SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
(MarkOne)
[x] Quarterly report pursuant to section 13 or 15(d) of the securities exchange
act of 1934 For the quarterly period ended June 30, 2001, or
[ ] Transition report pursuant to section 13 or 15(d) of the securities
exchange act of 1934
For the transition period from __________ to __________.
Commission file number: 0-22594
ALLIANCE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0057842
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
2575 Augustine Drive
Santa Clara, California 95054-2914
(Address of principal executive offices)
Registrant's telephone number, including area code is (408) 855-4900
Registrant's website address is http://www.alsc.com
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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 registered
------------------- -----------------------------------------
Common Stock, par value $0.01 NASDAQ
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of August 10, 2001, there were 42,840,441 shares of Registrant's Common Stock
outstanding.
-1-
ALLIANCE SEMICONDUCTOR CORPORATION
Form 10-Q
for the Quarter Ended June 30, 2001
INDEX
Page
Part I Financial Information
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets (unaudited) as of June
30, 2001 and March 31, 2001...........................................3
Condensed Consolidated Statements of Operations (unaudited) for
the three months ended June 30, 2001 and 2000.........................4
Condensed Consolidated Statements of Cash Flows (unaudited) for
the three months ended June 30, 2001 and 2000.........................5
Notes to Condensed Consolidated Financial Statements
(unaudited)6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................14
Part II Other Information
Item 1 Legal Proceedings....................................................22
Item 5 Other Information....................................................22
Item 6 Exhibits and Reports on Form 8-K.....................................24
Signatures...................................................................25
-2-
================================================================================
Part I - Financial Information
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
ALLIANCE SEMICONDUCTOR CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
June 30, March 31,
2001 2001
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,907 $ 6,109
Restricted cash 1,925 1,925
Short term investments 330,638 384,374
Accounts receivable, net 4,644 18,001
Inventory 73,920 84,797
Related party receivables 2,419 2,369
Other current assets 2,547 1,079
--------- ---------
Total current assets 420,000 498,654
Property and equipment, net 9,839 10,183
Investment in United Microelectronics 228,633 228,633
Corp. (excluding short term portion)
Investment in Tower Semiconductor 20,911 16,327
Alliance Ventures and other investments 81,944 80,461
Other assets 21,394 14,981
--------- ---------
Total assets $ 782,721 $ 849,239
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 81,046 $ 22,234
Accounts payable 24,847 76,130
Accrued liabilities 5,590 5,415
Income taxes payable -- 3,215
Deferred income taxes 76,986 101,143
Current portion of long-term capital 628 858
lease obligation
--------- ---------
Total current liabilities 189,097 208,995
Long term obligations 6,969 11,882
Long term capital lease obligation 686 686
Deferred income taxes 80,387 80,387
--------- ---------
Total liabilities 277,139 301,950
--------- ---------
Stockholders' equity:
Common stock 428 427
Additional paid-in capital 197,888 197,350
Treasury stock (22,762) (22,762)
Retained earnings 361,295 372,274
Accumulated other comprehensive income (31,267) --
--------- ---------
Total stockholders' equity 505,582 547,289
--------- ---------
Total liabilities and stockholders' equity $ 782,721 $ 849,239
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
ALLIANCE SEMICONDUCTOR CORPORATION
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three months ended
June 30,
------------------------
2001 2000
------------ -----------
Net revenues $ 12,068 $ 47,404
Cost of revenues 17,180 29,883
-------- --------
Gross profit (loss) (5,112) 17,521
-------- --------
Operating expenses:
Research and development 3,061 3,591
Selling, general and administration 4,015 4,514
-------- --------
Total operating expenses 7,076 8,105
-------- --------
Income (loss) from operations (12,188) 9,416
Gain on investments 43 47,517
Write-down of other investments (4,528) --
Other income (expense), net (98) 340
-------- --------
Income (loss) before income taxes, equity in income (16,771) 57,273
(loss)of investees and cumulative effect of
accounting change
Provision (benefit) for income taxes (5,870) 23,310
-------- --------
Income (loss) before equity in income (loss) of (10,901) 33,963
investees and cumulative effect of accounting change
Equity in income (loss) of investees (2,133) (698)
Cumulative effect of accounting change 2,055 --
-------- --------
Net income (loss) ($10,979) $ 33,265
======== ========
Net income (loss) per share
Basic ($ 0.26) $ 0.80
======== ========
Diluted ($ 0.26) $ 0.78
======== ========
Weighted average number of common shares
Basic 41,483 41,543
======== ========
Diluted 41,483 42,778
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-4-
ALLIANCE SEMICONDUCTOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three months ended
June 30,
--------------------
2001 2000
--------- --------
Cash flows from operating activities:
Net income ($10,979) $ 33,265
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 857 1,038
Equity in (income) loss of investees 2,133 698
(Gain) loss on investments (43) (47,517)
Other income (1,478)
Accrued interest 652
Write down of investments 4,528 --
Cumulative effect of accounting charge (2,055) --
Inventory write down 6,028 --
Changes in assets and liabilities:
Accounts receivable 13,357 (10,802)
Inventory 4,849 (13,081)
Related party receivables (50) (23)
Other assets (1,465) 197
Accounts payable (51,283) 7,441
Accrued liabilities 914 1,206
Deferred income tax (3,266) 4,459
Income tax payable (3,215) 7,057
-------- --------
Net cash provided by (used in) operating activities (40,516) (16,062)
-------- --------
Cash provided by (used in) investing activities:
Purchase of property and equipment (513) (1,044)
Proceeds from sale of marketable securities -- 45,582
Investment in Tower Semiconductor Corporation (11,000)
Purchase of Alliance Venture and other investments (9,294) (16,350)
-------- --------
Net cash provided by (used in) investing activities (20,807) 28,188
-------- --------
Cash provided by (used in) financing activities:
Net proceeds from issuance of common stock 539 760
Principal payments on lease obligation (230) (253)
Repurchase of common stock -- (5,319)
Short term borrowings 58,812 --
Restricted cash -- (18)
-------- --------
Net cash provided by (used in) financing activities 59,121 (4,830)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,202) 7,296
Cash and cash equivalents at beginning of the period 6,109 34,770
-------- --------
Cash and cash equivalents at end of the period $ 3,907 $ 42,066
======== ========
Schedule of noncash financing activities:
Property and equipment leases $ -- $ 468
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-5-
ALLIANCE SEMICONDUCTOR CORPORATION
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared by Alliance Semiconductor Corporation (the "Company") in accordance
with the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted in accordance with such rules and regulations. In
the opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments, consisting only of normal, recurring
adjustments, necessary to present fairly the consolidated financial position of
the Company and its subsidiaries, and their consolidated results of operations
and cash flows. These financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the fiscal
years ended March 31, 2001 and 2000 included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on June 29, 2001.
For purposes of presentation, the Company has indicated the first three months
of fiscal 2002 and 2001 as ending on June 30; whereas, in fact, the Company's
fiscal quarters ended on June 30, 2001 and July 1, 2000, respectively. The
financial results for the first quarter of fiscal 2002 and 2001 were reported on
a 13-week quarter.
The results of operations for the three months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2002, and the Company makes no representations related thereto.
Note 2. Balance Sheet Components
June 30, March 31,
2001 2001
------------ -----------
Inventory:
Work in process $39,022 $41,350
Finished goods 34,898 43,447
------------ -----------
$73,920 $84,797
============ ===========
NOTE 3. Investment in Chartered Semiconductor Manufacturing Ltd. ("Chartered")
In February and April 1995, the Company purchased shares of Chartered
Semiconductor ("Chartered") for approximately $51.6 million and entered into a
manufacturing agreement whereby Chartered agreed to provide a minimum number of
wafers from its 8-inch wafer fabrication facility known as "Fab2," if Alliance
so chooses. In October 1999, Chartered successfully completed an initial public
offering in Singapore and the United States.
The Company does not own a material percentage of the equity of Chartered. In
the first quarter of fiscal 2001, the Company sold 500,000 shares of Chartered,
recording a realized gain of approximately $33.5 million. At June 30, 2001, the
Company owned approximately 1.64 American Depository shares of "ADSs." In the
first quarter of fiscal 2002, the Company has recorded an unrealized loss of
approximately $1.2 million, net of deferred tax of approximately $796,000 as a
part of accumulated other comprehensive income in the stockholders' equity
section of the balance sheet.
Given the market risk for securities, when these shares are ultimately sold, it
is possible that additional gain or loss will be reported. If the Company sells
more than 50% of its original holdings of Chartered, the Company will start to
lose a proportionate share of its wafer production capacity rights, which could
materially affect its ability to conduct its business.
-6-
NOTE 4. Investment in United Microelectronics Corporation ("UMC")
At June 30, 2001, the Company owned approximately 340.0 million shares of UMC,
representing approximately 3.0% ownership. The portion of the investment in UMC
for which sale of shares is restricted beyond twelve months (approximately 42%
of the Company's holdings at June 30, 2001) is accounted for as a cost method
investment and is presented as a long-term investment. As this long-term portion
becomes current over time, the investment will be transferred to short-term
investments and will be accounted for as an available-for-sale marketable
security in accordance with SFAS 115. The long-term portion of the investment
becomes unrestricted securities between 2002 and 2004.
At the end of the fourth quarter of fiscal 2001, the Company wrote-down its
investment in UMC and recognized a pre-tax, non-operating loss of approximately
$460.0 million. At June 30, 2001, the Company recorded an unrealized loss of
approximately $34.0 million, net of deferred tax of $22.9 million, as part of
accumulated other comprehensive income in the stockholder's equity section of
the balance sheet with respect to the short-term portion of the investments.
Given the market risk for securities, when these shares are ultimately sold, it
is possible that additional gain or loss will be reported. If the Company sells
more that 50% of its original holdings of UMC, the Company will start to lose a
proportionate share of its wafer production capacity rights, which could
materially affect its ability to conduct its business.
Note 5. Investment in Broadcom Corporation
The Company accounts for its investment in Broadcom as an available for sale
security in accordance with FAS 115. At the end of the fourth quarter fiscal
2001, the Company wrote-down its investment in Broadcom and recognized a
pre-tax, non-operating loss of approximately $3.8 million. At June 30, 2001, the
Company owned 200,000 shares of Broadcom and recorded an unrealized gain of
approximately $1.7 million, which is net of deferred tax of approximately $1.1
million, as part of the accumulated other comprehensive income in the
stockholders' equity section of the balance sheet.
Note 6. Investment in Vitesse Semiconductor Corporation
Prior to January 2001, the Company accounted for its investment in Vitesse as an
available-for-sale marketable security in accordance with SFAS 115. In January
2001, the Company entered into two derivative contracts ("Agreements") with a
brokerage firm and received aggregate cash proceeds of $31.5 million. The
Agreements have repayment provisions that incorporate a collar arrangement with
respect to 490,000 shares of Vitesse Semiconductor common stock. The Company
accounts for its derivative contracts as a derivative instrument in accordance
with SFAS 133 (see Note 11). Vitesse shares not subject to the derivative
contracts are accounted for as an available-for-sale marketable security in
accordance with SFAS 115. In the quarter ending June 30, 2001,the Company
recorded an unrealized gain of approximately $398,000 net of deferred tax of
$269,000, as part of accumulated other comprehensive income in the stockholders'
equity section of the balance sheet, with respect to the 238,293 unhedged
Vitesse shares.
Vitesse's stock, like many other high technology stocks, has historically
experienced material and significant fluctuations in market value, and will
probably continue to do so in the future. Additionally, because it is common
that high technology stocks, like Vitesse's and the Company's, sometimes move as
a group, it is likely that Vitesse's stock and the Company's stock can both
suffer significant loss in value at the same time, as occurred in fiscal 2001.
Thus, there can be no assurance that the Company's investment in Vitesse will
increase in value or even maintain its value.
Note 7. Investment in PMC-Sierra Corporation
The Company records its investment in PMC-Sierra, Inc. as an available for sale
marketable security in accordance with SFAS 115. At the end of the fourth
quarter fiscal 2001, the Company wrote-down its investment in PMC and recognized
a pre-tax, non-operating loss of approximately $10.8 million. At June 30, 2001,
the Company owns 68,152 shares of PMC-Sierra and recorded an unrealized gain of
approximately $258,000, which is net of deferred tax of $246,000, as part of
accumulated other comprehensive income in the stockholders' equity section of
the balance sheet.
-7-
PMC's stock, like many other high technology stocks, has historically
experienced material and significant fluctuations in market value, and will
probably continue to do so in the future. Additionally, because it is common
that high technology stocks, like PMC's and the Company's, sometimes move as a
group, it is likely that PMC's stock and the Company's stock can both suffer
significant loss in value at the same time, as occurred in fiscal 2001. Thus,
there can be no assurance that the Company's investment in PMC will increase in
value or even maintain its value.
Note 8. Alliance Venture Management, LLC
In October 1999, the Company formed Alliance Venture Management, LLC, ("Alliance
Venture Management"), a California limited liability corporation, to manage and
act as the general partner in the investment funds the Company intended to form.
Alliance Venture Management does not directly invest in the investment funds
with the Company, but is entitled to a management fee out of the net profits of
the investment funds. This management company structure was created to provide
incentives to the individuals who participate in the management of the
investment funds, by allowing them limited participation in the profits of the
various investment funds, through the management fees paid by the investment
funds.
In November 1999, the Company formed Alliance Ventures I, LP ("Alliance Ventures
I") and Alliance Ventures II, LP ("Alliance Ventures II"), both California
limited partnerships. The Company, as the sole limited partner, owns 100% of the
shares of each partnership. Alliance Venture Management acts as the general
partner of these partnerships and receives a management fee of 15% of the
profits from these partnerships for its managerial efforts.
At Alliance Venture Management's inception in November 1999, series A member
units and series B member units in Alliance Venture Management were created. The
unit holders of series A units and series B units receive management fees of 15%
of investment gains realized by Alliance Ventures I and Alliance Ventures II,
respectively. In February 2000, upon the creation of Alliance Ventures III, LP
("Alliance Ventures III"), the management agreement for Alliance Venture
Management was amended to create series C member units which are entitled to
receive a management fee of 16% of investment gains realized by Alliance
Ventures III. In January 2001, upon the creation of Alliance Ventures IV, LP
("Alliance Ventures IV") and Alliance Ventures V, LP ("Alliance Ventures V"),
the management agreement for Alliance Venture Management was amended to create
series D and E member units which are entitled to receive a management fee of
15% of investment gains realized by Alliance Ventures IV and Alliance Ventures
V, respectively.
Each of the owners of the series A, B, C, D and E member units paid the initial
carrying value for their shares of the member units. While the Company owns 100%
of the common units in Alliance Venture Management, it does not hold any series
A, B, C, D or E member units and does not participate in the management fees
generated by the management of the investment funds. Several of the Company's
senior management hold the majority of the series A, B, C, D or E member units
of Alliance Venture Management.
As of June 30, 2001, Alliance Ventures I, whose focus is investing in networking
and communication start-up companies, has invested approximately $23.0 million
in nine companies, with a fund allocation of $20.0 million. Alliance Ventures
II, whose focus is in investing in internet start-up ventures has invested
approximately $9.1 million in ten companies, with a total fund allocation of
$15.0 million. As of June 30, 2001, Alliance Ventures III, whose focus is
investing in emerging companies in the networking and communication market
areas, has invested $38.8 million in 14 companies, with a total fund allocation
of $100.0 million. As of June 30, 2001, Alliance Ventures IV, whose focus is
investing in emerging companies in the semiconductor market areas, has invested
$12.0 million in four companies, with a total fund allocation of $40.0 million.
As of March 31, 2001, Alliance Ventures V, whose focus is investing in emerging
companies in the networking and communication market areas, has invested $7.5
million in five companies, with a total fund allocation of $60.0 million.
In the first quarter of fiscal 2002, the Company wrote-down an investment in
Alliance Ventures and recognized a pre-tax, non-operating loss of approximately
$4.5 million. Several of the Alliance Venture investments are accounted for
under the equity method due to the Company's ability to exercise significant
influence on the operations of the investees resulting primarily from ownership
interest and/or board representation. For the quarter ended June 30, 2000 and
2001, respectively, the total equity in the income (loss) of equity investees
was approximately $698,000 and $2.1 million, net of tax.
-8-
Certain of the Company's officers have formed private venture funds, which
invest in some of the same investments as the Company.
Alliance Venture Management generally directs the individual funds to invest in
startup, pre-IPO (initial public offering) companies. These types of investments
are inherently risky and many venture funds have a large percentage of
investments decrease in value or fail. Most of these startup companies fail, and
the investors lose their entire investment. Successful investing relies on the
skill of the investment managers, but also on market and other factors outside
the control of the managers. While the Company has been successful in some of
its recent investments, there can be no assurance as to any future or continued
success. It is possible there will be a downturn in the success of these types
of investments in the future and the Company will suffer significant diminished
success in these investments. It is possible that many or most, and maybe all of
the Company's venture type investments may fail, resulting in the complete loss
of some or all the money the Company has invested in these types of investments.
Note 9. Investment in Solar Venture Partners, LP
In August 2000, the Company agreed to invest $20 million in Solar Venture
Partners, LP ("Solar"), a venture capital partnership whose focus is in
investing in early stage companies in the areas of networking,
telecommunications, wireless, software infrastructure enabling efficiencies of
the Web and e-commerce, semiconductors for emerging markets and design
automation. As of June 30, 2001, the Company has invested $12.5 million. Due to
changes in the venture capital market, the Company has decided to limit its
investment in Solar to $12.5 million already invested.
Certain of the Company's officers and employees have also invested in Solar.
Solar has made investments in some of the same companies as Alliance Ventures.
Note 10. Investment in Tower Semiconductor Corporation
In August 2000, the Company entered into a share purchase agreement with Tower
Semiconductor ("Tower") under which Alliance committed to make a $75 million
strategic investment in Tower as part of Tower's plan to build its new fab. In
return for its investment, Alliance will receive equity, corresponding
representation on Tower's Board of Director and committed production capacity in
the advanced fab, which Tower intends to build. Pursuant to the agreement, the
Company purchased 1,233,241 ordinary shares of Tower and future wafer purchase
credits for an aggregate purchase price of $31 million in the fourth quarter of
fiscal 2001. In the first quarter of fiscal 2002, the Company purchased an
additional 366,690 ordinary shares of Tower and future wafer purchase credits
for an aggregate purchase price of $11.0 million. At June 30, 2001, the Company
has purchased a total of 1.6 million ordinary shares of Tower and future wafer
purchase credits for an aggregate purchase price of $42.0 million. The Company
has an obligation to purchase an additional 1,100,070 ordinary shares in three
equal increments upon occurrence of events relating to Tower's construction of
FAB 2 as specified in the agreement. These additional shares are expected to be
purchased by the Company during fiscal 2002 and 2003.
In connection with the share purchase agreement, the Company entered into a
foundry agreement under which the Company is entitled to a certain amount of
credits towards future wafer purchases from Tower. The amount of credits is
determined upon each share purchase transaction by Alliance and is calculated
based on the difference between Tower's average stock price for 30 days
preceding a purchase transaction and Alliance's share purchase exercise price.
At June 30, 2001, such wafer credits from Tower totaled $21.1 million and are
included in other assets on the balance sheet. The wafer purchase credits will
be utilized as the Company purchases wafers from Tower in the future where 15%
of order value will be applied against the wafer Under the terms of the foundry
agreement, the Company is guaranteed a capacity of up to 15% of available wafer
starts but not to exceed 5,000 wafers starts per month. The guaranteed capacity
may be reduced if the Company elects not to exercise its additional share
purchase obligation. The Company accounts for its investment in Tower under the
cost method based on the Company's inability to exercise significant influence
over Tower's operations
Note 11. Derivative Instruments and Hedging Activities
The Company has an investment in the common stock of Vitesse Semiconductor (see
Note 6 above). The Company's investment exposes it to a risk related to the
effects of changes in the price of Vitesse Semiconductor common stock. The
financial exposure is monitored and managed by the Company. The Company's risk
management focuses on the unpredictability of financial markets and seeks to
reduce the potentially adverse
-9-
effects that the volatility of these markets may have on its operating results.
The Company uses cashless collars, which are combinations of option contracts to
hedge this risk.
By using derivative financial instruments to hedge exposures to changes in share
prices, the Company exposes itself to credit risk and market risk. Credit risk
is a risk that the counterparty might fail to fulfill its performance
obligations under the terms of the derivative contract. When the fair value of a
derivative contract is positive, the counterparty owes the Company, which
creates repayment risk for the Company. When the fair value of a derivative
contract is negative, the Company owes the counterparty and, therefore, does not
assume any repayment risk. The Company minimizes its credit (or repayment) risk
in derivative instruments by (1) entering into transaction with high-quality
counterparties, (2) limiting the amount of its exposure to each counterparty,
and (3) monitoring the financial condition of its counterparties.
All derivatives are recognized on the balance sheet at their fair market value.
On the date that the Company enters into a derivative contract, it designates
the derivative as (1) a hedge of the fair value of a recognized assets or
liability or (2) an instrument that is held for trading or non-hedging purposes
(a "trading" or "non-hedging" instrument). Since April 1, 2001, the Company has
designated all derivative contracts as a fair value hedge and has not entered
into derivatives for purposes of trading. Changes in the fair value of a
derivative that is highly effective and is designated and qualifies as a fair
value hedge, along with changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, are recorded in the current
period earnings.
The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair-value hedges to specific assets on the
balance sheet. The Company also formally assesses (both at the hedge's inception
and on an ongoing basis) whether the derivatives that are used in the hedging
transactions have been highly effective in offsetting changes in fair value of
the hedged items and whether those derivatives may be expected to remain highly
effective in future periods. When it is determined that a derivative is not (or
has ceased to be) highly effective as a hedge, the Company discontinues hedge
accounting prospectively. The Company discontinues hedge accounting
prospectively when (1) it determines that the derivative if no longer effective
in offsetting changes in the fair value of a hedged item; (2) that the
derivative expires or is sold, terminated or exercised; or (3) management
determines that designating the derivative as a hedging instrument is no longer
appropriate.
In January 2001, the Company entered into two derivative contracts (the
"Agreements") with a brokerage firm and received aggregate cash proceeds of
approximately $31.0 million. The Agreements have repayment provisions that
incorporate a collar arrangement with respect to 490,000 shares of Vitesse
Semiconductor common stock. The Company, at its option, may settle the contracts
by either delivering Vitesse shares or making a cash payment to the brokerage
firm in January 2003, the maturity date of the Agreements. The number of Vitesse
shares to be delivered or the amount of cash to be paid is determined by a
formula in the Agreement based upon the market price of the Vitesse shares on
the settlement date. Under the Agreements, if the stock price of Vitesse exceeds
the ceiling of the collar, then the settlement amount also increases by an
amount determined by a formula included in the Agreements (generally equal to
the excess of the value of the stock over the ceiling of the collar.) If the
stock price of Vitesse declines below the floor of the collar, then the
settlement amount also decreases by an amount determined by a formula included
in the Agreements (generally equal to the excess of the floor of the collar over
the value of the stock.)
The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by the
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133 and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133 (referred to hereafter as "SFAS 133"), on April 1, 2001. In accordance with
the transition provisions of SFAS 133, the Company recorded an approximate $2.1
million cumulative effect adjustment in earnings as of April 1, 2001.
Note 12. Short-term borrowings
During fiscal 2001, the Company borrowed approximately $22.2 million from a
brokerage firm, secured by a portion of its holdings in Chartered Semiconductor,
bearing interest at a rate of 5.0% per annum.
-10-
During the first quarter of fiscal 2001, the Company entered into a secured loan
agreement (the "Loan Agreement") with Citibank, N.A. for up to $60 million.
Under the terms of the Loan Agreement, the loan will mature on November 19, 2001
and bears interest at a per annum rate equal to LIBO Rate plus one percent. Both
the principal and accrued interest are payable upon maturity. The borrowings
under the Loan Agreement are secured by 181,670,000 shares of UMC common stock
held by the Company. At June 30, 2001, the Company had borrowed $58.5 million
with accrued interest of approximately $340,000.
At June 30, 2001, the Company had short-term borrowings totaling $81.0 million.
Note 13. Comprehensive Income
The following are the components of comprehensive income:
Three months ended
June 30,
---------------------
2001 2000
---------- ---------
Net income (loss) ($10,979) $33,265
Unrealized gain (loss) on (31,267) (80,974)
marketable securities (net
of deferred taxes of
$21,111 and $55,576 at June
30, 2001 and 2000, respectively)
---------- ---------
Comprehensive income (loss) ($42,246) ($47,709)
========== =========
The components of accumulated other comprehensive income are as follows:
June 30, March 31,
2001 2001
----------- ------------
Unrealized loss on ($31,267) $ -
marketable securities
(net of deferred taxes of
$21,111 and none at June
30, 2001 and March 31,
2001, respectively)
----------- ------------
Accumulated other ($31,267) $ -
comprehensive
income (loss)
=========== ============
Note 14. Letters of Credit
As of June 30, 2001, approximately $150,000 of standby letters of credit were
outstanding and expire on or before September 1, 2001, which are secured by
restricted cash.
Note 15. Net Income Per Share
Basic EPS is computed by dividing net income available to common stockholders
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period including stock options,
using the treasury stock method. In computing diluted EPS, the average stock
price for the period is used in determining the number of shares assumed to be
purchased from the proceeds obtained upon exercise of stock options.
-11-
The computations for basic and diluted EPS are presented below:
Three months ended
June 30,
----------------------
2001 2000
----------- ---------
Net income (loss) ($10,979) $33,265
=========== =========
Weighted average shares 41,483 41,543
outstanding
Effect of dilutive employee - 1,235
stock options
----------- ---------
Average shares outstanding 41,483 42,778
assuming dilution
=========== =========
Net income (loss) per share:
Basic ($0.26) $0.80
=========== =========
Diluted ($0.26) $0.78
=========== =========
The following are not included in the above calculation, as they were considered
anti-dilutive:
Three months ended
June 30,
-----------------------
2001 2000
---------- -----------
Employee stock options 769 108
outstanding
========== ===========
Note 16. Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of interests-method.
The Company believes that the adoption of SFAS 141 will not have a significant
impact on its financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets", which is effective for fiscal years beginning after March
15, 2001. SFAS 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions upon adoption for
the reclassification of certain existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. The
Company believes that the adoption of SFAS 142 will not have a significant
impact on its financial statements.
Note 17. Legal Matters
In July 1998, the Company learned that a default judgment was entered against
the Company in Canada, in the amount of approximately $170 million (USD), in a
case filed in 1985 captioned Prabhakara Chowdary Balla and TritTek Research Ltd.
v. Fitch Research Corporation, et al., British Columbia Supreme Court No.
85-2805 (Victoria Registry). The Company, which had previously not participated
in the case, believes that it never was properly served with process in this
action, and that the Canadian court lacks jurisdiction over the Company in this
matter. In addition to jurisdictional and procedural arguments, the Company also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's bankruptcy in 1991. In February 1999, the
court set aside the default judgment against the Company. In April 1999, the
plaintiffs were granted leave by the Court to appeal this judgment. Oral
arguments were made before the Court of Appeals in June 2000. In July 2000 the
Court of Appeals instructed the lower Court to allow the parties to take
depositions regarding the issue of service of process, while also setting aside
the default judgment against the Company. The plaintiffs appealed the setting
aside of the default judgment against the Company to the Canadian Supreme Court.
In June 2001, the Canadian Supreme Court refused to hear the appeal of the
setting aside of the default judgment against the Company. The Company believes
the resolution of this matter will not have a material adverse effect on its
financial conditions and its results of operations.
In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United States International Trade Commission ("ITC") and United States
Department of Commerce ("DOC"), alleging that SRAMs fabricated in Taiwan were
being sold in the United States at less than fair value, and that the United
States industry producing SRAMs was materially injured or threatened with
material injury by reason of imports of SRAMs fabricated in Taiwan. After a
final affirmative DOC determination of dumping and a final affirmative ITC
determination of injury, DOC issued an antidumping duty order in April 1998.
Under that order, the Company's imports into the United
-12-
States on or after approximately April 16, 1998 of SRAMs fabricated in Taiwan
are subject to a cash deposit in the amount of 50.15% (the "Antidumping Margin")
of the entered value of such SRAMs. (The Company posted a bond in the amount of
59.06% (the preliminary margin) with respect to its importation, between
approximately October 1997 and April 1998, of SRAMs fabricated in Taiwan.) In
May 1998, the Company and others filed an appeal in the United States Court of
International Trade (the "CIT"), challenging the determination by the ITC that
imports of Taiwan-fabricated SRAMs were causing material injury to the U.S.
industry. On June 30, 1999, the CIT issued a decision remanding the ITC's
affirmative material injury determination to the ITC for reconsideration. The
ITC's remand determination reaffirmed its original determination. The CIT
considered the remand determination and remanded it back to the ITC for further
reconsideration. On June 12, 2000, in its second remand determination the ITC
voted negative on injury, thereby reversing its original determination that
Taiwan-fabricated SRAMs were causing material injury to the U.S. industry. The
second remand determination was transmitted to the CIT on June 26, 2000 for
consideration. Micron has appealed the decision of the CIT to the Court of
Appeals for the Federal Circuit. The Company cannot predict either the timing or
the eventual results of the appeal, although it is expected to take a year or
more to conclude. 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 unsuccessful, the antidumping
order will be terminated and cash deposits will be refunded with interest. If
the appeal is successful, the Company's entries of Taiwan-fabricated SRAMs from
October 1, 1997 through March 31, 2000 will be liquidated at the deposit rate in
effect at the time of entry. On subsequent entries of Taiwan-fabricated SRAMs,
the Company will continue to make cash deposits in the amount of 50.15% of the
entered value. At June 30, 2001, the Company had posted a bond secured by a
letter of credit in the amount of approximately $1.7 million and made cash
deposits in the amount of $1.7 million relating to the Company's importation of
Taiwan-manufactured SRAMs.
Note 18. Subsequent Events
On July 2, 2001, Adaptec, Inc. announced its acquisition of Platys
Communications, Inc., an equity investee of Alliance Venture Management, LLC. In
connection with the merger, the Company will receive approximately $35 million
in cash and shares of Adaptec for its 23.2% interest in Platys. Based on the
closing share price of Adaptec on July 2, 2001, the estimated pretax gain from
this transaction is approximately $30 million.
In July 2001, the Company repurchased 125,000 of its shares for approximately
$1.2 million.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in this report, the words "expects," anticipates," "believes,"
"estimates" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements, are subject to risks and uncertainties and
include the following statements: the potential for further price erosion of the
Company's products; additional cancellation of orders in the Company's backlog;
continuing slowdown in the electronics industry; further decreased demand and
increased competitive environment for the Company's products, including, without
limitation, obsolescence of the Company's products; continued accumulation of
excess inventory and price erosion or obsolescence of existing inventory, any of
which may result in additional charges against the Company's earnings; inability
to timely ramp up production of and deliver new or enhanced SRAM, DRAM or flash
products; inability to successfully develop and introduce new products;
inability to successfully recruit and retain qualified technical and other
personnel; further adverse changes in the value of securities held by the
Company, including those of Adaptec, Inc., Vitesse Semiconductor Corporation,
PMC-Sierra, Inc., Broadcom Corporation, Chartered Semiconductor, United
Microelectronics Corporation and Tower Semiconductor; further adverse changes in
value of investments made by Alliance's venture funds managed by Alliance
Venture Management, LLC; the Company's potential status as an Investment Act of
1940 reporting company. These risks and uncertainties include those set forth in
Item 2 (entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations") of this Report, and in Item 1 (entitled "Business")
of Part I and in Item 7 (entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations") of Part II of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 2001 filed with
the Securities and Exchange Commission on June 29, 2001. These forward-looking
statements speak only as of the date of this Report. The Company expressly
disclaims any obligation or undertaking to release
-13-
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Company's expectations with regard thereto
or to reflect any change in events, conditions or circumstances on which any
such forward-looking statement is based, in whole or in part.
Results of Operations
The percentage of net revenues represented by certain line items in the
Company's consolidated statements of operations for the years indicated, are set
forth in the table below.
Percentage of Net
Revenues for Three
Months Ended June 30,
-------------------------
2001 2000
----------- ------------
Net revenues 100.0% 100.0%
Cost of revenues 142.4 63.0
----------- ------------
Gross profit (loss) (42.4) 37.0
Operating expenses:
Research and development 25.4 7.6
Selling, general and 33.3 9.5
administrative
----------- ------------
Income (loss) from operations (58.7) 19.9
Gain on investments 0.4 100.2
Write-down of marketable (37.5) -
securities and other investments
Other income, net (0.8) 0.7
----------- ------------
Income (loss) before income taxes (139.0) 120.8
Provision (benefit) for income taxes (48.6) 49.2
----------- ------------
Income (loss) before equity in (90.4) 71.6
income (loss) of investees
Equity in income (loss) of investees (17.7) (1.5)
Cumulative effect of accounting change 17.0 -
----------- ------------
Net income (loss) (89.7%) 70.1%
=========== ============
Net Revenues
The Company's net revenues for first quarter of fiscal 2002 ended June 30, 2001
were $12.1 million, a decrease of $20.9 million or approximately 63% over the
prior quarter ended March 31, 2001 and a decrease of $35.3 million or
approximately 74% from the same quarter one year ago. The first quarter of
fiscal 2002 witnessed inventory reduction efforts by our customers and a
fundamental slowdown in demand that started in our third quarter of fiscal 2001.
Unit sales for the first quarter of fiscal 2002 fell approximately 55% from the
prior quarter and approximately 68% from the same quarter one year ago. During
this comparison period, the overall blended average selling prices ("ASP")
decreased approximately 22% from the prior quarter and approximately 22% from
the same quarter one year ago.
The Company's DRAM net revenues for the first quarter of fiscal 2002 were $5.5
million, a decrease of $11.4 million or approximately 68% from the prior quarter
and $21.0 million or approximately 79% from the same quarter one year ago. Unit
sales for the first quarter fell 54% from the prior quarter and 67% from the
same quarter one year ago. Overall DRAM ASP decreased approximately 30% from the
prior quarter and approximately 38% from the same quarter one year ago.
The Company's SRAM net revenues for the first quarter of fiscal 2002 were $6.6
million, a decrease of $9.8 million or approximately 60% from the prior quarter
and $14.2 million or approximately 69% from the same quarter one year ago. Unit
sales for the first quarter fell 56% from the prior quarter and 68% from the
same quarter one year ago. Overall SRAM ASP decreased approximately 8% from the
prior quarter and unchanged from the same the same quarter one year ago.
For the June 2001 and 2000 quarters, no customer accounted for more than 10% of
the Company's net revenues.
-14-
Net sales to non-PC segments of the market, such as telecommunications,
networking, datacom and consumer for the June 2001 quarter accounted for
approximately 76% of the net revenues compared to approximately 82% for the
prior quarter and 78% during June 2000 quarter.
International net revenues in the June 2001 quarter were approximately 68% of
the Company's net revenues compared to approximately 63% for the prior quarter
and approximately 62% for the June 2000 quarter. International net revenues are
derived from customers in Europe, Asia, and the rest of the world. In absolute
dollars, international net revenues fell $12.6 million from the prior quarter
and $21.0 million from the June 2000 quarter. This decrease was due to inventory
reduction efforts by our customers and a fundamental slowdown in demand that
started in our third quarter of fiscal 2001.
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 results of operations.
Gross Profit (Loss)
The Company's gross loss for the June 2001 quarter was $5.1 million or
approximately 42.4% of net revenues compared to a gross loss of $42.6 million or
approximately 129% of net revenues for the prior quarter and a gross profit of
$17.5 million or approximately 37% of net revenues for the June 2000 quarter.
During the June 2001 quarter, the Company wrote-down its inventory by
approximately $6.0 million due to the decrease in demand. Product margins
decreased due to the decline in ASPs and overall unit sales and the $6.0 million
inventory write down. During the prior quarter, the Company wrote down its
inventory by approximately $50.1 million, largely due to the dramatic reduction
in ASPs. This write down put the Company in a gross loss position. The gross
profit for the June 2000 quarter was largely due to an increase in demand for
the Company's products as well as an increase in ASPs, in particular, the DRAM
products.
The Company is subject to a number of factors that may have an adverse impact on
gross profits, including the availability and cost of products from the
Company's suppliers; increased competition and related decreases in unit average
selling prices; changes in the mix of product sold; and the timing of new
product introductions and volume shipments. In addition, the Company may seek to
add additional foundry suppliers and transfer existing and newly developed
products to more advanced manufacturing processes. The commencement of
manufacturing at a new foundry is often characterized by lower yields, as the
manufacturing process is refined. There can be no assurance that the
commencement of such manufacturing will not have a material adverse effect on
the Company's gross profits in future periods.
Research and Development
Research and development expenses consist principally of salaries and benefits
for engineering design, contracted development efforts, facilities costs,
equipment and software depreciation and amortization, wafer masks and tooling
costs, test wafers and other expense items.
Research and development expenses were $3.1 million or approximately 25.4% of
net revenues for the June 2001 quarter. This compares to $3.6 million or
approximately 10.9% of net revenues for the prior quarter and $3.6 million or
approximately 7.6% of net revenues for the June 2000 quarter. The decreases in
absolute dollars are largely attributed to the decrease in mask and tooling
charges as well as a decrease in depreciation expenses.
During June 2001 quarter, the Company's development efforts focused on advanced
process and design technology involving SRAMs, DRAMs and Flash memory products.
The Company believes that investments in research and development are necessary
to remain competitive in the marketplace and accordingly, research and
development expenses may increase in absolute dollars and may also increase as a
percentage of net revenue in future periods.
-15-
Selling, General and Administrative
Selling, general and administrative expenses generally include salaries and
benefits associated with sales, sales support, marketing and administrative
personnel, as well as sales commissions, outside marketing costs, travel,
equipment depreciation and software amortization, facilities costs, bad debt
expense, insurance and legal costs.
Selling, general and administrative expenses for the June 2001 quarter were
approximately $4.0 million or 33.3% of net revenues as compared to approximately
$5.1 million or 15.6% of net revenues for the prior quarter and approximately
$4.5 million or approximately 9.5% in the June 2000 quarter. The decrease
spending in the June 2001 quarter compared to the prior quarter and the June
2000 quarter was due principally to lower outside sales commissions as a result
of a decrease in net revenues.
Selling, general and administrative expenses may increase in absolute dollars,
and may also fluctuate as a percentage of net revenues in the future primarily
as the result of commissions, which are dependent on the level of revenues.
Gain on Investments
During the first quarter of fiscal 2002, the Company record a net gain of
$43,000 relating to the derivative contracts, offset by the change in value of
the hedged shares of Vitesse common stock. In June 2000, the Company sold
500,000 shares of Chartered Semiconductor and recorded a gain of approximately
$33.5 million.
The Company also recognized a $3.1 million gain during the first quarter of
fiscal 2001 related to the sale of shares of Broadcom stock.
On June 27, 2000, PMC-Sierra, Inc. ("PMC"), acquired Malleable Technologies,
Inc. ("Malleable"). In connection with the merger, the Company received 68,152
shares of PMC after distribution to Alliance Venture Management for its 7%
interest in Malleable. In the first fiscal quarter of 2001, the Company reported
a pre-tax non-operating gain of approximately $11.0 million based on the closing
share price of PMC of $182.875 on June 27, 2000, the closing date of the merger.
Write-down of Marketable Securities and Other Investments
In the June 2002 quarter, the Company wrote off one of its investments in
Alliance Ventures and recognized a pre-tax, non-operating loss of approximately
$4.5 million. In the previous quarter, the Company wrote-down several of its
investments in Alliance Ventures and recognized a pre-tax, non-operating loss of
approximately $2.6 million.
Other Income (Expense), Net
Other Income (Expense), Net represents interest income from short-term
investments and interest expense on short and long-term obligations. In the June
2001 quarter, Other Expense, Net was approximately $98,000 compared to an
expense of $673,000 in the previous quarter and net income of $340,000 in the
June 2000 quarter. The increase in other expense during the June 2001 quarter
was the result of higher interest expense due to loans the Company secured,
offset in part by a reduction in Taiwan security taxes relating to UMC
marketable securities.
Provision for Income Taxes
The Company's income tax rate for the first quarter of fiscal year 2002 was
35.0% and an income tax benefit of approximately $5.9 million was recorded due
to the losses. Income tax rate for the first quarter of fiscal 2001 was 40.7%
and an income tax expense of $23.3 million was recorded due to the income
recorded.
Equity in Income of Investees
Several investments made by Alliance Ventures are accounted for as the equity
method due to the Company's ability to exercise its influence on the operations
of investees resulting primarily from ownership interest and/or board
representation. The Company's proportionate share in the net losses of the
equity investees of these venture funds was approximately $2.1 million, net of
deferred tax, for the quarter ended June 20, 2001. This
-16-
compares to approximately $2.1 million, net of deferred tax, in the previous
quarter and $698,000, net of deferred tax, for the quarter ended June 30, 2000.
Cumulative Effect of Change in Accounting Principle-Adoption of FAS 133
The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by the
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133 and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133 (referred to hereafter as "SFAS 133"), on April 1, 2001. In the fourth
quarter of fiscal 2001, the Company entered in various option arrangements known
as a cashless collar, to hedge its investment in Vitesse Semiconductor common
stock. The Company has designated these option arrangements as fair value hedges
under SFAS 133. In accordance with the transition provisions of SFAS 133, the
Company recorded approximately $2.1 million cumulative effect adjustment in
earnings for the quarter ending June 30, 2001.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of interests-method.
The Company believes that the adoption of SFAS 141 will not have a significant
impact on its financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets", which is effective for fiscal years beginning after March
15, 2001. SFAS 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions upon adoption for
the reclassification of certain existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. The
Company believes that the adoption of SFAS 142 will not have a significant
impact on its financial statements.
Factors That May Affect Future Results
The Company's quarterly and annual results of operations have historically been,
and will continue to be, subject to quarterly and other fluctuations due to a
variety of factors, including general economic conditions; changes in pricing
policies by the Company, its competitors or its suppliers; anticipated and
unanticipated decreases in unit average selling prices of the Company's
products; fluctuations in manufacturing yields, availability and cost of
products from the Company's suppliers; the timing of new product announcements
and introductions by the Company or its competitors; changes in the mix of
products sold; the cyclical nature of the semiconductor industry; the gain or
loss of significant customers; increased research and development expenses
associated with new product introductions; market acceptance of new or enhanced
versions of the Company's products; seasonal customer demand; and the timing of
significant orders. Results of operations could also be adversely affected by
economic conditions generally or in various geographic areas, other conditions
affecting the timing of customer orders and capital spending, a downturn in the
market for personal computers, or order cancellations or rescheduling.
Additionally, because the Company is continuing to increase its operating
expenses for personnel and new product development to be able to support
increased sales levels, the Company's results of operations will be adversely
affected if such increased sales levels are not achieved.
The markets for the Company's products are characterized by rapid technological
change, evolving industry standards, product obsolescence and significant price
competition and, as a result, are subject to decreases in average selling
prices. The Company experienced significant deterioration in the average selling
prices for its SRAM and DRAM products during fiscal years 2001, 1999, 1998 and
1997. The Company is unable to predict the future prices for its products.
Historically, average selling prices for semiconductor memory products have
declined and the Company expects that average-selling prices will decline in the
future. Accordingly, the Company's ability to maintain or increase revenues will
be highly dependent on its ability to increase unit sales volume of existing
products and to successfully develop, introduce and sell new products. Declining
average selling prices will also adversely affect the Company's gross margins
unless the Company is able to significantly reduce its cost per unit in an
amount to offset the declines in average selling prices. There can be no
assurance that the Company will be able to increase unit sales volumes of
existing products, develop, introduce and sell new
-17-
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 results of operations. There can be no assurance that the Company in
the future will not produce excess quantities of any of its products. To the
extent the Company produces excess or insufficient inventories of particular
products, the Company's results of operations could be adversely affected, as
was the case in fiscal 2001, 1999, 1998 and 1997, when the Company recorded
pre-tax charges totaling approximately $54 million, $20 million, $15 million and
$17 million, respectively, primarily to reflect a decline in market value of
certain inventory.
The Company currently relies on independent foundries to manufacture all of the
Company's products. Reliance on these foundries involves several risks,
including constraints or delays in timely delivery of the Company's products,
reduced control over delivery schedules, quality assurance and costs and loss of
production due to seismic activity, weather conditions and other factors. In or
about October 1997, a fire caused extensive damage to United Integrated Circuits
Corporation ("UICC"), a foundry joint venture between UMC and various companies.
UICC is located next to UMC in the Hsin-Chu Science-Based Industrial Park, where
Company has products manufactured. UICC suffered an additional fire in January
1998, and since October 1996, there have been at least two other fires at
semiconductor manufacturing facilities in the Hsin-Chu Science-Based Industrial
Park. There can be no assurance that fires or other disasters will not have a
material adverse affect on UMC in the future. In addition, as a result of the
rapid growth of the semiconductor industry based in the Hsin-Chu Science-Based
Industrial Park, severe constraints have been placed on the water and
electricity supply in that region. Any shortages of water or electricity could
adversely affect the Company's foundries' ability to supply the Company's
products, which could have a material adverse effect on the Company's results of
operations or financial condition. Although the Company continuously evaluates
sources of supply and may seek to add additional foundry capacity, there can be
no assurance that such additional capacity can be obtained at acceptable prices,
if at all. The occurrence of any supply or other problem resulting from these
risks could have a material adverse effect on the Company's results of
operations, as was the case during the third quarter of fiscal 1996, during
which period manufacturing yields of one of the Company's products were
materially adversely affected by manufacturing problems at one of the Company's
foundry suppliers. There can be no assurance that other problems affecting
manufacturing yields of the Company's products will not occur in the future.
There is an ongoing risk that the suppliers of wafer fabrication, wafer sort,
assembly and test services to the Company may increase the price charged to the
Company for the services they provide, to the point that the Company may not be
able to profitably have its products produced at such suppliers. The occurrence
of such price increases could have a material adverse affect on the Company's
results of operations.
The Company conducts a significant portion of its business internationally and
is subject to a number of risks resulting from such operations. Such risks
include political and economic instability and changes in diplomatic and
-18-
trade relationships, foreign currency fluctuations, unexpected changes in
regulatory requirements, delays resulting from difficulty in obtaining export
licenses for certain technology, tariffs and other barriers and restrictions,
and the burdens of complying with a variety of foreign laws. Current or
potential customers of the Company in Asia, for instance, may become unwilling
or unable to purchase the Company's products, and the Company's Asian
competitors may be able to become more price-competitive relative to the Company
due to declining values of their national currencies. There can be no assurance
that such factors will not adversely impact the Company's results of operations
in the future or require the Company to modify its current business practices.
Additionally, other factors may materially adversely affect the Company's
results of operations. The Company relies on domestic and offshore
subcontractors for die assembly and testing of products, and is subject to risks
of disruption in adequate supply of such services and quality problems with such
services. The Company is subject to the risks of shortages of goods or services
and increases in the cost of raw materials used in the manufacture or assembly
of the Company's products. The Company faces intense competition, and many of
its principal competitors and potential competitors have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines and longer-standing relationships with customers than does the
Company, any of which factors may place such competitors and potential
competitors in a stronger competitive position than the Company. The Company's
corporate headquarters are located near major earthquake faults, and the Company
is subject to the risk of damage or disruption in the event of seismic activity.
There can be no assurance that any of the foregoing factors will not materially
adversely affect the Company's results of operations.
Current pending litigation, administrative proceedings and claims are set forth
in Item 1- Legal Proceedings. The Company intends to vigorously defend itself in
the litigation and claims and, subject to the inherent uncertainties of
litigation and based upon discovery completed to date, management believes that
the resolution of these matters will not have a material adverse effect on the
Company's financial position. However, should the outcome of any of these
actions be unfavorable, the Company may be required to pay damages and other
expenses, or may be enjoined from manufacturing or selling any products deemed
to infringe the intellectual property rights of others, which could have a
material adverse effect on the Company's financial position or results of
operations. Moreover, the semiconductor industry is characterized by frequent
claims and litigation regarding patent and other intellectual property rights.
The Company has from time to time received, and believes that it likely will in
the future receive, notices alleging that the Company's products, or the
processes used to manufacture the Company's products, infringe the intellectual
property rights of third parties, and the Company is subject to the risk that it
may become party to litigation involving such claims (the Company currently is
involved in patent litigation). In the event of litigation to determine the
validity of any third-party claims (such as the current patent litigation), or
claims against the Company for indemnification related to such third-party
claims, such litigation, whether or not determined in favor of the Company,
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from other matters. In the event of
an adverse ruling in such litigation, the Company might be required to cease the
manufacture, use and sale of infringing products, discontinue the use of certain
processes, expend significant resources to develop non-infringing technology or
obtain licenses to the infringing technology. In addition, depending upon the
number of infringing products and the extent of sales of such products, the
Company could suffer significant monetary damages. In the event of a successful
claim against the Company and the Company's failure to develop or license a
substitute technology, the Company's results of operations could be materially
adversely affected.
The Company also, as a result of an antidumping proceeding commenced in February
1997, must pay a cash deposit equal to 50.15% of the entered value of any SRAMs
manufactured (wafer fabrication) in Taiwan, in order to import such goods into
the U.S. Although the Company may be refunded such deposits in the future (see
Part II, Item 1 - Legal Proceedings, below), the deposit requirement, and the
potential that all entries of Taiwan-fabricated SRAMs from October 1, 1997
through March 31, 1999 will be liquidated at the bond rate or deposit rate in
effect at the time of entry, may materially adversely affect the Company's
ability to sell in the United States SRAMs manufactured (wafer fabrication) in
Taiwan. The Company manufactures (wafer fabrication) SRAMs in Singapore (and has
manufactured SRAMs in the United States as well), and may be able to support its
U.S. customers with such products, which are not subject to antidumping duties.
There can be no assurance, however, that the Company will be able to do so.
The Company, through Alliance Venture Management, invests in startup, pre-IPO
(initial public offering) companies. These types of investments are inherently
risky and many venture funds have a large percentage of investments decrease in
value or fail. Most of these startup companies fail, and the investors lose
their entire investment. Successful investing relies on the skill of the
investment managers, but also on market and other factors outside the control of
the managers. While the Company has been successful in some of its recent
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investments, there can be no assurance as to any future or continued success. It
is likely there will be a downturn in the success of these types of investments
in the future and the Company will suffer significant diminished success in
these investments. There can be no assurance, and in fact it is likely, that
many or most, and maybe all of the Company's venture type investments may fail,
resulting in the complete loss of some or all the money the Company invested.
As a result of the foregoing factors, as well as other factors affecting the
Company's results of operations, past performance should not be considered to be
a reliable indicator of future performance and investors should not use
historical trends to anticipate results or trends in future periods. In
addition, stock prices for many technology companies are subject to significant
volatility, particularly on a quarterly basis. If revenues or earnings fail to
meet expectations of the investment community, there could be an immediate and
significant impact on the market price of the Company's common stock.
Due to the foregoing factors, it is likely that in some future quarter or
quarters, the Company's results of operations may be below the expectations of
public market analysts and investors. In such event, the price of the Company's
common stock would likely be materially and adversely affected.
Liquidity and Capital Resources
At June 30, 2001, the Company had approximately $3.9 million in cash and cash
equivalents, a decrease of approximately $2.2 million from March 31, 2001 and
approximately $230.9 million in working capital, a decrease of approximately
$58.8 million from $289.7 million at March 31, 2001.
Additionally, the Company had short-term investments in marketable securities
whose fair value at June 30, 2001 was $330.6 million.
During first quarter of fiscal year 2002, operating activities used cash of
$40.5 million. This was primarily the result of net loss, the impact of non-cash
items such as depreciation and amortization, decrease in accounts payable,
offset in part by cumulative effect of accounting change, write-down of
investments, decrease in accounts receivable and taxes payable.
Cash used in operating activities of $16.1 million in the first quarter of
fiscal year 2001 was primarily due to the net income, the impact of non-cash
items such as depreciation and amortization, offset in part by growth in
inventory and accounts receivable, accounts payable and taxes payable.
Investing activities used cash in the amount of $20.8 million during the first
quarter of fiscal 2002 as the result of investment made in Tower Semiconductor
for $11.0 million, investments made by Alliance Ventures of $9.3 million and
purchases of equipment of $513,000.
Investing activities provided cash in the amount of $28.2 million during the
first quarter of fiscal 2001 primarily as the result of the proceeds from the
sale of a portion of the Company's holdings in Chartered Semiconductor of $45.6
million, offset in part, by investments made by Alliance Ventures of $16.4
million and purchases of equipment of $1.0 million.
Net cash provided by financing activities during the first quarter of fiscal
2002 was approximately $59.1 million and was primarily due to an increase in
short-term borrowings of $58.8 million and in part by proceeds from the sale of
common stock through stock option exercises, of approximately $0.5 million
offset by capital lease payments of $0.2 million. During the first quarter of
fiscal 2001, the Company entered into a secured loan agreement (the "Loan
Agreement") with Citibank, N.A. for up to $60 million. Under the terms of the
Loan Agreement, the loan will mature on November 19, 2001 and bears interest at
a per annum rate equal to LIBO Rate plus one percent. Both the principal and
accrued interest are payable upon maturity. The borrowings under the Loan
Agreement are secured by 181,670,000 shares of UMC common stock held by the
Company. At June 30, 2001, the Company had borrowed $58.5 million with accrued
interest of approximately $340,000.
Cash used in financing activities during the first quarter of fiscal 2001 was
approximately $4.8 million and was primarily the result of repurchase of 300
thousand shares of the Company's common stock for $5.3 million and capital lease
payments of $0.3 million, offset in part by proceeds from the sale of common
stock (i.e. stock option exercises), of approximately $0.8 million.
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The Company believes these sources of liquidity, and financing opportunities
available to it will be sufficient to meet its projected working capital and
other cash requirements for the foreseeable future. However, it is possible that
the Company may need to raise additional funds to fund its activities beyond the
next year or to consummate acquisitions of other businesses, products, wafer
capacity, or technologies. The Company could raise such funds by selling some
its short-term investments, selling more stock to the public or to selected
investors, or by borrowing money. The Company may not be able to obtain
additional funds on terms that would be favorable to its shareholders and the
Company, or at all. If the Company raises additional funds by issuing additional
equity, the ownership percentages of existing shareholders would be reduced.
In order to obtain an adequate supply of wafers, especially wafers manufactured
using advanced process technologies, the Company has entered into and will
continue to consider various possible transactions, including equity investments
in or loans to foundries in exchange for guaranteed production capacity, the
formation of joint ventures to own and operate foundries, as was the case with
Chartered Semiconductor or UMC, or the usage of "take or pay" contracts that
commit the Company to purchase specified quantities of wafers over extended
periods. Manufacturing arrangements such as these may require substantial
capital investments, which may require the Company to seek additional equity or
debt financing. There can be no assurance that such additional financing, if
required, will be available when needed or, if available, will be on
satisfactory terms. Additionally, the Company has entered into and will continue
to enter into various transactions, including the licensing of its integrated
circuit designs in exchange for royalties, fees, or guarantees of manufacturing
capacity.
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================================================================================
Part II - Other Information
ITEM 1
Legal Proceedings
In July 1998, the Company learned that a default judgment was entered against
the Company in Canada, in the amount of approximately $170 million (USD), in a
case filed in 1985 captioned Prabhakara Chowdary Balla and TritTek Research Ltd.
v. Fitch Research Corporation, et al., British Columbia Supreme Court No.
85-2805 (Victoria Registry). The Company, which had previously not participated
in the case, believes that it never was properly served with process in this
action, and that the Canadian court lacks jurisdiction over the Company in this
matter. In addition to jurisdictional and procedural arguments, the Company also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's bankruptcy in 1991. In February 1999, the
court set aside the default judgment against the Company. In April 1999, the
plaintiffs were granted leave by the Court to appeal this judgment. Oral
arguments were made before the Court of Appeals in June 2000. In July 2000, the
Court of Appeals instructed the lower Court to allow the parties to take
depositions regarding the issue of service of process, while also setting aside
the default judgment against the Company. The plaintiffs appealed the setting
aside of the default judgment against the Company to the Canadian Supreme Court.
In June 2001, the Canadian Supreme Court refused to hear the appeal of the
setting aside of the default judgment against the Company. The Company believes
the resolution of this matter will not have a material adverse effect on its
financial conditions and its results of operations.
ITEM 5
Other Information
In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United States International Trade Commission ("ITC") and United States
Department of Commerce ("DOC"), alleging that SRAMs fabricated in Taiwan were
being sold in the United States at less than fair value, and that the United
States industry producing SRAMs was materially injured or threatened with
material injury by reason of imports of SRAMs fabricated in Taiwan. After a
final affirmative DOC determination of dumping and a final affirmative ITC
determination of injury, DOC issued an antidumping duty order in April 1998.
Under that order, the Company's imports into the United States on or after
approximately April 16,1998 of SRAMs fabricated in Taiwan are subject to a cash
deposit in the amount of 50.15% (the "Antidumping Margin") of the entered value
of such SRAMs. (The Company posted a bond in the amount of 59.06% (the
preliminary margin) with respect to its importation, between approximately
October 1997 and April 1998, of SRAMs fabricated in Taiwan.) In May 1998, the
Company and others filed an appeal in the United States Court of International
Trade (the "CIT"), challenging the determination by the ITC that imports of
Taiwan-fabricated SRAMs were causing material injury to the U.S. industry. On
June 30, 1999, the CIT issued a decision remanding the ITC's affirmative
material injury determination to the ITC for reconsideration. The ITC's remand
determination reaffirmed its original determination. The CIT considered the
remand determination and remanded it back to the ITC for further
reconsideration. On June 12, 2000, in its second remand determination the ITC
voted negative on injury, thereby reversing its original determination that
Taiwan-fabricated SRAMs were causing material injury to the U.S. industry. The
second remand determination was transmitted to the CIT on June 26, 2000 for
consideration. Micron has appealed the decision of the CIT to the Court of
Appeals for the Federal Circuit. In August 2000, the Court of Appeals heard oral
arguments. The Company cannot predict either the timing or the eventual results
of the appeal, although it is expected to take a year or more to conclude. 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 unsuccessful, the antidumping order will be terminated
and cash deposits will be refunded with interest. If the appeal is successful,
the Company's entries of Taiwan-fabricated SRAMs from October 1, 1997 through
March 31, 2000 will be liquidated at the deposit rate in effect at the time of
entry. On subsequent entries of Taiwan-fabricated SRAMs, the Company will
continue to make cash deposits in the amount of 50.15% of the entered value. At
June 30, 2001, the Company had posted a bond secured by a letter of credit in
the amount of approximately $1.7 million and made cash deposits in the amount of
$1.7 million relating to the Company's importation of Taiwan-manufactured SRAMs.
The Investment Company Act of 1940
Following a special study after the stock market crash of 1929 and the ensuing
Depression, Congress enacted the Investment Company Act of 1940 (the "Act"). The
Act was primarily meant to regulate mutual funds, such as the families of funds
offered by the Fidelity and Vanguard organizations (to pick two of many), and
the smaller number of closed-end investment companies that are traded on the
public stock markets. In those cases the funds in
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question describe themselves as being in the business of investing, reinvesting
and trading in securities and generally own relatively diversified portfolios of
publicly traded securities that are issued by companies that the investment
companies do not control. The fundamental intent of the Act is to protect the
interests of public investors from fraud and manipulation by the people who
establish and operate such investment companies, which constitute large pools of
liquid assets that could be used improperly, or not be properly safeguarded, by
the persons in control of them.
When the Act was written, its drafters (and Congress) also felt that a company
could, either deliberately or inadvertently, come to have the defining
characteristics of an investment company without proclaiming that fact or being
willing to voluntarily submit itself to regulation as an acknowledged investment
company, and that investors in such a company could be just as much in need of
protection as are investors in companies that are openly and deliberately
established as investment companies. In order to deal with this perceived
potential abuse, the Act and rules under it contain provisions and set forth
principles that are designed to differentiate "true" operating companies from
companies that may be considered to have sufficient investment-company-like
characteristics to require regulation by the Act's complex procedural and
substantive requirements. These provisions apply to companies that own or hold
securities, as well as companies that invest, reinvest and trade in securities,
and particularly focus on determining the primary nature of a company's
activities, including whether an investing company controls and does business
through the entities in which it invests or, instead, holds its securities
investments passively and not as part of an operating business. For instance,
under what is, for most purposes, the most liberal of the relevant tests, a
company may become subject to the Act's registration requirements if it either
holds more than 45% of its assets in, or derives more than 45% of its income
from, investments in companies that the investor does not primarily control or
through which it does not actively do business. In making these determinations
the Act generally requires that a company's assets be valued on a current fair
market value basis, determined on the basis of securities' public trading price
or, in the case of illiquid securities and other assets, in good faith by the
company's board of directors.
The Company viewed its investments in Chartered, USC and USIC, and its new
investment in Tower, as operating investments primarily intended to secure
adequate wafer manufacturing capacity; as previously noted, the Company's access
to the manufacturing resources that it obtained in conjunction with those
investments will decrease if the Company ceases to own at least 50% of its
original investments in the enterprises, as modified, in the cases of USC and
USIC, by their merger into UMC. In addition, the Company believes that, before
USC's merger into UMC, the Company's investment in USC constituted a joint
venture interest that the staff of the Securities and Exchange Commission (the
"SEC") would not regard as a security for purposes of determining the proportion
of the Company's assets that might be viewed as having been held in passive
investment securities. However, because of the success during the last two years
of the Company's investments, including its strategic wafer manufacturing
investments, at least from the time of the completion of the merger of USC and
USIC into UMC in January 2000 the Company believes that it could be viewed as
holding a much larger portion of its assets in investment securities than is
presumptively permitted by the Act for a company that is not registered under
it.
On the other hand, the Company also believes that the investments that it
currently holds in Chartered and UMC, even though in companies that the Company
does not control, should be regarded as strategic deployments of Company assets
for the purpose of furthering the Company's memory chip business, rather than as
the kind of financial investments that generally are considered to constitute
investment securities. Applying certain other tests that the SEC utilizes in
determining investment company status, the Company has never held itself out as
an investment company; its historical development has focused almost exclusively
on the memory chip business; the activities of its officers and employees have
been overwhelmingly addressed to achieving success in the memory chip business;
and until the past two years, its income (and losses) have derived almost
exclusively from the memory chip business. Accordingly, the Company believes
that it should be regarded as being primarily engaged in a business other than
investing, reinvesting, owning, holding or trading in securities, and has
applied to the SEC for an order under section 3(b)(2) of the Act confirming its
non-investment-company status. However, if the Company's investments in
Chartered, UMC and Tower are now viewed as investment securities, it must be
conceded that an unusually large proportion of the Company's assets could be
viewed as invested in assets that would, under most circumstances, give rise to
investment company status. Therefore, while the Company believes that it has
meritorious arguments as to why it should not be considered an investment
company and should not be subject to regulation under the Act, there can be no
assurance that the SEC will agree. And even if the SEC grants some kind of
exemption from investment company status to the Company, it may place
significant restrictions on the amount and type of investments the Company is
allowed to hold, which might force the Company to divest itself of many of its
current investments. Significant potential penalties may be imposed upon a
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company that should be registered under the Act but is not, and the Company is
proceeding expeditiously to resolve its status.
If the Company does not receive an exemption from the SEC, the Company would be
required to register under the Act as a closed-end management investment
company. In the absence of exemptions granted by the SEC (if it determines to do
so in its discretion after an assessment of the public interest), the Act
imposes a number of significant requirements and restrictions upon registered
investment companies that do not normally apply to operating companies. These
would include, but not be limited to, a requirement that at least 40% of the
Company's board of directors not be "interested persons" of the Company as
defined in the Act and that those directors be granted certain special rights
with respect to the approval of certain kinds of transactions (particularly
those that pose a possibility of giving rise to conflicts of interest);
prohibitions on the grant of stock options that would be outstanding for more
than 120 days and upon the use of stock for compensation (which could be highly
detrimental to the Company in view of the competitive circumstances in which it
seeks to attract and retain qualified employees); and broad prohibitions on
affiliate transactions, such as the compensation arrangements applicable to the
management of Alliance Venture Management, many kinds of incentive compensation
arrangements for management employees and joint investment by persons who
control the Company in entities in which the Company is also investing (which
could require the Company to abandon or significantly restructure its management
arrangements, particularly with respect to its investment activities). While the
Company could apply for individual exemptions from these restrictions, there
could be no guarantee that such exemptions would be granted, or granted on terms
that the Company would deem practical. Additionally, the Company would be
required to report its financial results in a different form from that currently
used by the Company, which would have the effect of turning the Company's
Statement of Operations "upside down" by requiring that the Company report its
investment income and the results of its investment activities, instead of its
operations, as its primary sources of revenue.
While the Company is working diligently to deal with these investment company
issues, there can be no assurance that a manageable solution will be found. The
SEC may be hesitant to grant an exemption from investment company status in the
Company's situation, and it may not be feasible for the Company to operate in
its present manner as a registered investment company. As a result, the Company
might be required to divest itself of assets that it considers strategically
necessary for the conduct of its operations, to reorganize as two or more
separate companies, or both. Such divestitures or reorganizations could have a
material adverse effect upon the Company's business and results of operations.
ITEM 6
Exhibits and Reports on Form 8-K.
(a) Exhibits:
None.
(b) No reports on Form 8-K were filed during quarter ended July 1, 2000.
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================================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Alliance Semiconductor Corporation
August 14, 2001 By: /s/ N. Damodar Reddy
------------------------------------------
N. Damodar Reddy
Chairman of the Board, President, Chief
Executive Officer (Principal Executive
Officer) and Acting Chief Financial Officer
(Principal Financial and Accounting Officer)
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