SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE
REQUIRED)
FOR THE TRANSITION PERIOD FROM ____ TO _____
COMMISSION FILE NUMBER 0-15012
CHIPS AND TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0047943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2950 ZANKER ROAD, SAN JOSE CALIFORNIA 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 434-0600
Securities registered pursuant to Section 12(B) of the Act: NONE
Securities registered pursuant to Section 12(G) of the Act:
COMMON STOCK, $.01 PAR VALUE
COMMON STOCK PURCHASE RIGHTS
(Title of class)
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
Indicate by check mark if disclosure of delinquent Filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $67,550,240 as of August 15, 1994.
On August 15, 1994 there were 16,887,560 shares of Common Stock of the
Company outstanding.
The Index to Exhibits is listed on pages 33 and 34 of this Annual Report on Form
10-K.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement for Registrant's Annual Meeting of Stockholders to be
held on November 10, 1994, (the "Proxy Statement")
PART I
ITEM 1. BUSINESS
GENERAL
Chips & Technologies, Inc., (the "Company" or "CHIPS") was incorporated as a
California corporation in December 1984. The Company was subsequently
reincorporated as a Delaware corporation in August 1986. The Company's initial
public offering occurred in October 1986. The Company develops and markets very
large scale integrated ("VLSI") circuits for the personal computing industry.
The Company's products incorporate features and technology that allow its
customers to rapidly design and introduce computing systems with compelling
combinations of performance and functionality.
The Company's strategy is directed towards timely delivery of cost effective
products for the market leaders in the personal computing industry. Throughout
fiscal 1994, the Company targeted its efforts at the market leaders in the PC
industry. These efforts have resulted in adoption of the Company's products by
customers such as IBM, Apple Computer, Hewlett-Packard and NEC Technologies,
among others.
The Company focuses its development efforts on the media and core logic portions
of the marketplace. The Company's media products provide video functions that
support major industry display standards such as VGA & SVGA and address both
portable and desktop computing applications. Portable applications generally
consist of notebook and sub-notebook computers. Desktop applications are
characterized by the traditional CRT video display. The Company's core logic
products provide the circuitry that implements the digital pathways of a
personal computer and support industry standard bus and processor architectures
such as ISA, VL and the X86 series of microprocessors. As part of its core logic
portfolio, the Company also provides complementary devices that implement
standard communications protocols through serial and parallel ports to allow the
interface to the PC of peripheral devices such as disk drives, printers and
modems.
During fiscal year 1994, the Company implemented the restructuring programs for
which charges were taken in the fourth quarter fiscal 1993. The implementation
of the restructuring plans resulted in the discontinuation and sale of 1) the
Company's interest in the Russian joint venture operating its system business,
2) its networking business and 3) its future development of stand-alone
multimedia technologies. As a result of the restructuring programs, the Company
reduced headcount and expenses and consolidated its buildings at its corporate
headquarters.
INDUSTRY OVERVIEW
The personal computing industry has rapidly expanded as system manufacturers
have continued to provide increasing performance and functionality at lower
prices. CHIPS was a pioneer in the development of the personal computing
industry, providing many of the technical innovations that allowed the market
for IBM-compatible architecture computers to prosper.
CHIPS was an early supplier of VLSI solutions, now called "chipsets", that
allowed a variety of manufacturers to rapidly introduce cost effective personal
computers compatible with the then emerging IBM AT industry standard
architecture. This event simplified the design of the PC and allowed
manufacturers to bring products to market without investing large amounts of
internal resources in the development of significant portions of the PC
electronics.
Many changes have occurred in the industry since its genesis in the 1980's. The
majority of PC manufacturers now use independent suppliers to provide core logic
and video VLSI solutions. Widespread adoption of this business model has created
a large market opportunity that has attracted numerous competitors. The Company
faces strong competitive forces in all its product areas and believes its future
success will be based upon the following factors: delivery of products with
compelling performance and functionality, rapid development and timely
introduction of new products, maintenance of customer relationships with market
leading PC manufacturers, obtaining sources of supply at competitive costs and
access to advanced semiconductor process technologies. Due to the difficulty and
uncertainty of attaining these objectives, no assurances can be made that the
Company will be successful in its endeavors in any of these areas.
PRODUCT LINES
MEDIA PRODUCTS
The Company supplies VLSI circuit products that provide video display
capabilities for CRT and flat panel displays. The Company's video display
controllers are compatible with the IBM VGA graphics standard and support
advanced modes such as SVGA that allow a greater number of colors to be
displayed at higher levels of resolution. The Company further segregates its
business into product families focused on portable display applications and
desktop applications.
|_| FLAT PANEL DISPLAY CONTROLLERS
The market for flat panel display controllers has grown rapidly as the
popularity of portable computers has increased. The portable computing segment
of the market is the fastest growing portion of the PC industry; and most
industry projections estimate that portable computers will comprise an
increasingly larger portion of total PC shipments. The most common portable
computing devices are the notebook and sub-notebook computers. The majority of
these devices use a built-in flat panel display. Advances in the portable
computing industry have most recently revolved around improvements in display
quality, power consumption and performance. Expected advances in portable
computing suggest that portable PCs will eventually have performance and
functionality equivalent to the traditional desktop PC.
The Company markets a family of flat panel display controllers that offer
different combinations of features and performance to meet the varying
requirements of portable PCs. The product family addresses key customer
requirements with high component-level integration through the incorporation on
chip of a RAMDAC ( random access memory digital-to-analog converter) and clock
synthesizer, the support of color flat panel displays, low power consumption
through 3.3 volt operation and, most recently, GUI acceleration capabilities
built into the chip hardware. The Company is currently focusing on the
integration of multimedia display functions in order to expand the capabilities
of the product. The Company believes that portable computers are evolving into
replacements for traditional desktop computers and that this transition will
demand greater functionality from the flat panel display controller.
The Company's flat panel controller customers include major PC manufacturers and
subcontract manufacturers of notebook and sub-notebook computers. The customer
design-in process for a portable computer tends to span a longer period of time
and be more complex than that of a desktop PC or peripheral. The Company
supports its customers' design process by providing software such as video BIOS
( Basic I/O System ) and software drivers as well as system development and
demonstration boards. The Company provides ongoing technical applications
support throughout the customer's design and manufacturing process.
|_| CRT DISPLAY CONTROLLERS
The introduction and overwhelming prevalence of Microsoft(R) Windows(TM) as a
graphical user interface ("GUI") software environment for IBM-compatible PCs has
driven changes in end user requirements for CRT display capabilities. The
graphic features of the Windows environment have been embraced by computer users
as an aid to productivity and ease of use. The graphically intensive nature of
Windows software has placed additional demands on the electronics of the
personal computer. Standard PC VGA graphics display controllers lack the ability
to process the more extensive functions of the Windows interface. The computer's
microprocessor is burdened with the additional requirement of processing Windows
functions, leading to slower video image display and decreased user
productivity. Certain companies recognized this deficiency and added hardware
based video acceleration capabilities to the existing graphics display
controller, resulting in faster video display processing for Windows and other
GUI software applications. GUI accelerator CRT display controllers are the
largest segment of the CRT display controller market and are expected to gain a
larger share of the total CRT display controller market.
The Company introduced its first single chip GUI accelerator CRT display
controller during fiscal 1994. These products offer customers a high performance
solution at competitive system level costs through the incorporation in the chip
of an innovative technology called XRAM Video Cache(TM) as well as RAMDAC and
clock synthesizer circuitry. The Company plans to expand the product family to
support emerging bus architectures such as Peripheral Component Interconnect
("PCI") , to utilize 64-bit internal architectures for increased performance and
to incorporate multimedia features to address expanding computer user
requirements.
The Company's customers for CRT display controllers include personal computer
system manufacturers, add-in card makers and motherboard manufacturers. The
customer design-in period for CRT display controllers is usually short. The
Company supports the customer design process by providing schematics, complete
board designs, BIOS system software, application software drivers and
development and demonstration boards. The Company also provides ongoing
technical support throughout the customers' design and manufacturing periods.
CORE LOGIC PRODUCTS
The primary functions of a personal computer are provided by a circuit board
called the motherboard, which generally contains the microprocessor, memory,
core logic and other peripheral control devices. The core logic devices control
the transfer of digital data within the personal computer by managing the
communications among the microprocessor, memory, system bus and peripherals. The
microprocessor of an IBM-compatible PC is based on an "X86" architecture,
commonly referred to by product family names such as 386, 486 or Pentium(TM).
The system bus management function of the core logic device implements the
protocols enabling compatibility with industry standard bus interfaces such as
Industry Standard Architecture ("ISA"), Video Enhancement Standard Architecture
( "VESA") and Peripheral Component Interconnect ("PCI").
The Company's current core logic products consist of devices that support the
range of 8086 to 486 processor families. These devices implement their core
logic circuitry for the majority of applications in one or two chips. The
Company maintains a family of products that complement its core logic devices
and implement the peripheral functions on the motherboard, such as serial and
parallel communication protocols and disk drive interface control. The Company's
core logic products also include an innovative device that combines processor,
core logic, graphics display controller and peripheral control functions on a
single chip.
The Company is targeting its core logic development efforts in three areas. The
first area is the expansion of support for new system bus and microprocessor
architectures such as the PCI system bus and the Pentium processor. The second
focuses on incorporation of power management technology into the core logic chip
that will support the U.S. Government Energy Star guidelines for power
consumption. The third involves the integration of communication and peripheral
control functions into the core logic device. The Company's customers for core
logic devices are primarily PC system manufacturers, motherboard manufacturers
and subcontract manufacturers. Its customer base also includes, to a lesser
degree, industrial and embedded control application customers. The design-in
process for core logic devices is generally much shorter for desktop PCs than
for portable PCs due to the simplicity of design and standardization of many of
the physical design factors. The Company supports the design process by
providing in most cases BIOS software, development and demonstration boards and
in many cases schematics and complete board designs. The Company assists its
customers throughout the design and manufacturing phases by providing technical
applications and design support.
SALES & MARKETING
CHIPS markets and distributes its products through a combination of a direct
sales organization, regional distributors and independent manufacturer
representatives. In North America, the Company maintains direct sales offices in
Georgia, Illinois and at its corporate headquarters in San Jose, California.
Additional regional technical support staff operate in Massachusetts and Texas.
International sales offices are maintained in Taiwan and the United Kingdom.
Sales to the Company's customers are usually made pursuant to specific purchase
orders, which are cancelable or reschedulable within certain time frames,
without significant penalty. The Company recognizes sales to all customers
except domestic distributors upon shipment of the product. Revenue is recognized
upon the distributor resale for the Company's domestic distributors. The
Company's distributors are generally allowed to return to the Company a portion
of the products purchased by them. The Company maintains reserves for such
return allowances.
Sales efforts are focused on the customers' technical and management groups
responsible for new system designs. The Company provides direct application
engineering support to its customers during the evaluation, design and
production stages of the customer's product cycle to assist the customer in the
implementation of the Company's products.
The Company's products are utilized by a number of leading personal computer
manufacturers including IBM, Apple Computer, AST Research, Dell Computer, NEC
Technologies and Hewlett Packard. During fiscal 1994, there were no customers
who accounted for more than 10% of the Company's total revenue. The Company is
continuing to expand its customer base with key PC system manufacturers.
However, the loss of a significant customer or a reduction in such customer's
orders and sales could have a material adverse effect on the Company's results
of operations.
Export sales were 56%, 48% and 67% of net sales for fiscal years 1994, 1993 &
1992, respectively. The proportion of export sales also reflects the strategy of
certain PC system companies to manufacture or subcontract manufacture of their
products in foreign countries. Export sales subject the Company to the exposures
of international business, including government and foreign trade policies and
local economic conditions.
MANUFACTURING
The majority of the Company's products are manufactured using 1.0 and 0.8 micron
CMOS process technologies. The Company subcontracts to independent suppliers the
manufacture of its products. This strategy enables the Company to avoid the
large capital investment and overhead expense associated with a captive
semiconductor fabrication facility. Accordingly, the Company can focus on what
it believes are its core strengths, namely the design and marketing of its
products.
Certain of the Company's vendors deliver fully assembled and tested finished
goods products. In this case, CHIPS purchases finished goods meeting its
predetermined specifications. Other vendors provide only the silicon wafers,
after which the Company manages the process of assembly and testing through
other independent vendors. CHIPS maintains specific quality assurance programs
for all vendors and supplies its vendors with detailed semiconductor test
programs to verify its products during manufacture. The Company also requires
its vendors to manufacture to a detailed set of specifications and parameters
prior to accepting delivery of any products from its suppliers. The Company
believes it maintains good relationships with its subcontract vendors. The
Company also attempts to develop alternate vendor sources for its high volume
products to reduce the exposures caused by having a sole source for its
products.
RESEARCH & DEVELOPMENT
The Company considers the timely development and introduction of new products to
be essential to maintaining its competitive position and capitalizing on market
opportunities. Research and development efforts focus on the design of new
products and the enhancement of existing ones that will help to maintain or
increase the Company's participation in various product areas. At June 30, 1994,
the Company had approximately 80 employees engaged in research and development.
Spending for research and development during fiscal 1994, 1993 and 1992 was
$11.8 million, $22.6 million and $45.7 million, respectively. The decreases in
research and development spending from 1992 to 1994 reflect the impact of the
Company's restructuring programs that discontinued development efforts on
product lines the Company determined were not critical to its future product
strategy.
COMPETITION
The markets for the Company's products are characterized by intense competition.
The Company expects the level of competition to increase. Competitive factors in
the Company's markets include product features, product performance, price,
timeliness of new product introductions, quality and customer support. There can
be no assurance that the Company will be able to compete effectively in these
key areas and be successful relative to its competition. Advances by its
competition in any of the areas mentioned may have a material adverse effect on
the Company's results of operations.
The Company's competitors consist of both domestic and international companies.
Some of these companies own semiconductor fabrication, assembly and test
facilities, while others subcontract manufacturing in a way similar to CHIPS.
Some competitors have significantly greater financial, technical, marketing,
manufacturing and distribution resources than the Company. To the extent these
competitors are able to utilize these resources effectively in competing against
the Company, there could be an impact on the future operating results of the
Company.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's revenues are directly affected by customer demand for its
products. Customer demand fluctuates, sometimes dramatically, based on the
customers' buildup of internal inventory, seasonal factors, and product
transitions, among other things. While the Company makes every effort to be
consistently informed of customers' expected demand for its products, customers
do from time to time make unexpected changes in product purchasing forecasts and
in existing orders. Customer rescheduling, reduction in quantities and
cancellations of orders could have a material adverse impact on the Company's
revenues and results of operations.
The largest portion of the Company's sales during fiscal 1994 was comprised of
flat panel graphics controllers. The Company currently maintains a leading
position in this market and anticipates its competition will aggressively price
alternative solutions to attempt to capture market position. The Company
anticipates revenues from core logic and CRT graphics controllers to increase
if, as it expects, it gains additional customers and market share. The core
logic and CRT graphics controller businesses tend to have lower gross margins.
Therefore, to the extent that the proportion of the Company's revenue from CRT
controllers and core logic devices increases and/or the Company encounters
aggressive price competition for its flat panel controllers, gross margins
achieved in fiscal 1994 may not be sustainable.
The Company believes it is critical to its success to be able to develop complex
new products and introduce those products to the marketplace in a timely manner,
and that customer design wins and favorable margins depend on the achievement of
rapid time to market. In addition the Company must provide appropriate product
features and functionality desired by its customers, have its products selected
and designed into computer system products of leading personal computer
manufacturers and obtain sources of supply for its products at competitive
costs. There can be no assurance that the Company will be successful in
achieving these goals. Should the Company not be successful in some or all of
these areas, there would be a material adverse effect on the Company's results
of operations.
The Company's current operating results are to a large degree influenced by its
ability to obtain and maintain design wins for its products. Many of the
Company's current customers are leading personal computer manufacturers or their
subcontractors. The Company directs its sales, marketing, customer service and
technical support efforts primarily at major personal computer system
manufacturers and subcontract manufacturers. The competition for the design wins
from such personal computer manufacturers is intense. To the extent that the
Company is unable to retain existing designs or acquire new design wins for the
Company's existing and future products, there could be a material adverse effect
on the Company's results of operations.
The Company procures its integrated circuits from various domestic and
international suppliers. The Company's reliance on subcontract vendors for
manufacture of its products presents risks including the lack of guaranteed
production capacity, delays in delivery, reduced control over production costs
and restrictions on availability of certain advanced process technologies.
Because most of the Company's production is met through subcontractors located
throughout Asia, the Company is also subject to risks beyond its control related
to international trade policies and political and economic changes in foreign
governments. The Company currently has no commitments that are binding on these
subcontractors beyond the period of outstanding purchase orders placed on these
suppliers. The Company attempts to mitigate the risks associated with its
subcontract vendors by maintaining favorable vendor relationships and developing
alternate sources of supply for high volume products. However, there can be no
assurances made that the Company will obtain sufficient timely supply of its
products to meet customer demand. A disruption in supply, inability to obtain
sufficient supply or restrictions on access to certain advanced semiconductor
process technologies could have a materially adverse effect on the Company's
operating results.
Because the Company uses subcontract vendors for the manufacture of its
products, the Company must place orders with its suppliers far in advance of
shipment to its end customers. The Company uses projections of future end
customer shipments to determine inventory purchase requirements. The Company's
products are subject to rapid technological change, intense competition and
generally have short life cycles. These factors often are manifested in rapid
increases or declines in product sales over a short period of time. The Company
attempts to identify and react to anticipated changes quickly but due to the
rapid rate of change, the Company may not be able to accurately forecast or
react in a timely manner to changes in customer demand for its products. Future
operating results could be adversely affected if the company is not able to
anticipate its inventory supply requirements and as a result generates excess or
insufficient product inventories.
The personal computer industry is subject to certain seasonal fluctuations. It
is acknowledged within both the computer and semiconductor industries that sales
and purchases may vary significantly within a particular quarterly or annual
period. To the extent that seasonal fluctuations occur, they may cause
volatility in operating results for a particular period and could have material
effect on future operating results. Due to fluctuations in the Company's
customers orders in a particular period, historical results of the Company may
not be indicative of future operating results.
LICENSES, PATENTS AND TRADEMARKS
The Company attempts to protect its proprietary technology through the filing of
patents and by the use of copyright, maskwork and trade secret protection and
trademarks. The Company has been granted 59 patents covering various technical
innovations. The Company also has 43 pending patent applications, including 2 in
which a notice of allowance has issued. The Company intends to continue to build
and protect its intellectual property portfolio.
The semiconductor industry is characterized by frequent litigation regarding
patents and other intellectual property rights. There can be no assurance that
third parties will not assert claims against the Company related to current and
future products. In the event of such litigation, significant financial expense
and diversion of key technical and management personnel resources could occur.
Should there be an adverse result in any litigation proceeding, the Company
could be required to expend significant resources to develop non-infringing
technology, obtain licenses or provide financial compensation. The unfavorable
outcome of litigation against the Company could have a materially adverse impact
on the Company's results of operations.
BACKLOG
The Company participates in an industry that is subject to short order and
shipment lead times. The Company's customers may change or cancel order and
shipment schedules within certain periods with minimal penalties. In light of
these factors, the Company does not consider backlog to be a reliable or
meaningful indicator of the Company's operating results.
EMPLOYEES
As of June 30, 1994 the Company had 184 employees, of whom 80 were engaged in
research and development, 56 in marketing and sales, 28 in manufacturing and 20
in administration and finance. The Company's future success will depend, in
part, on its ability to attract and retain highly qualified personnel. None of
the Company's employees is represented by collective bargaining agreements and
the Company has never experienced a work stoppage. The Company believes its
employee relations are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located at 2950 Zanker Road in San
Jose, California. The Company owns the land and the 170,000 square foot building
on the site. The Company also owns two adjacent undeveloped lots located at 2833
and 2841 Zanker Road in San Jose, California.
The Company leases office space for its regional direct sales offices
domestically in Georgia and Illinois and internationally in Taiwan and the
United Kingdom.
During fiscal 1994, the Company vacated three leased office facilities near its
corporate headquarters as part of its previously announced restructuring
program. The termination and settlement of the building lease agreements were
achieved during the first quarter of fiscal 1994.
The Company believes its facilities to be fully utilized and adequate for the
Company's current operations. However, future changes in the Company and its
personnel needs may affect the adequacy of the current facilities.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages are as follows:
James F. Stafford 50 President and Chief Executive Officer
Keith A. Angelo 38 Vice President, Marketing
Lee J. Barker 49 Vice President, Operations
Timothy R. Christoffersen 52 Vice President, Finance and Chief
Financial Officer
Richard E. Christopher 47 Vice President, Sales
Scott E. Cutler 42 Vice President, Software Technology
Morris E. Jones, Jr. 42 Senior Vice President and Chief
Technical Officer
Lawrence A. Roffelsen 49 Vice President, Engineering
Jeffery Anne Tatum 44 Vice President and General Counsel
Mr. Stafford was elected to the Board of Directors on August 6, 1993 and was
named President and Chief Executive Officer on July 28, 1993. Previously he had
served as Senior Vice President and Chief Operating Officer from January 1992 to
July 1993, as Senior Vice President, Product Line Operations from February 1990
to January 1992, as Vice President, Product Line Operations from July 1989 to
February 1990, as Vice President, Operations from December 1985 to July 1989 and
as Director of Operations from January 1985 to December 1985. From February 1981
to December 1984, he served as Director of Materials at Seeq Technology, Inc.
Mr. Angelo was promoted to Vice President, Marketing in November, 1992.
Previously, Mr. Angelo had served as General Manager, Media Group, from April
1992 to November 1992, as Director of Marketing from January 1991 to April 1992,
as Marketing Manager from January 1989 to January 1991 and as Product Manager in
the Graphics group from October 1987 to January 1989. Prior to joining the
Company, Mr. Angelo spent four years at Intel Corporation in various marketing
positions in the Peripheral Component Group. Prior to joining Intel, Mr. Angelo
worked for a year at Randtronics.
Mr. Barker has served as Vice President, Operations since July 1992. Prior
to joining the Company, he was self employed for twelve years as a manufacturer
of electronic scoreboards and a supplier of raw materials to the sign industry.
From 1975 to 1979, Mr. Barker was the Corporate Director of Material for Excel
Industries.
Mr. Christoffersen has served as Chief Financial Officer since January 1994.
Prior to joining the Company, Mr. Christoffersen spent two years with Resonex
Inc., as Executive Vice President, Director, Chief Financial Officer, and later
Chief Operating Officer. Prior to joining Resonex, he spent 9 years with several
subsidiaries of Ford Motor Company in various managerial and financial
positions.
Mr. Christopher has served as Vice President, Sales, since July, 1992.
Prior to joining the Company, Mr. Christopher spent twelve years at Fujitsu
Microelectronics where he became Senior Vice President and General Manager.
Prior to joining Fujitsu Microelectronics, Mr. Christopher spent two years at
Harris Semiconductor as the Central Area Sales Manager. Prior to joining Harris
Semiconductor, Mr. Christopher served in various sales and marketing positions
at Fairchild Semiconductor.
Mr. Cutler has served as Vice President, Software Technology, since March, 1990.
Prior to joining the Company, Mr. Cutler spent six years at Tandy Computers as
Vice President, Software Design, and in various software managerial positions.
Prior to joining Tandy Computers, Mr. Cutler spent eight years at General
Electric in its Corporate Research and Development laboratory in various
managerial and technical positions.
Mr. Jones, Jr. is a founder of the Company and has served as Senior Vice
President and Chief Technical Officer since February 1990, as Vice President,
Advanced Products and Chief Technical Officer from January 1989 to February
1990, as Chief Technical Officer from March 1987 to January 1989, as Vice
President, Computer Aided Engineering from December 1985 to March 1987, and as
Director of Computer Aided Engineering from December 1984 to December 1985. From
August 1984 to December 1984, he served as Manager of Computer Aided Engineering
at Seeq Technology, Inc. From May 1978 to August 1984, he served as Principal
Engineer at Amdahl Corporation, a mainframe computer manufacturer.
Mr. Roffelsen has served as Vice President, Engineering since November 1992.
Prior to joining the Company, he spent three years at Fujitsu Microelectronics,
Inc., where he served most recently as Vice President, ASIC Operations. Prior to
joining Fujitsu, he spent ten years with ITT Aerospace/Optical Division where he
served in several managerial positions.
Ms. Tatum has served as Vice President and General Counsel since July, 1994. She
previously served as General Counsel from August, 1993 to July 1994, and as
Assistant General Counsel from February 1992 to August 1993. Prior to joining
the Company, she was a partner of the law firms of Seyfarth, Shaw, Fairweather
and Geraldson from 1990 to 1992, and of Adams, Duque and Hazeltine from 1985 to
1989.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY & RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded in the over-the-counter market under
the symbol "CHPS" since October 8, 1986 and on the NASDAQ National Market System
since October 21, 1986. The following table sets forth high and low closing sale
prices for the Common Stock as reported by National Quotation Bureau, Inc.
Fiscal 1994 Fiscal 1993
High Low High Low
- -------------------------------------------------------------------------------
First Quarter $6.00 $3.75 $6.75 $3.25
Second Quarter 6.95 4.875 5.375 3.50
Third Quarter 7.375 5.00 5.125 3.125
Fourth Quarter 5.75 3.75 4.50 2.875
- -------------------------------------------------------------------------------
The Company's present policy is to reinvest earnings in future operations. The
Company has not paid and does not anticipate paying cash dividends in the
foreseeable future. At July 31, 1994 there were 16,887,560 shares of Common
Stock outstanding, held by approximately 1,184 stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
SELECTED DATA
In thousands except per share amounts Year ended June 30,
1994 1993 1992 1991 1990
--------------------------------------------------------------
Net sales $73,444 $97,874 $141,106 $225,088 $293,401
Gross margin 26,480 24,725 16,961 82,496 132,256
Income (loss) from operations (1,077) (52,654) (84,676) (19,093) 40,505
Net income (loss) 2,714 (49,055) (63,873) (9,624) 29,298
Net income (loss) per share 0.16 (3.13) (4.46) (0.71) 1.88
Total assets 54,620 64,806 118,872 158,521 201,754
Long-term capital lease and notes payable 1,019 1,009 3,835 6,841 8,575
Convertible debentures 7,910 7,910 - - -
Stockholders' equity 26,327 19,677 65,327 114,459 133,966
QUARTERLY FINANCIAL DATA (UNAUDITED)
Three months ended
----------------------------------------------------
In thousands except per share amounts June 30, March 31, Dec. 31, Sept. 30,
1994 1994 1993 1993
----------------------------------------------------
Net sales $15,393 $14,442 $22,438 $21,171
Gross margin 4,871 5,173 8,378 8,058
Restructuring charges (recovery) - (372) - -
Income (loss) from operations (971) (909) 791 12
Net income 1,525 147 720 322
Net income per share 0.09 0.01 0.04 0.02
Three months ended
----------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30,
1993 1993 1992 1992
----------------------------------------------------
Net sales $21,530 $21,611 $28,415 $26,318
Gross margin 7,411 6,494 3,050 7,770
Restructuring charges 6,233 - 17,038 -
Loss from operations (9,528) (4,124) (28,883) (10,119)
Net loss (9,353) (4,093) (25,883) (9,726)
Net loss per share (0.59) (0.26) (1.67) (0.63)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's net income for fiscal 1994 was $2.7 million or $0.16 per share.
Net income for fiscal 1994 includes a reduction in previously provided taxes of
$2.2 million related to the resolution of various tax matters. The Company's
operating loss for fiscal 1994 was $1.1 million. During fiscal 1994, the Company
made substantial progress in implementing the restructuring programs begun in
fiscal 1993. The Company achieved operating cost reductions and focused on its
strategic business areas through the implementation of restructuring programs,
including building consolidations and the discontinuation of certain product
lines that were inconsistent with the Company's strategic plans.
NET SALES
Net sales for fiscal 1994 were $73.4 million, a decrease from sales of $97.9
million in fiscal 1993 and $141.1 million in fiscal 1992. Net sales declined in
fiscal 1994 as compared to fiscal 1993 due to discontinuation of the Company's
systems business and a reduction in the unit sales volume of mature core logic
and processor products. This decline was partially offset by an increase in unit
sales volume of graphics products during fiscal 1994. The net sales decline in
fiscal 1993, compared to fiscal 1992, was primarily due to a reduction in both
unit volumes and average selling prices for the Company's products, particularly
core logic devices. The majority of the Company's sales are derived from
graphics controller products. The Company has targeted its sales and marketing
efforts at major PC manufacturers and has obtained numerous design wins from
these customers. The Company believes it is positioned favorably to capitalize
on the increasing consolidation within the PC industry as major PC manufacturers
increase their market share and influence within the PC market.
Export sales are sales made to foreign customers and to the overseas
manufacturing facilities of domestic customers. Export sales were 56%, 48% and
67% of net sales for fiscal years 1994, 1993 and 1992, respectively. Sales to
foreign customers are denominated in US dollars. During fiscal 1994 and 1993
there were no customers who accounted for greater than 10% of the Company's
sales. During fiscal 1992, two of the Company's distributors, Gain Tune, Ltd.
and Ally, Inc./Creative Model Ltd. accounted for 15% and 11%, respectively, of
the Company's sales.
GROSS MARGIN
The gross margin percentage was approximately 36% in fiscal 1994 compared to 25%
in fiscal 1993 and 12% in fiscal 1992. Gross margins have improved in fiscal
1994 as the Company's mix of product shifted favorably towards a greater
proportion of flat panel graphics controllers. Other factors causing the
improvement in gross margins in fiscal 1994 as compared to fiscal 1993 are
reduced manufacturing costs and lower inventory obsolescence. Gross margins
improved in fiscal 1993 compared to fiscal 1992 primarily from a reduction in
inventory obsolescence.
RESEARCH AND DEVELOPMENT EXPENSES
R&D expenses were $11.8 million, $22.6 million and $45.7 million in fiscal years
1994, 1993 and 1992, respectively. R&D expenditures have decreased each year
generally as a result of restructuring programs to implement the Company's focus
on fewer key product areas. The decrease in fiscal 1994 from fiscal 1993 and the
decrease in fiscal 1993 from fiscal 1992 are primarily attributable to lower
headcount and fewer and more focused product development projects. During the
first quarter of fiscal 1994, the Company discontinued its systems and
networking businesses as well as future development of stand-alone multi-media
products. During fiscal 1993, the Company discontinued its stand-alone
microprocessor and multi-processor product development.
SALES & MARKETING EXPENSES
Sales and Marketing expenses were $10.9 million in fiscal 1994, $20.2 million in
fiscal 1993 and $31.9 million in fiscal 1992. The decline in Sales & Marketing
expenses in fiscal 1994 as compared to fiscal 1993 is primarily due to reduction
in headcount costs as a result of the Company's strategy of targeting major PC
system manufacturers and restructuring to focus on core product technologies.
The decline from fiscal 1993 to fiscal 1992 is due mainly to reductions in
headcount expenses and sales commissions resulting from lower revenue levels.
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative expenses were $5.2 million, $11.3 million and $14.9
million in fiscal years 1994, 1993 and 1992 respectively. The reduction in
expenses in fiscal 1994 compared to fiscal 1993 is due to reductions in
headcount and outside legal services. G&A expenses decreased in fiscal 1993
compared to fiscal 1992 primarily from lower outside legal fees resulting from
reduced litigation activity.
RESTRUCTURING COSTS
Restructuring costs of $23.3 million and $9.1 million were recorded in fiscal
1993 and 1992, respectively. These restructuring charges related to reserves for
discontinuation of certain product lines, facility consolidations and employee
severance as well as reductions in the value of goodwill and purchased
technology. In fiscal 1994, the Company received the first of four scheduled
payments of $0.4 million against a note receivable recorded in respect of the
sale of the Company's discontinued product lines consisting of its system
business, networking products and future development of stand-alone multimedia
products. The carrying value of these discontinued product lines was reserved as
part of the restructuring charge recorded in fiscal 1993. The Company maintains
no influence or control over the operations of the divested businesses and
technologies and no assurances can be made that future payments will be received
in respect of the note receivable. Accordingly, the Company records income on
the sale of these product lines as cash is collected on the note. The Company
believes that its remaining restructuring reserve is adequate for completion of
its restructuring programs, which are required primarily to cover the final
costs related to the consolidation of operations. However, there can be no
assurance that the Company will not need additional restructuring provisions in
the future.
INTEREST INCOME (EXPENSE) NET AND OTHER INCOME (EXPENSE) NET
Other income including interest income was $1.7 million in fiscal 1994 compared
to income of $3.6 million in fiscal 1993 and $0.9 million in fiscal 1992. Fiscal
1994 other income includes $0.9 million from the sale of investments. Fiscal
1993 other income consisted mainly of cash received in settlement of litigation.
INCOME TAXES
In the fourth quarter fiscal 1994, the Company resolved a number of tax issues
and as a result, recorded a tax benefit of $2.2 million related to taxes which
were previously provided for these issues. The Company recorded no tax benefit
in fiscal 1993 compared to a tax benefit of $19.9 million in fiscal 1992.
Financial Accounting Standard No. 109 "Accounting for Income Taxes," has been
applied for all periods presented and a valuation allowance has been established
for any deferred tax assets for which realization is not reasonably assured.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1994, $6.7 million of cash, cash equivalents and short term
investments were used in the operating, financing and investing activities of
the Company, compared to generation of $5.0 million in fiscal 1993 and usage of
$23.4 million in fiscal 1992. The usage of cash in fiscal 1994 is primarily the
result of execution of the restructuring plans announced in early fiscal 1994,
consisting of payments made for settlement of lease obligations and employee
severance. During fiscal 1993, $6.6 million of cash was generated mainly due to
the receipt of a federal tax refund of $28.3 million and proceeds of a
subordinated debt offering of $10.3 million, offset by cash consumed by
operations.
Cash, cash equivalents and short term investments were $22.5 million at June 30,
1994, a decrease of $6.7 million, compared to $29.2 million at June 30, 1993.
For the same periods, accounts receivable increased $1.5 million and inventory
increased $0.6 million while current liabilities decreased $16.8 million.
Accounts receivable increased mainly from increased sales at the end of the
fourth quarter of fiscal 1994 as compared to fiscal 1993. Inventory increases
were due to the higher levels of inventory maintained for flat panel graphics
controller products. The decrease in current liabilities was largely due to the
payout of accrued restructuring costs and the reduction of accrued tax
liabilities.
The Company's capital requirements consist primarily of financing working
capital items and funding operational activities. The Company has two line of
credit agreements allowing borrowing up to $13.0 million at the bank reference
rates. Both agreements expire in October 1995 and there were no borrowings
outstanding against these lines at June 30, 1994 and June 30, 1993. The existing
line of credit agreements require that the Company meet certain covenants
related to financial performance and condition. The Company also anticipates
obtaining additional credit facilities for the purpose of financing certain
capital equipment purchases. Based on current levels of working capital and
available borrowing capacity, the Company believes that its present capital
resources are sufficient to meet its needs for the next fiscal year.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company anticipates its sales increasing sequentially over the first and
second quarters. The Company's revenues are directly affected by customer demand
for its products. Customer demand fluctuates, sometimes dramatically, based on
the customers' buildup of internal inventory, seasonal factors, and product
transitions, among other things. While the Company makes every effort to be
consistently informed of customers' expected demand for its products, customers
do from time to time make unexpected changes in product purchasing forecasts and
in existing orders. Customer rescheduling, reduction in quantities and
cancellations of orders could have a material adverse impact on the Company's
revenues and results of operations.
The largest portion of the Company's sales during fiscal 1994 was comprised of
flat panel graphics controllers. The Company currently maintains a leading
position in this market and anticipates its competition will aggressively price
alternative solutions to attempt to capture market position. The Company
anticipates revenues from core logic and CRT graphics controllers to increase
if, as it expects, it gains additional customers and market share. The core
logic and CRT graphics controller businesses tend to have lower gross margins.
Therefore, to the extent that the proportion of the Company's revenue from CRT
controllers and core logic devices increases and/or the Company encounters
aggressive price competition for its flat panel controllers, gross margins
achieved in fiscal 1994 may not be sustainable. The Company anticipates its
future operating expenses, including research and development expenses, will
increase in absolute amounts as compared to fiscal 1994. However, the Company
believes the rate of increase will be smaller than the rate of revenue growth.
The Company believes it is critical to its success to be able to develop complex
new products and introduce those products to the marketplace in a timely manner,
and that customer design wins and favorable margins depend on the achievement of
rapid time to market. In addition the Company must provide appropriate product
features and functionality desired by its customers, have its products selected
and designed into computer system products of leading personal computer
manufacturers and obtain sources of supply for its products at competitive
costs. There can be no assurance that the Company will be successful in
achieving these goals. Should the Company not be successful in some or all of
these areas, there would be a material adverse effect on the Company's results
of operations.
The Company's current operating results are to a large degree influenced by its
ability to obtain and maintain design wins for its products. Many of the
Company's current customers are leading personal computer manufacturers or their
subcontractors. The Company directs its sales, marketing, customer service and
technical support efforts primarily at major personal computer system
manufacturers and subcontract manufacturers. The competition for the design wins
from such personal computer manufacturers is intense. To the extent that the
Company is unable to retain existing designs or acquire new design wins for the
Company's existing and future products, there could be a material adverse effect
on the Company's results of operations.
The Company procures its integrated circuits from various domestic and
international suppliers. The Company's reliance on subcontract vendors for
manufacture of its products presents risks including the lack of guaranteed
production capacity, delays in delivery, reduced control over production costs
and restrictions on availability of certain advanced process technologies.
Because most of the Company's production is met through subcontractors located
throughout Asia, the Company is also subject to risks beyond its control related
to international trade policies and political and economic changes in foreign
governments. The Company currently has no commitments that are binding on these
subcontractors beyond the period of outstanding purchase orders placed on these
suppliers. The Company attempts to mitigate the risks associated with its
subcontract vendors by maintaining favorable vendor relationships and developing
alternate sources of supply for high volume products. However, there can be no
assurances made that the Company will obtain sufficient timely supply of its
products to meet customer demand. A disruption in supply, inability to obtain
sufficient supply or restrictions on access to certain advanced semiconductor
process technologies could have a materially adverse effect on the Company's
operating results.
Because the Company uses subcontract vendors for the manufacture of its
products, the Company must place orders with its suppliers far in advance of
shipment to its end customers. The Company uses projections of future end
customer shipments to determine inventory purchase requirements. The Company's
products are subject to rapid technological change, intense competition and
generally have short life cycles. These factors often are manifested in rapid
increases or declines in product sales over a short period of time. The Company
attempts to identify and react to anticipated changes quickly but due to the
rapid rate of change, the Company may not be able to accurately forecast or
react in a timely manner to changes in customer demand for its products. Future
operating results could be adversely affected if the company is not able to
anticipate its inventory supply requirements and as a result generates excess or
insufficient product inventories.
The personal computer industry is subject to certain seasonal fluctuations. It
is acknowledged within both the computer and semiconductor industries that sales
and purchases may vary significantly within a particular quarterly or annual
period. To the extent that seasonal fluctuations occur, they may cause
volatility in operating results for a particular period and could have material
effect on future operating results. Due to fluctuations in the Company's
customers orders in a particular period, historical results of the Company may
not be indicative of future operating results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants 17
Consolidated Statements of Operations for the three year period ending
June 30, 1994 18
Consolidated Balance Sheets for the two year period ending June 30, 1994 19
Consolidated Statements of Cash Flow for the three year period ending
June 30, 1994 20
Consolidated Statements of Stockholders Equity for the three year period
ending June 30, 1994 21
Notes to Consolidated Financial Statements 22-27
Report of Independent Accountants on Financial Statement Schedules 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Chips and Technologies, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flow
present fairly, in all material respects, the financial position of Chips and
Technologies, Inc. and its subsidiaries at June 30, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/ PRICE WATERHOUSE LLP
- --------------------------
Price Waterhouse LLP
San Jose, California
July 21, 1994
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
In thousands except per share amounts 1994 1993 1992
--------------------------------------------
Net sales $73,444 $97,874 $141,106
Cost of sales and other manufacturing expenses 46,964 73,149 124,145
--------------------------------------------
Gross margin 26,480 24,725 16,961
Operating expenses
Research and development 11,793 22,633 45,739
Marketing and selling 10,946 20,164 31,901
General and administrative 5,190 11,311 14,866
Restructuring costs (372) 23,271 9,131
--------------------------------------------
Total operating expenses 27,557 77,379 101,637
Loss from operations (1,077) (52,654) (84,676)
Interest income and other, net 1,735 3,599 916
--------------------------------------------
Income (loss) before taxes 658 (49,055) (83,760)
Benefit for income taxes 2,056 0 19,887
--------------------------------------------
Net Income (loss) $2,714 ($49,055) ($63,873)
============================================
Net income (loss) per share $0.16 ($3.13) ($4.46)
============================================
Weighted average number of common shares and
dilutive share equivalents outstanding 16,623 15,650 14,332
============================================
<FN>
See accompanying notes to consolidated financial statements
CONSOLIDATED BALANCE SHEETS
June 30,
Dollars in thousands except share amounts 1994 1993
============================================
Assets
Current assets:
Cash and cash equivalents $17,372 $20,742
Short-term investments 5,171 8,436
Accounts receivable, net of allowance for
doubtful accounts of $1,269 and $1,463, respectively 11,757 10,287
Inventory 5,845 5,244
Prepaid and other assets 3,100 5,401
--------------------------------------------
Total current assets 43,245 50,110
Property and equipment, net 10,325 13,059
Other assets 1,050 1,637
--------------------------------------------
Total assets $54,620 $64,806
============================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $7,081 $6,889
Current capital lease obligations 571 3,410
Accrued compensation 1,567 1,724
Accrued liabilities to manufacturers representatives 2,209 2,218
Other accrued liabilities 4,733 6,613
Deferred gross profit 1,661 1,581
Accrued restructuring costs 1,542 13,775
--------------------------------------------
Total current liabilities 19,364 36,210
Long-term capital lease obligations 100 1,009
Noncurrent notes payable 919 0
Convertible debentures 7,910 7,910
--------------------------------------------
Total liabilities 28,293 45,129
============================================
Commitments (Note 3)
Stockholders' equity:
Convertible preferred stock, $.01 par value; 5,000,000 shares
authorized; 123,000 shares issued and outstanding 1 1
Common stock, $.01 par value; 100,000,000 shares authorized;
16,881,000 and 16,074,000 shares issued 169 160
Capital in excess of par value 59,222 55,329
Notes receivable from officers 0 (34)
Retained deficit (33,065) (35,779)
--------------------------------------------
Total stockholders' equity 26,327 19,677
--------------------------------------------
Total liabilities & stockholders' equity $54,620 $64,806
============================================
<FN>
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOW
Year ended June 30,
In thousands 1994 1993 1992
----------------------------------------------
Cash flows from operating activities:
Net Income (loss) $2,714 ($49,055) ($63,873)
Adjustments to cash provided by (used for) operating activities:
Depreciation and amortization 3,414 8,553 12,169
Provision for losses on accounts receivable 676 1,079 457
Provision for losses on inventory 1,228 9,242 24,011
(Gain) loss on sale of fixed assets and investment (956) 50 (294)
Other (1) 106 294
Changes in operating assets and liabilities:
Accounts receivable (1,583) 11,481 10,642
Inventory (2,734) 481 (7,120)
Income taxes refundable 0 28,261 (19,983)
Accounts payable 139 (12,782) 3,585
Other assets and liabilities (517) (11,368) 5,247
Accrued restructuring costs (10,749) 23,271 9,131
----------------------------------------------
Net cash provided by (used for) operating activities (8,369) 9,319 (25,734)
----------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,672) (718) (2,503)
Sale (Purchase) of short-term investments 3,265 (8,436) 0
Proceeds from sale of investments and fixed assets 3,473 1,067 419
----------------------------------------------
Net cash provided by (used for) investing activities 5,066 (8,087) (2,084)
----------------------------------------------
Cash flows from financing activities:
Principal payments for capital lease obligations (3,748) (5,656) (7,418)
Proceeds from issuance of subordinated debt 0 10,280 0
Proceeds from issuance of stock 3,646 697 4,538
Treasury stock issued 0 0 7,126
Repayments of officer loans 35 14 144
----------------------------------------------
Net cash provided by (used for) financing activities (67) 5,335 4,390
----------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,370) 6,567 (23,428)
Cash and cash equivalents at beginning of year 20,742 14,175 37,603
----------------------------------------------
Cash and cash equivalents at end of year $17,372 $20,742 $14,175
==============================================
Supplemental cash flow information: Cash paid during the period for:
Interest $1,002 $1,638 $1,512
Income taxes 39 247 1,319
Tax benefit related to shares purchased under option 0 0 2,639
Additions under capital lease obligations 0 781 3,140
<FN>
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
In thousands
CONVERTIBLE COMMON CAPITAL IN TREASURY NOTES
PREFERRED STOCK EXCESS OF STOCK RECEIVABLE
PAR PAR PAR VALUE FROM RETAINED
SHARES VALUE SHARES VALUE SHARES COST OFFICERS EARNINGS TOTAL
-------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1991 - $0 14,721 $147 $44,681 1,277 ($11,226) ($392) $81,249 $114,459
SHARES OF COMMON ISSUED UPON
EXERCISE OF:
OPTIONS, PLUS ACCRUED INTEREST 656 6 3,601 (1,104) 9,302 (24) (3,250) 9,635
EMPLOYEE STOCK PURCHASE PLAN 156 2 929 (173) 1,924 (850) 2,005
REPAYMENT OF LOANS FROM OFFICERS 144 144
COMPENSATION RELATED TO
NON-QUALIFIED STOCK OPTIONS
NET OF UNEARNED PROTON
OF $250 318 318
TAX BENEFIT RELATED TO SHARES
PURCHASED UNDER OPTION 2,639 2,639
NET LOSS FOR THE YEAR (63,873) (63,873)
-------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1992 - 0 15,533 155 52,168 0 0 (272) 13,276 65,327
SHARES OF COMMON ISSUED UPON
EXERCISE OF:
OPTIONS, PLUS ACCRUED INTEREST 12 58 (24) 34
EMPLOYEE STOCK PURCHASE PLAN 141 1 506 507
REPAYMENT OF LOANS FROM OFFICERS 262 262
COMMON STOCK WARRANTS 102 102
CONVERSION OF CONVERTIBLE
SUBORDINATED DEBENTURES INTO
SERIES A PREFERRED STOCK 511 5 2,365 2,370
CONVERSION OF SERIES A PREFERRED
STOCK INTO COMMON STOCK (388) (4) 388 4
COMPENSATION RELATED TO
NON-QUALIFIED STOCK OPTIONS 130 130
NET LOSS FOR THE YEAR (49,055) (49,055)
-------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1993 123 1 16,074 160 55,329 0 0 (34) (35,779) 19,677
SHARES OF COMMON ISSUED UPON 0
EXERCISE OF: 0
OPTIONS, PLUS ACCRUED INTEREST 701 7 3,426 3,433
EMPLOYEE STOCK PURCHASE PLAN 56 1 211 213
SHARES ISSUED FOR BUILDING 0
LEASE SETTLEMENT 50 1 256 256
REPAYMENT OF LOANS FROM OFFICERS 34 34
NET INCOME FOR THE YEAR 2,714 2,714
-------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 123 $1 16,881 $169 $59,222 - $ - $ - ($33,065) $26,327
===========================================================================================
<FN>
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS Chips and Technologies, Inc. (the "Company") develops
and markets very large scale integrated ("VLSI") circuits for the personal
computer industry. The Company was incorporated in California in December 1984
and was reincorporated in Delaware in August 1986. The Company's principal
operations are conducted in the United States.
Export sales, principally to Asia, are sales made to foreign customers and to
the overseas manufacturing facilities of domestic customers. Export sales were
56%, 48% and 67% of net sales for fiscal years 1994, 1993 and 1992,
respectively. Foreign currency transaction gains and losses are included in
results of operations and were not significant in the periods presented.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly
liquid debt instruments with maturities of three or fewer months at the time of
purchase to be cash equivalents. Cash equivalents and Short-term investments
consist primarily of commercial paper and government obligations and are
recorded at cost, which approximates market value. The Company's financial
instruments are with high quality investments and institutions. This
diversification of risk is consistent with company policy to maintain liquidity
and ensure the safety of principal. Cash equivalents of $0.3 million are pledged
against certain equipment leases and have restrictions as to usage. The Company
will adopt Statement of Financial Accounting Standards No. 115. "Accounting for
Certain Investments Debt and Equity Securities" (FAS 115) beginning in fiscal
1995. Adoption of FAS 115 is not expected to have a material effect on the
Company's consolidated financial statements.
INVENTORY Inventory, comprising finished goods, is stated at the lower of cost
or market. Cost is determined based on acquisition cost utilizing the first-in,
first-out method and appropriate reserves are established for slow moving and
discontinued products.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
is computed using the straight-line method with estimated useful life of three
to five years for furniture and equipment; five to 30 years for building and
improvements. Equipment under capitalized leases is amortized over its useful
life.
REVENUE RECOGNITION Revenue from product sales to customers other than domestic
distributors is recognized upon shipment and reserves are provided for estimated
returns. Sales to distributors are generally subject to agreements allowing
certain rights of return and price protection with respect to unsold merchandise
held by the distributor. The Company defers recognition of revenue and related
gross margin on sales to domestic distributors until the product is sold by
these distributors.
NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed using the
weighted average number of common shares and dilutive common share equivalents
outstanding during the respective periods.
INCOME TAXES Deferred tax assets and liabilities are recognized for the expected
tax consequences of temporary differences between the tax bases of assets and
liabilities and the amounts reported for financial reporting purposes, for all
periods presented.
CONCENTRATION OF CREDIT RISK The Company believes that the concentration of
credit risk in its trade receivables is substantially mitigated by the Company's
credit evaluation process, relatively short collection terms, distributor
agreements, and the geographical dispersion of sales.
NOTE 2 PROPERTY & EQUIPMENT :
Year Ended June 30,
1994 1993
--------------------------
Computers $8,541 $19,750
Furniture & Equipment 8,173 14,193
Purchased Computer Software 9,138 8,901
Building & Building Improvements 5,196 5,100
Land 2,909 2,909
Leasehold Improvements 210 443
--------------------------
34,167 51,296
Accumulated Depreciation & Amortization (23,842) (38,237)
--------------------------
Property and Equipment Net $10,325 $13,059
==========================
At June 30, 1994 and June 30, 1993 assets under capitalized leases (Note 3) had
values of $2.1 million and $14.9 million, respectively, less accumulated
amortization of $1.8 million and $10.2 million, respectively. Amortization of
equipment under capitalized leases is included as part of depreciation and
amortization expense.
NOTE 3 COMMITMENTS AND CONTINGENCIES:
The Company leases certain property and equipment under capital leases and
various other equipment under non-cancelable operating leases. The Company has
future minimum lease payments under capital leases of $725,000 due through 1996
and payments under operating leases of $231,000 due through 1999. The present
value of the capital lease obligations aggregates to $671,000 of which $571,000
is due within 12 months. Rent expense for operating leases totaled $0.5 million,
$2.8 million and $4.0 million for the fiscal years ended 1994, 1993 and 1992,
respectively.
On September 16, 1993, the company entered into a settlement agreement to
terminate the long-term leases for the buildings previously occupied at the
Company's headquarters. (See note 8)
The Company has two line of credit agreements allowing borrowing up to $13.0
million at the bank reference rates. Both agreements expire in October 1995 and
there were no borrowings outstanding against these lines at June 30, 1994. The
Company has outstanding standby letters of credit of $2.3 million securing
inventory purchases with certain vendors.
NOTE 4 SUBORDINATED DEBENTURES:
On July 16, 1992, the Company issued $10.3 million of 8.5% Convertible
Promissory Notes (the "Notes") due June 30, 1997. In May 1993, the principal
amount of $2.4 million of the Notes was converted into 510,776 shares of Series
A Convertible Preferred Stock (the "Preferred") of which 387,931 shares were
immediately converted into the same number of shares of common stock. The
remaining principal amount of $7.9 million of the Notes was converted into 8.5%
Convertible Subordinated Debentures due June 30, 2002 (the "Debentures").
Interest on the Debentures is payable semiannually. The principal amount is
convertible into common stock at $5.70 per share. The Company has the right to
redeem the Debentures beginning June 30, 1995. However, the Company may be
required by the holders to redeem the Debentures prior to June 30, 1995 if the
Company does not satisfy certain conditions during a merger, consolidation, or
sale of substantially all of its assets or if the Company does not meet certain
net worth covenants. The Debentures are subordinated to the Company's
capitalized lease obligations, trade credit and any indebtedness resulting from
utilization of any lines of credit with commercial lenders. The Company has
reserved 2.2 million shares of common stock for issuance upon conversion of the
Debentures.
NOTE 5 EMPLOYEE BENEFIT PLANS:
QUALIFIED INVESTMENT PLAN
In January 1987, the Company adopted a Section 401(k) Plan (the Plan) which
allows participants to contribute up to 15% of eligible earnings to the Plan.
The Plan permits discretionary matching contributions by the Company on behalf
of the participant. Matching contributions were made by the Company and amounted
to $32,000, $91,000 and $313,000 in fiscal 1994, fiscal 1993 and fiscal 1992,
respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company has reserved 1.5 million shares of common stock for issuance
pursuant to an Employee Stock Purchase Plan adopted in 1986 (the Purchase Plan).
The Purchase Plan allows qualified employees to purchase shares of Common Stock
at a price equal to the lower of the fair market value at the beginning or
ending of each 6 month purchase period for each two year offering period.
Purchases are limited to 10% of an employee's annual compensation and may not
exceed 500 shares per purchase period. Through June 30, 1994, 1,025,517 shares
had been issued under the Purchase Plan.
NOTE 6 CAPITAL STOCK:
CONVERTIBLE PREFERRED STOCK
Each share of Series A convertible preferred stock may be converted into one
share of common stock, subject to adjustment under certain circumstances. At
June 30, 1994 there are 258,621 shares of common stock reserved for issuance
upon conversion of all preferred stock. Shares of preferred stock may be voted
equally with shares of common stock based upon the number of common shares into
which each preferred share is convertible. No dividend or distribution is
payable to common stock unless it is made equally to preferred stock based upon
the then effective conversion rate. Upon liquidation, holders of Series A
preferred stock are entitled to receive a preferential amount equal to $4.64 per
share, plus any declared and unpaid dividends, before any distributions may be
made to holders of common shares.
WARRANTS
In conjunction with the issuance of the 8.5% Convertible Promissory Notes, the
Company issued warrants for the purchase of 25,000 shares of common stock at
$7.28 per share to the placement agent and 16,216 shares of common stock at
$4.64 per share to a bank that provides the Company with a line of credit. The
warrants expire on July 16, 1997. The Company reserved 41,216 shares of common
stock for issuance upon exercise of the warrants.
STOCK OPTION PLANS
In January 1985, the Company adopted its 1985 Stock Option Plan (the "1985
Plan") which provides for the granting of incentive stock options and
non-qualified stock options to officers, employees and consultants of the
company. Incentive stock options are granted at an amount not less than fair
market value. The number of shares of common stock reserved for issuance
pursuant to the 1985 Plan is 17,200,000. Options generally vest over four years.
Option terms may not exceed ten years from the date of grant and unexercised
options generally expire upon termination of employment. The 1985 Plan expires
in January 1995. An amended and restated plan will be proposed for adoption by
the Stockholders at the Company's November 1994 Annual Meeting.
The 1985 Plan activities for the three years ended June 30, 1994 are summarized
below:
Shares Options Outstanding
available
for grant Shares Price per share
-------------------------------------------------------------------
Balance at June 30, 1991 1,414,612 6,767,647 $ 3.00 - $16.00
Additional shares authorized 1,000,000 --
Options granted (1,774,350) 1,774,350 $ 8.00 - $12.375
Options canceled 1,182,773 (1,182,773) $ 5.50 - $12.25
Options exercised, net of repurchases -- (1,744,921) $ 3.00 - $11.50
----------------------------------------------------------
Balance at June 30, 1992 1,823,035 5,614,303 $ 5.50 - $16.00
Options granted (4,494,235) 4,494,235 $ 3.125- $ 6.25
Options canceled 4,809,074 (4,809,074) $ 3.375- $16.00
Options exercised, net of repurchases (10,564) $ 5.50 - $ 5.50
----------------------------------------------------------
Balance at June 30, 1993 2,137,874 5,288,900 $ 3.125- $9.75
Options granted (1,577,350) 1,577,350 $ 4.00 - $6.250
Options canceled 1,325,149 (1,325,149) $ 3.125- $8.250
Options exercised, net of repurchases -- (700,679) $ 3.125- $5.50
----------------------------------------------------------
Balance at June 30, 1994 1,885,673 4,840,422 $ 3.125- $9.75
==========================================================
In March 1988, the Company adopted the 1988 Non-qualified Stock Option Plan for
Outside Directors (the "Directors' Plan"), which provides for the granting of
non-qualified stock options to directors of the Company who are not employees of
the Company. The plan was amended in November 1993 to increase share reserves,
extend option grant terms and modify grant provisions. Options must have an
exercise price equal to the fair market value of the shares of the common stock
on the date of grant, vest over a four year period and expire ten years after
the date of grant. The number of shares of common stock reserved for issuance
pursuant to the exercise of options is 350,000 shares.
The Directors Plan activities for the three years ended June 30, 1994 are
summarized below:
Options Outstanding
Shares ------------------------------------
available Price
for grant Shares per Share
-----------------------------------------------------------
Balance at June 30, 1991 110,000 63,333 $11.00 - $21.75
Options granted (10,000) 10,000 $13.125
Options canceled 30,000 (30,000) $11.25 - $21.75
-----------------------------------------------------------
Balance at June 30, 1992 130,000 43,333 $11.00 - $21.75
Options granted (50,000) 50,000 $4.063 - $4.375
-----------------------------------------------------------
Balance at June 30, 1993 80,000 93,333 $4.063 - $21.75
Options granted (90,000) 90,000 $4.00 - $5.75
Options canceled 53,333 (53,333) $4.063 - $11.25
Additional shares authorized 150,000 - -
-----------------------------------------------------------
Balance at June 30, 1994 193,333 130,000 $4.00 - $21.75
===========================================================
STOCKHOLDER RIGHTS PLAN
On August 1, 1989, the Company adopted a Stockholder Rights Plan that provides
for the issuance of rights to holders of the Company's common stock, which will
entitle the holders of such rights to purchase stock of the Company or of an
acquiring entity at a discounted price in the event of certain efforts to
acquire control of the Company that have not been approved by the Company's
Board of Directors.
NOTE 7 INCOME TAXES:
In the fourth quarter of fiscal 1994, the Company resolved a number of tax
issues and as a result, recorded a tax benefit of $2.2 million related to taxes
which were previously provided. Since the Company had net operating losses as of
the beginning of the year, there is no provision for income taxes in the current
year. The Company had utilized all of its net operating loss carryback, and
accordingly, recorded no tax benefits for fiscal 1993. The fiscal 1992 income
tax benefit of $19.9 million results primarily from the federal tax benefit
derived by carrying back losses to offset federal taxes paid in prior periods.
The significant components of deferred tax assets and liabilities are as
follows:
Year ended June 30,
(In thousands) 1994 1993
---------------------------
Net operating loss carryforwards $ 20,759 $ 17,985
Inventory and related reserves 3,150 5,811
Depreciation 1,540 1,876
Restructuring 1,085 3,151
Other 2,968 3,098
---------------------------
Gross deferred tax asset 29,502 31,921
Valuation allowance (29,252) (30,804)
---------------------------
Net deferred tax asset 250 1,117
---------------------------
Amortization -- (745)
Other (250) (372)
---------------------------
Gross deferred tax liability (250) (1,117)
---------------------------
$ -- $ --
========= ==========
The decrease in the valuation allowance for deferred tax assets of $1.6 million
is attributable to the reduction in gross deferred tax assets. The Company has
established valuation allowances as the realizability of net deferred assets is
uncertain.
At June 30, 1994 the Company had net loss carryforwards of approximately $46
million for both federal and state income tax purposes expiring through Fiscal
2009. No benefit for the loss carryforwards has been recognized in the financial
statements.
NOTE 8 RESTRUCTURING COSTS:
During fiscal 1993 and 1992, the Company recorded restructuring charges of $23.2
million and $9.1 million, respectively. The restructuring charges included
consolidation of facilities, severance costs related to headcount reduction,
disposal of fixed assets and discontinuation of the Company's M/PAX(R) product
line, X86 microprocessor products, systems business, networking products and
future development of stand-alone multimedia products.
In September 1993, the Company entered into an agreement to sell the Company's
system business, networking products and a portion of its multimedia products
technology to Techfarm, Inc., the principals of which are a director and two
former officers of the Company. Techfarm acquired these assets from the Company
for $1.7 million, comprising $100,000 in cash and a two year promissory note for
$1.6 million. In addition, Techfarm assumed up to $1 million of liabilities. In
March 1994, the promissory note was restructured to provide that the Techfarm
subsidiaries operating the systems business are the principals on the note, with
Techfarm as guarantor. During the third quarter fiscal 1994, the Company
received the first of four scheduled semiannual payments of $0.4 million, which
is included in current year income. Income will be recorded if the note is
realized through future cash collection.
On September 16, 1993, the Company entered into a settlement agreement with the
lessor of certain buildings previously occupied by the Company. Consideration
for the settlement, comprising a cash payment of $5.5 million and a promissory
note of $1 million, was charged against the restructuring reserve provided in
fiscal 1993.
The following table summarizes the status of these restructuring reserves at
June 30, 1994:
(In thousands) Consolidations of Fixed Asset Product Reduction of
Operations & Other Disposals Discontinuation Workforce Total
---------------------------------------------------------------------------------------
Provision for restructuring 4,100 953 1,640 2,438 9,131
Charges against reserves (758) (953) (1,619) (858) (4,188)
---------------------------------------------------------------------------------------
Accrued restructuring
balance at 6/30/92 3,342 -- 21 1,580 4,943
Provision for restructuring 7,912 5,357 6,146 3,856 23,271
Charges against reserves (3,118) (5,357) (4,014) (1,950) (14,439)
---------------------------------------------------------------------------------------
Accrued restructuring
balance at 6/30/93 8,136 -- 2,153 3,486 13,775
Collection of note receivable -- -- (372) -- (372)
Charges against reserves (6,694) -- (1,781) (3,386) (11,861)
---------------------------------------------------------------------------------------
Accrued restructuring
balance at 6/30/94 $ 1,442 $ -- $ -- $ 100 $ 1,542
=======================================================================================
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors is incorporated by reference from the
section entitled "Nomination and Election of Directors" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" of the Proxy Statement.
Information regarding executive officers of the Company is presented in Part I
of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the
section entitled "Executive Compensation and Other Matters" of the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference
from the section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the section
entitled "Certain Transactions and Other Relationships" of the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A) 1. FINANCIAL STATEMENTS
The consolidated financial statements and notes thereto listed in the
index on page 16 are filed as part of this Annual Report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed below are filed as part of
this Annual Report on Form 10-K.
Page
-----
II Amounts Receivable from Employees for the three year period ending
June 30, 1994. 30
VIII Valuation and Qualifying Accounts for the three year
period ending June 30, 1994. 31
All other schedules have been omitted since the required information is not
present or not present in material amounts to require submission of the schedule
or because the information required is included in the consolidated financial
statements or notes thereto.
B) REPORTS ON FORM 8K
NONE
C) EXHIBITS
The exhibits listed in the Index to Exhibits on pages 33 to 34 of this
report are filed as part of this Annual Report on Form 10K.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Chips and Technologies, Inc.
Our audits of the consolidated financial statements referred to in our report
dated July 21, 1994, appearing on page 17 of this document, also included an
audit of the Financial Statement Schedules listed in Item 14(a)(2), of this Form
10-K. In our opinion, these Financial Statement Schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
San Jose, California
July 21, 1994
SCHEDULE II
CHIPS AND TECHNOLOGIES, INC.
AMOUNTS RECEIVABLE FROM EMPLOYEES
(IN THOUSANDS)
DEDUCTIONS BALANCE AT JUNE 30, 1994
BALANCE AT ----------------------------- ---------------------------
JUNE 30 AMOUNTS AMOUNTS
NAME OF DEBTOR 1993 ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
- -------------- ---- --------- --------- ----------- ------- -----------
NONE
DEDUCTIONS BALANCE AT JUNE 30, 1993
BALANCE AT ----------------------------- ---------------------------
JUNE 30 AMOUNTS AMOUNTS
NAME OF DEBTOR 1992 ADDITIONS(3) COLLECTED WRITTEN OFF CURRENT NOT CURRENT
- -------------- ---- ----------- --------- ----------- ------- -----------
Marc Jones (1) $229 $19 $248 - - -
Steven Chan (2) 94 - 94 - - -
Douglas Peltzer (4) 162 - - 162 - -
--- - - --- - -
$485 $19 $342 $162 $- $-
DEDUCTIONS BALANCE AT JUNE 30, 1992
BALANCE AT ----------------------------- ---------------------------
JUNE 30 AMOUNTS AMOUNTS
NAME OF DEBTOR 1991 ADDITIONS(3) COLLECTED WRITTEN OFF CURRENT NOT CURRENT
- -------------- ---- ------------ --------- ----------- ------- -----------
Keith Lobo $25 $2 - $27 - -
Marc Jones (1) 238 18 - 27 229 -
James Ferry 80 6 - 86 - -
Steven Chan (2) 126 10 - 42 34 60
Douglas Peltzer (4) 215 16 - 69 62 100
--- -- - ---- ----- ---
$684 $52 $- $251 $325 $160
<FN>
(1) The Company extended a loan to Mr. Jones for the purchase of shares of
common stock under the 1985 Stock Option Plan. This full recourse note bore
interest at a rate of 9.5% per annum and was payable the earlier of termination
of employment or February 1990. In February 1990, 1991 and 1992, Mr. Jones' note
was renewed at an interest rate of 8%. In February 1993, the balance of $240,000
was renewed at an interest rate of 5% upon Mr. Jones' voluntary termination of
employment. The outstanding balance of $248,000 at June 30, 1993 was
reclassified to accounts receivable and was paid in full in fiscal 1994.
(2) The $150,000 note from Mr. Chan was for a period of five years. One fifth of
the principal (and all accrued interest thereon) was forgiven for each year of
continued service to the Company. The balance was paid in full in July 1992 upon
Mr. Chan's voluntary termination of employment.
(3) Interest earned.
(4) The $200,000 note from Mr. Peltzer was for a period of four years and bore
interest at a rate of 9.5% per annum. One fourth of the principal (and all
accrued interest thereon) was forgiven for each year of continued service to the
Company. The remaining principal (and all accrued interest thereon) was forgiven
in July 1992 in accordance with Mr.Peltzer's severance agreement.
SCHEDULE VIII
CHIPS AND TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance at Charged to
beginning costs and Accounts Recovery from Balance at
of year expenses written-off reserve account end of year
---------- ---------- -------------- ---------------- ------------
Allowance for doubtful accounts:
Year ended June 30, 1994 $1,463 $676 $870 $- $1,269
Year ended June 30, 1993 2,377 1,079 1,993 - 1,463
Year ended June 30, 1992 2,338 457 318 100 2,377
Reserve for inventory:
Year ended June 30, 1994 $16,270 $1,228 $7,809(1) - $9,689
Year ended June 30, 1993 7,669 9,242 641(1) - 16,270
Year ended June 30, 1992 6,577 24,011 22,919(1) - 7,669
<FN>
(1) Represents inventories previously reserved that were scrapped or physically
disposed.
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.
CHIPS AND TECHNOLOGIES, INC.
By /s/ JAMES F. STAFFORD
-----------------------------
James F. Stafford
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
- ------------------------ ---------------------------------------- ------------------
/s/ GORDON A. CAMPBELL Chairman of the Board of Directors September 22, 1994
- ------------------------
Gordon A. Campbell
/s/ JAMES F. STAFFORD President and Chief Executive Officer September 22, 1994
- ------------------------ and Director
James F. Stafford
/s/ TIMOTHY R. CHRISTOFFERSEN Vice President and Chief Financial Officer September 22, 1994
- ------------------------------- (Principal Financial & Accounting Officer)
Timothy R. Christoffersen
/s/ GENE P. CARTER Director September 22, 1994
- ---------------------
Gene P. Carter
/s/ BERNARD V. VONDERSCHMITT Director September 22, 1994
- ------------------------------
Bernard V. Vonderschmitt
/s/ HENRI A. JARRAT Director September 22, 1994
- ----------------------
Henri A. Jarrat
INDEX TO EXHIBITS
Exhibit
Number
Description
3.1 (2) Amended Certificate of Incorporation of Chips and
Technologies, Inc., a Delaware corporation.
3.2 (7) Restated By-laws of Chips and Technologies, Inc., a Delaware
corporation.
3.3 (4) Certificate of Designation, Preferences and Rights of the
Terms of the Series A Preferred Stock filed with the State of
Delaware on May 20, 1993.
4.1 (1) Stockholders' Rights Agreement dated August 23, 1989.
4.2 (7) Registration Rights Agreement dated October 10, 1985 and
amendment thereto dated January 24, 1986.
10.1 (3)* Amended and Restated 1985 Stock Option Plan, as amended
November 5, 1991.
10.2 (4)* Amended and Restated Employee Stock Purchase Plan, as
amended July 27, 1992.
10.3 (4) Lease Termination Agreement and related exhibit between the
Company and The Equitable Life Assurance Society dated
September 10, 1993.
10.4 (2)* Amended and Restated Qualified Investment Plan dated
January 1, 1989.
10.5 (6)* First Amended 1988 Nonqualified Stock Option Plan for
Outside Directors dated October 1, 1993.
10.6 (4)* Promissory Note to the Company from Marc E. Jones dated
February 3, 1993.
10.7 (2) Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.8 (4)* Confidential Termination Agreement and General Release of
Claims between the Company and Ravi Bhatnagar dated
December 18, 1992.
10.9 (4)* Confidential Termination Agreement and General Release of
Claims between the Company and Nancy S. Dusseau, dated
September 1, 1993.
10.10 (4)* Confidential Termination Agreement and General Release of
Claims between the Company and Jeffrey H. Grammer, dated
September 2, 1993.
10.11 (4)* Confidential Termination Agreement and General Release of
Claims between the Company and Gary P. Martin, dated
April 19, 1993.
10.12 (5)* Confidential Resignation and Consulting Agreement and
General Release of Claims between the Company and
Gordon A. Campbell dated September 30, 1993.
10.13 (4) Convertible Promissory Notes and Preferred Stock Purchase
Agreement dated as of July 16, 1992.
10.14 (4) Amendment to Convertible Promissory Notes and Preferred Stock
Purchase Agreement.
INDEX TO EXHIBITS ( CONTINUED )
Exhibit
Number
Description
10.15 (4) Form of Convertible Subordinated Debentures Due June 30, 2002.
10.16 (4) Amendment to 8 1/2% Convertible Subordinated Debentures Due,
June 30, 2002
10.17 (5) Agreement for Sale and Purchase of Assets between
Techfarm, Inc. and Chips and Technologies, Inc.,
dated September 24, 1993.
10.18 Restated Secured Promissory Note, Secured Continuing
Guarantee, and Restated Loan and Security Agreement between
Techfarm, Inc. and Chips and Technologies, Inc. dated
March 31, 1994.
10.19 * Promissory note to the Company from Keith Angelo dated
August 1, 1994.
10.20 * Independent Contractor Services Agreement between the Company
and Henri Jarrat dated August 11, 1994.
11.1 Statement re: Calculation of Earnings (Loss) Per Share.
22.1 Proxy Statement for the Registrant's Annual Meeting of
Stockholders to be held on November 10, 1994.
27.0 Financial Data Schedule for the year ended June 30, 1994.
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1989.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1990.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1993.
(5) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1993.
(6) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1994.
(7) Incorporated by reference to Registration Statement No. 33-8005
effective October 8, 1986.
* Denotes management contracts or compensatory plans or arrangements
covering executive officers or directors of Chips and Technologies,
Inc.