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 JANUARY 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
-------------------
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 February 10, 2000, there were 42,233,928 shares of Registrant's Common
Stock outstanding.
- 1 -
<PAGE>
ALLIANCE SEMICONDUCTOR CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JANUARY 1, 2000
<TABLE>
<CAPTION>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
<S> <C>
Condensed unaudited Consolidated Balance Sheets as of December 31,
1999 and March 31, 1999...............................................3
Condensed unaudited Consolidated Statements of Operations for the
three and nine months ended December 31, 1999 and 1998................4
Condensed unaudited Consolidated Statements of Cash Flows for the
nine months ended December 31, 1999 and 1998..........................5
Notes to unaudited Condensed Consolidated Financial Statements........6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................12
PART II OTHER INFORMATION
Item 1Legal Proceedings....................................................22
Item 5Other Information....................................................22
Item 6Exhibits and Reports on Form 8-K.....................................24
SIGNATURES...................................................................25
</TABLE>
- 2 -
<PAGE>
===============================================================================
Part I - Financial Information
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ALLIANCE SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
December March
31, 1999 31, 1999
------------ ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $17,094 $6,219
Marketable securities 226,810 -
Restricted cash 3,675 5,175
Accounts receivable, net 16,065 8,943
Inventory 26,546 12,927
Related party receivables 1,888 1,815
Other current assets 2,475 1,709
------------ ------------
Total current assets 294,553 36,788
Property and equipment, net 10,595 9,943
Investment in Chartered - 51,596
Investment in United Semiconductor 94,873 77,310
Investment in United Silicon, Inc. 16,799 16,799
Other investments 20,168 550
Other assets 640 571
------------ ------------
Total assets $437,628 $193,557
============ ============
LIABILITIES AND STOCKHOLDERS'
Current liabilities:
Accounts payable $22,302 $8,046
Accrued liabilities 10,735 4,736
Deferred income taxes 55,950 589
Current portion of long term 887 1,315
obligations
------------ ------------
Total current liabilities 89,874 14,686
Long term liabilities:
Long term obligations 1,158 578
Deferred income taxes 14,069 14,723
------------ ------------
Total liabilities 105,101 29,987
------------ ------------
Stockholders' equity
Common stock 422 416
Additional paid-in capital 191,574 185,025
Retained earnings 63,510 (3,505)
Accumulated other comprehensive 77,021 (18,366)
------------ ------------
Total stockholders' equity 332,527 163,570
------------ ------------
Total liabilities and $437,628 $193,557
stockholders' equity
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
(unaudited)
Three months Nine months
ended ended
December 31, December 31,
-------------------- ---------------------
1999 1998 1999 1998
-------- --------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Net revenues $23,497 $13,282 $60,320 $33,904
Cost of revenues 15,412 10,864 40,186 51,899
-------- --------- --------- ---------
8,085 2,418 20,134 (17,995)
-------- --------- --------- ---------
Operating expenses:
Research and development 3,330 3,285 10,779 11,012
Selling, general and 6,753(1) 2,863 12,607(1) 9,671
administrative
-------- --------- --------- ---------
Total operating expenses 10,083 6,148 23,386 20,683
-------- --------- --------- ---------
Loss from operations (1,998)(1) (3,730) (3,252)(1) (38,678)
Gain on marketable securities 5,111 - 60,413 15,823
Other income (expense), net (56) (387) (204) (650)
-------- --------- --------- ---------
Income (loss) before income taxes
and equity in income of USC 3,057 (4,117) 56,957 (23,505)
Provision (benefit) for income (963) - (596) 8,397
taxes
-------- --------- --------- ---------
Income (loss) before equity in 4,020 (4,117) 57,553 (31,902)
income of USC
Equity in income of USC 5,134 2,064 9,462 9,301
-------- --------- --------- ---------
Net income (loss) $9,154 ($2,053) $67,015 ($22,601)
======== ========= ========= =========
Net income (loss) per share
Basic $0.22 ($0.05) $1.60 ($0.55)
======== ========= ========= =========
Diluted $0.21 ($0.05) $1.56 ($0.55)
======== ========= ========= =========
Weighted average number of
common shares
Basic 41,858 41,512 41,989 41,315
======== ========= ========= =========
Diluted 42,944 41,512 43,003 41,315
======== ========= ========= =========
</TABLE>
- -------------
(1)Fiscal third quarter FY2000 Selling, General and Administration expense
includes $3.6 million discretionary, non-recurring compensation expense
related to the acquisition of Maverick Networks by Broadcom Corporation.
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)
Nine Months Ended
December 31,
--------------------
1999 1998
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $67,015 ($22,601)
Adjustments to reconcile net income
Depreciation and amortization 2,669 2,823
Non-recurring compensation 3,655 -
Equity in income of USC (9,462) (9,301)
Gain on sale of long term
and marketable securities (60,413) (15,823)
Changes in assets and liabilities:
Accounts receivable (7,122) 9,005
Inventory (14,361) (1,686)
Pre-tax inventory write down 742 20,346
Related party receivables (73) -
Other assets (835) (198)
Accounts payable 14,256 (29,727)
Accrued liabilities 3,751 (2,161)
Deferred income taxes and tax (3,509) 25,441
receivable
--------- --------
Net cash used in operating (3,687) (23,882)
--------- --------
CASH PROVIDED BY INVESTING ACTIVITIES:
Acquisition of equipment (3,321) (2,066)
Proceeds from sale of USC shares - 31,662
Proceeds from sale of Broadcom 29,099 -
Investment in United Silicon, Inc. - (3,098)
Other investments (19,423) -
--------- --------
Net cash provided by (used in) 6,355 26,498
investing activities
--------- --------
CASH FLOWS FROM (USED IN) FINANCING
Net proceeds from issuance of common 6,555 46
Repayments of long term obligations (866) (1,207)
Borrowing of long term obligations 1,018 -
Restricted cash 1,500 987
--------- --------
--------- --------
Net cash provided by financing 8,207 (174)
activities
--------- --------
Net increase in cash and cash 10,875 2,442
Cash and cash equivalents at beginning 6,219 3,010
of the period
--------- --------
Cash and cash equivalents at end of $17,094 $5,452
the period
========= ========
</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 consolidated financial statements have been prepared
by Alliance Semiconductor Corporation (the "Company") in accordance with the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosure, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted in accordance with such rules and regulations. In the
opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments necessary to present fairly the consolidated
financial position of the Company and its subsidiaries, and their consolidated
results of operations and cash flows. These financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto for the fiscal years ended March 31, 1999 and 1998 included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission on July 1, 1999.
For purposes of presentation, the Company has indicated the first nine months of
fiscal 2000 and 1999 as ending on December 31, 1999, respectively; whereas, in
fact, the Company's fiscal quarters ended on January 1, 2000 and January 2,
1999, respectively.
The results of operations for the three months ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000 and the Company makes no representations related thereto.
Note 2. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
December March 31,
31, 1999 1999
------------ -----------
Inventory:
<S> <C> <C>
Work in $15,338 $5,119
Finished 11,208 7,808
------------ -----------
$26,546 $12,927
============ ===========
</TABLE>
Note 3. INVENTORY CHARGES AND VALUATION ALLOWANCE
During the third quarter of fiscal 2000, the Company experienced an improvement
in the average selling prices for certain products and a higher demand for SRAM
and DRAM products. In the third quarter of fiscal 2000, the Company recorded
approximately $0.5 million pre-tax inventory valuation charge. This compares to
a pre-tax inventory valuation charge of approximately $0.6 million for the same
period of fiscal 1999. During the first three quarters of fiscal 2000, the
Company has recorded approximately $0.7 million pre-tax inventory valuation
charge. This compares to a pre-tax inventory valuation charge of approximately
$20.3 million for the first three quarters of fiscal 1999. These pre-tax charges
were made to reflect a further decline in market value of certain inventory and
to provide additional reserves for obsolete and excess inventory. The Company is
unable to predict future market prices for its products. A decline in average
selling prices for its products could result in additional material inventory
valuation adjustments and corresponding charges to operations.
Note 4. INVESTMENTS
In February and April 1995, the Company agreed to purchase 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, if Alliance so chooses. In October 1999, Chartered successfully
completed an initial public offering in Singapore and the United States. The
Company owns approximately 21.4 million ordinary shares or approximately 2.14
million American Depository Shares, or ADSs. These shares are subject to a
six-month "lock-up," or no trade period which expires at the end of April 2000.
Prior to the fiscal third quarter of FY 2000, the Company recorded its
investment in Chartered as a long-term investment using the cost method
- 6 -
<PAGE>
of accounting. The Company now records its investment in Chartered as an
available for sale marketable security in accordance with FAS 115. At the end of
the December 1999 quarter, the Company has recorded an unrealized gain of
approximately $62 million, net of deferred tax, as part of Accumulated other
comprehensive income in the Stockholders 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% 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 of 35 million shares of USC, and due to the merger of
USC into UMC, the Company has will receive an additional 665 million NTD
(approximately US$21.2 million as of December 31,1999). (See Note 12- Subsequent
Events.)
Subsequent to the April 1998 sale, the Company owned approximately 15.50% of the
outstanding shares of USC. In October 1998, the Company received approximately
46 million shares upon USC's payment of a stock dividend to its investors and
employees. As a result of this stock dividend, the Company's ownership in USC
was reduced to 15.06%. In April 1999, the Company received approximately 46
million shares as USC paid another stock dividend to its investors and
employees. As a result of this stock dividend, the Company's ownership in USC
was reduced to 14.76%. The Company has historically accounted for its investment
in USC using the equity method of accounting given its active Board membership
and wafer capacity rights. During the first nine months of fiscal 2000, the
Company recorded its proportionate share of equity in income of USC in its
Statement of Operations amounting to $9.5 million compared to $9.3 million
recorded during the first nine months of fiscal 1999. With the completion of the
USC merger with UMC in January 2000 (see below), the Company will no longer
record its proportionate share of equity in income of USC in its Statement of
Operations on a quarterly basis, but will rather use the cost method of
accounting for its investment in UMC.
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 owns approximately 3.21% of the outstanding
shares of USIC, and has the right to purchase approximately 3.70% of the
manufacturing capacity of the facility. The Company accounts for its investment
in USIC using the cost method of accounting.
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. The merger was
completed in January 2000. Alliance received 247.7 million shares of UMC stock
for its 247.7 million shares, or 14.76% ownership of USC, and approximately 35.6
million shares of UMC stock for its 48.1 million shares, or 3.21% ownership of
USIC.
As a result of the merger, Alliance Semiconductor now owns 283.3 million shares,
or approximately 3.2% of UMC, and will also maintain its 25% and 3.70% wafer
capacity allocation rights in the former USC and USIC foundries, respectively.
The Company will recognize a $908 million pre-tax ($532 million after-tax) gain
in its fiscal fourth quarter ending April 1, 2000, as a result of the merger.
The gain will be reported as non-operating income, representing the appreciation
of Alliance's investment in USC and USIC based on the share price of UMC at the
date of the merger (i.e. NTD 112, or US $3.5685), as well as approximately $21.2
million additional gain related to the sale of the USC shares in April 1998.
According to Taiwanese laws and regulations, 50% of the 283.3 million Alliance's
UMC shares are subject to a six month "lock-up" or no trade period. Of the
remaining 50%, or 141.6 million shares, approximately 28.3 million shares will
become eligible for sale two years from the closing date of the transaction,
with 28.3 million shares available for sale every six months thereafter, during
years three and four. When these shares are ultimately sold, it is possible that
additional gain or loss will be reported.
The Company, through its new venture arm Alliance Venture Management, LLC,
invested approximately $12 million during fiscal third quarter of FY 2000 in two
Alliance ventures funds (Alliance Ventures I, LP and Alliance Ventures II, LP).
At the end of December 1999, Alliance Venture Management, LLC had invested
approximately
- 7 -
<PAGE>
$20 million in fifteen companies. Alliance Ventures I, LP, whose focus is
investing in networking and communication start-up companies, has invested $19
million in eleven companies, with a total fund allocation of $20 million.
Alliance Ventures II, LP, whose focus is in investing in internet start-up
ventures has approximately $1.6 million invested to-date in four companies, with
approximately $15 million total designated for this fund. The newly formed
Alliance Ventures III, LP, will also focus on emerging companies in the
networking and communication market areas and has been allocated up to $100
million for new investments. The Company is currently evaluating a number of
existing and new start-up investment opportunities which could result in
additional investments of $15-$25 million during the fiscal fourth quarter of FY
2000. The Company accounts for these investments using the cost method.
Note 5. GAIN ON SALE OF USC SHARES
In April 1998, the Company sold 35 million shares of USC (representing
approximately 18% of the Company's interest in USC) to an affiliate of UMC for
net proceeds of $31.7 million, plus the right to receive a contingent payment of
665 million NTD (approximately US$21.2 million) upon the sale or transfer of USC
shares, including the merger of USC into UMC. The net gain on the sale, after
deducting the cost basis plus a share of the equity in income of those shares
disposed, was $15.8 million, which was included in, Gain on marketable
securities.
Note 6. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130 (SFAS
130), "Reporting Comprehensive Income" in fiscal 1999. SFAS 130 establishes
rules for the reporting and display of comprehensive income and its components.
The following are the components of comprehensive income:
<TABLE>
<CAPTION>
Three months Nine months
ended ended
December 31, December 31,
(in thousands) (in thousands)
------------------ ------------------
1999 1998 1999 1998
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $9,154 ($2,053) $67,015 ($22,601)
Unrealized gain on
marketable securities 82,687 - 86,632 -
(net of deferred taxes
of $56,751 and $59,459)
Cumulative translation 1,936 37 8,876 2,986
adjustments
--------- -------- -------- ---------
Comprehensive $93,777 ($2,016) $162,523 ($19,615)
income (loss)
========= ======== ======== =========
</TABLE>
The components of Accumulated other comprehensive income (loss) in the
Stockholders Equity Section of the Balance Sheet are as follows:
<TABLE>
<CAPTION>
December March 31,
31, 1999 1999
----------- ------------
<S> <C> <C>
Unrealized gain on $86,632 -
marketable securities (net
of deferred taxes of
$59,459)
Cumulative translation (9,611) ($18,366)
adjustments
----------- ------------
Accumulated other $77,021 ($18,366)
comprehensive loss
=========== ============
</TABLE>
Note 7. PURCHASE ORDER COMMITMENTS
At December 31, 1999, the Company had approximately $41.3 million of
non-cancelable purchase commitments with suppliers. The Company expects to sell
all products which it has committed to purchase from suppliers.
Note 8. LETTERS OF CREDIT
As of December 31, 1999, $3.7 million of standby letters of credit were
outstanding and expire on or before June 1, 2000, which are secured by
restricted cash and short-term investments.
- 8 -
<PAGE>
Note 9. NET INCOME (LOSS) PER SHARE
Basic EPS is computed by dividing net income available to common stockholders
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period including stock options,
using the treasury stock method. In computing Diluted EPS, the average stock
price for the period is used in determining the number of shares assumed to be
purchased from the proceeds obtained upon exercise of stock options.
The computations for basic and diluted EPS are presented below:
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
(in thousands) (in thousands)
------------------ -------------------
1999 1998 1999 1998
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $9,154 ($2,053) $67,015 ($22,601)
========= ======= ========= =========
========= ======= ========= =========
Weighted average shares 41,858 41,512 41,989 41,315
outstanding
Effect of dilutive employee 1,086 - 1,014 -
stock options
--------- ------- --------- ---------
Average shares outstanding 42,944 41,512 43,003 41,315
assuming dilution
========= ======= ========= =========
Net income (loss) per share:
Basic $0.22 ($0.05) $1.60 ($0.55)
========= ======= ========= =========
Diluted $0.21 ($0.05) $1.56 ($0.55)
========= ======= ========= =========
</TABLE>
The following are not included in the above calculation as they were considered
anti-dilutive:
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
(in thousands) (in thousands)
------------------ -------------------
1999 1998 1999 1998
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Employee stock options 17 1,683 289 2,082
outstanding
========= ======== ======== =========
</TABLE>
Note 10. LEGAL MATTERS
In March 1996, a putative class action lawsuit was filed against the Company and
certain of its officers and directors and others in the United States District
Court for the Northern District of California, alleging violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder. The complaint alleged that the Company, N.D. Reddy and
C.N. Reddy also had liability under Section 20(a) of the Exchange Act. The
complaint, brought by an individual who claimed to have purchased 100 shares of
the Company's common stock on November 2, 1995, was putatively brought on behalf
of a class of persons who purchased the Company's common stock between July 11,
1995 and December 29, 1995. In April 1997, the Court dismissed the complaint,
with leave to file an amended complaint. In June 1997, plaintiff filed an
amended complaint against the Company and certain of its officers and directors
alleging violations of Sections 10(b) and 20(a) of the Exchange Act. In July
1997, The Company moved to dismiss the amended complaint. In March 1998, the
court ruled in defendants' favor as to all claims but one, and dismissed all but
one claim with prejudice. In April 1998, defendants requested reconsideration of
the ruling as to the one claim not dismissed. In June 1998, the parties
stipulated to dismiss the remaining claim without prejudice, on the condition
that in the event the dismissal with prejudice of the other claims is affirmed
in its entirety, such remaining claim shall be deemed dismissed with prejudice.
In June 1998, the court entered judgment dismissing the case pursuant to the
parties' stipulation. Plaintiffs have appealed the court's ruling dismissing the
claims and the parties are briefing the appeal. The Company intends to continue
to defend vigorously against any claims asserted against it, and believes it has
meritorious defenses. Due to the inherent uncertainty of litigation, the Company
is not able to reasonably estimate the potential losses, if any, that may be
incurred in relation to this litigation.
In December 1996, Alliance Semiconductor International Corporation ("ASIC"), a
wholly-owned subsidiary of the Company, was served with a complaint filed in
Federal Court alleging that ASIC 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. A trial date has been set by
- 9 -
<PAGE>
the Court for June 2000. 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. The Company believes the
resolution of this matter will not have a material adverse effect on the 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. The appeal
brief and reply briefs have been filed and the parties are awaiting oral
arguments before the Court in June 2000.
In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United States International Trade Commission ("ITC") and United States
Department of Commerce ("DOC"), alleging that static random access memories
("SRAMs") fabricated in Taiwan were being sold in the United States at less than
fair value, and that the United States industry producing SRAMs was materially
injured or threatened with material injury by reason of imports of SRAMs
fabricated in Taiwan. After a final affirmative DOC determination of dumping and
a final affirmative ITC determination of injury, DOC issued an antidumping duty
order in April 1998. Under that order, the Company's imports into the United
States on or after approximately April 16,1998 of SRAMs fabricated in Taiwan are
subject to a cash deposit in the amount of 50.15% (the "Antidumping Margin") of
the entered value of such SRAMs. (The Company posted a bond in the amount of
59.06% (the preliminary margin) with respect to its importation, between
approximately October 1997 and April 1998, of SRAMs fabricated in Taiwan.) In
May 1998, the Company and others filed an appeal in the United States Court of
International Trade (the "CIT"), challenging the determination by the ITC that
imports of Taiwan-fabricated SRAMs were causing material injury to the U.S.
industry. On June 30, 1999 the CIT issued a decision remanding the ITC's
affirmative material injury determination to the ITC for reconsideration. The
ITC's remand determination reaffirmed its original determination and is
currently being considered by the CIT. The decision of the CIT can be further
appealed to the Court of Appeals for the Federal Circuit. The Company cannot
predict either the timing or the eventual results of the appeal. Until a final
judgment is entered in the appeal, no final duties will be assessed on the
Company's entries of SRAMs from Taiwan covered by the DOC antidumping duty
order. If the appeal is successful, the antidumping order will be terminated and
cash deposits will be refunded with interest. If the appeal is unsuccessful, the
Company's entries of Taiwan-fabricated SRAMs from October 1, 1997 through March
31, 1999 will be liquidated at the deposit rate in effect at the time of entry.
On subsequent entries of Taiwan-fabricated SRAMs, the Company will continue to
make cash deposits in the amount of 50.15% of the entered value. In April 2000,
the Company will have an opportunity to request a review of its sales of
Taiwan-fabricated SRAMs from April 1, 1999 through March 31, 2000 (the "Review
Period"). If it does so, the amount of antidumping duties, if any, owed on
imports from April 1999 through March 2000 will remain undetermined until the
conclusion of the review in early 2001. If the DOC found, based upon analysis of
the Company's sales during the Review Period, that antidumping duties either
should not be imposed or should be imposed at a lower rate than the Antidumping
Margin, the difference between the cash deposits made by the Company, and the
deposits that would have been made had the lower rate (or no rate, as the case
may be) been in effect, would be returned to the Company, plus interest. If, on
the other hand, the DOC found that higher margins were appropriate, the Company
would have to pay difference between the cash deposits paid by the Company and
the deposits that would have been made had the higher rate been in effect. A
material portion of the SRAMs designed and sold by the Company are fabricated in
Taiwan, and the cash deposit requirement and possibility of assessment of
antidumping duties could materially adversely affect the Company's ability to
sell Taiwan-fabricated SRAMs in the United States and have a material adverse
effect on the Company's operating results and financial condition. At December
31, 1999, the Company had posted a bond secured by a letter of credit in the
amount of approximately $1.7 million and made cash deposits in the amount of
$1.7 million relating to the Company's importation of Taiwan-manufactured SRAMs.
In October 1998, Micron Technology, Inc. filed an antidumping petition with the
DOC and the ITC, alleging that dynamic random access memories ("DRAMs")
fabricated in Taiwan 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
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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 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.
If the appeal is successful, the DOC will issue an antidumping duty order and
entries of Taiwan fabricated DRAMs into the United States on or after the date
the order is published will be subject to a cash deposit in the amount of the
"final all-others" rate applied to the entered value of such DRAMs. The company
cannot predict either the timing or the eventual results of the appeal. A
material portion of the DRAMs designed and sold by the Company are fabricated in
Taiwan. Consequently, if the appeal of the negative injury determination is
successful, the cash deposit requirement and possibility of assessment of
antidumping duties could materially adversely affect the Company's ability to
sell Taiwan-fabricated DRAMs in the United States and have a material adverse
effect on the Company's operating results and financial condition.
Note 11. ACQUISITION OF MAVERICK NETWORKS BY BROADCOM CORPORATION
On May 31, 1999, Maverick Networks (an entity in which the Company had a 28%
interest in) completed a transaction with Broadcom Corporation, resulting in the
Company selling its ownership interest in Maverick Networks in exchange for
538,961 shares of Broadcom's Class B common stock. Based on Broadcom's closing
share price on the date of sale, the Company recorded a pre-tax gain in the
first quarter of fiscal 2000 of approximately $51.6 million, which is included
in Gain on Marketable Securities. Subsequent to the transaction date, the
Company's investment in Broadcom Corporation is being be accounted for as an
"available for sale" marketable security in accordance with FAS 115. During the
first nine months of fiscal 2000, the Company sold 200,600 shares of Broadcom
stock and realized an additional pre-tax gain of approximately $9.8 million. At
December 31, 1999, the Company owned approximately 306,000 shares and recorded
an additional unrealized gain of $40 million, (net of tax), Accumulated other
comprehensive income in the Stockholders Equity section of the Balance Sheet.
Note 12. SUBSEQUENT EVENTS
UMC MERGER
In June 1999, UMC announced plans to merge four semiconductor wafer foundry
units, USC, USIC, United Integrated Circuit Corporation and UTEK Semiconductor
Corporation, into UMC. The merger was completed in January 2000. Alliance
received 247.7 million shares of UMC stock for its 247.7 million shares or
14.76% ownership of USC, and approximately 35.6 million shares of UMC stock for
its 48.1 million shares or 3.21% ownership of USIC. As a result of the merger,
Alliance Semiconductor now owns 283.3 million shares or approximately 3.2% of
UMC, and will also maintain its 25% and 3.70% wafer capacity allocation rights
in the former USC and USIC foundries, respectively. The Company will recognize a
$908 million pre-tax ($532 million after-tax) gain in its fiscal fourth quarter
ending April 1, 2000 as a result of the merger of USC and USIC with UMC. The
gain will be reported as non-operating income, representing the appreciation of
Alliance's investment in USC and USIC based on the share price of UMC at the
date of the merger (i.e. NTD 112, or US $3.5685), as well as approximately $21.2
million additional gain related to the sale of the USC shares in April 1998.
SHARE REPURCHASE PROGRAM
In June 1998, the Company announced a stock repurchase program, which permits
the Company to repurchase up to 2 million shares of its common stock from time
to time in the open market or in a block purchase, in compliance with Rule
10b-18. In February 2000, the Board of Directors approved an increase in the
authorized
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<PAGE>
share repurchase amount from 2 million shares up to 4 million shares of common
stock. The Company has repurchased approximately 500,000 shares under the
original program, all in the fourth quarter fiscal 2000.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
WHEN USED IN THIS REPORT, THE WORDS "EXPECTS," ANTICIPATES," "BELIEVES,"
"APPROXIMATES," "ESTIMATES" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS, WHICH INCLUDE STATEMENTS CONCERNING
THE TIMING OF NEW PRODUCT INTRODUCTIONS; THE FUNCTIONALITY AND AVAILABILITY OF
PRODUCTS UNDER DEVELOPMENT; TRENDS IN THE PERSONAL COMPUTER, NETWORKING,
TELECOMMUNICATIONS AND INSTRUMENTATION MARKETS, IN PARTICULAR AS THEY MAY AFFECT
DEMAND FOR OR PRICING OF THE COMPANY'S PRODUCTS; THE PERCENTAGE OF EXPORT SALES
AND SALES TO STRATEGIC CUSTOMERS; THE PERCENTAGE OF REVENUE BY PRODUCT LINE; AND
THE AVAILABILITY AND COST OF PRODUCTS FROM THE COMPANY'S SUPPLIERS; ARE SUBJECT
TO RISKS AND UNCERTAINTIES. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE SET
FORTH IN ITEM 2 (ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS") OF THIS REPORT, AND IN ITEM 1 (ENTITLED
"BUSINESS") OF PART I AND IN ITEM 7 (ENTITLED "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS") OF PART II OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED APRIL 3, 1999
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1999, AND THE
SUBSEQUENT QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDING JULY 3, 1999
AND OCTOBER 2, 1999. THESE RISKS AND UNCERTAINTIES, OR THE OCCURRENCE OF OTHER
EVENTS, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN
THE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS
OF THE DATE OF THIS REPORT. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS
WITH REGARD THERETO OR TO REFLECT ANY CHANGE IN EVENTS, CONDITIONS OR
CIRCUMSTANCES ON WHICH ANY SUCH FORWARD-LOOKING STATEMENT IS BASED, IN WHOLE OR
IN PART.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
data as a percentage of net revenue:
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
--------------------- ------------------
1999 1998 1999 1998
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 65.6 81.8 66.6 153.1
---------- --------- -------- --------
Gross profit (loss) 34.4 18.2 33.4 (53.1)
Operating expenses:
Research and development 14.2 24.7 17.9 32.5
Selling, general and 28.7 21.6 20.9 28.5
administrative
---------- --------- -------- --------
Total operating expenses 42.9 46.3 38.8 61.0
---------- --------- -------- --------
Loss from operations (8.5) (28.1) (5.4) (114.1)
Gain on Marketable Securities 21.8 - 100.1 46.7
Other income (expense), net (0.2) (2.9) (0.3) (1.9)
---------- --------- -------- --------
Income (loss) before income 13.1 (31.0) 94.4 (69.3)
taxes and equity in income of
United Semiconductor
Corporation ("USC")
---------- --------- -------- --------
Provision (benefit) for income (4.1) - (1.0) 24.8
---------- --------- -------- --------
Income (loss) before equity in 17.2 (31.0) 95.4 (94.1)
income of USC
Equity in income of USC 21.8 15.5 15.7 27.4
---------- --------- -------- --------
Net income (loss) 39.0% (15.5%) 111.1% (66.7%)
========== ========= ======== ========
</TABLE>
NET REVENUES
Net revenues increased by 77% to $23.5 million for the three months ended
December 1999, from $13.3 million for the similar period in 1998. This increase
in revenues was mainly due an overall increase in the average selling prices of
dynamic random access memory ("DRAM") and static random access memory ("SRAM")
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<PAGE>
products combined with a higher unit shipments of the Company's products. Net
revenues for the third quarter of fiscal 2000 increased 23% over net revenues
reported in the second fiscal quarter (September 1999 quarter) and 33% over the
first quarter (June 1999 quarter) of fiscal 2000. Net revenues for the nine
months ended December 1999 increased by 78% to $60.3 million compared to $33.9
million during the same period one year ago.
Revenues from the Company's DRAM products contributed approximately 55% of the
Company's net revenues for the December 1999 quarter and approximately 33% of
the Company's net revenues for the December 1998 quarter. The DRAM revenues
increased by 191% to $12.8 million for the December 1999 quarter from $4.4
million for the December 1998 quarter. The net increase was largely due to a
significant increase in the average selling prices on most DRAM products which,
overall increased by approximately 187%. 16Mb DRAM's accounted for 75% of the
total DRAM revenue for the December 1999 quarter compared to 79% for the same
period one year ago. Net revenues from the Company's DRAM products contributed
approximately 58% of the net revenues for nine months ended December 1999 as
compared to 40% for the same period one year ago.
Revenues from the Company's SRAM products contributed approximately 45% of the
Company's net revenues for the December 1999 quarter and approximately 66% of
the Company's net revenues for the December 1998 quarter. The SRAM revenues
increased by 22% to $10.6 million in the December 1999 quarter from $8.7 million
in the December 1998 quarter. The net increase was due to approximately 16%
increase in shipments of SRAM products and approximately 15% in average selling
prices. Net revenues from the Company's SRAM products contributed approximately
42% of the net revenues for nine months ended December 1999 as compared to 59%
for the same period one year ago.
Generally, the markets for the Company's products are characterized by volatile
supply and demand conditions, numerous competitors, rapid technological change
and product obsolescence. These conditions could require the Company to make
significant shifts in its product mix in a relatively short period of time.
These changes involve several risks, including, among others, constraints or
delays in timely deliveries of products from the Company's suppliers; lower than
anticipated wafer manufacturing yields; lower than expected throughput from
assembly and test suppliers; and less than anticipated demand and selling
prices. The occurrence of any problems resulting from these risks could have a
material adverse effect on the Company's operating results.
GROSS PROFIT (LOSS)
The Company experienced a gross profit of $8.1 million for the third quarter of
fiscal 2000, or 34% of net revenues compared to a gross profit of $2.4 million,
or 18% of net revenues for the same period of fiscal 1999. The increase in gross
profits for third quarter of fiscal 2000 compared to the same period of fiscal
1999, primarily resulted from higher overall average selling prices for the
Company's DRAM and SRAM products and higher unit shipments. In the third quarter
of fiscal 1999 the Company also benefited from a $1.5 million reversal of a
reserve for estimated sales returns. The gross profit was $20.1 million or 33%
of net revenues for the first nine months of fiscal 2000 compared to a gross
loss of $18.0 million, or (53%) of net revenues, for the first nine months of
fiscal 1999. The increase in gross profits for the nine months ended December
31, 1999 versus the nine months ended December 31, 1998, primarily resulted from
higher overall average selling prices for the Company's DRAM and SRAM products
and higher unit shipments. Included in the nine months ended fiscal 2000 is $0.7
million additional pre-tax inventory charge as compared to $20.3 million pre-tax
inventory charge recorded for the nine months ended fiscal 1999.
The Company is subject to a number of factors which may have an adverse impact
on gross margins including the availability and cost of products from the
Company's suppliers; increased competition and related decreases in average unit
selling prices; changes in the mix of products sold; timing of new product
introductions and volume shipments; and antidumping duties related to the
importation of products from Taiwan. In addition, the Company may seek to add
additional foundry suppliers and transfer existing and newly developed products
to more advanced manufacturing processes. The commencement of manufacturing at a
new foundry is often characterized by lower yields as the manufacturing process
is refined. There can be no assurance that one or more of the factors set forth
in this paragraph will not have a material adverse effect on the Company's gross
margins in future periods.
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<PAGE>
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 $3.3 million, or 14% of net revenue in
the third quarter of fiscal 2000 compared to $3.3 million, or 25% of net revenue
in the same period of the prior fiscal year. Research and development expenses
in the first nine months of fiscal 2000 were $10.8 million, or 18% of net
revenues compared to $11.0 million, or 32% for the same period one year ago.
The Company believes that investments in research and development are necessary
to remain competitive in the marketplace and accordingly, research and
development expenses may increase in absolute dollars and may also increase as a
percentage of net revenue in future periods.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses generally include salaries and
benefits, sales commissions, marketing costs, travel, equipment depreciation and
software amortization, facilities costs, bad debt expense as well as insurance
and legal costs for the Company's sales, marketing, customer support and
administrative personnel.
Selling, general and administrative expenses were $6.8 million, or 29% of net
revenue in the third quarter of fiscal 2000 compared to $2.9 million, or 22% of
net revenue in the same period of the prior fiscal year. For the first nine
months of fiscal 2000, expenses were $12.6 million, or 21% compared to $9.7
million, or 29% for the same period one year ago. The increase in selling,
general and administrative expenses for the third quarter of fiscal 2000 as well
as the first nine months of fiscal 2000 compared to the third quarter and the
first nine months of fiscal 1999 was primarily a result of a $3.6 million
discretionary, non-recurring compensation expense which was recorded in the
third quarter of fiscal 2000. The increase in selling, general and
administration expenses was also attributable to higher sales commissions due to
increased revenue which were offset in part by lower headcount and personnel
related costs, and lower legal and bad debt expenses.
Selling, general and administrative expenses may increase in absolute dollars
and may also increase as a percentage of net revenue in future periods.
GAIN ON MARKETABLE SECURITIES
On May 31, 1999, Maverick Networks (an entity in which the Company had a 28%
interest in) completed a transaction with Broadcom Corporation, resulting in the
Company selling its ownership interest in Maverick Networks in exchange for
538,961 shares of Broadcom's Class B common stock. Based on Broadcom's closing
share price on the date of sale, the Company recorded a pre-tax gain in the
first quarter of fiscal 2000 of approximately $51.6 million, which is included
in Other Income, net. Subsequent to the transaction date, the Company's
investment in Broadcom Corporation is being be accounted for as an "available
for sale" marketable security in accordance with FAS 115. During the first nine
months of fiscal 2000, the Company sold 200,600 shares of Broadcom stock and
realized an additional pre-tax gain of approximately $9.8 million. At December
31, 1999, the Company owned approximately 306,000 shares and recorded an
additional unrealized gain of $40 million, (net of tax), as Accumulated other
comprehensive income in the Stockholders Equity section of the Balance Sheet.
PROVISION FOR INCOME TAXES
During the third quarter of FY 2000, and for the nine months ended December 31,
1999, the Company recorded net tax benefits of $963,000 and $596,000
respectively, which were in recognition of tax loss carryforwards and tax
credits available to the Company. The Company expects to report tax expense
using a normalized tax rate of 40.7% in future periods.
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<PAGE>
EQUITY IN INCOME OF USC
As discussed in Note 4. Investments, the Company entered into an agreement with
other parties to form a separate Taiwanese company, USC in July 1995. This
investment is accounted for under the equity method of accounting with a
ninety-day lag in reporting the Company's share of results for the entity.
Equity in income of USC reflects the company's share of income earned by USC for
the previous quarter. Equity income from USC for the first nine months of fiscal
2000 was $9.5 million, or 15.7% of net revenues as compared to $9.3 million or
27.4% of net revenues reported for the same period last year. This increase was
primarily due to higher operating income offset by a decrease in the Company's
ownership percentage from approximately 15.49% to 14.76%.
With the completion of the USC merger with UMC in January 2000, the Company
will no longer report its proportionate share of equity income in USC. (See
Note 12 - Subsequent Events.)
IMPACT OF YEAR 2000 ISSUES
The Company uses a number of computer software programs and operating systems
and intelligent hardware devices in its internal operations, including
information technology (IT) and non-IT systems used in the design, manufacture
and marketing of Company products. These items are considered to be year 2000
"objects" and to the extent that these objects are unable to correctly recognize
and process date dependent information beyond the year 1999, some level of
modification or replacement is necessary. Most computer programs were designed
to perform data computations on the last two digits of the numerical value of a
year. When a computation referencing the year 2000 is performed, these systems
may interpret "00" as the year 1900 and could either stop processing
date-related computations or could process them incorrectly. Computations
referencing the year 2000 might be invoked at any time, but are likely to begin
occurring in the year 1999.
The Company completed a company-wide year 2000 readiness assessment and
completed implementing a new management information system. No major year 2000
problems have occurred to date. During fiscal years 1999 and 1998, the Company
spent approximately $2.6 million in connection with implementing the new
information systems. The Company does not anticipate that it will incur any
further material expenditures for the resolution of any year 2000 issues
relating to its IT or non-IT systems.
The Company could possibly be materially adversely impacted by the year 2000
issues faced by major distributors, suppliers, subcontractors, customers,
vendors, and financial service organizations with which the Company interacts.
To our knowledge, no major problems have occurred thus far. In the event 2000
issues relating to key customers and suppliers occur and are not successfully
resolved, there could be adverse impacts supplier deliveries or customer
shipments. If severe disruptions occur in these areas and are not corrected in a
timely manner, a revenue or profit shortfall may result in fiscal year 2000.
Year 2000 compliance issues could have a significant impact on the Company's
operations and its financial results if unforeseen needs or problems arise; or,
if the systems operated by the Company's customers, vendors or subcontractors
are not year 2000 compliant. Due to the general uncertainty inherent in the year
2000 problem, resulting in part from the uncertainty of the year 2000 readiness
of third-parties and the interconnection of global businesses, the Company
cannot ensure its ability to timely and cost-effectively resolve problems
associated with the year 2000 issue that may affect its operations and business,
or expose it to third-party liability.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's quarterly and annual operating results have historically been, and
will continue to be, subject to quarterly and other fluctuations due to a
variety of factors, including: general economic conditions; changes in pricing
policies by the Company, its competitors or its suppliers; anticipated and
unanticipated decreases in unit average selling prices of the Company's
products; fluctuations in manufacturing yields, availability and cost of
products from the Company's suppliers; the timing of new product announcements
and introductions by the Company or its competitors; changes in the mix of
products sold; the cyclical nature of the semiconductor industry; the gain or
loss of significant customers; increased research and development expenses
associated with new product introductions; market acceptance of new or enhanced
versions of the Company's products; seasonal customer demand; and the timing of
significant orders. Operating results could also be adversely affected by
economic conditions generally or in various geographic areas, other conditions
affecting the timing of customer
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<PAGE>
orders and capital spending, a downturn in the market for personal computers, or
order cancellations or rescheduling. Additionally, because the Company is
continuing to increase its operating expenses for personnel and new product
development to be able to support increased sales levels, the Company's
operating results will be adversely affected if such increased sales levels are
not achieved.
The markets for the Company's products are characterized by rapid technological
change, evolving industry standards, product obsolescence and significant price
competition and, as a result, are subject to decreases in average selling
prices. The Company has experienced significant deterioration in the average
selling prices for its SRAM and DRAM products during the past three years. The
Company is unable to predict when or if such decline in prices will stabilize.
Historically, average selling prices for semiconductor memory products have
declined and the Company expects that average selling prices will decline in the
future. Accordingly, the Company's ability to maintain or increase revenues will
be highly dependent on its ability to increase unit sales volume of existing
products and to successfully develop, introduce and sell new products. Declining
average selling prices will also adversely affect the Company's gross margins
unless the Company is able to significantly reduce its cost per unit in an
amount to offset the declines in average selling prices. There can be no
assurance that the Company will be able to increase unit sales volumes of
existing products, develop, introduce and sell new products or significantly
reduce its cost per unit. There also can be no assurance that even if the
Company were to increase unit sales volumes and sufficiently reduce its costs
per unit, the Company would be able to maintain or increase revenues or gross
margins.
The Company usually ships more product in the third month of each quarter than
in either of the first two months of the quarter, with shipments in the third
month higher at the end of the month. This pattern, which is common in the
semiconductor industry, is likely to continue. The concentration of sales in the
last month of the quarter may cause the Company's quarterly results of
operations to be more difficult to predict. Moreover, a disruption in the
Company's production or shipping near the end of a quarter could materially
reduce the Company's net sales for that quarter. The Company's reliance on
outside foundries and independent assembly and testing houses reduces the
Company's ability to control, among other things, delivery schedules.
The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity such as the Company has
experienced from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products to meet future demand, and any inability of the Company to maintain
adequate inventory levels may adversely affect its relations with its customers.
In addition, the Company must order products and build inventory substantially
in advance of products shipments, and there is a risk that because demand for
the Company's products is volatile and subject to rapid technology and price
change, the Company will forecast incorrectly and produce excess or insufficient
inventories of particular products. This inventory risk is heightened because
certain of the Company's key customers place orders with short lead times. The
Company's customers' ability to reschedule or cancel orders without significant
penalty could adversely affect the Company's liquidity, as the Company may be
unable to adjust its purchases from its independent foundries to match such
customer changes and cancellations. The Company has in the past produced excess
quantities of certain products, which has had a material adverse effect on the
Company's operating results. There can be no assurance that the Company in the
future will not produce excess quantities of any of its products. To the extent
the Company produces excess or insufficient inventories of particular products,
the Company's operating results could be adversely affected, as was the case in
fiscal 1999, fiscal 1998 and fiscal 1997, when the Company recorded pre-tax
charges totaling approximately $20 million, $15 million and $17 million,
respectively, primarily to reflect a decline in market value of certain
inventory.
The Company currently relies on independent and joint venture foundries to
manufacture all of the Company's products. Reliance on these foundries involves
several risks, including constraints or delays in timely delivery of the
Company's products, reduced control over delivery schedules, quality assurance
and costs and loss of production due to seismic activity, weather conditions and
other factors. In or about October 1997, a fire caused extensive damage to
United Integrated Circuits Corporation ("UICC"), a foundry joint venture between
UMC and various companies. UICC is located next to USIC and near USC and UMC in
the Hsin-Chu Science-Based Industrial Park. (The Company has products
manufactured at UMC and USC, and owns equity stakes in USC and USIC.) UICC
suffered an additional fire in January 1998, and since October 1996, there have
been at least two other fires at semiconductor manufacturing facilities in the
Hsin-Chu Science-Based Industrial Park.
There can be no assurance that fires, earthquakes or other disasters will not
have a material adverse effect on UMC, USC or USIC in the future. In addition,
as a result of the rapid growth of the semiconductor industry based
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<PAGE>
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 operating results, as was the case during the third quarter of fiscal
1996, during which period manufacturing yields of one of the Company's products
were materially adversely affected by manufacturing problems at one of the
Company's foundry suppliers. There can be no assurance that other problems
affecting manufacturing yields of the Company's products will not occur in the
future.
There is an ongoing risk that the suppliers of wafer fabrication, wafer sort,
assembly and test services to the Company may increase the price charged to the
Company for the services they provide, to the point that the Company may not be
able to profitably have its products produced at such suppliers. The occurrence
of such price increases could have a material adverse effect on the Company's
operating results.
The Company conducts a significant portion of its business internationally and
is subject to a number of risks resulting from such operations. Such risks
include political and economic instability and changes in diplomatic and trade
relationships, foreign currency fluctuations, unexpected changes in regulatory
requirements, delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying with a variety of foreign laws. Because the Company conducts most
of its manufacturing operations in Asia, and receives a significant amount of
its net revenue from sales to Asian customers, the foregoing risks heightened in
light of the past financial and economic crisis in Asia. Current or potential
customers of the Company in Asia, for instance, may become unwilling or unable
to purchase the Company's products, and the Company's Asian competitors may be
able to become more price-competitive relative to the Company due to declining
values of their national currencies. There can be no assurance that such factors
will not adversely impact the Company's operating results in the future or
require the Company to modify its current business practices.
Additionally, other factors may materially adversely affect the Company's
operating results. The Company relies on domestic and offshore subcontractors
for die assembly and testing of products, and is subject to risks of disruption
in adequate supply of such services and quality problems with such services. The
Company is subject to the risks of shortages of goods or services and increases
in the cost of raw materials used in the manufacture or assembly of the
Company's products. The Company faces intense competition, and many of its
principal competitors and potential competitors have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines and longer-standing relationships with customers than does the
Company, any of which factors may place such competitors and potential
competitors in a stronger competitive position than the Company. The Company's
corporate headquarters are located near major earthquake faults, and the Company
is subject to the risk of damage or disruption in the event of seismic activity.
There can be no assurance that any of the foregoing factors will not materially
adversely affect the Company's operating results.
In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income is defined as the change in equity of a company during a
period from transactions and other events and circumstances, excluding
transactions resulting from investments by owners and distributions to owners.
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," and replaces the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of a
company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect results of operations or financial position or the
segments we reported in 1998 and 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow and foreign currency hedges, and establishes
respective accounting standards for reporting changes in the fair value of the
instruments. The
- 17 -
<PAGE>
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 Part II, Item 1 - Legal Proceedings. The Company intends to vigorously defend
itself in the litigation and claims and, subject to the inherent uncertainties
of litigation and based upon discovery completed to date, management believes
that the resolution of these matters will not have a material adverse effect on
the Company's financial position. However, should the outcome of any of these
actions be unfavorable, the Company may be required to pay damages and other
expenses, or may be enjoined from manufacturing or selling any products deemed
to infringe the intellectual property rights of others, which could have a
material adverse effect on the Company's financial position or operating
results. Moreover, the semiconductor industry is characterized by frequent
claims and litigation regarding patent and other intellectual property rights.
The Company has from time to time received, and believes that it likely will in
the future receive, notices alleging that the Company's products, or the
processes used to manufacture the Company's products, infringe the intellectual
property rights of third parties, and the Company is subject to the risk that it
may become party to litigation involving such claims (the Company currently is
involved in patent litigation). In the event of litigation to determine the
validity of any third-party claims (such as the current patent litigation), or
claims against the Company for indemnification related to such third-party
claims, such litigation, whether or not determined in favor of the Company,
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from other matters. In the event of
an adverse ruling in such litigation, the Company might be required to cease the
manufacture, use and sale of infringing products, discontinue the use of certain
processes, expend significant resources to develop non-infringing technology or
obtain licenses to the infringing technology. In addition, depending upon the
number of infringing products and the extent of sales of such products, the
Company could suffer significant monetary damages. In the event of a successful
claim against the Company and the Company's failure to develop or license a
substitute technology, the Company's operating results could be materially
adversely affected.
The Company also, as a result of an antidumping proceeding commenced in February
1997, must pay a cash deposit equal to 50.15% of the entered value of any SRAMs
manufactured (wafer fabrication) in Taiwan, in order to import such goods into
the U.S. Although the Company may be refunded such deposits in the future, the
deposit requirement, and the potential that all entries of Taiwan-fabricated
SRAMs from October 1, 1997 through March 31, 1999 will be liquidated at the bond
rate or deposit rate in effect at the time of entry, may materially adversely
affect the Company's ability to sell in the United States SRAMs manufactured
(wafer fabrication) in Taiwan. The Company manufactures (wafer fabrication)
SRAMs in Singapore (and has manufactured SRAMs in Japan as well), and may be
able to support its U.S. customers with such products, which are not subject to
antidumping duties. There can be no assurance, however, that the Company will be
able to do so.
In October 1998, Micron Technology, Inc. filed an antidumping petition with the
DOC and the ITC, alleging that dynamic random access memories ("DRAMs")
fabricated in Taiwan 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 approximately May 28, 1999 of DRAMs
fabricated in Taiwan are subject to an antidumping duty deposit in the amount of
16.65% (the preliminary "all others" rate) of the entered value of such DRAMs,
an antidumping margin calculated by weight-averaging the antidumping margins of
individually investigated respondent companies. The Company posted a bond to
cover deposits on such entries. In October 1999 the DOC issued a final
affirmative determination of dumping. Under that determination, the Company's
imports into the United States on or after October 19, 1999 of DRAMs fabricated
in Taiwan were subject to an antidumping duty deposit in the amount of 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. If the appeal is
successful, the DOC will issue an antidumping duty order and entries
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<PAGE>
of Taiwan fabricated DRAMs into the United States on or after the date the order
is published will be subject to a cash deposit in the amount of the "final
all-others" rate applied to the entered value of such DRAMs. The company cannot
predict either the timing or the eventual results of the appeal. A material
portion of the DRAMs designed and sold by the Company are fabricated in Taiwan.
Consequently, if the appeal of the negative injury determination is successful,
the cash deposit requirement and possibility of assessment of antidumping duties
could materially adversely affect the Company's ability to sell
Taiwan-fabricated DRAMs in the United States and have a material adverse effect
on the Company's operating results and financial condition.
The Company, through its new venture arm Alliance Venture Management, LLC,
invested approximately $12 million during fiscal third quarter of FY 2000 in two
Alliance ventures funds (Alliance Ventures I, LP and Alliance Ventures II, LP).
At the end of December 1999, Alliance Venture Management, LLC had invested
approximately $20 million in fifteen companies. Alliance Ventures I, LP, whose
focus is investing in networking and communication start-up companies has
invested $19 million in eleven companies, with a total fund allocation of $20
million. Alliance Ventures II, LP, whose focus is in investing in internet
start-up ventures has approximately $1.6 million invested to-date in four
companies, with approximately $15 million total designated for this fund. The
newly formed Alliance Ventures III, LP, will also focus on emerging companies in
the networking and communication market areas and has been allocated up to $100
million for new investments. The Company is currently evaluating a number of
existing and new start-up investment opportunities which could result in
additional investments of $15-$25 million during the fiscal fourth quarter of FY
2000. The Company accounts each of these investments using the cost method of
accounting. There is no guarantee that these companies will be successful or
that the Company will recover its investments.
The value of the Company's investments in marketable securities, including UMC,
Broadcom and Chartered, is subject to market fluctuation, as well as other
factors outside the control of the Company, including all the factor that might
affect semiconductor companies and other high technology companies. Further, a
sale, or other action, by the Company of its marketable securities might reduce
the market price of those securities. There can be no assurance that value of
Company's investment will maintain its present value, or will not be
substantially reduced.
As a result of the foregoing factors, as well as other factors affecting the
Company's operating results, past performance should not be considered to be a
reliable indicator of future performance and investors should not use historical
trends to anticipate results or trends in future periods. In addition, stock
prices for many technology companies are subject to significant volatility,
particularly on a quarterly basis. If revenues or earnings fail to meet
expectations of the investment community, there could be an immediate and
significant impact on the market price of the Company's Common Stock.
Due to the foregoing factors, it is likely that in some future quarter or
quarters the Company's operating results may be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities utilized cash of $3.7 million in first nine
months of fiscal 2000 compared to $23.9 million in the first nine months of
fiscal 1999. Cash utilized in operating activities in the first nine months of
fiscal 2000 was primarily the result of an increase in inventory and accounts
receivable as a result of higher sales. Cash utilized in operations in the first
nine months of fiscal 1999 was primarily a result of a loss from operations and
changes in working capital accounts during the first nine months.
Net cash provided by investing activities was $6.3 million for the first nine
months of fiscal 2000 compared to $26.5 million for the same period of fiscal
1999. Net cash provided by investing activities in the for the first nine months
of fiscal 2000 was a result of the proceeds from the sale of Broadcom shares of
approximately $29.1 million partially offset by $19.4 million investments by
Alliance Venture Management LLC, and equipment purchases of $3.3 million. Net
cash provided by investing activities in the first nine months of fiscal 1999
reflects the proceeds from the sale of USC shares of $31.7 million, partially
offset by equipment purchases of $2.0 million and $3.1 million investment in
United Silicon, Inc.
The Company's financing activities provided cash of $8.2 million in the first
nine months of fiscal 2000 and used cash of $0.1 million in the first
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<PAGE>
nine months of fiscal 1999. Net cash provided by financing activities in the
first nine months of fiscal 2000 reflects proceeds from employee stock option
exercises of $6.5 million and restricted cash of $1.5 million, partially offset
by repayment of long-term obligations of $0.9 million and an increase to
long-term obligations of $1.0 million.
On May 31, 1999, Maverick Networks (an entity in which the Company had a 28%
interest in) completed a transaction with Broadcom Corporation, resulting in the
Company selling its ownership interest in Maverick Networks in exchange for
538,961 shares of Broadcom's Class B common stock. Based on Broadcom's closing
share price on the date of sale, the Company recorded a pre-tax gain in the
first quarter of fiscal 2000 of approximately $51.6 million, which is included
in Other Income, net. Subsequent to the transaction date, the Company's
investment in Broadcom Corporation is being be accounted for as an "available
for sale" marketable security in accordance with FAS 115. During the first nine
months of fiscal 2000, the Company sold 200,600 shares of Broadcom stock and
realized an additional pre-tax gain of approximately $9.8 million. At December
31, 1999, the Company owned approximately 306,000 shares and recorded an
additional unrealized gain of $40 million, (net of tax), as Accumulated other
comprehensive income in the Stockholders Equity section of the Balance Sheet.
At December 31, 1999, the Company had $17.1 million in cash, an increase of
$10.9 million from March 31, 1999, and working capital of $204.7 million, an
increase of $182.6 million from March 31, 1999. Included in this $204.7 million
of working capital is marketable securities of approximately $227.0 million. The
Company believes that these sources of liquidity, and other financing
opportunities available to it, will be sufficient to meet the Company's
projected working capital and other cash requirements for the foreseeable
future.
In order to obtain an adequate supply of wafers, especially wafers manufactured
using advanced process technologies, the Company has entered into and will
continue to consider various possible transactions, including equity investments
in or loans to foundries in exchange for guaranteed production capacity, the
formation of joint ventures to own and operate foundries, or the usage of "take
or pay" contracts that commit the Company to purchase specified quantities of
wafers over extended periods. Manufacturing arrangements such as these may
require substantial capital investments, which may require the Company to seek
additional equity or debt financing. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be on satisfactory terms. Additionally, the Company has entered
into and will continue to enter into various transactions, including the
licensing of its integrated circuit designs in exchange for royalties, fees or
guarantees of manufacturing capacity.
In February and April 1995, the Company agreed to purchase 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, if Alliance so chooses. In October 1999, Chartered successfully
completed an initial public offering in Singapore and the United States. The
Company owns approximately 21.4 million ordinary shares or approximately 2.14
million American Depository Shares, or ADSs. These shares are subject to a
six-month "lock-up," or no trade period which expires at the end of April 2000.
Prior to the fiscal third quarter of FY 2000, the Company recorded its
investment in Chartered as a long-term investment using the cost method of
accounting. The Company now records its investment in Chartered as a marketable
security in accordance with FAS 115. At the end of the December 1999 quarter,
the Company has recorded an unrealized gain of approximately $62 million, net of
deferred tax as part of Accumulated other comprehensive income in the
Stockholders Equity section on 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% 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 of 35 million shares of USC, and due to the merger of
USC into UMC, the Company has will receive an additional 665 million NTD
(approximately US$21.2 million as of December 31,1999). (See Note 12- Subsequent
Events.)
After the April 1998 sale, the Company owned approximately 15.50% of the
outstanding shares of USC. In October 1998, the Company received approximately
46 million shares upon USC's payment of a stock dividend to its investors and
employees. As a result of this stock dividend, the Company's ownership in USC
was reduced
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<PAGE>
to 15.06%. In April 1999, the Company received approximately 46 million shares
as USC paid another stock dividend to its investors and employees. As a result
of this stock dividend, the Company's ownership in USC was reduced to 14.76%.
The Company has historically accounted for its investment in USC using the
equity method of accounting given its active Board membership and wafer capacity
rights. During the first nine months of fiscal 2000, the Company recorded its
proportionate share of equity in income of USC in its Statement of Operations
amounting to $9.5 million compared to $9.3 million recorded during the first
nine months of fiscal 1999. With the completion of the USC merger with UMC in
January 2000 (see below), the Company will no longer record its proportionate
share of equity in income of USC in its Statement of Operations on a quarterly
basis, but will rather use the cost method of accounting for its investment in
UMC.
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 owns approximately 3.21% of the outstanding
shares of USIC, and has the right to purchase approximately 3.70% of the
manufacturing capacity of the facility. The Company accounts for its investment
in USIC using the cost method of accounting.
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. The merger was
completed in January 2000. Alliance received 247.7 million shares of UMC stock
for its 247.7 million shares, or 14.76% ownership of USC, and approximately 35.6
million shares of UMC stock for its 48.1 million shares, or 3.21% ownership of
USIC.
As a result of the merger, Alliance Semiconductor now owns 283.3 million shares,
or approximately 3.2% of UMC, and will also maintain its 25% and 3.70% wafer
capacity allocation rights in the former USC and USIC foundries, respectively.
The Company will recognize a $908 million pre-tax ($532 million after-tax) gain
in its fiscal fourth quarter ending April 1, 2000, as a result of the merger.
The gain will be reported as non-operating income, representing the appreciation
of Alliance's investment in USC and USIC based on the share price of UMC at the
date of the merger (i.e. NTD 112, or US $3.5685), as well as approximately $21.2
million additional gain related to the sale of the USC shares in April 1998.
According to Taiwanese laws and regulations, 50% of the 283.3 million Alliance's
UMC shares are subject to a six month "lock-up" or no trade period. Of the
remaining 50%, or 141.6 million shares, approximately 28.3 million shares will
become eligible for sale two years from the closing date of the transaction,
with 28.3 million shares available for sale every six months thereafter, during
years three and four. When these shares are ultimately sold, it is possible that
additional gain or loss will be reported.
The Company, through its new venture arm Alliance Venture Management, LLC,
invested approximately $12 million during fiscal third quarter of FY 2000 in two
Alliance ventures funds (Alliance Ventures I, LP and Alliance Ventures II, LP).
At the end of December 1999, Alliance Venture Management, LLC had invested
approximately $20 million in fifteen companies. Alliance Ventures I, LP, whose
focus is investing in networking and communication start-up companies, has
invested $19 million in eleven companies, with a total fund allocation of $20
million. Alliance Ventures II, LP, whose focus is in investing in internet
start-up ventures has approximately $1.6 million invested to-date in four
companies, with approximately $15 million total designated for this fund. The
newly formed Alliance Ventures III, LP, will also focus on emerging companies in
the networking and communication market areas and has been allocated up to $100
million for new investments. The Company is currently evaluating a number of
existing and new start-up investment opportunities which could result in
additional investments of $15-$25 million during the fiscal fourth quarter of FY
2000. The Company accounts each of these investments using the cost method.
In June 1998, the Company announced a stock repurchase program, which permits
the Company to repurchase up to 2 million shares of its common stock from time
to time in the open market or in a block purchase, in compliance with Rule
10b-18. In February 2000, the Board of Directors approved an increase in the
authorized share repurchase amount from 2 million shares up to 4 million shares
of common stock. The Company has repurchased approximately 500,000 shares under
the original program, all in the fourth quarter fiscal 2000.
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<PAGE>
===============================================================================
Part II - Other Information
ITEM 1
LEGAL PROCEEDINGS
In March 1996, a putative class action lawsuit was filed against the Company and
certain of its officers and directors and others in the United States District
Court for the Northern District of California, alleging violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder. The complaint alleged that the Company, N.D. Reddy and
C.N. Reddy also had liability under Section 20(a) of the Exchange Act. The
complaint, brought by an individual who claimed to have purchased 100 shares of
the Company's common stock on November 2, 1995, was putatively brought on behalf
of a class of persons who purchased the Company's common stock between July 11,
1995 and December 29, 1995. In April 1997, the Court dismissed the complaint,
with leave to file an amended complaint. In June 1997, plaintiff filed an
amended complaint against the Company and certain of its officers and directors
alleging violations of Sections 10(b) and 20(a) of the Exchange Act. In July
1997, The Company moved to dismiss the amended complaint. In March 1998, the
court ruled in defendants' favor as to all claims but one, and dismissed all but
one claim with prejudice. In April 1998, defendants requested reconsideration of
the ruling as to the one claim not dismissed. In June 1998, the parties
stipulated to dismiss the remaining claim without prejudice, on the condition
that in the event the dismissal with prejudice of the other claims is affirmed
in its entirety, such remaining claim shall be deemed dismissed with prejudice.
In June 1998, the court entered judgment dismissing the case pursuant to the
parties' stipulation. Plaintiffs have appealed the court's ruling dismissing the
claims and the parties are briefing the appeal. The Company intends to continue
to defend vigorously against any claims asserted against it, and believes it has
meritorious defenses. Due to the inherent uncertainty of litigation, the Company
is not able to reasonably estimate the potential losses, if any, that may be
incurred in relation to this litigation.
In December 1996, Alliance Semiconductor International Corporation ("ASIC"), a
wholly-owned subsidiary of the Company, was served with a complaint filed in
Federal Court alleging that ASIC 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. A trial date has been set by the Court for
June 2000. 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. . The Company believes the resolution of
this matter will not have a material adverse effect on the 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. The appeal
brief and reply briefs have been filed and the parties are awaiting oral
arguments before the Court in June 2000.
ITEM 5
OTHER INFORMATION
In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United States International Trade Commission ("ITC") and United States
Department of Commerce ("DOC"), alleging that static random access memories
("SRAMs") fabricated in Taiwan were being sold in the United States at less than
fair value, and that the United States industry producing SRAMs was materially
injured or threatened with material injury by reason of imports of SRAMs
fabricated in Taiwan. After a final affirmative DOC determination of dumping and
a final affirmative ITC determination of injury, DOC issued an antidumping duty
order in April 1998. Under that order,
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<PAGE>
the Company's imports into the United States on or after approximately April
16,1998 of SRAMs fabricated in Taiwan are subject to a cash deposit in the
amount of 50.15% (the "Antidumping Margin") of the entered value of such SRAMs.
(The Company posted a bond in the amount of 59.06% (the preliminary margin) with
respect to its importation, between approximately October 1997 and April 1998,
of SRAMs fabricated in Taiwan.) In May 1998, the Company and others filed an
appeal in the United States Court of International Trade (the "CIT"),
challenging the determination by the ITC that imports of Taiwan-fabricated SRAMs
were causing material injury to the U.S. industry. On June 30, 1999 the CIT
issued a decision remanding the ITC's affirmative material injury determination
to the ITC for reconsideration. The ITC's remand determination reaffirmed its
original determination and is currently being considered by the CIT. The
decision of the CIT can be further appealed to the Court of Appeals for the
Federal Circuit. The Company cannot predict either the timing or the eventual
results of the appeal. Until a final judgment is entered in the appeal, no final
duties will be assessed on the Company's entries of SRAMs from Taiwan covered by
the DOC antidumping duty order. If the appeal is successful, the antidumping
order will be terminated and cash deposits will be refunded with interest. If
the appeal is unsuccessful, the Company's entries of Taiwan-fabricated SRAMs
from October 1, 1997 through March 31, 1999 will be liquidated at the deposit
rate in effect at the time of entry. On subsequent entries of Taiwan-fabricated
SRAMs, the Company will continue to make cash deposits in the amount of 50.15%
of the entered value. In April 2000, the Company will have an opportunity to
request a review of its sales of Taiwan-fabricated SRAMs from April 1, 1999
through March 31, 2000 (the "Review Period"). If it does so, the amount of
antidumping duties, if any, owed on imports from April 1999 through March 2000
will remain undetermined until the conclusion of the review in early 2001. If
the DOC found, based upon analysis of the Company's sales during the Review
Period, that antidumping duties either should not be imposed or should be
imposed at a lower rate than the Antidumping Margin, the difference between the
cash deposits made by the Company, and the deposits that would have been made
had the lower rate (or no rate, as the case may be) been in effect, would be
returned to the Company, plus interest. If, on the other hand, the DOC found
that higher margins were appropriate, the Company would have to pay difference
between the cash deposits paid by the Company and the deposits that would have
been made had the higher rate been in effect. A material portion of the SRAMs
designed and sold by the Company are fabricated in Taiwan, and the cash deposit
requirement and possibility of assessment of antidumping duties could materially
adversely affect the Company's ability to sell Taiwan-fabricated SRAMs in the
United States and have a material adverse effect on the Company's operating
results and financial condition. At December 31, 1999, the Company had posted a
bond secured by a letter of credit in the amount of approximately $1.7 million
and made cash deposits in the amount of $1.7 million relating to the Company's
importation of Taiwan-manufactured SRAMs.
In October 1998, Micron Technology, Inc. filed an antidumping petition with the
DOC and the ITC, alleging that dynamic random access memories ("DRAMs")
fabricated in Taiwan 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 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. If the appeal is
successful, the DOC will issue an antidumping duty order and entries of Taiwan
fabricated DRAMs into the United States on or after the date the order is
published will be subject to a cash deposit in the amount of the "final
all-others" rate applied to the entered value of such DRAMs. The company cannot
predict either the timing or the eventual results of the appeal. A material
portion of the DRAMs designed and sold by the Company are fabricated in Taiwan.
Consequently, if the appeal of the negative injury determination is successful,
the cash deposit requirement and possibility of assessment of antidumping duties
could materially adversely affect the Company's ability to sell
Taiwan-fabricated DRAMs in the United States and have a material adverse effect
on the Company's operating results and financial condition.
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<PAGE>
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 January 1,
2000.
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<PAGE>
================================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALLIANCE SEMICONDUCTOR CORPORATION
February 15, 2000 By: /S/ N. DAMODAR REDDY
-------------------------------------
N. Damodar Reddy
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
February 15, 2000 By: /S/ DAVID EICHLER
-------------------------------------
David Eichler
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Alliance Semiconductor Corporation Financial Data Schedule
</LEGEND>
<CIK> 0000913293
<NAME> Alliance Semiconductor
<MULTIPLIER> 1000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-1-2000
<PERIOD-START> APR-4-1999
<PERIOD-END> Jan-1-2000
<EXCHANGE-RATE> 1
<CASH> 17,094
<SECURITIES> 226,810
<RECEIVABLES> 16,375
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0
0
<COMMON> 422
<OTHER-SE> 322,105
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<CGS> 40,186
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<INCOME-TAX> (596)
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</TABLE>
