FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) |
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[x] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 30, 2002. |
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OR |
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[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number 000-23084.
Integrated Silicon Solution, Inc.
Delaware |
77-0199971 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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2231 Lawson Lane, Santa Clara, California |
95054 |
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(Address of principal executive offices) |
(zip code) |
Registrants telephone number, including area code (408) 588-0800.
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.
The number of outstanding shares of the registrants Common Stock as of July 31, 2002 was 27,651, 074.
Integrated Silicon Solution, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||||
June 30, | June 30, | |||||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||||
Net sales (See Note 13) |
$ | 18,532 | $ | 20,013 | $ | 50,261 | $ | 137,265 | ||||||||||
Cost of sales |
31,563 | 23,513 | 57,597 | 115,131 | ||||||||||||||
Gross profit (loss) |
(13,031 | ) | (3,500 | ) | (7,336 | ) | 22,134 | |||||||||||
Operating Expenses: |
||||||||||||||||||
Research and development |
8,016 | 6,375 | 21,815 | 19,704 | ||||||||||||||
Selling, general and administrative |
4,213 | 4,399 | 12,181 | 16,517 | ||||||||||||||
In-process technology charge |
| | 4,689 | | ||||||||||||||
Total operating expenses |
12,229 | 10,774 | 38,685 | 36,221 | ||||||||||||||
Operating loss |
(25,260 | ) | (14,274 | ) | (46,021 | ) | (14,087 | ) | ||||||||||
Other income (expense), net |
853 | 1,350 | 2,183 | 4,702 | ||||||||||||||
Gain on sale of investments |
| 1,753 | 35 | 30,516 | ||||||||||||||
Income (loss) before minority interest
and equity in net income (loss) of
affiliated companies |
(24,407 | ) | (11,171 | ) | (43,803 | ) | 21,131 | |||||||||||
Provision (benefit) for income taxes |
3 | (9,163 | ) | (3,220 | ) | (1,087 | ) | |||||||||||
Income (loss) before equity in
net income (loss) of affiliated
companies |
(24,410 | ) | (2,008 | ) | (40,583 | ) | 22,218 | |||||||||||
Minority interest in net (income) loss of
consolidated subsidiary |
(6 | ) | | 18 | | |||||||||||||
Equity in net income (loss) of
affiliated companies |
(511 | ) | (1,695 | ) | (4,946 | ) | 3,623 | |||||||||||
Net income (loss) |
$ | (24,927 | ) | $ | (3,703 | ) | $ | (45,511 | ) | $ | 25,841 | |||||||
Basic net income (loss) per share |
$ | (0.91 | ) | $ | (0.14 | ) | $ | (1.69 | ) | $ | 0.99 | |||||||
Shares used in basic per share
calculation |
27,309 | 26,337 | 26,954 | 26,084 | ||||||||||||||
Diluted net income (loss) per share |
$ | (0.91 | ) | $ | (0.14 | ) | $ | (1.69 | ) | $ | 0.93 | |||||||
Shares used in diluted per share
calculation |
27,309 | 26,337 | 26,954 | 27,699 | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
1
Integrated Silicon Solution, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||
June 30, | June 30, | ||||||||||||||||
2002 | 2001 | 2002 | 2001 | ||||||||||||||
Net income (loss) |
$ | (24,927 | ) | $ | (3,703 | ) | $ | (45,511 | ) | $ | 25,841 | ||||||
Other comprehensive income
(loss), net of tax: |
|||||||||||||||||
Change in cumulative translation adjustment |
1,111 | (1,387 | ) | 779 | (1,921 | ) | |||||||||||
Comprehensive income (loss) |
$ | (23,816 | ) | $ | (5,090 | ) | $ | (44,732 | ) | $ | 23,920 | ||||||
See accompanying notes to condensed consolidated financial statements.
2
Integrated Silicon Solution, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
June 30, | September 30, | ||||||||
2002 | 2001 | ||||||||
(unaudited) | (1) | ||||||||
ASSETS | |||||||||
Current assets: |
|||||||||
Cash and cash equivalents |
$ | 23,571 | $ | 19,309 | |||||
Short-term investments |
80,550 | 103,550 | |||||||
Accounts receivable |
9,332 | 9,743 | |||||||
Accounts receivable from related parties (See Note 13) |
753 | 597 | |||||||
Inventories |
20,026 | 45,179 | |||||||
Other current assets |
5,531 | 4,689 | |||||||
Total current assets |
139,763 | 183,067 | |||||||
Property, equipment, and leasehold improvements, net |
10,708 | 7,663 | |||||||
Other assets |
61,242 | 47,122 | |||||||
Total assets |
$ | 211,713 | $ | 237,852 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY | |||||||||
Current liabilities: |
|||||||||
Accounts payable |
$ | 22,787 | $ | 7,285 | |||||
Accounts payable to related parties (See Note 13) |
2,965 | 854 | |||||||
Accrued compensation and benefits |
3,587 | 3,510 | |||||||
Accrued expenses |
4,246 | 7,801 | |||||||
Income tax payable |
70 | 3,651 | |||||||
Current portion of long-term obligations |
168 | 156 | |||||||
Total current liabilities |
33,823 | 23,257 | |||||||
Long-term obligations |
30 | 158 | |||||||
Minority interest |
127 | | |||||||
Stockholders equity: |
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Common stock |
3 | 3 | |||||||
Additional paid-in capital |
230,352 | 221,502 | |||||||
Accumulated deficit |
(47,222 | ) | (1,711 | ) | |||||
Unearned compensation |
(822 | ) | | ||||||
Accumulated comprehensive loss |
(4,578 | ) | (5,357 | ) | |||||
Total stockholders equity |
177,733 | 214,437 | |||||||
Total liabilities and stockholders equity |
$ | 211,713 | $ | 237,852 | |||||
(1) | Derived from audited financial statements. |
See accompanying notes to condensed consolidated financial statements.
3
Integrated Silicon Solution, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended | ||||||||||
June 30, | ||||||||||
2002 | 2001 | |||||||||
Cash flows from operating activities |
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Net income (loss) |
$ | (45,511 | ) | $ | 25,841 | |||||
Depreciation and amortization |
2,917 | 2,513 | ||||||||
Amortization of intangibles and unearned compensation |
170 | | ||||||||
In-process technology charge |
4,689 | | ||||||||
Gain on sale of investments |
(35 | ) | (30,516 | ) | ||||||
Loss on impairment of investment |
150 | | ||||||||
Equity in (net income) loss of affiliated companies |
4,946 | (3,623 | ) | |||||||
Minority interest in net loss of consolidated subsidiary |
(18 | ) | | |||||||
Net effect of changes in current and other assets and current liabilities |
33,300 | (13,750 | ) | |||||||
Cash provided by (used in) operating activities |
608 | (19,535 | ) | |||||||
Cash flows from investing activities |
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Capital expenditures |
(5,232 | ) | (5,151 | ) | ||||||
Purchases of available-for-sale securities |
(19,600 | ) | (81,300 | ) | ||||||
Sales of available-for-sale securities |
42,600 | 30,550 | ||||||||
Proceeds from partial sale of Integrated Circuit Solution, Inc. (ICSI) |
64 | 15,484 | ||||||||
Proceeds from joint venture partner |
145 | | ||||||||
Investment in Purple Ray |
(192 | ) | | |||||||
Investment in Semiconductor Manufacturing International Corp. (SMIC) |
(11,352 | ) | (14,250 | ) | ||||||
Proceeds from the sale of Wafertech |
| 40,669 | ||||||||
Proceeds from partial sale of NexFlash |
| 6,167 | ||||||||
Other investments |
(4,815 | ) | (3,320 | ) | ||||||
Cash provided by (used in) investing activities |
1,618 | (11,151 | ) | |||||||
Cash flows from financing activities |
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Proceeds from issuance of common stock |
1,971 | 2,759 | ||||||||
Principal payments on notes payable and long-term
obligations |
(116 | ) | (104 | ) | ||||||
Cash provided by financing activities |
1,855 | 2,655 | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
181 | | ||||||||
Net increase (decrease) in cash and cash equivalents |
4,262 | (28,031 | ) | |||||||
Cash and cash equivalents at beginning of period |
19,309 | 38,778 | ||||||||
Cash and cash equivalents at end of period |
$ | 23,571 | $ | 10,747 | ||||||
See accompanying notes to condensed consolidated financial statements.
4
INTEGRATED SILICON SOLUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying condensed financial statements include the accounts of Integrated Silicon Solution, Inc. (the Company) and its consolidated majority owned subsidiaries, after elimination of all significant intercompany accounts and transactions and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included.
Operating results for the nine months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending September 30, 2002 or for any other period. The financial statements included herein should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2001.
2. Concentrations
In the three and nine month periods ended June 30, 2002, no single customer accounted for over 10% of net sales. Sales to Flextronics International accounted for approximately 14% of total net sales for the nine months ended June 30, 2001. Substantially all of the sales to Flextronics were for products to be delivered to Cisco Systems, Inc.
3. Cash, Cash Equivalents and Short-term Investments
Cash, cash equivalents and short-term investments consisted of the following:
(In thousands) | ||||||||
June 30, | September 30, | |||||||
2002 | 2001 | |||||||
Cash |
$ | 18,276 | $ | 14,280 | ||||
Money market instruments |
5,295 | 5,029 | ||||||
Municipal bonds due in more than 3 years |
80,550 | 103,550 | ||||||
$ | 104,121 | $ | 122,859 | |||||
4. Inventories
The following is a summary of inventories by major category: (In thousands)
June 30, | September 30, | |||||||
2002 | 2001 | |||||||
Purchased components |
$ | 7,754 | $ | 12,350 | ||||
Work-in-process |
3,370 | 594 | ||||||
Finished goods |
8,902 | 32,235 | ||||||
$ | 20,026 | $ | 45,179 | |||||
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INTEGRATED SILICON SOLUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Other Assets
Other assets consisted of the following: (In thousands)
June 30, | September 30, | |||||||
2002 | 2001 | |||||||
Investment in ICSI |
$ | 18,434 | $ | 22,805 | ||||
Investment in ICSI convertible debenture |
3,180 | | ||||||
Investment in SMIC |
30,202 | 18,850 | ||||||
Other |
9,426 | 5,467 | ||||||
$ | 61,242 | $ | 47,122 | |||||
6. Income Taxes
The benefit for income taxes for the nine month period ended June 30, 2002 reflects a benefit for alternative minimum taxes provided for the fiscal year ended September 30, 2001 which can be recovered based on changes in the tax law. The Company recorded a benefit for income taxes of $1.1 million for the nine months ended June 30, 2001. The benefit for income taxes for the nine months ended June 30, 2001 included a benefit of approximately $5.0 million for the reversal of taxes accrued for foreign operations for which the statute had expired. Excluding this benefit, the Company recorded a tax expense of 18.5% for the nine months ended June 30, 2001. This tax expense reflected foreign taxes on profits in foreign jurisdictions and the reversal of valuation allowances previously established.
7. Net Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
Three Months Ended | Nine Months Ended | ||||||||||||||||
June 30, | June 30, | ||||||||||||||||
2002 | 2001 | 2002 | 2001 | ||||||||||||||
Numerator for basic and diluted net income (loss)
per share: |
|||||||||||||||||
Net income (loss) |
$ | (24,927 | ) | $ | (3,703 | ) | $ | (45,511 | ) | $ | 25,841 | ||||||
Denominator for basic net income (loss) per share: |
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Weighted average common shares outstanding |
27,309 | 26,337 | 26,954 | 26,084 | |||||||||||||
Dilutive stock options |
| | | 1,592 | |||||||||||||
Dilutive warrants |
| | | 23 | |||||||||||||
Denominator for diluted net income (loss) per
share |
27,309 | 26,337 | 26,954 | 27,699 | |||||||||||||
Basic net income (loss) per share |
$ | (0.91 | ) | $ | (0.14 | ) | $ | (1.69 | ) | $ | 0.99 | ||||||
Diluted net income (loss) per share |
$ | (0.91 | ) | $ | (0.14 | ) | $ | (1.69 | ) | $ | 0.93 | ||||||
The above diluted calculation for the three months ended June 30, 2002 and June 30, 2001 does not include approximately 4,771,000 and 4,154,000 shares attributable to options as of June 30, 2002 and 2001, respectively, as their impact would be anti-dilutive. The above diluted calculation for the nine months ended June 30, 2002 and 2001, does not include approximately 4,741,000 and 826,000 shares attributable to options as of June 30, 2002 and 2001, respectively, as their impact would be anti-dilutive.
6
INTEGRATED SILICON SOLUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences, may be material to the financial statements.
9. Impact of Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. The new rules require business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and goodwill acquired after this date will no longer be amortized, but will be subject to annual impairment tests. All other intangible assets will continue to be amortized over their estimated useful lives. The Company adopted these standards as of October 1, 2001. As the Company had no recorded intangible assets at that date, the adoption of these standards did not have an impact on its financial position or operating results.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company is currently reviewing and assessing the impact of SFAS No. 144 on its financial position and results of operations.
In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses the financial accounting and reporting for obligations associated with an exit activity, including restructuring, or with a disposal of long-lived assets. Exit activities include, but are not limited to, eliminating or reducing product lines, terminating employees and contracts and relocating plant facilities or personnel. SFAS No. 146 specifies that a company will record a liability for a cost associated with an exit or disposal activity only when that liability is incurred and can be measured at fair value. Therefore, commitment to an exit plan or a plan of disposal expresses only managements intended future actions and, therefore, does not meet the requirement for recognizing a liability and the related expense. SFAS No. 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. The Company does not anticipate that the adoption of SFAS No. 146 will have a material effect on its financial position or results of operations.
7
INTEGRATED SILICON SOLUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Litigation
In April 1998, the U.S. Department of Commerce (DOC) published an antidumping duty order on imports of SRAMs from Taiwan, from where the Company currently imports a majority of its SRAMs. As a consequence of this antidumping duty order, the Company was required to post a cash deposit on imports of Taiwan fabricated SRAM wafers or devices at the ad valorem rate of 7.56%. These amounts were expensed to cost of goods sold.
The Company retained legal counsel to defend its interests in the antidumping proceedings. In addition, respondents (including ISSI) challenged certain aspects of the antidumping determination in federal court proceedings. On August 29, 2000, pursuant to an appeal by ISSI and other respondents, the U.S. Court of International Trade affirmed the International Trade Commission (ITC) decision to reverse the ITCs earlier ruling supporting the imposition of antidumping duties and rule instead in favor of the respondents. This decision by the Court of International Trade was appealed to the U.S. Court of Appeals for the Federal Circuit (CAFC). On September 21, 2001, the Federal Circuit upheld the Court of International Trade. On January 14, 2002, the DOC published a notice revoking the antidumping order and instructing the U.S. Customs to refund all cash deposits. In March 2002, the time to appeal the case to the Supreme Court expired and the case terminated.
As a result of the termination of the antidumping case, the Company reversed amounts previously expensed to cost of goods sold of approximately $5.2 million of which approximately $3.6 million had been cash payments and $1.6 million was accrued as a liability. At June 30, 2002, all refunds due the Company had been received.
11. Long Term Obligations
The Company leases certain of its equipment under a capital lease. The lease is collateralized by the underlying assets. At June 30, 2002, property and equipment with a cost of $600,000 was subject to this financing arrangement. Related accumulated amortization at June 30, 2002 amounted to $387,500. Under the terms of the lease, the Company owes monthly payments of $15,108 through September 1, 2003. Remaining principle and interest payments were $198,000 and $13,000, respectively, at June 30, 2002.
8
INTEGRATED SILICON SOLUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Geographic and Segment Information
The Company has one operating segment, which is to design, develop, and market high-performance SRAM, DRAM, and other memory products. The following table summarizes the Companys operations in different geographic areas:
Nine months ended | |||||||||
June 30, | |||||||||
2002 | 2001 | ||||||||
(In thousands) | |||||||||
Net Sales |
|||||||||
United States |
$ | 16,746 | $ | 72,990 | |||||
China |
9,199 | 8,233 | |||||||
Taiwan |
5,794 | 785 | |||||||
Hong Kong |
5,054 | 9,864 | |||||||
Singapore |
2,724 | 6,276 | |||||||
Asia other |
2,704 | 5,093 | |||||||
Europe |
7,553 | 32,957 | |||||||
Other |
487 | 1,067 | |||||||
Total net sales |
$ | 50,261 | $ | 137,265 | |||||
June 30, | September 30, | ||||||||
2002 | 2001 | ||||||||
(In thousands) | |||||||||
Long-lived assets |
|||||||||
United States |
$ | 8,472 | $ | 6,634 | |||||
Hong Kong |
671 | 566 | |||||||
China |
1,259 | 463 | |||||||
Other foreign locations |
306 | | |||||||
Total long-lived assets |
$ | 10,708 | $ | 7,663 | |||||
13. Related Party Transactions
For the nine months ended June 30, 2002 and June 30, 2001, the Company sold approximately $819,000 and $189,000, respectively, of memory products to ICSI. The Company currently has approximately a 29% ownership interest in ICSI. The Companys Chairman and Chief Executive Officer (CEO), Jimmy S.M. Lee, is a director of ICSI. The Company also provides services and licenses certain products to ICSI. At June 30, 2002 and September 30, 2001, the Company had an accounts receivable balance from ICSI of approximately $145,000 and $327,000, respectively.
9
INTEGRATED SILICON SOLUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company purchases goods and contract manufacturing services from ICSI. For nine months ended June 30, 2002 and June 30, 2001, purchases of goods and services were approximately $2,665,000 and $12,775,000, respectively. The Company also pays ICSI for certain product development costs and license fees. At June 30, 2002 and September 30, 2001, the Company had an accounts payable balance to ICSI of approximately $2,460,000 and $551,000, respectively.
The Company provides NexFlash various administrative support services for which it is reimbursed. In addition, the Company received approximately $177,000 in sublease income from NexFlash in the nine months ended June 30, 2001. The Company currently has approximately a 14% ownership interest in NexFlash. The Companys Chairman and CEO, Jimmy S.M. Lee, is a director of NexFlash. At June 30, 2002 and September 30, 2001, the Company had an accounts receivable balance from NexFlash of approximately $3,000 and $81,000, respectively.
The Company provides goods and services to GetSilicon in which the Company currently has approximately a 19% ownership interest. The Companys Chairman and CEO, Jimmy S.M. Lee, was the Chairman of GetSilicon until May 14, 2002 and continues to serve as a director. For the nine months ended June 30, 2002 and June 30, 2001, the Company provided goods and services of approximately $112,000 and $519,000, respectively, to GetSilicon. At June 30, 2002 and September 30, 2001, the Company had an accounts receivable balance from GetSilicon of approximately $45,000 and $30,000, respectively.
The Company engages GetSilicon for business-to-business data exchange and professional services. For the nine months ended June 30, 2002 and June 30, 2001, purchases of such services were approximately $364,000 and $140,000, respectively. At June 30, 2002 and September 30, 2001, the Company had an accounts payable balance to GetSilicon of approximately $135,000 and $32,000, respectively.
For the nine months ended June 30, 2002 and June 30, 2001, the Company sold approximately $393,000 and $110,000, respectively, of memory products to E-CMOS in which the Company currently has approximately a 26% ownership interest. The Companys Chairman and CEO, Jimmy S.M. Lee, is the Chairman of E-CMOS. At June 30, 2002 and September 30, 2001, the Company had an accounts receivable balance from E-CMOS of approximately $169,000 and $159,000, respectively.
The Company receives administrative support services and reimburses E-CMOS for expenses incurred on its behalf. At June 30, 2002 and September 30, 2001, the Company had an accounts payable balance to E-CMOS of approximately $370,000 and $271,000, respectively.
For the nine months ended June 30, 2002, the Company sold approximately $650,000 of memory products to Marubun USA Corporation (Marubun). Hide L. Tanigami, a director of the Company, is the president and chief executive officer of Marubun. At June 30, 2002, the Company had an accounts receivable balance from Marubun of approximately $391,000.
10
INTEGRATED SILICON SOLUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Investment in Integrated Circuit Solution Incorporation (ICSI)
The following summarizes financial information for ICSI, an equity investee. (In thousands)
June 30, | September 30, | |||||||
2002 | 2001 | |||||||
Current assets |
$ | 73,299 | $ | 76,624 | ||||
Property, plant, and equipment and other assets |
48,491 | 51,345 | ||||||
Current liabilities |
32,714 | 34,181 | ||||||
Long-term debt |
20,030 | 9,352 |
Nine Months Ended | ||||||||
June 30, | ||||||||
2002 | 2001 | |||||||
Net sales |
$ | 54,834 | $ | 99,898 | ||||
Gross profit (loss) |
(5,649 | ) | 29,129 | |||||
Net income (loss) |
(16,808 | ) | 15,344 |
In the June 2002 quarter, the Company invested approximately $3.2 million in convertible debentures issued by ICSI. ICSI raised approximately $17 million with the proceeds to be used for general working capital purposes. Key terms of the issuance included: 5 year term, 0% coupon rate, convertible into ICSI common stock after 90 days, four specified conversion dates per year, conversion price at 101% over a calculated average closing price, an anti-dilution clause, a put option at 4% interest after 3 years and 4.5% after 4 years, and callable after 2 years if the market price of ICSI common stock met certain conditions.
The Company accounts for investments in 50 percent or less owned companies over which it has the ability to exercise significant influence using the equity method of accounting. The Company periodically reviews these investments for other-than-temporary declines in market value and writes these investments to their fair value when an other-than-temporary decline has occurred.
11
INTEGRATED SILICON SOLUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Acquisition of Purple Ray
On February 13, 2002, the Company acquired all of the outstanding shares of Purple Ray, Inc. (Purple Ray) through a merger of Purple Ray with and into ISSI pursuant to the terms of an Agreement and Plan of Reorganization dated January 23, 2002. The results of Purple Rays operations have been included in the consolidated financial statements since that date.
Purple Ray was a privately held research and development stage company developing network search engine and content addressable memory integrated circuits. We acquired Purple Ray primarily to diversify our product offerings and to acquire an existing design team rather than trying to develop our own capability internally.
The assets of Purple Ray consisted primarily of intellectual property. The transaction was accounted for using the purchase method of accounting. The total estimated purchase price of $7.1 million consisted of the fair market value of ISSIs common stock issued of $5.2 million, the fair value of options to purchase Purple Ray common stock assumed by ISSI of $1.7 million and estimated transaction costs of $0.2 million. The value of the shares issued was based on the three-day average closing price leading up to and including the February 13, 2002 closing. Approximately 50,000 additional shares of ISSI common stock may be issued contingent upon meeting certain milestones.
The preliminary purchase price allocation is as follows (in thousands): |
Net tangible assets |
$ | 290 | |||
Intangible assets: |
|||||
In-process technology |
4,689 | ||||
Patent applications |
963 | ||||
Assembled workforce |
248 | ||||
Unearned compensation |
889 | ||||
Total estimated purchase price allocation |
$ | 7,079 | |||
The intangible assets, other than the in-process technology, are being amortized over lives of three to five years.
ISSI recorded deferred compensation of approximately $0.9 million at the acquisition date, representing the intrinsic value of unvested Purple Ray options assumed. The deferred compensation is being amortized over the option vesting period of five years.
The in-process technology acquired from Purple Ray was valued at $4.7 million. The write-off of the in-process technology acquired impacted the Companys statement of operations in the quarter ended March 31, 2002.
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INTEGRATED SILICON SOLUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pro forma Financial Information
The pro forma financial information presented below is presented as if the acquisition of Purple Ray had occurred at the beginning of fiscal 2001. The pro forma statements of operations for the three and nine months ended June 30, 2002 and 2001, include the historical results of the Company and Purple Ray plus the effect of recurring amortization of the related intangibles and unearned compensation. Such pro forma results do not purport to be indicative of what would have occurred had the acquisition been made as of those dates or the results which may occur in the future. The pro forma financial results are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
(In thousands) | ||||||||||||||||
Net sales |
$ | 18,532 | $ | 20,013 | $ | 50,261 | $ | 137,265 | ||||||||
Net income (loss) |
$ | (24,927 | ) | $ | (4,444 | ) | $ | (41,892 | ) | $ | 24,170 | |||||
Basic net income (loss) per share |
$ | (0.91 | ) | $ | (0.17 | ) | $ | (1.54 | ) | $ | 0.92 | |||||
Shares used in basic per share calculation |
27,309 | 26,775 | 27,170 | 26,522 | ||||||||||||
Diluted net income (loss) per share |
$ | (0.91 | ) | $ | (0.17 | ) | $ | (1.54 | ) | $ | 0.86 | |||||
Shares used in diluted per share calculation |
27,309 | 26,775 | 27,170 | 28,137 | ||||||||||||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
We have made forward-looking statements in this report on Form 10-Q that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of our operations or other matters. Also, when we use such words as believe, expect, anticipate, or similar expressions, we are making forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this report on Form 10-Q.
Background
Integrated Silicon Solution, Inc. was founded in October 1988. We design, develop and market high performance memory semiconductors used in Internet access devices, networking equipment, telecom and mobile communications equipment, computer peripherals, consumer electronics, automotive and other applications. Our high speed and low power SRAMs, our low to medium density DRAMs, and our family of EEPROMs enable customers to design products that meet the demanding connectivity and portability requirements of the wireless communications, data communications, internet infrastructure and automotive markets. Our objective is to capitalize on major trends such as the proliferation of wireless devices, the expansion of the communications and Internet infrastructure, and other trends in electronics technologies. Our goal is to be a focused supplier of high performance memories targeting the mobile communications, networking, broadband, digital consumer and automotive markets.
We believe our close relationship with leading silicon wafer foundries gives us access to the advanced wafer process technology required to design and manufacture high performance memories. We entered into our first development program with Taiwan Semiconductor Manufacturing Corporation (TSMC) in 1990 and with Chartered Semiconductor in 1994 and have also worked closely with United Microelectronics Corporation (UMC) since 1995. Our latest such development program is with Semiconductor Manufacturing International Corp (SMIC), the first eight-inch wafer foundry in China. Through this collaborative strategy, we have been at the forefront in utilizing the most advanced process technology for memories and in securing access to wafer capacity. We believe that ISSI is a technology leader and that our ability to design and develop high performance, cost-effective products, and our collaborative development with our manufacturing partners utilizing state-of-the-art process technology, gives us a competitive advantage.
Results of Operations
Our financial results for fiscal 2002 and fiscal 2001 reflect accounting for Integrated Circuit Solution, Inc. (ICSI) on the equity basis and include our percentage share of the results of their operations. Our financial results for fiscal 2002 and fiscal 2001 reflect accounting for E-CMOS Technology Corporation (E-CMOS) on the equity basis and include our share of their results of operations on a one quarter lag. Effective October 2001, we account for GetSilicon, Inc. (GetSilicon) on the cost basis as our ownership became less than 20%. Our financial results for fiscal 2001 reflect accounting for GetSilicon on the equity basis and include our percentage share of the results of their operations. Our financial results for fiscal 2001 through the period ended January 31, 2001 reflect accounting for NexFlash Technologies, Inc. (NexFlash) on the equity basis and include our percentage share of the results of NexFlashs operations. Effective February 2001, our ownership of NexFlash became less than 20%, and we began accounting for NexFlash on the cost basis. At June 30, 2002, we owned approximately 29% of ICSI, approximately 14% of NexFlash, approximately 26% of E-CMOS and approximately 19% of GetSilicon.
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Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make difficult and subjective estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenue and expenses during the reporting period. The estimates and judgments that we use in applying our accounting policies have a significant impact on the results we report in our financial statements. We base our estimates and judgments on our historical experience combined with knowledge of current conditions and our beliefs of what could occur in the future considering the information available at the time. Actual results could differ from those estimates, and such differences, may be material to the financial statements. We reevaluate our estimates and judgments on an ongoing basis.
Our critical accounting policies which are impacted by estimates are: (i) the valuation of our inventory, which impacts cost of goods sold and gross profit; (ii) the valuation of our allowance for doubtful accounts, which impacts general and administrative expense; and (iii) the valuation of our non-marketable equity securities, which impacts gains and losses on equity securities when we record impairments. Each of the policies is described in more detail below. We also have other key accounting policies that may not require us to make estimates and judgments that are as subjective or difficult, for instance, our policies with regard to revenue recognition, including the deferral of revenues on sales to distributors. These policies are described in the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended September 30, 2001.
Valuation of inventory
Our inventories are stated the lower of cost or market value. Determining market value requires us to project unit prices and volumes for future periods in which we expect to sell inventory on hand as of the balance sheet date. As a result of these estimates, we may record a charge to cost of goods sold, which decreases our gross profit, in advance of when the inventory is actually sold to reflect market values that are below our manufacturing and sales commission costs. Conversely, if we sell inventory that has previously been written down to the lower of cost or market at more favorable prices than we had forecasted at the time of the write-down, our gross profit may be higher. In addition to lower of cost or market write-downs, we also analyze inventory to determine whether any of it is excess or obsolete. We write down to zero dollars (which is a charge to cost of goods sold) the carrying value of inventory on hand in excess of six months estimated sales volumes to cover estimated exposures, unless adjustments are made to the forecast based on our judgments for newer products, end of life products or planned inventory increases. In making such judgments to write down inventory, we take into account the product life cycles which can range from 6 to 30 months, the stage in the life cycle of the product, the impact of competitors announcements and product introductions on our products, and purchasing opportunities due to excess wafer capacity.
Valuation of allowance for doubtful accounts
We maintain an allowance for doubtful accounts for losses that we estimate will arise from our customers inability to make required payments for goods and services purchased from us. We make our estimates of the uncollectibility of our accounts receivable by analyzing historical bad debts, specific customer creditworthiness and current economic trends. Once an account is deemed unlikely to be fully collected, we write down the carrying value of the receivable to the estimated recoverable value, which results in a charge to general and administrative expense, which decreases our profitability.
Valuation of non-marketable securities
Our ability to recover our investments in equity and debt securities that are non-marketable and to earn a return on these investments is largely dependent on financial market conditions and the occurrence of liquidity events, such as initial public offerings, mergers or acquisitions and private party transactions. All of these events are difficult to predict, particularly in the current economic environment. In addition, under our accounting policy, we are required to periodically review all of our investments for impairment. In the case of
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non-marketable securities, this requires significant judgment on our part, including an assessment of the investees financial condition, the existence of subsequent rounds of financing and the impact of any relevant contractual equity preferences, as well as the investees historical results of operations, and projected results and cash flows. If the actual outcomes for the investees are significantly different from our forecasts, the carrying value of our non-marketable equity securities may be overstated, and we may incur additional charges in future periods, which will decrease our profitability. At June 30, 2002, our strategic investments in non-marketable securities totaled $36.4 million.
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Net Sales. Net sales consist principally of total product sales less estimated sales returns. Net sales decreased by 7% to $18.5 million in the three months ended June 30, 2002 from $20.0 million in the three months ended June 30, 2001. The decrease in sales was principally due to a significant decrease in the average selling prices of our SRAM products in the three months ended June 30, 2002 compared to the three months ended June 30, 2001. While SRAM units shipped increased in the three months ended June 30, 2002 compared to the three months ended June 30, 2001, the impact of the reduction in average selling prices resulted in an overall reduction in SRAM revenue. In addition, declines in the average selling prices of our DRAM products were offset by increases in units shipped. We anticipate that the average selling prices of our existing products will generally decline over time, although the rate of decline may fluctuate for certain products. In this regard, we also experienced a decline in the average selling prices for certain of our SRAM and DRAM products in the three months ended June 30, 2002 compared to the three months ended March 30, 2002. We anticipate further price declines for certain of our SRAM and DRAM products in the September 2002 quarter. There can be no assurance that such declines will be offset by higher volumes or by higher prices on newer products.
In the three months ended June 30, 2002 and June 30, 2001, no single customer accounted for over 10% of net sales.
Gross profit(loss). Cost of sales includes die cost from the wafers acquired from foundries, subcontracted package costs, assembly costs and test costs, costs associated with in-house product testing, and quality assurance. Gross profit decreased to $(13.0) million in the three months ended June 30, 2002 from $(3.5) million in the three months ended June 30, 2001. As a percentage of net sales, gross profit decreased to (70.3)% in the three months ended June 30, 2002 from (17.5) % in the three months ended June 30, 2001. In the three months ended June 30, 2002, we recorded an inventory write-down of approximately $15.0 million predominately for lower of cost or market accounting on our DRAM and SRAM products and to a lesser extent, excess inventory. In the three months ended June 30, 2001, we recorded an inventory write-down of $9.0 million, predominately for lower of cost or market accounting on certain of our products, primarily DRAMs. Excluding the inventory write-downs, gross profit for the three months ended June 30, 2002 was $2.0 million or 10.6% of net sales and for the three months ended June 31, 2001 gross profit was $5.5 million or 27.5% of net sales. Excluding the inventory write-downs, the decrease in gross profit was principally due to the decrease in the average selling prices of our SRAM products. In addition, as we sell products that had previously been written-down to lower of cost or market, we recognize minimal gross profit. We believe that the average selling prices of our products will generally decline over time and, unless we are able to reduce our cost per unit to the extent necessary to offset such declines, the decline in average selling prices will result in a material decline in our gross margin. In this regard, we experienced a decline in the average selling prices for certain of our SRAM and DRAM products in the three months ended June 30, 2002 compared to the three months ended March 31, 2002. In addition, product unit costs could increase if our suppliers raise prices, which could result in a material decline in our gross margin. Although we have product cost reduction programs in place for certain products that involve efforts to reduce internal costs and supplier costs, there can be no assurance that product costs will be reduced or that such reductions will be sufficient to offset the expected declines in average selling prices. We do not believe that such cost reduction efforts are likely to have a material adverse impact on the quality of our products or the level of service provided by us.
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Research and Development. Research and development expenses increased by 26% to $8.0 million in the three months ended June 30, 2002 from $6.4 million in the three months ended June 30, 2001. As a percentage of net sales, research and development expenses increased to 43.3% in the three months ended June 30, 2002 from 31.9% in the three months ended June 30, 2001. The increase in absolute dollars was primarily the result of increases resulting from our acquisition of Purple Ray and the expansion of our research and development activities in Asia. We anticipate that our research and development expenses will increase in absolute dollars in future periods, although such expenses may fluctuate as a percentage of net sales.
Selling, General and Administrative. Selling, general and administrative expenses decreased by 4% to $4.2 million in the three months ended June 30, 2002 from $4.4 million in the three months ended June 30, 2001. As a percentage of net sales, selling, general and administrative expenses increased to 22.7% in the three months ended June 30, 2002 from 22.0% in the three months ended June 30, 2001. The decrease in absolute dollars was the result of overall cost reductions during the three months ended June 30, 2002 compared to the three months ended June 30, 2001. As a result of expense controls, such as salary reductions, we expect our selling, general and administrative expenses may decrease in future quarters although such expenses may fluctuate as a percentage of net sales.
Gain on sale of investments. The gain on sale of investments decreased by $1.8 million to $0 in the three months ended June 30, 2002 from $1.8 million in the three months ended June 30, 2001. In the three months ended June 30, 2001, we sold shares of ICSI in the public market in Taiwan and received gross proceeds of approximately $2.3 million resulting in a pre-tax gain of approximately $1.7 million.
Other income (expense), net. Other income (expense), net decreased by $0.5 million to approximately $0.9 million in the three months ended June 30, 2002 from $1.4 million in the three months ended June 30, 2001. The decrease was primarily the result of decreased interest income as the result of the decline in interest rates and lower cash balances.
Provision (benefit) for income taxes. The provision for income taxes for the three month period ended June 30, 2002 of $3,000 consists of foreign withholding taxes. We recorded a benefit for income taxes of $9.2 million for the three months ended June 30, 2001. The benefit for income taxes for the three months ended June 30, 2001 included a benefit of approximately $5.0 million for the reversal of taxes accrued for foreign operations for which the statute of limitations had expired. Excluding this benefit, we recorded a tax expense of 18.5% for the nine months ended June 30, 2001. This tax expense reflected foreign taxes on profits in foreign jurisdictions and the reversal of valuation allowances previously established.
Equity in net income (loss) of affiliated companies. Equity in net income (loss) of affiliated companies increased by $1.2 million to $(0.5) million in the three months ended June 30, 2002 from $(1.7) million in the three months ended June 30, 2001. This primarily reflects a decrease in losses from our percentage share of ICSIs financial results in the three months ended June 30, 2002 compared to the three months ended June 30, 2001.
Nine Months Ended June 30, 2002 Compared to Nine Months Ended June 30, 2001
Net Sales. Net sales decreased by 63% to $50.3 million in the nine months ended June 30, 2002, from $137.3 million in the nine months ended June 30, 2001. The decrease in sales was principally due to a decrease in unit shipments of our SRAM products, specifically our 256K, 1024K, 32K x 32, and 64K x 16 SRAM products. In addition, the average selling prices of our SRAM and DRAM products declined significantly in the nine months ended June 30, 2002 compared to the nine months ended June 30, 2001. We were able to partially offset the decline in DRAM revenue resulting from the decline in average selling prices with an increase in DRAM units shipped. We anticipate that the average selling prices of our existing products will generally decline over time, although the rate of decline may fluctuate for certain products. In this regard, we also experienced a decline in the average selling prices for certain of our products in the three months ended June 30, 2002 compared to the three months ended March 31, 2002. There can be no assurance that such declines will be offset by higher volumes or by higher prices on newer products.
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In the nine months ended June 30, 2002, no single customer accounted for over 10% of net sales. Sales to Flextronics International accounted for approximately 14% of total net sales for the nine months ended June 30, 2001. Substantially all of the sales to Flextronics were for products to be delivered to Cisco Systems, Inc. Shipments for Cisco directly, or indirectly through subcontractors, accounted for approximately 16% of total net sales for the nine months ended June 30, 2001. Sales to 3Com accounted for less than 10% of total net sales for the nine months ended June 30, 2001. However, shipments for 3Com directly, or indirectly through subcontractors, accounted for approximately 11% of total net sales for the nine months ended June 30, 2001. As sales to these customers are executed pursuant to purchase orders and no purchasing contract exists, these customers can cease doing business with us at any time.
Gross profit (loss). Gross profit decreased 133% to $(7.3) million in the nine months ended June 30, 2002, from $22.1 million in the nine months ended June 30, 2001. As a percentage of net sales, gross profit decreased to (14.6)% in the nine months ended June 30, 2002 from 16.1% in the nine months ended June 30, 2001. We recorded inventory write-downs of $19.4 million in the nine months ended June 30, 2002. These write-downs were predominately for lower of cost or market accounting on our DRAM and SRAM products and to a lesser extent, excess inventory. We recorded inventory write-downs of $20.7 million in the nine months ended June 30, 2001. These write-downs were predominately for lower of cost or market accounting on certain of our products, primarily DRAMs and low power SRAMs. As a result of the termination of the antidumping case, our gross margin for the nine months ended June 30, 2002 benefited from the reversal of approximately $5.2 million in antidumping duties previously charged to cost of sales. Excluding the inventory write-downs and the benefit of the reversal of antidumping duties, the decrease in gross profit was principally due to a decrease in unit shipments of our SRAM products, specifically our 256K, 1024K, 32K x 32, and 64K x 16 SRAM products. In addition, the average selling prices of our SRAM and DRAM products declined significantly in the nine months ended June 30, 2002 compared to the nine months ended June 30, 2001. Further, as we sell products that had previously been written-down to lower of cost or market, we recognize minimal gross profit. We believe that the average selling prices of our products will generally decline over time and, unless we are able to reduce our cost per unit to the extent necessary to offset such declines, the decline in average selling prices will result in a material decline in our gross margin. In this regard, we experienced a decline in the average selling prices for certain of our SRAM and DRAM products in the three months ended June 30, 2002 compared to the three months ended March 31, 2002. In addition, product unit costs could increase if our suppliers raise prices, which could result in a material decline in our gross margin. Although we have product cost reduction programs in place for certain products that involve efforts to reduce internal costs and supplier costs, there can be no assurance that product costs will be reduced or that such reductions will be sufficient to offset the expected declines in average selling prices. We do not believe that such cost reduction efforts are likely to have a material adverse impact on the quality of our products or the level of service provided by us.
Research and Development. Research and development expenses increased by 11% to $21.8 million in the nine months ended June 30, 2002, from $19.7 million in the nine months ended June 30, 2001. As a percentage of net sales, research and development expenses increased to 43.4% in the nine months ended June 30, 2002, from 14.4% in the nine months ended June 30, 2001. The increase in absolute dollars was the result of increased expenses related to the development of new products, our acquisition of Purple Ray and the expansion of our research and development activities in Asia partially offset by decreases in payroll related expenses.
Selling, General and Administrative. Selling, general and administrative expenses decreased by 26% to $12.2 million in the nine months ended June 30, 2002 from $16.5 million in the nine months ended June 30, 2001. As a percentage of net sales, selling, general and administrative expenses increased to 24.2% in the nine months ended June 30, 2002, from 12.0% in the nine months ended June 30, 2001. The decrease in absolute dollars was primarily the result of decreased selling commissions associated with lower revenues in the nine months ended June 30, 2002 compared to the nine months ended June 30, 2001. In addition, payroll related expenses decreased in the nine months ended June 30, 2002 compared to the nine months ended June 30, 2001 as a result of salary reductions and reductions in headcount.
In-process Technology. On February 13, 2002, we acquired Purple Ray, Inc.
The assets of Purple Ray consisted primarily of intellectual property. The
transaction was accounted for using the purchase method of accounting. The
total estimated purchase price of $7.1 million consisted of the fair market
value of ISSIs
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common stock issued of $5.2 million, the fair value of options to purchase Purple Ray common stock assumed by ISSI of $1.7 million and estimated transaction costs of $0.2 million. The transaction resulted in an in-process technology charge of $4.7 million in our March 31, 2002 quarter.
Gain on sale of investments. The gain on sale of investments decreased by $30.5 million to $35,000 in the nine months ended June 30, 2002 from $30.5 million in the nine months ended June 30, 2001. In the nine months ended June 30, 2002, we sold shares of ICSI for approximately $64,000 resulting in a pre-tax gain of $35,000. In the nine months ended June 30, 2001 we sold our interest in WaferTech to TSMC for approximately $40.7 million, which resulted in a pre-tax gain of $17.2 million. During the nine months ended June 30, 2001, we also recorded gross proceeds of approximately $10.4 million and a gain of approximately $8.0 million in connection with our sale of shares of ICSI and gross proceeds of approximately $6.2 million and a gain of approximately $5.3 million in connection with our sale of shares of NexFlash.
Other income (expense), net. Other income (expense), net decreased by $2.5 million to $2.2 million in the nine months ended June 30, 2002 from $4.7 million in the nine months ended June 30, 2001. The decrease was primarily the result of decreased interest income as the result of the decline in interest rates and lower cash balances.
Provision (benefit) for Income Taxes. The benefit for income taxes of $3.2 million for the nine month period ended June 30, 2002 reflects a benefit for alternative minimum taxes provided for the fiscal year ended September 30, 2001 which can be recovered based on changes in the tax law. We recorded a benefit for income taxes of $1.1 million for the nine months ended June 30, 2001. The benefit for income taxes for the nine months ended June 30, 2001 includes a benefit of approximately $5.0 million for the reversal of taxes accrued for foreign operations for which the statute of limitations has now expired. Excluding this benefit, we recorded a tax expense of 18.5% for the nine months ended June 30, 2001. This tax expense reflects foreign taxes on profits in foreign jurisdictions and the reversal of valuation allowances previously established.
Equity in net income (loss) of affiliated companies. Equity in net income (loss) of affiliated companies decreased by $8.5 million to $(4.9) million in the nine months ended June 30, 2002 from $3.6 million in the nine months ended June 30, 2001. This primarily reflects a decrease in income from our percentage share of ICSIs financial results in the nine months ended June 30, 2002 compared to the nine months ended June 30, 2001.
Liquidity and Capital Resources
As of June 30, 2002, our principal sources of liquidity included cash, cash equivalents and short-term investments of approximately $104.1 million. During the nine months ended June 30, 2002, operating activities provided cash of approximately $0.6 million. Cash provided by operations was primarily due to decreases in inventory of $25.2 million and accounts receivable of $0.3 million and increases in accounts payable of $17.2 million. Cash was used for net loss of $45.5 million adjusted for an in-process technology charge of $4.7 million, equity in net income of affiliated companies of $4.9 million, depreciation of $2.9 million and other non-cash items of $0.3 million. In addition, cash was used for increases in other current assets of $0.8 million and other assets of $1.4 million and decreases in income tax payable of $3.6 million and accrued liabilities of $3.6 million.
In the nine months ended June 30, 2002, we generated $1.6 million from
investing activities compared to $11.2 million used in the nine months ended
June 30, 2001. In the nine months ended June 30, 2002, we had net sales of
available-for-sale securities of $23.0 million. In the nine months ended June
30, 2002 we made additional investments totaling $11.4 million in Semiconductor
Manufacturing International Corp (SMIC), a foundry in Shanghai, China and
other investments of $4.8 million including $3.2 million in ICSI convertible
debentures and $0.6 million in E-CMOS. The cash used for investing activities
during the nine months ended June 30, 2001 was primarily the result of net
purchases of available-for-sale securities of $50.8 million. In addition,
during the nine months ended June 30, 2001, we made investments of $14.3
million in SMIC and other investments of $3.3 million including $2.8 million in
E-CMOS. We also generated $40.7 million from the sale
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of our investment in WaferTech, $15.5 million from the sale of shares of ICSI stock and $6.2 million from the sale of NexFlash shares.
In the nine months ended June 30, 2002, we made capital expenditures of approximately $5.2 million for test equipment, engineering tools and computer software. In addition, we acquired approximately $0.7 million in fixed assets with the acquisition of Purple Ray. We expect to spend approximately $4.0 million to $5.0 million to purchase capital equipment during the next twelve months, principally for the purchase of design and engineering tools, additional test equipment and computer software and hardware.
We generated $1.9 million from financing activities during the nine months ended June 30, 2002 compared to $2.7 million in the nine months ended June 30, 2001. Cash generated from financing activities for the nine months ended June 30, 2002 and June 30, 2001 was primarily the result of proceeds from the issuance of our common stock from option exercises and purchases under our employee stock purchase plan.
In August 2000, we entered into a wafer fabrication facility investment agreement with SMIC. Under the terms of this agreement, we committed to invest $30.0 million. In April 2001, we committed to invest an additional $10.0 million. We have received certain wafer capacity commitments from SMIC. In the nine months ended June 30, 2002, we made investments totaling $11.4 million in SMIC, bringing our total investment in this foundry as of June 30, 2002, to $30.2 million. An additional $9.8 million was invested in July 2002 and we have no further commitments to SMIC at this time.
We lease our facilities including our headquarters in Santa Clara, California and our field sales offices in the U.S. and Europe and sales and engineering offices in Asia. Our leases expire at various dates through 2007. Our outstanding commitments under these leases are approximately $7 million.
In April 1998, the U.S. Department of Commerce (DOC) published an antidumping duty order on imports of SRAMs from Taiwan, from where we currently import a majority of our SRAMs. As a consequence of this antidumping duty order, we were required to post a cash deposit on imports of Taiwan fabricated SRAM wafers or devices at the ad valorem rate of 7.56%. These amounts were expensed to cost of goods sold.
We retained legal counsel to defend our interests in the antidumping proceedings. In addition, respondents (including ISSI) challenged certain aspects of the antidumping determination in federal court proceedings. On August 29, 2000, pursuant to an appeal by ISSI and other respondents, the U.S. Court of International Trade affirmed the International Trade Commission (ITC) decision to reverse the ITCs earlier ruling supporting the imposition of antidumping duties and rule instead in favor of the respondents. This decision by the Court of International Trade was appealed to the U.S. Court of Appeals for the Federal Circuit. On September 21, 2001, the Federal Circuit upheld the Court of International Trade. On January 14, 2002, the DOC published a notice revoking the antidumping order and instructing U.S. Customs to refund all cash deposits. In March 2002, the time to appeal the case to the Supreme Court expired and the case terminated.
As a result of the termination of the antidumping case, we reversed amounts previously expensed to cost of goods sold of approximately $5.2 million of which approximately $3.6 million had been cash payments and $1.6 million was accrued as a liability. At June 30, 2002, all refunds due to us had been received.
We believe our existing funds and available financing will satisfy our anticipated working capital and other cash requirements through at least the next 12 months. We may from time to time take actions to further increase our cash position through bank borrowings, sales of additional shares of ICSI, the disposition of certain assets, equity financing or debt financing. From time to time, we may also evaluate potential acquisitions and equity investments complementary to our memory expertise and market strategy, including investments in wafer fabrication foundries. To the extent we pursue such transactions, any such transaction could require us to seek additional equity or debt financing to fund such activities. There can be no assurance that any such additional financing could be obtained on terms acceptable to us, if at all.
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Certain Factors Which May Affect Our Business or Future Operating Results
Our operating results are expected to continue to fluctuate and may not meet published analyst forecasts. This may cause the price of our common stock to decline.
Our future quarterly and annual operating results are subject to fluctuations due to a wide variety of factors, including:
| the cyclicality of the semiconductor industry; | ||
| decreases in the demand for our products; | ||
| excess inventory levels at our customers; | ||
| declines in average selling prices of our products; | ||
| cancellation of existing orders or the failure to secure new orders; | ||
| oversupply of memory products in the market; | ||
| our failure to introduce new products and to implement technologies on a timely basis; | ||
| market acceptance of ours and our customers products; | ||
| the failure to anticipate changing customer product requirements; | ||
| fluctuations in manufacturing yields; | ||
| failure to deliver products to customers on a timely basis; | ||
| disruption in the supply of wafers or assembly services; | ||
| changes in product mix; | ||
| the timing of significant orders; | ||
| increased expenses associated with new product introductions or process changes; | ||
| the ability of customers to make payments to us; and | ||
| the commencement of, or developments with respect to, any future antidumping proceedings. |
We have incurred significant losses in certain recent periods, and there can be no assurance that we will be able to achieve or sustain profitability in the future.
We have incurred losses in the five consecutive quarters ended June 30, 2002 totaling $73.9 million. We expect to incur a loss in the September 2002 quarter and may incur losses in subsequent quarters. We were profitable for fiscal 2001 and fiscal 2000. We incurred losses of $9.5 million and $50.6 million in fiscal 1999 and 1998, respectively. Our ability to achieve or maintain profitability on a quarterly basis in the future will depend on a variety of factors, including our ability to increase our net sales, introduce new products on a timely basis, secure sufficient wafer fabrication capacity and control our operating expenses. Adverse developments with respect to these or other factors could result in quarterly or annual operating losses in the future.
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Any continued downturn in the markets we serve would harm our business.
A majority of our products are incorporated into products such as internet access devices, networking equipment, and telecom/mobile communications devices. Historically, these markets have from time to time experienced cyclical, depressed business conditions, often in connection with, or in anticipation of, a decline in general economic conditions. Such industry downturns have resulted in reduced product demand and declining average selling prices. These markets are currently experiencing severely depressed business conditions which are adversely affecting our business. We are unable to predict how long this current downturn will continue or whether current conditions will worsen.
Our sales depend on SRAM products, and a decline in average selling prices or reduced demand for these products could harm our business.
A majority of our net sales are derived from the sale of SRAM products, which are subject to unit volume fluctuations and declines in average selling prices which could harm our business. For example, in the three months ended September 30, 2001, our net sales decreased by 26% to $14.8 million from $20.0 million in the three months ended June 30, 2001, principally due to a decline in average selling prices for our products including our SRAM products. In addition, in the three months ended June 30, 2001, our net sales decreased by 62% to $20.0 million from $52.0 million in the three months ended March 31, 2001, and decreased 20% in the three months ended March 31, 2001 from $65.2 million in the three months ended December 31, 2000, principally due to a decrease in unit shipments of our SRAM products as a result of lower demand for electronic products. While average selling prices for certain SRAM products declined in the three months ended June 30, 2002 compared to the three months ended March 31, 2002, this was generally offset by an increase in units shipped. We anticipate that the average selling prices of our existing products will decline over time, although the rate of decline may fluctuate for certain products. Such declines may not be offset by higher volumes or by higher prices on newer products.
We may not be able to compensate for price decreases in our products.
Competitive pricing pressures due to an industry-wide oversupply of wafer capacity as well as product inventory resulted in significant price decreases for our products during fiscal 1996 through fiscal 1999. While we experienced increases in average selling prices in fiscal 2000, historically, average selling prices for semiconductor memory products have declined, and we expect that average selling prices will decline in the future. In this regard, we experienced a decline in the average selling prices for certain of our products in the three months ended June 30, 2002 compared to the three months ended March 31, 2002. We anticipate a further decline in the average selling prices for certain of our SRAM and DRAM products in the September 2002 quarter. Our ability to maintain or increase revenues will depend upon our ability to increase unit sales volume of existing products and introduce and sell new products which compensate for the anticipated declines in the average selling prices of our existing products.
Declining average selling prices will also adversely affect our gross margins and profits unless we are able to introduce new products with higher margins or reduce our cost per unit. We may not be able to increase unit sales volumes, introduce and sell new products or reduce our cost per unit.
Shifts in industry-wide capacity may cause our results to fluctuate. In the past, such shifts have resulted in significant inventory write-downs.
Shifts in industry-wide capacity from shortages to oversupply or from oversupply to shortages may result in significant fluctuations in our quarterly or annual operating results. The semiconductor industry is highly cyclical and is subject to significant downturns resulting from excess capacity, overproduction, reduced demand or technological obsolescence. These factors can result in a decline in average selling prices and the stated value of inventory. In the three months ended June 30, 2002, March 31, 2002 and in fiscal 2001, we recorded inventory write-downs of $15.0 million, $4.4 million and $38.3 million, respectively. The inventory write-downs were predominately for lower of cost or market accounting on our products, and to a lesser extent, excess inventory.
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We write down to zero carrying value inventory on hand in excess of six months estimated sales volumes to cover estimated exposures, unless adjustments are made to the forecast based on managements judgments for newer products, end of life products or planned inventory increases. In making such judgments to write down inventory, management takes into account the product life cycles which can range from 6 to 30 months, the stage in the life cycle of the product, the impact of competitors announcements and product introductions on our products, and purchasing opportunities due to excess wafer capacity.
We believe that six months is an appropriate period because it is difficult to accurately forecast for a specific product beyond this time frame due to the potential introduction of products by competitors, technology obsolescence or fluctuations in demand. Our policy regarding excess inventory resulted in inventory write-downs for excess inventory of approximately $5.7 million in the three months ended June 30, 2002 and $5.7 million for fiscal year 2001. Future additional inventory write-downs may occur due to lower of cost or market accounting, excess inventory or inventory obsolescence.
If we are unable to obtain an adequate supply of wafers, our business will be harmed.
If we are unable to obtain an adequate supply of wafers from our current or any alternative sources in a timely manner, our business will be harmed. To date, our principal manufacturing relationship has been with TSMC, from which we have obtained a majority of our wafers. We also receive wafers from Chartered Semiconductor and UMC. Each of our wafer foundries also supplies wafers to other integrated circuit companies, including certain of our competitors. Although we have written commitments specifying wafer capacities from certain suppliers, if these suppliers experience manufacturing failures or yield shortfalls, choose to prioritize capacity for other uses, or reduce or eliminate deliveries to us, we may not be able to enforce fulfillment of the delivery commitments. Additionally, we may not be able to qualify additional manufacturing sources for existing or new products in a timely manner and we cannot be certain that other manufacturing sources would agree to deliver an adequate supply of wafers to us.
Foundry capacity can be limited and we may be required to enter into costly long-term supply arrangements to secure foundry capacity.
If we are not able to obtain additional foundry capacity as required, our relationships with our customers would be harmed and our future sales would be adversely impacted. In order to secure additional foundry capacity, we have entered into and may enter into various arrangements with suppliers, which could include:
| contracts that commit us to purchase specified quantities of silicon wafers over extended periods; | ||
| investments in foundries; | ||
| joint ventures; | ||
| other partnership relationships with foundries; | ||
| option payments or other prepayments to foundries; or | ||
| nonrefundable deposits with or loans to foundries in exchange for capacity commitments. |
We may not be able to make any such arrangements in a timely fashion or at all, and such arrangements, if any, may not be on terms favorable to us. Moreover, if we are able to secure foundry capacity, we may be obligated to utilize all of that capacity or incur penalties. Such penalties may be expensive and could harm our financial results.
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We depend on a small number of customers for a high percentage of our sales, and the loss of a significant customer could cause a decline in our profits.
In the nine months ended June 30, 2002, no single customer accounted for over 10% of net sales. Sales to Flextronics International accounted for approximately 15% of net sales for fiscal 2001. Substantially all of our sales to Flextronics were for products to be delivered to Cisco. Shipments for Cisco directly, or indirectly through subcontractors, accounted for approximately 18% of net sales for fiscal 2001. Sales to 3Com accounted for approximately 7% of net sales for fiscal 2001. Shipments for 3Com directly, or indirectly through subcontractors, accounted for approximately 11% of net sales for fiscal 2001. In fiscal 2000, no single customer accounted for over 10% of net sales. However, in fiscal 2000, shipments for Cisco directly, or indirectly through subcontractors, accounted for approximately 13% of net revenue. As sales to these customers are executed pursuant to purchase orders and no purchasing contract exists, these customers can cease doing business with us at any time. In this regard, we experienced order cancellations from these customers in the March 2001 quarter which adversely impacted our operating results in subsequent quarters. We expect a significant portion of our future sales to remain concentrated within a limited number of strategic customers. We may not be able to retain our strategic customers, such customers may cancel or reschedule orders, or in the event of canceled orders, such orders may not be replaced by other sales. In addition, sales to any particular customer may fluctuate significantly from quarter to quarter, and such fluctuating sales could harm our business.
Our products are complex and could contain defects, which could reduce sales of those products or result in claims against us.
We develop complex and evolving products. Despite testing by us and our customers, errors may be found in existing or new products. This could result in a delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance. These defects also may cause us to incur significant warranty, support and repair costs, may divert the attention of our engineering personnel from our product development efforts and could harm our relationships with our customers. The occurrence of these problems could result in the delay or loss of market acceptance of our products and would likely harm our business. Defects, integration issues or other performance problems in our products could result in financial or other damages to our customers or could lessen market acceptance of our products. Our customers could also seek and obtain damages from us for their losses. Although we specifically limit our liability to replacement of defective items or return of amounts paid, a product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend.
Strong competition in the semiconductor memory market may harm our business.
The semiconductor memory market is intensely competitive and has been characterized by an oversupply of product, price erosion, rapid technological change, short product life cycles, cyclical market patterns and heightened foreign and domestic competition. Certain of our competitors offer broader product lines and have greater financial, technical, marketing, distribution and other resources than us. We may not be able to compete successfully against any of these competitors. Our ability to compete successfully in the high performance memory market depends on factors both within and outside of our control, including:
| real or perceived imbalances in supply and demand; | ||
| product pricing; | ||
| the rate at which OEM customers incorporate our products into their systems; | ||
| the success of our customers products; | ||
| access to advanced process technologies at competitive prices; | ||
| product functionality, performance and reliability; |
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| successful and timely product development; | ||
| the supply and cost of wafers; | ||
| achievement of acceptable yields of functional die; | ||
| the gain or loss of significant customers; and | ||
| the nature of our competitors and general economic conditions. |
In addition, we are vulnerable to technology advances utilized by competitors to manufacture higher performance or lower cost products. We may not be able to compete successfully in the future as to any of these factors. Our failure to compete successfully in these or other areas could harm our business.
Potential intellectual property claims and litigation could subject us to significant liability for damages and could invalidate our proprietary rights.
In the semiconductor industry, it is not unusual for companies to receive notices alleging infringement of patents or other intellectual property rights of others. We have been, and from time-to-time expect to be, notified of claims that we may be infringing patents, maskwork rights or copyrights owned by third parties. If it appears necessary or desirable, we may seek licenses under patents that we are alleged to be infringing. Although patent holders commonly offer such licenses, licenses may not be offered and the terms of any offered licenses may not be acceptable to us.
The failure to obtain a license under a key patent or intellectual property right from a third party for technology used by us could cause us to incur substantial liabilities and to suspend the manufacture of the products utilizing the invention or to attempt to develop non-infringing products, any of which could materially and adversely affect our business and operating results. Furthermore, we may become involved in protracted litigation regarding the alleged infringement by us of third party intellectual property rights or litigation to assert and protect our patents or other intellectual property rights. Any litigation relating to patent infringement or other intellectual property matters could result in substantial cost and diversion of our resources which could harm our business.
We have significant international sales and risks related to our international operations could harm our operating results.
In the nine months ended June 30, 2002 approximately 33% of our net sales was attributable to customers located in the United States, 15% was attributable to customers located in Europe and 51% was attributable to customers located in Asia. In fiscal 2001, approximately 52% of our net sales was attributable to customers located in the United States, 25% was attributable to customers located in Europe and 23% was attributable to customers located in Asia. Accordingly, our future operating results will depend on general economic conditions in Asia, Europe, and the United States. In addition, the markets for our products, which are highly cyclical, may not continue to grow. We anticipate that sales to international customers will continue to represent a significant percentage of net sales.
We are subject to the risks of conducting business internationally, including:
| economic conditions in Europe and Asia, particularly Taiwan and the Peoples Republic of China; | ||
| changes in trade policy and regulatory requirements; | ||
| duties, tariffs and other trade barriers and restrictions; | ||
| the burdens of complying with foreign laws; |
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| foreign currency fluctuations; | ||
| difficulties in collecting foreign accounts receivable; and | ||
| political instability. |
We have made strategic equity investments in other companies with no assurance that they will increase in value.
Over the last few years, we have made several strategic equity investments in other technology companies. There can be no assurance that these investments will increase in value and there is the possibility that they could decrease in value over time, even to the point of becoming completely worthless. These investments are tested for impairment on a recurring basis and any reductions in the carrying value would lower our profitability. In this regard, we recorded $150,000 in impairment losses during the three months ended December 31, 2001.
We may encounter difficulties in effectively integrating acquired businesses.
From time to time, we may acquire other companies that would be complementary to our business. Acquisitions may result in potentially dilutive issuances of equity securities, incurrence of debt and contingent liabilities, amortization expenses related to intangible assets and the possible impairment of goodwill, which could harm our profitability. In addition, acquisitions involve numerous risks, including, among other things: higher than estimated acquisition expenses; difficulties in successfully assimilating the operations, technologies and personnel of the acquired company; diversion of managements attention from other business concerns; risks of entering markets in which we have no or limited direct prior experience; and the potential loss of key employees and customers as a result of the acquisition. In this regard, in February 2002, we acquired Purple Ray, Inc., a privately held research and development stage company developing network search engine and content addressable memory integrated circuits. Pursuant to this transaction, we issued 438,000 shares of our common stock in exchange for all outstanding shares of Purple Ray and will issue up to an additional 163,000 shares upon exercise of warrants and options of Purple Ray. Approximately 50,000 additional shares of our common stock may be issued contingent upon meeting certain milestones. There can be no assurance as to the effect of the Purple Ray acquisition or future acquisitions on our business or operating results.
We depend on our ability to attract and retain our key technical and management personnel.
Our success depends upon the continued service of our key technical and management personnel, including Jimmy S.M. Lee, Chairman and Chief Executive Officer, and Gary L. Fischer, President and Chief Operating Officer, as well as on our ability to continue to attract, retain and motivate qualified personnel, particularly experienced circuit designers and process engineers. The competition for such employees is intense. We have no employment contracts or key person life insurance policies with or for any of our executive officers. The loss of the service of one or more of our key personnel could materially and adversely affect our business and operating results.
Terrorist attacks, threats of further attacks, threats of war, and acts of war may negatively impact all aspects of our operations, revenues, costs and stock price.
The September 2001 terrorist attacks in the United States, as well as future events occurring in response or connection to them, including, future terrorist attacks against United States targets, rumors or threats of war, actual conflicts involving the United States or its allies, or trade disruptions impacting our domestic or foreign suppliers or our customers, may impact our operations and may, among other things, cause delays or losses in the delivery of wafers or other products to us and decreased sales of our products. More generally, these events have affected, and are expected to continue to affect, the general economy and customer demand for products sold by our customers. Any of these occurrences could have a significant impact on our operating results, revenues, and costs, which in turn may result in increased volatility in our common stock price and a decline in the price of our common stock.
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Our stock price is expected to be volatile.
The trading price of our common stock has been and is expected to be subject to wide fluctuations in response to:
| quarter-to-quarter variations in our operating results; | ||
| comments or recommendations issued by analysts who follow us, our competitors or the semiconductor industry and other events or factors; | ||
| aggregate valuations and movement of stocks in the broader semiconductor industry; | ||
| announcements of new products, strategic relationships or acquisitions by us or our competitors; | ||
| increases or decreases in wafer capacity; | ||
| general conditions or cyclicality in the semiconductor industry or the end markets that we serve; | ||
| governmental regulations, trade laws and import duties; | ||
| announcements related to future or existing litigation involving us or any of our competitors; | ||
| new or revised earnings estimates; | ||
| announcements of technological innovations by us or our competitors; | ||
| additions or departures of senior management; and | ||
| other events or factors many of which are beyond our control. |
In addition, stock markets have experienced extreme price and trading volume volatility in recent years. This volatility has had a substantial effect on the market prices of securities of many high technology companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Item 3. Financial Market Risk
Our financial market risk includes risks associated with international operations and related foreign currencies. We anticipate that international sales will continue to account for a significant portion of our consolidated revenue. Our international sales are largely denominated in U.S. dollars and therefore are not subject to material foreign currency exchange risk. Expenses of our international operations are denominated in each countrys local currency and therefore are subject to foreign currency exchange risk; however, through June 30, 2002 we have not experienced any significant negative impact on our operations as a result of fluctuations in foreign currency exchange rates. We do not currently engage in any hedging activities or use derivative financial instruments.
We had short-term investments of $80.6 million at June 30, 2002. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without increasing risk. We invest primarily in high-quality, short-term debt instruments such as municipal auction rate certificates and instruments issued by high quality financial institutions and companies, including money market instruments. A hypothetical one percentage point decrease in interest rates would result in approximately a $1.0 million decrease in interest income.
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We own approximately 29% of ICSI, a public company listed on the Taiwan Stock Exchange. We account for this investment on the equity basis and our investment balance as of June 30, 2002 was approximately $18.4 million. The share price of ICSI is subject to fluctuations. A significant decline in the stock price of ICSI may require us to record a loss related to this investment. In addition, we own approximately $3.2 million of ICSI convertible debentures. A decline in the ICSIs convertible bond price may require us to record a loss related to this investment.
We have investments in equity securities of privately held companies for the promotion of business and strategic objectives of approximately $32.7 million at June 30, 2002. These investments are generally in companies in the semiconductor industry. These investments are included in other assets and are accounted for using the cost method. In addition, we have an investment of $3.7 million that is accounted for on the equity method. For investments in which no public market exists, our policy is to review the operating performance, recent financing transactions and cash flow forecasts for such companies in assessing the net realizable values of the securities of these companies. Impairment losses on equity investments are recorded when events and circumstances indicate that such assets are impaired and the decline in value is other than temporary. We recorded $150,000 in impairment losses during the three months ended December 31, 2001.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In April 1998, the U.S. Department of Commerce (DOC) published an antidumping duty order on imports of SRAMs from Taiwan, from where we currently import a majority of our SRAMs. As a consequence of this antidumping duty order, we were required to post a cash deposit on imports of Taiwan fabricated SRAM wafers or devices at the ad valorem rate of 7.56%. These amounts were expensed to cost of goods sold.
We retained legal counsel to defend our interests in the antidumping proceedings. In addition, respondents (including ISSI) challenged certain aspects of the antidumping determination in federal court proceedings. On August 29, 2000, pursuant to an appeal by ISSI and other respondents, the U.S. Court of International Trade affirmed the International Trade Commission (ITC) decision to reverse the ITCs earlier ruling supporting the imposition of antidumping duties and rule instead in favor of the respondents. This decision by the Court of International Trade was appealed to the U.S. Court of Appeals for the Federal Circuit. On September 21, 2001, the Federal Circuit upheld the Court of International Trade. On January 14, 2002, the DOC published a notice revoking the antidumping order and instructing U.S. Customs to refund all cash deposits. In March 2002, the time to appeal the case to the Supreme Court expired and the case terminated.
As a result of the termination of the antidumping case, we reversed amounts previously expensed to cost of goods sold of approximately $5.2 million of which approximately $3.6 million had been cash payments and $1.6 million was in accrued liabilities. At June 30, 2002, all refunds due to us had been received.
Item 6. Exhibits and Reports on Form 8-K
(a) | The following exhibits are filed as a part of this report. |
Exhibit 99.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b) | Reports on Form 8-K. | ||
On April 26, 2002, the Company filed a report on Form 8-K/A updating our Report on Form 8-K filed on February 28, 2002 disclosing the acquisition on February 13, 2002 of Purple Ray, Inc. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Integrated Silicon Solution, Inc.
(Registrant) |
||
Dated: August 14, 2002 | /s/ Michael D. McDonald | |
|
||
Michael D. McDonald Vice President Finance and Chief Financial Officer (Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
Exhibit 99.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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