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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee Required) for the fiscal year ended March 30, 1996
Commission file Number 0-17795
CIRRUS LOGIC, INC.
(Exact name of registrant as specified in its charter.)
CALIFORNIA 77-0024818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 West Warren Avenue, Fremont, CA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(510) 623-8300
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the registrant's Common Stock held by non-
affiliates of the registrant as of June 3, 1996 was approximately
$1,093,027,000 based upon the closing price reported for such date on the
Nasdaq National Market. For purposes of this disclosure, shares of Common
Stock held by persons who hold more than 5% of the outstanding shares of
Common Stock and shares held by officers and directors of the Registrant have
been excluded because such persons may be deemed to be affiliates. This
determination is not necessarily conclusive.
The number of outstanding shares of the registrant's common stock, no
par value, was 64,260,990 as of June 3, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1996 Annual Meeting
of Shareholders to be held August 1, 1996 are incorporated by reference into
Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
Cirrus Logic, Inc., ("Cirrus Logic" or the "Company") was
incorporated in California on February 3, 1984, as the successor to a
research corporation which had been incorporated in Utah in 1981. The
Company commenced operations in November 1984. This Form 10-K
contains forward-looking statements within the meaning of the Private
Securities Reform Litigation Act of 1995. Such forward-looking
statements are subject to risks and uncertainties which could cause
actual results to differ materially from those projected. Such risks
and uncertainties include the timing and acceptance of new product
introductions, the actions of the Company's competitors and business
partners, and those discussed below in Management's Discussion &
Analysis.
Cirrus Logic is a leading manufacturer of proprietary ICs for the
desktop and portable computing, telecommunications and consumer
electronics markets. The Company has developed a broad portfolio of
products and technologies spanning multimedia (graphics, video, and
audio), wireless and wireline communications, magnetic hard disk and
CD-ROM storage, and data acquisition applications.
Cirrus Logic targets large existing markets that are undergoing
major product or technology transitions as well as emerging markets
that forecast high growth. The Company applies its analog, digital
and mixed-signal design capabilities, software and systems-level
engineering expertise to create highly integrated solutions that
enable its customers to differentiate their products and reduce their
time to market. These solutions are implemented in products that
include advanced ICs and related software, subsystem modules and
system equipment.
The Company's customers include many of the top manufacturers of
PCs and PC-related equipment, including Acer, Apple, AST, Compaq, DEC,
Dell, Hewlett-Packard, Intel, IBM, NEC and Packard Bell. The Company
also serves many of the major disk drive manufacturers, such as
Fujitsu, Quantum and Seagate. The Company believes that, in the PC
multimedia market, it is the leading supplier of graphics accelerators
and the leading supplier of 16-bit audio ICs, and that, in the mass
storage market, it is the leading supplier of disk drive controllers.
The Company is also a leading supplier of disk drive read channel ICs
and CD-ROM drive controllers. Customers for the Company's
communications products also include major telecommunications
equipment and service suppliers such as AT&T Network Systems, AT&T
Wireless Services (formerly McCaw Cellular), Bell Atlantic and NYNEX
in the United States, and DDI Tokyo Pocket Telephone Inc. and Kyocera
in Japan.
The Company has made substantial R&D investments and has acquired
a number of companies in order to develop key technologies and systems
expertise. The Company's capabilities encompass the areas of
mixed-signal design, digital audio, graphics acceleration, and digital
wireless communications. The breadth of the Company's product
offerings enables a high level of IC integration, which improves
performance and reduces cost, size and power requirements, and enables
architectural innovation.
Historically, the majority of the wafers used by the Company have
been merchant wafers manufactured by outside suppliers, with wafers
coming from more than ten different vendors. The Company believes
that it is currently the world's largest purchaser of merchant wafers.
In response to its rapid growth and to the supply constraints that
affected the semiconductor industry generally until the third quarter
of fiscal 1996, the Company began to pursue a strategy to increase its
sources of wafer supplies by taking direct ownership interests in
wafer manufacturing ventures. In September 1994, the Company entered
into an agreement with IBM to form MiCRUS, a manufacturing joint
venture that produces wafers for both companies. MiCRUS began
operations in January 1995. The Company and IBM have agreed to an
expansion of MiCRUS which is expected to be in production in fiscal
1997. The Company has decided on another expansion which is expected
to be in production in fiscal 1998. In October 1995, the Company
entered into an agreement with Lucent Technologies, formerly AT&T
Microelectronics, to form a manufacturing joint venture to produce
wafers for both companies. Formation of the joint venture, to be
called Cirent Semiconductor, is subject to completion of lease
financing and resolution of other issues. Cirent Semiconductor is
scheduled to commence operations in fiscal 1998. The Company also has
entered into agreements to increase its committed supply of merchant
wafers from foundry suppliers located in Asia. It is a strategic
objective of the Company to continue to increase its wafer supplies
from joint ventures and similar arrangements, although the Company
believes that it will continue to rely on merchant wafer suppliers for
the majority of its wafer requirements for at least the next two
years.
Background
The personal computer market has experienced dramatic growth in
recent years. The majority of this growth has occurred in desktop PCs
which was fueled by the new generation Pentium systems, the consumer
market and international sales. The market also has expanded to
include a broad array of portable products from notebook computers to
pocket organizers and hand-held personal computing and communications
devices. The vast majority of personal computers shipped today rely
on microprocessors from a single source. With identical processor
technology available across the spectrum of PC products, the primary
distinguishing characteristics of today's leading PCs have become the
graphics, video, audio, mass storage, and communications capabilities
and, in portable computers, weight, form factor (size), screen quality
and battery life. PC functionality is controlled by increasingly
complex subsystems, or "computers within the computer," whose
features, performance and cost characteristics are largely determined
by their semiconductor components. Cirrus Logic has developed one of
the industry's broadest portfolios of products and technology to
address the multimedia, communications, and mass storage applications
that are among the primary features used by PC manufacturers to
differentiate their products.
These trends demand that a broad set of skills be brought
together within a single entity. The extreme cost pressures of the PC
industry, the increasing performance requirements and the drive to
smaller form factors, have led to higher levels of integration, as
circuit boards containing a dozen or more chips are replaced by one-or
two-chip solutions. With this higher integration has come the need to
combine analog and digital functions into mixed-signal circuits, and
merge functions such as graphics and video into single ICs. A high
degree of systems and software expertise, not just semiconductor
expertise, is required to provide the desired feature and architecture
innovation along with higher integration. At the same time, product
cycles in the PC industry continue to shrink, which requires that
semiconductor suppliers have an efficient and repeatable capability to
define, design new products, and bring them to market rapidly, in high
volumes.
As the capabilities of the PC continue to evolve, the core
technologies of the computing, communications, and consumer
electronics markets have begun to converge. The technologies and
products developed to bring wireless communications to portable PCs
are also applicable to next-generation wireless phones with digital
messaging capability. Consumer audio and video electronics markets,
traditionally based on analog components, are now transitioning to
digital technologies similar to those developed for multimedia audio
and video in the PC. This convergence of technologies provides the
opportunity for companies developing advanced products for PCs to
leverage their research and development investments into these
additional large existing markets.
Integrated circuit manufacturing requires large capital-intensive
facilities, with corresponding high fixed costs and low variable costs
per unit produced.
The demand for IC production capacity can be traced to several
factors. The PC industry is the largest source of demand for IC's.
PC unit shipments have grown significantly in recent years, while at
the same time the average IC content per machine has also risen as new
features such as CD-ROM drives, 16-bit stereo sound, 64-bit graphics
accelerators, fax/modem/voicemail/speakerphones, and networking are
rapidly becoming standard features. In addition, other IC-enabled
features such as 3D graphics, full-screen feature-length video
playback, built-in television receiver, and personal video
teleconferencing are beginning to appear in the PC market. The trends
to higher performance and lower cost PCs are driving the industry to
adopt more advanced semiconductor processes. The integration and
performance requirements of the next generation PCs are likely to
require that ICs be manufactured with advanced sub-0.5 micron
processes.
In addition to the changes in the PC market, the
telecommunications and consumer electronics markets are transitioning
from analog to digital electronics. Performing a given function using
digital techniques allows advanced system features not commercially
feasible with pure analog design techniques, but requires
significantly larger semiconductors and, consequently, more wafer
capacity. The Company believes the transition of these markets to
digital electronics is likely to create significant additional demand
for IC capacity.
Markets and Products
The Company targets emerging markets that forecast high growth,
as well as large existing markets that are undergoing a major product
or technology transition. Within the markets represented by personal
computers, telecommunications and consumer electronics, the Company's
products address key system-level applications, including multimedia
(graphics, video, and audio), mass storage, wireless and wireline
communications, hand-held computing and ultra-portable communications.
The Company's data acquisition products, which target industrial
applications, serve as a technology driver for mixed-signal products
used across all markets.
Personal Computer Multimedia
The Company offers a broad family of multimedia products
providing graphics, video and audio functions for desktop and portable
PCs.
The Company believes that it is a leading supplier of graphics
accelerators and integrated graphics/video accelerators for desktop
and portable PCs. Significant revenues come from the Company's
family of 64-bit DRAM-based desktop graphics accelerators for cost
sensitive and mainstream PCs. The Company has recently introduced a
new family of Visual Media Accelerators which provide
high-performance, 64-bit graphics with multiple simultaneous windows
of video on screen. The Company also has developed 3D graphics
accelerators for high end applications and intends to introduce 3D
graphics products for the mainstream PC market.
The Company is also among the leading suppliers of ICs for
portable PC display subsystems. The Company's family of LCD graphics
controllers offer a broad range of price/performance options,
including high-performance, high-resolution accelerators with
integrated video features for color displays. In addition, the
Company has developed a proprietary family of LCD panel driver ICs to
facilitate the implementation of low-power, high-resolution,
high-color thin film transistor ("TFT") LCD panels.
The Company, through its Crystal subsidiary, offers a wide array
of audio products. Comprising highly integrated circuits and
software, these products bring CD-quality audio and studio quality
composition and mixing capabilities to multimedia applications for PCs
and workstations. The Company believes that it a leading supplier of
16-bit stereo codecs for PCs. These mixed-signal devices use
Crystal's delta sigma technology to provide high quality audio input
and output functions for PC audio products including those that offer
SoundBlaster, AdLib and Microsoft Sound compatibility. Additionally,
the Company provides audio decompression and FM and wavetable
sound/music synthesis chips for this market. The Company has
introduced a highly integrated single chip audio product that
integrates codec, SoundBlaster and FM synthesis emulation functions,
and the Company is actively developing products which integrate audio
with other system-related functions.
Current customers for the Company's multimedia products include
Acer, Apple, AST, Compaq, Dell, Hewlett-Packard, IBM, Intel, NEC,
Packard Bell, PictureTel, Silicon Graphics, Sun Microsystems and Texas
Instruments.
Consumer Multimedia
The Company currently offers over numerous products for the
consumer multimedia market. Product features include analog/digital
and digital/analog conversion and MPEG audio decompression. The
products provide digital CD quality audio record and playback for high
end audiophile quality stereo systems, set-top decoders, digital audio
tape ("DAT"), CD players, Compact Disk Interactive ("CDI") and
automotive stereo systems. Customers include Philips and Sony.
Mass Storage
The Company offers a broad family of controller products for the
AT IDE, PC-Card, Small Computer System Interface ("SCSI") and high-
speed SCSI-2 interface standards. To achieve the high recording
densities required by smaller disk drives, the Company has pioneered a
number of controller innovations, including 88-bit Reed-Solomon error
correction, zone-bit recording and split-data fields.
The Company began offering read channel electronics for disk
drives in 1993 and was the first merchant supplier to provide key
data-detection technology known as partial-response, maximum-
likelihood ("PRML") for 3.5- inch and smaller form factor drives.
Based on the Company's mixed-signal technology and its proprietary
SofTarget approach to PRML, these devices substantially increase the
amount of data that can be stored on a disk platter using existing
industry-standard head and media technology.
In fiscal 1995, the Company entered the CD-ROM controller market
with product for the ATAPI standard (AT Attachment Packet Interface),
which allows direct connection of the CD-ROM drive to a PC without
needing a costly host adapter card. The Company has introduced a
second generation of CD-ROM controllers, which provide for improved
error detection and data correction, and a simplified programming
interface to allow customers to move their new CD-ROM products into
the market more rapidly.
The Company's mass storage customers include Fujitsu, Hewlett-
Packard, Quantum, Seagate and Sony.
Wireless Communications Products
For the digital cordless phone market, PCSI supplies chip sets
for use by Japanese manufacturers of PHS handsets. PHS is a new
Japanese standard for wireless phone communications which is analogous
to the standard being developed for the low mobility segment of the
Personal Communication Services ("PCS") market in the United States.
This chip set includes CMOS, BiCMOS and GaAs circuits, operates at 2.7
volts, and transmits and receives 1.9 Gigahertz signals. PCSI also
has developed and licensed PHS base station technology to a Japanese
service provider, DDI Tokyo Pocket Telephone Inc. Initial service
over the PHS network began in Japan in July 1995. Sales and
distribution are being provided by Kyocera, PCSI's development and
marketing partner in Japan.
The Company's PCSI subsidiary has emerged as the market leader
for CDPD, which allows digital data to be transmitted over existing
analog cellular networks. PCSI has shipped over 3,500 CDPD base
stations to cellular carriers. Since the installation of base
stations in the U.S. is substantially complete, future sales of CDPD
base stations, if any, will depend heavily upon foreign installations.
The Company is beginning to ship subscriber units, including complete
modules for notebook computers and mobile data terminals. These
subscriber units provide CDPD capability plus circuit-switched analog-
cellular voice and data communications allowing the unit to be used in
areas where CDPD has not been deployed. The Company's CDPD customers
include AT&T Network Systems, AT&T Wireless Services (formerly McCaw
Cellular), Bell Atlantic and NYNEX.
AT&T Wireless Services intends to offer a two-way paging service
over U.S. narrowband PCS frequencies. This service is based upon a
new protocol co-developed by AT&T, PCSI and others. PCSI is
developing infrastructure equipment, subscriber units and integrated
chip sets for the domestic and international markets, although the
Company has not sold any products in this segment to date.
Wireline Communications Products
The Company develops and markets high-performance fax/data/voice
modem chip sets with features for error correction and data
compression, speakerphone capability, and portable computer PC-CardBus
applications.
The Company also provides serial and parallel I/O devices that
allow multi-channel, multi-protocol communications. These devices are
used in terminal servers, communications servers, routers, single
board computers, laser printers and workstations.
Crystal is a leading supplier of monolithic T-1 line interface
transceivers for telecommunications equipment and CMOS Ethernet local
area network line interface circuits. The Company also offers the
industry's most highly integrated mixed-signal Ethernet controller IC.
Customers for these products include 3Com, Acer, Alcatel, Cisco,
Compaq, IBM, Motorola, Northern Telecom and Samsung.
PCSI also supplies the Clarity Series of wide area network system
products. The Clarity products compress and multiplex multiple
channels of fax, data and voice over one high speed line and enable
corporate users to reduce communication costs between different
geographical locations.
Hand-Held Computers and Ultra-Portable Communicators
The Company develops and markets high-integration chips for
hand-held and ultra-portable computing and communications appliances
such as Personal Digital Assistants and Personal Communicators. To
date, the revenues from the Company's chips used in hand-held
computers have not been significant. The ultimate success of the
Company's efforts will depend in part on the level of sales achieved
by its customers in this product class.
Data Acquisition
Through its Crystal subsidiary, the Company has established a
broad line of analog-to-digital converters consisting of general-
purpose and low-frequency measurement devices. These circuits use a
combination of self-calibrating digital correction and delta sigma
architectures to improve accuracy and eliminate expensive discrete
analog components. The product family includes more than 35 products
used in industrial automation, instrumentation, medical, military and
geophysical applications. The technology developed for the Company's
data acquisition products is the foundation of the mixed-signal
technology used throughout the Company.
Manufacturing
Overview
Historically, the majority of the wafers used by the Company have
been manufactured by outside merchant suppliers, with wafers coming
from more than ten vendors. The Company believes that it is currently
the world's largest purchaser of merchant wafers. From fiscal 1995
into the first half of fiscal 1996, the merchant market was unable to
meet demand, and the Company's merchant wafer suppliers limited the
proportion of wafers they sold to any single customer, which
restricted the Company's ability to buy wafers. In response to its
rapidly increasing needs and to the supply constraints that affected
the semiconductor industry, the Company began to pursue a strategy to
increase its committed wafer supplies through direct ownership
interest in manufacturing ventures and committed wafer supply
agreements.
In September 1994, the Company entered an agreement with IBM
forming MiCRUS, a manufacturing joint venture producing wafers for
both companies. MiCRUS began operations in January of 1995 and is
scheduled for expansion. In October 1995, the Company entered an
agreement with Lucent Technologies to form Cirent Semiconductor
(Cirent), a manufacturing joint venture anticipated to produce wafers
for both companies beginning in fiscal 1998. The formation of Cirent
is subject to the completion of equipment lease financing and
resolution of other issues. The Company also has entered agreements
to increase its committed supply of wafers from foundries located in
Asia. The Company also intends to continue to purchase large
quantities of merchant wafers while expanding its committed sources of
wafer supplies.
In addition to its wafer supply arrangements, the Company
currently contracts with approximately ten assembly vendors to package
the wafer die into finished products. The Company qualifies and
monitors assembly vendors using procedures similar in scope to those
used for wafer procurement. Assembly vendors provide fixed-cost-per-
unit pricing, as is common in the semiconductor industry.
In order to maintain production quality and yields, the Company
has maintained its own staff for production, engineering and testing.
The Company's manufacturing division currently employs more than 800
persons. This division qualifies and monitors suppliers' production
processes, participates in process development, package development
and process and product characterization, tests all finished wafers
and packaged units and maintains quality standards.
In addition to the IC product manufacturing conducted by the
Company, the Company's PCSI subsidiary also performs final assembly
and testing of its systems products, including its Clarity wide area
network products and subscriber units.
Major Wafer Supply Arrangements
MiCRUS. MiCRUS began operations in 1995. MiCRUS produces wafers
using IBM's wafer processing technology, initially focusing on CMOS
wafers with line widths of 0.6 to 0.5 micron. MiCRUS leases an
existing facility in East Fishkill, New York. IBM and Cirrus Logic
own 52% and 48%, respectively, of MiCRUS. The terms of the joint
venture entitle each Company to purchase 50% of the MiCRUS output. If
one company fails to purchase its full entitlement, the shortfall may
be purchased by the other company or, under limited circumstances,
offered to third parties. However, if the wafers cannot be sold
elsewhere, the company that failed to purchase its full entitlement
will be required to reimburse the joint venture for costs associated
with underutilized capacity. The joint venture has a remaining term,
as amended, of eight years. MiCRUS is managed by a governing board of
whom three are appointed by IBM and two are appointed by Cirrus Logic.
In December 1994, the Company paid $63.8 million for the joint
venture investment and a manufacturing agreement. The manufacturing
agreement payment is being charged to the Company's cost of sales over
the original life of the venture of eight years based upon the ratio
of current units of production to current and anticipated future units
of production.
In January 1995, MiCRUS leased approximately $145 million of
wafer fabrication and infrastructure equipment pursuant to an
equipment lease guaranteed jointly and severally by IBM and Cirrus
Logic. As part of the initial agreement, Cirrus Logic committed to
pay $36 million as a cash contribution, $21.8 million of which had
been paid as of March 30, 1996. In addition, Cirrus Logic and IBM each
agreed to provide MiCRUS with approximately $100 million of additional
capital equipment, through lease financing.
In March 1995, IBM and the Company agreed to a $120 million
expansion of MiCRUS, of which Cirrus Logic committed to provide $60
million in financing. The Company expects to use equipment leases to
fulfill its financing commitment. This expansion is expected to be in
full production in fiscal 1997.
In addition, in October 1995, the Company committed to provide a
further $198 million to fund a second expansion of MiCRUS and to
support the migration to 0.35 micron process technology. This
expansion is expected to increase MiCRUS manufacturing capacity by up
to 30%. Of the $198 million cost, the Company expects to spend $33
million in cash for facilities and to provide equipment lease
guarantees for the balance. The Company is providing all of the
capital for this expansion and, accordingly, will be entitled to all
of the additional wafers produced, as a result of such expansion.
This second expansion is expected to be in full production in fiscal
1998.
Lucent Technologies Joint Venture. In October 1995, the Company
entered an agreement with Lucent Technologies to form Cirent
Semiconductor, a joint venture to build additional wafer production
capacity in an existing Orlando, Florida facility owned by Lucent
Technologies. The formation of the joint venture is subject to
completion of equipment lease financing to be provided by the Company
and resolution of other issues. There is no assurance that these
issues will be satisfactorily resolved and that the joint venture
will be formed. The facility initially is scheduled to produce CMOS
wafers using 0.5 and 0.35 micron processes licensed from Lucent
Technologies, and is expected to migrate to a 0.25 micron process.
The agreement provides that the joint venture will have a term of 10
years, that it will be owned 60% by Lucent Technologies and 40% by
Cirrus Logic, and that it will be managed by a Board of Governors, of
whom three will be appointed by Lucent Technologies and two will be
appointed by Cirrus Logic.
Cirent Semiconductor is scheduled to operate two wafer fabs, both
located in the same complex, which will be leased from Lucent
Technologies. One of these fabs is already in operation and the other
will be built by Lucent Technologies. The new fab is expected to
begin operations in fiscal 1998. Lucent Technologies will purchase
all of the output from the existing fab at a price that covers all
costs associated with that fab. Lucent Technologies and Cirrus Logic
each will be entitled to purchase one-half of the output of the new
fab. If one company fails to purchase its full entitlement, the
shortfall may be purchased by the other company or offered to third
parties. However, if the wafers cannot be sold elsewhere, the company
that failed to purchase its full entitlement will be required to
reimburse Cirent Semiconductor for costs associated with underutilized
capacity.
The agreements with Lucent Technologies obligate the Company to
provide $420 million in financing. The Company is seeking to finance
$280 million of this amount through leasing equipment and subleasing
it to the joint venture or by guaranteeing leases entered into by the
joint venture. Of the $140 million balance, the Company will
contribute $35 million in equity in installments over a three-year
period and pay $105 million for a manufacturing agreement in
installments over a four-year period. The payment of $105 million
will be charged to the Company's cost of sales over the life of the
venture based upon the ratio of current units of production to current
and anticipated future units of production. The Company will account
for Cirent Semiconductor under the equity method.
Other Wafer Supply Arrangements
Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC"). In 1993
and 1995, the Company entered into volume purchase agreements with
TSMC. Under each agreement, the Company committed to purchase a fixed
minimum number of wafers at market prices and TSMC guaranteed to
supply certain quantities. The agreements expire in March 1997 and
December 2001, respectively. Under the agreement entered into in 1995,
the Company has agreed to make advance payments to TSMC of
approximately $118 million, one-half in fiscal 1998 and one-half in
fiscal 1999. Under both the 1993 and 1995 agreements, if the Company
does not purchase the committed amount, it may be required to pay a
per wafer penalty for any shortfall not sold by TSMC to other
customers. The Company estimates that under the remaining term of the
1993 agreement, it is obliged to purchase approximately $37 million of
product. Over the term of the 1995 agreement, the Company estimates
it must purchase approximately $790 million of product in order to
receive full credit for the advance payments.
United Microelectronics Corporation ("UMC"). In October 1995,
the Company entered into a foundry agreement and a foundry capacity
agreement with UMC, a Taiwanese company. The agreements provide that
UMC will form a new corporation under the laws of Taiwan, to be called
United Silicon, Inc., and that United Silicon, Inc. will build a wafer
fabrication facility and manufacture and sell wafers, wafer die and
packaged integrated circuits. The agreements provide that United
Silicon, Inc. will be funded in part with debt and equipment lease
financing from UMC and in part with equity contributions from the
Company and two other U.S. semiconductor companies.
The agreements contemplated that the Company's total investment
would be approximately $88 million, in exchange for which the Company
would receive 15% of the equity of United Silicon, Inc. as well as the
right (but not the obligation) to purchase a portion of the wafer
output of the new facility at fair market prices. The Company paid
$20.6 million in the fourth quarter of fiscal 1996, and the remaining
equity investment is scheduled for fiscal 1997. It is possible
that the venture will be rescheduled or restructured and the
Company has initiated discussions with UMC regarding these
possibilities. The Company believes that it is unlikely to make
further equity investments in this project in fiscal 1997.
Sales, Marketing and Technical Support
The Company maintains a major account team and a direct domestic
and international sales force for its PC-related products. The major
account team services the top PC and disk drive manufacturers. The
domestic sales force includes a network of regional direct sales
offices located in California and in Colorado, Florida, Illinois,
Massachusetts, North Carolina, Oregon, Pennsylvania, and Texas.
International sales offices and organizations are located in Taiwan,
Japan, Singapore, Korea, Hong Kong, the United Kingdom, Germany,
Italy, France and Barbados. The Company supplements its direct sales
force with sales representative organizations and distributors.
Technical support staff are located at the sales offices and also at
the Company's facilities in Fremont, California; Broomfield, Colorado;
San Diego, California; Austin and Plano, Texas; Greenville, South
Carolina; Raleigh, North Carolina; and Tucson, Arizona.
The Company's Crystal and PCSI subsidiaries maintain separate,
smaller sales forces for products sold to the industrial, consumer
electronics and communications systems markets.
In fiscal 1996 and 1995, no customer represented 10% or more of
net sales. IBM accounted for approximately 10% of net sales in fiscal
1994. No other customer represented 10% or more of net sales during
these periods. However, the loss of a significant customer or a
significant reduction in such a customer's orders could have an
adverse effect on the Company's sales.
Export sales information is incorporated by reference from the
section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II hereof.
Backlog
Sales are made primarily pursuant to standard short-term purchase
orders for delivery of standard products. The quantity actually
ordered by the customer, as well as the shipment schedules, are
frequently revised to reflect changes in the customer's needs.
Accordingly, the Company believes that its backlog at any given time
is not a meaningful indicator of future revenues.
Technology Portfolio and Intellectual Property
The Company has built substantial expertise and intellectual
property through internal R&D and a program of strategic acquisitions.
Technology Acquisitions
In January 1990, the Company acquired Data Systems Technology,
Inc., a Colorado-based technology company with expertise in magnetic
recording, data encoding and error detection and correction schemes.
This site now serves as the Company's research and development center
for its advanced mass storage read channel and motion controller
products.
In June 1991, the Company acquired Pixel Semiconductor of Plano,
Texas to provide technology for real-time full-motion video data
management. Pixel's technology is fundamental to the Company's
products for PC based video, integrated graphics/video and video
conferencing.
In October 1991, the Company acquired Crystal Semiconductor of
Austin, Texas, a leader in analog and mixed-signal (analog plus
digital) technology. Crystal's base technologies include audio, delta
sigma analog/digital conversion, data and clock recovery and a number
of patented design techniques collectively called SmartAnalog.
Crystal's primary product lines include data acquisition, networking,
and digital audio products for PC, automotive, consumer and
telecommunication applications. Crystal's mixed-signal technology has
been fundamental in developing the Company's fax/data/voice modem and
mass storage read channel products.
In December 1991, the Company acquired R. Scott Associates, Inc.
("RSA"), a North Carolina company with communication protocol software
technology. RSA's technology has been incorporated into the Company's
fax/data/voice modem and wireless communications products. RSA has
since acquired Data Pumps International, Inc., a Florida company
specializing in digital signal processing algorithms for
telecommunications.
In April 1992, the Company acquired Acumos Incorporated, a
California company developing technology and products for highly
integrated graphics controllers for desktop PCs.
In February 1993, the Company acquired Pacific Communication
Sciences, Inc. (PCSI) of San Diego, California. PCSI brings to the
Company extensive technology and system expertise in radio frequency
and digital wireless communications. PCSI products and technology
serve the CDPD and digital cellular markets in the U.S. and the
digital cordless markets in the U.S., Europe and Japan.
In August 1994, the Company acquired PicoPower Technology, Inc.
of San Jose, California. PicoPower developed patented Power-On-Demand
technology to reduce the amount of power used and heat generated by a
CPU without reducing performance. PicoPower applies this technology
in system logic products for the notebook PC market. In May 1996, the
Company entered into an agreement to sell the assets of PicoPower to
National Semiconductor, Inc.
Patents, Licenses and Trademarks
To protect its products, the Company relies heavily on trade
secrets, patents, copyrights, mask work and trademark laws. The
Company applies for patents and copyrights arising from its R&D and
intends to continue this practice in the future to protect its
products and technologies. The Company presently holds more than 140
registered U.S. patents, and in several instances holds corresponding
international patents, and has applications pending for more than 220
U.S. patents. The Company has also licensed a variety of technologies
from outside parties to complement its own R&D.
Research and Development
The Company believes that it must continually introduce new
products to take advantage of market opportunities and maintain its
competitive position. Research and development efforts concentrate
on the design and development of new products for each market and on
the continued enhancement of the Company's design automation tools.
The Company also has begun funding certain advanced process technology
development.
Expenditures for R&D in fiscal 1996, 1995, and 1994 were $238.8
million, $165.6 million, and $126.6 million, respectively. The
Company expects that it will continue substantial R&D spending for the
foreseeable future. At March 30, 1996, the Company had 45% of its
employees engaged in R&D activities. The Company's future success is
highly dependent upon its ability to develop complex new products, to
transfer new products to production in a timely fashion, to introduce
them to the marketplace ahead of the competition and to have them
selected for design into products of leading systems manufacturers.
Competition
Markets for the Company's products are highly competitive, and the
Company expects that competition will increase. The Company competes with
other semiconductor suppliers who offer standard semiconductors,
application specific integrated circuits and fully customized integrated
circuits, including both chip and board-level products. A few customers
also develop integrated circuits that compete with the Company's products.
The Company's competitive strategy has been to provide lower cost versions
of existing products and new, more advanced products for customers' new
designs.
While no single company competes with the Company in all of the
Company's product lines, the Company faces significant competition in each
of its product lines. The Company expects to face additional competition
from new entrants in each of its markets, which may include both large
domestic and international semiconductor manufacturers and smaller,
emerging companies.
The principal competitive factors in the Company's markets include
time to market; quality of hardware/software design and end-market systems
expertise; product benefits that are characterized by performance,
features, quality and compatibility with standards; access to advanced
process and packaging technologies at competitive prices; and sales and
technical support.
Competition typically occurs at the design stage, where the customer
evaluates alternative design approaches that require integrated circuits.
Because its products have not been available from second sources, the
Company generally does not face direct competition in selling its products
to a customer once its integrated circuits have been designed into that
customer's system. Nevertheless, because of shortened product life cycles
and even shorter design-in cycles, the Company's competitors have
increasingly frequent opportunities to achieve design wins in next
generation systems. In the event that competitors succeed in supplanting
the Company's products, the Company's market share may not be sustainable
and net sales, gross margin, and earnings would be adversely affected.
Employees
As of March 30, 1996, the Company had 3,151 full-time equivalent
employees, of whom 45% were engaged in research and product development,
29% in sales, marketing, general and administrative and 26% in
manufacturing. The Company's future success will depend, in part, on its
ability to continue to attract, retain and motivate highly qualified
technical, marketing, engineering and management personnel. None of the
Company's employees are represented by any collective bargaining
agreements, although Cirent Semiconductor is staffed by Lucent Technologies
employees who are represented by a union. The Company believes that its
employee relations are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with regard to
executive officers of Cirrus Logic, Inc. (ages are as of April 30,
1996):
Michael L. Hackworth (age 55), a founder of the Company, has
served as President, Chief Executive Officer and a director since
January 1985.
Suhas S. Patil (age 51), a founder of the Company, has served as
Chairman of the Board and director since Cirrus Logic was founded.
He served as Vice President, Research and Development until March
1990 when he became Executive Vice President, Products and
Technology.
Thomas F. Kelly (age 43) joined the Company in March 1996 as Executive Vice
President, Finance and Administration, Chief Financial Officer and Treasurer.
He was Executive Vice President and Chief Financial Officer of Frame
Technology Corporation from September 1993 to December 1995. Prior to
Frame, he was Vice President and Chief Financial Officer of Analog Design
Tools from September 1984 to July 1989, when it was acquired by Valid Logic,
Vice President and Chief Financial Officer of Valid Logic through December
1991 and following the acquisition of Valid Logic by Cadence Design
Systems, Inc., Senior Vice President of Cadence Design Systems, Inc.
until July 1993.
George N. Alexy (age 47) joined the Company in 1987 as Vice
President, Marketing. In May 1993, he was promoted to Senior Vice
President, Marketing. Previously, he was employed by Intel
Corporation, most recently as Product Marketing Manager, High
Performance Microprocessors.
Michael L. Canning (age 55) joined the Company in 1985 as Vice
President, Manufacturing and from 1990 to 1993 he was Executive
Vice President, Operations. He is currently President, Mass
Storage Products. Previously, he was employed by Teledyne
Semiconductor as President and General Manager.
William D. Caparelli (age 52) joined the Company in 1988 as Vice
President, Worldwide Sales. In May 1993 he was promoted to Senior
Vice President, Worldwide Sales. From 1985 to 1988, he served as
Vice President, North American Sales, of VLSI Technology, Inc.
William W. Y. Chu (age 45) was appointed President, Product and Customer
Development of the Graphics Company, a division of the Company, in
April 1996. He joined the Company as Vice President, Desktop
Display Products in 1992 as a result of the merger with Acumos
Incorporated where he was Vice President of Engineering from
November 1991. Prior to that, he was Vice President of Engineering
at Western Digital Imaging.
James H. Clardy (age 61) is President of Crystal Semiconductor
Corporation (Crystal) which merged with the Company in October
1991. In July 1993, he was appointed a corporate officer of the
Company. Previously, he was Vice President of Sector Operations
with Harris Semiconductor.
Robert V. Dickinson (age 54) was appointed President, Business Strategy
and Operations of the Graphics Company, a division of the Company, in
April 1996. He joined the Company as Vice President, Japan Business
Development in December 1992. Prior to that he was Vice President
of Marketing and Business Planning, Micro Computer Products for
Western Digital Corporation.
David L. Lyon (age 47) has been a director of the Company since
1993 and President of Pacific Communication Sciences, Inc. (PCSI)
since March 1987. PCSI merged with Cirrus Logic, Inc. in February
1993. In May 1994, he was appointed a corporate officer of the
Company. Previously, he was a Vice President of M/A-Com
Telecommunications Company.
Kenyon Mei (age 50) joined the Company in 1985 as Vice President,
Engineering. In May 1993, he was promoted to Senior Vice
President, Engineering and General Manager, Personal Systems
Business Unit.
Sena C. Reddy (age 47) joined the Company in 1985 as Fab
Operations Manager. In 1990, he was promoted to Vice President,
Manufacturing and in 1993, he was promoted to Senior Vice
President, Manufacturing.
Edward C. Ross (age 54) joined the Company in September 1995 as President,
Worldwide Manufacturing Group. He was President of Power Integrations from
January 1989 to January 1995.
William H. Bennett (age 51) joined the Company in 1989 as Vice
President, Human Resources. From 1987 to 1989, he was employed by
System Industries, Inc., as Vice President, Human Resources.
Robert F. Donohue (age 53) joined the Company in May 1996 as Vice President,
Chief Legal Officer, General Counsel and Secretary. He was Vice President,
General Counsel and Secretary of Frame Technology Corporation from 1993 to
1996 and Vice President, General Counsel and Secretary of Cadence Design
Systems, Inc. from 1989 through 1993.
ITEM 2. PROPERTIES
The Company's principal facilities, located in Fremont, California,
consist of approximately 390,000 square feet of office space leased
pursuant to agreements which expire in 2006 and 2007 plus renewal options.
This space is used for manufacturing, product development, sales,
marketing and administration. An additional 90,000 square feet is planned
for occupancy at the Fremont site in the fourth quarter of fiscal 1997
under similar lease terms. The Company has an option to expand at the
Fremont site.
The Company's Austin, Texas facilities consist of approximately
262,000 square feet. Certain leases expire in July 1997 with two three-year
options that could extend the term to July 2003. One lease expires in
2005. An additional 88,000 square feet is planned for occupancy during the
third quarter of fiscal 1997 under similar lease terms. The Company's San
Diego, California facility consists of approximately 153,000 square feet of
office space leased pursuant to a lease that expires in 2006. An additional
49,000 square feet is planned for occupancy during the second quarter of
fiscal 1997 under a lease that expires in fiscal 2007.
The Company also has facilities located in Tucson, Arizona;
Broomfield, Colorado; Nashua, New Hampshire; Raleigh, North Carolina;
Greenville, South Carolina; King of Prussia, Pennsylvania; Fort Worth and
Plano, Texas; Seattle, Washington; Pune, India; and Tokyo, Japan. The
Company also leases sales and sales support offices in the United States
in California, Colorado, Florida, Illinois, Massachusetts, Oregon,
Pennsylvania and Texas and internationally in Taiwan, Japan, Singapore,
Korea, Hong Kong, the United Kingdom, Germany, Italy, France and Barbados.
The Company plans to add additional manufacturing and sales offices to
support its growth.
ITEM 3. LEGAL PROCEEDINGS
On May 7, 1993, the Company was served with two shareholder
class action lawsuits filed in the United States District Court
for the Northern District of California. The lawsuits, which name
the Company and several of its officers and directors as
defendants, allege violations of the federal securities laws in
connection with the announcement by Cirrus Logic of its financial
results for the quarter ended March 31, 1993. The complaints do
not specify the amounts of damages sought. The defendants motions
for summary judgment are currently scheduled for hearing on July
25, 1996. The Company believes that the allegations of the
complaint are without merit, and the Company intends to defend
itself vigorously. The Company believes the likelihood is remote
that the ultimate resolution of this matter will have a material
adverse effect on its financial position, results of operations or
cash flows.
Between November 7 and November 21, 1995, five shareholder
class actions lawsuits were filed in the United States District
Court for the Northern District of California against the Company
and several of its officers and directors. A consolidated amended
complaint was filed on February 20, 1996 and an amended
consolidated supplemental complaint was filed on May 3, 1996.
This complaint alleges that certain statements made by defendants
during the period from July 23, 1995 through December 21, 1995 were
false and misleading and in violation of the federal securities
laws. The defendants' motion to dismiss the complaint are
currently scheduled for hearing on August 30, 1996. The complaint
does not specify the amounts of damages sought. The Company
believes that the allegations of the complaint are without merit,
and the Company intends to defend itself vigorously. The Company
believes the likelihood is remote that the ultimate resolution of
this matter will have a material adverse effect on its financial
position, results of operations or cash flows.
On February 21, 1996 a shareholder class action lawsuit was
filed in the Superior Court of California in and for the County of
Alameda against the Company and numerous fictitiously named
defendants alleged to be officers or agents of the Company. An
amended complaint, which added certain of the Company's officers
and directors as defendants, was filed on April 18, 1996. The
lawsuit alleges that certain statements made by the Company and
the individual defendants during the period from October 1, 1995
through February 14, 1996 were false and misleading and that
the defendants breached their fiduciary duties in making such
statements and violated California state common and statutory
law. The complaint does not specify the amounts of damages
sought. The Company believes that the allegations of the
complaint are without merit, and the Company intends to defend
itself vigorously. The Company believes the likelihood is remote
that the ultimate resolution of this matter will have a material
adverse effect on its financial position, results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "CRUS." The following table shows for the
periods indicated the high and low closing prices for the Common
Stock.
High Low
------ ------
Fiscal year ended April 2, 1994
First quarter $ 12.50 $ 7.25
Second quarter 17.07 8.07
Third quarter 18.50 15.38
Fourth quarter 22.19 16.50
Fiscal year ended April 1, 1995
First quarter 19.07 14.00
Second quarter 17.35 12.69
Third quarter 15.57 10.63
Fourth quarter 19.13 11.50
Fiscal year ended March 30, 1996
First quarter 33.69 17.06
Second quarter 59.63 31.00
Third quarter 55.50 19.75
Fourth quarter 26.38 17.13
At March 30, 1996, there were approximately 2,146 holders of record
of the Company's Common Stock.
The Company has not paid cash dividends on its Common Stock and
presently intends to continue a policy of retaining any earnings
for reinvestment in its business.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(Amounts in thousands, except per share amounts and employees)
Fiscal years ended
-------------------------------------------------------
1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ----------
Operating summary:
Net sales $1,146,945 $889,022 $557,299 $356,478 $217,574
Operating costs and expenses:
Cost of sales 774,350 512,509 298,582 193,759 110,599
Research and development 238,791 165,622 126,632 73,447 41,833
Selling, general and administrative 165,267 126,666 91,887 54,924 39,459
Restructuring costs 11,566 - - - -
Non-recurring costs 1,195 3,856 - - -
Merger costs - 2,418 - 3,400 2,455
----------- ---------- ---------- ---------- ----------
Operating (loss) income (44,224) 77,951 40,198 30,948 23,228
Foreign currency transaction gains - 4,999 - - -
Gain on sale of equity investment - - 13,682 - -
Interest income and other, net 2,501 6,688 2,084 1,597 1,858
----------- ---------- ---------- ---------- ----------
(Loss) income before income taxes and
cumulative effect of accounting change (41,723) 89,638 55,964 32,545 25,086
(Benefit) provision for income taxes (5,540) 28,236 18,146 12,321 8,801
----------- ---------- ---------- ---------- ----------
(Loss) income before cumulative effect of
accounting change (36,183) 61,402 37,818 20,224 16,285
Cumulative effect of change in method of
accounting for income taxes - - 7,550 - -
----------- ---------- ---------- ---------- ----------
Net (loss) income ($36,183) $61,402 $45,368 $20,224 $16,285
=========== ========== ========== ========== ==========
(Loss) income per common and common equivalent
share before cumulative effect of accounting
change ($0.58) $0.96 $0.67 $0.39 $0.33
Cumulative effect of accounting change per
common and common equivalent share - - 0.13 - -
----------- ---------- ---------- ---------- ----------
Net (loss) income per common and common
equivalent share ($0.58) $0.96 $0.80 $0.39 $0.33
=========== ========== ========== ========== ==========
Weighted average common and common equivalent
shares outstanding 62,761 63,680 56,402 52,424 49,180
Financial position at year end:
Total assets $917,577 $673,534 $517,931 $258,292 $172,070
Working capital 182,643 251,619 273,527 98,500 76,291
Capital lease obligations, excluding current 6,258 9,602 7,753 5,282 5,478
Long-term debt, excluding current 65,571 16,603 11,392 12,812 8,082
Total liabilities 488,911 254,518 173,616 114,876 63,142
Shareholders' equity 428,666 419,016 344,315 143,416 108,928
Current Ratio 1.44 2.10 2.77 2.02 2.54
Employees 3,151 2,331 1,854 1,369 981
The number of weighted average common and common equivalent shares outstanding has been restated for
all periods to reflect the two-for-one split of the Company's Common Stock which became effective
on July 17, 1995.
In October 1991, April 1992, February 1993, and August 1994, in transactions accounted for as pooling-
of-interests, the Company merged with Crystal Semiconductor Corporation, Acumos Incorporated, Pacific
Communication Sciences, Inc., and PicoPower Technology, Inc., respectively. All of the consolidated
financial information reflects the combined operations of the companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANNUAL RESULTS OF OPERATIONS
On June 1, 1995, the Board of Directors approved a two-for-one split
of the Company's Common Stock. Shareholders of record as of June 19, 1995
received certificates reflecting the additional shares on July 17, 1995.
All references to the number of shares of Common Stock, warrants and
options to purchase shares of Common Stock, weighted average common and
common equivalent shares outstanding, and share prices have been restated
to reflect the two-for-one split.
During the first quarter of fiscal 1994, the Company changed its
reporting period from a 12 month year ending March 31 to a fiscal year of
52 or 53 weeks ending on the Saturday closest to March 31. Accordingly,
fiscal years 1996, 1995 and 1994 ended on March 30, 1996, April 1, 1995
and April 2, 1994, respectively.
Except for historical information contained herein, this Discussion
and Analysis contains forward-looking statements. The forward-looking
statements contained herein are subject to certain risks and
uncertainties, that could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on
these forward-looking statements, which 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.
Overview
Results of operations for fiscal 1996 were materially adversely
affected by several factors that occurred during the third and fourth
quarters.
First, revenues from the sale of graphics and audio products declined
in the third and fourth quarters of fiscal 1996 from the levels in the
second quarter of fiscal 1996. This decline was caused by slower than
expected growth in the home PC market, by dramatically reduced demand from
customers for certain graphics, audio, and PicoPower Pentium VL-bus core
logic products and for certain other products, and by softer than expected
business conditions in Taiwan.
Second, the slower than expected sales resulted in substantial
amounts of excess inventory of graphics and audio products. This in turn
caused the Company to record inventory write-offs and write-downs during
both the third and fourth quarters of fiscal 1996. Also, the Company
provided additional amounts for underutilization of capacity at its MiCRUS
joint venture.
Third, because new graphics, audio and fax/modem products were being
introduced, the value of the older products declined substantially. The
Company liquidated some of the older inventory during the fourth quarter
of fiscal 1996 and may continue to do so to a lesser extent in the first
quarter of fiscal 1997.
Fourth, the Company incurred a restructuring charge in the fourth
quarter of fiscal 1996 as a result of streamlining its operations.
Net Sales
Net sales for fiscal 1996 were $1,146.9 million, an increase of 29%
over the $889.0 million for fiscal 1995 and 106% over the $557.3 million
for fiscal 1994.
The net sales increase in fiscal 1996 compared to fiscal 1995 was
the result of growth in sales during the first three quarters of fiscal
1996 offset somewhat by a decline during the fourth quarter of fiscal
1996. Sales of mass storage and wireless communication products increased
in each of the first three quarters of fiscal 1996 but declined in the
fourth quarter of fiscal 1996 against the third quarter of fiscal 1996.
Net sales of graphics and audio products for the first three quarters of
fiscal 1996 increased over the comparable period of fiscal 1995, but
declined in the third and fourth quarters of fiscal 1996 against the
second quarter of fiscal 1996. Net sales of graphics and wireless
communication products declined in the fourth quarter of fiscal 1996 over
the fourth quarter of fiscal 1995.
The net sales increase in fiscal 1995 compared to 1994 was largely
due to an increase in sales of graphics, audio, mass storage and wireless
communications products. Graphics and mass storage product revenue grew
as a result of an increase in unit sales to the desktop personal computer
market segment. Audio product sales grew as a result of an increase in
sales of 16-bit audio codec products. Wireless communications product
sales grew primarily because of Cellular Digital Packet Data (CDPD) base
station installations, beginning in the second quarter of fiscal 1995.
Export sales, principally in Asia, including sales to overseas
operations of domestic corporations, were approximately $647 million in
fiscal 1996 compared to approximately $497 million in fiscal 1995 and
approximately $323 million in fiscal 1994. The Company's sales are
currently denominated in U.S. dollars and Japanese yen. The Company may
purchase hedging instruments to reduce short-term foreign currency
exposure related to certain cash and trade receivables denominated in
Japanese yen.
In fiscal 1996 and 1995, no single customer accounted for 10% or more
of net sales. Sales to International Business Machines Corporation (IBM)
were approximately 10% of net sales in fiscal 1994.
Gross Margin
The gross margin percentage was 32.5% in fiscal 1996, compared to
42.4% and 46.4% in fiscal 1995 and 1994, respectively.
During fiscal 1996, the gross margin percentage declined from 40.8%
in the first quarter to a low of 4.4% in the fourth fiscal quarter. The
gross margin percentage decreased as a result of charges for inventory
written down for lower-than-anticipated shipments of and demand for
graphics, audio, core logic and other products and charges for
underutilization of capacity at the MiCRUS joint venture. The decline in
the gross margin percentage was also the result of higher wafer costs
caused by an increase in wafer prices for merchant wafers, an insufficient
supply of 0.6 micron wafers which made necessary the use of less cost
effective 0.8 micron wafers to meet expanded unit shipments, expediting
expenses related to premiums paid to suppliers to increase production of
the Company's products, lower yields on new products ramping into
production, and lower selling prices on certain graphics, audio and
fax/modem products.
During fiscal 1995, the gross margin percentage declined from a high
of 47.8% in the first fiscal quarter to a low of 39.1% in the fourth
fiscal quarter. During fiscal 1994, the gross margin percentage increased
from a low of 38.0% in the first fiscal quarter to 48.5% in the fourth
fiscal quarter. The decline in the gross margin percentage for fiscal
1995 compared to fiscal 1994 was mostly the result of expediting expenses
related to premiums paid to suppliers to increase production of the
Company's products, higher wafer costs caused by the increased use of more
expensive suppliers, low yield on several new products ramping into
production, and lower selling prices on certain graphics and audio parts.
Exacerbating the gross margin decline was the insufficient supply of 0.6
micron wafers which made necessary the use of less cost-effective 0.8
micron wafers to meet expanded unit shipments. The decrease in the gross
margin percentage for fiscal 1995 compared to fiscal 1994 was tempered by
a $10 million charge to cost of sales in the first quarter of fiscal 1994
as a result of decreased demand for certain of the Company's low-end mass
storage products. One-time royalty revenue of approximately $3 million
was included in net sales in the first quarter of fiscal 1995. But,
offsetting this royalty revenue was an increased inventory reserve as a
result of decreased forecasted demand for certain of the Company's 16-bit
audio codecs.
Research and Development Expenses
Research and development expenses expressed as a percentage of net
sales were 20.8%, 18.6% and 22.7% in fiscal 1996, 1995 and 1994,
respectively. Such expenses increased in absolute dollars in all of the
fiscal years, as the Company continues to invest in new product
development. During fiscal 1994, research and development expenses
increased at a greater rate than net sales. Therefore, the amount as a
percentage of net sales declined in fiscal 1995. The Company intends to
continue making substantial investments in research and development and
expects these expenditures will continue to increase in absolute amounts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represented
approximately 14.4%, 14.2% and 16.5% in fiscal 1996, 1995 and 1994,
respectively. In fiscal 1994, such expenses increased at a rate greater
than sales. Therefore, the amount as a percentage of net sales declined
in fiscal 1995. The absolute spending increase in fiscal 1996 and 1995
reflects increased direct expenses for the expanding sales force,
increased marketing expenses for promotions and advertising, and increased
administrative and legal expenses. The Company expects these expenses to
increase in absolute terms during fiscal 1997.
Restructuring Costs
In the fourth quarter of fiscal 1996, as a result of decreased demand
for the Company's products for use in personal computers, which accounts
for more than 80% of the Company's revenue, management reviewed the
various operating areas of the business and took certain steps to bring
operating expenses and capacity in line with demand. These actions
resulted in a pre-tax restructuring charge of approximately $11.6 million.
The principal actions in the restructuring involved the consolidation of
support infrastructure and the withdrawal from an unprofitable product
line and reduction of planned production capacity. This resulted in the
elimination of approximately 320 positions from the manufacturing,
research and development, sales and marketing and administrative
departments. The Company estimates the annual savings from reduced
salaries, benefits, and other expenses will be approximately $17 million.
The major components of the restructuring charges were $7.6 million
of employee separation costs and $4.0 million of costs primarily
associated with the scaling back of certain capacity commitments. The
implementation of this plan commenced during the fourth quarter of fiscal
1996 and the cash outlays will occur mainly in the first half of fiscal
1997.
Non-recurring and Merger Costs
In the third quarter of fiscal 1996, non-recurring costs were
approximately $1.2 million associated with the planned formation of the
new joint venture (Cirent Semiconductor) with Lucent Technologies
(formerly AT&T Microelectronics).
In the second quarter of fiscal 1995, non-recurring and merger costs
were approximately $6.3 million. Non-recurring costs of $3.9 million were
primarily associated with the acquisition of technology and marketing
rights and the remaining minority interest in a subsidiary, and the
formation of the MiCRUS joint venture with IBM. Merger costs of
approximately $2.4 million for the August 1994 combination of Cirrus Logic
and PicoPower included one-time costs for charges related to the
combination of the two companies, financial advisory services, and legal
and accounting fees.
Interest Income
Interest income and other, net in fiscal 1996 was $7.7 million
compared to $9.1 million in fiscal 1995 and $4.3 million in fiscal 1994.
The decrease in fiscal 1996 over fiscal 1995 was primarily the result of a
decrease in the amount of short-term investments. The increase in fiscal
1995 over fiscal 1994 was primarily the result of increased cash and cash
equivalents and short-term investments principally resulting from the
stock offering in February 1994.
Foreign Currency Transaction Gains
During the fourth quarter of fiscal 1995, the Company recorded
foreign currency transaction gains of approximately $5.0 million. These
gains occurred because of a decline in the U.S. dollar against the
Japanese yen and the impact of this decline on certain yen denominated
assets. Transaction gains and losses were not material in fiscal 1996 and
1994.
Gain on Sale of Investment
During fiscal 1991 and 1992, the Company invested approximately $1.7
million in Media Vision Technology, Inc. (Media Vision) stock. The
investment was accounted for by the cost method and represented an
approximate six percent interest in Media Vision. In April 1993, the
Company sold approximately 16% of its original investment in Media Vision
in an underwritten public offering. In October 1993, the Company sold
approximately 60% of its original investment in Media Vision in the open
market. In connection with the sales, the Company recorded gains of $2.5
million and $11.2 million in the first and third quarters of fiscal 1994,
respectively.
Income Taxes
The benefit for income taxes was 13.3% in fiscal 1996 compared to a
provision for income taxes of 31.5% and 32.4% in fiscal 1995 and 1994,
respectively. The fiscal 1996 benefit rate of 13.3% is different from the
fiscal 1995 rate and from the U.S. statutory rate primarily because of
foreign operating results which are taxed at rates other than the U.S.
statutory rate. The fiscal 1995 rate declined from the fiscal 1994 rate
primarily because of a decrease in state income taxes due to benefits from
investment tax credits. The fiscal 1995 31.5% effective tax rate is less
than the U.S. statutory rate primarily because of the research and
development tax credit and certain foreign earnings taxed at lower rates.
The fiscal 1994 effective tax rate is comprised of a 33.3% annual
effective tax rate and a $500,000 non-recurring benefit in the quarter
ended October 2, 1993. This benefit is caused by increased deferred tax
assets and a larger prior year research and development tax credit as a
result of federal tax legislation in August 1993.
Cumulative Effect of Change in Accounting for Income Taxes
Effective April 1, 1993, the Company changed its method of accounting
for income taxes to the liability method required by Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." As permitted by SFAS No. 109, prior period's financial statements
have not been restated. The change had no material effect on income
before provision for income taxes for the fiscal year ended April 2, 1994.
However, the cumulative effect as of March 31, 1993 of adopting SFAS No.
109 increased net income by approximately $7.6 million.
The Company has considered available evidence supporting the
realizability of net deferred tax assets including carrybacks, future
reversal of temporary differences, and future taxable income exclusive of
temporary differences in the carryforward period of loss and credit
carryforwards. Based on these factors and the Company's prior earnings
history, the Company has determined that it is more likely than not that
the deferred tax assets will be realized. The realizability of the
deferred tax asset will be evaluated on a quarterly basis.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the Company generated $7.7 million of cash and
cash equivalents from its operating activities as compared to $65.1
million during fiscal 1995 and $49.9 million in fiscal 1994. The fiscal
1996 decrease from fiscal 1995 was primarily caused by the loss from
operations and the net change in operating assets and liabilities offset
somewhat by the non-cash effect of depreciation and amortization. The
fiscal 1995 increase over fiscal 1994 was primarily the result of an
increase in income from operations and the non-cash effect of depreciation
and amortization, offset somewhat by the net change in operating assets
and liabilities.
As of March 30, 1996, the Company had a commitment for a bank line of
credit up to a maximum of $135,000,000, expiring on April 30, 1996, at the
bank's prime rate (8.25% at March 30, 1996). The Company had $80,000,000
outstanding under the line at March 30, 1996. Terms of the arrangement
require compliance with certain covenants including the maintenance of
certain financial ratios, minimum tangible net worth and profitable
operations on a quarterly basis as well as a prohibition against the
payment of cash dividends without prior bank approval. The Company was
not in compliance with certain financial ratios and the profitability
covenant as of March 30, 1996. In April 1996, the Company completed a new
commitment for a bank line (see below) and paid all amounts outstanding
under this line.
Cash, cash equivalents and short-term investments decreased $11.8
million from $187.0 million at April 1, 1995, to $175.3 million at March
30, 1996. During the same period accounts receivable decreased $27.6
million, inventories increased $30.9 million, and accounts payable,
accrued salaries and benefits, income taxes payable and other accrued
liabilities increased $88.8 million. The Company believes accounts
receivable and inventories will increase in fiscal year 1997.
Cash expenditures for property and equipment totaled $128.4 million
in fiscal 1996 compared to $54.2 million in fiscal 1995 and $41.8 million
in fiscal 1994. The expenditures in all years consisted primarily of
equipment used in product design and testing. The Company intends to
continue to invest in capital equipment to support continued growth.
During September 1994, the Company and IBM completed a series of
agreements pertaining to joint manufacturing. In January 1995, under the
terms of the agreements, the MiCRUS joint venture began manufacturing
semiconductor wafers for each parent company.
In fiscal 1995 and 1996, Cirrus Logic paid $63.8 million and $14.0
million, respectively, for the joint venture investment and the
manufacturing agreement. Manufacturing agreement payments of $56 million
are being charged to the cost of production over the life of the venture
based upon the ratio of current units of production to current and
anticipated future units of production. In fiscal 1996, the Company
amortized approximately $3.9 million of the manufacturing agreement
payments. The joint venture is accounted for on the equity method and
$21.8 million of the $36 million commitment has already been paid.
In January 1995, MiCRUS leased approximately $145 million of wafer
fabrication and infrastructure equipment pursuant to a lease guaranteed
jointly and severally by the Company and IBM. In addition, the Company
and IBM each agreed to provide MiCRUS with approximately $100 million of
additional capital, primarily through lease financing.
In March 1995, IBM and the Company agreed to a $120 million expansion
of MiCRUS, of which Cirrus Logic committed to provide $60 million in
financing. The Company expects to use equipment leases or lease
guarantees to fulfill its financing commitment. This expansion is
expected to be available for full production in fiscal 1997.
In addition, in October 1995, the Company committed to provide a
further $198 million to fund a second expansion of MiCRUS and to support
the migration to sub 0.5 micron process technology. Of this amount the
Company expects to spend $33 million in cash for facilities and to provide
equipment lease guarantees for the balance.
As of March 30, 1996, the Company has purchased approximately $94.7
million of manufacturing equipment for MiCRUS that the Company expects to
sell to a leasing company that will in turn lease the equipment to MiCRUS.
As of March 30, 1996, the Company is contingently liable for MiCRUS
equipment leases which have remaining payments of approximately $229
million, payable through fiscal 2002.
In October 1995, the Company also concluded agreements with Lucent
Technologies to form the joint venture Cirent Semiconductor to build
additional wafer production capacity in an existing facility in Orlando,
Florida owned by Lucent Technologies. The formation of the joint venture,
which will be owned 60% by Lucent Technologies and 40% by Cirrus Logic, is
pending completion of equipment lease financing to be provided by the
Company and formation of the joint venture partnership. The agreements
with Lucent Technologies obligate the Company to provide $420 million in
financing. The Company expects to finance $280 million of this amount
through lease or lease guarantees. Of the $140 million balance, the
Company will contribute $35 million in equity in installments over a
three-year period and pay $105 million for a manufacturing agreement in
installments over a four-year period. The cost of the manufacturing
agreement, of which $10 million was paid in fiscal 1996, will be charged
to the Company's cost of sales over the life of the venture based upon the
ratio of current units of production to current and anticipated future
units of production.
The Company has entered into a volume purchase agreement with TSMC
under which the Company has agreed to make advance payments to TSMC of
approximately $118 million, one-half in fiscal 1998 and one-half in fiscal
1999. The Company also has concluded an agreement with UMC which provides
for an approximate $88 million equity investment, of which $20.6 million
was paid by the Company during fiscal 1996. The remainder is scheduled
to be paid in fiscal 1997. The Company has recently initiated
discussions with UMC about rescheduling the project and postponing the
Company's investment. The Company believes that it is unlikely to make
further equity investments in this project in fiscal 1997.
The Company estimates that its total financial obligations for the
IBM, Lucent Technologies, UMC and TSMC transactions (excluding future
wafer purchases) may total $460 million in fiscal 1997 and $390 million in
the following three fiscal years. The Company intends to obtain most of
the necessary capital through equipment lease financing and the balance
through a combination of debt and/or equity financing, lease guarantees
and cash generated from operations.
In addition to its investments in the various external manufacturing
arrangements, the Company estimates that capital expenditures for its own
facilities, testing and other equipment may total $600 million to $700
million through fiscal 2000. The Company expects to finance seventy to
eighty percent of these capital expenditures through equipment lease or
loan financing. The Company's future capital requirements also include
financing the growth of working capital items such as accounts receivable
and inventory. In addition, the Company has acquired technology companies
in the past and may do so in the future. Such potential transactions may
require substantial capital resources, which may require the Company to
seek additional debt or equity financing. There can be no assurance that
financing will be available or, if available, will be on satisfactory
terms. Failure to obtain adequate financing would restrict the Company's
ability to expand its manufacturing infrastructure, to make other
investments in capital equipment, and to pursue other initiatives.
In April 1996, the Company completed a new commitment for a bank line
of credit for borrowings up to a maximum of $200,000,000 expiring on July
31, 1997 at the banks' prime rate plus one-half percent. The borrowings
are secured by cash, accounts receivable, inventory, certain purchased
equipment, intellectual property, and stock in the Company's subsidiaries.
Use of the line is limited to the borrowing base as defined by a
combination of accounts receivable and certain purchased equipment. As of
March 30, 1996, the Company's borrowing base, as defined, under this line
would have been limited to approximately $100 million, net of certain
outstanding letters of credit. Terms of the agreement include
satisfaction of certain financial ratios, minimum tangible net worth,
cash flow, and leverage requirements as well as a prohibition against the
payment of a cash dividend without prior bank approval.
Management continues to evaluate other possibilities for additional
financing. There is no assurance that financing will be available or, if
available, will be on satisfactory terms.
Future Operating Results
Quarterly Fluctuations
Operations in the first quarter of fiscal 1997 are expected to
produce a loss.
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from
quarter to quarter in the future. The Company's operating results are
affected by a wide variety of factors, many of which are outside of the
Company's control, including but not limited to, economic conditions and
overall market demand in the United States and worldwide, the Company's
ability to introduce new products and technologies on a timely basis,
changes in product mix, fluctuations in manufacturing costs which affect
the Company's gross margins, declines in market demand for the Company's
and its customers' products, sales timing, the level of orders which are
received and can be shipped in a quarter, the cyclical nature of both the
semiconductor industry and the markets addressed by the Company's
products, product obsolescence, price erosion, and competitive factors.
The Company's operating results in fiscal 1997 are likely to be affected
by these factors as well as others.
The Company must order wafers and build inventory well in advance of
product shipments. Because the Company's markets are volatile and subject
to rapid technology and price changes, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories
of particular products. This inventory risk is heightened because many of
the Company's customers place orders with short lead times and because
sales to these customers have increased as a percentage of total sales,
particularly for certain graphics and audio products. In the third
quarter, these factors caused the Company to produce excess inventories of
particular products, and the Company's revenues and earnings were
adversely affected. In the first quarter of fiscal 1997, to a greater
extent than commonly experienced in the past, a significant portion of the
Company's revenues from graphics and audio products is dependent on sales
to customers who place orders with short lead times for delivery in the
quarter. These factors increase not only the inventory risk but also the
difficulty of forecasting quarterly operating results. Moreover, as is
common in the semiconductor industry, the Company frequently ships more
product in the third month of each quarter than in either of the first two
months of the quarter, and shipments in the third month are higher at the
end of that month. The concentration of sales in the last month of the
quarter contributes to the difficulty in predicting the Company's
quarterly revenues and results of operations.
The Company's products are in various stages of their product life
cycles. The Company's success is highly dependent upon its ability to
develop complex new products, to introduce them to the marketplace ahead
of the competition, and to have them selected for design into products of
leading system manufacturers. These factors have become increasingly
important to the Company's results of operations because the rate of
change in the markets served by the Company continues to accelerate.
Since product life cycles are continually becoming shorter, revenues may
be affected quickly if new product introductions are delayed or if the
Company's products are not designed into successive generations of
products of the Company's customers.
The Company's gross margins also will depend on the Company's success
at introducing and ramping production of new products quickly and
effectively because the gross margins of semiconductor products decline as
competitive products are introduced. Anticipated gross margins for
certain audio products have already declined and gross margins for certain
older fax/data/modem products have declined in response to the
announcement and introduction of newer products. Also, the Company must
deliver product to customers according to customer schedules. Delays in
new product introductions could affect revenues and gross margins for
current and follow-on products if customers shift to competitors to meet
their requirements.
Issues Relating to Manufacturing and Manufacturing Investment
During the first two quarters of fiscal 1996, the Company's sales
were constrained by its inability to obtain sufficient sources of wafer
supply to meet customer demand. This situation changed beginning in
the third quarter of fiscal 1996, partly due to the reduced rate of
growth, and partly due to increases in output from MiCRUS. In the third
and fourth quarter of fiscal 1996, manufacturing supply exceeded demand
for certain of the Company's products.
Although the Company believes that its efforts to increase its source
of wafer supply through joint ventures and other arrangements have
significant potential benefits to the Company, there are also risks, some
of which materialized in the third and fourth quarter of fiscal 1996.
These arrangements reduce the Company's flexibility to reduce the amount
of wafers it is committed to purchase and increase the Company's fixed
manufacturing costs as a percentage of overall costs of sales. As a
result, the operating results of the Company are becoming more sensitive
to fluctuations in revenues. In the case of the Company's joint ventures,
overcapacity results in underabsorbed fixed cost, which adversely affects
gross margins and earnings, just as underabsorbed MiCRUS fixed cost has
affected the Company's earnings in the third and fourth quarter of fiscal
1996. In the case of the Company's "take or pay" contracts with
foundries, the Company must pay contractual penalties if it fails to
purchase its minimum commitments.
Moreover, the Company will benefit from the MiCRUS and Lucent
Technologies joint ventures only if they are able to produce wafers at or
below prices generally prevalent in the market. If, however, either of
these ventures is not able to produce wafers at competitive prices, the
Company's results of operations will be materially adversely affected.
The process of beginning production and increasing volume with the
joint ventures inevitably involves risks, and there can be no assurance that
the manufacturing costs of such ventures will be competitive. Additional
risks include the timely development of products, unexpected disruptions
to the manufacturing process, the difficulty of maintaining quality and
consistency, particularly at the smaller submicron levels, dependence on
equipment suppliers and technological obsolescence.
As a participant in manufacturing joint ventures and as an investor
in the company being formed by UMC, the Company also will share in the
risks encountered by wafer manufacturers generally, including being
subject to a variety of foreign, federal, state and local governmental
regulations related to the discharge and disposal of toxic, volatile or
otherwise hazardous materials used in the manufacturing process. Any
failure by the joint venture to control the use of, or to restrict
adequately the discharge of, hazardous materials by the joint ventures
under present or future regulations could subject it to substantial
liability or could cause the manufacturing operations to be suspended. In
addition, the Company could be held financially responsible for remedial
measures if any of the joint venture manufacturing facilities were found
to be contaminated whether or not the Company or the joint venture was
responsible for such contamination.
The Company will not be in direct control of the joint ventures or of
the wafer manufacturing companies in which it invests. The Company is
dependent on the joint venture management and/or its joint venture
partners for the operation of the new manufacturing facilities, including
the hiring of qualified personnel. In addition, the manufacturing
processes and policies undertaken by each manufacturing joint venture may
not be optimized to meet the Company's specific needs and products. If
the joint ventures are unable to manage the operations effectively, their
ability to implement state-of-the-art manufacturing processes, to produce
wafers at competitive costs, and to produce sufficient output could be
adversely affected. Also, the Company's joint venture partners may enter
into contractual or licensing agreements with third parties, or may be
subject to injunctions arising from alleged violations of third party
intellectual property rights, which could restrict the joint venture from
using particular manufacturing processes or producing certain products.
The increase in the Company's wafer supply arrangements could strain
the Company's management and engineering resources. This strain on
resources could be exacerbated by the geographic distances between the
Company's headquarters and the various wafer production facilities. There
can be no assurance that the Company will be able to hire additional
management, engineering and other personnel as needed, to manage its
expansion programs effectively and to implement new production capacity in
a timely manner and within budget.
The Company believes other manufacturers are also expanding or
planning to expand their fabrication capacity over the next several years.
There can be no assurance that the industry's expansion of wafer
production will not lead to overcapacity. If this were to occur, the
market price for wafers sold by third party foundries could decline, and
the wafers produced by the Company's joint ventures could become more
costly relative to prevailing market prices.
Additionally, certain provisions of the MiCRUS and Lucent
Technologies agreements may cause the termination of the joint venture in
the event of a change in control of the Company. Such provisions could
have the effect of delaying, deferring or preventing a change of control
of the Company.
In connection with the financing of its operations, the Company will
borrow money. Such indebtedness could cause the Company's principal and
interest obligations to increase substantially. Moreover, as a
consequence of existing wafer supply related transactions, the Company's
obligations under guarantees, investment commitments and take or pay
arrangements also will increase substantially. The degree to which the
Company will be leveraged could adversely affect the Company's ability to
obtain additional financing for working capital, acquisitions or other
purposes and could make it more vulnerable to industry downturns and
competitive pressures. The Company's ability to meet its debt service and
other obligations will be dependent upon the Company's future performance,
which will be subject to financial, business and other factors affecting
the operations of the Company, many of which are beyond its control. An
inability to obtain financing to meet these obligations could cause the
Company to default on such obligations.
Most of the Company's wafers are currently manufactured to the
Company's specifications by outside merchant wafer suppliers. Although
the Company has increased its future wafer supplies from the MiCRUS and
Lucent Technologies joint ventures, the Company expects to continue to
purchase a majority of its wafers from, and to be reliant upon, outside
merchant wafer suppliers for at least the next two years although the
number of suppliers it uses may diminish. A decrease in the volume of
wafers ordered or the number of suppliers used by the Company could
adversely affect the Company's ability to obtain wafers from third party
suppliers in the event the Company faces unanticipated shortfalls in
supply.
The Company also uses other outside vendors to package the wafer die
into integrated circuits. The Company's reliance on these outside
suppliers involves several risks, including the absence of adequate
availability of certain packaging technologies, or control over delivery
schedules, manufacturing yields, quality, and costs.
Although wafer and packaging supplies in general are expected to be
sufficient to meet expected demand during fiscal 1997, the Company's
results of operations could be adversely affected if particular suppliers
are unable to provide a sufficient and timely supply of product, whether
because of raw material shortages, capacity constraints, unexpected
disruptions at the plants, delays in qualifying new suppliers or other
reasons, or if the Company is forced to purchase wafers or packaging from
higher cost suppliers or to pay expediting charges to obtain additional
supply, or if the Company's test facilities are disrupted for an extended
period of time. The Company's supply also could be adversely affected if
the Company's suppliers are subject to injunctions arising from alleged
violations of third party intellectual property rights. The enforcement
of such an injunction could impede a supplier's ability to provide wafers,
components, or packaging services to the Company. Because of the
concentration of sales at the end of each quarter, a disruption in the
Company's production or shipping near the end of a quarter could
materially reduce the Company's revenues for that quarter. Moreover, the
Company's flexibility to move production from another wafer manufacturing
facility can be limited because such a move can require significant re-
engineering, which may take several quarters. These efforts also dilute
the engineering resources assigned to new product development and
adversely effect new product development schedules. Accordingly,
production may be constrained even though capacity is available at one or
more wafer manufacturing facilities. In addition, the Company could
encounter supply shortages in fiscal 1997 if sales grew substantially.
Any supply shortage could adversely affect sales and operating profits.
Net sales and gross margin also could be adversely affected if the Company
receives orders for large volumes of products to be shipped within short
periods and if the Company's product testing capacity is not adequate to
process such volumes.
The greater integration of functions and complexity of operations of
the Company's products also increase the risk that latent defects or
subtle faults could be discovered by customers or end users after volumes
of product have been shipped. If such defects were significant, the
Company could incur material recall and replacement costs for product
warranty.
Dependence on PC Market
Sales of most of the Company's products depend largely on sales of
personal computers (PCs). The growth in the PC market and the growth in
the market share enjoyed by the Company's PC OEM customers was
exceptionally strong during fiscal 1995 and the first two quarters of
fiscal 1996. However, certain of the Company's PC OEM customers and their
subcontractors experienced lower sales and slower growth for products
incorporating the Company's products in the third and fourth quarter of
fiscal 1996, apparently due to less than anticipated consumer demand for
such products. This led to an inventory correction by the PC and
peripheral device manufacturers, which resulted in a decline in demand for
products to be shipped in the third and fourth quarters of fiscal 1996 and
in the Company's revenues. Some of the PC and peripheral device
manufacturers continued to experience excess inventories of certain
products and/or product components which include the Company's graphics,
audio, and fax/modem products through the fourth quarter of fiscal 1996,
which is expected to reduce demand for the Company's products in the
first quarter of fiscal 1997.
The reduced growth in the PC market, and any further reduction, also
could affect the financial health of a number of the Company's customers,
which could affect the Company's ability to collect outstanding accounts
receivable from these customers.
Product life cycles in the PC market are continually growing shorter.
As new products are introduced, there may be increases in demand for new
components. Shortages of key components could constrain overall sales of
PCs and thus indirectly constrain sales of the Company's products.
In the last half of fiscal 1996, sales of certain of the Company's
products were dependent to a great degree on key customers who supply
motherboards to PC manufacturers and on PC manufacturers associated with
the consumer marketplace. A number of PC OEMs buy products directly from
the Company and also buy motherboards, add-in boards or modules from
suppliers who in turn buy products from the Company. Accordingly, a
significant portion of the Company's sales may depend directly or
indirectly on the sales to a particular PC OEM. This turned out to be the
case in the third quarter of fiscal 1996. Since the Company cannot track
sales by motherboard, add-in board or module manufacturers, however, the
Company may not be fully informed as to the extent or even the fact of its
indirect dependence on any particular PC OEM, and, therefore, may be
unable to assess the risk of such indirect dependence.
Increasing dominance of the PC motherboard or PC market by any one
customer increases the risks that the Company could experience intensified
pressure on product pricing and unexpected changes in customer orders as a
result of changes in customer's market share. Moreover, the Company's
production schedules are based not only on customer orders, but also on
forecasted demand. These issues may contribute to increasing volatility
in the Company's PC-related products, and thus may increase the risk of
rapid changes in revenues, margins, and earnings. Furthermore, the
intense price competition in the PC industry is expected to continue to
put pressure on the price of all PC components.
Other IC makers, including Intel Corporation, have expressed their
interest in integrating through hardware functions, adding through special
software functions, or kitting components to provide some multimedia or
communications features into or with their microprocessor or
microprocessor products. Successful integration of these functions could
substantially reduce the Company's opportunities for IC sales in these
areas.
As a component supplier to PC OEMs and to peripheral device
manufacturers, the Company is likely to experience a greater magnitude of
fluctuations in demand than the Company's customers themselves experience.
In addition, many of the Company's products are used in PCs for the
consumer market, and the consumer PC market is more volatile than other
segments of the PC market.
Issues Relating to Graphics Products
Historically, the Company has had a large share of the market for
desktop graphics controllers and graphics accelerators. However, the
Company's market share as a percentage of the total market declined in the
last half of fiscal 1996.
The Company continues to experience intense competition in the sale
of graphics products. Several competitors introduced products and adopted
pricing strategies that have increased competition in the desktop graphics
market. These competitive factors affected the Company's market share,
gross margins, and earnings. These factors may further adversely affect
revenues and gross margins for graphics accelerator products in the
future.
The Company has preliminary design wins for certain graphics products
expected to begin shipping in the first quarter of fiscal 1997. Although
the Company has conducted extensive testing of the products and has
released the products for volume production, the Company's customers have
not completed their own testing and evaluation of the products. If as yet
unseen bugs are discovered or if the units were to perform poorly in
customer evaluations, key customers could decide not to use these products
in their own designs rather than risking the delay of their own product
introductions. In such event, revenues from the sale of graphics products
could be adversely affected.
The PC graphics market today consists primarily of two-dimensional
(2D) graphics accelerators, and 2D graphics accelerators with video
features. 3D graphics acceleration is expected to become an important
capability in late fiscal 1997 and fiscal 1998, primarily in PC products
for the consumer marketplace. Several competitors have already
introduced 3D accelerators. The Company is striving to bring products
with 3D acceleration to market, but there is no assurance that it will
succeed in doing so in a timely manner. If these products are not brought
to market in a timely manner or do not address the market needs or cost or
performance requirements, then graphics market share and sales would be
adversely affected.
Issues Relating to Audio Products
Most of the Company's revenues in the multimedia audio market derive
from the sales of 16-bit audio codecs and integrated 16-bit codec plus
controller solutions for the consumer PC market. In the last half of
fiscal 1996 revenues from audio products declined against the first half
of fiscal 1996.
Due to the heavy concentration of multimedia PCs in the consumer
market, to be successful, an audio product must be compatible with the new
and existing software games that dominate consumer multimedia PC usage.
These games typically require 16-bit audio, a SoundBlaster compatible
audio controller and FM synthesis emulation. Due to the price sensitive
nature of the consumer PC market, the market is moving from multi-chip
solutions to solutions that provide the codec, controller and synthesis
integrated into a single IC. If the Company is unable to provide or is
late to market with these highly integrated solutions, or if its solutions
are not compatible with new and existing software, the Company could lose
market share.
Revenues from the sale of audio products in fiscal 1997 are likely to
be significantly affected by the success of a recently announced fully-
integrated, single-chip audio IC. The product has not yet passed customer
qualification and acceptance. If there are as yet unseen bugs or if the
product is not qualified and accepted by customers in time for volume
shipments in the first quarter of fiscal 1997, revenues and gross margins
from the sale of audio products could be significantly impaired. The rate
of transition from design into production is proceeding slower than the
Company had expected, and customers have been slow to ramp production of
their new products. Moreover, the recent introduction of a fully-
integrated single-chip audio IC and aggressive pricing by competitors is
resulting in pricing pressures which are likely to adversely affect the
Company's revenues and gross margins from the sale of audio products.
Issues Relating to Mass Storage Market
The disk drive market has historically been characterized by a
relatively small number of disk drive manufacturers and by periods of
rapid growth followed by periods of oversupply and contraction.
Additionally, growth in the mass storage market is directly affected by
growth in the PC market. To the extent the PC market growth slows, disk
drive demand would decline, directly impacting demand for the Company's
mass storage products. As a result, suppliers to the disk drive industry
experience large and sudden fluctuations in product demand. Furthermore,
the price competitive nature of the disk drive industry continues to put
pressure on the price of all disk drive components.
The Company's mass storage revenues are derived primarily from sales
of disk drive controllers and more recently, from read channel chips and
CD-ROM drive controllers. Future mass storage revenues will be heavily
dependent on the acceptance and qualification of new generations of
controllers and read channel chips by the Company's customers.
Recently the disk drive industry has become more consolidated. Such
consolidation, which is continuing, reduces the number of customers for
the Company's mass storage products and may increase the desire of
customers to source their components internally.
Revenues from the sale of mass storage products could be affected in
various ways as a result of the merger between Seagate and Conner
Peripherals. In the short term, the combined Seagate/Conner entity could
elect to eliminate overlapping disk drive product offerings. Such a
development could sharply reduce or increase its demand for the Company's
ICs depending on whether the discontinued disk drive products do or do not
use the Company's ICs. Such a development also would increase the risk
that the Company builds excess inventory of ICs for the disk drives that
are suddenly discontinued or builds insufficient inventory and is unable
to meet demand for ICs for the disk drives that are retained. In the long
term, the greater size of the combined entity may increase its ability to
rely on internal sourcing of components, which could reduce demand for the
Company's products.
Revenues from the sale of mass storage products also could be
affected by the adoption rate of Windows 95 and Windows NT. There remains
some uncertainty in the market place regarding the timing of demand for
disk drive storage capacity by end users as they decide whether or not to
purchase these new operating systems. If disk drive manufacturers
incorrectly forecast demand, they may make sudden and dramatic changes in
disk drive product mix, which increases the risk that the Company will
produce excess or insufficient inventories of various products.
Issues Relating to Wireless and Other Communication Products
Sales of the Company's Cellular Digital Packet Data ("CDPD") products
commenced during the quarter ended October 1, 1994. Since that time the
Company's subsidiary, PCSI, has sold over 3,500 base stations to customers
building CDPD communications infrastructure in anticipation of a
developing market for CDPD wireless data services. Future CDPD revenues
will depend primarily on the sale of subscriber units, modules and
components. If the CDPD market does not develop, or the Company's CDPD
products are not competitive with those being introduced by other
suppliers, then future revenues and earnings would be adversely affected.
Sales of digital cordless phone products, which were developed by
PCSI for the Japanese Personal Handyphone System ("PHS") market, will
depend upon the establishment of infrastructure and services which are
beyond PCSI's control. If PCSI is unsuccessful or delayed in developing
next generation chip sets for the PHS market, future chip set sales could
decline rapidly. All sales are being conducted through the Company's
Japanese marketing partner which limits the Company's gross margins for
its PHS products. Sales of the current generation chip sets decreased
during the fourth quarter of fiscal 1996 and will continue to decrease in
the first quarter of fiscal 1997 as PCSI's customer adjusts inventory
supply to meet manufacturing requirements. The same customer is currently
in discussions with PCSI regarding the next generation PHS chip set.
While PCSI is actively seeking this customer and other customers for its
next generation product, if PCSI is not successful in developing and
marketing the product then net sales, gross margin and earnings would be
adversely affected.
The Company expects a further decline in demand for and revenue from
the sale of fax/data/modem IC products as customers use existing
inventories of v.32bis product and as the market transitions to v.34
products. The Company does not expect to begin shipping v.34
fax/data/modem products until late in the first quarter of fiscal 1997.
The Company's PCSI subsidiary was awarded a multi-million dollar
contract from AT&T Wireless Services, Inc. to develop and supply base
station equipment for the newly announced pACT (Personal Air
Communications Technology) network. PCSI was co-developer of this
narrowband PCS technology for next-generation wireless two-way messaging.
PCSI also announced that it expects to develop pACT two-way messaging
subscriber units as well as pACT chip sets for original equipment
manufacturers. Future pACT revenues and earnings depend on PCSI's ability
to develop and market competitive products. If the pACT messaging market
does not develop, or PCSI's pACT products are not competitive with those
being introduced by other suppliers, then future revenues and earnings
would be adversely affected.
The Company's development of new technology in the communications
business faces major challenges and risks which could adversely affect the
Company's results of operations. Continued investment in research and
development in technology for which a market does not emerge could
adversely affect the Company's net sales, gross margin and earnings.
Moreover, investment in technology which proves incompatible with market
standards could impede the Company's ability to participate in such
markets. In addition, the timing and direction of the future market
development in this area could depend heavily on the decisions of
government regulators, which are subject to significant delays and are
outside of the Company's control. The Company's competitors in
communications include some of the world's largest, most successful and
most technologically advanced companies and there is no assurance that the
Company will be able to compete successfully.
Intellectual Property Matters
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. The Company and
certain of its customers from time to time have been notified that they
may be infringing certain patents and other intellectual property rights
of others. In addition, customers have been named in suits alleging
infringement of patents by customer products. Certain components of these
products have been purchased from the Company and may be subject to
indemnification provisions made by the Company to its customers. The
Company has not been named in any such suits. Although licenses are
generally offered in situations where the Company or its customers are
named in suits alleging infringement of patents or other intellectual
property rights, 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. Because
successive generations of the Company's products tend to offer an
increasing number of functions, there is a likelihood that more of these
claims will occur as the products become more highly integrated. The
Company cannot accurately predict the eventual outcome of any suit or
other alleged infringement of intellectual property. An unfavorable
outcome occurring in any such suit could have an adverse effect on the
Company's future operations and/or liquidity. Furthermore, efforts of
defending the Company against future lawsuits, if any, could divert a
significant portion of the Company's financial and management resources.
Foreign Operations and Markets
Because many of the Company's subcontractors and several of the
Company's key customers, which customers collectively account for a
significant percentage of the Company's revenues, are located in Japan and
other Asian countries, the Company's business is subject to risks
associated with many factors beyond its control. 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
the Company buys hedging instruments to reduce its exposure to currency
exchange rate fluctuations, the Company's competitive position can be
affected by the exchange rate of the U.S. dollar against other currencies,
particularly the Japanese yen. In addition, various forms of
protectionist trade legislation have been proposed in the United States
and certain other countries. Any resulting change in current tariff
structures or other trade and monetary policies could adversely affect the
Company's international operations. There can be no assurance that the
political and economic risks to which the Company is subject will not
result in customers of the Company defaulting on payments due to the
Company or in the reduction of potential purchases of the Company's
products.
Competition
The Company's business is intensely competitive and is characterized
by new product cycles, price erosion, and rapid technological change.
Competition typically occurs at the design stage, where the customer
evaluates alternative design approaches that require integrated circuits.
Because of shortened product life cycles and even shorter design-in
cycles, the Company's competitors have increasingly frequent opportunities
to achieve design wins in next generation systems. In the event that
competitors succeed in supplanting the Company's products, the Company's
market share may not be sustainable and net sales, gross margin, and
earnings would be adversely affected. Competitors include major domestic
and international companies, many of which have substantially greater
financial and other resources than the Company with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Emerging companies are also increasing their participation in the market,
as well as customers who develop their own integrated circuit products.
Competitors include manufacturers of standard semiconductors, application
specific integrated circuits and fully customized integrated circuits,
including both chip and board-level products. The ability of the Company
to compete successfully in the rapidly evolving area of high-performance
integrated circuit technology depends significantly on factors both within
and outside of its control, including but not limited to, success in
designing, manufacturing and marketing new products, wafer supply,
protection of Company products by effective utilization of intellectual
property laws, product quality, reliability, ease of use, price, diversity
of product line, efficiency of production, the pace at which customers
incorporate the Company's integrated circuits into their products, success
of the customers' products and general economic conditions. Also the
Company's future success depends, in part, upon the continued service of
its key engineering, marketing, sales, manufacturing, support and
executive personnel, and on its 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 the Company. Because of this and other
factors, past results may not be a useful predictor of future results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share amounts)
Fiscal years ended
---------------------------------
March 30, April 1, April 2,
1996 1995 1994
----------- ---------- ----------
Net sales $1,146,945 $889,022 $557,299
Operating costs and expenses:
Cost of sales 774,350 512,509 298,582
Research and development 238,791 165,622 126,632
Selling, general and administrative 165,267 126,666 91,887
Restructuring costs 11,566 - -
Non-recurring costs 1,195 3,856 -
Merger costs - 2,418 -
----------- ---------- ----------
Total operating costs and expenses 1,191,169 811,071 517,101
----------- ---------- ----------
Operating (loss) income (44,224) 77,951 40,198
Foreign currency transaction gains - 4,999 -
Gain on sale of equity investment - - 13,682
Interest income and other, net 7,652 9,129 4,280
Interest expense (5,151) (2,441) (2,196)
----------- ---------- ----------
(Loss) income before income taxes and cumulative
effect of accounting change (41,723) 89,638 55,964
(Benefit) provision for income taxes (5,540) 28,236 18,146
----------- ---------- ----------
(Loss) income before cumulative effect of
accounting change (36,183) 61,402 37,818
Cumulative effect as of March 31, 1993, of change
in method of accounting for income taxes - - 7,550
----------- ---------- ----------
Net (loss) income ($36,183) $61,402 $45,368
=========== ========== ==========
(Loss) income per common and common equivalent share
before cumulative effect of accounting change ($0.58) $0.96 $0.67
Cumulative effect of accounting change per
common and common equivalent share - - 0.13
----------- ---------- ----------
Net (loss) income per common and common
equivalent share ($0.58) $0.96 $0.80
=========== ========== ==========
Weighted average common and common equivalent
shares outstanding 62,761 63,680 56,402
=========== ========== ==========
See accompanying notes.
CONSOLIDATED BALANCE SHEETS
(Thousands)
March 30, April 1,
1996 1995
--------- ---------
Assets
Current assets:
Cash and cash equivalents $155,979 $ 66,718
Short-term investments 19,279 120,308
Accounts receivable, less allowance for doubtful
accounts of $13,174 in 1996 and $9,439 in 1995 133,718 161,333
Inventories 134,502 103,642
Deferred tax assets 52,662 20,767
Payments for joint venture equipment to be leased 94,683 -
Other current assets 4,004 7,164
--------- ---------
Total current assets 594,827 479,932
--------- ---------
Property and equipment, at cost:
Machinery and equipment 247,390 148,753
Furniture and fixtures 15,293 12,825
Leasehold improvements 21,044 11,757
--------- ---------
283,727 173,335
Less accumulated depreciation and amortization (113,479) (73,091)
--------- ---------
Property and equipment, net 170,248 100,244
Manufacturing agreements, net of accumulated
amortization of $3,921 in 1996 and $65 in 1995
and investment in joint ventures 104,463 63,735
Deposits and other assets 48,039 29,623
--------- ---------
$917,577 $673,534
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowing $80,000 $ -
Accounts payable 214,299 140,445
Accrued salaries and benefits 41,845 32,508
Current maturities of long-term debt and
capital lease obligations 26,575 11,481
Income taxes payable 20,863 22,322
Other accrued liabilities 28,602 21,557
--------- ---------
Total current liabilities 412,184 228,313
--------- ---------
Capital lease obligations 6,258 9,602
Long-term debt 65,571 16,603
Other long-term 4,898 -
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, no par value; 5,000
shares authorized, none issued - -
Common stock, no par value, 140,000 shares
authorized, 63,951 shares issued and
outstanding in 1996 and 60,594 in 1995 329,574 283,741
Retained earnings 99,092 135,275
--------- ---------
Total shareholders' equity 428,666 419,016
--------- ---------
$917,577 $673,534
========= =========
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Fiscal Years Ended
--------------------------------
March 30, April 1, April 2,
1996 1995 1994
---------- ---------- ----------
Cash flows from operating activities:
Net (loss) income ($36,183) $61,402 $45,368
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 64,301 34,329 26,315
Compensation related to the issuance of
certain employee stock options 820 3,109 641
Gain on sale of equity investment - - (13,682)
Cumulative effect of accounting change - - (7,550)
Changes in operating assets and liabilities:
Accounts receivable 27,615 (76,448) (20,163)
Inventories (30,860) (24,837) (28,850)
Payments for joint venture equipment to be leased (94,683) - -
Deferred tax and other current assets (28,735) (3,650) (6,751)
Accounts payable 73,854 51,494 25,531
Accrued salaries and benefits 9,337 8,351 11,401
Income taxes payable 15,209 3,262 10,058
Other accrued liabilities 7,045 8,093 7,535
---------- ---------- ----------
Net cash provided by operating activities 7,720 65,105 49,853
---------- ---------- ----------
Cash flows from investing activities:
Purchase of available-for-sale investments (175,139) (234,065) (211,367)
Proceeds from available-for-sale investments 228,092 187,900 200,332
Purchase of held-to-maturity investments (10,444) (158,748) -
Proceeds from held-to-maturity investments 57,144 133,688 -
Proceeds from sale of equity investment - - 14,753
Manufacturing agreements and investment in joint ventures (44,604) (63,800) -
Additions to property and equipment (127,802) (47,313) (35,677)
Increase in deposits and other assets (32,140) (19,429) (7,725)
---------- ---------- ----------
Net cash used by investing activities (104,893) (201,767) (39,684)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings on long-term debt 74,973 13,292 6,673
Payments on long-term debt (10,798) (8,688) (6,726)
Payments on capital lease obligations (4,051) (3,919) (3,330)
Borrowings on short-term debt 121,000 - 10,000
Payments on short-term debt (41,000) - (10,000)
Issuance of common stock in public offering, net of
issuance costs - - 136,025
Proceeds from sale and leaseback of property and equipment 13,067 - -
Increase in other long-term 4,898 - -
Issuance of common stock, net of issuance costs and
repurchases 28,345 8,870 15,428
---------- ---------- ----------
Net cash provided by financing activities 186,434 9,555 148,070
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 89,261 (127,107) 158,239
Cash and cash equivalents at beginning of year 66,718 193,825 35,586
---------- ---------- ----------
Cash and cash equivalents at end of year $155,979 $66,718 $193,825
========== ========== ==========
Non-cash investing and financing activities:
Equipment purchased under capital leases $594 $6,849 $6,158
Tax benefit of stock option exercises 16,668 1,320 3,437
Cash payments for:
Interest 4,358 2,464 2,181
Income taxes 17,612 24,974 12,750
See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended March 30, 1996
(Thousands)
Common Stock
--------------------- Retained
Shares Amount Earnings Total
---------- ---------- ---------- ----------
Balance, March 31, 1993 49,966 $114,911 $28,505 $143,416
Issuance of stock in public
offering (net of issuance costs of $7,362) 6,940 136,025 --- 136,025
Issuance of stock by PicoPower 506 5,028 --- 5,028
Issuance of stock under stock plans
and other, net of repurchases 1,810 10,400 --- 10,400
Compensation related to the
issuance of certain employee options --- 641 --- 641
Net income --- --- 45,368 45,368
Tax benefit of stock option exercises --- 3,437 --- 3,437
---------- ---------- ---------- ----------
Balance, April 2, 1994 59,222 270,442 73,873 344,315
Issuance of stock under stock plans
and other, net of repurchases 1,372 8,870 --- 8,870
Compensation related to the
issuance of certain employee options --- 3,109 --- 3,109
Net income --- --- 61,402 61,402
Tax benefit of stock option exercises --- 1,320 --- 1,320
---------- ---------- ---------- ----------
Balance, April 1, 1995 60,594 283,741 135,275 419,016
Issuance of stock under stock plans
and other, net of repurchases 3,357 28,345 --- 28,345
Compensation related to the
issuance of certain employee options --- 820 --- 820
Net loss --- --- (36,183) (36,183)
Tax benefit of stock option exercises --- 16,668 --- 16,668
---------- ---------- ---------- ----------
Balance, March 30, 1996 63,951 $329,574 $99,092 $428,666
========== ========== ========== ==========
See accompanying notes.
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Major Customer Information
Cirrus Logic, Inc. (the "Company") operates principally in a
single industry segment. The Company is a leading manufacturer of
advanced integrated circuits for the desktop and portable computing,
telecommunications, industrial, and consumer electronics markets.
The Company applies its system-level expertise in analog and digital
design to innovate highly integrated, software-rich solutions.
Cirrus Logic offers a broad portfolio of products including highly
integrated chips, software, evaluation boards, manufacturing kits,
subsystem modules and telecommunications system equipment. The
Company performs its own wafer and product testing, engineering
support and quality and reliability assurance, and uses joint
ventures and subcontractors to manufacture wafers and assemble
products. The Company also sells Cellular Digital Packet Data (CDPD)
base stations to cellular telephone companies. This equipment
enables the wireless communications technologies necessary to develop
the markets for advanced integrated circuits.
In fiscal 1996 and 1995, no customer accounted for 10% or more
of net sales. In fiscal 1994, one customer comprised 10% of net
sales. No other customer represented 10% or more of the Company's
net sales during these periods.
Export sales, principally in Asia, including sales to
overseas operations of domestic corporations, represented 56%, 56%
and 58% of net revenues in fiscal 1996, 1995 and 1994,
respectively. There are no restrictions on the transfer of funds
in international markets.
Basis of Presentation
On June 1, 1995, the Board of Directors approved a two-for-
one split of the Company's Common Stock. Shareholders of record
as of June 19, 1995 received certificates reflecting the
additional shares on July 17, 1995. All references to the number
of shares of Common Stock, warrants and options to purchase shares
of Common Stock, weighted average common and common equivalent
shares outstanding, and share prices have been restated to reflect
the two-for-one split.
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
Accounts denominated in foreign currencies have been remeasured in
accordance with Statement of Financial Accounting Standards (SFAS)
No. 52, "Foreign Currency Translation," using the U.S. dollar as
the functional currency. Translation adjustments relating to
Cirrus Logic K.K., whose functional currency is the Japanese yen,
have not been material.
During the first quarter of fiscal 1994, the Company changed
its reporting period from a 12 month year ending March 31 to a
fiscal year of 52 or 53 weeks ending on the Saturday closest to
March 31.
Cash Equivalents and Investments
Cash equivalents consist primarily of over-night deposits,
commercial paper, U.S. Government Treasury instruments, and money
market funds with original maturities of three months or less at
date of purchase. Short-term investments have original maturities
greater than three months and consist of U.S. Government Treasury
instruments, money market preferred stock, auction preferred stock,
municipal bonds, certificates of deposit and commercial paper.
Securities Held-to-Maturity and Available-for-Sale
Management determines the appropriate classification of
certain debt and equity securities at the time of purchase as
either held-to-maturity, trading or available-for-sale and
reevaluates such designation as of each balance sheet date.
Held-to-maturity securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization, as well as any interest on the securities, is
included in interest income and other, net. Held-to-maturity
securities include only those securities the Company has the
positive intent and ability to hold to maturity.
Securities not classified as held-to-maturity are classified
as available-for-sale. Available-for-sale securities are carried
at fair value, with unrealized gains and losses, net of tax,
reported as a separate component of shareholders' equity, if
material. Realized gains and losses, declines in value judged to
be other than temporary, and interest on available-for-sale
securities are included in interest income and other, net.
Foreign Exchange Contracts
The Company may enter into foreign currency forward exchange
and option contracts to hedge certain of its foreign currency
exposures. The Company's accounting policies for these
instruments are based on the Company's designation of such
instruments as hedging transactions. The criteria the Company
uses for designating an instrument as a hedge include its
effectiveness in exposure reduction and one-to-one matching of the
derivative financial instrument to the underlying transaction
being hedged. Gains and losses on foreign currency exchange and
option contracts that are designated and effective as hedges of
existing transactions are recognized in income in the same period
as losses and gains on the underlying transactions are recognized
and generally offset. Gains and losses on currency option
contracts that are designated and effective as hedges of
transactions, for which a firm commitment has been attained, are
deferred and recognized in income in the same period that the
underlying transactions are settled. The Company generally does
not require collateral from counterparties.
During fiscal 1996, the Company purchased foreign currency
forward exchange contracts to hedge certain yen denominated inventory
purchases. In addition, during fiscal 1996, the Company purchased
foreign currency option contracts to hedge certain yen denominated
net balance sheet accounts and sales. As of March 30, 1996, the
Company had five foreign currency option contracts outstanding
denominated in Japanese yen for approximately $76,022,000. The
contracts expire through June 1996.
While the contract amounts provide one measure of the volume
of the transactions outstanding at March 30, 1996, they do not
represent the amount of the Company's exposure to credit risk.
The Company's exposure to credit risk (arising from the possible
inability of the counterparties to meet the terms of their contracts)
is generally limited to the amount, if any, by which the
counterpartys' obligations exceed the obligations of the Company.
During fiscal 1995, the Company recorded approximately $4,999,000
of foreign currency transaction gains pertaining to the remeasurment
of certain unhedged balance sheet accounts denominated in Japanese
yen. Transaction gains and losses were not material in fiscal
1996 and 1994.
Inventories
The Company applies the lower of standard cost, which
approximates actual cost on a first-in, first-out basis, or
market principle to value its inventories. One of the factors
the Company consistently evaluates in application of this
principle is the extent to which products are accepted into the
marketplace. By policy, the Company evaluates market
acceptance based on known business factors and conditions by
comparing forecasted customer unit demand for the Company's
products over a specific future period or demand horizon to
quantities on hand at the end of each accounting period.
On a quarterly and annual basis, inventories are analyzed on
a part-by-part basis. Inventory quantities on hand in excess of
forecasted demand, as adjusted by management, are considered to
have reduced market value and, therefore, the cost basis is
adjusted from standard cost to the lower of cost or market.
Typically, market value for excess or obsolete inventories is
considered to be zero. The short product life cycles and the
competitive nature of the industry are factors considered in the
estimation of customer unit demand at the end of each quarterly
accounting period.
Inventories are comprised of the following (in thousands):
March 30, April 1,
1996 1995
--------- ---------
Work-in-process $ 69,244 $ 84,920
Finished goods 65,258 18,722
--------- ---------
$ 134,502 $ 103,642
========= =========
Property and Equipment
Property and equipment is recorded at cost. Depreciation and
amortization is provided on a straight-line basis over estimated
useful lives ranging from three to five years, or over the life of
the lease for equipment under capitalized leases, if shorter.
Leasehold improvements are amortized over the term of the lease or
their estimated useful life, whichever is shorter.
Concentration of Credit Risk
Financial instruments which potentially subject the Company
to concentrations of credit risk consist primarily of cash
equivalents, short-term investments and trade accounts receivable.
By policy, the Company places its investments only with high
credit quality financial institutions and, other than U.S.
Government Treasury instruments, limits the amounts invested in
any one institution or in any type of instrument. Almost all of
the Company's trade accounts receivable are derived from sales to
manufacturers of computer systems and subsystems. The Company
performs ongoing credit evaluations of its customers' financial
condition and limits its exposure to accounting losses by limiting
the amount of credit extended whenever deemed necessary and
generally does not require collateral.
Revenue Recognition
Revenue from product sales direct to customers is recognized
upon shipment. Certain of the Company's sales are made to
distributors under agreements allowing certain rights of return
and price protection on products unsold by distributors.
Accordingly, the Company defers revenue and gross profit on such
sales until the product is sold by the distributors.
Non-recurring and Merger Costs
In the third quarter of fiscal 1996, non-recurring costs were
approximately $1.2 million associated with the planned formation of
the new joint venture with Lucent Technologies.
In the quarter ended October 1, 1994, non-recurring and
merger costs were approximately $6.3 million. Non-recurring costs
of $3.9 million were primarily associated with the acquisition of
certain technology and marketing rights and the remaining minority
interest in a subsidiary, and the formation of the MiCRUS joint
venture with International Business Machines Corporation (IBM).
Merger costs of approximately $2.4 million for the August 1994,
combination of Cirrus Logic and PicoPower included one-time costs
for charges related to the combination of the two companies,
financial advisory services, and legal and accounting fees.
Income Taxes
During fiscal 1994, the Company implemented SFAS No. 109,
"Accounting for Income Taxes," effective as of the beginning of
the year. The cumulative effect of this accounting change, a
result of recognizing tax benefits which had been unrecognized
prior to April 1, 1993, increased net income for fiscal 1994 by
$7,550,000, or $0.13 per share. There was no effect on income
before income taxes from the adoption of SFAS No. 109.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising
costs were not significant in fiscal 1996, 1995, and 1994.
Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is based on
the weighted average common shares outstanding and dilutive common
equivalent shares (using the treasury stock or modified treasury
stock method, as required). Common equivalent shares include
dilutive stock options and warrants when appropriate. Dual
presentation of primary and fully diluted income per share is not
shown on the face of the statements of operations because the
differences are insignificant.
Impact of Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board released
the Statement of Financial Accounting Standard No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS 121 requires
recognition of impairment of long-lived assets in the event the
net book value of such assets exceeds the future undiscounted cash
flows attributable to such assets. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Adoption of SFAS
121 is not expected to have a material impact on the Company's
financial position or results of operations.
The Company accounts for its stock option plans and its
employee stock purchase plan in accordance with provisions of the
Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees." In October 1995, the Financial
Accounting Standards Board released the Statement of Financial
Accounting Standard No. 123 (SFAS 123), "Accounting for Stock
Based Compensation." SFAS 123 provides an alternative to APB 25
and is effective for fiscal years beginning after December 15,
1995. The Company expects to continue to account for its employee
stock plans in accordance with the provisions of APB 25.
Accordingly, SFAS 123 is not expected to have any material impact
on the Company's financial position or results of operations.
Financial Presentation
Certain prior year amounts on the Consolidated Financial
Statements have been reclassified to conform to the fiscal 1996
presentation.
2. FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments
The following methods and assumptions were used by the
Company in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents: The carrying amount reported in
the balance sheet for cash and cash equivalents approximates
its fair value.
Investment securities and other non-current marketable
equity securities: The fair values for marketable debt and
equity securities are based on quoted market prices.
Commercial and standby letters of credit: The fair values of
commercial and standby letters of credit are based on quoted
market prices.
Foreign currency exchange and option contracts: The fair
values of the Company's foreign currency exchange forward and
option contracts are estimated based on quoted market prices
of comparable contracts, adjusted through interpolation where
necessary for maturity differences.
Short-term debt: The fair value of short-term debt
approximates cost because of the short period of time to
maturity.
Long-term debt: The fair value of long-term debt is
estimated based on current interest rates available to the
Company for debt instruments with similar terms and remaining
maturities.
The carrying amounts and fair values of the Company's
financial instruments at March 30, 1996 are as follows (in
thousands):
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents $ 155,979 $ 155,979
Investment securities:
U.S. Government Treasury
instruments 12,085 12,024
U.S. Government Agency
instruments 4,256 4,257
Municipal bonds 4,314 4,325
Short-term debt (80,000) (80,000)
Long-term debt (current portion) (22,460) (22,090)
Long-term debt (65,571) (63,023)
Currency options - 48
Letters of credit 44,431 44,431
The carrying amounts and fair values of the Company's
financial instruments at April 1, 1995 are as follows (in
thousands):
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents $ 66,718 $ 66,718
Investment securities:
U.S. Government Treasury
instruments 56,723 56,729
U.S. Government Agency
instruments 7,868 7,866
Municipal auction preferred stock 11,000 11,000
Auction preferred stock 18,000 18,000
Commercial paper 5,904 5,904
Certificates of deposit 1,997 1,997
Municipal bonds 18,816 18,743
Long-term debt (23,856) (23,856)
Investments
The following is a summary of available-for-sale and held-
to-maturity securities at March 30, 1996 (in thousands):
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------ ------ --------
Available-for-Sale:
U.S. Government
Treasury instruments $ 8,190 $ - $ 60 $ 8,130
U.S. Government
Agency instruments 4,022 - - 4,022
Commercial paper 4,263 4,263
-------- ------ ------ --------
Total $ 16,475 $ - $ 60 $ 16,415
======== ====== ====== ========
Held-to-Maturity:
U.S. Government
Treasury instruments $ 3,895 $ - $ 1 $ 3,894
U.S. Government
Agency instruments 2,235 1 - 2,236
Municipal bonds 4,314 11 - 4,325
-------- ------ ------ --------
Total $ 10,444 $ 12 $ 1 $ 10,455
======== ====== ====== ========
Available-for-sale and held-to-maturity securities have the
following contracted maturities at March 30, 1996 (in thousands):
Available-for-sale Held-to-maturity
------------------ ----------------
Less than one year $ 8,285 $ 9,068
One to two years 8,190 1,376
------------------ ----------------
Total $ 16,475 $ 10,444
================== ================
The following is a summary of available-for-sales and held-
to-maturity securities at April 1, 1995 (in thousands):
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------ ------ --------
Available-for-Sale:
Municipal auction
preferred stock $ 11,000 $ - $ - $ 11,000
U.S. Government
Treasury instruments 13,395 35 - 13,430
U.S. Government
Agency instruments 8,858 2 - 8,860
Commercial paper 13,301 - - 13,301
Municipal bonds 9,966 - 4 9,962
Auction preferred stock 18,000 - - 18,000
-------- ------ ------ --------
Total $ 74,520 $ 37 $ 4 $ 74,553
======== ====== ====== ========
Held-to-Maturity:
U.S. Government
Treasury instruments $ 47,273 $ 16 $ 4 $ 47,285
U.S. Government
Agency instruments 1,000 - 4 996
Commercial paper 10,874 42 - 10,916
Certificates of deposit 1,997 - - 1,997
Municipal bonds 8,850 - 69 8,781
-------- ------ ------ --------
Total $ 69,994 $ 58 $ 77 $ 69,975
======== ====== ====== ========
Held-to-maturity securities have contracted maturities of less
than one year at April 1, 1995. Available-for-sale securities have
the following contracted maturities at April 1, 1995 (in thousands):
Less than one year $ 65,668
One to two years 8,852
---------
Total $ 74,520
=========
The following is a reconciliation of the investment
categories to the balance sheet classification at March 30, 1996
(in thousands):
Cash and Cash Short-term Long-term
Equivalents Investment Investment Total
----------- ----------- ---------- ---------
Cash $ 149,715 $ - $ - $ 149,715
Available-for-sale
securities 6,264 10,211 - 16,475
Held-to-maturity securities - 9,068 1,376 10,444
----------- ----------- ---------- ---------
Total $ 155,979 $ 19,279 $ 1,376 $ 176,634
=========== =========== ========== =========
The following is a reconciliation of the investment
categories to the balance sheet classification at April 1, 1995
(in thousands):
Cash and Cash Short-term
Equivalents Investment Total
----------- ----------- ---------
Cash $ 42,512 $ - $ 42,512
Available-for-sale
securities 11,356 63,164 74,520
Held-to-maturity
securities 12,850 57,144 69,994
----------- ----------- ---------
Total $ 66,718 $ 120,308 $ 187,026
=========== =========== =========
3. USE OF ESTIMATES AND CONCENTRATIONS OF OTHER RISKS
The Company's financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of
management estimates. These estimates are impacted, in part, by the
following risks and uncertainties:
Inventories. The Company produces inventory based on orders
received and forecasted demand. The Company must order wafers and
build inventory well in advance of product shipments. Because the
Company's markets are volatile and subject to rapid technology and
price changes, there is a risk that the Company will forecast
incorrectly and produce excess or insufficient inventories of
particular products. This inventory risk is heightened because
many of the Company's customers place orders with short lead
times. Demand will differ from forecasts and such difference may
have a material effect on actual results of operations.
Dependence on PC Market. Sales of most of the Company's products
depend largely on sales of personal computers (PCs). Increasing
dominance of the PC motherboard or PC market by any one customer
increases the risks that the Company could experience intensified
pressure on product pricing and unexpected changes in customer
orders as a result of changes in the customers' market share.
Moreover, the Company's production schedules are based not only on
customer orders, but also on forecasted demand. These issues may
contribute to increasing volatility in the Company's PC-related
products, and thus may increase the risk of rapid changes in
revenues, margins, and earnings. Furthermore, the intense price
competition in the PC industry is expected to continue to put
pressure on the price of all PC components. Other IC makers,
including Intel, have expressed their interest in integrating some
multimedia or communications functions into their microprocessor
products. Successful integration of these functions could reduce
the Company's opportunities for IC sales in these areas. As a
component supplier to PC OEMs and to peripheral device
manufacturers, the Company is likely to experience a greater
magnitude of fluctuations in demand than the Company's customers
themselves experience. In addition, many of the Company's
products are used in PCs for the consumer market, and the consumer
PC market is more volatile than other segments of the PC market.
4. JOINT VENTURES AND MANUFACTURING SUPPLY AGREEMENTS
MiCRUS During September 1994, the Company and IBM completed a
series of agreements pertaining to joint manufacturing. In
January 1995, under the terms of the agreements, a new joint
venture called MiCRUS, began manufacturing semiconductor wafers
for each parent company using IBM's submicron wafer processing
technology. MiCRUS leased an existing 175,000 square-foot IBM
facility located at the Hudson Valley Research Park in East
Fishkill, New York. Focusing initially on manufacturing CMOS
wafers with line widths in the 0.6 to 0.5 micron range,
MiCRUS was in volume production of both IBM and Cirrus
Logic products by the end of fiscal 1996. IBM and Cirrus
Logic own 52% and 48% of MiCRUS, respectively. The term of the
joint venture, set for nine years, may be extended by mutual
accord. Activities of the joint venture are focused on the
manufacture of semiconductor wafers, and do not encompass direct
product licensing or product exchanges between the Company and IBM.
The Company has a commitment to use 50% of the manufacturing capacity
of MiCRUS. To the extent the Company does not use its share of the
manufacturing capacity, it must pay a charge to MiCRUS for the cost
of such underutilized capacity. During fiscal 1996, the Company
recorded charges to cost of sales of approximately $14 million for
the underutilization of capacity.
In January 1995, MiCRUS leased approximately $145 million of
wafer fabrication and infrastructure equipment pursuant to an
operating lease with a third party and guaranteed jointly and
severally by the Company and IBM. The Company believes that any
risk of loss from this guarantee is remote. As part of the
initial agreement, the Company committed to $36 million as an
equity contribution. In addition, Cirrus Logic and IBM each agreed
to provide MiCRUS with approximately $100 million of additional
capital equipment, through lease financing.
In fiscal 1995 and 1996, Cirrus Logic paid $63.8 million and
$14.0 million, respectively for the joint venture investment and
the manufacturing agreement. Manufacturing agreement payments of
$56 million are being charged to the cost of production over the
life of the venture based upon the ratio of current units of
production to current and anticipated future units of production.
In fiscal 1996, the Company amortized approximately $3.9 million of
the manufacturing agreement payments. The joint venture is
accounted for on the equity method. During fiscal 1996, the
Company purchased $77.1 million of manufactured wafers from MiCRUS.
As of March 30, 1996, the Company had $7.4 million of accounts
payable related to wafers purchased from MiCRUS.
In March 1995, the Company and IBM agreed to a $120 million
expansion of MiCRUS, of which Cirrus Logic is committed to provide
$60 million in financing. The Company expects to use lease
financing to fulfill its commitment. This expansion is expected
to be in full production in fiscal 1997.
In October 1995, the Company committed to fund a second
expansion of MiCRUS. The cost of this expansion is anticipated to
be approximately $198 million of which the Company expects to
spend $33 million in cash for facilities. The remaining
commitment is expected to be funded with lease financing, all of
which will be guaranteed by the Company.
As of March 30, 1996, the Company has purchased approximately
$94.7 million of manufacturing equipment for MiCRUS that the Company
expects to sell to a leasing company that will in turn lease the
equipment to MiCRUS. As of March 30, 1996, the Company is
contingently liable for MiCRUS equipment leases which have remaining
payments of approximately $229 million, payable through fiscal 2002.
Lucent Technologies In October 1995, the Company entered an
agreement with Lucent Technologies to form a joint venture (Cirent
Semiconductor) to build additional wafer production capacity in an
existing Orlando, Florida facility owned by Lucent Technologies.
The formation of the joint venture is pending completion of
equipment lease financing to be provided by the Company and
formation of the joint venture partnership. The facility will
manufacture wafers using submicron wafer process technology licensed
from Lucent Technologies. Cirent Semiconductor, which will have a
term of 10 years, will be owned 60% by Lucent Technologies and 40%
by Cirrus Logic and will be managed by a Board of Governors, of whom
three will be appointed by Lucent Technologies and two will be
appointed by Cirrus Logic.
The joint venture will operate two wafer fabs, both located
in the same complex, which will be leased from Lucent Technologies.
One of these fabs is already in operation and the other will be
built by Lucent Technologies. The new fab is expected to begin
operations in fiscal 1998. Lucent Technologies will purchase all
of the output from the existing fab at a price that covers all
costs associated with that fab. Lucent Technologies and Cirrus
Logic each will be entitled to purchase one-half of the output of
the new fab. If one company fails to purchase its full
entitlement, the shortfall may be purchased by the other company
or offered to third parties. However, if the wafers cannot be
sold elsewhere, the company that failed to purchase its full
entitlement will be required to reimburse Cirent Semiconductor for
costs associated with underutilized capacity.
The agreement with Lucent Technologies obligates the Company to
provide $420 million in financing. The Company expects to finance
$280 million of this amount through leasing equipment and
subleasing it to the joint venture or by guaranteeing leases
entered into by the joint venture. Of the $140 million balance,
the Company will contribute $35 million in equity in installments over a
three-year period and pay $105 million for a manufacturing agreement
in installments over a four-year period. The manufacturing
agreement payments of $105 million, of which $10 million was paid
in fiscal 1996, will be charged to the Company's cost of sales over
the life of the venture based upon the ratio of current units of
production to current and anticipated future units of production.
The Company will account for Cirent Semiconductor under the equity
method.
United Microelectronics Corporation ("UMC") In October 1995,
the Company entered into a foundry agreement and a foundry
capacity agreement with UMC, a Taiwanese company. Under terms of
the agreements, a new corporation, United Silicon, Inc., will be
formed under the laws of Taiwan for the purpose of manufacturing
and selling integrated circuits in wafer, die, and packaged form.
United Silicon, Inc. will build a wafer fabrication facility which
will be funded in part with equity investments from the Company
and two other U.S. semiconductor companies and in part with debt
and equipment lease financing from UMC. The Company's investment,
which is denominated in New Taiwanese dollars, will total
approximately $88 million and will represent a 15% equity interest
in United Silicon, Inc. In the fourth quarter of fiscal 1996, the
Company paid $20.6 million. The remaining equity investment will
be made in fiscal 1997.
In exchange for the Company's investment, the Company will
have the right, but not the obligation, to purchase a portion of
the capacity of the new manufacturing facility at fair market
prices. In addition, each party will have the right of first
refusal regarding capacity not fully utilized by other investors.
United Silicon, Inc. is expected to begin production in fiscal 1998.
Under terms of the agreements, the board of directors of
United Silicon, Inc. will consist of seven members. UMC will
appoint a majority of the directors and the Company will appoint
one director. The obligations of the Company are conditional upon
approval of United Silicon, Inc. by governmental authorities. In
addition, the Company has initiated discussions with UMC regarding
rescheduling or postponing the Company's remaining commitments
under the agreements.
Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC") In fiscal
1993 and fiscal 1996, the Company entered into volume purchase
agreements with TSMC. Under each agreement, the Company
committed to purchase a fixed minimum number of wafers at market
prices and TSMC guaranteed to supply certain quantities. The
agreements expire in March 1997 and December 2001, respectively.
Under the agreement entered into in fiscal 1996, the Company has
agreed to make advance payments to TSMC of approximately $118
million, one-half in fiscal 1998 and one-half in fiscal 1999.
Under both the fiscal 1993 and 1996 agreements, if the Company does
not purchase the committed amount, it may be required to pay a per
wafer penalty for any shortfall not sold by TSMC to other
customers. The Company estimates that under the remaining term of
the fiscal 1993 agreement, it is obliged to purchase approximately
$37 million of product. Over the term of the fiscal 1996
agreement, the Company estimates it must purchase approximately
$790 million of product in order to fully realize the advance
payments required. During fiscal 1996 and 1995, the Company
purchased approximately $37.2 million and $17.4 million,
respectively, of product under the 1993 supply agreement and none
under the 1996 agreement.
5. INVESTMENTS
During fiscal years 1991 and 1992, the Company invested
approximately $1,660,000 in Media Vision, Inc. (Media Vision)
Preferred Stock. The investment was accounted for by the cost
method and represented an approximate six percent interest in
Media Vision. In fiscal 1994, the Company sold approximately 76%
of its original investment in Media Vision in an initial public
offering in April 1993 and in October 1993 in the open market.
The Company realized a gain of $13,682,000 on these sales in
fiscal year 1994.
6. OBLIGATIONS UNDER CAPITAL LEASES
The Company has capital lease agreements for machinery and
equipment as follows (in thousands):
March 30, April 1,
1996 1995
---------- ----------
Capitalized cost $ 20,076 $ 18,798
Accumulated amortization (11,385) ( 8,482)
---------- ----------
Total $ 8,691 $ 10,316
========== ==========
Amortization expense on assets capitalized under capital
lease obligations is included in depreciation and amortization.
The lease agreements are secured by the leased property.
Future minimum lease payments under capital leases for the
following fiscal years, together with the present value of the net
minimum lease payments as of March 30, 1996, are (in thousands):
1997 $ 5,103
1998 3,406
1999 2,294
2000 672
---------
Total minimum lease payments 11,475
Less amount representing interest ( 1,102)
---------
Present value of net lease payments 10,373
Less current maturities ( 4,115)
---------
Capital lease obligations $ 6,258
=========
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
March 30, April 1,
1996 1995
--------- ---------
Installment notes with interest
rates ranging from 6.18% to 9.08% $ 87,531 $ 23,356
Installment purchase contract with
officer of subsidiary 500 500
Less current maturities (22,460) (7,253)
--------- ---------
Long-term debt $ 65,571 $ 16,603
========= =========
Principal payments for the following fiscal years are (in
thousands):
1997 $ 22,460
1998 21,384
1999 19,748
2000 16,989
2001 6,615
Thereafter 835
--------
Total $ 88,031
========
At March 30, 1996, installment notes are secured by machinery
and equipment with a net book value of $79,211,000 ($18,940,000 at
April 1, 1995).
8. BANK ARRANGEMENTS
As of March 30, 1996, the Company had a commitment for a bank
line of credit up to a maximum of $135,000,000, expiring on April 30,
1996, at the bank's prime rate (8.25% at March 30, 1996). The Company
had $80,000,000 outstanding under the line at March 30, 1996. Terms
of the arrangement require compliance with certain covenants
including the maintenance of certain financial ratios, minimum
tangible net worth and profitable operations on a quarterly basis as
well as a prohibition against the payment of cash dividends without
prior bank approval. The Company was not in compliance with certain
financial ratios and the profitability covenant as of March 30, 1996.
In April 1996, the Company secured financing under a new commitment
and paid all amounts outstanding under this line.
In April 1996, the Company completed a new commitment for a
bank line of credit for borrowings up to a maximum of $200,000,000
expiring on July 31, 1997, at the banks' prime rate plus one-half
percent. The borrowings are secured by cash, accounts receivable,
inventory, certain purchased equipment, intellectual property, and
stock in the Company's subsidiaries. Use of the line is limited to
the borrowing base as defined by a combination of accounts receivable
and certain purchased equipment. As of March 30, 1996, the Company's
borrowing base, as defined, under this line would have been limited
to approximately $100 million, net of certain outstanding letters of
credit. Terms of the agreement include satisfaction of certain
financial ratios, minimum tangible net worth, cash flow, and leverage
requirements as well as a prohibition against the payment of a cash
dividend without prior bank approval.
The Company has outstanding letters of credit with banks which
are denominated in Japanese yen totaling approximately $431,000 at
March 30, 1996. Such letters of credit secure inventory purchases.
The Company has separate standby letters of credit of
approximately $15,600,000 with wafer vendors to secure inventory
purchases. In addition, the Company has a separate standby letter of
credit of approximately $28,400,000 with a leasing company to secure
lease payments under equipment leases the leasing company has with
MiCRUS (see note 4) which are guaranteed by the Company.
9. COMMITMENTS
Facilities and Equipment Under Operating Lease Agreements
The Company leases its facilities and certain equipment under
operating lease agreements, some of which have renewal options.
Certain of these arrangements provide for lease payment
increases based upon future fair market rates. The aggregate
minimum future rental commitments under all operating leases for
the following fiscal years are (in thousands):
1997 $ 10,192
1998 9,572
1999 9,231
2000 9,348
2001 9,046
Thereafter 48,187
---------
Total minimum lease payments $ 95,576
=========
Total rent expense was approximately $11,177,000, $10,242,000
and $6,264,000 for fiscal 1996, 1995 and 1994, respectively.
10. Restructuring Charges
In the fourth quarter of fiscal 1996, as a result of decreased
demand for the Company's products for use in personal computers,
which accounts for more than 80% of the Company's revenue,
management reviewed the various operating areas of the business
and took certain steps to bring operating expenses and capacity in
line with demand. These actions resulted in a pre-tax
restructuring charge of approximately $11.6 million. The principal
actions in the restructuring involved the consolidation of support
infrastructure and the withdrawal from an unprofitable product line
and reduction of planned production capacity. This resulted in the
termination of approximately 320 positions from the manufacturing,
research and development, sales and marketing and administrative
departments. The Company estimates the annual savings from
reduced salaries, benefits and other expenses will be approximately
$17 million.
The following sets forth the Company's restructuring accrual
as of March 30, 1996 (in thousands):
Severance and Capacity scale back
related benefits and other costs Total
---------------- ------------------- --------
Restructuring cost $ 7,536 $ 4,030 $ 11,566
No payments were made for the restructuring during fiscal
1996. The Company expects that the restructuring accrual as of
March 30, 1996 will result in cash payments, all of which will be
made in fiscal 1997.
11. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have adopted 401(k) Profit
Sharing Plans ("the Plans") covering substantially all of their
qualifying domestic employees. Under the Plans, employees may
elect to reduce their current compensation by up to 15%, subject to
annual limitations, and have the amount of such reduction
contributed to the Plans. The Plans permit, but do not require,
additional discretionary contributions by the Company on behalf of
all participants. During fiscal 1996, 1995 and 1994, the Company
and its subsidiaries matched employee contributions up to various
maximums per plan for a total of approximately $2,111,000, $1,849,000
and $1,290,000, respectively. The Company intends to continue the
contributions in fiscal 1997.
12. SHAREHOLDERS' EQUITY
Employee Stock Purchase Plan
In March 1989, the Company adopted the 1989 Employee Stock
Purchase Plan. As of March 30, 1996, 628,330 shares of Common
Stock are reserved for future issuance. During fiscal 1996, 1995
and 1994, 593,820, 461,252 and 409,234 shares, respectively, were
issued under the Employee Stock Purchase Plan.
Stock Option Plans
The Company has various stock option plans (the "Option
Plans") under which officers, key employees, non-employee
directors and consultants may be granted qualified and non-
qualified options to purchase shares of the Company's authorized
but unissued Common Stock. Options are generally priced at the
fair market value of the stock on the date of grant. Options are
exercisable immediately but unvested shares are held in escrow and
are subject to repurchase at the original issuance price. Options
currently expire no later than ten years from date of grant.
In previous years, the Company also has issued non-qualified
stock options to purchase a total of 664,156 shares at prices
ranging from $0.06 to $6.50 per share, subject to a vesting
schedule of three and one-half or four years and 23,000 shares as
stock grants to employees at no cost which vest over five years.
The Company recognizes as compensation expense the excess of the
fair market value at the date of grant over the exercise price of
such options and grants. The compensation expense is amortized
ratably over the vesting period of the options.
Additional information relative to stock option activity is
as follows (in thousands):
Outstanding Options
Options --------------------
Available for Number of Aggregate
Grant Shares Price
----------- ------- ----------
Balance, March 31, 1993 384 7,854 $ 55,369
Shares authorized for issuance 4,170 - -
Options granted (4,200) 4,200 47,075
Options exercised - (1,360) (7,355)
Options cancelled 292 (322) (3,125)
----------- ------- ----------
Balance, April 2, 1994 646 10,372 91,964
Shares authorized for issuance 4,796 - -
Options granted (4,228) 4,228 57,574
Options exercised - (898) (3,337)
Options cancelled 272 (314) (4,407)
----------- ------- ----------
Balance, April 1, 1995 1,486 13,388 141,794
Shares authorized for issuance 1,880 - -
Options granted (3,086) 3,086 108,828
Options exercised - (2,704) (20,399)
Options cancelled 529 (575) (9,900)
----------- ------- ----------
Balance, March 30, 1996 809 13,195 $ 220,323
=========== ======= ==========
As of March 30, 1996, approximately 14,004,000 shares of
Common Stock were reserved for issuance under the Option Plans.
13. INCOME TAXES
(Loss) income before income taxes and cumulative effect of
accounting change consists of (in thousands):
1996 1995 1994
---------- --------- ---------
United States $ (40,938) $ 57,541 $ 40,196
Foreign (785) 32,097 15,768
---------- --------- ---------
Total $ (41,723) $ 89,638 $ 55,964
========== ========= =========
The (benefit) provision for income taxes consists of (in thousands):
1996 1995 1994
---------- ---------- ----------
Federal
Current $ 25,303 $ 27,829 $ 20,245
Prepaid (28,182) (2,180) (5,910)
---------- ---------- ----------
(2,879) 25,649 14,335
State
Current 3,402 2,936 4,911
Prepaid (10,110) (1,308) (1,820)
---------- ---------- ----------
(6,708) 1,628 3,091
Foreign
Current 4,047 959 720
---------- ---------- ----------
Total $ ( 5,540) $ 28,236 $ 18,146
========== ========== ==========
The (benefit) provision for income taxes differs from the amount
computed by applying the statutory federal rate to pretax income
as follows:
1996 1995 1994
------- ------- -------
Expected income tax (benefit) provision at
the U.S. federal statutory rate (35.0%) 35.0% 35.0%
(Benefit) provision for state income taxes,
net of federal effect (10.5%) 1.4% 3.6%
Foreign operating results taxed at rates
other than the U.S. statutory rate 35.9% (3.0%) (3.4%)
Research and development credits
(flow-through method) (3.1%) (4.6%) (4.7%)
Other (0.6%) 2.7% 1.9%
------- ------- -------
(Benefit) provision for income taxes (13.3%) 31.5% 32.4%
======= ======= =======
Under SFAS No. 109, deferred income tax assets and
liabilities reflect the net tax effects of tax carryforwards and
temporary differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for
income tax purposes.
Significant components of the Company's deferred tax assets
and liabilities are (in thousands):
March 30, April 1,
1996 1995
-------- --------
Deferred tax assets:
Inventory valuation $ 25,817 $ 9,443
Accrued expenses and allowances 35,447 13,853
Net operating loss carryforwards 3,051 3,051
Research and development credit
carryforwards 4,507 2,190
State investment tax credit
carryforwards 4,042 -
Other 2,690 2,077
-------- --------
Total deferred tax assets 75,554 30,614
-------- --------
Deferred tax liabilities:
Depreciation 8,124 5,057
Other 4,501 920
-------- --------
Total deferred tax liabilities 12,625 5,977
-------- --------
Total net deferred tax assets $ 62,929 $ 24,637
======== ========
The Company has research and development tax credit carryforwards
for federal and state tax purposes of approximately $4.5 million,
expiring from 2006 through 2011. The Company also has state investment
tax credit carryforwards of approximately $4 million expiring in 2003.
As a result of the 1993 PCSI merger, the Company has net
operating loss carryforwards for federal tax purposes of
approximately $8.5 million, expiring from 2002 through 2008.
These net operating loss carryforwards are available to offset
future consolidated taxable income only to the extent contributed
by PCSI and are subject to an annual limitation of approximately
$2.6 million because of the "change in ownership" rules under
Section 382 of the Internal Revenue Code.
14. LEGAL MATTERS
The Company and certain of its 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 the Company and may
be subject to indemnification provisions made by the Company to the
customers. The Company has not been named in any such suits. 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. While the Company cannot accurately
predict the eventual outcome of these or any other such infringement
matters, management believes that the likelihood of an outcome resulting in
a material adverse effect on the Company's consolidated financial position,
results of operations, or cash flows is remote.
On May 7, 1993, the Company was served with two shareholder
class action lawsuits filed in the United States District Court
for the Northern District of California. The lawsuits, which name
the Company and several of its officers and directors as
defendants, allege violations of the federal securities laws in
connection with the announcement by Cirrus Logic of its financial
results for the quarter ended March 31, 1993. The complaints do
not specify the amounts of damages sought. The defendants' motions
for summary judgment are currently scheduled for hearing on July
25, 1996. The Company believes the likelihood is remote that the
ultimate resolution of this matter will have a material adverse
effect on its financial position, results of operations or cash
flows.
Between November 7 and November 21, 1995, five shareholder
class actions lawsuits were filed in the United States District
Court for the Northern District of California against the Company
and several of its officers and directors. A consolidated amended
complaint was filed on February 20, 1996 and an amended
consolidated supplemental complaint was filed on May 3, 1996.
This complaint alleges that certain statements made by defendants
during the period from July 23, 1995 through December 21, 1995 were
false and misleading and in violation of the federal securities
laws. The defendants' motion to dismiss the complaint are
currently scheduled for hearing on August 30, 1996. The complaint
does not specify the amounts of damages sought. The Company
believes that the allegations of the complaint are without merit,
and the Company intends to defend itself vigorously. The Company
believes the likelihood is remote that the ultimate resolution of
this matter will have a material adverse effect on its financial
position, results of operations or cash flows.
On February 21, 1996 a shareholder class action lawsuit was
filed in the Superior Court of California in and for the County of
Alameda against the Company and numerous fictitiously named
defendants alleged to be officers or agents of the Company. An
amended complaint, which added certain of the Company's officers
and directors as defendants was filed on April 18, 1996. The
lawsuit alleges that certain statements made by the Company and
the fictitiously named defendants during the period from October
1, 1995 through February 14, 1996 were false and misleading and
that the defendants breached their fiduciary duties in making such
statements in violation of California State Common and Statutory
law. The complaint does not specify the amounts of damages
sought. The Company believes that the allegations of the
complaint are without merit, and the Company intends to defend
itself vigorously. The Company believes the likelihood is remote
that the ultimate resolution of this matter will have a material
adverse effect on its financial position, results of operations or
cash flows.
15. SUBSEQUENT EVENT (unaudited)
Subsequent to fiscal year end, the Company signed a memorandum
of understanding with National Semiconductor, Inc. (National) for
the sale of certain assets and obligations and all the intellectual
property of the PicoPower product line for $18 million. In addition,
related inventory will be purchased by National at a yet to be agreed
to value. The transaction is subject to completion of due diligence
procedures to be performed by National; the outcome of which may
affect the ultimate proceeds and the gain from the sale, and/or the
ultimate consummation of the sale transaction.
REPORT OF ERNST & YOUNG LLP
Independent Auditors
The Board of Directors and Shareholders
Cirrus Logic, Inc.
We have audited the accompanying consolidated balance sheets of Cirrus
Logic, Inc. as of March 30, 1996 and April 1, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended March 30, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cirrus Logic,
Inc. at March 30, 1996 and April 1, 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in fiscal 1994
the Company changed its method of accounting for income taxes.
/s/Ernst & Young LLP
San Jose, California
April 24, 1996, except for the
second paragraph of Note 8, as
to which the date is April 30, 1996;
and the third paragraph of Note 14, as
to which the date is June 27, 1996.
CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA
(Amounts in thousands except per share amounts)
(Unaudited)
Fiscal years by quarter
----------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
4th ** 3rd * 2nd 1st 4th 3rd 2nd 1st
-------- -------- -------- -------- -------- -------- -------- --------
Operating summary:
Net sales $233,073 $295,783 $317,820 $300,269 $273,215 $228,599 $202,211 $184,997
Cost of sales 222,894 197,273 176,494 177,689 166,509 135,658 113,715 96,627
Restructuring costs 11,566 - - - - - - -
Non-recurring costs - 1,195 - - - - 3,856 -
Merger costs - - - - - - 2,418 -
Operating (loss) income (117,393) (5,818) 48,421 30,566 21,012 19,725 15,788 21,426
(Loss) income before income taxes (117,886) (5,257) 48,228 33,192 27,601 21,142 18,045 22,850
Net (loss) income ($88,356) ($3,601) $33,037 $22,737 $18,907 $14,482 $12,438 $15,575
Net (loss) income per common and common equivalent
share ($1.38) ($0.06) $0.47 $0.34 $0.29 $0.23 $0.20 $0.24
Weighted average common and common equivalent shares
outstanding 63,813 63,273 70,997 67,775 64,472 63,300 63,206 63,740
In October 1991, April 1992, February 1993, and August 1994, in transactions accounted for as pooling-of-interests, the
Company merged with Crystal Semiconductor Corporation, Acumos Incorporated, Pacific Communication Sciences, Inc., and
PicoPower Technology, Inc., respectively. All of the consolidated financial information reflects the combined operations of
the companies.
* In the third quarter of fiscal 1996, cost of sales increased as a result of a charge of approximately $33 million for inventory
written down for lower-than-anticipated shipments of and demand for graphics, core logic and other products and a $5 million
charge for anticipated payments for underutilization of capacity at the MiCRUS joint venture.
** In the fourth quarter of fiscal 1996, cost of sales increased as a result of charges for inventory write-downs because of
general market conditions and the transition to new product releases. Results include a restructuring charge related
to the streamlining of operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Executive Officers - See the section entitled "Executive
Officers of the Registrant" in Part I, Item 1 hereof.
(b) Directors - The information required by this Item is
incorporated by reference to the section entitled "Election
of Directors" in the Registrant's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference
to the sections entitled "Executive Compensation" and various
stock benefit plan proposals in the Registrant's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference
to the sections entitled "Share Ownership of Directors, Executive
Officers and Certain Beneficial Owners" of the Registrant's Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference
to the section entitled "Executive Compensation" in the
Registrant's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements
The following consolidated financial statements of the Registrant
and Report of Ernst & Young LLP, Independent Auditors are included
herewith:
(i) Consolidated Balance Sheets as of March 30, 1996 and
April 1, 1995.
(ii) Consolidated Statements of Operations for the years ended
March 30, 1996, April 1, 1995 and April 2, 1994.
(iii) Consolidated Statements of Shareholders' Equity for the
years ended March 30, 1996, April 1, 1995, and
April 2, 1994.
(iv) Consolidated Statements of Cash Flows for the years ended
March 30, 1996, April 1, 1995 and April 2, 1994.
(v) Notes to Consolidated Financial Statements.
(vi) Report of Ernst & Young LLP, Independent Auditors.
2. Financial Statement Schedule
The following consolidated financial statement schedule is filed
as part of this report and should be read in conjunction with the
consolidated financial statements:
Schedule
II Valuation and Qualifying Accounts
All other schedules have been omitted since the required
information is not present or not present in amounts sufficient to
require submission of the schedule or because the information
required is included in the consolidated financial statements or
notes thereto.
CIRRUS LOGIC INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance Charged to Balance
at Beginning Costs and at Close
Item of Period Expenses Deductions (1) of Period
- ----------------------- ------------- ----------- ------------ ------------
(Amounts in thousands)
1994
Allowance for doubtful
accounts $ 4,627 $ 3,688 ($ 78) $ 8,237
1995
Allowance for doubtful
accounts $ 8,237 $ 4,631 ($3,429) $ 9,439
1996
Allowance for doubtful
accounts $ 9,439 $ 4,094 ($ 359) $ 13,174
(1) Uncollectible accounts written off, net of recoveries
3. Exhibits
The following exhibits are filed as part of or incorporated by
reference into this Report:
3.1 (8) Restated Articles of Incorporation of Registrant, as
amended.
3.2 (1) Form of Restated Articles of Incorporation of
Registrant.
3.3 (1) By-laws of Registrant, as amended.
4.0 (1) Article III of Restated Articles of Incorporation of
Registrant (See Exhibits 3.1 and 3.2).
10.1 Amended 1987 Stock Option Plan.
10.2 Amended 1989 Employee Stock Purchase Plan.
10.3 (1) Description of Executive Bonus Plan.
10.4 (1) Fourth Amendment to Preferred Shares Purchase
Agreements, Founders Registration Rights Agreements, and
Warrant Agreements and Consent between the Registrant
and certain shareholders of the Registrant dated May 15,
1987, as amended April 28, 1989.
10.5 (1) Form of Indemnification Agreement.
10.6 (1) License Agreement between Registrant and Massachusetts
Institute of Technology dated December 16, 1987.
10.7 (1) Lease between Prudential Insurance Company of America
and Registrant dated June 1, 1986.
10.8 (1) Lease between McCandless Technology Park, Milpitas, and
Registrant dated March 31, 1989.
10.9 (1) Agreement for Foreign Exchange Contract Facility between
Bank of America National Trust and Savings Association
and Registrant, dated April 24, 1989.
10.10 (2) 1990 Directors Stock Option Plan and forms of Stock
Option Agreement.
10.11 (2) Lease between Renco Investment Company and Registrant
dated December 29, 1989.
10.12 (3) Loan agreement between First Interstate Bank of
California and Silicon Valley Bank and Registrant, dated
September 29, 1990.
10.13 (2) Loan agreement between Orix USA Corporation and the
Registrant dated April 23, 1990.
10.14 (2) Loan agreement between USX Credit Corporation and
Registrant dated December 28, 1989.
10.15 (3) Loan agreement between Household Bank and Registrant
dated September 24, 1990.
10.16 (3) Loan agreement between Bank of America and Registrant
dated March 29, 1991.
10.17 (4) Equipment lease agreement between AT&T Systems Leasing
Corporation and Registrant dated December 2, 1991.
10.18 (4) Lease between Renco Investment Company and Registrant
dated May 21, 1992.
10.19 (5) Loan agreement between Deutsche Credit Corporation and
Registrant dated March 30, 1993.
10.20 (5) Lease between Renco Investment Company and Registrant
dated February 28, 1993.
10.21 (6) Lease between Renco Investment Company and Registrant
dated May 4, 1994.
10.22 (7) Participation Agreement dated as of September 1, 1994
among Registrant, International Business Machines
Corporation, Cirel Inc. and MiCRUS Holdings Inc.
10.23 (7) Partnership Agreement dated as of September 30, 1994
between Cirel Inc. and MiCRUS Holdings Inc.
10.24 (8) Amended and Restated Credit Agreement between Registrant
and Bank of America dated January 31, 1995.
10.25 (9) General Partnership Agreement dated as of October 23, 1995
between the Company and AT&T.
10.26 (9) Joint Venture Formation Agreement dated as of October 23, 1995
between the Company and AT&T.
10.27 (9) Foundry Venture Agreement dated as of September 29, 1995
between the Company and United Microelectronics Corporation ("UMC").
10.28 (9) Written Assurances Re Foundry Venture Agreement dated as of
September 29, 1995 between the Company and UMC.
10.29 (9) Foundry Capacity Agreement dated as of September 29, 1995
between the Company and UMC.
10.30 Multicurrency Credit Agreement dated April 30, 1996 between
the Company and the Bank of America and Other Banks
11.1 Statement re: Computation of Per Share Earnings.
21.1 Proxy Statement to the 1996 Annual Meeting of
Shareholders.
22.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27 Article 5 Financial Data Schedule for 4th Qtr 10-K
(1) Incorporated by reference to Registration Statement
No. 33-28583.
(2) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1990.
(3) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1991.
(4) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1992.
(5) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1993.
(6) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended April 2, 1994.
(7) Incorporated by reference to Registrant's Report on Form 10-Q/A
for the quarterly period ended October 1, 1994.
(8) Incorporated by reference to Registrant's Report on Form 10-K
for the fiscal year ended April 1, 1995.
(9) Incorporated by reference to Registrant's Report on Form 10-Q/A
for the quarterly period ended September 30, 1995.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CIRRUS LOGIC, INC.
By: /s/ Thomas F. Kelly
Thomas F. Kelly
Executive Vice President, Finance and Administration, Chief
Financial Officer, Principal Accounting Officer, and Treasurer.
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Thomas F.
Kelly, his attorney-in-fact, with the power of substitution,
for him in any and all capacities, to sign any amendments to this
report on Form 10-K and to file the same, with exhibits thereto
other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated:
/s/ Michael L. Hackworth /s/ C. Gordon Bell
Michael L. Hackworth C. Gordon Bell
President, Chief Executive Director, June 28, 1996
Officer and Director
June 28, 1996
/s/ Suhas S. Patil /s/ D. James Guzy
Suhas S. Patil D. James Guzy
Chairman of the Board, Director, June 28, 1996
Executive Vice President,
Products and Technology
and Director
June 28, 1996
/s/ David L. Lyon /s/ C. Woodrow Rea, Jr.
President of PCSI (a subsidiary C. Woodrow Rea, Jr.
of Cirrus Logic, Inc.) and Director, June 28, 1996
Director
June 28, 1996
/s/ Thomas F. Kelly /s/ Walden C. Rhines
Thomas F. Kelly Walden C. Rhines
Executive Vice President, Director, June 28, 1996
Finance and Administration,
Chief Financial Officer,
Principal Accounting Officer,
and Treasurer
June 28, 1996
/s/ Robert H. Smith
Robert H. Smith
Director, June 28, 1996