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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 30, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-17795
CIRRUS LOGIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 77-0024818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4210 S. Industrial Drive, Austin, TX 78744
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 445-7222
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 [ ]
The number of shares of the registrant's common stock, $0.001 par value,
outstanding was 79,022,422 as of December 30, 2000.
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CIRRUS LOGIC, INC.
INDEX
Page
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Statements of
Operations - Quarter and Three Quarters Ended
December 30, 2000 and December 25, 1999 3
Consolidated Condensed Balance Sheets -
December 30, 2000 and March 25, 2000 4
Consolidated Condensed Statements of
Cash Flows - Three Quarters ended
December 30, 2000 and December 25, 1999 5
Notes to the Unaudited Consolidated
Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
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Part 1. Financial Information
Item 1. Financial Statements
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Quarter Ended Three Quarters Ended
------------------------------- -------------------------------
Dec. 30 Dec. 25 Dec. 30 Dec. 25
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales $ 207,998 $ 150,759 $ 578,948 $ 404,154
Costs and expenses:
Cost of sales 124,760 90,410 343,172 235,774
Research and development 33,905 31,440 99,494 90,895
Selling, general and administrative 27,155 23,791 82,722 69,940
Restructuring costs, gain on sale of assets and
other, net -- -- (14,362) 127,211
Abandonment of assets charge -- 11,174 -- 11,174
Acquired in-process research and development -- -- -- 8,013
------------ ------------ ------------ ------------
Total costs and expenses 185,820 156,815 511,026 543,007
------------ ------------ ------------ ------------
Income (loss) from operations 22,178 (6,056) 67,922 (138,853)
Realized gain on sale of marketable equity
securities 3,020 34,293 84,564 34,293
Interest expense (1,573) (5,333) (11,672) (18,555)
Interest income 4,836 1,458 13,949 6,292
Other income (expense), net (1,833) 3,561 (1,152) 7,646
------------ ------------ ------------ ------------
Income (loss) before provision for income taxes 26,628 27,923 153,611 (109,177)
Provision for income taxes 2,572 -- 15,207 --
Minority interest in (income) loss (179) -- 45 --
------------ ------------ ------------ ------------
Income (loss) before extraordinary gain
and accounting change 23,877 27,923 138,449 (109,177)
Extraordinary gain, net of income tax -- -- 2,482 --
Cumulative effect of change in accounting principle -- -- (1,707) --
------------ ------------ ------------ ------------
Net income (loss) $ 23,877 $ 27,923 $ 139,224 $ (109,177)
============ ============ ============ ============
Basic income (loss) per share:
Before extraordinary gain and accounting change $ 0.32 $ 0.45 $ 2.00 $ (1.78)
Extraordinary gain, net of income tax -- -- 0.04 --
Cumulative effect of change in accounting principle -- -- (0.02) --
------------ ------------ ------------ ------------
$ 0.32 $ 0.45 $ 2.01 $ (1.78)
============ ============ ============ ============
Diluted income (loss) per share:
Before extraordinary gain and accounting change $ 0.30 $ 0.40 $ 1.81 $ (1.78)
Extraordinary gain, net of income tax -- -- 0.03 --
Cumulative effect of change in accounting principle -- -- (0.02) --
------------ ------------ ------------ ------------
$ 0.30 $ 0.40 $ 1.82 $ (1.78)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 75,127 62,134 69,142 61,219
Diluted 80,388 80,911 82,516 61,219
See Notes to the Unaudited Consolidated Condensed Financial Statements
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CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
December 30, March 25,
2000 2000
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Assets
Current assets
Cash and cash equivalents $ 254,070 $ 144,034
Restricted cash 11,008 57,173
Marketable equity securities 15,506 48,077
Accounts receivable, net 122,225 94,672
Inventories, net 113,501 53,288
Other current assets 24,585 23,421
------------ ------------
540,895 420,665
Property and equipment, net 34,171 34,730
Deposits and other assets 34,349 49,437
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$ 609,415 $ 504,832
============ ============
Liabilities and Shareholders' Equity (Net Capital Deficiency)
Current liabilities
Accounts payable and accrued liabilities $ 121,775 $ 130,567
Current maturities of long-term debt and
capital lease obligations 3,825 12,829
Income taxes payable 56,253 40,193
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181,853 183,589
Long term obligations and convertible subordinated notes 5,287 304,945
Commitments and contingencies
Stock issued under restructuring agreement -- 32,000
Minority interest 1,955 --
Shareholders' Equity (Net Capital Deficiency)
Capital stock 698,050 368,015
Accumulated deficit (291,777) (431,001)
Accumulated other comprehensive income 14,047 47,284
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420,320 (15,702)
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$ 609,415 $ 504,832
============ ============
See Notes to the Unaudited Consolidated Condensed Financial Statements
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CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Quarters Ended
-------------------------------
Dec. 30, Dec. 25,
2000 1999
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Cash flows from operating activities:
Net income (loss) $ 139,224 $ (109,177)
Adjustments to reconcile net income (loss) to net
cash flows from operations:
Depreciation and amortization 22,705 23,842
Other non-cash charges 1,544 40,013
Write off of property and equipment and other assets -- 11,861
Extraordinary gain, net of income tax (2,482) --
Gain on sale of short-term investments (84,564) (34,293)
Net change in operating assets and liabilities (68,199) (137,130)
------------ ------------
Net cash provided by (used in) operations 8,228 (204,884)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of short-term investments -- 74,616
Proceeds from sale of marketable equity securities 86,564 34,533
Proceeds from restructuring of joint venture -- 14,000
Increase in property and equipment (15,673) (5,730)
Investments in technology (4,066) --
Increase in cash from AudioLogic, Inc. acquisition -- 1,010
Increase in deposits and other assets (275) (16,685)
Decrease in restricted cash 46,164 27,899
------------ ------------
Net cash provided by investing activities 112,714 129,643
------------ ------------
Cash flows from financing activities:
Repurchase of convertible subordinated notes (24,941) --
Proceeds from issuance of common stock 20,747 8,383
Payments on long-term debt and capital lease obligations (11,712) (20,979)
Cash contributions from minority partners 5,000 --
------------ ------------
Net cash used in financing activities (10,906) (12,596)
------------ ------------
Net increase (decrease) in cash and cash equivalents 110,036 (87,837)
Cash and cash equivalents at beginning of period 144,034 144,457
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Cash and cash equivalents at end of period $ 254,070 $ 56,620
============ ============
See Notes to the Unaudited Consolidated Condensed Financial Statements
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CIRRUS LOGIC, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated condensed financial statements have been prepared by Cirrus
Logic, Inc. ("we"',"our", "us") pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In our opinion, the financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position, operating results and cash flows
for those periods presented. These consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements, and
notes thereto for the year ended March 25, 2000, included in our 2000 Annual
Report on Form 10-K. The results of operations for the interim period presented
are not necessarily indicative of the results that may be expected for the
entire year.
Certain reclassifications have been made to the 2000 financial statements to
conform to the 2001 presentation. Such reclassifications had no effect on the
results of operations or net capital deficiency.
2. Accounting Changes and Effect of Recently Issued Accounting Standards
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements". We recorded a
cumulative effect of a change in accounting principle in the first quarter of
fiscal 2001 to reflect our adoption of new revenue recognition policies as a
result of this guidance. Effective with the first quarter of fiscal 2001, we
have recognized revenue on international shipments based on customer receipt of
inventory rather than on the date of shipment, which was our historical method.
Results for the first three fiscal quarters of fiscal 2001 include revenue of
$5.4 million, cost of sales of $3.5 million and a cumulative effect of change in
accounting principle of $1.7 million. Had we adopted the principle in the first
quarter of fiscal 2000, results for the three quarters ended December 25, 1999
would have included revenue of $2.1 million and cost of sales of $1.0 million
and a cumulative effect of change in accounting principle of $1.1 million.
During the first quarter of fiscal 2001, we also changed our estimate of the
amount of revenue which is deferred on distributor transactions for products
which are released for sale. Results for the three fiscal quarters ended
December 25, 2000 include revenue of $5.4 million, cost of sales of $2.0 million
and income of $3.4 million. The after tax effect of this estimate change
increased basic and diluted earnings per share by $0.06 and $0.04 for the three
quarters ended December 30, 2000.
On March 31, 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, which is an interpretation of APB Opinion No. 25
governing the accounting principles applicable to equity incentive plans. The
interpretation did not have a material impact on our results of operations or
financial condition.
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3. Net inventories
Net inventories are comprised of the following (in thousands):
December 30, March 25,
2000 2000
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Work-in process $ 78,164 $ 44,539
Finished goods 35,337 8,749
------------ ------------
$ 113,501 $ 53,288
============ ============
Prior to the third quarter of fiscal 2001, we recognized inventory being
manufactured by wafer fabrication suppliers, but not yet received, as a
liability prior to our acceptance of the inventory. This liability was
recognized because of our joint venture relationships and other contractual
obligations with certain suppliers. The agreements with those suppliers have
now expired and therefore the inventory and liability are no longer included in
the balance sheet.
4. Income Taxes
We have accrued an income tax provision of $2.6 million and $15.2 million for
the fiscal quarter and the three fiscal quarters ended December 25, 2000,
respectively. Our effective income tax rate was approximately 10% for the
quarter and three quarters. Excluding the tax benefit of net operating loss
carryforwards our effective income tax rate was approximately 30%.
Statement of Financial Accounting Standards 109 provides for the recognition of
deferred tax assets if realization of such assets is more likely than not. We
have provided a valuation allowance equal to its net deferred tax assets due to
uncertainties regarding their realization. The realizability of the deferred tax
assets will be evaluated on a quarterly basis.
5. Restructuring Costs, Gain on Sale of Assets and Other
During the first three quarters of fiscal 2001, we recorded restructuring and
other gains of $14.4 million. Included in this amount is $12.0 million received
during the first quarter of fiscal 2001 from Intel Corporation ("Intel") on
behalf of Basis Communications Corporation ("Basis") for the payment of two
outstanding notes receivable which had previously been written off, and $1.8
million primarily related to the final resolution of the MiCRUS restructuring
agreement.
6. Acquisition of AudioLogic, Inc.
On July 27, 1999 we completed our acquisition of AudioLogic, Inc.
("AudioLogic"), a Colorado-based company specializing in low power mixed-signal
integrated circuit design, through a stock-for-stock exchange. We guaranteed
that the contractual value of the issued shares and unexercised options would be
at least $25 million at the one-year anniversary of the closing, July 27, 2000.
At that date, the contractual value of the shares was $23.7 million. As a
result, we issued an additional 66,200 shares of common stock.
In addition, due to the terms of the acquisition agreement, during September of
2000, we paid additional compensation of $2.5 million to certain employees of
AudioLogic. This compensation is included in research and development expenses
and selling, general and administrative expenses.
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7. Realized Gain on Sale of Marketable Equity Securities
During the third quarter of fiscal 2001, we recognized a gain on sale of
marketable equity securities of $3.0 million related to our sale of call options
on Openwave Systems, Inc. (formerly known as Phone.com) common stock.
Additionally, during the first three quarters of fiscal 2001, we recognized
gains on sale of marketable equity securities of $84.6 million. These gains were
primarily related to the sale of our holdings of approximately 1 million shares
of Series A preferred stock and 0.5 million shares of common stock in Basis to
Intel for $91.8 million. The sale was part of a tender offer whereby Intel
purchased the outstanding preferred and common stock of Basis for $61.18 per
share. Intel withheld from the total consideration $11.2 million pursuant to the
indemnification provisions of the merger agreement between Intel and Basis.
8. Interest income
In addition to $12.5 million of interest earned during the first three quarters
of fiscal 2001, we also recorded interest income of $1.4 million for interest
received on the two outstanding notes receivable from Basis which had previously
been written off.
9. Extraordinary Gain, net of income tax
During the first quarter of fiscal 2001, we repurchased $28.1 million par value
of our 6% convertible notes on the open market and recognized an extraordinary
gain in the first quarter of fiscal 2001 of approximately $2.5 million (after
income tax effect of $0.3 million) as a result of these repurchases.
10. Long-term obligations and convertible subordinated notes
On September 25, 2000 we entered into an agreement whereby 990,967 shares of
common stock were issued and $0.1 million was paid to the holders of $24 million
aggregate principal amount of our 6% Convertible Subordinated Notes, due
December 15, 2003 as an inducement to conversion of those notes. On September
28, 2000, we announced that we had called for an October 19, 2000 redemption of
$135.0 million aggregate principal amount of our 6% Convertible Subordinated
Notes, due December 15, 2003. In addition, on October 18, 2000, we announced
that we had called for a November 7, 2000 redemption of $111.9 million aggregate
principal amount of our 6% Convertible Subordinated Notes, due December 15,
2003. The combination of the two calls, the individual transaction and voluntary
conversions resulted in the conversion of $272.6 million in long-term debt and
accrued interest to stockholders' equity.
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11. Net Income Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
BASIC EARNINGS PER SHARE
Quarter Ended Three Quarters Ended
-------------------------- ---------------------------
Dec. 30, Dec. 25, Dec. 30, Dec. 25,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Income (loss) before extraordinary gain and accounting change $ 23,877 $ 27,923 $ 138,449 $ (109,177)
Extraordinary gain, net of income tax -- -- 2,482 --
Cumulative effect of change in accounting principle -- -- (1,707) --
----------- ----------- ----------- -----------
Net income (loss) $ 23,877 $ 27,923 $ 139,224 $ (109,177)
=========== =========== =========== ===========
Weighted average common stock outstanding 75,127 62,134 69,142 61,219
Basic net income (loss) per share:
Before extraordinary gain and accounting change $ 0.32 $ 0.45 $ 2.00 $ (1.78)
Extraordinary gain, net of income tax -- -- 0.04 --
Cumulative effect of change in accounting principle -- -- (0.02) --
----------- ----------- ----------- -----------
Basic net income (loss) per share $ 0.32 $ 0.45 $ 2.01 $ (1.78)
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Income (loss) before extraordinary gain and accounting change $ 23,877 $ 27,923 $ 138,449 $ (109,177)
Effect of convertible subordinated note conversion -- 4,500 11,018 --
----------- ----------- ----------- -----------
Income (loss) including assumed conversions before
extraordinary gain and accounting change 23,877 32,423 149,467 (109,177)
Extraordinary gain, net of income tax -- -- 2,482 --
Cumulative effect of change in accounting principle -- -- (1,707) --
----------- ----------- ----------- -----------
Net income (loss) $ 23,877 $ 32,423 $ 150,242 $ (109,177)
=========== =========== =========== ===========
Weighted average common stock outstanding 75,127 62,134 69,142 61,219
Assumed conversion of convertible subordinated notes -- 12,386 8,492 --
Contingent shares -- 3,658 -- --
Dilutive effect of stock options outstanding 5,261 2,733 4,882 --
----------- ----------- ----------- -----------
Weighted average diluted shares of common stock outstanding 80,388 80,911 82,516 61,219
=========== =========== =========== ===========
Diluted income (loss) per share:
Before extraordinary gain and accounting change $ 0.30 $ 0.40 $ 1.81 $ (1.78)
Extraordinary gain, net of income tax -- -- 0.03 --
Cumulative effect of change in accounting principle -- -- (0.02) --
----------- ----------- ----------- -----------
Diluted net income (loss) per share $ 0.30 $ 0.40 $ 1.82 $ (1.78)
=========== =========== =========== ===========
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Incremental common shares attributable to the exercise of outstanding options of
1,266,700 shares, for the nine months ended December 25, 1999 were excluded from
the computation of diluted net loss per share because the effect would be
antidilutive.
12. MiCRUS
The terms of the MiCRUS restructuring agreement, entered into during the first
quarter of fiscal 2000, required us to pay $135 million in cash to IBM and issue
into an escrow account shares of our common stock with a fair value (based on
the average closing price of our common stock for the 20 days prior to closing)
of $32 million. Under the escrow arrangement, the escrow period ended on April
3, 2000. On that date, 2.4 million shares were released to IBM and the remaining
shares were returned to us due to contractual limitations on the value to be
realized by IBM. During the six-month period following April 3, 2000, IBM could
sell on the open market our stock that it received. If, at the end of the
six-month period on September 30, 2000, IBM had sold at least 15% of our stock,
it could require us to purchase the remaining shares for cash such that the
total received by IBM, including the amounts IBM received in open market sales,
was $32 million. IBM could keep all proceeds from the sale of the stock in
excess of $32 million up to a maximum of $48 million. Amounts received by IBM in
excess of $48 million had to be returned to us.
As of September 23, 2000, IBM had sold all of the shares of our common stock
issued to it under the MiCRUS restructuring agreement. The proceeds from these
sales were approximately $48 million. As a result, at September 23, 2000, we
have reclassified $32 million of temporary equity to permanent equity, since our
obligation under the restructuring agreement had ceased.
13. Comprehensive Income
The components of comprehensive income, net of tax, are as follows (in
thousands):
Quarter Ended Three Quarters Ended
--------------------------- ---------------------------
Dec. 30, Dec. 25, Dec. 30, Dec. 25,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income (loss) $ 23,877 $ 27,923 $ 139,224 $ (109,177)
Change in unrealized gain on
marketable equity securities (18,369) (9,538) (33,293) 71,652
Change in unrealized loss on foreign
currency translation adjustments (115) 132 56 (1,224)
----------- ----------- ----------- -----------
$ 5,393 $ 18,517 $ 105,987 $ (38,749)
=========== =========== =========== ===========
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14. Segment information
Information on reportable segments is as follows (in thousands):
Quarter Ended Three Quarters Ended
----------------------------- -----------------------------
Dec. 30, Dec. 25, Dec. 30, Dec. 25,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues:
Analog $ 86,564 $ 82,651 $ 256,760 $ 231,082
Internet 24,375 10,533 73,495 28,158
Magnetic Storage 89,662 35,796 206,491 92,261
End of Life 7,740 21,624 31,473 51,922
Corporate and all other (343) 155 10,729 731
----------- ----------- ----------- -----------
$ 207,998 $ 150,759 $ 578,948 $ 404,154
=========== =========== =========== ===========
Operating profit (losses):
Analog $ 23,882 $ 15,519 $ 78,855 $ 41,776
Internet 5,660 (3,071) 14,830 (7,566)
Magnetic Storage 18,435 2,616 33,008 10,495
End of Life 306 4,866 4,153 14,321
Corporate and all other (26,105) (25,986) (62,924) (197,879)
----------- ----------- ----------- -----------
$ 22,178 $ (6,056) $ 67,922 $ (138,853)
=========== =========== =========== ===========
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This information should be read along with the unaudited consolidated condensed
financial statements and the notes thereto included in Item 1 of this Quarterly
Report and the audited consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the fiscal year ended March 25, 2000, contained in the 2000
Annual Report on Form 10-K (the "2000 Form 10-K"). This Discussion and Analysis
contains forward-looking statements. Such statements are subject to certain
risks and uncertainties, including those discussed below or in the 2000 Form
10-K that could cause actual results to differ materially from the Company's
expectations. Readers are cautioned not to place undue reliance on any
forward-looking statements, as they reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS
The following table discloses the percentages that income statement items are of
net sales.
Percentage of Net Sales
Quarter Ended Three Quarters Ended
------------------------ ------------------------
Dec. 30, Dec. 25, Dec. 30, Dec. 25,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales 100% 100% 100% 100%
Gross margin 40% 40% 41% 42%
Research and development 16% 21% 17% 22%
Selling, general and administrative 13% 16% 14% 17%
Restructuring costs, gain on sale of assets and other, net 0% 0% (2)% 31%
Abandonment of asset charge 0% 7% 0% 3%
Acquired in-process research and development 0% 0% 0% 2%
-------- -------- -------- --------
Income (loss) from operations 11% (4)% 12% (34)%
Realized gain on sale of marketable equity securities 1% 23% 15% 8%
Interest expense (1)% (4)% (2)% (5)%
Interest income 2% 1% 2% 2%
Other income (1)% 2% 0% 2%
-------- -------- -------- --------
Income (loss) before income taxes 13% 19% 27% (27)%
Provision for income taxes 1% 0% 3% 0%
-------- -------- -------- --------
Income (loss) before extraordinary gain and
accounting change 11% 19% 24% (27)%
Extraordinary gain, net of tax 0% 0% 0% 0%
Cumulative effect of change in accounting principle 0% 0% 0% 0%
-------- -------- -------- --------
Net income (loss) 11% 19% 24% (27)%
======== ======== ======== ========
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NET SALES
Net sales for the third quarter of fiscal 2001 increased by $57.2 million, or
38.0%, to $208.0 million from $150.8 million for the third quarter of fiscal
2000. Revenues from non-core businesses in the third quarter of fiscal 2001 were
$7.4 million, compared to $21.8 million in the third quarter of fiscal 2000.
Also included in revenue for the third quarter of fiscal 2001 is $3.5 million of
royalty revenue. Excluding revenues from non-core businesses, revenues from core
businesses consisting of analog, Internet and magnetic storage increased
approximately $71.6 million. Magnetic storage increased $53.9 million, Internet
increased $13.8 million and Analog increased $3.9 million.
Net sales for the first three quarters of fiscal 2001 increased by $174.8
million, or 43.2%, to $578.9 million from $404.2 million for the first three
quarters of fiscal 2000. Included in revenues in the first three quarters of
fiscal 2001 are $5.2 million resulting from an accounting principle change
pertaining to the time at which we recognize revenue on international shipments,
$5.4 million resulting from a change in accounting estimate pertaining to our
method of estimating the amount of revenue which is deferred on distributor
transactions for products which are released for sale and $8.5 million of
royalty revenue. In addition, revenues from non-core businesses were $31.5
million in the first three quarters of fiscal 2001 compared to $52.6 million in
the first three quarters of fiscal 2000. Excluding revenues from non-core
businesses and one time accounting changes, net sales from core businesses,
consisting of analog, Internet and magnetic storage increased approximately
$185.2 million due to increases of $25.7 million, $45.3 million and $114.2
million in the analog, Internet and magnetic storage segments, respectively.
Export sales (including sales to U.S.-based customers with manufacturing plants
overseas) were 85% and 75% of total sales in the third quarter of fiscal 2001
and fiscal 2000, respectively, and were 80% and 74% of total sales in the first
three quarters of fiscal 2001 and fiscal 2000, respectively.
Our sales are currently denominated primarily in U.S. dollars. We currently
enter into foreign currency forward exchange contracts to hedge certain of our
foreign currency exposures.
Sales to two customers comprised approximately 24% and 13% of total sales in the
third fiscal quarter ended December 30, 2000, and 21% and 11% of total sales in
the three fiscal quarters ended December 30, 2000. Sales to these customers were
approximately 9% and 10% of total sales in the third fiscal quarter ended
December 25, 1999, and 6% and 13% in the three fiscal quarters ended December
25, 1999.
GROSS MARGIN
Gross margin was 40% in the third quarters of fiscal 2001 and 2000. Gross margin
was 41% in the first three quarters of fiscal 2001, compared to 42% for the
first three quarters of fiscal 2000. Gross margin has decreased during fiscal
2001 primarily due to lower margins on sales of magnetic storage products.
RESEARCH AND DEVELOPMENT
Research and development expenses for the third quarter of fiscal 2001 increased
by $2.5 million, or 7.8%, to $33.9 million from $31.4 million in the third
quarter of fiscal 2000. Research and development expenses for the first three
quarters of fiscal 2001 increased by $8.6 million, or 9.5%, to $99.5 million
from $90.9 million in the first three quarters of fiscal 2000. Although these
expenses have increased in total dollars, as a percentage of sales the amounts
have decreased to 17% from 22% for the first three quarters of fiscal 2001 and
2000, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in the third quarter of fiscal 2001
increased $3.4 million, or 14%, to $27.5 million from $23.8 million in the third
quarter of fiscal 2000. Selling, general and administrative expenses in the
first three quarters of fiscal 2001 increased $12.8 million, or 18%, to $82.7
million from $69.9 million in the first three quarters of fiscal 2000. Although
these expenses have increased in total dollars, as a percentage of sales the
amounts have decreased to 14% from 17% for the first three quarters of fiscal
2001 and 2000, respectively.
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RESTRUCTURING COSTS, GAIN ON SALE OF ASSETS AND OTHER, NET
During the first three quarters of fiscal 2001, we recorded restructuring and
other gains of $14.4 million. Included in this amount is $12.0 million received
from Intel Corporation ("Intel") on behalf of Basis Communications Corporation
("Basis") for the payment of two outstanding notes receivable which had
previously been written off, and $1.8 million primarily related to the final
resolution of the MiCRUS restructuring agreement.
During the third quarter of fiscal 2000, we made a strategic decision to abandon
the development efforts previously undertaken on the manufacturing component of
our enterprise resource planning software. In connection with this decision, we
recorded an asset abandonment charge of approximately $10.2 million.
During the first quarter of fiscal 2000, we recorded restructuring and other
charges of $128.2 million relating to the termination of our interests in two
manufacturing joint ventures, MiCRUS and Cirent, $1 million of which is included
is cost of sales. The restructuring charge includes $135 million in direct
payments, $32 million worth of our contributed common stock, $4.8 million fair
value of the related embedded stock derivative, $9.3 million of lease buyout
costs and $16.4 million of equipment write-offs. These charges were offset by
the reversal of approximately $71.9 million of previously accrued wafer purchase
commitment charges due to the renegotiated terms of our purchase commitments
with our former partners.
ACQUIRED IN-PROCESS RESEARCH & DEVELOPMENT EXPENSES
During the second quarter of fiscal 2000, we recorded $8.0 million, or 6% of net
sales, of acquired research and development expenses resulting from Cirrus'
acquisition of AudioLogic, Inc. (See Note 6 to the Condensed Consolidated
Financial Statements). These amounts were expensed on the acquisition date
because the acquired technology had not yet reached technological feasibility
and had no future alternative uses. There can be no assurance that acquisitions
of businesses, products or technologies by us in the future will not result in
substantial charges for acquired in-process research and development that may
cause fluctuations in our quarterly or annual operating results.
REALIZED GAIN ON SALE OF MARKETABLE EQUITY SECURITIES
During the third quarter of fiscal 2001, we recognized a gain on sale of
marketable equity securities of $3.0 million related to our sale of call options
on Openwave Systems, Inc.(formerly known as Phone.com) common stock.
Additionally, during first three quarters of fiscal 2001 we recognized gains on
sale of marketable equity securities of $84.6 million. These gains were
primarily related to the sale of our holdings of approximately 1 million shares
of Series A preferred stock and 0.5 million shares of common stock in Basis to
Intel for $91.8 million. The sale was part of a tender offer whereby Intel
purchased the outstanding preferred & common stock of Basis for $61.18 per
share. Intel withheld from the total consideration $11.2 million pursuant to the
indemnification provisions of the merger agreement between Intel and Basis.
INTEREST EXPENSE
Interest expense was $1.6 million for the third quarter of fiscal 2001 and $5.3
million for the third quarter of fiscal 2000. The decrease is primarily due to
the repurchase and conversion of $300.0 million of our 6% convertible
subordinated notes.
Interest expense was $11.7 million for the first three quarters of fiscal 2001
and $18.6 million for the first three quarters of fiscal 2000. The decrease was
primarily due to the repurchase and conversion of $300.0 million of our 6%
convertible subordinated notes.
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INTEREST INCOME
Interest income was $4.8 million for the second quarter of fiscal 2001 and $1.5
million for the second quarter of fiscal 2000. The increase is primarily due to
the interest earned on the increased cash and cash equivalents balance.
Interest income was $13.9 million for the first three quarters of fiscal 2001
and $6.3 million for the first three quarters of fiscal 2000. The increase is
primarily due to interest earned on the increased cash and cash equivalents
balance and a $1.4 million interest payment received on the two outstanding
notes receivable which had previously been written off.
INCOME TAXES
We have accrued an income tax provision of $2.6 million and $15.2 million for
the fiscal quarter and the three fiscal quarters ended December 30, 2000,
respectively. Our effective income tax rate was approximately 10% for the
quarter and three quarters. Excluding the tax benefit of net operating loss
carryforwards our effective income tax rate was approximately 30%.
We did not provide for any income taxes in the first three quarters of fiscal
2000 due to the losses in those quarters.
EXTRAORDINARY GAIN
During May 2000, we repurchased $28.1 million par value of our 6% convertible
subordinated notes on the open market and recognized an extraordinary gain in
the first quarter of fiscal 2001 of approximately $2.5 million (after income tax
effect of $0.3 million) as a result of these repurchases.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements". We recorded a
cumulative effect of a change in accounting principle in the first quarter of
fiscal 2001 to reflect our adoption of new revenue recognition policies as a
result of this guidance. Effective with the first quarter of fiscal 2001, we
have recognized revenue on international shipments based on passage of title
rather than on the date of shipment, which was our historical method.
On March 31, 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, which is an interpretation of APB Opinion No. 25
governing the accounting principles applicable to equity incentive plans. The
interpretation did not have a material impact on our results of operations or
financial condition.
LIQUIDITY AND CAPITAL RESOURCES
We generated $8.2 million of cash from operating activities during the first
three quarters of fiscal 2001 and used $204.9 million of cash and cash
equivalents in our operating activities during the first three quarters of
fiscal 2000. The cash provided by operations in the first three quarters of
fiscal 2001 was primarily due to net income and the add-back of depreciation
and amortization which are non cash expenses, offset by increases in operating
assets and gains on sale of marketable equity securities. The cash used by
operations in the first three quarters of fiscal 2000 was primarily due to
payments required for the termination of the Company's joint venture operations
with IBM and Lucent.
We generated $112.7 million in cash from investing activities during the first
three quarters of fiscal 2001 compared to cash provided by investing activities
of $129.6 million during the comparable period of fiscal 2000. The cash provided
by investing activities for fiscal 2001 was primarily related to proceeds from
sales of short-term investments and decreases in the amount of restricted cash.
These increases were offset mainly by capital expenditures and investments in
technology. For the comparable period of fiscal 2000, cash provided by investing
activities was primarily related to proceeds from sales of short-term
investments and marketable equity securities, restructuring of a joint venture,
cash acquired in the AudioLogic acquisition and decreases in the
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amount of restricted cash. These increases were offset by increases on deposits
and other long term assets as well as capital expenditures.
We used $10.9 million in cash for financing activities during the first three
quarters of fiscal 2001 while using $12.6 million in cash for financing
activities during the comparable period of fiscal 2000. During first three
quarters of fiscal 2001, we used cash to repurchase $28.1 million par value of
our 6% convertible subordinated notes for $24.9 million, and paid another $11.7
million of long-term debt and capital lease obligations. In addition to this, we
received $20.7 million in proceeds from the issuance of our common stock
relating to the exercise of stock options and $5.0 million in equity
contributions from joint venture partners. Cash used in financing activities for
fiscal 2000 was due to payments on our outstanding debt partially offset by new
issuances of stock relating to the exercise of stock options.
At December 30, 2000, we had $265.1 million of cash and cash equivalents of
which $11.0 million is restricted cash. The restrictions on cash are due to
outstanding letters of credit required for certain leases agreements. We do not
expect the amount of restricted cash to change significantly during the fourth
quarter of fiscal 2001.
Historically, we have generated cash in an amount sufficient to fund our
operations. We anticipate that our existing capital resources and cash flow
generated from future operations will enable us to maintain our current level of
operations for the foreseeable future. We may revise our operating plans in
response to future changes in the semiconductor industry in general and the
demand for our products in particular. We believe that significant changes in
the economic environment, which may affect worldwide demand for technology
products, could materially and adversely impact us, including with respect to
such matters as our ability to fund its future operations.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
WE HAVE HISTORICALLY EXPERIENCED FLUCTUATIONS IN OUR OPERATING RESULTS AND
EXPECT THESE FLUCTUATIONS MAY CONTINUE IN FUTURE PERIODS.
Our quarterly and annual operating results are affected by a wide variety
of factors that could materially and adversely affect our net sales, gross
margins and operating income. These factors include:
o the volume and timing of orders received;
o changes in the mix of our products sold;
o market acceptance of our products and the products of our customers;
o competitive pricing pressures;
o our ability to expand manufacturing output to meet increasing demand;
o our ability to introduce new products on a timely basis;
o fixed costs associated with minimum purchase commitments under supply
contracts if demand decreases;
o the timing and extent of our research and development expenses;
o cyclical semiconductor industry conditions;
o the failure to anticipate changing customer product requirements;
o fluctuations in manufacturing costs;
o disruption in the supply of wafers or assembly services;
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o the ability of customers to make payments to us;
o increases in material costs;
o certain production and other risks associated with using independent
manufacturers; and
o product obsolescence, price erosion and other competitive factors.
Historically in the integrated circuit industry, average selling prices of
products have decreased over time. If we are unable to introduce new products
with higher margins or reduce manufacturing costs to offset anticipated
decreases in the prices of our existing products, our operating results will be
adversely affected. Our business is characterized by short-term orders and
shipment schedules, and customer orders typically can be canceled or rescheduled
without penalty to the customer. In addition, because of fixed costs in the
integrated circuit industry, we are limited in our ability to reduce costs
quickly in response to any revenue shortfalls. As a result of the foregoing or
other factors, we may experience material adverse fluctuations in our future
operating results on a quarterly or annual basis.
OUR SUCCESS DEPENDS ON OUR ABILITY TO INTRODUCE NEW PRODUCTS ON A TIMELY
BASIS.
Our success depends upon our ability to develop new precision linear and
mixed-signal circuits for new and existing markets, to introduce such products
in a timely manner, and to have such products gain market acceptance. The
development of new precision linear and mixed-signal circuits is highly complex
and from time to time we have experienced delays in developing and introducing
new products. Successful product development and introduction depends on a
number of factors, including:
o proper new product definition,
o timely completion of design and testing of new products,
o achievement of acceptable manufacturing yields, and
o market acceptance of our products and the products of our customers.
Although we seek to design products that have the potential to become
industry standard products, we cannot assure you that any products introduced by
us will be adopted by such market leaders, or that any products initially
accepted by our customers that are market leaders will become industry standard
products. Both revenues and margins may be materially affected if new product
introductions are delayed or if our products are not designed into successive
generations of our customers' products. We cannot assure you that we will be
able to meet these challenges or adjust to changing market conditions as quickly
and cost-effectively as necessary to compete successfully. Our failure to
develop and introduce new products successfully could harm our business and
operating results.
Successful product design and development is dependent on our ability to
attract, retain and motivate qualified design engineers, of which there is a
limited number. Due to the complexity and variety of precision linear and
mixed-signal circuits, the limited number of qualified circuit designers and the
limited effectiveness of computer-aided design systems in the design of such
circuits, we cannot assure you that we will be able to successfully develop and
introduce new products on a timely basis.
OUR PRODUCTS ARE COMPLEX AND COULD CONTAIN DEFECTS, WHICH COULD REDUCE
SALES OF THOSE PRODUCTS OR RESULT IN CLAIMS AGAINST US.
Product development in the markets we serve is becoming more focused on the
integration of functionality on individual devices. There is a general trend
towards increasingly complex products. The greater integration of functions and
complexity of operations of our products increase the risk that latent defects
or subtle faults could be discovered by our customers or end users after volumes
of product have been shipped. This could result in:
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o material recall and replacement costs for product warranty and
support;
o our customer relationships could also be adversely impacted by the
recurrence of significant defects;
o delay in recognition or loss of revenues, loss of market share or
failure to achieve market acceptance; and
o diversion of the attention of our engineering personnel from our
product development efforts.
The occurrence of any of these problems could result in the delay or loss
of market acceptance of our products and would likely harm our business. In
addition, any defects or other problems with our products could result in
financial or other damages to our customers who could seek damages from us for
their losses. A product liability claim brought against us, even if
unsuccessful, would likely be time consuming and costly to defend.
THE INTEGRATED CIRCUIT INDUSTRY IS VERY CYCLICAL AND AN INDUSTRY DOWNTURN
WOULD ADVERSELY AFFECT OUR BUSINESS.
The integrated circuit industry is characterized by:
o rapid technological change;
o cyclical market patterns;
o significant price erosion;
o periods of over-capacity and production shortages;
o variations in manufacturing costs and yields; and
o significant expenditures for capital equipment and product
development.
The industry has from time to time experienced depressed business
conditions. Although the semiconductor industry in recent periods has
experienced increased demand and production capacity constraints, we cannot
assure you that these conditions will continue. In addition, we cannot assure
you that any future downturn in the industry will not be severe or that any such
downturn will not have a material adverse effect on our business and results of
operations. We cannot assure you that we will not experience substantial
period-to-period fluctuations in operating costs due to general semiconductor
industry conditions or other factors.
ANY DOWNTURN IN THE MARKETS WE SERVE WOULD HARM OUR BUSINESS.
A majority of our products are incorporated into products such as personal
computers, mass storage, audio and industrial electronics, and embedded
processor products. These markets may from time to time experience cyclical,
depressed business conditions, often in connection with, or in anticipation of,
a decline in general economic conditions. Such industry downturns have resulted
in reduced product demand and declining average selling prices. Our business
would be harmed by any future downturns in the markets that we serve.
The following sections detail the risks associated with serving these
various markets
THERE ARE RISKS ASSOCIATED WITH OUR DEPENDENCE ON THE PC MARKET.
The following are risks associated with our involvement in the PC markets:
o greatly pronounced demand fluctuations characteristic of our role as a
component supplier to PC original equipment manufacturers, or OEMs,
and to peripheral device manufacturers;
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o our involvement in the consumer PC market, the most volatile segment
of the PC market;
o increased competition from other IC makers, including Intel
Corporation, who plan to incorporate features into or with their
microprocessor products which replicate those of our products;
o loss of customer base as we refocus on non-PC markets; and
o as a supplier to manufacturers at different levels of the production
chain, our potential dependence on the success of a particular PC OEM
due to our inability to accurately identify end-users of our product.
THERE ARE RISKS ASSOCIATED WITH SERVING THE MAGNETIC AND OPTICAL STORAGE
MARKETS.
The following are risks associated with serving the mass storage market:
o historically dramatic supply and demand fluctuations in the magnetic
disk drive market, which is closely linked to growth in the PC market;
o direct correlation between the competitive nature of the disk drive
industry and the price of disk drive components;
o our dependence on the success of certain 3.5 inch magnetic disk drive
products that incorporate our products into their design;
o our dependence on the successful introduction by our customers of new
disk drive products that in turn can be impacted by the timing of
customers' transition to new disk drive products;
o reduced demand for our mass storage products due to recent efforts by
certain of our customers to develop their own ICs for mass storage
products;
o our ability to respond effectively to the market trend of integrating
hard disk controllers with micro-controllers; and
o our ability to successfully compete with other firms with greater
resources to accomplish the technical obstacles of integration and
greater access to the advanced technologies necessary to provide
integrated HDD electronic components.
THERE ARE RISKS RELATED TO SERVING THE AUDIO PRODUCTS MARKETS.
In the audio products market, we have the potential to experience decreased
revenues due to
o decreased average selling prices in the audio IC market due to the PC
industry's transition to the AC-link codecs attached to core logic
using the multimedia features of the processor and single chip
solution;
o in the PC audio products market, the transition to core logic
connected audio and by the introduction of cheaper, fully-integrated,
single-chip audio ICs;
o aggressive competitive pricing pressures in the audio ICs market; and
o the inability of our audio products to meet cost or performance
requirements of the three-dimensional, spatial-effects audio market.
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THERE ARE RISKS RELATED TO SERVING THE PRECISION DATA CONVERSION MARKET.
Decreased revenues from sales to the precision mixed-signal products market
could be caused by the following:
o our inability to establish broad sales channels and our failure to
develop and maintain a sufficiently broad competitive product line;
o customer delays in their product development and introductions ;
o our inability to reach the marketplace due to the technical complexity
of our products and the time requirements for their development; and
o our inability to attract, hire, and retain scarce analog engineering
talent necessary for rapid product development in this market.
THERE ARE RISKS RELATED TO SERVING THE EMBEDDED PROCESSOR PRODUCTS MARKET.
We could experience decreased revenues from sales of our embedded processor
products due to the following factors:
o increased competition from other semiconductor manufacturers now
entering the market due to the increased popularity of consumer goods
incorporating embedded processor products, such as portable digital
audio players, smart cellular phones, set-top Internet and e-mail
access boxes, and personal digital appliances;
o our inability to meet embedded processor products requirements of an
industry that has yet to define product standards;
o customer delays in their product development and introductions; and
o price competition from over 30 other embedded processor products
manufacturers who have licensed ARM Ltd. CPU cores, the same CPU core
we license, and who will likely produce products around these cores
which are very similar to ours.
SHIFTS IN INDUSTRY-WIDE CAPACITY MAY CAUSE OUR RESULTS TO FLUCTUATE AND
SUCH SHIFTS HAVE RESULTED AND COULD IN THE FUTURE RESULT IN SIGNIFICANT
INVENTORY WRITE-DOWNS.
Shifts in industry-wide capacity from shortages to oversupply or from
oversupply to shortages may result in significant fluctuations in our quarterly
or annual operating results. We must order wafers and build inventory well in
advance of product shipments. Because the integrated circuit industry is highly
cyclical and is subject to significant downturns resulting from excess capacity,
overproduction, reduced demand or technological obsolescence, there is a risk
that we will forecast inaccurately and produce excess or insufficient
inventories of particular products. This inventory risk is heightened because
many of our customers place orders with short lead times. Due to the product
manufacturing cycle characteristic of integrated circuit manufacturing and the
inherent imprecision by our customers to accurately forecast their demand,
product inventories may not always correspond to product demand, leading to
shortages or surpluses of certain products. As a result of such inventory
imbalances, future inventory write-downs may occur due to lower of cost or
market accounting, excess inventory or inventory obsolescence.
BECAUSE FOUNDRY CAPACITY IS LIMITED WE MAY BE REQUIRED TO ENTER INTO COSTLY
LONG-TERM SUPPLY ARRANGEMENTS TO SECURE FOUNDRY CAPACITY.
We currently purchase all of our wafers from outside foundries. Market
conditions could result in wafers being in short supply and prevent us from
having adequate supply to meet our customer requirements. Any prolonged
inability to utilize our foundries as a result of fire, natural disaster or
otherwise would have a material
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adverse effect on our financial condition and results of operations. If we are
not able to obtain additional foundry capacity as required, our business could
be harmed in the following ways:
o our relationships with our customers would be harmed and consequently
our sales would likely be reduced; and
o we may be forced to purchase wafers or packaging from higher cost
suppliers or to pay expediting charges to obtain additional supply
In order to secure additional foundry capacity, we have entered into
contracts that commit us to purchase specified quantities of silicon wafers over
extended periods. In fact, during fiscal 1998 and fiscal 1999, the industry
experienced an excess in production capacity that we believe, in some cases,
resulted in our competitors paying wafer prices which were lower than our cost
of production from our manufacturing joint ventures. Consequently, we
experienced pressures on our selling prices during fiscal years 1998, 1999 and
2000, which harmed our revenues and reduced our margins. In the future, we may
not be able to secure capacity with foundries in a timely fashion or at all, and
such arrangements, if any, may not be on terms favorable to us. Moreover, if we
are able to secure foundry capacity, we may be obligated to utilize all of that
capacity or incur penalties. Such penalties may be expensive and could harm our
financial results.
WE ARE DEPENDENT ON OUR SUBCONTRACTORS IN ASIA TO PERFORM KEY MANUFACTURING
FUNCTIONS FOR US.
We depend on third party subcontractors in Asia for the supply and
packaging of our products. International operations and sales may be subject to
political and economic risks, including political instability, currency
controls, exchange rate fluctuations, and changes in import/export regulations,
tariff and freight rates. Although we seek to reduce our dependence on our sole
and limited source suppliers, this concentration of suppliers and manufacturing
operations in Asia subjects us to the risks of conducting business
internationally, including political and economic conditions in Asia. Any
disruption or termination of any of our supply or manufacturing could occur, and
such disruptions could harm our business and operating results.
WE HAVE SIGNIFICANT INTERNATIONAL SALES AND RISKS ASSOCIATED WITH OUR
INTERNATIONAL SALES COULD HARM OUR OPERATING RESULTS.
Export sales, principally to Asia, include sales to U.S-based customers
with manufacturing plants overseas, and accounted for approximately 75%, 74% and
53% of our net sales in 2000, 1999 and 1998, respectively. We expect export
sales to continue to represent a significant portion of product sales. This
reliance on sales internationally subjects us to the risks of conducting
business internationally, including political and economic conditions. For
example, the financial instability in a given region, such as Asia, may have an
adverse impact on the financial position of end users in the region which could
impact future orders and/or the ability of such users to pay us or our
customers, which could also impact the ability of such customers to pay us.
While we expect to carefully evaluate the collection risk related to the
financial position of customers and potential customers in structuring the terms
of sale, in determining whether to accept sales orders, and in evaluating the
recognition of revenue, if a region's volatility harms the financial position of
our customers, our results of operations could be harmed. Our international
sales operations involve a number of other risks, including:
o unexpected changes in regulatory requirements;
o changes in diplomatic and trade relationships;
o delays resulting from difficulty in obtaining export licenses for
technology;
o tariffs and other barriers and restrictions; and
o the burdens of complying with a variety of foreign laws.
In addition, while we may buy hedging instruments to reduce our exposure to
currency exchange rate fluctuations, our competitive position can be affected by
the exchange rate of the U.S. dollar against other
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currencies, particularly the Japanese yen. Consequently, increases in the value
of the dollar would increase the price in local currencies of our products in
foreign markets and make our products relatively more expensive. We cannot
assure you that regulatory, political and other factors will not adversely
affect our operations in the future or require us to modify our current business
practices.
POTENTIAL INTELLECTUAL PROPERTY CLAIMS AND LITIGATION COULD SUBJECT US TO
SIGNIFICANT LIABILITY FOR DAMAGES AND COULD INVALIDATE OUR PROPRIETARY RIGHTS.
Our success depends on our ability to obtain patents and licenses and to
preserve our other intellectual property rights covering our manufacturing
processes, products and development and testing tools. We seek patent protection
for those inventions and technologies for which we believe such protection is
suitable and is likely to provide a competitive advantage to us. Notwithstanding
our attempts to protect our proprietary rights, we believe that our future
success will depend primarily upon the technical expertise, creative skills and
management abilities of our officers and key employees rather than on patent and
copyright ownership. We also rely substantially on trade secrets and proprietary
technology to protect our technology and manufacturing know-how, and work
actively to foster continuing technological innovation to maintain and protect
our competitive position.
The integrated circuit industry is characterized by frequent litigation
regarding patent and other intellectual property rights. We cannot assure you
that any patent owned by us will not be invalidated, circumvented or challenged,
that rights granted thereunder will provide competitive advantages to us or that
any of our pending or future patent applications will be issued with the scope
of the claims sought by us, if at all. In addition, effective copyright and
trade secret protection may be unavailable or limited in certain foreign
countries. We cannot assure you that steps taken by us to protect our
intellectual property will be adequate or that our competitors will not
independently develop or patent substantially equivalent or superior
technologies.
As is typical in the semiconductor industry, we and our customers have from
time to time received, and may in the future receive, communications from third
parties asserting patents, maskwork rights, or copyrights on certain of our
products and technologies. In the event a third party were to make a valid
intellectual property claim and a license was not available on commercially
reasonable terms, our operating results could be harmed. Litigation, which could
result in substantial cost to us and diversion of our resources, may also be
necessary to defend us against claimed infringement of the rights of others. An
unfavorable outcome in any such suit could have an adverse effect on our future
operations and/or liquidity.
STRONG COMPETITION IN THE HIGH-PERFORMANCE INTEGRATED CIRCUIT MARKET MAY HARM
OUR BUSINESS.
The high-performance integrated circuit industry is highly competitive and
subject to rapid technological change. Significant competitive factors in our
markets include:
o product features, reliability, performance and price;
o the diversity and timing of new product introductions;
o the emergence of new computer standards and other customer systems;
o product quality;
o efficiency of production; and
o customer support.
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Because of shortened product life cycles and even shorter design-in cycles,
our competitors have increasingly frequent opportunities to achieve design wins
in next generation systems. In the event that competitors succeed in supplanting
our products, our market share may not be sustainable and net sales, gross
margin, and results of operations would be adversely affected. Our principal
competitors include: Analog Devices, Applied Micro Devices, Atmel, Burr-Brown,
Creative Technologies, ESS Technologies, Intel, Linear Technology, Lucent
Technologies, Motorola, ST Microelectronics, Texas Instruments and Yamaha, many
of whom have substantially greater financial and other resources than we do with
which to pursue engineering, manufacturing, marketing and distribution of their
products. We expect intensified competition from emerging companies and from
customers who develop their own integrated circuit products. Increased
competition could adversely affect our business. We cannot assure you that we
will be able to compete successfully in the future or that competitive pressures
will not adversely affect our financial condition and results of operations.
Competitive pressures could reduce market acceptance of our products and result
in price reductions and increases in expenses that could adversely affect our
business and our financial condition.
In addition, our future success depends, in part, upon the continued
service of our key engineering, marketing, sales, manufacturing, support, and
executive personnel, and on our ability to continue to attract, retain, and
motivate qualified personnel. The competition for such employees is intense, and
the loss of the services of one or more of these key personnel could adversely
affect our business.
YEAR 2000 UPDATE
To date there has been no negative impact to our business as a result of
the Year 2000 date change. We will continue to monitor date issues going forward
but do not anticipate that such issues will affect our business in the future.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures
About Market Risk, in the Registrant's Annual Report on Form 10-K for the Year
Ended March 25, 2000.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We and certain of our customers from time to time have been notified that they
may be infringing certain patents and other intellectual property rights of
others. Further, customers have been named in suits alleging infringement of
patents by the customer products. Certain components of these products have been
purchased from us and may be subject to indemnification provisions made by us to
the customers. Although licenses are generally offered in such situations, there
can be no assurance that litigation will not be commenced in the future
regarding patents, mask works, copyrights, trademarks, trade secrets, or
indemnification liability, or that any licenses or other rights can be obtained
on acceptable terms. Currently, we are a plaintiff/counter defendant in one
patent infringement suit and one of multiple defendants in another, unrelated
patent infringement suit. While the ultimate outcome cannot be predicted with
certainty, we do not expect these matters to have a material adverse effect on
our consolidated financial position.
Occasionally, suits arise from prior business relationships. We have been named
in three such matters, one filed by a prior distributor, another unrelated
matter by a former employee and another unrelated matter where we are named as a
shareholder. While the ultimate outcome cannot be predicted with certainty, we
do not expect these matters to have a material adverse effect on our
consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
The registrant filed a Current Report on Form 8-K on October 4,
2000, pursuant to Item 5 of Form 8-K reporting a call for an October 19, 2000
redemption of $135,000,000 aggregate principal amount of its 6% Convertible
Subordinated Notes, due 2003. The registrant also reported it had been
authorized to take action with respect to the remaining $111,885,000 uncalled
notes.
The registrant filed a Current Report on Form 8-k on October 4, 2000,
pursuant to Item 5 of Form 8-K reporting it had filled a vacancy on its Board of
Directors.
The registrant filed a Current Report on Form 8-K on October 23, 2000,
pursuant to Item 5 of Form 8-K reporting a call for a November 7, 2000
redemption of $111,875,000 aggregate principal amount of its 6% Convertible
Subordinated Notes, due 2003.
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CIRRUS LOGIC, INC.
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.
CIRRUS LOGIC, INC.
(Registrant)
February 13, 2001 /s/ ROBERT W. FAY
Date ---------------------------------------
Robert W. Fay
Vice President, Chief Financial Officer
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