selling
prices, higher unit sales, and an increased mix of higher margin DRAM products.
The Company is subject to a number of factors that may have an adverse impact on
gross profits, including the availability and cost of products from the
Company's suppliers; increased competition and related decreases in unit average
selling prices; changes in the mix of product sold; and the timing of new
product introductions and volume shipments. In addition, the Company may seek to
add additional foundry suppliers and transfer existing and newly developed
products to more advanced manufacturing processes. The commencement of
manufacturing at a new foundry is often characterized by lower yields, as the
manufacturing process is refined. There can be no assurance that the
commencement of such manufacturing will not have a material adverse effect on
the Company's gross profits 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 approximately $3.6 million or
approximately 7.6% of net revenues for the June 2000 quarter as compared to $3.2
million or approximately 18.1% of net revenues for June 1999 quarter. The small
increase in spending was due to higher mask and tooling charges.
During June 2000 quarter, the Company's development efforts focused on advanced
process and design technology involving SRAMs, DRAMs and Flash memory 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.
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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses generally include salaries and
benefits associated with sales, sales support, marketing and administrative
personnel, as well as sales commissions, outside marketing costs, travel,
equipment depreciation and software amortization, facilities costs, bad debt
expense, insurance and legal costs.
Selling, general and administrative expenses for the June 2000 quarter were $4.5
million or approximately 9.5% of net revenues as compared to approximately $2.7
million or approximately 15.5% in the June 1999 quarter. The increase in
spending in the June 2000 quarter compared to the June 1999 quarter was due
principally to higher outside sales commissions which was a result of a 168%
increase in net revenues and higher compensation expenses.
Selling, general and administrative expenses may increase in absolute dollars,
and may also fluctuate as a percentage of net revenues in the future primarily
as the result of commissions, which are dependent on the level of revenues.
GAIN ON INVESTMENTS
In June 2000, the Company sold 500,000 shares of Chartered Semiconductor and
recorded a gain of approximately $33.5 million. As a result of the sale, at June
30, 2000, the Company owned approximately 16.4 million ordinary shares or 1.64
million American Depository Shares.
The Company also recognized a $3.1 million gain during the fiscal first quarter
of 2001 related to the sale of shares of Broadcom stock.
On June 27, 2000, PMC-Sierra, Inc. ("PMC"), acquired Malleable Technologies,
Inc. ("Malleable"). In connection with the merger, the Company received 68,152
shares of PMC after distribution to Alliance Venture Management for its 7%
interest in Malleable. In the first fiscal quarter of 2001, the Company reported
a pre-tax non-operating gain of approximately $11.0 million based on the closing
share price of PMC of $182.875 on June 27, 2000, the closing date of the merger.
OTHER INCOME, NET
Other Income, net represents interest income from short-term investments and
interest expense on short and long-term obligations. Other Income, net was
approximately $340,000 in the first fiscal quarter of 2001 compared to $121,000
in the first fiscal quarter of 2000. The change from fiscal 2000 to fiscal 2001
was attributed to higher interest income, and lower interest expense.
PROVISION FOR INCOME TAXES
Income tax expense for the first quarter of fiscal 2001 was $23.3 million, which
represents an effective tax rate 40.7%. During the first fiscal quarter of
fiscal 2000, the Company recorded a net tax benefit of approximately $819,000 in
recognition of tax benefits associated with loss carryforwards and tax credits,
which were available to offset the gain on marketable securities, related to the
Broadcom shares.
EQUITY IN INCOME OF INVESTEES
Prior to the UMC merger discussed elsewhere, the Company had made several
investments with other parties to form a separate Taiwanese company, USC. This
investment was 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. During the first quarter of fiscal 2000, the Company
reported its share in the income of USC in the amount of $1.5 million. As a
result of the merger in January 2000, the Company no longer recorded its
proportionate share of equity income in USC, as the Company no longer has an
ability to exercise significant influence over UMC's operations. The investment
in UMC is accounted for as a cost method investment.
The Company, through Alliance Venture Management, invested approximately $16.4
million during the first quarter of fiscal 2001 and a total of $42.9 million in
three Alliance ventures funds, Alliance Ventures I, Alliance Ventures II
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<PAGE>
and Alliance Ventures III. As of June 30, 2000, Alliance Ventures I, whose focus
is investing in networking and communication start-up companies, has invested
approximately $19.8 million in 9 companies, with a total fund allocation of $20
million and Alliance Ventures II, whose focus is in investing in internet
start-up ventures has approximately $8.0 million in 10 companies, with a total
fund allocation of $15 million. As of June 30, 2000, Alliance Ventures III,
whose focus is investing in emerging companies in the networking and
communication market areas, has invested approximately $14.7 million in 9
companies, with a total fund allocation of $100 million.
Several of these investments are accounted for as the equity method due to the
Company's ability to exercise its influence on the operations of investees
resulting primarily from ownership interest and/or board representation. The
Company's proportionate share in the net losses of the equity investees of these
venture funds was approximately $698,000, net of deferred tax, for the quarter
ended June 30, 2000.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's quarterly and annual results of operations 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. Results of operations 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 results of operations 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 experienced significant deterioration in the average selling
prices for its SRAM and DRAM products during fiscal years 1999, 1998 and 1997.
The Company is unable to predict the future prices for its products.
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
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<PAGE>
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 results of operations. 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 results of
operations could be adversely affected, as was the case in fiscal 1999, 1998 and
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 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 UMC in the Hsin-Chu Science-Based Industrial Park, where
the Company has products manufactured. 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. There can be no assurance that fires or other disasters will
not have a material adverse affect on UMC 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 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 results of
operations, 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 affect on the Company's
results of operations.
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. 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 results of operations in the future or require
the Company to modify its current business practices.
Additionally, other factors may materially adversely affect the Company's
results of operations. 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 results of operations.
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<PAGE>
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 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 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 results of
operations. 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 results of operations 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 (see
Item 1- Legal Proceedings), 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 the United States 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 were being sold in the United States at less than fair
value, and that the United States industry producing DRAMs was materially
injured or threatened with material injury by reason of imports of DRAMs
fabricated in Taiwan. The petition requested 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 was a
reasonable indication that the imports of the products under investigation were
injuring the United States industry. 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 Taiwan were subject to an antidumping duty deposit in the amount of
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21.35%, (the final "all-others" rate). However, on December 8, 1999, the ITC
issued a final negative determination of injury. Consequently, the investigation
was terminated, the suspension of liquidation lifted, and the bond posted in
September 1999 released. In January 2000, Micron filed an appeal in the CIT
challenging the determination by the ITC that imports of Taiwan-fabricated DRAMs
were not causing material injury to the U.S. industry. On March 21, 2000, the
appeal of the ITC decision was dismissed by the CIT.
The Company, through Alliance Venture Management, invests in startup, pre-IPO
(initial public offering) companies. These types of investments are inherently
risky and many venture funds have a large percentage of investments decrease in
value or fail. Most of these startup companies fail, and the investors lose
their entire investment. Successful investing relies on the skill of the
investment managers, but also on market and other factors outside the control of
the managers. Recently, the market for these types of investments has been
successful and many venture capital funds have been profitable, and while the
Company has been successful in its recent investments, there can be no assurance
as to any future or continued success. It is likely there will be a downturn in
the success of these types of investments in the future and the Company will
suffer significant diminished success in these investments. There can be no
assurance, and in fact it is likely, that many or most, and maybe all of the
Company's venture type investments may fail, resulting in the complete loss of
some or all the money the Company invested.
As a result of the foregoing factors, as well as other factors affecting the
Company's results of operations, 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 results of operations 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
At June 30, 2000, the Company had approximately $42.1 million in cash and cash
equivalents, an increase of $7.3 million from March 31, 2000; and approximately
$549.6 million in working capital, a decrease of approximately $66.3 million
from $615.9 million at March 31, 2000.
Additionally, the Company had short-term investments in marketable securities
whose fair value at June 30, 2000 was $747.2 million.
During first quarter of fiscal year 2001, operating activities used cash of
$16.1million. This was primarily the result of net income, the impact of
non-cash items such as depreciation and amortization, offset in part by growth
in inventory and accounts receivable, accounts payable and taxes payable.
Cash used in operating activities of $3.8 million in the first quarter of fiscal
year 2000 was primarily due to the increase in inventory and accounts receivable
in support of higher growth.
Investing activities provided cash in the amount of $28.2 million during the
first quarter of fiscal 2001 as the result of the proceeds from the sale of a
portion of the Company's holdings in Chartered Semiconductor of $45.6 million,
offset in part, by investments made by Alliance Ventures of $16.4 million and
purchases of equipment of $1.0 million.
Investing activities used cash in the amount of $1.2 million during the first
quarter of fiscal 2000 primarily due to an increase in investments and purchases
of equipment.
Net cash used in financing activities during the first quarter of fiscal 2001
was approximately $4.8 million and was primarily the result of repurchase of 300
thousand shares of the Company's common stock for $5.3 million and capital lease
payments of $0.3 million, offset in part by proceeds from the sale of common
stock (i.e. stock option exercises), of approximately $0.8 million.
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Cash provided for financing activities during the first quarter of fiscal 2000
was primarily the result of proceeds from the issuance of common stock (i.e.
stock option exercises), offset in part by principal payments on capital
equipment lease obligations.
The Company believes these sources of liquidity, and financing opportunities
available to it will be sufficient to meet its projected working capital and
other cash requirements for the foreseeable future. However, it is possible that
the Company may need to raise additional funds to fund its activities beyond the
next year or to consummate acquisitions of other businesses, products, wafer
capacity or technologies. The Company could raise such funds by selling some its
short-term investments, selling more stock to the public or to selected
investors, or by borrowing money. The Company may not be able to obtain
additional funds on terms that would be favorable to its shareholders and the
Company, or at all. If the Company raises additional funds by issuing additional
equity, the ownership percentages of existing shareholders would be reduced.
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, as was the case with
Chartered Semiconductor or UMC, 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.
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===============================================================================
Part I - 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. Plaintiffs have appealed the court's ruling dismissing the
claims and the parties have filed appeal briefs. In August 2000, the parties
settled the litigation and the appeal was dismissed.
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 had 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. In January and February 2000, both parties
filed for motions for summary judgment. 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. A trial
date is currently set for January 2001. The Company believes the resolution of
this matter will not have a material adverse effect on its financial conditions
and its results of operations.
In July 1998, the Company learned that a default judgment was 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. Oral
arguments were made before the Court of Appeals in June 2000. In July 2000, the
Court of Appeals instructed the lower Court to allow the parties to take
depositions regarding the issue of service of process, while also setting aside
the default judgment against the Company.
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 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
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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. The CIT
considered the remand determination and remanded it back to the ITC for further
reconsideration. On June 12, 2000, in its second remand determination the ITC
voted negative on injury, thereby reversing its original determination that
Taiwan-fabricated SRAMs were causing material injury to the U.S. industry. The
second remand determination will be transmitted to the CIT on June 26, 2000 for
consideration. 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, 2000 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 2001, the
Company will have an opportunity to request a review of its sales of
Taiwan-fabricated SRAMs from April 1, 2000 through March 31, 2001 (the "Review
Period"). If it does so, the amount of antidumping duties, if any, owed on
imports from April 2000 through March 2001 will remain undetermined until the
conclusion of the review in early 2002. 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. At
July 1, 2000, 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.
THE INVESTMENT COMPANY ACT OF 1940
Following a special study after the stock market crash of 1929 and the ensuing
Depression, Congress enacted the Investment Company Act of 1940 (the "Act"). The
Act was primarily meant to regulate mutual funds, such as the families of funds
offered by the Fidelity and Vanguard organizations (to pick two of many), and
the smaller number of closed-end investment companies that are traded on the
public stock markets. In those cases the funds in question describe themselves
as being in the business of investing, reinvesting and trading in securities and
generally own relatively diversified portfolios of publicly traded securities
that are issued by companies that the investment companies do not control. The
fundamental intent of the Act is to protect the interests of public investors
from fraud and manipulation by the people who establish and operate such
investment companies, which constitute large pools of liquid assets that could
be used improperly, or be not properly safeguarded, by the persons in control of
them.
When the Act was written, its drafters (and Congress) also felt that a company
could, either deliberately or inadvertently, come to have the defining
characteristics of an investment company without proclaiming that fact or being
willing to voluntarily submit itself to regulation as an acknowledged investment
company, and that investors in such a company could be just as much in need of
protection as are investors in companies that are openly and deliberately
established as investment companies. In order to deal with this perceived
potential abuse, the Act and rules under it contain provisions and set forth
principles that are designed to differentiate "true" operating companies from
companies that may be considered to have sufficient investment-company-like
characteristics to require regulation by the Act's complex procedural and
substantive requirements. These provisions apply to companies that own or hold
securities, as well as companies that invest, reinvest and trade in securities,
and particularly focus on determining the primary nature of a company's
activities, including whether an investing company controls and does business
through the entities in which it invests or, instead, holds its securities
investments passively and not as part of an operating business. For instance,
under what is, for most purposes, the most liberal of the relevant tests, a
company may become subject to the Act's registration requirements if it either
holds more than 45% of its assets in, or derives more than 45% of its income
from, investments in companies that the investor does not primarily control or
through which it does not actively do business. In making these determinations
the Act generally requires that a company's assets be valued on a current fair
market value basis, determined on the basis of securities' public trading price
or, in the case of illiquid securities and other assets, in good faith by the
company's board of directors.
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The Company viewed its investments in Chartered, USC and USIC as operating
investments primarily intended to secure adequate wafer manufacturing capacity;
as previously noted, the Company's access to the manufacturing resources that it
obtained in conjunction with those investments will decrease if the Company
ceases to own at least 50% of its original investments in the enterprises, as
modified, in the cases of USC and USIC, by their merger into UMC. In addition,
the Company believes that, before USC's merger into UMC, the Company's
investment in USC constituted a joint venture interest that the staff of the
Securities and Exchange Commission (the "SEC") would not regard as a security
for purposes of determining the proportion of the Company's assets that might be
viewed as having been held in passive investment securities. However, because of
the success during the last year of the Company's investments, including its
strategic wafer manufacturing investments, at least from the time of the
completion of the merger of USC and USIC into UMC in January 2000 the Company
believes that it could be viewed as holding a much larger portion of its assets
in investment securities than is presumptively permitted by the Act for a
company that is not registered under it.
On the other hand, the Company also believes that the investments that it
currently holds in Chartered and UMC, even though in companies that the Company
does not control, should be regarded as strategic deployments of Company assets
for the purpose of furthering the Company's memory chip business, rather than as
the kind of financial investments that generally are considered to constitute
investment securities. Applying certain other tests that the SEC utilizes in
determining investment company status, the Company has never held itself out as
an investment company; its historical development has focused almost exclusively
on the memory chip business; the activities of its officers and employees have
been overwhelmingly addressed to achieving success in the memory chip business;
and until the past year, its income (and losses) have derived almost exclusively
from the memory chip business. Accordingly, the Company believes that it should
be regarded as being primarily engaged in a business other than investing,
reinvesting, owning, holding or trading in securities, and will shortly apply to
the SEC for an order under section 3(b)(2) of the Act confirming its
non-investment-company status. However, if the Company's investments in
Chartered and UMC are now viewed as investment securities, it must be conceded
that an unusually large proportion of the Company's assets could be viewed as
invested in assets that would, under most circumstances, give rise to investment
company status. Therefore, while the Company believes that it has meritorious
arguments as to why it should not be considered an investment company and should
not be subject to regulation under the Act, there can be no assurance that the
SEC will agree. And even if the SEC grants some kind of exemption from
investment company status to the Company, it may place significant restrictions
on the amount and type of investments the Company is allowed to hold, which
might force the Company to divest itself of many of its current investments.
Significant potential penalties may be imposed upon a company that should be
registered under the Act but is not, and the Company intends to proceed
expeditiously to resolve its status.
If the Company does not receive an exemption from the SEC, the Company would be
required to register under the Act as a closed-end management investment
company. In the absence of exemptions granted by the SEC (if it determines to do
so in its discretion after an assessment of the public interest), the Act
imposes a number of significant requirements and restrictions upon registered
investment companies that do not normally apply to operating companies. These
would include, but not be limited to, a requirement that at least 40% of the
Company's board of directors not be "interested persons" of the Company as
defined in the Act and that those directors be granted certain special rights
with respect to the approval of certain kinds of transactions (particularly
those that pose a possibility of giving rise to conflicts of interest);
prohibitions on the grant of stock options that would be outstanding for more
than 120 days and upon the use of stock for compensation (which could be highly
detrimental to the Company in view of the competitive circumstances in which it
seeks to attract and retain qualified employees); and broad prohibitions on
affiliate transactions, such as the compensation arrangements applicable to the
management of Alliance Venture Management, many kinds of incentive compensation
arrangements for management employees and joint investment by persons who
control the Company in entities in which the Company is also investing (which
could require the Company to abandon or significantly restructure its management
arrangements, particularly with respect to its investment activities). While the
Company could apply for individual exemptions from these restrictions, there
could be no guarantee that such exemptions would be granted, or granted on terms
that the Company would deem practical. Additionally, the Company would be
required to report its financial results in a different form from that currently
used by the Company, which would have the effect of turning the Company's
Statement of Operations "upside down" by requiring that the Company report its
investment income and the results of its investment activities, instead of its
operations, as its primary sources of revenue.
While the Company is working diligently to deal with these investment company
issues, there can be no assurance that a manageable solution will be found. The
SEC may be hesitant to grant an exemption from investment company status in the
Company's situation, and it may not be feasible for the Company to operate in
its present
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manner as a registered investment company. As a result, the Company might be
required to divest itself of assets that it considers strategically necessary
for the conduct of its operations, to reorganize as two or more separate
companies, or both. Such divestitures or reorganizations could have a material
adverse effect upon the Company's business and results of operations.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Document Description
Number
------------ ------------------------------------------------
<S> <C>
27.01 Financial Data Schedule (filed only with the
electronic submission of Form 10-Q in
accordance with the EDGAR requirements)
</TABLE>
(b) No reports on Form 8-K were filed during quarter ended July 1,
2000.
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================================================================================
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
August 15, 2000 By: /S/ N. DAMODAR REDDY
-------------------------------------
N. Damodar Reddy
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
August 15, 2000 By: /S/ DAVID EICHLER
-------------------------------------
David Eichler
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
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