<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________________
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED].
For the transition period from _____to _____
Commission file number _____
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
C-Cube Microsystems Employee Savings and Investment Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
C-Cube Microsystems, Inc.
1778 McCarthy Blvd.
Milpitas, California 95035
REQUIRED INFORMATION
The C-Cube Microsystems Employee Savings and Investment Plan (the "Plan")
is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Therefore, in lieu of the requirements of Items 1-3 of
Form 11-K, the financial statements and schedules of the Plan for the two
fiscal years ended December 31, 1998 and 1997, which have been prepared in
accordance with the financial reporting requirements of ERISA, are attached
hereto and incorporated herein by reference.
<PAGE>
C-CUBE MICROSYSTEMS
EMPLOYEE SAVINGS AND
INVESTMENT PLAN
_____________________
Financial Statements
Years Ended December 31, 1998 and 1997
And Independent Auditors' Report
<PAGE>
C-CUBE MICROSYSTEMS EMPLOYEE SAVINGS AND INVESTMENT PLAN
TABLE OF CONTENTS
- ------------------------------------------------------------------------
Page(s)
-------
FINANCIAL STATEMENTS:
Independent auditors' report 1
Statements of net assets available for plan benefits
as of December 31, 1998 and 1997 2
Statements of changes in net assets available for
plan benefits for the years ended December 31, 1998 and 1997 3-4
Notes to financial statements 5-8
SUPPLEMENTAL SCHEDULES FOR THE YEAR ENDED DECEMBER 31, 1998:
Item 27a - Schedule of assets held for investment purposes 9-11
Item 27d - Schedule of reportable plan transactions 12
<PAGE>
INDEPENDENT AUDITORS' REPORT
Administrative Committee
C-Cube Microsystems Employee
Savings and Investment Plan
San Jose, California
We have audited the accompanying financial statements of the C-Cube
Microsystems Employee Savings and Investment Plan (the Plan) as of
December 31, 1998 and 1997, and for the years then ended as listed in the
accompanying table of contents. These financial statements are the
responsibility of management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for plan benefits of the
Plan as of December 31, 1998 and 1997, and the changes in its net assets
available for plan benefits for the years then ended in conformity with
generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules as
listed in the accompanying table of contents are presented for the purpose
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. The supplemental
schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, are fairly
stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Zajac & Perrone, LLP
- -------------------------
Morgan Hill, California
July 8, 1999
<PAGE> 1
C-CUBE MICROSYSTEMS EMPLOYEE SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
C-Cube
Benham Microsystems,
Schwab Intermediate- Harbor Managers Managers Inc.
Money Term Founders Capital Income Special Common
Market Treasury Balanced Appreciation Equity Equity Stock
Funds Fund Fund Fund Fund Fund Fund
---------- --------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998
- ----------------------
ASSETS:
Noninterest bearing cash deposit $ - $ - $ - $ - $ - $ - $ -
Interest bearing cash deposits 2,142,228 - - - - - -
Mutual funds - 653,927 1,992,201 1,767,527 1,194,539 318,861 -
Common stocks and options - - - - - - -
C-Cube Microsystems, Inc. common stock - - - - - - 906,979
Dividends receivable - 2,750 12,584 - - - -
Contributions receivable 515 - - 382 31 - -
Loans to participants - - - - - - -
---------- -------- ---------- ---------- ---------- -------- ---------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $2,142,743 $656,677 $2,004,785 $1,767,909 $1,194,570 $318,861 $906,979
========== ======== ========== ========== ========== ======== ========
<CAPTION>
Robertson Personal Twentieth
Stephens Neuberger Choice Century
Value + & Berman Retirement International
Janus Growth Genesis Account Growth Participant
Fund Fund Fund Fund Fund Loans Total
--------- ----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998 (cont.)
- -------------------------
ASSETS:
Noninterest bearing cash deposit $ - $ - $ - $ 62 $ - $ - $ 62
Interest bearing cash deposits - - - 446,268 - - 2,588,496
Mutual funds 3,450,550 4,176,393 3,326,016 497,667 2,082,467 - 19,460,148
Common stocks and options - - - 967,089 - - 967,089
C-Cube Microsystems, Inc. common stock - - - - - - 906,979
Dividends receivable - - - - - - 15,334
Contributions receivable - 460 293 - 695 - 2,376
Loans to participants - - - - - 450,856 450,856
---------- ---------- ---------- ---------- ---------- -------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $3,450,550 $4,176,853 $3,326,309 $1,911,086 $2,083,162 $450,856 $24,391,340
========== ========== ========== ========== ========== ======== ===========
<CAPTION> C-Cube
Benham Microsystems,
Schwab Intermediate- Harbor Managers Managers Inc.
Money Term Founders Capital Income Special Common
Market Treasury Balanced Appreciation Equity Equity Stock
Funds Fund Fund Fund Fund Fund Fund
---------- ---------- ---------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997
- ------------------
ASSETS:
Interest bearing cash deposits $1,495,497 $ - $ - $ - $ - $ - $ -
Mutual funds - 350,214 1,363,851 - 791,083 - -
Common stocks and options - - - - - - -
C-Cube Microsystems, Inc. common stock - - - - - - 419,345
Dividends receivable 9,746 1,713 - - - - -
Loans to participants - - - - - - -
---------- ------- ---------- ---------- ---------- -------- --------
Total assets 1,505,243 351,927 1,363,851 - 791,083 - 419,345
LIABILITIES:
Other liabilities - - - - (585) - -
---------- -------- ---------- ---------- ---------- -------- --------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $1,505,243 $351,927 $1,363,851 $ - $ 790,498 $ - $419,345
========== ======== ========== ========== ========== ======== ========
<CAPTION>
Robertson Personal Twentieth
Stephens Neuberger Choice Century
Value + & Berman Retirement International
Janus Growth Genesis Account Growth Participant
Fund Fund Fund Fund Fund Loans Total
---------- ---------- ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997
- ------------------
ASSETS:
Interest bearing cash deposits $ - $ - $ - $ 329,466 $ - $ - $ 1,824,963
Mutual funds 2,980,571 2,498,595 3,393,990 370,632 1,182,176 - 12,931,112
Common stocks and options - - - 305,211 - - 305,211
C-Cube Microsystems, Inc. common stock - - - - - - 419,345
Dividends receivable - - - - - - 11,459
Loans to participants - - - - - 383,362 383,362
---------- ---------- ---------- ---------- ---------- -------- -----------
Total assets 2,980,571 2,498,595 3,393,990 1,005,309 1,182,176 383,362 15,875,452
LIABILITIES:
Other liabilities - (965) (1,175) - (1,175) - (3,900)
---------- ---------- ---------- ---------- ---------- -------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $2,980,571 $2,497,630 $3,392,815 $1,005,309 $1,181,001 $383,362 $15,871,552
========== ========== ========== ========== ========== ======== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
<PAGE> 2
C-CUBE MICROSYSTEMS EMPLOYEE SAVINGS AND INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
C-Cube
Benham Microsystems,
Schwab Intermediate- Harbor Managers Managers Inc.
Money Term Founders Capital Income Special Common
Market Treasury Balanced Appreciation Equity Equity Stock
Funds Fund Fund Fund Fund Fund Fund
--------- ---------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income:
Realized gain (loss) on investments $ - $ 1,494 $ 24,231 $ 2,221 $ 2,795 $ (2,732) $ 85,665
Net unrealized gain (loss) on investments - 719 78,926 153,752 (38,120) 8,802 300,734
Dividend and interest income 95,115 36,605 111,795 94,227 136,343 239 -
Participant loan interest 7,924 1,196 3,046 765 2,478 351 -
Other income (loss) 14 - 15 - - - -
---------- -------- ---------- ---------- ---------- -------- --------
103,053 40,014 218,013 250,965 103,496 6,660 386,399
Contributions:
Participants 1,040,624 136,560 414,043 356,103 299,441 71,990 (1,364)
Loan repayments 51,295 4,023 23,072 5,783 9,708 981 -
Rollovers from other qualified plans 203,819 13,776 127,705 183,481 39,055 86,289 -
---------- -------- ---------- ---------- ---------- -------- --------
1,295,738 154,359 564,820 545,367 348,204 159,260 (1,364)
---------- -------- ---------- ---------- ---------- -------- --------
TOTAL ADDITIONS 1,398,791 194,373 782,833 796,332 451,700 165,920 385,035
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to participants (333,479) (21,180) (54,290) (12,553) (28,940) (18,617) (10,425)
Plan expenses (1,655) (371) (1,498) (469) (932) (84) (594)
Loans to participants (56,844) (2,910) (35,055) (9,411) (16,536) (8,452) (31,425)
---------- -------- ---------- ---------- ---------- -------- --------
TOTAL DEDUCTIONS (391,978) (24,461) (90,843) (22,433) (46,408) (27,153) (42,444)
---------- -------- ---------- ---------- ---------- -------- --------
Net increase prior to transfers 1,006,813 169,912 691,990 773,899 405,292 138,767 342,591
Transfers among investment options (369,313) 134,838 (51,056) 994,010 (1,220) 180,094 145,043
---------- -------- ---------- ---------- ---------- -------- --------
NET INCREASE (DECREASE) 637,500 304,750 640,934 1,767,909 404,072 318,861 487,634
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 1,505,243 351,927 1,363,851 - 790,498 - 419,345
---------- -------- ---------- ---------- ---------- -------- --------
End of year $2,142,743 $656,677 $2,004,785 $1,767,909 $1,194,570 $318,861 $906,979
========== ======== ========== ========== ========== ======== ========
<CAPTION>
Robertson Personal Twentieth
Stephens Neuberger Choice Century
Value + & Berman Retirement International
Janus Growth Genesis Account Growth Participant
Fund Fund Fund Fund Fund Loans Total
--------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income:
Realized gain (loss) on investments $ 48,535 $ 67,863 $ (39,114)$ - $ 8,158 $ - $ 199,116
Net unrealized gain (loss) on investments 872,142 282,174 (299,946) - 158,621 - 1,517,804
Dividend and interest income 91,387 491,623 102,509 - 34,026 - 1,193,869
Participant loan interest - 7,663 6,115 2,519 3,493 - 35,550
Other income (loss) (20) - 57 409,837 2 - 409,905
---------- ---------- ---------- ---------- ---------- ---------- -----------
1,012,044 849,323 (230,379) 412,356 204,300 - 3,356,244
Contributions:
Participants 414 915,861 837,104 248,008 441,295 - 4,760,079
Loan repayments - 34,253 29,893 23,484 42,019 (224,511) -
Rollovers from other qualified plans - 348,927 149,713 113,091 93,706 - 1,359,562
---------- ---------- ---------- ---------- ---------- --------- -----------
414 1,299,041 1,016,710 384,583 577,020 (224,511) 6,119,641
---------- ---------- ---------- ---------- ---------- --------- -----------
TOTAL ADDITIONS 1,012,458 2,148,364 786,331 796,939 781,320 (224,511) 9,475,885
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to participants (102,749) (129,696) (109,522) (16,152) (79,854) (17,324) (934,781)
Plan expenses (2,550) (2,933) (2,781) (6,171) (1,278) - (21,316)
Loans to participants (26,686) (58,835) (33,752) - (29,423) 309,329 -
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL DEDUCTIONS (131,985) (191,464) (146,055) (22,323) (110,555) 292,005 (956,097)
---------- ---------- ---------- ---------- ---------- --------- -----------
Net increase prior to transfers 880,473 1,956,900 640,276 774,616 670,765 67,494 8,519,788
Transfers among investment options (410,494) (277,677) (706,782) 131,161 231,396 - -
---------- ---------- ---------- ---------- ---------- --------- -----------
NET INCREASE (DECREASE) 469,979 1,679,223 (66,506) 905,777 902,161 67,494 8,519,788
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 2,980,571 2,497,630 3,392,815 1,005,309 1,181,001 383,362 15,871,552
---------- ---------- ---------- ---------- ---------- --------- -----------
End of year $3,450,550 $4,176,853 $3,326,309 $1,911,086 $2,083,162 $ 450,856 $24,391,340
========== ========== ========== ========== ========== ========= ===========
</TABLE>
See independent auditors' report and notes to financial statements.
<PAGE> 3
C-CUBE MICROSYSTEMS EMPLOYEE SAVINGS AND INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
C-Cube
Benham Microsystems,
Schwab Intermediate- Managers Inc.
Money Term Founders Income Common
Fidelity Market Treasury Balanced Equity Stock
Funds Funds Fund Fund Fund Fund
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income:
Realized gain (loss) on investments $ - $ - $ 381 $ 19,609 $ 18,260 $(25,861)
Net unrealized gain (loss) on investments - - 7,290 26,639 (41,205) (239,120)
Dividend and interest income - 100,420 14,208 118,254 151,978 -
-------- ---------- -------- ---------- -------- ---------
- 100,420 21,879 164,502 129,033 (264,981)
Contributions:
Participants - 374,728 91,889 404,407 199,234 (25)
Loan repayments - 22,897 6,447 12,441 8,206 7,536
Rollovers from other qualified plans - 72,970 30,620 56,786 36,988 -
-------- ---------- -------- ---------- -------- ---------
- 470,595 128,956 473,634 244,428 7,511
-------- ---------- -------- ---------- -------- ---------
TOTAL ADDITIONS - 571,015 150,835 638,136 373,461 (257,470)
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to participants - (423,772) (4,460) (38,554) (69,089) -
Plan expenses - (974) (121) (556) (340) (248)
Loans to participants - (98,900) (8,486) (11,666) (17,673) (6,894)
-------- ---------- -------- ---------- -------- ---------
TOTAL DEDUCTIONS - (523,646) (13,067) (50,776) (87,102) (7,142)
-------- ---------- -------- ---------- -------- ---------
Net increase (decrease) prior to transfers - 47,369 137,768 587,360 286,359 (264,612)
Transfer of DiviCom, Inc. plan assets - 3,421,860 - - - -
Transfers among investment options (52,169) (9,032,757) 214,159 776,491 504,139 683,957
-------- ----------- -------- ---------- -------- --------
NET INCREASE (DECREASE) (52,169) (5,563,528) 351,927 1,363,851 790,498 419,345
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 52,169 7,068,771 - - - -
-------- ----------- -------- ---------- -------- --------
End of year $ - $ 1,505,243 $351,927 $1,363,851 $790,498 $419,345
======== =========== ======== ========== ======== ========
<CAPTION>
Robertson Personal Twentieth
Stephens Neuberger Choice Century
Value + & Berman Retirement International
Janus Growth Genesis Account Growth Participant
Fund Fund Fund Fund Fund Loans Total
---------- ----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income:
Realized gain (loss) on investments $ 101,018 $ 35,013 $ 55,807 $ 66,903 $ 27,618 $ - $ 298,748
Net unrealized gain (loss) on
investments (124,344) (352,773) 596,701 (29,765) (62,546) - (219,123)
Dividend and interest income 501,837 398,286 46,881 50,660 163,763 27,163 1,573,450
---------- --------- ---------- ---------- ---------- -------- ----------
478,511 80,526 699,389 87,798 128,835 27,163 1,653,075
Contributions:
Participants 937,500 697,866 684,901 259,263 341,334 - 3,991,097
Loan repayments 42,117 29,196 23,682 14,554 6,770 (173,846) -
Rollovers from other qualified plans 74,209 137,979 147,920 37,781 58,222 - 653,475
---------- --------- ---------- ---------- ---------- -------- ----------
1,053,826 865,041 856,503 311,598 406,326 (173,846) 4,644,572
---------- --------- ---------- ---------- ---------- -------- ----------
TOTAL ADDITIONS 1,532,337 945,567 1,555,892 399,396 535,161 (146,683) 6,297,647
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to participants (192,911) (131,627) (187,122) (108,668) (38,220) (21,204) (1,215,627)
Plan expenses (1,323) (1,018) (1,126) (10,421) (481) - (16,608)
Loans to participants (33,471) (45,732) (32,514) (16,672) (15,901) 287,909 -
---------- ---------- ---------- ---------- ---------- -------- ----------
TOTAL DEDUCTIONS (227,705) (178,377) (220,762) (135,761) (54,602) 266,705 (1,232,235)
---------- ---------- ---------- ---------- ---------- -------- ----------
Net increase (decrease) prior to
transfers 1,304,632 767,190 1,335,130 263,635 480,559 120,022 5,065,412
Transfer of DiviCom, Inc. plan assets - - - - - 68,916 3,490,776
Transfers among investment options 1,675,939 1,730,440 2,057,685 741,674 700,442 - -
---------- ---------- ---------- ---------- ---------- -------- -----------
NET INCREASE (DECREASE) 2,980,571 2,497,630 3,392,815 1,005,309 1,181,001 188,938 8,556,188
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year - - - - - 194,424 7,315,364
---------- ---------- ---------- ---------- ---------- -------- -----------
End of year $2,980,571 $2,497,630 $3,392,815 $1,005,309 $1,181,001 $383,362 $15,871,552
========== ========== ========== ========== ========== ======== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
<PAGE> 4
C-CUBE MICROSYSTEMS EMPLOYEE SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF THE PLAN
The following description of the C-Cube Microsystems Employee Savings and
Investment Plan (the Plan) provides only general information. Participants
should refer to the Plan document for a more complete description of the
Plan's provisions. In the event of any inconsistency between this general
information and the Plan document, the Plan document shall control.
GENERAL
The Plan is a defined contribution plan covering substantially all
employees of C-Cube Microsystems, Inc. (the Company). Eligible employees of
the Company may elect to participate in the Plan commencing on the first
day of the calendar quarter following the date of their employment. The
Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA), as amended.
EMPLOYEE CONTRIBUTIONS
Participants may elect to have the Company contribute up to 20% of their
eligible pre-tax compensation, in one percent increments, up to the amount
allowable under current income tax regulations. Participants who elect to
have the Company contribute a portion of their eligible compensation to the
Plan agree to accept an equivalent reduction in taxable compensation.
Contributions withheld are invested in accordance with the participant's
direction.
Participants are also allowed to make rollover contributions of amounts
received from other qualified employer-sponsored retirement plans. Such
contributions are deposited in the appropriate investment funds in
accordance with the participant's direction and the Plan's provision.
EMPLOYER CONTRIBUTIONS
The Company may make matching contributions, as defined in the Plan and as
approved by the Board of Directors. No matching contributions were made in
1998 or 1997.
VESTING
Participants are immediately vested in their salary deferral and rollover
contributions and related earnings.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution
plus earnings.
BENEFIT PAYMENTS
Upon termination, retirement, death or attaining age 59 1/2, the participant
or beneficiary may receive the benefits in a lump sum amount equal to the
value of the participant's vested interest in his or her account, as
defined in the Plan. Benefit payments are recognized as an expense when
paid.
PARTICIPANT LOANS
The Plan generally allows participants to borrow not less than $1,000 and
up to the lesser of $50,000, reduced by the highest outstanding loan
balance from the Plan during the previous 12 months, if any, or 50% of
their vested account balance. The loans are secured by the participant's
vested account balance up to an amount equal to the original loan. Such
loans bear interest at a reasonable rate of interest as determined by the
Plan and must be repaid within a five-year period, unless the loan is used
to purchase a primary residence, in which case the maximum repayment period
is 15 years. The specific terms and conditions of such loans are
established by the administrative committee.
<PAGE> 5
PLAN TERMINATION OR MODIFICATION
The Company intends to continue the Plan indefinitely for the benefit of
its employees; however, subject to the provisions of ERISA, it reserves the
right to terminate or modify the Plan at any time, for any reason. Upon
termination of the Plan, participant account balances become fully vested.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING AND PRESENTATION
The financial statements of the Plan have been prepared on the accrual
basis of accounting.
INCOME TAXES
Effective January 1, 1997 and in conjunction with the selection of The
Charles Schwab Trust Company (Charles Schwab) as trustee for the Plan, the
Company adopted Charles Schwab's nonstandardized 401(k) plan which has
received a favorable opinion letter from the Internal Revenue Service
exempting it from income taxes. The Company believes that the Plan, as
designed and operated, is in material compliance with the applicable
requirements of the Internal Revenue Code.
ADMINISTRATIVE COSTS
The Company paid substantially all administrative costs for 1998 and 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
CONCENTRATION OF CREDIT RISKS
As more fully described in Note 3, the Plan offers a variety of investment
options, each with a different level of risk that is commensurate with the
investment option's investment strategy and targeted investment
composition. Additionally, the quality of the securities in each investment
option is affected by the expertise of the fund manager and/or investment
advisors. Further diversification of investment risk is available to
participants by investing in more than one investment option.
NOTE 3 - INVESTMENTS
Investments of the Plan are held by Charles Schwab at December 31, 1998 and
1997 and are invested based upon instructions received from participants.
Mutual funds, common stocks, options, and the Company's common stock are
valued at fair value as of the last day of the Plan year, as determined by
quoted prices. Participant loans are stated at cost, which approximates
fair value.
Each participant may direct contributions to any of the following
investment options:
- Schwab Money Funds are comprised of the Schwab Institutional Advantage
Money Market Fund and the Schwab U.S. Treasury Money Market Fund. These
funds seek as high a level of income as is consistent with the
preservation of capital and liquidity by investing in money market
instruments.
- Benham Intermediate-Term Treasury Fund seeks to provide interest
income exempt from state income taxes by investing in U.S. Treasury
securities.
- Founders Balanced Fund seeks current income and capital appreciation
through investing in dividend-paying stocks of established companies as
well as government and corporate bonds.
<PAGE> 6
- Harbor Capital Appreciation Fund seeks long-term growth of capital by
investing primarily in a portfolio of equity securities of established
companies with above average prospects for growth.
- Managers Income Equity Fund seeks a high level of current income
through investment primarily in income-producing equity securities.
- Managers Special Equity Fund seeks capital appreciation through
investing primarily in the securities of companies expected to have
superior earning growth potential.
- C-Cube Microsystems, Inc. Common Stock Fund seeks long-term capital
appreciation through investing primarily in the common stock of the Plan
sponsor.
- Janus Fund seeks long-term capital growth of capital through investing
in common stocks of large companies.
- Robertson Stephens Value + Growth Fund seeks capital appreciation
through investing in small- and medium-sized companies with favorable
growth prospects and modest valuations based on earnings and assets.
- Neuberger & Berman Genesis Fund seeks capital appreciation through
investments in common stocks of companies with small market
capitalization, considered to be undervalued based on current earnings.
- Personal Choice Retirement Account Fund offers Plan participants the
ability to invest in a variety of publicly traded equity and debt
securities available through Charles Schwab.
- Twentieth Century International Growth Fund seeks capital appreciation
over time by investing primarily in common stocks of foreign companies
that exhibit accelerating growth.
NOTE 4 - PARTICIPANT LOANS
Participant loans are collateralized by the respective participant's vested
account balance. At December 31, 1998, the loans bear interest at rates
ranging from 8.23% to 10.5% and are payable in varying installments.
NOTE 5 - BENEFITS PAYABLE TO PARTICIPANTS
There were no benefits payable to participants at December 31, 1998 and
1997.
NOTE 6 - RECONCILIATION TO FORM 5500
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 for the year ended December 31, 1997:
Benefits paid to participants per the financial statements $1,215,627
Benefits payable to participants at December 31, 1997 (432)
----------
Benefits paid to participants per the Form 5500 $1,215,195
==========
<PAGE> 7
NOTE 7 - TRANSFER OF DIVICOM, INC. 401(k) PLAN ASSETS
The Company acquired DiviCom, Inc. (DiviCom) on May 28, 1996. At the time,
DiviCom maintained the DiviCom, Inc. 401(k) Plan (the DiviCom Plan). The
DiviCom Plan was merged with and into the C-Cube Microsystems Employee
Savings and Investment Plan in 1997.
<PAGE> 8
C-CUBE MICROSYSTEMS EMPLOYEE SAVINGS AND INVESTMENT PLAN
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
EMPLOYER IDENTIFICATION NUMBER: 77-0192108
PLAN NUMBER: 001
<TABLE>
<CAPTION>
Market Value Market
Description of Investment Per Unit Units Cost Value
- --------------------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Investments:
Schwab Institutional Advantage
Money Market Fund $ 1.00 2,142,131.930 $ 2,142,132 $ 2,142,132
Schwab U.S. Treasury Money Market Fund 1.00 96.490 96 96
Benham Intermediate-Term Treasury Fund 10.70 61,114.656 646,778 653,927
Founders Balanced Fund 12.19 163,429.143 1,873,283 1,992,201
Harbor Capital Appreciation Fund 37.99 46,526.115 1,613,963 1,767,527
Managers Income Equity Fund 30.67 38,948.111 1,256,421 1,194,539
Managers Special Equity Fund 61.22 5,208.446 309,591 318,861
C-Cube Microsystems, Inc. Common Stock 27.125 33,437.000 743,069 906,979
Janus Fund 33.65 102,542.333 2,665,598 3,450,550
Robertson Stephens Value + Growth Fund 25.92 161,126.282 4,143,596 4,176,393
Neuberger & Berman Genesis Fund 14.44 230,333.489 3,131,708 3,326,016
Personal Choice Retirement Account Fund
Noninterest bearing cash deposit 1.00 62.00 62 62
Schwab Money Market Fund 1.00 446,268.23 446,268 446,268
Common stocks
Alcatel Alsthom 24.4375 600.00 15,036 14,662
Altera Corp 60.875 100.00 3,700 6,088
America Online 155.125 80.00 7,210 12,410
Amgen Inc 104.5625 50.00 2,888 5,228
Applied Materials 42.6875 1,275.00 42,453 54,427
Ascend Communications 65.75 518.00 22,592 34,058
At Home Corp Cl A 74.25 300.00 20,060 22,275
Atmel Corp 15.3125 1,800.00 25,023 27,562
Barnes & Noble 42.50 60.00 2,154 2,550
Bebe Stores 35.375 1,000.00 13,655 35,375
Broadcom Corp 'A' 120.75 85.00 6,745 10,264
Cadence Design Sys 29.75 400.00 9,518 11,900
Cisco Systems 92.8125 1,050.00 57,347 97,453
Compaq Computer 42.00 658.00 23,424 27,636
Costco Cos 72.1875 50.00 2,317 3,609
Dell Computer Corp 73.1875 1,169.00 68,126 85,556
Dialogic Corp 19.6563 200.00 4,669 3,931
Ericsson (Lm) Tel'B'ADS 23.9375 82.00 2,444 1,963
Ess Technology 5.00 400.00 1,684 2,000
Excite Inc 42.0625 200.00 10,267 8,412
Fletcher Challenge Ltd 3.125 225.00 1,776 703
FPA Medical Mgmt .125 450.00 3,111 56
Galileo Technology 27.00 290.00 4,755 7,830
GAP Inc 56.125 225.00 10,765 12,628
Gillette Co 47.8125 15.00 657 717
Hewlett Packard Co 68.3125 60.619 3,200 4,141
Informix Corp 9.875 2,560.00 24,806 25,280
Infoseek Corp 49.375 500.00 6,893 24,687
Inktomi Corp 129.375 200.00 19,180 25,875
Intel Corp 118.5625 680.268 52,018 80,654
International Business Machines 184.375 10.542 1,410 1,944
International Network Services 66.50 700.00 29,651 46,550
Komag Inc 10.375 500.00 10,339 5,188
Leap Wireless International 7.25 77.00 - 558
Level One Communications 35.50 100.00 2,140 3,550
Level 3 Communications 43.125 60.00 2,212 2,588
LSI Logic 16.125 736.00 22,243 11,868
Lucent Technologies 109.9375 50.00 3,613 5,497
Maxim Integrated Prods 43.6875 500.00 15,967 21,844
Merck & Company 147.50 30.233 3,480 4,459
Micron Technology 50.5625 50.00 1,433 2,528
Microsoft Corp 138.6875 621.00 55,813 86,125
Motorola Inc 61.0625 15.00 810 916
Mylex Corp 12.00 1,000.00 4,655 12,000
Novell Inc 18.125 300.00 4,328 5,438
Oracle Corp 43.125 50.00 1,525 2,156
P-Com Inc 3.9844 590.00 1,652 2,351
Qualcomm Inc 51.8125 310.00 14,619 16,062
Quantum Corp 21.25 315.00 6,350 6,694
Realnetworks Inc 35.875 10.00 240 359
Schering-Plough Corp 55.25 200.00 15,805 11,050
SRS Labs 3.625 1,500.00 13,422 5,438
Taiwan Semiconductor Mfg ADS 14.1875 735.00 9,664 10,428
Time Warner Inc 62.0625 120.00 7,410 7,448
Valence Technology 7.25 500.00 4,235 3,625
Walt Disney Company 30.00 1,000.00 30,217 30,000
Westell Technologies 'A' 4.875 350.00 2,816 1,706
3COM Corp 44.8125 200.00 9,239 8,962
---------- ----------
Total Common Stock 743,761 967,262
Options
Alcatel calls expiring 6/19/99 @ $22.50 5.00 6.00 (2,494) (30)
Cadence Design Sys calls expiring
2/20/99 @ $25.00 5.50 4.00 (1,112) (22)
Walt Disney Company calls expiring
4/17/99 @ $30.00 2.75 10.00 (2,942) (27)
Maxim Integrated Prods calls expiring
2/20/99 @ $25.00 18.75 5.00 (2,431) (94)
---------- ----------
Total Options (8,979) (173)
Mutual Funds
Baron Asset Fund 50.54 1263.406 47,072 63,853
DFA Emerging Markets Portfolio 8.30 473.464 3,848 3,930
DFA International High Book-To-
Market Portfolio 13.79 1,547.259 19,296 21,337
DFA International Small Company
Portfolio 7.67 955.136 6,968 7,326
DFA US 9-10 Small Company Portfolio 10.76 1,112.472 12,284 11,970
Fidelity Select Computers Portfolio 67.71 204.757 9,332 13,864
Fidelity Select Electronics Portfolio 46.56 245.190 9,249 11,416
Fidelity Select Home Finance 43.28 251.767 12,107 10,896
Fidelity Select Regional Banks
Portfolio 42.87 330.461 11,749 14,167
Janus Twenty Fund 53.30 114.129 5,000 6,083
Janus Worldwide Fund 47.36 248.720 9,864 11,779
Montgomery Micro Cap Fund 20.70 957.550 19,273 19,821
Oakmark Select Fund 19.54 1,481.058 24,556 28,940
PBHG Growth Fund 25.54 675.288 16,660 17,247
Rainier Core Equity Portfolio 24.86 3,057.557 63,266 76,011
Rainier Small/Mid-Capital Equity 22.19 2,980.959 59,822 66,147
RWB/DFA High Book-To-Market Portfolio 13.61 1,858.168 23,330 25,290
Schwab Analytics Fund 16.22 394.464 5,744 6,398
Schwab S&P 500 Investors Shares 18.96 1,371.438 19,357 26,002
Scudder Pacific Opportunity Fund 8.86 92.427 1,002 819
Strong Schafer Value Fund 59.29 36.080 2,413 2,139
Vanguard Growth & Income Fund 30.76 169.860 5,000 5,225
Vanguard Health Care Fund 96.85 54.038 5,000 5,234
Vanguard Index Trust 500 Portfolio 113.95 141.998 15,116 16,181
Vanguard Index Trust Growth Fund 31.67 172.456 5,000 5,462
Vanguard World International Growth
Portfolio 18.77 1,072.485 20,491 20,130
----------- -----------
Total Mutual Funds 432,799 497,667
----------- -----------
Total Personal Choice Retirement Account Fund 1,613,911 1,911,086
----------- -----------
Twentieth Century International
Growth Fund 9.58 217,376.490 1,949,806 2,082,467
----------- -----------
$22,089,952 $23,922,774
=========== ===========
Loans to participants $ 450,856 $ 450,856
=========== ===========
</TABLE>
<PAGE> 9-11
C-CUBE MICROSYSTEMS EMPLOYEE SAVINGS AND INVESTMENT PLAN
ITEM 27d - SCHEDULE OF REPORTABLE PLAN TRANSACTIONS
YEAR ENDED DECEMBER 31, 1998
EMPLOYER IDENTIFICATION NUMBER: 77-0192108
PLAN NUMBER: 001
<TABLE>
<CAPTION>
Net
Purchase Selling Cost of Gain
Description of Investment Price Price Asset (Loss)
- -------------------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
SERIES OF TRANSACTIONS
- -----------------------
Purchases:
Schwab Institutional Advantage Money
Market Fund $1,674,581 $ - $ - $ -
Schwab U.S. Treasury Money Market Fund 398,576 - - -
Founders Balanced Fund 1,001,794 - - -
Harbor Capital Appreciation Fund 1,704,233 - - -
Managers Income Equity Fund 711,375 - - -
Robertson Stephens Value + Growth Fund 2,216,912 - - -
Neuberger & Berman Genesis Fund 1,314,961 - - -
Twentieth Century International Growth Fund 1,065,212 - - -
Dispositions:
Schwab Institutional Advantage Money
Market Fund - 1,027,747 1,027,747 -
Schwab U.S. Treasury Money Market Fund - 398,715 398,715 -
Founders Balanced Fund - 476,601 464,431 12,170
Harbor Capital Appreciation Fund - 92,678 90,269 2,409
Managers Income Equity Fund - 272,594 283,297 (10,703)
Robertson Stephens Value + Growth Fund - 889,150 912,332 (23,182)
Neuberger & Berman Genesis Fund - 1,043,876 971,022 72,854
Twentieth Century International Growth Fund - 331,700 347,075 (15,375)
</TABLE>
<PAGE> 12
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities and Exchange Act
of 1934, the trustees (or other persons who administer the C-Cube
Microsystems Employee Savings and Investment Plan) have duly caused this
annual report to be signed on its behalf by the undersigned hereunto duly
authorized.
C-CUBE MICROSYSTEMS EMPLOYEE
SAVINGS AND INVESTMENT PLAN
-----------------------------------
(Name of plan)
Date: July 14, 1999 By: /s/ Walt Walczykowski
---------------- -----------------------------------
(Signature)
Name: Walt Walczykowski
Title: Chief Financial Officer
C-CUBE MICROSYSTEMS, INC. ON BEHALF
OF THE PLAN ADMINISTRATOR OF THE
C-CUBE MICROSYSTEMS EMPLOYEE
<PAGE> 13
CONSENT OF ZAJAC & PERRONE, LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
number 333-19777 on Form S-8 filed with the Securities and Exchange
Commission on January 14, 1997, pertaining to our report dated July 8, 1999
with respect to the financial statements and schedules of the C-Cube
Microsystems Employee Savings and Investment Plan included in this Annual
Report (Form 11-K) for the year ended December 31, 1998.
/s/ Zajac & Perrone, LLP
Morgan Hill, California
July 14, 1999
<PAGE> 14
