UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission file number 0-22594
ALLIANCE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0057842
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3099 North First Street
San Jose, California 95134-2006
(Address of principal executive offices) (Zip code)
(408) 383-4900
(Registrant's telephone number, including area code)
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 .
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No .
--- ---
The number of shares outstanding of the registrant's Common Stock on
August 7, 1997 was 39,184,134 shares.
Page 1 of 19, including exhibits
1
ALLIANCE SEMICONDUCTOR CORPORATION
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
June 30, 1997 and March 31, 1997 3
Consolidated Statements of Operations
Three months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
Three months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 15
Item 2. Changes in Securities. Not Applicable
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable
Item 5. Other Information. Not Applicable
Item 6. Exhibits and Reports on Form 8-K. 16
SIGNATURES 17
2
Part I. FINANCIAL INFORMATION
Item I. Consolidated Financial Statements.
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
June 30, March 31,
1997 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 28,643 $ 22,489
Accounts receivable, net 19,891 16,827
Inventory 38,196 29,535
Deferred taxes 18,346 17,851
Income tax receivable 14,633 14,633
Other current assets 1,158 1,636
-------- --------
Total current assets 120,867 102,971
Property and equipment, net 11,097 11,352
Investment in Chartered Semiconductor 51,596 51,596
Investment in United Semiconductor Corp. 54,749 52,829
Investment in United Silicon, Inc. 13,701 13,701
Other assets 116 120
-------- --------
$252,126 $232,569
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,913 $ 18,766
Accrued liabilities 4,203 4,584
Current portion of long term obligations 1,630 1,621
-------- --------
Total current liabilities 43,746 24,971
Long term obligations 1,794 2,219
Deferred tax liability 702 702
-------- --------
Total liabilities 46,242 27,892
-------- --------
Stockholders' equity
Common stock 390 390
Additional paid-in capital 180,111 180,012
Retained earnings 25,383 24,275
-------- --------
Total stockholders' equity 205,884 204,677
-------- --------
$252,126 $232,569
======== ========
See accompanying notes to consolidated financial statements.
3
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
June 30,
--------
1997 1996
-------- --------
Net revenues $ 36,339 $ 14,108
Cost of revenues 29,615 24,331
-------- --------
Gross profit (loss) 6,724 (10,223)
-------- --------
Operating expenses:
Research and development 4,107 3,439
Selling, general and administrative 4,055 2,492
-------- --------
Total operating expenses 8,162 5,931
-------- --------
Income (loss) from operations (1,438) (16,154)
Other income, net 189 716
-------- --------
Income (loss) before income taxes
and equity in income of USC (1,249) (15,438)
Benefit for income taxes (437) (5,403)
-------- --------
Income (loss) before equity in income of USC (812) (10,035)
Equity in income of USC 1,920 --
-------- --------
Net income (loss) $ 1,108 ($10,035)
======== ========
Net income (loss) per share $ 0.03 ($ 0.26)
======== ========
Weighted average common shares
and equivalents 41,042 38,416
======== ========
See accompanying notes to consolidated financial statements.
4
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended
June 30,
--------
1997 1996
---------- -----------
Cash flows from operating activities:
Net income (loss) $ 1,108 ($10,035)
Adjustments to reconcile net income (loss) to net
cash provided by (usedin) operating activities:
Depreciation and amortization 837 700
Equity in income of USC (1,920) --
Changes in assets and liabilities:
Accounts receivable (3,064) (2,027)
Inventory (8,661) (2,670)
Other assets 482 6,292
Accounts payable 19,147 (310)
Accrued liabilities (381) (1,568)
Income taxes including
deferred income taxes (495) (3,845)
---------- -----------
Net cash provided by (used in) 7,053 (13,463)
operating activities ---------- -----------
Cash used in investing activities:
Acquisition of equipment (582) (1,319)
Investment in United Silicon, Inc. -- 187
---------- -----------
Net cash used in investing activities (582) (1,132)
---------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 99 116
Repayments of long term obligations (416) --
---------- -----------
Net cash provided by (used in) financing
activities (317) 116
---------- -----------
Net increase (decrease) in cash and cash equivalents 6,154 (14,479)
Cash and cash equivalents at beginning of the period 22,489 80,566
---------- -----------
Cash and cash equivalents at end of the period $ 28,643 $ 66,087
========== ===========
Supplemental disclosures:
Income taxes paid (refunded) $ -- $ (7,962)
======== ========
See accompanying notes to consolidated financial statements.
5
ALLIANCE SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Alliance Semiconductor Corporation (the "Company") in accordance
with the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted in accordance with such rules and regulations. In
the opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position of
the Company and its subsidiaries, and their consolidated results of operations
and cash flows. These financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the fiscal
years ended March 31, 1997 and 1996 included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on June 27, 1997.
For purposes of presentation, the Company has indicated the first three
months of fiscal 1998 and 1997 as ending on June 30, respectively; whereas, in
fact the Company's fiscal quarters end on the Saturday nearest the end of the
calendar quarter.
The results of operations for the three months ended June 30, 1997, are
not necessarily indicative of the results that may be expected for the year
ending March 31, 1998, and the Company makes no representations related thereto.
Note 2. Balance Sheet Components
June 30, March 31,
1997 1997
------- -------
Inventory: (in thousands)
Work in process $22,655 $18,319
Finished goods 15,541 11,216
------- -------
$38,196 $29,535
======= =======
Note 3. Inventory Charge
During the first quarter of fiscal 1997, the Company continued to
experience a significant deterioration in the average selling prices and a
slowing in demand for certain of its SRAM products. As a result of this
deterioration, the Company recorded a pre-tax charge of approximately $16.0
million primarily to reflect a further decline in market value of the Company's
inventory. This charge included $2.3 million for adverse purchase commitments
related to these SRAM products. The Company is unable to predict when or if such
decline in prices will stabilize. A continued decline in average selling prices
for SRAM products could result in additional material inventory valuation
adjustments and corresponding charges to operations.
6
Note 4. Commitments
At June 30, 1997, the Company had approximately $18.4 million of
noncancelable purchase commitments with suppliers. The Company expects to sell
all products which it has committed to purchase from suppliers.
In July 1995, the Company entered into an agreement with United
Microelectronics Corporation ("UMC") and S3 Incorporated ("S3") to form a
separate Taiwanese company, United Semiconductor Corporation, for the purpose of
building and managing a semiconductor manufacturing facility in Taiwan. Alliance
paid approximately 1 billion New Taiwan Dollars ("NTD") (approximately US$36.4
million) in September 1995, approximately NTD 450 million (approximately $16.4
million) in July 1996, and had the option to pay, on or before July 31, 1997,
approximately NTD 450 million, plus interest at a rate of 8.5% on such amount
from and after July 4, 1996. The Company exercised this option and paid
approximately NTD 492 million (approximately US$17.6 million) in July 1997. As a
result of this last payment, Alliance has an equity ownership of approximately
19% and the right to purchase up to approximately 25% of the manufacturing
capacity in this facility.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon Inc., for the
purpose of building and managing a semiconductor manufacturing facility in
Taiwan. The contributions of Alliance and other parties shall be in the form of
equity investments, representing an initial ownership interest of approximately
5% for each US$30 million invested. Alliance's investment, which is payable in
NTD, will be up to approximately US$30 million payable in up to three
installments. The first installment of approximately 50% of the total investment
was made in January 1996, and the Company has the option to pay a second
installment of approximately 25% of the total investment in December 1997, plus
interest at a rate of 8.5% on such amount from and after July 7, 1997. The final
installment of approximately 25% of the total investment is called for on or
before fab production ramp-up. If the Company exercises its option and further
pays the third installment, the Company will have an equity ownership of
approximately 5% and have the right to purchase up to approximately 6.25% of the
manufacturing capacity in this facility.
As of June 30, 1997, $4.8 million of standby letters of credit were
outstanding and expire on or before September 30, 1997.
Note 5. Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares include common stock options using the treasury stock
method.
Statement of Financial Accounting Standards No. 128 (SFAS 128),
"Earnings Per Share" was issued in February 1997. Under SFAS 128, the Company
will be required to disclose basic EPS and diluted EPS, for all periods for
which an income statement is presented, which will replace disclosure currently
being made for primary EPS and fully-diluted EPS. SFAS 128 requires adoption for
both interim and annual fiscal periods ending after December 15, 1997. If SFAS
128 has been in effect during the first quarter of fiscal 1998 and 1997, basic
and diluted EPS would not have been significantly different than EPS reported
for those periods.
7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
When used in this Report, the words "expects," anticipates,"
"believes," "approximates," "estimates" and similar expressions are intended to
identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such forward-looking statements, which include
statements concerning the timing of new product introductions; the functionality
and availability of products under development; trends in the personal computer,
networking, telecommunications and instrumentation markets, in particular as
they may affect demand for or pricing of the Company's products; the percentage
of export sales and sales to strategic customers; the percentage of revenue by
product line; and the availability and cost of products from the Company's
suppliers; are subject to risks and uncertainties. These risks and uncertainties
include those set forth in Item 2 (entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations") of this Report, and
in Item 1 (entitled "Business") of Part I and in Item 7 (entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations") of
Part II of the Company's Annual report on Form 10-K for the fiscal year ended
March 30, 1997 filed with the Securities and Exchange Commission on June 27,
1997. These risks and uncertainties, or the occurrence of other events, could
cause actual results to differ materially from those projected in the
forward-looking statements. These forward-looking statements speak only as of
the date of this Report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Company's expectations
with regard thereto or to reflect any change in events, conditions or
circumstances on which any such forward-looking statement is based, in whole or
in part.
Results of Operations
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net revenue:
Three Months Ended
June 30,
------------------------
1997 1996
------- --------
Net revenue 100.0% 100.0%
Cost of revenue 81.5 172.5
------- --------
Gross profit (loss) 18.5 (72.5)
------- --------
Operating expenses:
Research and development 11.3 24.4
Selling, general and administrative 11.2 17.6
------- --------
Total operating expenses 22.5 42.0
------- --------
Income (loss) from operations (4.0) (114.5)
Other income, net 0.5 5.1
------- --------
Income (loss) before income taxes and
equity in income of USC (3.5) (109.4)
Provision (benefit) for income taxes (1.2) (38.3)
------- --------
Income before equity in income of USC (2.3)% (71.1)%
======= ========
Net Revenue
During the first quarter of fiscal 1998, the Company's net revenue was
principally derived from the sale of DRAM and SRAM products, whereas the
Company's net revenue for the first quarter of fiscal 1997 was
8
principally derived from the sale of SRAM products. Net revenue for the first
quarter of fiscal 1998 was $36.3 million, or 158% higher than the $14.1 million
of revenue for the first quarter of fiscal 1997. During the first quarter of
fiscal 1998, one customer accounted for 12% of net revenue. During the first
quarter of fiscal 1997, one customer accounted for 10% of net revenue. The
increase in net revenue in the first quarter of fiscal 1998 was due to increased
production of DRAM products and an overall increase in the number of units
shipped, offset by decreases in the average selling prices for the Company's
SRAM and 4 megabit DRAM products and a decrease in demand for certain of the
Company's SRAM products.
Revenues from the Company's SRAM products contributed approximately 26% of
the Company's net revenues for the first quarter of fiscal 1998 compared to
approximately 83% of the Company's net revenues for the first quarter of fiscal
1997. To increase demand and the average selling price for the Company's SRAM
products, the Company has added to its SRAM product offerings and begun to
manufacture in volume quantities enhanced versions of 1 megabit SRAMs and a 4
megabit SRAM. The Company is unable to predict when or if such price and demand
declines will stabilize or if the introduction of new product offerings will
offset future price and demand declines. A continued decline in average selling
prices or unit demand could have a material adverse effect on the Company's
operating results.
In addition to existing DRAM product offerings, the Company has recently
begun to manufacture volume quantities of 4 megabit DRAM, in a 256KbitX16
configuration, and a 16 megabit DRAM. Revenues from the Company's DRAM products
contributed approximately 69% of the Company's net revenues for the first
quarter of fiscal 1998 compared to approximately 8% of the Company's net
revenues for the first quarter of fiscal 1997. The DRAM market is characterized
by volatile supply and demand conditions, fluctuating pricing and rapid
technology changes to higher density products. During the first quarter of
fiscal 1998, average selling prices for the Company's DRAM products declined
compared to same period of the prior year. The Company is unable to predict when
or if such price declines will stabilize. A continued decline in average selling
prices of DRAMs could have a material adverse effect on the Company's operating
results.
The Company has also recently begun to manufacture in volume quantities the
new ProMotion-AT3D, the latest enhancement to the Company's multi-media user
interface ("MMUI") accelerator product family. Sales of the Company's MMUI
product line contributed approximately 5% to the Company's net revenues for the
first quarter of fiscal 1998 compared to approximately 9% of the Company's net
revenues for the first quarter of fiscal 1997. The graphics and video
accelerator market is characterized by a large and growing number of competitors
providing a steady stream of new products with enhanced features. A significant
decline in average selling prices due to competitive conditions, including
overall supply and demand in the market, could have a material adverse effect on
the Company's operating results.
Generally, the markets for the Company's products are characterized by
volatile supply and demand conditions, numerous competitors, rapid technological
change and product obsolescence. These conditions could require the Company to
make significant shifts in its product mix in a relatively short period of time.
These changes involve several risks, including, among others, constraints or
delays in timely deliveries of products from the Company's suppliers; lower than
anticipated wafer manufacturing yields; lower than expected throughput from
assembly and test suppliers; and less than anticipated demand and selling
prices. The occurrence of any problems resulting from these risks could have a
material adverse effect on the Company's operating results.
Gross Profit (Loss)
The Company experienced a gross profit for the first quarter of fiscal 1998
of $6.7 million, or 18.5% of net revenue compared to a gross loss of $10.2
million, or (72.5)% of net revenue for the same period of fiscal 1997. The gross
profit and increase in gross margin in the first quarter of fiscal 1998 resulted
from sales of higher margin products and the absence of pre-tax inventory and
purchase commitment related charges of approximately $16.0 million recorded in
the first quarter of fiscal 1997 primarily to reflect declines in the market
value for certain of the Company's products, offset by continued declines in
average selling prices of certain of the Company's products. The Company is
unable to predict when or if such price declines will
9
stabilize. A continued decline in average selling prices could result in
material adverse impacts on the Company's gross margins.
The Company is subject to a number of factors which may have an adverse
impact on gross margins, including the availability and cost of products from
the Company's suppliers; increased competition and related decreases in average
unit selling prices; changes in the mix of products sold; and the timing of new
product introductions and volume shipments. In addition, the Company may seek to
add additional foundry suppliers and transfer existing and newly developed
products to more advanced manufacturing processes. The commencement of
manufacturing at a new foundry is often characterized by lower yields as the
manufacturing process is refined. There can be no assurance that one or more of
the factors set forth in this paragraph will not have a material adverse effect
on the Company's gross margins in future periods.
Research and Development
Research and development expenses were $4.1 million, or 11.3% of net
revenue in the first quarter of fiscal 1998 compared to $3.4 million, or 24.4%
of net revenue in the same period of the prior year. The increase in research
and development expenses was due to increased expenditures for materials
utilized in the Company's development activities which are dependent on the
timing of new product development and introduction and increases in personnel
related costs. Research and development expenses are expected to increase in
absolute dollars and may also increase as a percentage of net revenue.
Selling, General and Administrative
Selling, general and administrative expenses were $4.1 million, or 11.2% of
net revenue in the first quarter of fiscal 1998 compared to $2.5 million, or
17.6% of net revenue in the first quarter of fiscal 1997. The increase in
selling, general and administrative expenses was primarily the result of
increased sales commissions due to increased revenue, increased legal expenses
in connection with certain legal matters and higher personnel-related costs.
Selling, general and administrative expenses are expected to increase in
absolute dollars and may also increase as a percentage of net revenue.
Other Income, Net
Net other income was $0.2 million for the first quarter of fiscal 1998
compared to $0.7 million for the same period of fiscal 1997. Net other income
for the first quarter of fiscal 1998 primarily represents interest and dividend
income from investments.
Provision (Benefit) for Income Taxes
The Company's effective tax rate was 35.0% for the first quarter of fiscal
1998 and fiscal 1997. The tax benefit for the first quarter of fiscal 1998
represents amounts which may be carried back to offset taxes paid in prior
years, resulting in a tax refund to the Company.
Equity in Income of United Semiconductor Corporation
As discussed in "Liquidity and Capital Resources", the Company entered into
an agreement with other parties to form a separate Taiwanese company, United
Semiconductor Corporation, ("USC"). This
10
investment is accounted for under the equity method of accounting with a ninety
day lag in reporting the Company's share of results for the entity. Equity in
income of USC reflects the Company's share of income earned by USC for the
previous quarter. The Company reported such an amount in the first quarter of
fiscal 1998. No amount was reported for the same period of the prior year as the
Company's share of USC's net income was not material.
Factors That May Affect Future Results
The Company's quarterly and annual operating results have historically
been, and will continue to be, subject to quarterly and other fluctuations due
to a variety of factors, including general economic conditions, changes in
pricing policies by the Company, its competitors or its suppliers, anticipated
and unanticipated decreases in average selling prices of the Company's products,
fluctuations in manufacturing yields, availability and cost of products from the
Company's suppliers, the timing of new products announcements and introductions
by the Company or its competitors, changes in the mix of products sold, the
cyclical nature of the semiconductor industry, the gain or loss of significant
customers, increased research and development expenses associated with new
product introductions, market acceptance of new or enhanced versions of the
Company's products, seasonal customer demand and the timing of significant
orders. Operating results could be adversely affected by economic conditions
generally or in various geographic areas, other conditions affecting the timing
of customer orders and capital spending, a downturn in the market for personal
computers, or order cancellations or rescheduling. Additionally, because the
Company is continuing to increase its operating expenses for personnel and new
product development, the Company's operating results will be adversely affected
if increased sales levels are not achieved.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards, rapid product obsolescence
and significant price competition and, as a result, are subject to decreases in
average selling prices. The Company has recently experienced significant
deterioration in average selling prices for its SRAM and DRAM products. The
Company is unable to predict when or if such decline in prices will stabilize.
Historically, average selling prices for semiconductor memory products have
declined and the Company expects that average selling prices will decline in the
future. Accordingly, the Company's ability to maintain or increase revenues will
be highly dependent on its ability to increase unit sales volume of existing
products and to successfully develop, introduce and sell new products. Declining
average selling prices will also adversely affect the Company's gross margins
unless the Company is able to reduce its cost per unit in an amount sufficient
to offset the declines in average selling prices. There can be no assurance the
Company will be able to increase unit sales volumes of existing products,
develop, introduce and sell new products or reduce its cost per unit to offset
declines in average selling prices. There also can be no assurance that even if
the Company were to increase unit sales volumes and sufficiently reduce its
costs per unit, the Company would be able to maintain or increase revenues or
gross margins.
The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity which the Company
experiences from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products at an acceptable cost to meet future demand, and any inability of
the Company to maintain adequate inventory levels may adversely affect its
relations with its customers. In addition, because the Company must order
products and build inventory substantially in advance of products shipments,
there is a risk that the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products because demand for the Company's
products is volatile and subject to rapid technology and price change. This
inventory risk is heightened because certain of the Company's key customers
place orders with short lead times. The Company's customers' ability to
reschedule or cancel orders without significant penalty could adversely affect
the Company's liquidity, as the Company may be unable to adjust its purchases
from its independent foundries to match such customers' changes and
cancellations. The Company has in the past produced excess quantities of certain
products which has had a material adverse effect on the
11
Company's operating results. There can be no assurance that the Company in the
future will not produce excess quantities of any of its products. To the extent
the Company produces excess or insufficient inventories of particular products,
the Company's operating results could be materially adversely affected, as was
the case during fiscal 1996 and fiscal 1997, during which periods the Company
recorded pre-tax charges of $55 million and $17 million, respectively, primarily
to reflect a decline in the market value of certain inventory and certain
manufacturing issues.
The Company currently relies on outside foundries to manufacture all of the
Company's products. Reliance on these foundries involves several risks,
including constraints or delays in timely delivery of the Company's products,
reduced control over delivery schedules, quality assurance and costs, and loss
of production due to seismic activity, weather conditions and other factors.
Although the Company continuously evaluates sources of foundry capacity and may
seek to add additional foundry capacity, there can be no assurance that capacity
can be obtained at acceptable prices, if at all. The occurrence of any supply or
other problem resulting from these risks could have a material adverse effect on
the Company's operating results, as was the case during the third quarter of
fiscal 1996, during which period manufacturing yields of one of the Company's
products were materially adversely affected by manufacturing problems at one of
the Company's foundry suppliers. There can be no assurance that other problems
affecting manufacturing yields of the Company's products will not occur in the
future.
The Company conducts a significant portion of its business internationally
and is subject to a number of risks resulting from such operations. Such risks
include political and economic instability and changes in diplomatic and trade
relationships, foreign currency fluctuations, unexpected changes in regulatory
requirements, delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying with a variety of foreign laws. Although the Company to date has
not experienced any material adverse effect on its operations as a result of
such factors, there can be no assurance that such factors will not adversely
impact the Company's operations in the future or require the Company to modify
its current business practice.
The Company also is party to certain legal proceedings, and is subject to
the risk of adverse developments in such proceedings. The semiconductor industry
is characterized by frequent claims and litigation regarding patent and other
intellectual property rights. The Company currently is involved in patent
litigation, and also has from time to time received, and believes that it likely
will in the future receive, notices alleging that the Company's products, or the
processes used to manufacture the Company's products, infringe the intellectual
property rights of third parties, and the Company is subject to the risk that it
may become party to litigation involving such claims. The Company currently is
party to an anti-dumping proceeding, which may result in the imposition of
dumping duties on the Company's importation into the United States of
Taiwan-manufactured SRAMs. A material portion of the Company's SRAMs are
manufactured in Taiwan, and imposition of such duties could materially adversely
affect the Company's ability to sell such products in the United States. There
can be no assurance that adverse developments in current or future legal
proceedings will not have a material adverse effect on the Company's operating
results or financial condition.
Additionally, other factors may materially adversely affect the Company's
operating results. The Company relies on domestic and offshore subcontractors
for die assembly and testing of products, and is subject to risks of disruption
in adequate supply of such services and quality problems with such services. The
Company is subject to the risks of shortages of goods or services and increases
in the cost of raw materials used in the manufacture or assembly of the
Company's products. The Company faces intense competition, and many of its
principal competitors and potential competitors have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines and longer-standing relationships with customers than does the
Company, any of which factors may place such competitors and potential
competitors in a stronger competitive position than the Company. The Company's
corporate headquarters are located near major earthquake faults, and the Company
is subject to the risk of damage or
12
disruption in the event of seismic activity. There can be no assurance that any
of the foregoing factors will not materially adversely affect the Company's
operating results.
As a result of the foregoing factors, as well as other factors affecting
the Company's operating results, past performance should not be considered to be
a reliable indicator of future performance and investors should not use
historical trends to anticipate results or trends in future periods. In
addition, stock prices for many technology companies are subject to significant
volatility, particularly on a quarterly basis. If revenues or earnings fail to
meet expectations of the investment community, there could be an immediate and
significant impact on the market price of the Company's common stock.
Liquidity and Capital Resources
The Company's operating activities generated cash of $7.1 million in the
first quarter of fiscal 1998 and used cash of $13.5 million in the first quarter
of fiscal 1997. Cash generated from operations in the first quarter of fiscal
1998 was the result of net income generated during the period and a net increase
in certain working capital components. Cash used in operations in the first
quarter of fiscal 1997 was primarily a result of net loss generated during the
period combined with a net decrease in certain working capital components.
Net cash used in investing activities was $0.6 million for the first
quarter of fiscal 1998 and $1.1 million for the same period of fiscal 1997. Net
cash used in investing activities in the first quarter of fiscal 1998 reflects
equipment purchases of $0.6 million. Net cash used in investing activities in
the first quarter of fiscal 1997 reflects equipment purchases of $1.3 million,
partially offset by a reduction in the investment of United Silicon, Inc. of
$0.2 million.
The Company's financing activities used cash of $0.3 million in the first
quarter of fiscal 1998 and provided cash of $0.1 million in the first quarter of
fiscal 1997. Net cash used in financing activities in the first quarter of
fiscal 1997 reflects repayment of long term obligations of $0.4 million, offset
by net proceeds of $0.1 million from the sales of common stock in connection
with the exercise of stock options. Net cash provided by financing activities in
the first quarter of fiscal 1997 reflects net proceeds from the sales of common
stock in connection with the exercise of stock options.
At June 30, 1997, the Company had $28.6 million in cash, an increase of
$6.1 million from March 31, 1997, and working capital of $77.1 million, a
decrease of $0.9 million from March 31, 1997. The Company believes that these
sources of liquidity, together with an expected tax refund (which was received
in July 1997) and anticipated financings, will be sufficient to meet its
projected working capital and other cash requirements for the foreseeable
future.
In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has considered and
will continue to consider various possible transactions, including equity
investments in or loans to foundries in exchange for guaranteed production, the
formation of joint ventures to own and operate foundries, or the usage of "take
or pay" contracts that commit the Company to purchase specified quantities of
wafers over extended periods. Manufacturing arrangements such as these may
require substantial capital investments, which may require the Company to seek
additional debt or equity financing. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be on satisfactory terms. Additionally, the Company has entered
into and will continue to enter into various transactions, including the
licensing of its integrated circuit designs in exchange for royalties, fees or
guarantees of manufacturing capacity.
In July 1995, the Company entered into an agreement with United
Microelectronics Corporation ("UMC") and S3 Incorporated ("S3") to form a
separate Taiwanese company, United Semiconductor
13
Corporation, for the purpose of building and managing a semiconductor
manufacturing facility in Taiwan. The facility is now in full production using
advanced submicron semiconductor manufacturing processes. Alliance paid
approximately NTD 1 billion (approximately US$36.4 million) in September 1995,
approximately NTD 450 million (approximately $16.4 million) in July 1996, and
had the option to pay, on or before July 31, 1997, approximately NTD 450
million, plus interest at a rate of 8.5% on such amount from and after July 4,
1996. The Company exercised this option and paid approximately NTD 492 million
(approximately US$17.6 million) in July 1997. As a result of this last payment,
Alliance has an equity ownership of approximately 19% and the right to purchase
up to approximately 25% of the manufacturing capacity in this facility.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon Inc., for the
purpose of building and managing a semiconductor manufacturing facility in the
Science Based Industrial Park in Hsin Chu City, Taiwan, Republic of China. The
facility is expected to commence production utilizing advanced submicron
semiconductor manufacturing processes in late 1997, although there can be no
assurance that production will begin on schedule. The contributions of Alliance
and other parties shall be in the form of equity investments, representing an
initial ownership interest of approximately 5% for each US$30 million invested.
Alliance's investment, which is payable in NTD, will be up to approximately
US$30 million payable in up to three installments. The first installment of
approximately 50% of the total investment was made in January 1996, and the
Company has the option to pay a second installment of approximately 25% of the
total investment in December 1997, plus interest at a rate of 8.5% on such
amount from and after July 7, 1997, and the final installment of approximately
25% of the total investment is called for on or before fab production ramp-up.
If the Company exercises its option and further pays the third installment, the
Company will have an equity ownership of approximately 5% and have the right to
purchase up to approximately 6.25% of the manufacturing capacity in this
facility.
In addition, the Company believes that success in its industry requires
substantial capital and liquidity. In addition to capital needs for its ongoing
business operations, the Company also may desire, from time to time, as market
and business conditions warrant, to invest in or acquire complementary
businesses, products or technologies. As a result, the Company may seek
additional equity or debt financings to fund such activities or to otherwise
take advantage of favorable financing opportunities. The sale of additional
equity or convertible debt securities could result in additional dilution to the
Company's stockholders. There can be no assurance that such additional
financing, if required, can be obtained on terms acceptable to the Company, if
at all.
14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported, in March 1996, a putative class action lawsuit
was filed against the Company and certain of its officers and directors and
others in the United States District Court for the Northern District of
California, alleging violations of Section 10(b) of the Securities Exchange Act
of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder. (The
complaint alleged that the Company, N.D. Reddy and C.N. Reddy also had liability
under Section 20(a) of the Exchange Act.) The complaint, brought by an
individual who claimed to have purchased 100 shares of the Company's common
stock on November 2, 1995, was putatively brought on behalf of a class of
persons who purchased the Company's common stock between July 11, 1995 and
December 29, 1995. In April 1997, the Court dismissed the complaint, with leave
to file an amended complaint. In June 1997, plaintiff filed an amended complaint
against the Company and certain of its officers and directors alleging
violations of Sections 10(b) and 20(a) of the Exchange Act. In July 1997, the
Company moved to dismiss the amended complaint. The Company intends to continue
to defend vigorously against any claims asserted against it, and believes it has
meritorious defenses against the asserted claims. Due to the inherent
uncertainty of litigation, the Company is not able to reasonably estimate the
potential losses, if any, that may be incurred in relation to this litigation.
15
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Title Filing Status
------ ----- -------------
3.01 Company's Certificate of Incorporation (A)
3.02 Company's Bylaws (A)
3.03 Company's Certificate of Elimination of Series A Preferred Stock (A)
3.04 Company's Certificate of Amendment of Certificate of (B)
Incorporation
4.01 Specimen of Common Stock Certificate of Company (A)
10.01 Trademark License Agreement dated as of October 17, 1996 between (C)
Company and Alliance Semiconductor International Corporation, a
Delaware corporation, as amended through May 31, 1997
10.02 Letter Agreement dated April 25, 1997 by and among Registrant,
S3 Incorporated, United Microelectronics Corporation and
United Semiconductor Corporation (C)
10.03 Letter Agreement dated June 23, 1997 between Company and (C)
United Microelectronics Corporation
11.01 Statement re: Computation of Net Income (Loss) per Share (D)
and Common Equivalent Shares
27.01 Financial Data Schedule (D)
(b) Reports on Form 8-K
None.
- ----------------------------------
(A) The document referred to is hereby incorporated by reference from the
Company's Registration Statement on Form SB-2 (File No. 33-69956-LA)
declared effective by the Commission on November 30, 1993.
(B) The document referred to is hereby incorporated by reference from the
Company's Quarterly Report on Form 10-Q (File No. 0-22594) filed with the
Commission on November 14, 1995.
(C) The document referred to is hereby incorporated by reference from the
Company's Annual Report on Form 10-K (File No. 0-22594) filed with the
Commission on June 27, 1997.
(D) The document referred to is filed herewith.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alliance Semiconductor Corporation
(Registrant)
Date: August 12, 1997 /s/ N. D. Reddy
---------------
N. Damodar Reddy
President and Principal Executive Officer
Date: August 12, 1997 /s/ Charles Alvarez
-------------------
Charles Alvarez
Vice President - Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
17