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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended March 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
__________ to __________
Commission file number: 0-22594
ALLIANCE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0057842
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3099 North First Street, San Jose, California 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 383-4900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment of this Form 10-K. [ ]
The aggregate market value of Registrant's Common Stock held by
non-affiliates of Registrant as of June 20, 1997 was $193,471,512 based on the
closing sale price of such stock on the Nasdaq National Market.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed under Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
Yes X No
--- ---
As of June 20, 1997, there were 39,049,197 shares of Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders (the "Proxy Statement") to be filed pursuant to
Regulation 14A of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, which is anticipated to be filed within 120
days after the end of Registrant's fiscal year ended March 29, 1997, are
incorporated by reference into Part III hereof.
When used in this Report, the words "expects," anticipates," "believes,"
"estimates" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements, which include statements concerning the timing
of new product introductions; the functionality and availability of products
under development; trends in the personal computer, networking,
telecommunications and instrumentation markets, in particular as they may affect
demand for or pricing of the Company's products; the percentage of export sales
and sales to strategic customers; the percentage of revenue by product line; and
the availability and cost of products from the Company's suppliers; are subject
to risks and uncertainties, including those set forth in Item 1 of Part I and in
Item 7 of Part II hereof entitled "Factors That May Affect Future Results" and
elsewhere in this Report, that could cause actual results to differ materially
from those projected in the forward-looking statements. These forward-looking
statements speak only as of the date of this Report. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or to reflect any
change in events, conditions or circumstances on which any such forward-looking
statement is based, in whole or in part.
PART I
ITEM 1. BUSINESS
Overview
Alliance Semiconductor Corporation was incorporated in California on
February 4, 1985 and reincorporated in Delaware on October 26, 1993. Unless the
context indicates otherwise, the terms "Alliance" and the "Company" refer to
Alliance Semiconductor Corporation, a Delaware corporation, and its
subsidiaries. The Company designs, develops and markets high performance memory
and memory intensive products to the personal computer, networking,
telecommunications and instrumentation industries. Market trends such as the
proliferation of high-end personal computers and workstations and an increased
emphasis on high-throughput applications, including networking, graphics,
multimedia and telecommunications products, have created opportunities for high
performance memory products. The Company addresses this opportunity with its
families of static random access memories (SRAMs) and dynamic random access
memories (DRAMs), with both types of memory products characterized by high
storage capacity (density), fast access times and low power consumption. To
complement its high speed DRAMs, the Company also offers multimedia user
interface (MMUI) accelerator products that combine 2D and 3D graphics and motion
video acceleration capabilities. The Company has also recently developed and
expects limited production of a 4-megabit ("Mbit") flash memory product by
September 1997, and is in the process of developing a line of 5 volt-only and 3
volt-only flash memory products ranging from 1-Mbit to 8-Mbit in both 8-bit and
16-bit architectures.
The semiconductor industry is highly cyclical and has been subject to
significant downturns at various times that have been characterized by
diminished product demand, production overcapacity, and accelerated erosion of
selling prices. During much of fiscal 1997, the market for certain SRAM devices
continued to experience excess supply relative to demand which resulted in a
downward trend in average selling prices. The prices for DRAM products
experienced significant volatility throughout fiscal 1997.
Although the Company is unable to predict future trends in average selling
prices, historically the semiconductor industry has experienced significant
annual declines in average selling prices.
The average selling price that the Company is able to command for its
products is highly dependent on industry-wide production capacity and demand,
and as a consequence the Company could experience rapid erosion in product
pricing which is not within the control of the Company and which could have an
adverse material effect on the Company's operating results.
Throughout this Report, the Company often has indicated its fiscal years as
ending on March 31, whereas the Company's fiscal year ends on the Saturday
nearest the end of March. The fiscal years ended March 31, 1997, March 31, 1996
and March 31, 1995 each contained 52 weeks.
Industry Background
SRAMs and DRAMs are the most commonly-used memory circuits for the storage
and retrieval of data during a computer system's operation. SRAMs are roughly
four times as complex as DRAMs (four transistors per bit of memory compared to
one transistor) but also are generally four times as fast. SRAMs are also
substantially more expensive than DRAMs per unit of storage. Computer
architectures have evolved to make efficient use of both SRAMs and DRAMs, taking
into account their cost and performance characteristics. DRAMs are used in a
computer's main memory to temporarily store the large amounts of data retrieved
from low cost external mass memory, such as hard disk drives. SRAMs are
principally used as caches and buffers between the computer's microprocessor and
its DRAM-based main memory.
Traditionally, the markets for SRAMs and DRAMs have been dominated by large
manufacturing companies, such as Toshiba, NEC, Hitachi, Texas Instruments and
Samsung. The majority of the memory products from these manufacturers has
consisted of commodity products, which have relatively predictable, multi-year
product life cycles and thus require more focus on process technology and
production cost and less on design. Recently, however, certain technology trends
have dramatically increased the performance requirements for SRAMs and DRAMs,
creating new design challenges and market opportunities for emerging
semiconductor companies.
The proliferation of more powerful personal computers and workstations in
recent years and the increasing emphasis on high-throughput networking,
graphics, multimedia and telecommunications products have created mass market
opportunities for high speed SRAMs and high speed DRAMs. Microprocessors have
been doubling in throughput performance approximately every 18 to 24 months. As
microprocessors run at higher clock speeds and levels of performance, they
require data to be fed more rapidly from the main memory in order to function
optimally. The speed of DRAM-based main memories has not kept pace with
microprocessor clock speeds, thus causing a substantial speed mismatch between
the data rate required by microprocessors and that which main memory subsystems
can support. The disparity between microprocessor clock rates and main memory
subsystem performance has been exacerbated by the introduction of higher
throughput microprocessors, such as the Intel Pentium and Pentium Pro
microprocessors. Fast SRAMs, those with access speeds of 20 nanoseconds ("ns")
or less, are utilized to "cache" the most frequently used portions of main
memory contents, increasing the speed with which data can be fed to
microprocessors.
The fast SRAM market has experienced rapid growth due to the advent of more
powerful microprocessors. Fast SRAMs, which were used as cache memory in
approximately 25% of the systems based on the Intel 386 microprocessor and in
more than 80% of the systems based on the Intel 486 microprocessor, are now used
in virtually all of the systems based on the Intel Pentium and Pentium Pro
families of microprocessor architectures. Recent trends in the PC industry
toward lower voltage microprocessors, such as the Intel P54C (3.3 volt Pentium),
created a substantial need for 3.3 volt products. The Company believes that
opportunities may develop for synchronous burst SRAMs that provide even higher
cache memory access speeds to keep pace with increasing microprocessor
performance. In addition, peripheral networking and telecommunications products
require fast SRAMs to cache data to match the speed of the system controller
with the speeds of its peripherals.
The emergence of graphical user interface ("GUI") environments (such as
Microsoft(R) Windows(TM)) and multimedia applications for personal computers has
placed an additional burden on microprocessors to manipulate windows, icons,
video and other complex graphical objects. This burden on microprocessors and
the resulting decrease in the speed with which software applications are
executed have created a need for a companion processor (a "GUI accelerator")
that off-loads from the main processor the management of GUI tasks. GUI
acceleration has become a fundamental requirement for high performance personal
computers. The emergence of multimedia applications has driven the need for
higher performance multimedia user interface accelerators that can provide
acceleration of 2D/3D graphics and video. Both GUI and MMUI (multi-media user
interface) accelerations require fast DRAMs (with access speeds of 50ns or less
for a 4-Mbit DRAM); higher performance, more expensive VRAMs (video random
access memories) or SGRAMS (synchronous graphic random access memories) to store
screen content that is used frequently to refresh the display.
Technology
The Company has focused on using innovative design techniques to develop
high performance SRAMs and DRAMs that can be manufactured using a simple CMOS
manufacturing process. The Company combines both SRAM and DRAM design approaches
in creating its products, and believes that merging these techniques enables it
to design SRAMs that feature some of the density attributes of DRAMs and to
design DRAMs that feature some of the speed attributes of SRAMs. Since its
inception in 1985, the Company has accumulated substantial experience in
designing SRAM and DRAM products.
The Company believes that the die sizes (the physical sizes of its
complete, unpackaged, memory circuits) of many of its products are smaller than
those of competing products, providing the Company with a key competitive
advantage. Because yields increase significantly as die size decreases, the
Company believes that its small die sizes have been a major contributor to its
generally high manufacturing yields. Small die sizes also generally result in
additional benefits, such as lower die cost, increased speed, greater
reliability and lower power consumption.
In addition to having small die sizes, many of the Company's products are
designed to be manufactured using a CMOS process with fewer steps than required
for competitive memory products. The Company's competitors typically require a
greater number of mask steps and/or more complex manufacturing processes to
achieve similar performance of such products. Because yields typically decline
as manufacturing complexity and the number of process steps increase, the
simpler manufacturing process utilized by the Company has contributed to its
generally high manufacturing yields. The
Company also believes that a simpler manufacturing process leads to faster time
to market and shorter manufacturing cycle times.
The Company's development strategy is to leverage its proprietary design
modules, which have been created using its design philosophies. These modules,
which are scaleable in size, can be used by the Company as building blocks for
new products, resulting in shorter design cycles. The Company believes that this
design strategy also enables it to maximize the performance, yield and cost
advantages of its basic designs and sustain them over time in successive
generations of higher performance and higher density products. The Company
believes that its SRAM and DRAM design approach may also be used for
non-volatile memories such as flash.
Products
High Speed CMOS SRAMs
Sales of the Company's SRAM products accounted for substantially all of the
Company's net revenues from April 1, 1992 through the early part of fiscal 1997.
During fiscal 1997, SRAM products, including cache memory modules, contributed
approximately 41% to the Company's net revenues. The Company currently offers
SRAM products in several different packages and speed grades ranging from
64-Kbit densities with 8ns access times to 4-Mbit densities with 15ns access
times. The Company expects limited production of 16-Mbit densities to begin in
1998. Currently, substantially all of the Company's volume SRAM products are
manufactured using 0.4 micron technology, with a transition to 0.35 micron
technology underway.
SRAM Cache Memory Modules
The Company currently sells SRAM cache memory modules to customers in the
personal computer, networking and telecommunications industries. Cache memory
modules are complete cache memory subsystems consisting of SRAMs and logic
components that allow users to install or increase the cache memory of systems
by plugging a module directly into a single socket on the system board. The
majority of the demand for cache memory modules is driven by large computer
companies worldwide.
High Speed CMOS DRAMs
During early fiscal 1997, the Company commenced volume production, in a 0.5
micron geometry, of 4-Mbit DRAMs in a 1-Mbitx4 configuration with access time as
fast as 60ns. Subsequently, the Company introduced to production its 4-Mbit
DRAMs in a 256Kbitx16 configuration which is targeted at the graphics and
multimedia accelerator market and 16-Mbit DRAMs in a 1-Mbitx16 configuration,
which is targeted at main memory applications.. Sales of the Company's family of
DRAM products experienced significant growth during the fiscal year,
contributing approximately 47% of the fiscal year's net revenues.
MMUI Accelerators
During fiscal 1997, the Company introduced the Promotion(R)-AT3D 128-bit
MMUI accelerator to its family of graphics and video accelerators. This product
features high performance 2D graphics acceleration with enhanced motion video
scaling quality and Alliance's unique hardware gamma
correction and chroma correction. It also adds a Direct 3D(R)-optimized, 3D
rendering engine to accelerate 3D rendered animation. Sales of MMUI accelerator
products accounted for approximately 11% of the Company's net revenues during
fiscal 1997.
High Speed CMOS Flash Memories
During fiscal 1997, the Company produced commercial quantities of a 2-Mbit
flash product and expects limited production of a 4-Mbit flash product by
September 1997. The Company's flash products use a single power supply and
require only 5.0 volts for read and programming functions. The Company is also
in the process of developing an 8-Mbit product it expects to introduce by
September 1997. To date, the Company has not derived significant revenue from
flash products.
Product Development
Timely development and introduction of new products are essential to
maintaining the Company's competitive position. The Company currently develops
all of its products in-house and had on staff 74 development personnel as of
March 29, 1997. The Company uses a workstation-based computer-aided-design
environment to design and prototype new products. The Company's design process
uses network computing, high-level design methodologies, simulators, circuit
synthesizers and other related tools. During fiscal 1997, fiscal 1996 and fiscal
1995, the Company spent approximately $15.0 million, $14.7 million and $8.4
million, respectively, on product development activities. The Company plans to
continue to invest substantial amounts in development to design additional SRAM,
DRAM, graphics and flash memory products.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards and product obsolescence. The
Company's future success will be highly dependent upon the timely completion and
introduction of new products at competitive performance levels. The success of
new products depends on a variety of factors, including product selection,
successful and timely completion of product development, the Company's ability
to secure sufficient foundry capacity for volume manufacturing of wafers,
achievement of acceptable wafer fabrication yields (the proportion of good die
on a silicon wafer) by the Company's independent foundries and the Company's
ability to offer products at competitive prices. There can be no assurance that
the Company will be able to identify new product opportunities successfully and
develop and bring to market such new products or that the Company will be able
to respond effectively to new technological changes or new product announcements
by others. There also can be no assurance that the Company can secure adequate
foundry capacity for the production of such products, or obtain acceptable
manufacturing yields necessary to enable the Company to offer products at
competitive prices. Such inabilities could materially and adversely affect the
Company's operating results.
The Company has recently introduced and continues to develop products with
which the Company has only limited experience, such as high performance DRAMs,
MMUI accelerators and flash memory products. Certain of these new products will
be targeted at market segments in which the Company has not previously
participated. There can be no assurance that such products will be completed and
introduced in a timely and cost-effective manner or that such products, if
introduced, will gain market acceptance. Should the Company experience delays,
difficulty in procuring adequate foundry capacity for the manufacture of such
products or other difficulties in achieving volume production of these products,
the Company's operating results could be materially and adversely affected. The
markets for SRAMs, DRAMs, MMUI accelerators and flash memory products are
volatile and subject to rapid technological and price change. Any inventory of
products for those markets may be subject to obsolescence, which could
materially and adversely affect the Company's operating results. During fiscal
1997, the Company incurred pre-tax charges of approximately $17 million related
to reserves for inventory, primarily as a result of declines in average selling
prices of certain SRAM products.
Customers
The Company's primary customers are major domestic and international
suppliers and manufacturers of personal computers and personal computer system
boards including Acer, Apricot (acquired by Mitsubishi), Dell, Diamond
Multimedia, Hewlett Packard, IBM, Jabil, NEC, SCI
Manufacturing and Solectron. The market for SRAMs used in personal computers is
characterized by price volatility and has experienced significant fluctuations
and downturns in product demand. Moreover, Intel recently introduced the Pentium
II card containing a microprocessor and cache memory (SRAM) on the card. The
Company has not to date been selected as a supplier of SRAM memory to Intel for
the Pentium II card. There can be no assurance that the Company will be selected
by Intel to supply SRAM memory for the Pentium II card in the future. If Intel
continues to assemble cache memory onto the Pentium II Card or its successors
prior to sale to customers, then failure by the Company to be chosen to supply
SRAM to Intel for the Pentium II card or its successors would likely materially
adversely affect the Company's sales of SRAMs to the personal computer market.
While the Company's strategy is to increase its penetration into the
networking, telecommunications and instrumentation markets with its existing
SRAM products and to develop new products complementary to its existing
products, such as DRAMs, MMUI accelerators and flash memory products, the
Company may not be successful in executing such strategy. A decline in demand in
the personal computer industry or lack of success in developing new markets or
new products could have a material adverse effect on the Company's operating
results.
Because a large percentage of the worldwide supply of personal computers
and personal computer system boards is manufactured by suppliers located in
Asia, a substantial percentage of the Company's net revenues are derived from
Asian companies. During the fiscal years ended March 31, 1997 and 1996, sales to
customers in Asia accounted for approximately 28% and 25% of the Company's net
revenues, respectively.
The Company is also selling SRAMs to networking, telecommunications and
instrumentation customers including 3Com, Motorola and Megahertz (a division of
U.S. Robotics). The Company believes that if its sales penetration into these
markets increases, its customer base will diversify not only by product
application but also geographically. There can be no assurance that such sales
penetration into these markets will in fact increase.
Sales to the Company's customers are typically made pursuant to specific
purchase orders, which may be canceled by the customer without enforceable
penalties. For the fiscal year ended March 31, 1997, no customer accounted for
10% or more of the Company's net revenues. For the fiscal year ended March 31,
1996, one customer accounted for 18% of the Company's net revenues. See Note 1
of Notes to Consolidated Financial Statements.
Sales and Marketing
The Company markets and distributes its products in North America through a
direct sales organization supported by manufacturers' representatives and
distributors. The Company uses manufacturers' representatives and/or
distributors to make sales in Asia and the rest of the world. One of the
Company's manufacturers' representatives in Taiwan, Asian Specific Technologies
Ltd. ("ASTL"), was a subsidiary of the Company for a portion of fiscal year
1997.
The Company uses manufacturers' representatives and distributors who are
not subject to minimum purchase requirements and who can discontinue marketing
the Company's products at any time. Many of the Company's distributors are
permitted to return to the Company a portion of the products purchased by them.
The loss of one or more manufacturers' representatives or distributors could
have a material adverse effect on the Company's operating results. The Company
believes that its relations with its manufacturers' representatives and
distributors are good.
The Company believes that customer service and technical support are
important competitive factors in selling to major customers. The Company
provides technical support to its customers worldwide. Distributors and
manufacturers' representatives supplement the Company's efforts by providing
additional customer service at a local level. The Company also works closely
with its customers in qualification of its products and providing the needed
quality and reliability data. The Company believes that close contact with its
customers not only improves the customers' level of satisfaction but also
provides important insights into future market directions.
International revenues accounted for 36%, 43% and 55% of net revenues in
fiscal 1997, fiscal 1996 and fiscal 1995, respectively. The majority of the
Company's international revenues in fiscal years 1995 through 1997 were derived
from Asian manufacturers of personal computers and personal computer system
boards, because a large percentage of the worldwide supply of these products has
been and continues to be manufactured by suppliers located in Asia. The Company
expects that international sales will continue to represent a significant
portion of net revenues. In addition, the Company's products are manufactured,
assembled and tested by independent third parties primarily located in Asia, and
the Company has in the past and intends in the future to make investments in
certain foundries in Asia in order to secure production capacity. Due to its
international sales and independent third party manufacturing, assembly and
testing operations, the Company is subject to the risks of conducting business
internationally. These risks include unexpected changes in regulatory
requirements, delay resulting from difficulty in obtaining export licenses of
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying with a variety of foreign laws. The Company is also subject to
general geopolitical risks in connection with its international operations, such
as political and economic instability and changes in diplomatic and trade
relationships. In addition, because the Company's international sales are
denominated in U.S. dollars, fluctuations in the U.S. dollar could increase the
price in local currencies of the Company's products in foreign markets and make
the Company's products relatively more expensive than competitors' products that
are denominated in local currencies. Further, the Company's investments in
foundries are denominated in local currencies. Although the Company to date has
not experienced any material adverse effect on its operations as a result of
such regulatory, geopolitical and other factors, there can be no assurance that
such factors will not adversely impact the Company's operations in the future or
require the Company to modify its current business practices. See Note 1 of
Notes to Consolidated Financial Statements. As set forth in Item 3 - Legal
Proceedings below,
anti-dumping proceedings have been commenced which could result in the
imposition of an antidumping duty on the Company's imports of SRAMs manufactured
in Taiwan. Imposition of such a duty could materially adversely affect the
Company's ability to sell such products in the United States.
Manufacturing
The Company subcontracts its manufacturing to independent foundries, which
allows the Company to avoid the significant capital investment required for
wafer fabrication facilities. The Company, however, has entered into agreements
providing for the investment of significant sums for the formation of companies
to build and operate manufacturing facilities or to obtain guaranteed capacity,
as described below. As a result, the Company focuses its resources on product
design and development, quality assurance, marketing and sales, and customer
support. The Company designs its products using proprietary circuit modules and
standard fabrication processes in order to operate within the process parameters
of its contract manufacturers.
The Company's major foundries are United Microelectronics Corporation
("UMC") in Taiwan, United Semiconductor Corporation ("USC") in Taiwan, Chartered
Semiconductor Manufacturing Ltd. ("Chartered") in Singapore and Rohm Co., Ltd
("Rohm") in Japan. The Company has entered into foundry production agreements
with all of its major foundries. Although the Company believes it currently has
adequate capacity to address market requirements there can be no assurance that
in the future the Company's current foundries, together with any additional
sources, would be willing or able to satisfy all of the Company's requirements
on a timely basis in the future. The Company has encountered delays in the
qualification process and production ramp-up in the past, and qualification of
or production ramp-up at any additional foundries could take longer than
anticipated. The Company has entered into equity arrangements in order to obtain
an adequate supply of wafers, especially wafers manufactured using advanced
process technologies. The Company will continue to consider various possible
transactions, including but not limited to equity investments in independent
wafer manufacturers in exchange for guaranteed production; the formation with
others of new companies to own and operate foundries; the usage of "take or pay"
contracts that commit the Company to purchase specified quantities of wafers
over extended periods; and the licensing of certain of the Company's designs, in
order to obtain an adequate supply of wafers using advanced process
technologies. There can be no assurance, however, that the Company would be able
to consummate any such transaction in a timely manner, or at all, or on terms
commercially acceptable to the Company.
In February 1995, the Company agreed to purchase shares of Chartered for
approximately US$10 million and entered into a manufacturing agreement under
which Chartered will provide a minimum number of wafers from its new 8-inch
wafer fabrication facility. In April 1995, the Company agreed to purchase
additional shares in Chartered, bringing the total agreed investment in
Chartered to approximately US$51.6 million and Chartered agreed to provide an
increased minimum number of wafers to be provided by Chartered from its new
8-inch wafer fabrication facility. The Company has paid all installments to
Chartered. Chartered is a private company based in Singapore that is controlled
by entities affiliated with the Singapore government. The Company believes its
investment in Chartered approximates fair market value. The Company does not own
a material percentage of the equity of Chartered. Chartered has also received
investments of approximately US$10 million to US$20 million from a number of
United States companies, including Actel Corporation, Brooktree Corporation, LSI
Logic Corporation and Rockwell International Corporation, in return for
guaranteed minimum numbers of wafers from its 8-inch wafer fabrication facility.
In July 1995, the Company entered into an agreement with UMC and S3
Incorporated ("S3") to form a separate Taiwanese company, USC, for the purpose
of building and managing an 8-inch semiconductor manufacturing facility in
Taiwan. The facility is now in full production utilizing advanced submicron
semiconductor manufacturing processes. Alliance's contribution is in the form of
an equity investment, representing an equity ownership of up to approximately
19%. Alliance's investment will be up to approximately US$70 million and will be
paid in cash in up to three installments. The first installment of approximately
50% was made in September 1995, the second installment of approximately 25% was
made in July 1996 and the Company has the option to pay a third installment of
approximately 25% payable in July 1997, plus interest at a rate of 8.5% on such
amount from and after July 4, 1996. If this option is exercised, the Company
will have an equity ownership of approximately 19% and will have the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
A portion of UMC's equity contribution was paid through the grant by UMC to USC
of royalty-free licenses to certain UMC sub-micron process technologies. To the
extent USC experiences operating income or losses, the Company will recognize
its proportionate share of such income or losses. The Company believes that a
number of manufacturers are expanding or planning to expand their fabrication
capacity over the next several years, which could lead to overcapacity in the
market and resulting decreases in costs of finished wafers. If the wafers
produced by USC cannot be produced at competitive prices, USC could sustain
operating losses. There can be no assurance that such operating losses will not
have a material adverse effect on the Company's consolidated results of
operations.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon Inc., for the
purpose of building and managing an 8-inch semiconductor manufacturing facility
in Taiwan. The facility is expected to commence production in early 1998. It is
presently contemplated that the manufacturing facility will, over time, require
$1 billion to complete its construction and finance operations, although there
can be no assurances that production will commence on schedule. The
contributions of Alliance and other parties shall be in the form of equity
investments, representing an initial ownership interest of approximately 5% for
each US$30 million invested. The Alliance investment will be approximately US$30
million and will be paid in cash in up to three installments. Alliance had
originally committed to an investment of approximately US$60 million or 10%
ownership interest but recently requested that its level of participation be
reduced by 50%. The first installment of approximately 50% of the revised
investment was made in January 1996, and the Company has the option to pay a
second installment of approximately 25% of the revised investment payable in
December 1997, plus interest at a rate of 8.5% on such amount from and after
July 7, 1997, and the final installment of approximately 25% of the revised
investment is called for on or before fab production ramp-up. UMC, its
affiliates and members of the Taiwanese financial community are expected to
provide, over time, the remainder of the capitalization of the new entity, in
the form of debt and equity. A portion of UMC's equity contribution is expected
to be paid through the grant by UMC to the new entity of royalty-free licenses
to UMC's CMOS 0.35 micron and below process technologies under development to be
used in the manufacturing facility. If the Company exercises its option and
further pays the third installment, the Company will have an equity ownership of
approximately 5% and have the right to purchase up to approximately 6.25% of the
manufacturing capacity in this facility.
There can be no assurance that the Company's current foundries, together
with any additional sources, will be able or willing to satisfy all of the
Company's requirements on a timely basis. The Company has encountered delays in
qualification and production ramp-up in the past, and the production ramp-up at
any additional foundries could take longer than anticipated. In the event that
the Company's foundries are unable or unwilling to satisfy the Company's
requirements in a timely manner, the Company's operating results could be
materially adversely affected. In addition, UMC, USC and USI all are located in
the Science-Based Industrial Park in Hsin Chu City, Taiwan. The Company
currently expects these three foundries to supply the substantial portion of the
Company's products in fiscal 1998. Disruption of operations at the Company's
foundries for any reason, including work stoppages, fire, earthquakes or other
natural disasters, would cause delays in shipments of the Company's products,
and could have a material adverse effect on the Company's results of operations.
In addition, as a result of the rapid growth of the semiconductor industry based
in the Science-Based Industrial Park, severe constraints have been placed on the
water and electricity supply in that region. Any shortages of water or
electricity could adversely affect the Company's foundries' ability to supply
the Company's products, which could have a material adverse effect on the
Company's results of operations.
The Company is using multiple sources for certain of its products, which
may require the Company's customers to perform separate product qualifications.
The Company has not, however, developed alternate sources of supply for certain
other products, and its newly introduced products are typically produced
initially by a single foundry until alternate sources can be qualified. The
requirement that a customer perform separate product qualifications or a
customer's inability to obtain a sufficient supply of products from the Company
may cause that customer to satisfy its product requirements from the Company's
competitors, which would adversely affect the Company's results of operations.
The Company also purchases products: from UMC under a foundry production
agreement that expires December 1997, which agreement may be terminated by
either party upon six months' notice; from Chartered under a foundry production
agreement that expires August 1999, which agreement may be terminated by either
party upon six months' notice; and from Rohm under a foundry production
agreement that expires August 1998. The Company believes that its relationship
with each of these foundries is good. However, UMC and Rohm manufacture products
in the same facilities used to manufacture the Company's products, which
products UMC and Rohm, respectively, sell in competition with the Company's
products. Moreover, the Company is party to an agreement with UMC pursuant to
which the Company has rights to purchase certain capacity from UMC and its
affiliates and to receive certain payments from UMC, related to certain DRAM
products.
Reliance on these foundries involves several risks, including constraints
or delays in timely delivery of the Company's products, reduced control over
delivery schedules, quality assurance, costs and loss of production due to
seismic activity, weather conditions and other factors. Although the Company
continuously evaluates sources of supply and may seek to add additional foundry
capacity, there can be no assurance that such additional capacity can be
obtained at acceptable prices, if at all. The occurrence of any supply or other
problem resulting from these risks could have a material adverse effect on the
Company's operating results. There can be no assurance that problems affecting
manufacturing yields of the Company's products will not occur in the future.
The Company uses domestic and offshore subcontractors for die assembly and
testing. In the assembly process, the silicon wafers are separated into
individual dies that are then assembled into
packages and tested in accordance with procedures developed by the Company.
Following assembly, the packaged devices are further tested and inspected
pursuant to the Company's quality assurance program before shipment to
customers. While the timeliness, yield and quality of product deliveries from
the Company's suppliers of assembly and test services have been acceptable to
date, there can be no assurance that problems will not occur in the future. Any
significant disruption in adequate supplies from these subcontractors, or any
other circumstance that would require the Company to qualify alternative sources
of supply, could delay shipment and result in the loss of customers, limitations
or reductions in the Company's revenue, and other adverse effects on the
Company's operating results. Most of the Company's wafer foundries, assembly and
testing facilities comply with the requirements of ISO 9000 or U.S. Military
Specification MIL-M-3851.
The Company also is subject to the risks of shortages and increases in the
cost of raw materials used in the manufacture or assembly of the Company's
products. Shortages of raw materials or disruptions in the provision of services
by the Company's assembly or testing houses or other circumstances that would
require the Company to seek alternative sources of supply, assembly or testing
could lead to constraints or delays in timely delivery of the Company's
products. Such constraints or delays may result in the loss of customers,
limitations or reductions in the Company's revenue or other adverse effects on
the Company's operating results. The Company's reliance on outside foundries and
independent assembly and testing houses involves several other risks, including
reduced control over delivery schedules, quality assurance and costs.
Interruptions in supply at the Company's foundries or assembly or testing houses
may cause delays in delivery of the Company's products. The occurrence of any
supply or other problem resulting from the risks described above could have a
material adverse effect on the Company's operating results.
Competition
The semiconductor industry is intensely competitive and is characterized by
price erosion, rapid technological change, product obsolescence and heightened
international competition in many markets. Many of the Company's customers may
be purchasing products from both the Company and the Company's competitors. The
Company's principal competitors include Cirrus Logic, Cypress Semiconductor,
Integrated Device Technology, Micron Technology, Motorola, Samsung, S3, Toshiba
and other Japanese and Taiwanese manufacturers. Certain of the Company's
competitors and potential competitors have substantially greater financial,
technical, marketing, distribution and other resources, broader product lines
and longer-standing relationships with customers than the Company. Due to the
recent downturn in the SRAM and DRAM markets, companies that have broader
product lines and longer-standing customer relationships may be in a stronger
competitive position than the Company. In addition, as the Company enters new
markets, the Company may face additional competition. The Company has recently
entered into the DRAM and flash memory markets. These markets are dominated by
very large companies and subject to intense price competition. The Company's
future success will be highly dependent upon the successful development and
timely introduction of new products that meet the needs of the market at a
competitive price. There can be no assurance that the Company will be able to
develop or market any such products successfully. The Company believes that its
ability to compete successfully depends on a number of factors both within and
outside of its control, including price, product quality, performance, success
in developing new products, adequate foundry capacity and sources of raw
materials, efficiency of production, timing of new product introductions by
competitors, protection of Company products by effective utilization of
intellectual property laws and general market and
economic conditions. There can be no assurance that the Company will be able to
compete successfully in the future.
Licenses, Patents and Maskwork Protection
The Company seeks to protect its proprietary technology by filing patent
applications in the United States and registering its circuit designs pursuant
to the Semiconductor Chip Protection Act of 1984. The Company holds twenty-seven
United States patents covering certain aspects of its product designs that
expire between 2009 and 2015 and has thirty-three pending United States patent
applications, six of which have been allowed and are expected to be issued as
patents. There can be no assurance that any additional patents will be issued to
the Company or that the Company's patents will provide meaningful protection
from competition or will not be invalidated or challenged in the future.
Copyrights, maskwork protection, trade secrets and confidential technological
know-how are also key elements in the conduct of the Company's business.
As previously reported, in December 1996, Alliance Semiconductor
International Corporation ("ASIC"), a wholly-owned subsidiary of the Company,
was served with a complaint alleging that ASIC has infringed two patents (the
"AMD Patents") owned by Advanced Micro Devices, Inc. ("AMD"), and seeking
injunctive relief and damages. In March 1997, the Company was added as a
defendant. See Item 3 - Legal Proceedings, below. The semiconductor industry is
characterized by frequent claims and litigation regarding patent and other
intellectual property rights. The Company has from time to time received, and
believes that it likely will receive in the future, notices alleging that the
Company's products, or the processes used to manufacture the Company's products,
infringe the intellectual property rights of third parties. The ultimate
conclusion with respect to any alleged infringement must be determined by a
court or other administrative agency in the event of litigation, and there can
be no assurance that a court or other administrative agency would determine that
the Company's products do not infringe the patents in question. Patent
litigation is inherently uncertain and the Company cannot predict the result of
any such litigation or the level of damages that could be imposed if it were
determined that certain of the Company's products or processes infringe any of
the patents in question.
There can be no assurance that other third parties will not assert claims
against the Company with respect to existing or future products or that, in the
case of the existing or potential allegations described above or any new
dispute, licenses to disputed third-party technology will be available on
reasonable commercial terms, if at all. In the event of litigation to determine
the validity of any third-party claims (or claims of indemnification resulting
from such third-party claims), including the claims and potential claims
referred to in the preceding paragraph, such litigation, whether or not
determined in favor of the Company, could result in significant expense to the
Company and divert the efforts of the Company's technical and management
personnel from other matters. In the event of an adverse ruling in such
litigation, the Company might be required to cease the manufacture, use and sale
of infringing products, discontinue the use of certain processes, expend
significant resources to develop non-infringing technology or obtain licenses to
the infringing technology. In addition, depending upon the number of infringing
products and the extent of sales of such products, the Company could suffer
significant monetary damages. In the event of a successful claim against the
Company and the Company's failure to develop or license a substitute technology,
the Company's operating results could be materially adversely affected. In
addition, the laws of certain territories in which the Company's products are or
may be
developed, manufactured or sold, including Asia, Europe or Latin America, may
not protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
Backlog
Sales of the Company's products are made pursuant to standard purchase
orders. Purchase orders are subject to changes in quantities of products and
delivery schedules in order to reflect changes in the customers' requirements
and to price renegotiations. In addition, orders typically may be canceled at
the discretion of the buyer without penalty. The Company's business, in line
with that of much of the semiconductor industry, is characterized by short lead
time orders and quick delivery schedules. Also, the Company's actual shipments
depend on the manufacturing capacity of the Company's foundries. Finally,
capacity constraints or unexpected manufacturing delays may prevent the Company
from meeting the demand for certain of its products, therefore backlog is not
necessarily indicative of future sales.
Employees
As of March 29, 1997, the Company had 144 full-time employees, consisting
of 74 in research and development, 32 in marketing and sales and 38 in finance,
administration and operations. Of the 74 research and development employees, 24
have advanced degrees. The Company believes that its future success will depend,
in part, on its ability to continue to attract and retain qualified technical
and management personnel, particularly highly-skilled design engineers involved
in new product development, for whom competition is intense. The Company's
employees are not represented by any collective bargaining unit, and the Company
has never experienced a work stoppage. The Company believes that its employee
relations are good.
The Company has recently experienced and may continue to experience growth
in the number of its employees and the scope of its operating and financial
systems, resulting in increased responsibilities for the Company's management.
To manage future growth effectively, the Company will need to continue to
implement and improve its operational, financial and management information
systems and to hire, train, motivate and manage its employees. During fiscal
1997, the Company initiated the conversion of its business information systems
to Oracle(R) and its manufacturing tracking systems to FASTech(R) which will be
further integrated with the Oracle(R) application in a three-way implementation
partnership. The full conversion is scheduled to be completed in early 1998,
however, there can be no assurance that the conversion will not suffer delays or
not experience other problems which may have a materially adverse impact on the
business operations of the Company. Additionally there can be no assurance that
the Company will be able effectively to manage future growth, and the failure to
do so could have a material adverse effect on the Company's operating results.
The Company will depend to a large extent on the continued contributions of
its founders, N. Damodar Reddy, Chairman of the Board, Chief Executive Officer
and President of the Company, and his brother C.N. Reddy, Senior Vice
President-Engineering and Operations of the Company (collectively referred to as
the "Reddys"), as well as other officers and key design personnel, many of whom
would be difficult to replace. During fiscal 1997, a number of officers and
design personnel left Alliance to pursue various other opportunities. The future
success of the Company will depend on its ability to attract and retain
qualified technical and management personnel, particularly highly-skilled design
engineers involved in new product development, for whom competition is intense.
The loss of either of the Reddys or key design personnel could delay product
development cycles or otherwise have a material adverse
effect on the Company's business. The Company is not insured against the loss of
any of its key employees, nor can the Company assure the successful recruitment
of new and replacement personnel.
ITEM 2. FACILITIES
The Company's executive offices and its principal marketing, sales and
product development operations are located in a 41,400 square foot leased
facility in San Jose, California under a lease which expires in 1999. The
Company also leases office space in Hsin Chu, Taiwan to manage the logistics of
the wafer fabrication, assembly and testing of the Company's products in Taiwan.
Additionally, the Company leases sales offices in Wellesley, Massachusetts;
Plano, Texas; Tapei, Taiwan; and Derby, England.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, in March 1996, a putative class action lawsuit was
filed against the Company and certain of its officers and directors and others
in the United States District Court for the Northern District of California,
alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 promulgated thereunder. (The complaint alleged
that the Company, N.D. Reddy and C.N. Reddy also had liability under Section
20(a) of the Exchange Act.) The complaint, brought by an individual who claimed
to have purchased 100 shares of the Company's common stock on November 2, 1995,
was putatively brought on behalf of a class of persons who purchased the
Company's common stock between July 11, 1995 and December 29, 1995. In April
1997, the Court dismissed the complaint, with leave to file an amended
complaint. In June 1997, plaintiff filed an amended complaint against the
Company and certain of its officers and directors alleging violations of
Sections 10(b) and 20(a) of the Exchange Act. The Company intends to continue to
defend vigorously against any claims asserted against it, and believes it has
meritorious defenses against the asserted claims. Due to the inherent
uncertainty of litigation, the Company is not able to reasonably estimate the
potential losses, if any, that may be incurred in relation to this litigation.
As previously reported, in December 1996, ASIC was served with a complaint
alleging that ASIC has infringed AMD Patents owned by AMD, and seeking
injunctive relief and damages. In March 1997, the Company was added as a
defendant. Each defendant has denied the allegations of the complaint and
asserted a counterclaim for declaration that each of the AMD Patents is invalid
and not infringed by such defendant. The Company believes that the resolution of
this matter will not have a material adverse effect on the financial condition
of the Company.
In February 1997, Micron Technology, Inc. filed an anti-dumping petition
(the "Petition") with the United States International Trade Commission ("ITC")
(Investigation Nos. 731-TA-761-762) and United States Department of Commerce
("DOC") (Investigations No. A-583-827), alleging that static random access
memories ("SRAMs") produced in Korea and Taiwan are being sold in the United
States at less than fair value, and that the United States industry producing
SRAMs is materially injured or threatened with material injury by reason of
imports of SRAMs manufactured in Korea and Taiwan. The Petition requests the
United States government to impose antidumping margins on imports into the
United States of SRAMs manufactured in Korea and Taiwan. A material portion of
the SRAMs designed and sold by the Company are manufactured in Taiwan. The
Company received preliminary producer and importer questionnaires from the ITC,
and submitted responses to such questionnaires in March 1997. In April 1997, the
ITC preliminarily determined that there is a reasonable indication that the
imports of the products under investigation are injuring the United States
industry. In April 1997, the Company received a questionnaire from the DOC. In
accordance with the deadlines established by the DOC, responses to the
questionnaire were filed in May 1997 and June 1997, respectively. The Company
anticipates that in the third calendar quarter of 1997, the DOC will make a
preliminary determination as to the estimated antidumping duty, if any, that
should be imposed upon imports of the Company's SRAM products fabricated in
Taiwan, and that a final determination as to such duty, if any, would be made by
DOC in the fourth quarter of calendar 1997 or the first quarter of calendar
1998. The Company anticipates that the ITC, in the fourth quarter of calendar
1997 or the first quarter of calendar 1998, will make a final determination as
to whether the United States industry producing SRAMs is materially injured or
threatened with material injury by reason of imports of SRAMs manufactured in
Korea and Taiwan. The Company vigorously is seeking, and intends to continue
vigorously to seek, to ensure that dumping duties are not imposed on imports of
its SRAM products manufactured in Taiwan. There can be no assurance, however,
that the government will not impose duties on the Company's imports of SRAM
products into the United States, which duties could materially adversely affect
the Company's ability to sell such products in the United States.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning executive officers of the Company is set forth
below:
Name Age Position
- ---- --- --------
N. Damodar Reddy........... 58 President and Chief Executive Officer
C.N. Reddy................. 41 Senior Vice President-Engineering and
Operations
Charles Alvarez............ 47 Vice President-Finance and Administration
and Chief Financial Officer
Gregory Barton............. 35 Vice President-Corporate and Legal Affairs,
General Counsel
Laurence Jordan............ 53 Vice President-Operations
Phil Richards.............. 49 Vice President-Sales
N. Damodar Reddy is the co-founder of the Company and has served as the
Company's Chairman of the Board, Chief Executive Officer and President from its
inception in February 1985. From September 1983 to February 1985, he served as
President and Chief Executive Officer of Modular Semiconductor, Inc., and from
1980 to 1983, he served as manager of Advanced CMOS Technology Development at
Synertek, Inc., a subsidiary of Honeywell, Inc. Prior to that time, Mr. Reddy
held various research and development and management positions at Four Phase
Systems, a subsidiary of Motorola, Inc., Fairchild Semiconductor and RCA
Technology Center. He holds a M.S. degree in Electrical Engineering from North
Dakota State University and a M.B.A. from Santa Clara University. N. Damodar
Reddy is the brother of C.N. Reddy.
C.N. Reddy is the co-founder of the Company and has served as the Company's
Vice President-Engineering and Secretary and director since its inception in
February 1985. In May 1993, he was appointed Senior Vice-President-Engineering
and Operations of the Company. From 1984 to 1985, he served as Director of
Memory Products of Modular Semiconductor, Inc., and from 1983 to 1984, Mr. Reddy
served as a SRAM product line manager for Cypress Semiconductor Corporation.
From 1980 to 1983, Mr. Reddy served as a DRAM development manager for Texas
Instruments, Inc. and, before that, he was a design engineer with National
Semiconductor Corporation for two years. Mr. Reddy holds a M.S. degree in
Electrical Engineering from Utah State University. C.N. Reddy is named inventor
of over 15 patents related to SRAM and DRAM designs. C.N. Reddy is the brother
of N. Damodar Reddy.
Charles Alvarez joined the Company in 1997 as Vice President-Finance and
Administration, and Chief Financial Officer. Prior to joining Alliance, Mr.
Alvarez served more than seven years at LSI Logic Corp., most recently as
Director, Finance and Operations of the LSI Product Group. In this role, he was
responsible for the controllership of all five semiconductor product divisions,
execution of pricing strategies, and management of the finance operations of
these divisions. Prior to that, he served as Director, Finance and Operations of
the LSI Logic Microprocessor Group. Mr. Alvarez has also held various positions
at General Electric, where he served for more than twelve years. He holds a B.A.
and a M.A. degree in Business and Economics from San Francisco State University.
Gregory Barton joined the Company in 1995 as General Counsel and was
appointed Vice President-Corporate and Legal Affairs in 1996. From 1986 to 1993,
he was an associate in the New York office of the law firm Gibson, Dunn &
Crutcher. Mr. Barton received a J.D. degree magna cum laude from Harvard Law
School, and a B.A. degree summa cum laude from Claremont McKenna College.
Laurence Jordan joined the Company in June 1997 as Vice President -
Operations. From 1994 to 1996, he served as Director of Operations at Tseng
Labs, Inc., a graphics accelerator company, and from 1992 to 1993, he served as
Engineering Manager at Allegro Microsystems. Prior to that, Mr. Jordan has held
various positions at Zilog, California Devices, Mitel Semiconducteur, and Texas
Instruments. He holds a B.S. in Physics and B.A. in Mathematics from the
University of Texas.
Phil Richards joined the Company in June 1995 as Vice President-Sales. From
April 1989 through May 1995, Mr. Richards was President of Competitive
Technology, Inc., a manufacturers representative. From May 1988 through April
1989, he served as President of Motion Phone Technology, Inc., a company formed
to distribute a video telephone then under development. From July 1983 through
May 1988, he was President of Phase II Technology, Inc., a manufacturers
representative. Prior to 1983, he served in various sales and sales management
positions with Bager Electronics, Intel Corporation, American Microsystems and
Siliconix. He holds a B.S. degree in Electrical Engineering from San Jose State
University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and
quoted on the Nasdaq National Market under the symbol ALSC. The Company
completed its initial public offering on December 1, 1993. The following table
sets forth, for the periods indicated, the high and low sale prices for the
Company's Common Stock, as adjusted to reflect the three-for-two stock split
effected in January 1995 and the three-for-two stock split effected in July
1995. Such prices represent prices between dealers, do not include retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
High Low
1995 ---- ---
- ----
1st Quarter ............................ $ 34.00 $ 12.89
2nd Quarter ............................ 35.33 25.00
3rd Quarter ............................ 48.25 32.33
4th Quarter ............................ 39.00 10.50
1996
- ----
1st Quarter ............................. $ 13.00 $ 8.00
2nd Quarter ............................. 12.00 7.75
3rd Quarter ............................. 9.00 5.13
4th Quarter ............................. 10.00 6.00
1997
- ----
1st Quarter .............................. $ 9.50 $ 6.31
As of June 20, 1997, there were approximately 219 holders of record of the
Company's Common Stock.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain future earnings, if any, for
development of its business and, therefore, does not anticipate that it will
declare or pay cash dividends on its capital stock in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes selected consolidated financial information
for each of the five fiscal years ended March 31, 1997 and should be read in
conjunction with the consolidated financial statements and notes relating
thereto. See Note 1 of Notes to Consolidated Financial Statements.
Year Ended March 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands, except per share data)
Consolidated Statement of Operations
Data:
Net revenues ...................................... $ 82,572 $201,098 $119,327 $ 54,574 $ 22,238
Cost of revenues .................................. 84,630 158,159 65,035 33,414 16,694
-------- -------- -------- -------- --------
Gross profit (loss) ............................ (2,058) 42,939 54,292 21,160 5,544
Operating expenses:
Research and development ....................... 15,012 14,664 8,374 3,661 1,670
Selling, general and administrative ............ 10,344 17,202 9,600 3,953 2,152
-------- -------- -------- -------- --------
Income (loss) from operations ..................... (27,414) 11,073 36,318 13,546 1,722
Other income, net ................................. 1,753 6,498 2,035 343 1,331
-------- -------- -------- -------- --------
Income (loss) before income taxes ................. (25,661) 17,571 38,353 13,889 3,053
Provision for income taxes ........................ (8,990) 6,852 14,462 5,213 1,076
-------- -------- -------- -------- --------
Net income (loss) ................................. $(16,671) $ 10,719 $ 23,891 $ 8,676 $ 1,977
======== ======== ======== ======== ========
Net income (loss) per share ....................... $ (0.43) $ 0.26 $ 0.69 $ 0.32 $ 0.08
======== ======== ======== ======== ========
Weighted average number of common shares and
equivalents.................................... 38,653 40,633 34,559 26,906 24,459
======== ======== ======== ======== ========
March 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands)
Consolidated Balance Sheet Data:
Working capital (deficit) ......................... $ 78,000 $106,171 $ 86,845 $ 26,550 $ (2,193)
Total assets ...................................... 232,569 263,238 126,866 40,192 8,538
Stockholders' equity (deficit) .................... 204,677 219,381 107,803 28,998 (1,572)
Fiscal Year
------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
-------- -------- -------- -------- -------- -------- -------- --------
Operating Summary: (in thousands, except per share data)
Net revenues .......................... $ 30,105 $ 25,224 $ 13,135 $ 14,108 $ 20,684 $ 46,372 $ 77,007 $ 57,035
Cost of revenues ...................... 27,437 21,833 11,029 24,331 59,498 35,944 35,894 26,823
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit (loss) ................ 2,668 3,391 2,106 (10,223) (38,814) 10,428 41,113 30,212
Operating expenses:
Research and development ........... 4,261 3,673 3,639 3,439 2,891 3,513 4,553 3,707
Selling, general and
administrative ................. 3,003 2,146 2,703 2,492 2,650 4,973 5,605 3,974
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations ......... (4,596) (2,428) (4,236) (16,154) (44,355) 1,942 30,955 22,531
Other income, net ..................... 209 369 459 716 1,070 1,600 1,905 1,923
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes .............................. (4,387) (2,059) (3,777) (15,438) (43,285) 3,542 32,860 24,454
Provision (benefit) for income
taxes .............................. (1,544) (721) (1,322) (5,403) (16,881) 1,381 12,815 9,537
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ..................... $ (2,843) $ (1,338) $ (2,455) $(10,035) $(26,404) $ 2,161 $ 20,045 $ 14,917
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per share ........... $ (0.07) $ (0.03) $ (0.06) $ (0.26) $ (0.69) $ 0.05 $ 0.48 $ 0.36
======== ======== ======== ======== ======== ======== ======== ========
Weighted average number of
common shares and equivalents.......... 38,896 38,513 38,483 38,416 38,274 41,246 41,526 41,485
======== ======== ======== ======== ======== ======== ======== ========
During the third and fourth quarters of fiscal 1996 and through most of
fiscal 1997, the Company experienced significant deterioration in the average
selling prices for its SRAM products. Primarily as a result of this
deterioration and certain manufacturing issues in fiscal 1996, the Company
recorded pre-tax charges in the third and fourth quarters of fiscal 1996 of
approximately $10 million and $45 million, respectively, and charges in the
first and fourth quarters of fiscal 1997 of approximately $16 million and $1
million, respectively. The Company is unable to predict when or if such decline
in prices will stabilize. A continued decline in average selling prices of any
of the Company's products could result in an additional material valuation
adjustment and corresponding charge to operations which could have a material
adverse effect on the Company's operating results
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company was founded in February 1985 to focus on the design and
development of high performance semiconductor memory products. In March 1991 the
Company filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code (the "Reorganization"). All of the Company's obligations
set forth in the Plan of Reorganization, as modified, have been satisfied, and,
in August 1994, the Company received a final decree from the Bankruptcy Court.
Since 1991, the Company's business strategy has been to be a supplier of
high performance memory products and memory intensive logic products, operating
on a fabless basis by utilizing independent manufacturing facilities and, more
recently, joint venture facilities as well. Due to favorable market acceptance
of SRAM products introduced by the Company, annual revenues grew rapidly through
fiscal 1996. In addition, from September 1992 through September 1995, gross
profit increased primarily due to reductions in average unit product costs,
higher average selling prices, a shift to higher margin products and an increase
in manufacturing capacity to address the increased demand for SRAM products. As
a result, operating income also experienced substantial growth during that same
period. From October 1995 through most of fiscal 1997 gross profit decreased
primarily due to a decline in average selling prices and to pre-tax inventory
related charges. The Company recorded pre-tax charges in fiscal 1996 and fiscal
1997 of approximately $55 million and $17 million, respectively, to reserve for
certain manufacturing issues and to reflect declines in market value for certain
of the Company's products.
From April 1, 1992 through the early part of fiscal 1997, substantially all
of the Company's net revenues were derived primarily from the sale of SRAM
products. During fiscal 1997, the Company commenced volume production in 0.5
micron geometry, 4-Mbit DRAMs in a 1-Mbitx4 configuration with access time as
fast as 60ns. The Company also introduced to production its 4-Mbit DRAMs in a
256-Kbitx16 configuration and 16-Mbit DRAMs in a 1-Mbitx16 configuration. This
family of DRAMs contributed a steadily increasing stream of revenue during
fiscal 1997, accounting for approximately 47% of the Company's total net
revenues. The Company also enhanced its MMUI accelerator family with the
introduction of the Promotion(R)-AT3D 128-bit 2D/3D graphics and video
accelerator. This product family contributed approximately 11% of the Company's
total net revenues in fiscal 1997. Finally, the Company put into volume
production a 2Mbit flash product and introduced a 4-Mbit flash design. Flash
products did not contribute significant revenue in fiscal 1997. A substantial
portion of the Company's net revenues is derived from a relatively small number
of customers in the personal computer industry, although the Company did
diversify its customer base during fiscal 1997, with no one customer
representing more than 10% of the Company's net revenues in fiscal 1997.
The market for memory products used in personal computers is characterized
by price volatility and has experienced significant fluctuations and cyclical
downturns in product demand. While the Company's strategy is to increase its
penetration into the networking, telecommunications and instrumentation markets
with its existing SRAM products and to develop and sell in volume quantities of
new products complementary to its existing products, such as DRAMs, MMUI
accelerators and flash memory products, the Company may not be successful in
executing such strategy. A decline in demand in the personal computer industry
or lack of success in developing new markets or new products could have a
material adverse effect on the Company's operating results.
Results of Operations
The percentage of net revenues represented by certain line items in the
Company's consolidated statements of operations for the years indicated, are set
forth in the table below.
Percentage of Net Revenues
Year Ended March 31,
----------------------------
1997 1996 1995
----- ----- -----
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 102.5 78.7 54.5
----- ----- -----
Gross profit (loss) (2.5) 21.3 45.5
Operating expenses:
Research and development 18.2 7.3 7.0
Selling, general and administrative 12.5 8.5 8.1
----- ----- -----
Income (loss) from operations (33.2) 5.5 30.4
Other income, net 2.1 3.2 1.7
----- ----- -----
Income (loss) before income taxes (31.1) 8.7 32.1
Provision (benefit) for income taxes (10.9) 3.4 12.1
----- ----- -----
Net income (loss) (20.2)% 5.3% 20.0%
----- ===== =====
Net Revenues. The Company's net revenues decreased to approximately $82.6
million in fiscal 1997, from approximately $201.1 million of net revenues in
fiscal 1996. The decrease in net revenues in fiscal 1997 was due primarily to
lower unit demand and lower average selling prices for SRAM products as compared
to the prior year. During the first half of fiscal 1996, the Company benefited
from supply and demand relationships that caused the unit demand and average
selling prices for the Company's SRAM products to increase. Since that time, the
Company has experienced significant deterioration in the average selling prices
and lower demand for its SRAM products. The Company believes that the decrease
in selling prices was due to a number of factors, including increased supply of
SRAMs from foreign and domestic competitors and weakening unit demand for SRAM
products. Such factors created an oversupply situation in the SRAM markets in
which the Company participates, with such oversupply condition continuing
throughout fiscal 1997. The Company is unable to predict when or if such price
declines will stabilize. A continued decline in average selling prices of SRAMs
could have a material adverse effect on the Company's operating results.
During fiscal 1997, the Company introduced the 4-Mbit and 16-Mbit DRAM
products and commenced volume production of 4-Mbit DRAM in a 1-MbitX4
configuration. Revenues from the Company's DRAM product family grew steadily
throughout the year and contributed approximately 47% of the Company's net
revenues in fiscal 1997. The DRAM market is characterized by volatile supply and
demand conditions, fluctuating pricing and rapid technology changes to higher
density products. During fiscal 1997, the average selling prices for the
Company's DRAMs declined. The Company is unable to predict when or if such price
declines will stabilize. A continued decline in average selling prices of DRAMs
could have a material adverse effect on the Company's operating results.
The Company introduced the latest enhancement to its MMUI product family
during fiscal 1997, the Promotion(R)-AT3D, 128-bit 2D/3D graphics and video
accelerator. Sales of the Company's MMUI product line contributed approximately
11% to the Company's net revenues during fiscal 1997. The
MMUI graphics and video accelerator market is characterized by a large and
growing number of competitors providing a steady stream of new products with
enhanced features.
A significant decline in average selling prices due to competitive
conditions, including overall supply and demand in the market, could have a
material adverse effect on the Company's operating results. The Company's flash
memory products did not contribute significant revenue during fiscal 1997 and
prior years.
The Company's net revenues increased to approximately $201.1 million in
fiscal 1996, or approximately 69% increase over approximately $119.3 million of
net revenues in fiscal 1995. During fiscal 1996, one customer accounted for 18%
of net revenues. The increase in net revenues in fiscal 1996 was due to a number
of factors, including increased unit shipments of SRAM products, changes in
product mix and higher average selling prices as compared to the prior year.
During the first half of fiscal 1996, the Company benefited from supply and
demand relationships that caused average selling prices for the Company's SRAM
products to increase. Since that time, the Company has experienced significant
deterioration in the average selling prices for its SRAM products. The Company
believes that the decrease in selling prices was due to a number of factors,
including increased supply of SRAMs from foreign and domestic competitors and
weakening unit demand for SRAM products.
Generally, the markets for the Company's products are characterized by
volatile supply and demand condition, numerous competitors, rapid technological
change, and product obsolescence, conditions which could require the Company to
make significant shifts in its product mix in a relatively short period of time.
To diversify its product offerings, the Company has introduced new SRAM, DRAM,
MMUI accelerators and flash products. These changes involve several risks,
including, among others, constraints or delays in timely deliveries of products
from the Company's suppliers; lower than anticipated wafer manufacturing yields;
and lower than expected throughput from assembly and test suppliers; and less
than anticipated demand and selling prices. The occurrence of any problems
resulting from these risks could have a material adverse effect on the Company's
operating results.
Gross Profit (Loss). The Company's gross loss for fiscal 1997 was
approximately $2.1 million or approximately (2.5)% of net revenues compared to a
gross profit of approximately $42.9 million or approximately 21.3% of net
revenues for the same period in fiscal 1996. The decrease in gross profits
resulted primarily from reduced unit demand and lower average selling prices for
the Company's SRAM products. Gross profits associated with sales from the
Company's DRAM and MMUI product families contributed partially to offset the
declines attributable to the SRAM products.
The Company's gross profit for fiscal 1996 was approximately $42.9 million
or approximately 21.3% of net revenues compared to approximately $54.3 million
or approximately 45.5% of net revenues for the same period in fiscal 1995. The
decrease in gross profit resulted primarily from pre-tax inventory and purchase
commitment related charges of approximately $55 million to reflect declines in
market value for certain of the Company's products offset by a favorable supply
and demand relationships during the first half of fiscal 1996 that caused
average selling prices for the Company's SRAM products to generally increase on
a quarterly basis through that period.
As a result of the significant deterioration in unit demand and the average
selling prices for its SRAM products, the Company's gross margin declined
significantly during the last half of fiscal 1996
and throughout fiscal 1997. The Company is unable to predict when or if such
decline in prices will stabilize. A continued decline in average selling prices
of any of the Company's products could result in a material decline of the
Company's gross profits unless the Company is able to reduce its cost per unit
to offset such declines. There can be no assurance that the Company will be able
to reduce its cost per unit at a level to offset a decline in average selling
prices.
The Company is subject to a number of factors that may have an adverse
impact on gross profits, including the availability and cost of products from
the Company's suppliers; increased competition and related decreases in unit
average selling prices; changes in the mix of product sold; and the timing of
new product introductions and volume shipments. In addition, the Company may
seek to add additional foundry suppliers and transfer existing and newly
developed products to more advanced manufacturing processes. The commencement of
manufacturing at a new foundry is often characterized by lower yields as the
manufacturing process is refined. There can be no assurance that the
commencement of such manufacturing will not have an adverse effect on the
Company's gross profits in future periods.
Research and Development. Research and development expenses were
approximately $15.0 million or approximately 18.2% of net revenues for fiscal
1997, approximately $14.7 million or approximately 7.3% of net revenues for
fiscal 1996 and approximately $8.4 million or approximately 7.0% of net revenues
for fiscal 1995. These dollar increases in research and development expenses
were primarily due to the addition of new personnel for development of new
products and the enhancement of existing products and expenditures for materials
related to such development activities. During fiscal 1997, the Company's
development efforts focused on advanced process and design technology, SRAMs,
DRAMs, flash memory and MMUI accelerator products. Research and development
expenses are expected to continue to increase in absolute dollars, although such
expenses may fluctuate as a percentage of net revenues.
Selling, General and Administrative. Selling, general and administrative
expenses in fiscal 1997 were approximately $10.3 million or approximately 12.5%
of net revenues compared to approximately $17.2 million or approximately 8.5% of
net revenues for fiscal 1996, and approximately $9.6 million or approximately
8.1% of net revenues for fiscal 1995. The decrease in selling, general and
administrative expenses in fiscal 1997 was principally the result of lower sales
commissions associated with the decline in revenue and decreased bad debt
reserve requirements. Selling, general and administrative expenses are expected
to increase in absolute dollars, although such expenses may fluctuate as a
percentage of net revenues.
Other Income, Net. Net other income was approximately $1.8 million for
fiscal 1997, approximately $6.5 million for fiscal 1996 and approximately $2.0
million for fiscal 1995. Net other income primarily represents interest and
dividend income from investments.
Provision for Income Taxes. The Company's effective tax rate was 35% for
fiscal 1997, 39.0% for fiscal 1996 and 37.7% for fiscal 1995. The effective tax
rate for fiscal 1997 represented tax benefits accrued at applicable statutory
rates. The effective tax rate for fiscal 1996 and 1995 represented taxes accrued
at applicable statutory rates partially offset by the effect of research and
development tax credits.
Factors That May Affect Future Results
The Company's quarterly and annual operating results have historically
been, and will continue to be, subject to quarterly and other fluctuations due
to a variety of factors, including general economic conditions, changes in
pricing policies by the Company, its competitors or its suppliers, anticipated
and unanticipated decreases in unit average selling prices of the Company's
products, fluctuations in manufacturing yields, availability and cost of
products from the Company's suppliers, the timing of new product announcements
and introductions by the Company or its competitors, changes in the mix of
products sold, the cyclical nature of the semiconductor industry, the gain or
loss of significant customers, increased research and development expenses
associated with new product introductions, market acceptance of new or enhanced
versions of the Company's products, seasonal customer demand and the timing of
significant orders. Operating results could also be adversely affected by
economic conditions generally or in various geographic areas, other conditions
affecting the timing of customer orders and capital spending, a downturn in the
market for personal computers, or order cancellations or rescheduling.
Additionally, because the Company is continuing to increase its operating
expenses for personnel and new product development to be able to support
increased sales levels, the Company's operating results will be adversely
affected if such increased sales levels are not achieved.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards, product obsolescence and
significant price competition and, as a result, are subject to decreases in
average selling price. The Company has experienced significant deterioration in
the average selling prices for its SRAM and DRAM products. The Company is unable
to predict when or if such decline in prices will stabilize. Historically,
average selling prices for semiconductor memory products have declined and the
Company expects that average selling prices will decline in the future.
Accordingly, the Company's ability to maintain or increase revenues will be
highly dependent on its ability to increase unit sales volume of existing
products and to successfully develop, introduce and sell new products. Declining
average selling prices will also adversely affect the Company's gross margins
unless the Company is able to reduce its cost per unit to offset the declines in
average selling prices. There can be no assurance that the Company will be able
to increase unit sales volumes of existing products, develop, introduce and sell
new products or reduce its cost per unit.
The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity such as the Company
experiences from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products to meet future demand, and any inability of the Company to maintain
adequate inventory levels may adversely affect its relations with its customers.
In addition, because the Company must order products and build inventory
substantially in advance of products shipments, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories of
particular products because demand for the Company's products is volatile and
subject to rapid technology and price change. This inventory risk is heightened
because certain of the Company's key customers place orders with short lead
times. The Company's customers' ability to reschedule or cancel orders without
significant penalty could adversely affect the Company's liquidity, as the
Company may be unable to adjust its purchases from its independent foundries to
match such customer changes and cancellations. To the extent the Company
produces excess or insufficient inventories of particular products, the
Company's operating results could be adversely affected, as they were in fiscal
1996 and fiscal 1997, when the Company recorded pre-tax charges totalling
approximately $55 million and $17 million,
respectively, primarily to reflect a decline in market value of certain
inventory and certain manufacturing issues.
The Company currently relies on outside foundries to manufacture all of the
Company's products. Reliance on these foundries involves several risks,
including constraints or delays in timely delivery of the Company's products,
reduced control over delivery schedules, quality assurance, costs and loss of
production due to seismic activity, weather conditions and other factors.
Although the Company continuously evaluates sources of supply and may seek to
add additional foundry capacity, there can be no assurance that such additional
capacity can be obtained at acceptable prices, if at all. The occurrence of any
supply or other problem resulting from these risks could have a material adverse
effect on the Company's operating results. During the third quarter of fiscal
1996, manufacturing yields of one of the Company's products were materially
adversely affected by manufacturing problems at one of the Company's foundry
suppliers. There can be no assurance that other problems affecting manufacturing
yields of the Company's products will not occur in the future.
The Company conducts a significant portion of its business internationally
and is subject to a number of risks resulting from such operations. Such risks
include political and economic instability and changes in diplomatic and trade
relationships, foreign currency fluctuations, unexpected changes in regulatory
requirements, delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying with a variety of foreign laws. Although the Company to date has
not experienced any material adverse effect on its operations as a result of
such factors, there can be no assurance that such factors will not adversely
impact the Company's operations in the future or require the Company to modify
its current business practice.
The Company's corporate headquarters are located near major earthquake
faults. As a result, in the event of a major earthquake, the Company could
suffer damages which could materially and adversely affect the operating results
of the Company.
Current pending litigation, administrative proceedings and claims are set
forth in Item 3 - Legal Proceedings and in Item 1 - Licenses, Patents and
Maskwork Protection, above. The Company intends to vigorously defend itself in
the litigation and claims and, subject to the inherent uncertainties of
litigation and based upon discovery completed to date, management believes that
the resolution of these matters will not have a material adverse effect on the
Company's financial position or operating results. However, should the outcome
of any of these actions be unfavorable, the Company may be required to pay
damages and other expenses, which could have a material adverse effect on the
Company's financial position or operating results. Moreover, there can be no
assurance that anti-dumping duties will not be imposed on Alliance's import of
SRAM products manufactured in Taiwan, which duties could materially adversely
affect Alliance's ability to sell such products in the United States.
As a result of the foregoing factors, as well as other factors affecting
the Company's operating results, past performance should not be considered to be
a reliable indicator of future performance and investors should not use
historical trends to anticipate results or trends in future periods. In
addition, stock prices for many technological companies are subject to
significant volatility, particularly on a quarterly basis. If revenues or
earnings fail to meet expectations of the investment community, there could be
an immediate and significant impact on the market price of the Company's Common
Stock.
Liquidity and Capital Resources
The Company's operating activities used cash of approximately $44.6 million
in fiscal 1997, versus providing approximately $1.8 million in fiscal 1996 and
$21.9 million in fiscal 1995. Cash utilized by operations in fiscal 1997 was the
result of a net loss plus increases in working capital, while cash generated
from operations in fiscal years 1996 and 1995 was primarily the result of net
income generated during the periods, partially offset by increases in working
capital. The decrease in inventory in fiscal 1997 is due to a reduction of older
SRAM products partially offset by increased inventory of new products as
compared to the same period of the previous year. The increase in receivables
during the same period is the result of higher sales in the fourth quarter of
fiscal 1997 as compared to the same period of the previous fiscal year.
Net cash used in investing activities was approximately $19.3 million in
fiscal 1997 and approximately $104.1 million in fiscal 1996. Net cash used in
significant investing activities in fiscal 1997 reflect equipment purchases of
approximately $3.1 million and an investment in USC of approximately $16.4
million while investing activities in fiscal 1996 reflect equipment purchases of
approximately $9.5 million and investments in Chartered of approximately $44.6
million, in USC of approximately $36.4 million and in USI of approximately $13.9
million.
Net cash provided by financing activities of approximately $5.8 million in
fiscal 1997 resulted from proceeds of a approximately $3.8 million secured loan
and approximately $2.0 million through issuance of stock upon exercise of
options and purchases under the Company's Employee Stock Purchase Plan. Net cash
provided by financing activities was approximately $107.3 million in fiscal 1996
and approximately $49.2 million in fiscal 1995. Net cash provided by financing
activities in fiscal 1996 reflects primarily net proceeds of approximately $97.3
million from sales of Common Stock in connection with the Company's public
offering in April 1995 and exercises of stock options and a receipt of UMC loan
payment of approximately $10 million. Net cash provided by financing activities
in fiscal 1995 reflects primarily net proceeds of approximately $53.7 million
from sales of Common Stock in connection with the Company's public offering in
October 1994 and exercises of stock options and a decrease in restricted cash of
approximately $5.1 million, partially offset by an installment loan made to UMC
of approximately $10 million.
At March 29, 1997, the Company had approximately $22.5 million in cash, a
decrease of approximately $58.1 million from March 31, 1996, and working capital
of approximately $78.0 million, a decrease of approximately $28.2 million from
March 31, 1996. The Company believes that its existing levels of cash, together
with an expected income tax refund will be sufficient to meet its projected
working capital and other cash requirements through the end of fiscal 1998.
In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has entered into
and will continue to consider various possible transactions, including equity
investments in or loans to foundries in exchange for guaranteed production
capacity, the formation of joint ventures to own and operate foundries, or the
usage of "take or pay" contracts that commit the Company to purchase specified
quantities of wafers over extended periods. Manufacturing arrangements such as
these may require substantial capital investments, which may require the Company
to seek additional equity or debt financing. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be on satisfactory terms. Additionally, the Company has entered
into and will continue to enter into various transactions, including
the licensing of its integrated circuit designs in exchange for royalties, fees
or guarantees of manufacturing capacity.
In February 1995, the Company agreed to purchase shares of Chartered for
approximately $10 million and entered into a manufacturing agreement under which
Chartered will provide a minimum number of wafers from its new wafer fabrication
facility currently under construction. In April 1995, the Company entered into a
supplemental subscription agreement whereby the Company agreed to purchase
additional shares in Chartered, bringing the total agreed investment in
Chartered to approximately $51.6 million. Chartered agreed to increase the
minimum number of wafers to be provided to the Company from its new wafer
fabrication facility. The Company had paid all installments as of March 31,
1996. The Company is accounting for this investment on the cost basis of
accounting and believes its investment in Chartered approximates fair market
value at March 29, 1997. The Company does not own a material percentage of the
equity in Chartered.
In July 1995, the Company entered into an agreement with UMC and S3
Incorporated ("S3") to form a separate Taiwanese company, USC, for the purpose
of building and managing an 8-inch semiconductor manufacturing facility in
Taiwan. The facility is now in full production utilizing advanced submicron
semiconductor manufacturing processes. Alliance's contribution is in the form of
an equity investment, representing an equity ownership of up to approximately
19%. Alliance's investment will be up to approximately US$70 million and will be
paid in cash in up to three installments. The first installment of approximately
50% was made in September 1995, the second installment of approximately 25% was
made in July 1996 and the Company has the option to pay a third installment of
approximately 25% payable in July 1997, plus interest at a rate of 8.5% on such
amount from and after July 4, 1996. If this option is exercised, the Company
will have an equity ownership of approximately 19% and will have the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
A portion of UMC's equity contribution was paid through the grant by UMC to USC
of royalty-free licenses to certain UMC sub-micron process technologies. To the
extent USC experiences operating income or losses, the Company will recognize
its proportionate share of such income or losses. The Company believes that a
number of manufacturers are expanding or planning to expand their fabrication
capacity over the next several years, which could lead to overcapacity in the
market and resulting decreases in costs of finished wafers. If the wafers
produced by USC cannot be produced at competitive prices, USC could sustain
operating losses. There can be no assurance that such operating losses will not
have a material adverse effect on the Company's consolidated results of
operations.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon Inc., for the
purpose of building and managing an 8-inch semiconductor manufacturing facility
in Taiwan. The facility is expected to commence production in early 1998. It is
presently contemplated that the manufacturing facility will, over time, require
$1 billion to complete its construction and finance operations, although there
can be no assurances that production will commence on schedule. The
contributions of Alliance and other parties shall be in the form of equity
investments, representing an initial ownership interest of approximately 5% for
each US$30 million invested. The Alliance investment will be approximately US$30
million and will be paid in cash in up to three installments. Alliance had
originally committed to an investment of approximately US$60 million or 10%
ownership interest but recently requested that its level of participation be
reduced by 50%. The first installment of approximately 50% of the revised
investment was made in January 1996, and the
Company has the option to pay a second installment of approximately 25% of the
revised investment payable in December 1997, plus interest at a rate of 8.5% on
such amount from and after July 7, 1997, and the final installment of
approximately 25% of the revised investment is called for on or before fab
production ramp-up. UMC, its affiliates and members of the Taiwanese financial
community are expected to provide, over time, the remainder of the
capitalization of the new entity, in the form of debt and equity. A portion of
UMC's equity contribution is expected to be paid through the grant by UMC to the
new entity of royalty-free licenses to UMC's CMOS 0.35 micron and below process
technologies under development to be used in the manufacturing facility. If the
Company exercises its option and further pays the third installment, the Company
will have an equity ownership of approximately 5% and have the right to purchase
up to approximately 6.25% of the manufacturing capacity in this facility.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
The index to the Company's Consolidated Financial Statements and Schedules,
and the report of the independent accountants appear in Part III of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
"Proposal No. 1. Election of Directors, Board of Directors' Meetings and
Committees and Directors' Compensation" and disclosures pursuant to Item 405 of
Regulation S-B contained in the Proxy Statement is incorporated by reference.
Information required by Item 10 concerning executive officers of the Company is
set forth in Part I of this Form 10-K after Item 4.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section captioned "Proposal No. 1 - Election of Directors" contained in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section captioned "Proposal No. 1. - Election of Directors" contained in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
section captioned "Proposal No. 1 Election of Directors - Certain Transactions"
contained in the Proxy Statement.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements of the Registrant are filed as part of
this report:
Report of Independent Accountants
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Operations for the years ended March 31, 1997, 1996
and 1995
Consolidated Statements of Stockholders' Equity for the years ended March 31,
1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996
and 1995
Notes to Consolidated Financial Statements
(a)(2)(i) Financial Statement Schedules
The following consolidated financial statement schedule is filed as part of
this report and should be read in conjunction with the consolidated
financial statements:
Schedule II - Valuation and Qualifying Accounts
(a)(2)(ii) Financial Statements of United Semiconductor
Corporation, a Taiwanese Company
The following financial statements are filed as part of this report:
Financial Statements of United Semiconductor Corporation
(a) (3) Exhibits
INDEX TO EXHIBITS
-----------------
Exhibit
Number Documentation Description Page
- ------- ------------------------- ----
3.01 Registrant's Certificate of Incorporation (A)
3.02 Registrant's Certificate of Elimination of Series A Preferred Stock (A)
3.03 Registrant's Certificate of Amendment of Certificate of Incorporation (F)
3.04 Registrant's Bylaws (A)
4.01 Specimen of Common Stock Certificate of Registrant (A)
10.01+ Registrant's 1992 Stock Option Plan adopted by Registrant on April 7, 1992 and
amended through September 19, 1996, and related documents (K)
10.02+ Registrant's Directors Stock Option Plan adopted by Registrant on October 1, 1993
and related documents (A)
10.03+ Form of Indemnity Agreement used between Registrant and certain of its officers and
directors (A)
10.04+ Form of Indemnity Agreement used between the Registrant and certain of its officers (K)
10.05* Foundry Production Agreement dated December 11, 1992, between United
Microelectronics Corporation and Asian Specific Technology Ltd., as amended (A)
10.06 Sales Representative, Distributor and Intermediary Agreement dated December 11,
1992, between Registrant and Asian Specific Technology Ltd. (A)
10.07 Sublease Agreement dated February 1994 between Registrant and Fujitsu America, Inc. (B)
10.08 Net Lease Agreement dated February 1, 1994 between Registrant and Realtec Properties
I L.P. (B)
10.09* Subscription Agreement dated February 17, 1995, by and among Registrant, Singapore
Technology Pte. Ltd. and Chartered Semiconductor Manufacturing Pte. Ltd. (C)
10.10* Manufacturing Agreement dated February 17, 1995, between Registrant and Chartered
Semiconductor Manufacturing Pte. Ltd. (C)
10.11 Supplemental Subscription Agreement dated March 15, 1995, by and among Registrant,
Singapore Technology Pte. Ltd. and Chartered Semiconductor Manufacturing Pte. Ltd.
(D)
10.12* Supplemental Manufacturing Agreement dated March 15, 1995, between Registrant and
Chartered Semiconductor Manufacturing Pte. Ltd.
(D)
10.13* Foundry Venture Agreement dated July 8, 1995, by and among Registrant, S3
Incorporated and United Microelectronics Corporation (E)
10.14* Foundry Capacity Agreement dated July 8, 1995, by and among Registrant, Fabco, S3
Incorporated and United Microelectronics Corporation (E)
10.15* Foundry Venture Agreement dated September 29, 1995, between Registrant and United
Microelectronics Corporation (F)
10.16* Foundry Capacity Agreement dated September 29, 1995, by and among Registrant, FabVen
and United Microelectronics Corporation (F)
10.17* Written Assurances Re: Foundry Venture Agreement dated September 29, 1995 by and
among Registrant, FabVen and United Microelectronics Corporation
(F)
10.18** Letter Agreement dated June 26, 1996 by and among Registrant, S3 Incorporated and (G)
United Microelectronics Corporation
10.19 Stock Purchase Agreement dated as of June 30, 1996 by and among Registrant, S3 (H)
Incorporated, United Microelectronics Corporation and United Semiconductor
Corporation
10.20** Amendment to FabCo Foundry Capacity Agreement dated as of July 3, 1996 by and among (H)
Registrant, S3 Incorporated, United Microelectronics Corporation and United
Semiconductor Corporation
10.21 Side Letter dated July 11, 1996 by and among Registrant, S3 Incorporated, United (H)
Microelectronics Corporation and United Semiconductor Corporation
10.22+ 1996 Employee Stock Purchase Plan (I)
10.23 Letter Agreement dated December 23, 1996 by and among Registrant, S3 Incorporated, (J)
United Microelectronics Corporation and United Semiconductor Corporation
10.24 Trademark License Agreement dated as of October 17, 1996 between Registrant and
Alliance Semiconductor International Corporation, a Delaware corporation, as amended
through May 31, 1997 (K)
10.25 Restated Amendment to FabCo Foundry Venture Agreement dated as of February 28, 1997
by and among Registrant, S3 Incorporated, United Microelectronics Corporation and
United Semiconductor Corporation (K)
10.26 Letter Agreement dated April 25, 1997 by and among Registrant, S3 Incorporated,
United Microelectronics Corporation and United Semiconductor Corporation (K)
10.27** Restated DRAM Agreement dated as of February 28, 1996 between Registrant and United
Microelectronics Corporation (K)
10.28** First Amendment to Restated DRAM Agreement dated as of March 26, 1996 between
Registrant and United Microelectronics Corporation (K)
10.29** Second Amendment to Restated DRAM Agreement dated as of July 10, 1996 between
Registrant and United Microelectronics Corporation (K)
10.30 Promissory Note and Security Agreement dated March 28, 1997 between Registrant and
Matrix Funding Corporation (K)
10.31 Letter Agreement dated June 23, 1997 between Registrant and United Microelectronics
Corporation (K)
11.01 Statement re: Computation of Earnings Per Share (K)
21.01 Subsidiaries of Registrant (K)
23.01 Consent of Price Waterhouse LLP (K)
27.01 Financial Data Schedule (K)
-------------------
+ Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K.
* Confidential treatment has been granted with respect to certain
portions of this document.
** Confidential treatment has been requested with respect to certain
portions of this document.
(A) The document referred to is hereby incorporated by reference from
Registrant's Registration Statement on Form SB-2 (File No. 33-69956-LA)
declared effective by the Commission on November 30, 1993.
(B) The document referred to is hereby incorporated by reference from
Registrant's Annual Report on Form 10-KSB filed with the Commission on
June 29, 1994.
(C) The document referred to is hereby incorporated by reference from
Registrant's Registration Statement on Form SB-2 (File No. 33-90346-LA)
declared effective by the Commission on March 28, 1995.
(D) The document referred to is hereby incorporated by reference from
Registrant's Annual Report on Form 10-KSB filed with the Commission on
June 30, 1995.
(E) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q filed with the Commission on
August 14, 1995.
(F) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q (File No. 0-22594) filed
with the Commission on November 14, 1995.
(G) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q (File No. 0-22594) filed
with the Commission on August 13, 1996.
(H) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q (File No. 0-22594) filed
with the Commission on November 12, 1996.
(I) The document referred to is hereby incorporated by reference from
Registrant's Registration Statement on Form S-8 (File No. 333-13461)
filed with the Commission on October 4, 1996.
(J) The document referred to is hereby incorporated by reference from
Registrant's Quarterly Report on Form 10-Q (File No. 0-22594) filed
with the Commission on February 11, 1997.
(K) The document referred to is filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Registrant during the last quarter of
the period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ALLIANCE SEMICONDUCTOR CORPORATION
By: /s/ N. DAMODAR REDDY Date: June 27, 1997
-------------------------------
N. Damodar Reddy, Chairman
of the Board, Chief Executive
Officer and President
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below on behalf of the Registrant and in the capacities and on the
dates indicated.
Name Title Date
- ---- ----- ----
Principal Executive Officer:
/s/ N. DAMODAR REDDY Chairman of the Board, Chief June 27, 1997
- -------------------- Executive Officer and President
N. Damodar Reddy
Principal Financial Officer and
Principal Accounting Officer:
/s/ CHARLES ALVAREZ Vice President-Finance and June 27, 1997
- ---------------------- Administration and Chief Financial Officer
Charles Alvarez
Directors:
/s/ SANFORD L. KANE Director June 27, 1997
- ----------------------
Sanford L. Kane
/s/ JON B. MINNIS Director June 27, 1997
- ----------------------
Jon B. Minnis
/s/ C.N. REDDY Director June 27, 1997
- ----------------------
C. N. Reddy
/s/ N.DAMODAR REDDY Director June 27, 1997
- ----------------------
N. Damodar Reddy
Report of Independent Accountants
The Board of Directors and Stockholders of
Alliance Semiconductor Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Alliance Semiconductor Corporation and its subsidiaries at March 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
San Jose, California
April 23, 1997
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
March 31,
----------------------------------
1997 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 22,489 $ 80,566
Accounts receivable, net .................................................... 16,827 4,724
Inventory ................................................................... 29,535 30,152
Deferred taxes .............................................................. 17,851 25,578
Income tax receivable ....................................................... 14,633 6,404
Other current assets ........................................................ 1,636 2,604
-------- --------
Total current assets .................................................... 102,971 150,028
Property and equipment, net .................................................... 11,352 11,231
Investment in Chartered Semiconductor .......................................... 51,596 51,596
Investment in United Semiconductor Corp. ....................................... 52,829 36,438
Investment in United Silicon, Inc. ............................................. 13,701 13,888
Other assets ................................................................... 120 57
-------- --------
$232,569 $263,238
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................................. $18,766 $32,358
Accrued liabilities ........................................................... 4,584 11,499
-------
Current portion of long term obligations ...................................... 1,621 --
------- -------
Total current liabilities ................................................. 24,971 43,857
Long term obligations (Note 6) ................................................... 2,219 --
Deferred tax liability ........................................................... 702 --
------- -------
Total liabilities ......................................................... 27,892 43,857
------- -------
Commitments and contingencies (Notes 4,5,6 and 10)
Stockholders' equity:
Preferred Stock, $0.01 par value; 5,000 shares
authorized; none issued and outstanding ........................................... -- --
Common Stock, $0.01 par value; 100,000 shares authorized;
38,985 and 38,390 shares issued and outstanding .................................... 390 383
Paid-in capital ........................................................................ 180,012 178,052
Retained earnings ...................................................................... 24,275 40,946
-------- --------
Total stockholders' equity ........................................................... 204,677 219,381
-------- --------
$232,569 $263,238
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended March 31,
---------------------------------
1997 1996 1995
-------- -------- --------
Net revenues .............................. $ 82,572 $201,098 $119,327
Cost of revenues .......................... 84,630 158,159 65,035
-------- -------- --------
Gross profit (loss) .................... (2,058) 42,939 54,292
-------- -------- --------
Operating expenses:
Research and development ............... 15,012 14,664 8,374
Selling, general and administrative .... 10,344 17,202 9,600
-------- -------- --------
Income (loss) from operations ............. (27,414) 11,073 36,318
Other income, net ......................... 1,753 6,498 2,035
-------- -------- --------
Income (loss) before income taxes ......... (25,661) 17,571 38,353
Provision (benefit) for income taxes ...... (8,990) 6,852 14,462
-------- -------- --------
Net income (loss) ......................... $(16,671) $ 10,719 $ 23,891
======== ======== ========
Net income (loss) per share ............... $ (0.43) $ 0.26 $ 0.69
======== ======== ========
Weighted average common shares
and equivalents (Note 1) ............... 38,653 40,633 34,559
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Common Stock Additional Total
--------------------------- Paid In Retained Stockholders'
Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1994 ................. 27,730,325 $ 45 $ 22,617 $ 6,336 $ 28,998
Issuance of common stock under
employee stock plans .................... 935,781 5 699 -- 704
Proceeds from public offering,
net of issuance costs ................... 5,568,750 24 53,020 -- 53,044
Stock dividend effect ...................... -- 75 (75) -- --
Tax benefit on exercise of
stock options ........................... -- -- 1,166 -- 1,166
Net income ................................. -- -- -- 23,891 23,891
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1995 ................. 34,234,856 149 77,427 30,227 107,803
Issuance of common stock under
employee stock plans .................... 855,454 89 1,053 -- 1,142
Proceeds from public offering,
net of issuance costs ................... 3,300,000 22 96,142 -- 96,164
Stock dividend effect ...................... -- 123 (123) -- --
Tax benefit on exercise of
stock options ........................... -- -- 3,553 -- 3,553
Net income ................................. -- -- -- 10,719 10,719
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1996 ................. 38,390,310 383 178,052 40,946 219,381
Issuance of common stock under
employee stock plans .................... 594,591 7 1,694 -- 1,701
Tax benefit on exercise of
stock options ........................... -- -- 266 -- 266
Net loss ................................... -- -- -- (16,671) (16,671)
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1997 ................. 38,984,901 $ 390 $ 180,012 $ 24,275 $ 204,677
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
ALLIANCE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended March 31,
-----------------------------------------------
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) ...................................................... $ (16,671) $ 10,719 $ 23,891
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................................ 2,929 1,792 778
Other ................................................................ -- 72 --
Changes in assets and liabilities:
Accounts receivable ................................................ (12,103) 14,721 (10,038)
Inventory .......................................................... 617 (23,082) 26
Other assets ....................................................... 905 (664) (421)
Accounts payable ................................................... (13,592) 21,851 3,367
Accrued liabilities ................................................ (6,915) 7,385 3,125
Income taxes (including deferred income taxes
and tax receivable) ...................................... 200 (30,997) 1,169
--------- --------- ---------
Net cash provided by (used in) operating
activities ..................................................... (44,630) 1,797 21,897
--------- --------- ---------
Cash used in investing activities:
Acquisition of equipment ............................................... (3,050) (9,459) (3,066)
Investment in Chartered Semiconductor Pte Ltd. ......................... -- (44,584) (7,012)
Investment in United Semiconductor Corporation ......................... (16,391) (36,438) --
Investment in United Silicon Inc. ...................................... 187 (13,888) --
Proceeds from sales of equipment ....................................... -- 275 --
--------- --------- ---------
Net cash used in investing activities ............................ (19,254) (104,094) (10,078)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from the issuance of common stock ......................... 1,967 97,306 53,748
Borrowings on long term obligation ..................................... 3,840 -- --
Issuance of notes to UMC ............................................... -- 10,000 (10,000)
Cash -- restricted ..................................................... -- -- 5,133
Payment of reorganization settlement and other ......................... -- -- 367
--------- --------- ---------
Net cash provided by financing activities ........................ 5,807 107,306 49,248
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ...................... (58,077) 5,009 61,067
Cash and cash equivalents at beginning of the period ...................... 80,566 75,557 14,490
--------- --------- ---------
Cash and cash equivalents at end of the period ............................ $ 22,489 $ 80,566 $ 75,557
========= ========= =========
Supplemental disclosures:
Cash paid (refunded) during the period for income
taxes .................................................................. $ (9,648) $ 37,873 $ 13,311
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
ALLIANCE SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and its significant accounting policies
Alliance Semiconductor Corporation (the "Company" or "Alliance"), a
Delaware corporation, designs, develops and markets high performance memory
products and memory intensive logic products. The Company sells its products to
the desktop and portable computing, networking, telecommunications and
instrumentation markets.
The semiconductor industry is highly cyclical and has been subject to
significant downturns at various times that have been characterized by
diminished product demand, production overcapacity, and accelerated erosion of
selling prices. During the second half of fiscal 1996, the market for certain
SRAM devices experienced an excess supply relative to demand which resulted in a
significant downward trend in average selling price. This situation has
continued through fiscal 1997. In addition, the average selling price for the
Company's DRAM products has experienced volatility during fiscal 1997. The
Company is unable to predict when or if average selling prices will stabilize.
The average selling price that the Company is able to command for its
products is highly dependent on industry-wide production capacity and demand,
and as a consequence the Company could experience rapid erosion in product
pricing which is not within the control of the Company and which could have an
adverse material effect on the Company's operating results.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. These financial statements have been prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles. This requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Fiscal Year
For purposes of presentation, the Company has indicated its fiscal years as
ending on March 31; whereas the Company's fiscal year ends on the Saturday
nearest the end of March. The fiscal years ended March 31, 1997, March 31, 1996
and March 31, 1995 each contained 52 weeks.
Revenue recognition
Revenue from product sales is recognized upon shipment, net of accruals for
estimated sales returns and allowances.
Cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The Company accounts
for its short-term investments in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115").
The Company's investments are primarily money market funds and
muni-preferreds (state and municipal obligations) and the Company's intent is to
hold investments to maturity.
Inventories
Inventory is stated at the lower of cost, determined on the first-in,
first-out basis, or market. Market is based on estimated net realizable value.
During the third and fourth quarters of fiscal 1996 and continuing throughout
much of fiscal 1997, the Company experienced significant deterioration in the
average selling prices for its SRAM products. Primarily as a result of this
deterioration and certain manufacturing issues in fiscal 1996, the Company
recorded pre-tax charges in fiscal 1997 and fiscal 1996 of approximately $17
million and $55 million, respectively. The Company is unable to predict when or
if such decline in prices will stabilize. A continued decline in average selling
prices for SRAM products could result in an additional material valuation
adjustment and corresponding charge to operations.
Property and equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated economic useful lives of the assets (five
years).
Concentration of risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
accounts receivable.
Alliance invests primarily in money market accounts and state and municipal
obligations. The Company further limits its exposure to these investments by
placing such investments with various financial institutions. The Company
performs periodic evaluations of these financial institutions.
The Company sells its products to original equipment manufacturers and
distributors throughout the world. The Company performs ongoing credit
evaluations of its customers and, generally, requires no collateral from its
customers. No customer accounted for more than 10% of net revenues for the year
ended March 31, 1997. The Company had sales of approximately $37 million, or
approximately 18% of net revenues, to one customer for the year ended March 31,
1996, and sales of approximately $14.7 million, or approximately 12% of product
sales, to one customer for the year ended March 31, 1995. At March 31, 1997, no
customer accounted for more than 10% of accounts receivable. At March 31, 1996,
one customer's account receivable represented 19% of accounts receivable.
The Company conducts the majority of its business in U.S. dollars and
foreign currency translation gains and losses have not been material in any one
year. International sales accounted for approximately
$29.7 million, $85.7 million and $66.1 million of net revenues for the years
ended March 31, 1997, March 31, 1996 and March 31, 1995, respectively.
Stock-based compensation
The Company accounts for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees", and related Interpretations. The Company's policy is
to grant options with an exercise price equal to the quoted market price of the
Company's stock on the date of grant. Accordingly, no compensation expense has
been recognized in the Company's statements of operations. The Company provides
additional pro forma disclosures as required under Statement of Financial
Standard No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." See
Note 8.
Stock splits
Share information for all periods has been retroactively adjusted to
reflect a 3 for 2 stock split of the Common Stock in January 1995, issued in the
form of a stock dividend, and a 3 for 2 stock split of the Common Stock in July
1995, issued in the form of a stock dividend.
Net income (loss) per share
Net income (loss) per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares consist primarily of stock options (using the treasury stock
method). Common equivalent shares are excluded from the computation if their
effect is antidilutive.
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share (EPS)", was issued in February 1997. Under SFAS 128, the Company will
be required to disclose basic EPS and diluted EPS, for all periods for which an
income statement is presented, which will replace the disclosure currently being
made for primary EPS and fully-diluted EPS. SFAS 128 requires adoption for
fiscal periods ending after December 31, 1997. Pro forma disclosure of basic EPS
and diluted EPS for the current reporting and comparable period in the prior
year is as follows:
Year ended
March 31,
----------------------------------
Earnings (loss) per share: 1997 1996 1995
---- ---- ----
Basic $(0.43) $0.28 $0.78
Diluted (0.43) 0.26 $0.69
Note 2. Balance sheet components
March 31,
---------------------
1997 1996
-------- --------
(in thousands)
Accounts receivable:
Trade receivables ................................. $ 17,477 $ 7,826
Less allowance for doubtful accounts .............. (650) (3,102)
-------- --------
$ 16,827 $ 4,724
======== ========
Inventory:
Work in process ................................... $ 18,319 $ 10,823
Finished goods .................................... 11,216 19,329
-------- --------
$ 29,535 $ 30,152
======== ========
Property and equipment:
Engineering and test equipment .................... $ 11,526 $ 9,961
Computers and software ............................ 4,496 3,110
Furniture and office equipment .................... 935 836
-------- --------
16,957 13,907
Less: accumulated depreciation and amortization ..... (5,605) (2,676)
-------- --------
$ 11,352 $ 11,231
======== ========
Note 3. Investment in Chartered Semiconductor Manufacturing Ltd. ("Chartered")
In February 1995, the Company agreed to purchase shares of Chartered for
$10 million and entered into a manufacturing agreement under which Chartered
will provide a minimum number of wafers from its new 8-inch wafer fabrication
facility. In April 1995, the Company agreed to purchase additional shares in
Chartered, bringing the total agreed investment in Chartered to $51.6 million
and Chartered agreed to provide an increased minimum number of wafers to be
provided by Chartered from its new 8-inch wafer fabrication facility. The
Company has paid all installments to Chartered. Chartered is a private company
based in Singapore that is controlled by entities affiliated with the Singapore
government. The Company is accounting for this investment using the cost method
of accounting and believes its investment in Chartered approximates fair market
value. The Company does not own a material percentage of the equity of
Chartered.
Note 4. Investment in United Semiconductor Corporation
In July 1995, the Company entered into an agreement with United
Microelectronics Corporation ("UMC") and S3 Incorporated ("S3") to form a
separate Taiwanese company, United Semiconductor Corporation ("USC"), for the
purpose of building and managing an 8-inch semiconductor manufacturing facility
in Taiwan. The facility is now in full production utilizing advanced submicron
semiconductor manufacturing processes. Alliance's contribution is in the form of
an equity investment, representing an equity ownership of up to approximately
19%. Alliance's investment will be up to approximately US$70 million and will be
paid in cash in up to three installments. The first installment of approximately
50% was made in September 1995, the second installment of approximately 25% was
made in July 1996 and the Company has the option to pay a third installment of
approximately 25% payable in July 1997, plus interest at a rate of 8.5% on such
amount from and after July 4, 1996. If this option is exercised, the Company
will have an equity ownership of approximately 19% and will have the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
A portion of UMC's equity contribution was paid through the grant by UMC to USC
of royalty-free licenses to certain UMC sub-micron process technologies.
The Company is accounting for this investment using the equity method of
accounting with a ninety day lag in recording the Company's share of results for
the entity. The Company has not recorded its share of USC's net income for the
two-year period ended December 31, 1996, as it was immaterial.
Operations through December 31, 1995 consisted primarily of construction
and, therefore, USC's results of operations for this year are immaterial and not
presented below. Summarized financial information, using the respective year-end
exchange rate for the financial position and an average exchange rate for the
respective year for results of operations, for the entity at December 31, 1996
and 1995, is as follows (in thousands):
December 31
-----------
Financial position 1996 1995
------------------ ---- ----
Current assets ........................... US$224,845 US$144,031
Noncurrent assets ........................ 387,866 46,564
Current liabilities ...................... 89,327 5,414
Noncurrent liabilities ................... 157,557 485
Stockholders' equity ..................... 365,827 187,696
Results of operations
Sales .................................... US$60,878
Gross Profit ............................. 1,654
Net income ............................... 563
Note 5. Investment in United Silicon, Inc.
In October 1995, the Company entered into an agreement with UMC and other
parties to form a separate Taiwanese company, United Silicon Inc. ("USI"), for
the purpose of building and managing an 8-inch
semiconductor manufacturing facility in Taiwan. The facility is expected to
commence production in early 1998. It is presently contemplated that the
manufacturing facility will, over time, require $1 billion to complete its
construction and finance operations, although there can be no assurances that
production will commence on schedule. The contributions of Alliance and other
parties shall be in the form of equity investments, representing an initial
ownership interest of approximately 5% for each US$30 million invested. The
Alliance investment will be approximately US$30 million and will be paid in cash
in up to three installments. Alliance had originally committed to an investment
of approximately US$60 million or 10% ownership interest but recently requested
that its level of participation be reduced by 50%. The first installment of
approximately 50% of the revised investment was made in January 1996, and the
Company has the option to pay a second installment of approximately 25% of the
revised investment payable in December 1997, plus interest at a rate of 8.5% on
such amount from and after July 7, 1997, and the final installment of
approximately 25% of the revised investment is called for on or before fab
production ramp-up. UMC, its affiliates and members of the Taiwanese financial
community are expected to provide, over time, the remainder of the
capitalization of the new entity, in the form of debt and equity. A portion of
UMC's equity contribution is expected to be paid through the grant by UMC to the
new entity of royalty-free licenses to UMC's CMOS 0.35 micron and below process
technologies under development to be used in the manufacturing facility. If the
Company exercises its option and further pays the third installment, the Company
will have an equity ownership of approximately 5% and have the right to purchase
up to approximately 6.25% of the manufacturing capacity in this facility.
Note 6. Long Term Obligations, Leases and Commitments
Operating Leases
The Company leases its headquarters facility under an operating lease which
expires in 1999. The Company has an option to extend the lease for five years
upon expiration. Under the terms of the lease, the Company is required to pay
property taxes, insurance and maintenance costs. In addition, the Company also
leases two sales offices and one administration office under operating leases
which expire in early 1998 and two sales offices on month-to-month leases.
Future minimum rental payments under this lease are as follows:
Fiscal Year (in thousands)
----------- --------------
1998................................... $ 416
1999................................... 372
2000................................... 186
Total payments............................ $ 974
=====
Rent expense for fiscal 1997, fiscal 1996 and fiscal 1995 was $437,000,
$360,000 and $323,000, respectively.
Long Term Obligations
The Company obtained secured financing of $3.8 million at the end of March
1997. This borrowing is collateralized by equipment with a total acquisition
cost of $4.8 million, and bears interest at a fixed rate of 11.26%. No financial
covenants are required to be met under the security agreement related to such
financing.
Principal and interest are payable in thirty-six consecutive monthly
installments commencing April 1, 1997.
Purchase Commitments
At March 31, 1997, the Company had approximately $18.0 million in
noncancelable purchase commitments with suppliers. The Company expects to sell
all products which it has committed to purchase from suppliers. During the
fourth quarter of fiscal 1996, the average selling prices of the Company's SRAM
products deteriorated significantly. As a result of this deterioration, the
Company recorded a charge of approximately $7.2 million for adverse purchase
commitments related to these SRAM products, which was included in the $45
million charge recorded in the fourth quarter of fiscal 1996 (see Note 1).
Letters of Credit
At March 31, 1997, $5.1 million of unsecured standby letters of credit were
outstanding and expire through June 30, 1997.
Note 7. Provision (benefit) for income taxes
The provision (benefit) for income taxes is comprised of the following:
March 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Current:
Federal ............................... ($17,419) $ 26,007 $ 13,757
State ................................. -- 4,549 2,104
-------- -------- --------
($17,419) 30,556 15,861
Deferred:
Federal ............................... 8,529 (21,328) (1,307)
State ................................. (100) (2,376) (92)
-------- -------- --------
Total provision (benefit) .... ($ 8,990) $ 6,852 $ 14,462
======== ======== ========
Deferred tax assets (liabilities) comprise the following:
March 31,
---------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Inventory reserves ........................ $ 16,212 $ 19,286 $ 352
Accrued expenses and reserves ............. 407 4,520 763
State taxes ............................... -- 1,548 696
NOL carry forward ......................... 1,096 -- --
Inventory capitalization adjustment ....... 136 182 62
-------- -------- --------
17,851 25,536 1,873
Depreciation expense ...................... (702) 42 1
-------- -------- --------
Total net deferred tax assets ............ $ 17,149 $ 25,578 $ 1,874
======== ======== ========
The provision (benefit) for income taxes differs from the amount obtained
by applying the U.S. federal statutory rate to income before income taxes as
follows:
Year Ended March 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(in thousands, except percentages)
Federal statutory rate ................. 35% 35% 35%
Tax at federal statutory rate ........... $ (8,981) $ 6,149 $ 13,423
State taxes, net of federal benefit ..... (291) 500 1,316
Research and development tax credits .... -- (197) (455)
Other, net .............................. 282 400 178
-------- -------- --------
Total ................................... $ (8,990) $ 6,852 $ 14,462
======== ======== ========
Note 8. Stock Option Plans
1992 Stock Option Plan
In April 1992, the Company adopted the 1992 Stock Option Plan (the "Plan")
and reserved 5,625,000 shares of Common Stock for issuance to employees and
consultants of the Company. The Board of Directors may terminate the Plan at any
time at its discretion. On September 30, 1993, the number of shares of Common
Stock reserved for issuance under the Plan was increased to 7,875,000 and on
September 14, 1995, the number of shares reserved for issuance under the Plan
was increased to 9,000,000. The Option Plan, which has a term of ten years,
provides for incentive as well as nonqualified stock options.
Incentive stock options may not be granted at less than 100 percent of the
estimated fair value, as determined by the Board of Directors, of the Company's
Common Stock at the date of grant and the option term may not exceed 10 years.
For holders of 10 percent or more of the total combined voting power of all
classes of the Company's stock, options may not be granted at less than 110
percent of the estimated fair value of the Common Stock at the date of grant and
the option term may not exceed five years.
The following table summarizes grant and stock option activity under the
Plan for fiscal year 1997, 1996 and 1995.
Options Outstanding
Options ------------------------------------
Available for Weighted
Grant Shares Average Prices
---------- ---------- ---------------
Balance at March 31, 1994 ................................. 2,200,178 5,275,033 $ 1.37
Options granted ........................................... (639,675) 639,675 14.70
Options canceled .......................................... 520,425 (520,425) 3.18
Options exercised ......................................... -- (935,788) 0.81
---------- ----------
Balance at March 31, 1995 ................................. 2,080,928 4,458,495 $ 2.95
Additional shares authorized .............................. 1,125,000 --
Options granted ........................................... (1,477,102) 1,477,102 17.80
Options canceled .......................................... 941,319 (941,319) 22.65
Options exercised ......................................... -- (855,454) 0.89
---------- ----------
Balance at March 31, 1996 ................................. 2,670,145 4,138,824 $ 4.06
Options granted ........................................... (1,846,738) 1,846,738 7.25
Options canceled .......................................... 1,387,389 (1,387,389) 9.79
Options exercised ......................................... -- (406,884) 0.98
---------- ----------
Balance at March 31, 1997 ................................. 2,210,796 4,191,289 $ 3.87
========== ==========
In November 1996, all outstanding options with a share price ranging from
$7.00 per share to $11.00 per share were canceled and repriced with new options
having an exercise price of $6.88 per share, the fair market value as of the
date of the repricing. A total of 952,738 shares were repriced.
As of March 31, 1997, options to purchase approximately 1,729,482 shares of
Common stock were exercisable. Options granted vest over a period of four to
five years.
The weighted average estimated fair value at the date of grant, as defined
by SFAS 123, for options granted in fiscal 1997 and 1996 was $2.44 and $8.90 per
option, respectively. The estimated grant date fair value disclosed above was
calculated using the Black-Scholes model. This model, as well as other currently
accepted option valuation models, was developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values.
Significant option groups outstanding at March 31, 1997, and related weighted
average exercise price and contractual life information are as follows (share
information in thousands):
Outstanding and Exercisable by Price Range
Weighted
Average Weighted Weighted
Number Remaining Average Number Vested Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price and Exercisable Exercise Price
- ------------------------ ----------- ---------------- -------------- --------------- --------------
$0.0445- $1.3333 288,433 1.11 $1.3009 138,807 $ 1.2660
$1.4667- $2.2222 1,911,500 1.12 $1.4917 1,377,750 $ 1.4819
$2.8889- $4.6667 296,585 1.73 $3.5299 178,737 $ 3.4637
$5.1111- $6.7500 248,250 4.84 $6.0178 23,400 $ 5.1693
$6.8750- $7.1250 1,024,146 3.79 $6.8808 1,163 $ 6.8750
$7.2500- $8.0000 240,750 5.66 $7.6625 0 $ 0.0000
$8.4060-$10.6250 181,625 5.80 $8.6043 9,625 $10.5828
--------- ---------
$0.0445-$10.6250 4,191,289 2.50 $3.8685 1,729,482 $ 1.7736
========= =========
The Company's calculations were made using the following weighted average
assumptions:
March 31,
---------
1997 1996
---- ----
Expected life 5.25 years 5.25 years
Risk-free interest rate 6.3% 6%
Volatility 58% 58%
Dividend yield 0% 0%
Employee Stock Purchase Plan
In September 1996, the Company and shareholders approved an Employee Stock
Purchase Plan ("ESPP"), which allows eligible employees of the Company and its
subsidiaries to purchase shares of common stock through payroll deductions. The
ESPP consists of a series of 12-month offering periods composed of two
consecutive 6-month purchase periods. The purchase price per share is 85% of the
fair market value of the common stock at the date of commencement of the
offering period or at the last day of each 6-month purchase period. Purchases
are limited to 10% of an eligible employee's compensation, subject to a maximum
annual employee contribution limited to a $25,000 fair market value. Of the
750,000 shares authorized under the ESPP, 35,983 shares were issued during
fiscal 1997.
Compensation costs (included in pro forma net income and net income per
share amounts) for the grant date fair value, as defined by SFAS 123, of the
purchase rights granted under the ESPP were calculated using the Black-Scholes
model. The following weighted average assumptions are included in the estimated
grant date fair value calculations for rights to purchase stock under the ESPP:
March 31, 1997
--------------
Expected life 6 months
Risk-free interest rate 5.45%
Volatility 58%
Dividend yield 0%
The weighted average estimated grant date fair value, as defined by SFAS
123, or rights to purchase stock under the ESPP granted in fiscal 1997 was $7.99
per share.
Pro Forma Net Income (Loss) and Net Income (Loss) Per Share
Had the Company recorded compensation expense based on the estimated grant
date fair value, as defined by SFAS 123, for awards granted under its 1992 Stock
Option Plan and its Employee Stock Purchase Plan, the Company's pro forma net
income (loss) and net income (loss) per share for the years ended March 31, 1997
and 1996, would have been as follows (in thousands, except per share data):
March 31,
-----------------
1997 1996
---- ----
Pro forma net income (loss): $(18,795) $9,736
Pro forma net income (loss) per share: (0.49) 0.24
The pro forma effect on net income (loss) and net income (loss) per share
for fiscal 1997 and 1996 is not representative of the pro forma effect on net
income in the future years because it does not take in to consideration pro
forma compensation expense related to grants prior to fiscal 1995.
Directors' Stock Option Plan
On September 30, 1993, the Company adopted its 1993 Directors' Stock Option
Plan (the "Directors' Plan"), under which 900,000 shares of Common Stock have
been reserved for issuance. The Directors' Plan provides for the automatic grant
to each non-employee director of the Company of an option to purchase 22,500
shares of Common Stock on the date of such director's election to the Company's
Board of Directors. Thereafter, such director will receive an automatic annual
grant of an
option to purchase 11,250 shares of Common Stock on the date of each annual
meeting of the Company's stockholders at which such director is re-elected. The
maximum number of shares that may be issued to any one director under this plan
is 90,000. Such options will vest ratably over four years from their respective
dates of grant. As of March 31, 1997, no options had been granted under the
Directors' Plan.
Note 9. 401(k) Salary Savings Plan
Effective May 1992, the Company adopted the Salary Savings Plan ("the
Savings Plan") pursuant to Section 401(k) of the Internal Revenue Code (the
"Code"), whereby eligible employees may contribute up to 15% of their earnings,
not to exceed amounts allowed under the Code. Under the terms of the Savings
Plan, the Company may make contributions at the discretion of the Board of
Directors. No contributions have been made to the Savings Plan by the Company.
Note 10. Legal Matters
In March 1996, a putative class action lawsuit was filed against the
Company and certain of its officers and directors and others in the United
States District Court for the Northern District of California, alleging
violations of Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 promulgated thereunder. (The complaint alleged
that the Company, N.D. Reddy and C.N. Reddy also had liability under Section
20(a) of the Exchange Act.) The complaint, brought by an individual who claimed
to have purchased 100 shares of the Company's common stock on November 2, 1995,
was putatively brought on behalf of a class of persons who purchased the
Company's common stock between July 11, 1995 and December 29, 1995. In April
1997, the Court dismissed the complaint, with leave to file an amended
complaint. In June 1997, plaintiff filed an amended complaint against the
Company and certain of its officers and directors alleging violations of
Sections 10(b) and 20(a) of the Exchange Act. The Company intends to continue to
defend vigorously against any claims asserted against it, and believes it has
meritorious defenses against the asserted claims. Due to the inherent
uncertainty of litigation, the Company is not able to reasonably estimate the
potential losses, if any, that may be incurred in relation to this litigation.
In December 1996, Alliance Semiconductor International Corporation
("ASIC"), a wholly-owned subsidiary of the Company, was served with a complaint
alleging that ASIC has infringed two patents (the "AMD Patents") owned by
Advanced Micro Devices, Inc. ("AMD"), and seeking injunctive relief and damages.
In March 1997, the Company was added as a defendant. Each defendant has denied
the allegations of the complaint and asserted a counterclaim for declaration
that each of the AMD Patents is invalid and not infringed by such defendant. The
Company believes that the resolution of this matter will not have a material
adverse effect on the financial condition of the Company.
In February 1997, Micron Technology, Inc. filed an anti-dumping petition
(the "Petition") with the United States International Trade Commission ("ITC")
and United States Department of Commerce ("DOC"), alleging that static random
access memories ("SRAMs") produced in the Korea and in Taiwan are being, and are
likely to be, sold in the United States at less than fair value, and that the
United States industry producing SRAMs is materially injured and is threatened
with material injury by reason of imports of SRAMs manufactured in Korea and
Taiwan. The Petition requests the United States government to impose dumping
margins on the importation into the United States of SRAMs manufactured in Korea
and Taiwan. A material portion of the SRAMs designed and sold by the Company are
manufactured in Taiwan. The Company received preliminary producer and importer
questionnaires from the ITC, and submitted responses to such
questionnaires in March 1997. In April 1997, the ITC preliminarily determined
that there is a reasonable indication that the imports of the products under
investigation are injuring the United States industry. In April 1997, the
Company received a questionnaire from the DOC. In accordance with the deadlines
established by the DOC, responses to portions of the questionnaire were filed in
May 1997 and June 1997, respectively. The Company anticipates that in the third
or fourth calendar quarter of 1997, the DOC will make a preliminary
determination as to the margin, if any, that should be imposed upon the
importation of the Company's SRAM products fabricated in Taiwan, and that a
final determination as to such margin, if any, would be made by DOC in the
fourth quarter of calendar 1997 or the first quarter of calendar 1998. The
Company anticipates that the ITC, in the fourth quarter of calendar 1997 or the
first quarter of calendar 1998, will make a final determination as to whether
the United States industry producing SRAMs is materially injured and is
threatened with material injury by reason of imports of SRAMs manufactured in
Korea and Taiwan. The Company intends to vigorously seek to ensure that dumping
margins are not imposed on the importation of its SRAM products manufactured in
Taiwan. There can be no assurance, however, that the government will not impose
margins on Alliance's importation of SRAM products into the United States, which
margins could materially adversely affect Alliance's ability to sell such
products in the United States.
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. The Company has from
time to time received and believes that it is likely that it will receive in the
future, notices from parties alleging that certain of the Company's products
infringe their patents. Although the ultimate outcome of these matters and the
matters discussed above is not presently determinable, management believes that
the resolution of these matters will not have a material adverse impact on the
Company's financial position.
Report of Independent Accountants
Financial Statement Schedule
To the Board of Directors and
Stockholders of Alliance Semiconductor Corporation:
Our audits of the consolidated financial statements referred to in our report
dated April 23, 1997, appearing in this Annual Report on Form 10-K also included
an audit of the Financial Statement Schedule listed in Item 14(a)(2)(i) of this
Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in conjuction
with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
San Jose, California
April 23, 1997
ALLIANCE SEMICONDUCTOR CORPORATION
Schedule II
Valuation and Qualifying Accounts
Description Balance at Charged to Charged to
beginning of costs and other Balance at
period expenses accounts Deductions end of period
--------------- --------------- --------------- --------------- ---------------
(in thousands)
Year ended March 31, 1997
Allowance for doubtful accounts and
sales-related reserves............ $ 3,102 $ 5,803 $ -- $ (8,255) $ 650
======== ======== ======== ======== ========
Inventory related reserves for
excess and obsolescence; and
lower of cost or market issues.... $ 53,555 $16,918 $ -- $(29,741) $40,732
======== ======== ======== ======== ========
Year ended March 31, 1996
Allowance for doubtful accounts and
sales-related reserves............ $ 1,450 $21,874 $ -- $(20,222) $ 3,102
======== ======== ======== ======== ========
Inventory related reserves for
excess and obsolescence; and
lower of cost or market issues.... $ 907 $52,937 $ -- $ (289) $53,555
======== ======== ======== ======== ========
Year ended March 31, 1995
Allowance for doubtful accounts and
sales-related reserves............ $ 190 $ 2,208 $ -- $ (948) $ 1,450
======== ======== ======== ======== ========
Inventory related reserves for
excess and obsolescence; and
lower of cost or market issues.... $ 157 $ 870 $ -- $ (120) $ 907
======== ======== ======== ======== ========
UNITED SEMICONDUCTOR CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
[Price Waterhouse Letterhead]
January 24, 1997
(97) R. L36P1006
To the Board of Directors, Supervisors and
Shareholders of United Semiconductor Corporation
We have examined the accompanying balance sheet of United Semiconductor
Corporation as of December 31, 1996 and 1995, and the related statements of
income, of changes in stockholders' equity and of cash flows for the year ended
December 31, 1996 and the period from October 6, 1995 (date of incorporation) to
December 31, 1995. Our examinations were made in accordance with the "Rules
Governing the Certification of Financial Statements by Certified Public
Accountants" and generally accepted auditing standards and accordingly included
such tests of the accounting records and such other auditing procedures as we
considered necessary in the circumstances.
In our opinion, the accompanying financial statements examined by us present
fairly the financial position of United Semiconductor Corporation at December
31, 1996 and 1995, and the results of its operations and its cash flows for the
year ended December 31, 1996 and the period from October 6, 1995 (date of
incorporation) to December 31, 1995 in conformity with generally accepted
accounting principles consistently applied.
/s/ Price Waterhouse
UNITED SEMICONDUCTOR CORPORATION
BALANCE SHEET
DECEMBER 31
(EXPRESSED IN NEW TAIWAN DOLLARS)
1996 1995
--------------- ---------------
ASSET
- -------
Current Assets
- --------------
Cash and cash equivalents (Notes 2 and 3(1)) $ 4,542,328,113 $ 3,860,063,715
Marketable securities (Notes 2 and 3(2)) 202,819,527 --
Notes receivable (Note 4)
-related parties 196,616,300 --
Accounts receivable (Notes 3(3) and 4)
-third parties 286,639,035 --
-related parties 368,064,677 --
Other receivable 64,888,273 42,564,139
Inventories (Notes 2 and 3(4)) 485,685,707 --
Prepaid expenses 13,996,178 25,453,434
Other current assets 21,952,269 2,952,269
--------------- -------------
6,180,990,079 3,931,033,557
Property, Plant and Equipment
- -----------------------------
(Notes 2 and 3(5))
Cost
Machinery and equipment 8,611,439,301 --
Transportation equipment 2,563,248 --
Furniture and fixtures 87,660,551 --
Leasehold improvements 8,076,092 --
Other equipment 7,995,047 3,476,190
--------------- -------------
8,717,734,239 3,476,190
Accumulated depreciation (354,607,442) --
Construction in progress and prepayments 662,006,881 484,873,525
--------------- -------------
9,025,133,678 488,349,715
--------------- -------------
Intangible Assets
- -----------------
Deferred pension cost (Note 3(8)) 1,755,914 --
Other intangible asset 1,337,500,000 750,000,000
--------------- -------------
1,339,255,914 750,000,000
--------------- -------------
Other Assets
- ------------
Deposit out 30,063,850 30,000,000
Deferred expense (Note 2) 48,216,648 2,835,311
Deferred income tax assets (Note 2 and 3(11)) 219,785,909 --
--------------- -------------
298,066,407 32,835,311
--------------- -------------
TOTAL ASSETS $16,843,446,078 $ 5,202,218,583
=============== =============
1996 1995
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Short-term loans (Note 3(6)) $ 161,520,003 $ 77,031,640
Notes payable (Note 4)
-third parties 106,997,012 25,895,159
-related parties 44,046,462 --
Account payable 295,274,202
Accrued expenses 240,238,934 3,637,821
Accrued payable for equipment 1,551,722,242 41,249,401
Other payable-related parties (Note 4) 55,806,843 --
--------------- ---------------
2,455,605,698 147,814,021
--------------- ---------------
Long-term Liabilities
- ---------------------
Long-term loans (Note 3(7)) 4,329,497,879 --
--------------- ---------------
Other Liabilities
- -----------------
Accrued pension liabilities
(Notes 2 and 3(8)) 1,755,914 --
Deferred income tax liabilities (Notes
2 and 3(11)) -- 13,242,727
--------------- ---------------
1,755,914 13,242,727
--------------- ---------------
Total Liabilities 6,786,859,491 161,056,748
--------------- ---------------
Stockholders' Equity
- --------------------
Common stock (Note 3(9)) 10,000,000,000 5,000,000,000
Retained earnings (Note 3(10)) 56,586,587 41,161,835
--------------- ---------------
Total stockholders' equity 10,056,586,587 5,041,161,835
--------------- ---------------
Commitments and Contingent Liabilities
- --------------------------------------
(Note 6)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $16,843,446,078 $ 5,202,218,583
--------------- ---------------
The accompanying notes are an integral part of these financial statements.
-2-
UNITED SEMICONDUCTOR CORPORATION
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM OCTOBER 6, 1995
(DATE OF INCORPORATION) TO DECEMBER 31, 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
1996 1995
--------------- ---------------
Operating Revenues
Sales revenue (Note 4) $ 1,663,009,609 $ --
Sales returns (7,292,072) --
Sales allowance (40,652,876) --
--------------- ---------------
Net sales 1,615,064,661 --
Other operating revenues 52,372,916 --
--------------- ---------------
Net operating revenues 1,667,437,577 --
--------------- ---------------
Operating Cost
Cost of goods sold (1,182,274,246) --
Other operating cost (32,094,971) --
--------------- ---------------
(1,214,369,217) --
--------------- ---------------
Gross Profit 453,068,360 --
--------------- ---------------
Operating Expenses
Selling expenses (8,665,745) --
Administrative expenses (574,100,548) (10,137,282)
Research and development expenses (221,406,219) (16,649)
--------------- ---------------
(804,172,512) (10,153,931)
--------------- ---------------
Non-operating Income
Interest income 232,942,091 74,342,373
Exchange gain 70,169,615 --
Other income 5,005,518 --
--------------- ---------------
308,117,224 74,342,373
--------------- ---------------
Non-operating Expenses
Interest expense (118,223,706) --
Exchange loss -- (12,730,557)
Provision for loss on obsolescence
of inventories (50,000,000) --
Other loss (23,983,884) (5,592)
--------------- ---------------
(192,207,590) (12,736,149)
--------------- ---------------
(Loss) income before income tax (235,194,518) 51,452,293
Income tax benefit (expense)
(Notes 2 and 3(11)) 250,619,270 (10,290,458)
--------------- ---------------
Net income $ 15,424,752 $ 41,161,835
=============== ===============
The accompanying notes are an integral part of
these financial statements.
-3-
UNITED SEMICONDUCTOR CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM OCTOBER 6, 1995
(DATE OF INCORPORATION) TO DECEMBER 31, 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
Retained Total Stockholders'
1995 Common Stock Earnings Equity
---- ------------ -------- ------
Issued common stock $ 5,000,000,000 $ - $ 5,000,000,000
Net income for 1995 - 41,161,835 41,161,835
--------------- ------------ -------------------
Balance at December 31,
1995 $ 5,000,000,000 $ 41,161,835 $ 5,041,161,835
=============== ============ ===================
1996
- ---------------------------
Balance at January 1, 1996 $ 5,000,000,000 $ 41,161,835 $ 5,041,161,835
Issued common stock 5,000,000,000 - 5,000,000,000
Net income for 1996 - 15,424,752 15,424,752
--------------- ------------ -------------------
Balance at December 31,
1996 $10,000,000,000 $ 56,586,587 $10,056,586,587
=============== ============ ===================
The accompanying notes are an integral part of
these financial statements.
-4-
UNITED SEMICONDUCTOR CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE PERIOD FROM OCTOBER 6, 1995
(DATE OF INCORPORATION) TO DECEMBER 31, 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
1996 1995
--------------- ---------------
Operating activities:
Net income $ 15,424,752 $ 41,161,835
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities
Provision for loss on obsolescence
of inventories 50,000,000 --
Depreciation 354,607,442 --
Amortization Changes in assets and
liabilities account: 166,740,344 --
Increase in notes receivable (196,616,300) --
Increase in accounts receivable (654,703,712) --
Increase in inventories (535,685,707) --
Decrease (Increase) in prepaid expenses 13,457,256 (25,453,434)
Increase in other receivables (22,324,134) (42,564,139)
Increase in other current assets (19,000,000) (2,952,269)
Increase in deferred income tax assets (219,785,909) --
Increase in accounts payable 295,274,202 --
Increase in notes payable 125,148,315 25,895,159
Increase in accrued expenses 292,407,956 3,637,821
(Decrease) increase in deferred income
tax liabilities (13,242,727) 13,242,727
--------------- ---------------
Net cash provided by (used in) operating
activities (348,298,222) 12,967,700
--------------- ---------------
Investing activities:
Acquisition of fixed assets (7,380,918,564) (447,100,314)
Increase in marketable securities (202,819,527) --
Increase in deferred expense (49,621,681) (2,835,311)
Increase in deposits-out (63,850) (30,000,000)
--------------- ---------------
Net cash used in investing activities (7,633,423,622) (479,935,625)
--------------- ---------------
Financing activities:
Increase in short-term loans 84,488,363 77,031,640
Proceeds from long-term loans 4,329,497,879 --
Issued common stock 4,250,000,000 4,250,000,000
--------------- ---------------
Net cash provided by financing activities 8,663,986,242 4,327,031,640
--------------- ---------------
Net increase in cash and cash equivalents 682,264,398 3,860,063,715
Cash and cash equivalents at the beginning
of period 3,860,063,715 --
--------------- ---------------
Cash and cash equivalents at the end of $ 4,542,328,113 $ 3,860,063,715
period ================ ================
-5-
UNITED SEMICONDUCTOR CORPORATION
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM OCTOBER 6, 1995 (DATE OF INCORPORATION)
TO DECEMBER 31, 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
1996 1995
--------------- ---------------
Supplemental disclosures of cash flow
information
Cash paid for interest (excluding
interest capitalized) $ 107,332,898 $ --
=============== ===============
Cash paid for income tax $ 1,409,366 $ --
=============== ===============
Investing activities partially paid by
cash
Acquisition of fixed assets $ 8,891,391,405 $ 488,349,715
Add:payable at the beginning of period 41,249,401 --
Less:payable at the end of period (1,551,722,242) (41,249,401)
--------------- ---------------
Cash paid $ 7,380,918,564 $ 447,100,314
=============== ===============
Financing activities partially provided
by cash
Issued common stock $ 5,000,000,000 $ 5,000,000,000
Less:Common stock issued for the
technology knowhow (750,000,000) (750,000,000)
--------------- ---------------
Cash received $ 4,250,000,000 $ 4,250,000,000
=============== ===============
The accompanying notes are an integral part of these
financial statements.
-6-
UNITED SEMICONDUCTOR CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(EXPRESSED IN NEW TAIWAN DOLLARS)
1. HISTORY AND ORGANIZATION
United Semiconductor Corporation was incorporated as a company limited by
shares on October 6, 1995 and commenced its operations in June, 1996. As of
December 31, 1996, the paid-in capital is $10,000,000,000. The company's
major business activities are as follows:
a. Semiconductor and semiconductor device foundry.
b. Providing the mask tooling, package, burn-in and testing services for
the above-mentioned products.
c. Research and development for the technology of wafer fabrication.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Translation of foreign currency transactions
The accounts of the Company are maintained in New Taiwan dollars.
Transactions denominated in foreign currencies are translated into New
Taiwan dollars at the rates of exchange prevailing on the transaction
dates. Receivables, other monetary assets and liabilities denominated in
foreign currencies are translated into New Taiwan dollars at the rates of
exchange prevailing at the balance sheet date. Exchange gains or losses are
included in the current year's results.
Cash equivalents
Cash equivalents are short-term, highly liquid investments which are:
A. Convertible to known amounts of cash at any time.
B. So near their maturity that they present insignificant risk of changes
in value because of changes in interest rates.
Marketable securities
Marketable securities are recorded at cost when acquired. The carrying
amount of the marketable securities portfolio is stated at the lower of its
aggregate cost or market value at the balance sheet date. The market value
for listed equity securities or close-ended funds are determined by the
average closing prices occurred during the last month of the fiscal year.
The market value for open-ended funds are determined by their equity per
unit at balance sheet date.
Allowance for doubtful accounts
The allowance for doubtful accounts is provided based on the collectibility
and aging analysis of notes and accounts receivable.
-7-
Inventories
Inventories, except raw materials, are stated at standard cost which is
adjusted to actual cost based on weighted average method at month end.
Inventories are valued at the lower of cost or market value at the year
end. An allowance for loss on obsolescence and decline in market value is
provided when necessary.
Fixed assets
A. Fixed assets are stated at cost. Interest incurred on loans used to
finance the construction of property and plant is capitalized and
depreciated accordingly.
B. Depreciation is provided on the straight-line method using the assets'
economic service lives. When the economic service lives are completed,
fixed assets which are still in use are depreciated based on the
residual value. The service lives of the fixed assets are five years.
C. Maintenance and repairs are charged to expenses as incurred.
Significant renewals and improvements are treated as capital
expenditure and are depreciated accordingly.
Intangible assets
The intangible asset represents the technology knowhow provided by a major
shareholder as a part of paid-in capital. Those assets are amortized over
five years by straight-line method.
Deferred charges
Deferred charges are stated at cost and amortized on a straight-line basis
over the following years: software-3 years; organization expense-5 years.
Retirement plan
The Company has a retirement plan covering all its regular employees. This
plan is separately funded. Starting from 1996, the net pension cost is
computed by actuaries based on FASB No. 18 of the R.O.C., which requires to
consider the cost components such as service cost, interest cost, expected
return on plan assets and amortization of net obligation at transition. The
unrecognized net asset or obligation at transition is amortized equally
over 15 years. Because the Company is newly set-up, the effect on above new
accounting treatment applied is immaterial compared with those used in the
original method in 1996.
Income tax
Income tax is provided based on accounting income after adjusting for
permanent differences. The provision for income tax includes deferred tax
resulting from items reported in different periods for tax and financial
reporting purposes. A valuation allowance is provided for deferred tax
asset to the extent that it is more likely than not that the tax benefits
will not be realized. Over or under provision of prior year income tax
liabilities are included in the current year income tax expense.
Revenue and expenses
Revenue is recognized when the products are delivered or services are
completed. Expenses are recognized as incurred.
-8-
3. CONTENTS OF SIGNIFICANT ACCOUNTS
(1) CASH AND CASH EQUIVALENTS
December 31
----------------------------------
1996 1995
-------------- --------------
Cash:
Cash on hand $ 1,056,246 $ 507,860
Demand accounts 2,599,717 47,077,353
Checking accounts 11,870,751 2,908,665
Time deposits 4,526,801,399 3,799,569,837
-------------- --------------
4,542,328,113 3,850,063,715
Cash equivalents:
Bonds with repurchase agreement -- 10,000,000
-------------- --------------
$4,542,328,113 $3,860,063,715
============== ==============
(2) MARKETABLE SECURITIES
December 31
----------------------------------
1996 1995
-------------- --------------
Mutual funds $ 150,248,974 $ -
Listed equity securities stocks 52,570,553 -
-------------- --------------
$ 202,819,527 $ -
============== ==============
(3) ACCOUNTS RECEIVABLE
December 31
----------------------------------
1996 1995
-------------- --------------
Accounts receivable $ 292,546,536 $ -
Less:Allowance for doubtful accounts (5,907,501) -
-------------- --------------
$ 286,639,035 $ -
============== ==============
-9-
(4) INVENTORIES
December 31
-----------------------------
1996 1995
------------- -----------
Raw materials $ 132,883,532 $ --
Supplies 46,495,089 --
Spare parts 30,734,412 --
Work in process 247,877,444 --
Finished goods 30,200,567 --
Inventory in-transit 47,494,663 --
------------- -----------
535,685,707 --
Less:Allowance for loss on obsolescence (50,000,000) --
------------- -----------
$ 485,685,707 $ --
============= ===========
(5) PROPERTY, PLANT AND EQUIPMENT
December 31, 1996
-----------------------------------------------------
Accumulated
Cost Depreciation Book Value
--------------- --------------- ---------------
Machinery and equipment $ 8,611,439,301 $ (346,433,518) $ 8,265,005,783
Transportation equipment 2,563,248 (142,404) 2,420,844
Furniture and fixtures 87,660,551 (6,481,739) 81,178,812
Leasehold improvements 8,076,092 (959,643) 7,116,449
Other equipment 7,995,047 (590,138) 7,404,909
Construction in progress
and prepayments 662,006,881 -- 662,006,881
--------------- --------------- ---------------
$ 9,379,741,120 $ (354,607,442) $ 9,025,133,678
=============== =============== ===============
December 31, 1995
--------------------------------------------
Accumulated
Cost Depreciation Book Value
------------ ------------ ------------
Leasehold improvements $ 3,476,190 $ -- $ 3,476,190
Construction in progress
and prepayments 484,873,525 -- 484,873,525
------------ ------------ ------------
$488,349,715 $ -- $488,349,715
============ ============ ============
A. Interest expense amounting to $40,880,916 was capitalized in 1996.
B. Please refer to note 5 for assets pledged as collateral.
-10-
(6) SHORT-TERM LOANS
December 31
-----------------------------------
1996 1995
---------------- -----------
Unsecured loans $ 161,520,003 $77,031,640
================ ===========
Annual interest rates 1.34%-6.81% 1.28%-7.03%
================ ===========
(7) LONG-TERM LOANS
A. Long-term loans are summarized as follows:
December 31
---------------------------------------
1996 1995
-------------- ----------------
Long-term loans $4,329,497,879 $ --
Current portion -- --
-------------- ----------------
$4,329,497,879 $ --
============== ================
B. Interest rates for long-term loans were floating rates. The average
interest rate were 1.31% - 6.44% in 1996.
C. Please refer to note 5 for assets pledged as collateral.
(8) RETIREMENT FUND
A. All of the regular employees of the company are covered by the
pension plan. Under the plan, the company contributes an amount
equal to 2% of total wages on a monthly basis to the pension fund
deposited with the Central Trust of China. Pension benefits are
generally based on service years (two points per year for service
years under 15 years and one point per year for service years over
15 years). Each employee is limited up to 45 points. Retirement
benefits are paid from fund previously provided.
During 1996, the Company has recognized the pension cost amounting
$2,934,402 and contribution to the Company's employees' retirement
fund was $2,494,858.
-11-
B. Based on actuarial assumptions for the year of 1996, the discount
rate and expected rate of return on plan asset are both 7% and the
rate of compensation increase is 8%. As of December 31, 1996 the
funded status of pension plan is listed as follows:
Vested Benefit Obligation $ --
Non-vested Benefit Obligation (2,346,481)
------------
Accumulated Benefit Obligation (2,346,481)
Effect on projected salary increase (12,681,151)
------------
Projected Benefit Obligation (15,027,632)
Market-related Value of Plan Assets 2,494,858
Projected Benefit Obligation exceeds Plan Asset (12,532,774)
Unrecognized Net Obligation at Transition 302,934
Unrecognized Pension Benefit 13,985,754
The Supplemental Accrued Pension Liability (1,755,914)
------------
Accrued Pension Liability $ --
============
Based on the actuarial report, the net pension cost should be
$738,944 for 1996, however, the Company has contributed to the
retirement fund amounting to $2,494,858, thus, the overprovision of
$1,755,914 was reclassified as deferred pension cost.
(9) COMMON STOCK
The Company increased its capital by issuing 500,000,000 shares of
common stock for cash at the par value of $10 per share which was
approved through a resolution of directors' meeting held on June 21,
1996. The Company has completed the amendment procedures for
registration. After the capitalization, issued and outstanding shares
of common stocks is 1,000,000,000 shares.
(10)RETAINED EARNINGS
A. According to the Company's Articles of Incorporation, current
year's earnings, if any, shall be distributed in the following
order:
(1) paying all taxes and dues;
(2) covering prior years' operating losses, if any;
(3) setting aside 10% of the remaining amount, after deducting (1) and
(2), as legal reserve;
(4) allocating not over 10% of par value of common stocks as interest
of capital to common stockholders.
(5) allocating 1% of the remaining amount, after deducting (1), (2),
(3) and (4) above from the current year's earnings, as directors'
and supervisors' fees;
(6) allocating not below 10% of the remaining amount, after deducting
(1), (2), (3) and (4) above from the current year's earnings, as
employees' bonus;
(7) distributing the remaining amount in accordance with the
resolution of director's meeting and stockholder's meeting.
-12-
(11) DEFERRED TAXATION
A. As of December 31, 1996, the balance of deferred tax liabilities and
assets are as follows:
1. Deferred tax assets $806,347,640
============
2. Deferred tax liabilities $178,109,462
============
3. Allowance for valuation on deferred tax assets $386,500,000
============
4. The amount of temporary timing differences generated
tax effect $179,176,450
============
5. The amount of investment tax credit generated tax
effect $592,402,888
============
B. The caption in the balance sheet is as follows:
Deferred income tax assets - current $ 21,952,269
Allowance for valuation on deferred income tax
assets- current --
-------------
$ 21,952,269
Deferred income tax assets - noncurrent $ 784,395,371
Allowance for valuation on deferred income tax asset
-noncurrent (386,500,000)
-------------
397,895,371
Deferred income tax liabilities - noncurrent (178,109,462)
-------------
$ 219,785,909
=============
C. Income tax for 1996 is computed as follows:
Current income tax for short-term negotiable income $ 1,409,366
Increase in deferred tax assets (416,895,371)
Increase in deferred tax liabilities 164,866,735
Income tax benefit $(250,619,270)
-13-
(12)THE INCOME AND EXPENSE FOR THE PERIOD OF DEVELOPMENT STAGE (FOR THE
PERIOD FROM OCTOBER 6, 1995 TO JUNE 10, 1996)
From January 1, 1996 From October 6, 1995
to June 10, 1996 to June 10, 1996
-------------------- --------------------
Operating expenses
Administrative expenses $(430,756,912) $(440,894,194)
Research and development expenses (3,896,276) (3,912,925)
------------- -------------
Operating loss (434,653,188) (444,807,119)
Non-operating income
Interest income 79,816,472 154,158,845
Other income 421,164 421,164
------------- -------------
80,237,636 154,580,009
Non-operating expenses
Exchange loss (17,460,052) (30,190,609)
Other loss (16,986,279) (16,991,871)
------------- -------------
(34,446,331) (47,182,480)
------------- -------------
Net loss for the period of
development stage $(388,861,883) $(337,409,590)
============= =============
4. RELATED PARTY TRANSACTION
(1) Names and Relationships of Related Parties
Name of the related parties The relationship with the Company
--------------------------- ---------------------------------
United Microelectronics Co., Ltd. The major investor of the Company.
United Integrated Circuit Co., Ltd. Common board chairman.
(2) Significant Related Party Transactions
a. Sales
1996 1995
---------------------------- --------------------------
Percentage of Percentage
Amount net sales Amount of net sales
------ --------- ------ ------------
United Microelectronics
Co., Ltd. $1,073,178,318 64 % $-- --
United Integrated
Circuit Co., Ltd. 1,889,646 -- -- --
-------------- ------- ------ ----
$1,075,067,964 64 % $-- --
============== ======= ====== ====
-14-
The above sales are dealt with certain discount in the ordinary course of
business similar to those from other companies. The actual collection period
is appoximately two months.
b.Purchase
1996 1995
-------------------------------------- ----------------------------
Percentage of net Percentage of
Amount Purchase Amount net Purchase
----------- ------------------ ------- --------------
United Microelectronics
Co., Ltd. $63,089,241 12 % $ - -
=========== ============= ======= ========
The above purchase are dealt with in the ordinary course of business similar
to those from other companies, and are paid by checks which will become due
after two months from purchase date.
c. Notes receivable
1996 1995
-------------------------------------- ----------------------------
Percentage of Percentage of
Amount notes receivable Amount notes receivable
----------- ------------------ ------- ----------------
United Microelectronics
Co., Ltd. $196,616,300 100 % $ - -
============ =============== ====== =========
d. Accounts Receivale
December 31
------------------------------------------------
1996 1995
-------------------------- ------------------
Percentage of Percentage of
accounts accounts
Amount receivable Amount receivable
------------ ------------ ------ -----------
United Microelectronics
Co., Ltd. $367,624,317 56 % $ --
United Integrated
Circuit Co., Ltd. 440,360 -- -- --
------------ ------------ ---- -----------
$368,064,677 56 % $-- --
============ ============ ==== ===========
-15-
e. Notes payable
December 31
---------------------------------------------------------------------------
1996 1995
--------------------------------- --------------------------------
Percentage of Percentage of
Amount notes payable Amount notes payable
----------- ------------- ---------- --------------
United Microelectronics
Co., Ltd. $44,046,462 29 % $ - -
=========== ============= ========== ==============
f. Other payable
December 31
--------------------------------------------------------------------
1996 1995
---------------------------------- --------------------------
Percentage of Percentage of
Amount other payable Amount other payable
----------- --------------- --------- --------------
United Microelectronics
Co., Ltd. $55,806,843 59 % $ - -
=========== ============= ======= ========
g. Other transaction
The other transactions with United Microelectronics Co., Ltd. in 1996:
Items Amount
- ---------------------------------- ----------------
Rental expense $153,128,033
============
Factory administration expense $ 24,553,535
============
Electric and water expense $ 75,601,599
============
5. ASSETS PLEDGED AS COLLATERAL
December 31
------------------------------------
Assets 1996 1995 Subject of collateral
- ----------------------- --------------- -------- ---------------------
Machinery and equipment $ 2,418,834,243 $ - Long-term loan
=============== ========
6. COMMITMENTS AND CONTINGENT
a. The Company's unused letters of credit for import machinery was
approximately $1,425,746 at December 31, 1996.
b. The Company has signed several contracts for purchase of the equipment
amounting to $5,739,246,000. As of December 31, 1996, the amount of
outstanding obligations for these contracts is $ 1,548,596,000.
c. Certain rightor of patent will want to claim the Company for the
compensation resulting from using its patent in the production.
However, up to December 31, 1996, the above issue is still uncertain.
Thus the amount of compensation can not be estimated.
7. COMPARATIVE FIGURES RECLASSIFICATION
Certain accounts in the 1995 financial statements have been reclassified to
conform with the presentation adopted for the 1996 financial statements.
-16-