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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2001
COMMISSION FILE NUMBER 0-17795
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CIRRUS LOGIC, INC.
(Exact name of registrant as specified in its charter.)
DELAWARE 77-0024818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4210 SOUTH INDUSTRIAL DRIVE, AUSTIN, TX 78744
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(512) 445-7222
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of May 31, 2001, was approximately $1.5
billion based upon the closing price reported for such date on the Nasdaq
National Market. For purposes of this disclosure, shares of Common Stock held by
persons who hold more than 5% of the outstanding shares of Common Stock and
shares held by officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This determination is not
necessarily conclusive.
As of May 31, 2001, the number of outstanding shares of the registrant's
common stock, $0.001 par value, was 73,658,868, excluding 6,443,900 treasury
shares.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part III of this Annual Report on
Form 10-K certain of the information contained in the registrant's proxy
statement for its annual meeting of stockholders to be held July 25, 2001, which
will be filed by the registrant within 120 days after March 31, 2001.
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CIRRUS LOGIC, INC.
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED MARCH 31, 2001
TABLE OF CONTENTS
PART I
Item 1. Business............................................ 1
Item 2. Properties.......................................... 16
Item 3. Legal Proceedings................................... 16
Item 4. Submission of Matters to a Vote of Securities
Holders................................................... 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 17
Item 6. Selected Consolidated Financial Data................ 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 19
Item 7a. Quantitative and Qualitative Disclosures About
Market Risks.............................................. 26
Item 8. Financial Statements and Supplementary Data......... 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures...................... 53
PART III
Item 10. Directors and Executive Officers of the
Registrant................................................ 53
Item 11. Executive Compensation............................. 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 53
Item 13. Certain Relationships and Related Transactions..... 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 53
Signatures.................................................. 56
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PART I
ITEM 1. BUSINESS
Founded in 1984, Cirrus Logic is a leading supplier of high-performance
analog and DSP chip solutions for Internet entertainment electronics, analog and
magnetic markets. In February 1999, we were reincorporated in the State of
Delaware. We design and manufacture integrated circuits, or chips, that use
high-performance analog and digital signal processing technologies. Analog and
digital signal processing refers to technologies to manipulate and improve the
quality of analog and digital signals. It also includes the conversion of
signals from digital-to-analog and analog-to-digital, as is frequently required
in electronic equipment. A device that can perform both of these conversion
functions is referred to as a coder-decoder, or codec. Codecs and other devices
that support both digital and analog signals are referred to as mixed signal
devices. Our mixed signal devices are designed for specific markets that derive
value from our expertise in advanced mixed-signal design processing,
systems-level engineering and software knowledge. Our products enable our
customers to quickly deliver leading-edge technology products that are in high
demand from consumers.
MARKETS AND PRODUCTS
Our products are currently used in the audio, consumer electronics,
telecommunications, data acquisition and personal computer markets. We organize
our products into three business groups:
Analog products: consumer audio, industrial automation and control,
data acquisition, personal computer, and communication applications
Internet solutions: optical storage and embedded processor
applications
Magnetic storage: hard disk drive and read/write applications
We offer more than 200 products to over 3,000 customers worldwide, through
both direct and indirect sales channels. Our major customers are among the
world's leading electronics manufacturers and include Apple, Bose, Creative
Technologies, Dell, Denon, Fujitsu, Harman, Hitachi, IBM, Kenwood, Pace,
Panasonic, Pioneer, Schlumberger, SonicBlue, Sony and Western Digital.
We target large existing markets, as well as emerging growth markets that
derive value from our expertise in advanced mixed-signal design processing,
systems-level engineering and software expertise. This expertise is implemented
primarily in integrated circuits and related operating systems, but may also
include subsystem modules or system equipment designs and related software.
In the first quarter of fiscal year 2002, we announced that we would be
focusing our business on consumer-entertainment electronics, with strength in
analog and DSP technologies. We also announced that we would be de-emphasizing
our magnetic storage chip business.
ANALOG PRODUCTS BUSINESS GROUP
Our analog line of products is utilized in consumer audio, industrial
automation and control, data acquisition, personal computer and communications
products.
Consumer Audio
The consumer audio business currently offers more than 100 products for the
consumer, professional and automotive audio markets.
Our consumer products are incorporated into a wide range of audio equipment
in the high-fidelity audio market, including audio/video receivers and
amplifiers, cable and satellite set-top audio decoders, digital audio tape
recorders, audio and video compact disc players, powered speakers, DVD players
and MP3 players. DVD players use an optical disk technology that is expected to
replace the audio and video compact disk, as well as the computer CD-ROM, over
the next few years due to its significantly greater storage capacity. MP3
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technology typically provides a greater than ten to one file size reduction for
digital audio content. By using MP3 compression, approximately an hour of audio
content can be loaded into a small form factor, 32 MB solid-state portable music
player. Our products convert the player's internal digital sound output into an
analog audio signal.
Our products include analog-to-digital converters, digital-to-analog
converters, codecs that combine analog-to-digital and digital-to-analog
converters in a single package, digital interface components, and a family of
audio decoders that use digital signal processing technology and that support
the principal standards in the audio industry, such as Dolby Digital (AC-3),
AAC, Digital Theater System (DTS), Moving Picture Experts Group audio decoding,
Prologic/PrologicII, THX, and other special sound effects processing. Our
customers include Aiwa, Bose, Harman Kardon, Kenwood, Marantz, Onkyo, Panasonic,
Pioneer, RCA/ Thomson, Sony, and Yamaha. We are the world's number one supplier
of audio devices for both the MP3 player market and the audio/video receiver
markets.
Our professional and automotive products include analog-to-digital
converters, digital-to-analog converters, digital interface products, sample
rate converters, and products that enhance audio signal quality using digital
signal processing technology. Our professional and automotive products are
incorporated in high-end professional recording equipment, high performance
digital mixing consoles, special effects processors, musical instrument
amplifiers, and automotive stereo systems.
The following consumer, professional and automotive products are expected
to be the most important in the near term:
PRODUCT FAMILY DESCRIPTION FUNCTION/END USES STATUS
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Audio codecs Analog-to-digital and Consumer and In production
digital-to-analog professional audio
converters equipment
Multi-standard, multi- Single chip DSP that Home entertainment/ In production
channel audio/video supports/converts theater systems, DVD
decoders multiple audio players, and set-top
standards, such as boxes
Dolby Digital AC-3,
AAC, Digital Theatre
Systems (DTS), THX and
Moving Picture Experts
Group audio standards.
Analog-to-digital Convert analog signals Consumer equipment In production
converters, digital-to- into digital data and supporting CD-ROM,
analog converters digital data into CD-R, CD-RW, and SACD
analog signals. encoded media, powered
Typically used in speakers, DVD players
conjunction with other and portable MP3
digital signal players. High end
processing elements in professional recording
a system. equipment and high
performance digital
mixing consoles.
High performance sample Interconnects different High performance In production
rate converters digital audio devices digital mixing
by reformatting the consoles, CD- ROM
digital audio stream. players and
professional audio
recording equipment.
Digital signal Integrates digital Special effects In production
processing with signal processing into processors for the
integrated high an analog system. music industry.
performance codec
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PRODUCT FAMILY DESCRIPTION FUNCTION/END USES STATUS
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Digital audio interface Provides a digital Consumer and In production
products audio connection within professional
and between audio/video applications including
systems. audio/video equipment,
effects processors,
mixing consoles, and
digital speaker
systems.
High efficiency Class D New digital audio Consumer, professional In development
(PWM) converters and technology that and automotive systems.
power amplifiers replaces existing
analog implementations.
Class D (PWM) power
amplifiers are
characterized by high
energy efficiency and
low heat output. Class
D amplifiers and
converters enable new
small form factor
systems and can provide
more battery life in
portable systems.
Data Acquisition
We design, manufacture and market analog, digital and mixed-signal chips
for data acquisition, instrumentation and imaging applications. Our data
acquisition product family includes more than 100 products used in industrial
automation, instrumentation, medical, military and geophysical applications.
Types of applications include the measurement of energy usage in power meters
and fluorescent light fixtures, temperature gauges for industrial and medical
use, seismic devices for oil field applications and high-precision weigh scales
for commercial and scientific use. Our broad line of analog-to-digital
converters consists of general purpose and low frequency measurement devices.
These devices use patented self-calibration techniques that improve accuracy and
reduce system-level cost. Our customers include National Instruments, Rockwell
Automation and Schlumberger. In addition to supporting a product family,
technology from our data acquisition business is used in integrated circuits
across all of our product lines.
The following data acquisition products are expected to be the most
important in the near term:
PRODUCT FAMILY DESCRIPTION FUNCTION/END USES STATUS
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Analog-to-digital High precision Used in industrial In production
converters converter applications to amplify
and digitize analog
signals from sensors
that transduce
phenomenon like force,
temperature, or
pressure.
Energy measurement Single chip solution Used by the power-meter In production
for energy measurement and fluorescent light
applications market to measure and
manage electricity
usage in residential
and commercial
buildings
Computer Audio Products
We currently offer more than 15 computer audio products for use in personal
computers and workstations. A workstation is a computer intended for individual
use, which is faster and more capable than a
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personal computer. Our chips are incorporated in the motherboards of desktop and
notebook computers and workstations, as well as in external cards that plug into
computers and workstations and enable audio functions on those machines. We are
one of the leading suppliers of stereo audio chips for the personal computer and
workstation markets. Our chips provide high quality audio signals for the input
and output functions of personal computer and workstation audio products. Our
chips support a range of personal computer and workstation audio systems,
including those that offer three dimensional sound effects and music synthesis,
such as sound processing and mixing capabilities, as well as compatibility with
standard audio software packages, such as SoundBlaster(TM) and Microsoft
Sound(TM). Our computer audio products enhance the sound quality and audio
capabilities of personal computers and workstations. These products include
personal computer interface digital signal processors, which enable advanced
audio functions, such as music synthesis, including sound processing and mixing
capabilities for gaming, MP3 encode and decode and the home theater listening
experience with Dolby Digital(TM) and DTS(TM) in add-in cards. Other products
that enhance the sound quality and audio capabilities of personal computers and
workstations include controller products, which enable special sound effects
processing in personal computers and workstations and allow personal computer
gamers to perceive sound as coming from various points around them in a
three-dimensional space, sound equalizers, acoustic echo cancellation for high
quality Internet audio, acceleration for Microsoft Direct Sound(TM), and other
standard industry interfaces such as A3D and EAX. Our principal customers
include Creative Technologies, Dell, Hewlett Packard, Intel and IBM.
The following computer audio products are expected to be the most important
in the near term:
PRODUCT FAMILY DESCRIPTION FUNCTION/END USES STATUS
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AC '97 Audio codecs Analog-to-digital and Converts audio to/from In production
digital-analog digital data. Used in
converters workstation and
personal computer
motherboards and
external cards.
Digital signal Special effects digital Enables advanced audio In production
processing with signal processors functions such as music
integrated high synthesis, including
performance codec sound processing and
mixing capabilities in
add-in cards.
Peripheral component High-integration Enables connection In production
interconnect audio personal-computer audio between personal
controllers (PCI controllers. Range of computers or
Controllers) low- cost to workstations, and
high-performance peripheral computer
digital signal components, such as
processing based audio cards, external
solutions. Digital speakers and portable
signal processing computers, which plug
solutions offer into docking stations.
advanced audio
processing such as
three-dimensional
positioning for games,
wavetable music
synthesis and sound
equalization.
Communications
We design, manufacture and market embedded Ethernet chips for use in
broadband access customer premises equipment, such as digital cable set-top
boxes, cable modems, and DSL modems. These broadband access devices, also known
as "residential gateways," enable home users to access voice, video and data
content, typically using the Internet, over a single communications connection.
The same Ethernet chips are commonly used in other embedded applications, such
as Voice Over Internet Protocol (VoIP) telephones, industrial controllers, and
wireless access points. In addition, we develop and market integrated circuit
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products, primarily T1/E1 Line Interface Units, which provide switched telephony
network interface solutions for telecommunications and data communications
equipment. Our newest product family is communication processors for VoIP
telephones, residential gateways, and other embedded applications. These devices
feature ARM processor cores, with advanced peripherals and on-board Ethernet
interfaces.
The following communications products are expected to be the most important
in the near term:
PRODUCT FAMILY DESCRIPTION FUNCTION/END USES STATUS
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Embedded Ethernet High integration, Used in embedded In production
controllers simplified design systems, especially for
10BASE-T and 10/100 broadband access, such
local area network as cable set-top boxes,
controllers and analog cable and DSL modems
front ends.
Telecom T1/E1 Line Broad family of high- TI and E1 standard In production
Interface Units performance, mixed- applications such as
signal devices for multiplexors, PSTN
interfacing network switches and other
equipment to high-speed communications
communications lines. equipment for Central
Office and Customers
Premises.
Communications System on a chip Voice-over-Internet- Ramping
processors processor solutions Protocol telephones,
based on the ARM7 and residential gateways
ARM9 architectures, and other
with on-board Ethernet communications
interfaces. applications.
INTERNET SOLUTIONS BUSINESS GROUP
Our Internet line of products consists of chips for optical storage and
embedded processor applications.
Optical Storage
We supply chips that perform key electronics functions in advanced optical
disc drives, including both PC-based CD-RW drives and consumer-market DVD
drives. The CD-ROM drive, found in computers and workstations for storing and
retrieving electronic information on a compact disc, is the most common optical
disc drive. CD-ROM drives do not allow writing to the compact disk. Recently,
CD-ROM drives have been developed that permit users of personal computers and
workstations to record on CD-ROMs either once, referred to as CD-R drives, or
numerous times, referred to as CD-RW drives. The information stored on a CD is
transmitted to the computer or workstation through a device referred to as a
decoder and is written to CD-R or CD-RW through a device referred to as an
encoder. The company entered the optical storage market in fiscal 1995 with a
CD-ROM decoder product, followed by three more generations of CD-ROM decoders
with higher read speeds. In fiscal 2001, we discontinued our CD-ROM decoder
products. In fiscal 1997, we introduced our first CD-RW encoder/decoder
products. In fiscal 2001, the company introduced the industry's first CD-RW
encoder/decoder product capable of writing to double-density CD-RW media, which
is capable of storing twice the data of conventional CD-RW media.
We also provide chips for the DVD drive electronics market. We completed
development of the CL3710 DVD drive manager device in fiscal 2001. This product
is a fully integrated, high performance solution for a variety of DVD
applications, including PC-based DVD-ROM drives, consumer DVD players, DVD-based
game consoles and emerging consumer DVD-recordable components. We began making
production shipments at the end of fiscal 2001.
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We currently sell products to a number of customers in the optical storage
market. The following optical storage products are expected to be the most
important in the near term:
PRODUCT FAMILY DESCRIPTION FUNCTION/END USES STATUS
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CD-R and CD-RW Single chip providing Incorporated into a In production
encoder/decoder up to 16x write and 48x CD-R/CD-RW drives for
read speeds for single personal computers,
density and double workstations, and
density CD-R/CD-RW consumer devices
drives. Support for
consumer, ATAPI and
IEEE 1394 interfaces.
Integrated DVD drive Fully integrated DVD Single chip front-end In production
manager Drive manager, electronics that can be
incorporating a partial configured with an
response maximum audio DAC, external
likelihood (PRML) read- buffer memory, and a
channel servo-control local micro-controller
and decoder functions to create a complete
for DVD-ROM and DVD- DVD solution for
Player applications. DVD-ROM drives, DVD
players, DVD-based game
consoles and DVD
recordable components.
Embedded Processors
We develop, manufacture and market highly integrated, system-on-chip (SOC)
products for emerging consumer applications. SOC products integrate a number of
different functions, or systems, onto a single chip. In the past, most
electronic products required multiple chips to perform all the functions;
reducing the number of chips in a design allows space and cost savings for
consumers. Our SOC designs are based on processor cores licensed from ARM Ltd.
Our primary focus is on market-specific processors sold under the Maverick(R)
brand name. These products are designed for use in digital audio devices,
handheld information appliances and Internet computing devices. Currently, we
are the leading supplier of chips in the portable digital audio market, with
customers including SonicBlue (formerly S3/Diamond Multimedia), Creative
Technologies, Compaq, and Intel. Our next generation of Maverick(R) chips will
enable further growth of the digital audio market via a new home entertainment
appliance called the Digital Audio Jukebox. This product compresses music
acquired over the Internet or from personal collections, stores the music on a
local hard disk drive, and allows the music to be played over a home
entertainment system. Other Maverick(R) chips specifically target applications
such as PDAs (personal digital assistants) and Internet information appliances,
such as electronic books and low-cost Internet terminals.
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The following embedded processor products are expected to be the most
important in the near term:
PRODUCT FAMILY DESCRIPTION FUNCTION/END USES STATUS
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High-performance, ultra ARM 720T processor core Used in handheld In production
low power, system-on- integrated with liquid digital audio players,
chip with LCD Crystal(R) display personal digital
controller (LCD) and DRAM assistants, and
controllers, USB Internet access
interface, Digital appliance applications
Audio Interface and for portable,
Internet security battery-powered
software. devices. Multiple
products.
High performance, ARM9 ARM 920T processor core Used in line powered Testing
Secure SOC integrated with internet appliances,
Ethernet, EIDE, and USB such as digital audio
interfaces, math co- jukeboxes and web
processor engine, and browser terminals.
security features. Multiple products.
MAGNETIC STORAGE BUSINESS GROUP
We supply chips that perform the key electronics functions contained in
advanced magnetic and removable disk drives for personal computers and
workstations. In fiscal 2001, we announced that we had entered into a strategic
supply agreement with Fujitsu, in which Fujitsu's hard-disk drive division
agreed to purchase approximately $200 million of our 3CI(TM) magnetic storage
chips during the following 12 months. Our magnetic storage customers during
fiscal 2001 included Fujitsu, Hitachi, and Western Digital. In May 2001, we
announced that we are de-emphasizing our magnetic storage chip business.
MANUFACTURING
We purchase wafers manufactured by third-party wafer fabricators for our
wafer manufacturing needs. In addition to our wafer supply arrangements, we
currently contract with third-party assembly vendors to package the wafer die
into finished products. We qualify and monitor assembly vendors using procedures
similar in scope to those used for wafer procurement. Assembly vendors provide
fixed-cost-per-unit pricing, as is common in the semiconductor industry.
During fiscal 1998, we started outsourcing a substantial portion of our
production testing. Our manufacturing organization has continued to qualify and
monitor suppliers' production processes, to participate in process development,
package development and process and product characterization, to perform
mixed-signal production testing, to support R&D activities, and to maintain
quality standards. As of April 28, 2001, we had approximately 23% of our
employees engaged in manufacturing-related activities.
PATENTS, LICENSES AND TRADEMARKS
To protect our products, we rely heavily on trade secret, patent,
copyright, mask work and trademark laws. We apply for patents arising from our
research and development activities and intend to continue this practice in the
future to protect our products and technologies. As of April 30, 2001, we held
692 U.S. patents, 333 U.S. patent applications pending, and various
corresponding international patents and applications. We have also licensed a
variety of technologies important to our business from outside parties to
complement our own research and development efforts.
RESEARCH AND DEVELOPMENT
We concentrate our research and development efforts on the design and
development of new products for each market and on the continued enhancement of
our design automation tools. Product-oriented research and development efforts
are organized along the Analog, Internet and Magnetic Storage Business Groups.
We also
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fund certain advanced process technology development, as well as other emerging
product opportunities. Expenditures for research and development in fiscal 2001,
2000, and 1999, were $127.6 million, $121.4 million (excluding acquired
in-process research and development expenses of $8.0 million in fiscal year
2000), and $149.8 million, respectively. As of April 28, 2001, approximately 43%
of our employees were engaged in research and development activities. Our future
success is highly dependent upon our ability to develop complex new products, to
transfer new products to production in a timely fashion, to introduce them to
the marketplace ahead of the competition, and to have them selected for design
into products of leading systems manufacturers.
COMPETITION
Markets for our products are highly competitive, and we expect that
competition will increase. We compete with other semiconductor suppliers that
offer standard semiconductors, application-specific integrated circuits and
fully customized integrated circuits, including both chip and board-level
products. A few customers also develop integrated circuits that compete with our
products. Our competitive strategy has been to provide lower-cost versions of
existing products and new, more advanced products for customers' new designs.
While no single company competes with us in all of our product lines, we
face significant competition in each of our product lines. We expect to face
additional competition from new entrants in each of our markets, which may
include both large domestic and international semiconductor manufacturers and
smaller, emerging companies.
The principal competitive factors in our markets include time to market;
quality of hardware/software design and end-market systems expertise; price;
product benefits that are characterized by performance, features, quality and
compatibility with standards; access to advanced process and packaging
technologies at competitive prices; and sales and technical support.
Competition typically occurs at the design stage, where the customer
evaluates alternative design approaches that require integrated circuits.
Because our products have not been available from second sources, we generally
do not face direct competition in selling our products to a customer once our
integrated circuits have been designed into that customer's system.
Nevertheless, because of shortened product life cycles and even shorter
design-in cycles, our competitors have increasingly frequent opportunities to
achieve design wins in next-generation systems. In the event that competitors
succeed in supplanting our products, our market share may not be sustainable and
net sales, gross margin and earnings would be adversely affected.
SALES, MARKETING AND TECHNICAL SUPPORT
Our products are sold worldwide, principally to Asia. Export sales, which
include sales to U.S.-based customers with manufacturing plants overseas, were
82% in fiscal 2001, 75% in fiscal 2000, and 74% in fiscal 1999, respectively. We
maintain a worldwide sales force, which is intended to provide geographically
specific selling support to our customers, and specialized selling of product
lines with unique customer bases.
The domestic sales force includes a network of regional direct sales
offices located in California, Colorado, Florida, Illinois, Maryland,
Massachusetts, Oregon, Texas and Virginia. International sales offices and
organizations are located in France, Germany, Hong Kong, Japan, Korea, the
Netherlands, Singapore, Taiwan, and the United Kingdom. We supplement our direct
sales force with sales representative organizations and distributors. Technical
support staff is located at the sales offices and also at our facilities in
Fremont, California; Broomfield, Colorado; Nashua, New Hampshire; Austin, Texas;
Pune, India; and Tokyo, Japan.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for export sales information.
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BACKLOG
Sales are made primarily pursuant to standard short-term purchase orders
for delivery of standard products. The quantity actually ordered by the
customer, as well as the shipment schedules, are frequently revised to reflect
changes in the customer's needs. As a result, we believe that our backlog at any
given time is not a meaningful indicator of future revenues.
EMPLOYEES
As of April 28, 2001, we had approximately 1,356 full-time equivalent
employees, of whom 43% were engaged in research and product development, 34% in
sales, marketing, general and administrative, and 23% in manufacturing. Our
future success will depend, in part, on our ability to continue to attract,
retain and motivate highly qualified technical, marketing, engineering and
management personnel.
Due to the highly competitive nature of the marketplace that we operate in,
we may from time to time lose key employees to certain of our competitors. We
have been able to hire qualified personnel in the past to fill open positions
created by such occurrences, although there can be no assurance that we will be
able to do this in the future. None of our employees is represented by any
collective bargaining agreements.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
WE HAVE HISTORICALLY EXPERIENCED FLUCTUATIONS IN OUR OPERATING RESULTS AND
EXPECT THESE FLUCTUATIONS TO CONTINUE IN FUTURE PERIODS.
Our quarterly and annual operating results are affected by a wide variety
of factors that could materially and adversely affect our net sales, gross
margins and operating income. These factors include:
- the volume and timing of orders received,
- changes in the mix of our products sold,
- market acceptance of our products and the products of our customers,
- competitive pricing pressures,
- our ability to expand manufacturing output to meet increasing demand,
- our ability to introduce new products on a timely basis,
- fixed costs associated with minimum purchase commitments under supply
contracts if demand decreases,
- the timing and extent of our research and development expenses,
- cyclical semiconductor industry conditions,
- the failure to anticipate changing customer product requirements,
- fluctuations in manufacturing costs,
- disruption in the supply of wafers or assembly services,
- the ability of customers to make payments to us,
- increases in material costs,
- certain production and other risks associated with using independent
manufacturers, and
- product obsolescence, price erosion and other competitive factors.
Historically in the integrated circuit industry, average selling prices of
products have decreased over time. If we are unable to introduce new products
with higher margins or reduce manufacturing costs to offset anticipated
decreases in the prices of our existing products, our operating results will be
adversely affected.
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Our business is characterized by short-term orders and shipment schedules, and
customer orders typically can be canceled or rescheduled without penalty to the
customer. In addition, because of fixed costs in the integrated circuit
industry, we are limited in our ability to reduce costs quickly in response to
any revenue shortfalls. As a result of the foregoing or other factors, we may
experience material adverse fluctuations in our future operating results on a
quarterly or annual basis.
OUR SUCCESS DEPENDS ON OUR ABILITY TO INTRODUCE NEW PRODUCTS ON A TIMELY
BASIS.
Our success depends upon our ability to develop new precision linear and
mixed-signal circuits for new and existing markets, to introduce such products
in a timely manner, and to have such products gain market acceptance. The
development of new precision linear and mixed-signal circuits is highly complex
and from time to time we have experienced delays in developing and introducing
new products. Successful product development and introduction depends on a
number of factors, including:
- proper new product definition,
- timely completion of design and testing of new products,
- achievement of acceptable manufacturing yields, and
- market acceptance of our products and the products of our customers.
Although we seek to design products that have the potential to become
industry standard products, we cannot assure you that any products introduced by
us will be adopted by such market leaders, or that any products initially
accepted by our customers that are market leaders will become industry standard
products. Both revenues and margins may be materially affected if new product
introductions are delayed or if our products are not designed into successive
generations of our customers' products. We cannot assure you that we will be
able to meet these challenges or adjust to changing market conditions as quickly
and cost-effectively as necessary to compete successfully. Our failure to
develop and introduce new products successfully could harm our business and
operating results.
Successful product design and development is dependent on our ability to
attract, retain and motivate qualified design engineers, of which there is a
limited number. Due to the complexity and variety of precision linear and
mixed-signal circuits, the limited number of qualified circuit designers, and
the limited effectiveness of computer-aided design systems in the design of such
circuits, we cannot assure you that we will be able to successfully develop and
introduce new products on a timely basis.
OUR PRODUCTS ARE COMPLEX AND COULD CONTAIN DEFECTS, WHICH COULD REDUCE SALES
OF THOSE PRODUCTS OR RESULT IN CLAIMS AGAINST US.
Product development in the markets we serve is becoming more focused on the
integration of functionality on individual devices. There is a general trend
towards increasingly complex products. The greater integration of functions and
complexity of operations of our products increase the risk that latent defects
or subtle faults could be discovered by our customers or end users after volumes
of product have been shipped. This could result in:
- material recall and replacement costs for product warranty and support;
- adverse impact to our customer relationships by the recurrence of
significant defects;
- delay in recognition or loss of revenues, loss of market share or failure
to achieve market acceptance; and
- diversion of the attention of our engineering personnel from our product
development efforts.
The occurrence of any of these problems could result in the delay or loss
of market acceptance of our products and would likely harm our business. In
addition, any defects or other problems with our products could result in
financial or other damages to our customers who could seek damages from us for
their losses. A
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product liability claim brought against us, even if unsuccessful, would likely
be time consuming and costly to defend.
THE INTEGRATED CIRCUIT INDUSTRY IS VERY CYCLICAL AND AN INDUSTRY DOWNTURN
WOULD ADVERSELY AFFECT OUR BUSINESS.
The integrated circuit industry is characterized by:
- rapid technological change,
- cyclical market patterns,
- significant price erosion,
- periods of over-capacity and production shortages,
- variations in manufacturing costs and yields, and
- significant expenditures for capital equipment and product development.
The industry has from time to time experienced depressed business
conditions. Although the semiconductor industry in recent periods has
experienced increased demand and production capacity constraints, we cannot
assure you that these conditions will continue. In addition, we cannot assure
you that any future downturn in the industry will not be severe or that any such
downturn will not have a material adverse effect on our business and results of
operations. We cannot assure you that we will not experience substantial
period-to-period fluctuations in operating costs due to general semiconductor
industry conditions or other factors.
IF WE FAIL TO ATTRACT, HIRE AND RETAIN QUALIFIED PERSONNEL, WE MAY NOT BE ABLE
TO DEVELOP, MARKET OR SELL OUR PRODUCTS OR SUCCESSFULLY MANAGE OUR BUSINESS.
Competition for personnel in our industry is intense. The number of
technology companies in our geographic area is greater than it has been
historically, and we expect competition for qualified personnel to intensify.
There is only a limited number of people in the job market with the requisite
skills. Our human resources organization focuses significant efforts on
attracting and retaining individuals in key technology positions. Declining
stock market prices, however, make retention more difficult, as prior equity
grants contain less value and key employees pursue equity opportunities
elsewhere. In addition, start-up companies generally offer larger equity grants
to attract individuals from more established companies. The loss of the services
of any key personnel or our inability to hire new personnel with the requisite
skills could restrict our ability to develop new products or enhance existing
products in a timely manner, sell products to our customers or manage our
business effectively.
ANY DOWNTURN IN THE MARKETS WE SERVE WOULD HARM OUR BUSINESS.
Many of our products are incorporated into products such as personal
computers, magnetic storage, audio and industrial electronics, and embedded
processor products. These markets may from time to time experience cyclical,
depressed business conditions, often in connection with, or in anticipation of,
a decline in general economic conditions. Such industry downturns have resulted
in reduced product demand and declining average selling prices. Our business
would be harmed by any future downturns in the markets that we serve. The
sections below detail the risks associated with serving these various markets.
THE FOLLOWING RISKS ARE ASSOCIATED WITH SERVING THE AUDIO PRODUCTS MARKET:
- decreased average selling prices in the audio IC market due to
competitive pricing pressures;
- rapid integration of digital-to-analog converters into processors;
- our ability to respond effectively to the market trend of integrating
audio and video products;
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- decreased average selling prices in the audio integrated circuit market
due to the PC industry's transition to the AC-link codecs attached to
core logic using the multimedia features of the processor and single chip
solution;
- in the PC audio products market, the transition to core logic connected
audio and by the introduction of cheaper, fully-integrated, single-chip
audio integrated circuits;
- aggressive competitive pricing pressures in the audio integrated circuits
market; and
- the inability of our audio products to meet cost or performance
requirements of the three-dimensional, spatial-effects audio market.
THE FOLLOWING RISKS ARE ASSOCIATED WITH SERVING THE EMBEDDED PROCESSOR
PRODUCTS MARKET:
- increased competition from other semiconductor manufacturers now entering
the market due to the increased popularity of consumer goods
incorporating embedded processor products, such as portable digital audio
players, smart cellular phones, set-top Internet and e-mail access boxes,
and personal digital appliances;
- our inability to meet embedded processor products requirements of an
industry that has yet to define product standards;
- customer delays in their product development and introductions; and
- price competition from over 30 other embedded processor products
manufacturers who have licensed ARM Ltd. central processing unit cores,
the same central processing unit core we license, and who will likely
produce products around these cores that are very similar to ours.
THE FOLLOWING RISKS ARE ASSOCIATED WITH SERVING THE PRECISION DATA
CONVERSION MARKET:
- our inability to establish broad sales channels and our failure to
develop and maintain a sufficiently broad competitive product line;
- customer delays in their product development and introductions;
- our inability to reach the marketplace due to the technical complexity of
our products and the time requirements for their development; and
- our inability to attract, hire, and retain scarce analog engineering
talent necessary for rapid product development in this market.
THE FOLLOWING RISKS ARE ASSOCIATED WITH OUR INVOLVEMENT IN THE PC MARKETS:
- greatly pronounced demand fluctuations characteristic of our role as a
component supplier to PC original equipment manufacturers, or OEMs, and
to peripheral device manufacturers;
- our involvement in the consumer PC market, the most volatile segment of
the PC market;
- increased competition from other integrated circuit makers, including
Intel Corporation, who plan to incorporate features into or with their
microprocessor products that replicate those of our products;
- loss of customer base as we refocus on non-PC markets; and
- as a supplier to manufacturers at different levels of the production
chain, our potential dependence on the success of a particular PC OEM due
to our inability to accurately identify end-users of our product.
THE FOLLOWING RISKS ARE ASSOCIATED WITH SERVING THE MAGNETIC STORAGE
MARKET:
- significantly reduced demand for our magnetic storage products, due to
recent efforts by certain of our customers to contract with our
competitors for these products, as well as to develop their own
integrated circuits for these products;
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- historically dramatic supply and demand fluctuations in the magnetic disk
drive market, which is closely linked to growth in the PC market;
- direct correlation between the competitive nature of the disk drive
industry and the price of disk drive components;
- our dependence on the success of certain 3.5 inch magnetic disk drive
products that incorporate our products into their design;
- our dependence on the successful introduction by our customers of new
disk drive products that in turn can be impacted by the timing of
customers' transition to new disk drive products;
- our ability to respond effectively to the market trend of integrating
hard disk controllers with micro-controllers; and
- our ability to successfully compete with other firms with greater
resources to accomplish the technical obstacles of integration and
greater access to the advanced technologies necessary to provide
integrated HDD electronic components.
SHIFTS IN INDUSTRY-WIDE CAPACITY MAY CAUSE OUR RESULTS TO FLUCTUATE AND SUCH
SHIFTS HAVE RESULTED AND COULD IN THE FUTURE RESULT IN SIGNIFICANT INVENTORY
WRITE-DOWNS.
Shifts in industry-wide capacity from shortages to oversupply or from
oversupply to shortages may result in significant fluctuations in our quarterly
and annual operating results. We must order wafers and build inventory well in
advance of product shipments. Because the integrated circuit industry is highly
cyclical and is subject to significant downturns resulting from excess capacity,
overproduction, reduced demand or technological obsolescence, there is a risk
that we will forecast inaccurately and produce excess or insufficient
inventories of particular products. This inventory risk is heightened because
many of our customers place orders with short lead times. Due to the product
manufacturing cycle characteristic of integrated circuit manufacturing and the
inherent imprecision by our customers to accurately forecast their demand,
product inventories may not always correspond to product demand, leading to
shortages or surpluses of certain products. As a result of such inventory
imbalances, future inventory write-downs may occur due to lower of cost or
market accounting, excess inventory or inventory obsolescence.
BECAUSE FOUNDRY CAPACITY IS LIMITED, WE MAY BE REQUIRED TO ENTER INTO COSTLY
LONG-TERM SUPPLY ARRANGEMENTS TO SECURE FOUNDRY CAPACITY.
We currently purchase all of our wafers from outside foundries. Market
conditions could result in wafers being in short supply and prevent us from
having adequate supply to meet our customer requirements. Any prolonged
inability to utilize our foundries as a result of fire, natural disaster or
otherwise would have a material adverse effect on our financial condition and
results of operations. If we are not able to obtain additional foundry capacity
as required, our business could be harmed in the following ways: (i) our
relationships with our customers would be harmed and consequently our sales
would likely be reduced; and (ii) we may be forced to purchase wafers or
packaging from higher cost suppliers or to pay expediting charges to obtain
additional supply
In order to secure additional foundry capacity, we have entered into
contracts that commit us to purchase specified quantities of silicon wafers over
extended periods. In fact, during fiscal 1999, the industry experienced an
excess in production capacity that we believe, in some cases, resulted in our
competitors paying wafer prices that were lower than our cost of production from
our manufacturing joint ventures. As a result, we experienced pressures on our
selling prices during fiscal years 1999 and 2000, which harmed our revenues and
reduced our margins. In the future, we may not be able to secure capacity with
foundries in a timely fashion or at all, and such arrangements, if any, may not
be on terms favorable to us. Moreover, if we are able to secure foundry
capacity, we may be obligated to utilize all of that capacity or incur
penalties. Such penalties may be expensive and could harm our financial results.
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WE ARE DEPENDENT ON OUR SUBCONTRACTORS IN ASIA TO PERFORM KEY MANUFACTURING
FUNCTIONS FOR US.
We depend on third party subcontractors in Asia for the supply and
packaging of our products. International operations and sales may be subject to
political and economic risks, including political instability, currency
controls, exchange rate fluctuations, and changes in import/export regulations,
tariff and freight rates. Although we seek to reduce our dependence on our sole
and limited source suppliers, this concentration of suppliers and manufacturing
operations in Asia subjects us to the risks of conducting business
internationally, including political and economic conditions in Asia. Disruption
or termination of our supply or manufacturing could occur, and such disruptions
could harm our business and operating results.
WE HAVE SIGNIFICANT INTERNATIONAL SALES AND RISKS ASSOCIATED WITH THESE SALES
COULD HARM OUR OPERATING RESULTS.
Export sales, principally to Asia, include sales to U.S-based customers
with manufacturing plants overseas, and accounted for 82%, 75%, and 74% of our
net sales in fiscal 2001, 2000, and 1999, respectively. We expect export sales
to continue to represent a significant portion of product sales. This reliance
on sales internationally subjects us to the risks of conducting business
internationally, including political and economic conditions. For example, the
financial instability in a given region, such as Asia, may have an adverse
impact on the financial position of end users in the region which could impact
future orders and/or the ability of such users to pay us or our customers, which
could also impact the ability of such customers to pay us. While we expect to
carefully evaluate the collection risk related to the financial position of
customers and potential customers in structuring the terms of sale, in
determining whether to accept sales orders, and in evaluating the recognition of
revenue, if a region's volatility harms the financial position of our customers,
our results of operations could be harmed. Our international sales operations
involve a number of other risks, including:
- unexpected changes in regulatory requirements;
- changes in diplomatic and trade relationships;
- delays resulting from difficulty in obtaining export licenses for
technology;
- tariffs and other barriers and restrictions; and
- the burdens of complying with a variety of foreign laws.
In addition, while we may buy hedging instruments to reduce our exposure to
currency exchange rate fluctuations, our competitive position can be affected by
the exchange rate of the U.S. dollar against other currencies, particularly the
Japanese yen. Consequently, increases in the value of the dollar would increase
the price in local currencies of our products in foreign markets and make our
products relatively more expensive. We cannot assure you that regulatory,
political and other factors will not adversely affect our operations in the
future or require us to modify our current business practices.
POTENTIAL INTELLECTUAL PROPERTY CLAIMS AND LITIGATION COULD SUBJECT US TO
SIGNIFICANT LIABILITY FOR DAMAGES AND COULD INVALIDATE OUR PROPRIETARY RIGHTS.
Our success depends on our ability to obtain patents and licenses and to
preserve our other intellectual property rights covering our manufacturing
processes, products and development and testing tools. We seek patent protection
for those inventions and technologies for which we believe such protection is
suitable and is likely to provide a competitive advantage to us. Notwithstanding
our attempts to protect our proprietary rights, we believe that our future
success will depend primarily upon the technical expertise, creative skills and
management abilities of our officers and key employees rather than on patent and
copyright ownership. We also rely substantially on trade secrets and proprietary
technology to protect our technology and manufacturing know-how, and work
actively to foster continuing technological innovation to maintain and protect
our competitive position.
The integrated circuit industry is characterized by frequent litigation
regarding patent and other intellectual property rights. We cannot assure you
that any patent owned by us will not be invalidated,
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circumvented or challenged, that rights granted under the patent will provide
competitive advantages to us or that any of our pending or future patent
applications will be issued with the scope of the claims sought by us, if at
all. In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. We cannot assure you that
steps taken by us to protect our intellectual property will be adequate or that
our competitors will not independently develop or patent substantially
equivalent or superior technologies.
As is typical in the semiconductor industry, we and our customers have from
time to time received, and may in the future receive, communications from third
parties asserting patents, maskwork rights, or copyrights on certain of our
products and technologies. In the event a third party were to make a valid
intellectual property claim and a license was not available on commercially
reasonable terms, our operating results could be harmed. Litigation, which could
result in substantial cost to us and diversion of our resources, may also be
necessary to defend us against claimed infringement of the rights of others. An
unfavorable outcome in any such suit could have an adverse effect on our future
operations and/or liquidity.
STRONG COMPETITION IN THE HIGH-PERFORMANCE INTEGRATED CIRCUIT MARKET MAY HARM
OUR BUSINESS.
The high-performance integrated circuit industry is highly competitive and
subject to rapid technological change. Significant competitive factors in our
markets include:
- product features, reliability, performance and price;
- the diversity and timing of new product introductions;
- the emergence of new computer standards and other customer systems;
- product quality;
- efficiency of production; and
- customer support
Because of shortened product life cycles and even shorter design-in cycles,
our competitors have increasingly frequent opportunities to achieve design wins
in next generation systems. In the event that competitors succeed in supplanting
our products, our market share may not be sustainable and net sales, gross
margin, and results of operations would be adversely affected. Our principal
competitors include: Analog Devices, Advanced Micro Devices, Broadcom, C-Cube,
Conexant, Creative Technologies, ESS Technologies, Infineon, Intel, LSI Logic,
Linear Technology, Lucent Technologies, Motorola, Philips, Siemens, SigmaTel, ST
Microelectronics, Texas Instruments, Yamaha, and Zoran, many of whom have
substantially greater financial and other resources than we do with which to
pursue engineering, manufacturing, marketing and distribution of their products.
We expect intensified competition from emerging companies and from customers who
develop their own integrated circuit products. Increased competition could
adversely affect our business. We cannot assure you that we will be able to
compete successfully in the future or that competitive pressures will not
adversely affect our financial condition and results of operations. Competitive
pressures could reduce market acceptance of our products and result in price
reductions and increases in expenses that could adversely affect our business
and our financial condition.
In addition, our future success depends, in part, on the continued service
of our key engineering, marketing, sales, manufacturing, support, and executive
personnel, and on our ability to continue to attract, retain, and motivate
qualified personnel. The competition for such employees is intense, and the loss
of the services of one or more of these key personnel could adversely affect our
business.
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IF WE ARE UNABLE TO MAKE CONTINUED SUBSTANTIAL INVESTMENTS IN RESEARCH AND
DEVELOPMENT, WE MAY NOT BE ABLE TO SELL OUR PRODUCTS.
We must continue to make substantial investments in research and
development to develop new and enhanced products and solutions. If we fail to
make sufficient investments in research and development programs, new
technologies could render our current and planned products obsolete, resulting
in the need to change the focus of our research and development and product
strategies, and disrupting our business significantly.
ITEM 2. PROPERTIES
Currently, our principal facilities, located in Austin, Texas, consist of
approximately 248,000 square feet of leased office and manufacturing space,
which leases expire from 2002 to 2006, plus renewal options. This space is used
for manufacturing, product development, sales, marketing and administration.
During fiscal 2001, we entered into an operating lease for approximately 192,000
square feet of office space in Austin, Texas, where we will be relocating our
headquarters facility tentatively scheduled for 2002.
Our Fremont, California facilities consist of approximately 485,000 square
feet of leased office space, which leases expire from 2004 to 2009, plus renewal
options. In connection with our restructuring activities begun in fiscal 1999,
we have subleased approximately 431,000 square feet of this office space.
We also have the following design centers in the United States and sales
and support offices in the United States and International locations:
SALES AND SUPPORT OFFICES -- SALES AND SUPPORT OFFICES --
DESIGN CENTERS USA INTERNATIONAL
- -------------- ---------------------------- ----------------------------
Boulder, Colorado Los Angeles, California France
Broomfield, Colorado Broomfield, Colorado Germany
Boca Raton, Florida Boca Raton, Florida Hong Kong
Ft. Wayne, Indiana Tarpon Springs, Florida Japan
Nashua, New Hampshire Chicago, Illinois Korea
Pune, India Columbia, Maryland Singapore
Japan Burlington, Massachusetts Taiwan
Singapore Portland, Oregon the Netherlands
Austin, Texas United Kingdom
Chesapeake,Virginia
ITEM 3. LEGAL PROCEEDINGS
From time to time, various claims, charges, and litigation are asserted or
commenced against the Company arising from, or related to, contractual matters,
intellectual property, personal injury, insurance coverage and personnel and
employment disputes. Frequent claims and litigation involving patent and other
intellectual property rights are not uncommon in the semiconductor industry. As
to any such claims or litigation, the Company cannot predict the ultimate
outcome with certainty. In the event a third party makes a valid intellectual
property claim and a license is not available on commercially reasonable terms,
we could be forced either to redesign or to stop production of products
incorporating that intellectual property, and our operating results could be
materially and adversely affected. Litigation may also be necessary to enforce
our intellectual property rights or to defend us against claims of infringement,
and this litigation may be costly and divert the attention of key personnel.
We are involved in some litigation that, while we cannot predict the
outcome with certainty, we do not expect to have a material adverse effect on
our consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the Nasdaq National Market under the symbol
"CRUS." The following table shows for the periods indicated the high and low
closing prices for the Common Stock.
HIGH LOW
------ ------
Fiscal year ended March 27, 1999
First quarter............................................. $11.25 $ 8.94
Second quarter............................................ 12.44 6.06
Third quarter............................................. 12.94 5.88
Fourth quarter............................................ 12.94 6.88
Fiscal year ended March 25, 2000
First quarter............................................. $10.13 $ 6.00
Second quarter............................................ 12.44 7.50
Third quarter............................................. 16.50 9.31
Fourth quarter............................................ 24.00 11.63
Fiscal year ended March 31, 2001
First quarter............................................. $19.83 $13.19
Second quarter............................................ 40.19 14.56
Third quarter............................................. 46.56 16.50
Fourth quarter............................................ 34.81 14.94
As of April 28, 2001, there were approximately 1,120 holders of record of
our Common Stock.
We have not paid cash dividends on our Common Stock and currently intend to
continue a policy of retaining any earnings for reinvestment in our business.
During May 2000, we repurchased in the open market $28.1 million aggregate
principal amount of our 6% Convertible Subordinated Notes. We recognized a $2.5
million extraordinary gain, net of tax, as a result of these repurchases. On
September 25, 2000, we entered into an agreement to issue approximately 1.0
million shares of Common Stock and to pay $0.1 million to holders of $24 million
aggregate principal amount of our 6% Convertible Subordinated Notes. In October
and November 2000, a total of $246.9 million aggregate principal amount of our
6% Convertible Subordinated Notes were converted into approximately 10.2 million
shares of our common stock by the holders of the notes.
As a result of these conversions, $299 million of long-term debt was
retired and stockholders' equity increased $272.6 million.
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ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA
(Amounts in thousands, except per share amounts, ratios and employees)
The information contained below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and notes thereto included
elsewhere in this Annual Report on Form 10-K. Certain reclassifications have
been made to conform to the 2001 presentation. Such reclassifications had no
effect on the results of operations or stockholders' equity.
FISCAL YEARS ENDED
-----------------------------------------------------------
2001 2000 1999 1998 1997
-------- --------- ---------- ---------- ----------
Net sales................................................ $778,673 $ 564,400 $ 628,105 $ 954,270 $ 917,154
Costs and expenses:
Cost of sales.......................................... 486,355 338,308 680,088 585,726 579,256
Research and development............................... 127,599 121,410 149,756 196,268 247,317
Selling, general and administrative.................... 109,629 91,706 101,807 120,315 129,730
Gain on sale of assets, net............................ -- -- (3,988) (20,781) (18,915)
Restructuring costs and other, net..................... (14,362) 125,612 80,505 14,464 20,954
Abandonment of assets charge........................... -- 12,201 -- -- --
Acquired in-process research and development
expenses............................................. -- 8,013 -- -- --
-------- --------- ---------- ---------- ----------
Total costs and expenses......................... 709,221 697,250 1,008,168 895,992 958,342
-------- --------- ---------- ---------- ----------
Income (loss) from operations............................ 69,452 (132,850) (380,063) 58,278 (41,188)
Realized gain on the sale of marketable equity
securities............................................. 86,886 92,463 -- -- --
Interest expense......................................... (11,759) (23,754) (22,337) (27,374) (19,754)
Interest income.......................................... 18,168 8,096 16,786 19,893 8,053
Other income (expense)................................... (4,928) 8,949 4,242 5,206 1,270
-------- --------- ---------- ---------- ----------
Income (loss) before provision (benefit) for income
taxes.................................................. 157,819 (47,096) (381,372) 56,003 (51,619)
Provision (benefit) for income taxes..................... 15,715 -- 46,031 19,510 (5,463)
Minority interest in loss of eMicro...................... (297) -- -- -- --
-------- --------- ---------- ---------- ----------
Income (loss) before extraordinary gain and accounting
change................................................. 142,401 (47,096) (427,403) 36,493 (46,156)
Extraordinary gain, net of income taxes.................. 2,482 -- -- -- --
Cumulative effect of change in accounting principle...... (1,707) -- -- -- --
-------- --------- ---------- ---------- ----------
Net Income (loss)........................................ $143,176 $ (47,096) $ (427,403) $ 36,493 $ (46,156)
======== ========= ========== ========== ==========
Basic net income (loss) per share:
Before extraordinary gain and accounting change........ $ 1.99 $ (0.77) $ (6.77) $ 0.54 $ (0.71)
Extraordinary gain, net of income tax.................. 0.03 -- -- -- --
Cumulative effect of change in accounting principle.... (0.02) -- -- -- --
-------- --------- ---------- ---------- ----------
$ 2.00 $ (0.77) $ (6.77) $ 0.54 $ (0.71)
======== ========= ========== ========== ==========
Diluted net income (loss) per share:
Before extraordinary gain and accounting change........ $ 1.85 $ (0.77) $ (6.77) $ 0.52 $ (0.71)
Extraordinary gain, net of income tax.................. 0.03 -- -- -- --
Cumulative effect of change in accounting principle.... (0.02) -- -- -- --
-------- --------- ---------- ---------- ----------
$ 1.86 $ (0.77) $ (6.77) $ 0.52 $ (0.71)
======== ========= ========== ========== ==========
Weighted average common shares outstanding:
Basic.................................................. 71,678 61,554 63,149 67,333 65,007
Diluted................................................ 82,654 61,554 63,149 69,548 65,007
Financial position at year end:
Total assets........................................... $598,005 $ 504,832 $ 532,630 $1,137,542 $1,136,821
Working capital........................................ 373,757 237,076 164,012 476,154 428,670
Capital lease obligations, excluding current........... -- 321 1,457 5,475 9,848
Long-term debt, excluding current...................... 336 3,147 12,960 32,559 51,248
Convertible subordinated notes......................... -- 299,000 300,000 300,000 300,000
Total liabilities...................................... 163,759 488,534 590,350 681,199 732,624
Stock issued under the restructuring agreement with
IBM.................................................. -- 32,000 -- -- --
Stockholders' equity (net capital deficiency).......... $432,543 $ (15,702) $ (57,720) $ 456,343 $ 404,197
(Unaudited)
Current Ratio............................................ 3.34 2.29 1.61 2.40 2.17
Employees................................................ 1,356 1,278 1,342 1,774 2,557
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ANNUAL RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements. Certain statements contained herein may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve a number of
risks, uncertainties and other factors that could cause actual results to differ
materially, as discussed more fully herein. Certain reclassifications have been
made to conform to the 2001 presentation. Such reclassifications had no effect
on the results of operations or stockholders' equity.
Cirrus Logic is a leading supplier of high-performance analog and DSP chip
solutions for Internet entertainment electronics, analog and magnetic markets.
The Company designs and manufactures integrated circuits, or chips, that use
high-performance analog and digital signal processing technologies. Our mixed
signal devices are designed for specific markets that derive value from our
expertise in advanced mixed-signal design processing, systems-level engineering
and software knowledge. Our products, sold under our own name and the
Crystal(R), Maverick(R), and 3CI(TM) product brands, enable our customers to
quickly deliver leading-edge technology products that are in high demand from
consumers.
During fiscal 2001, we achieved over 50% sales growth in our core
businesses, and stockholders' equity increased approximately $273 million due to
the conversion of debt and accrued interest. Total long-term debt was $0.3
million at fiscal year end 2001, compared to $302.1 million at the end of fiscal
2000. We had net income of $143.2 million in fiscal 2001, compared to a net loss
of $47.1 million in fiscal 2000. We completed the year with $263 million of cash
and, within one year, stockholders' equity went from a deficit of $16 million to
a surplus of $433 million.
NET SALES
Net sales for fiscal 2001 increased to $778.7 million, an increase of 38%
from $564.4 million in fiscal 2000. Net sales from core businesses, consisting
of the Magnetic Storage, Analog, Internet, and Corporate and other business
segments in fiscal 2001, increased over 50% to $742.5 million, from $488.5
million in fiscal 2000. Sales of core products increased in 2001 primarily due
to a substantial increase in net sales in the magnetic storage business group.
Magnetic storage revenues increased to $329.5 million in 2001, an increase of
148% from $133.1 million in fiscal 2000. Net sales in the Analog and Internet
business segments increased 4% and 92%, respectively, in fiscal 2001, to $323.7
million and $83.4 million, from $311.5 million and $43.4 million in fiscal 2000,
respectively. The increase in internet revenue in 2001 was primarily due to the
strong production ramp of Maverick(R) processors for MP3 players and strong
CD-RW sales. Revenues from businesses that have been discontinued by us are
included in our End of Life business segment. Revenues from discontinued
businesses in fiscal 2001 were $36.2 million compared to $75.9 million in fiscal
2000.
We expect that our revenues related to our magnetic storage business,
principally from Fujitsu, Western Digital and Hitachi, will decline
significantly beginning in fiscal 2002, decreasing primarily over our second and
third fiscal quarters of 2002.
Under an agreement with Fujitsu that we entered into effective July 1,
2000, Fujitsu purchased from us magnetic storage chips, resulting in $191.1
million in net sales to us in fiscal 2001, or 24% of our net sales for that
period. Fujitsu committed under the agreement to purchase from us approximately
$200 million in magnetic storage chip products over the 12-month term of the
agreement. Currently we are in negotiations with Fujitsu regarding our continued
supply of products beyond the term of the agreement. While we expect to receive
additional orders beyond June 30, 2001, we anticipate a significant reduction in
the orders received.
We have binding purchase orders with Western Digital to supply our magnetic
storage chips through September 2001. Our sales of magnetic storage chips to
Western Digital resulted in $97.6 million in net sales in fiscal 2001, or 13% of
our net sales. We are discussing future sales of magnetic storage chips, as well
as other products. It is premature to predict whether these discussions will
result in continuing orders and, if additional orders are received, the
magnitude of any such orders, although we expect any orders placed to be a
significant reduction from orders placed during fiscal 2001.
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22
With respect to Hitachi, we have binding purchase orders to supply our
magnetic storage chips through July 2001. We believe that Hitachi will no longer
be buying these products from us after we fulfill our obligations under these
purchase orders.
Effective with the first quarter of fiscal 2001, we have recognized revenue
on international shipments based on customer receipt and title passage of
inventory, instead of on the date of shipment, which was our historical method.
Results for fiscal 2001 include revenue of $5.2 million, cost of sales of $3.5
million, and a cumulative effect of change in accounting principle of $1.7
million as a result of this change. Also, during the first quarter of fiscal
2001, we changed our estimate of the amount of revenue that is deferred on
distributor transactions under agreements with only limited rights of return.
Results for fiscal 2001 include revenue of $5.4 million, cost of sales of $2.0
million, and income of $3.4 million related to this change in estimate. The
effect of this estimate change increased basic and diluted earnings per share by
$0.03 for fiscal 2001. Royalty revenue of $12.9 million is also included in net
sales for fiscal 2001.
Net sales for fiscal 2000 were $564.4 million, a decrease of 10% from
$628.1 million in fiscal 1999. Net sales from the core businesses in fiscal 2000
were approximately $488.5 million, compared to $517.3 million in fiscal 1999.
Sales of core products decreased during fiscal 2000 primarily due to reduced
volumes in the Magnetic Storage business, partially offset by increased volumes
in the Analog and Internet business groups. Average selling prices also declined
in fiscal 2000. Revenues in fiscal 2000 and 1999 included amounts from
businesses that have been discontinued by us and are included in our End of Life
business group. Revenues from discontinued businesses in fiscal 2000 were $75.9
million, compared to $110.8 million in fiscal 1999.
Net sales in fiscal 1999 decreased by $108.0 million from fiscal 1998,
excluding revenues from discontinued businesses and $60.0 million of revenues
from patent cross-license agreements in fiscal 1999. The decrease was largely
due to decreased sales in magnetic storage products, primarily related to
decreased unit volumes and average selling prices of read channel devices and
controllers, which were offset by increased sales in audio products, primarily
related to increased unit volume.
Export sales, principally to Asia, including sales to U.S.-based customers
with manufacturing plants overseas, were approximately $636.2 million in fiscal
2001, $421.0 million in fiscal 2000, and $462.0 million in fiscal 1999. Export
sales to customers located in the Pacific Rim (excluding Japan) were 36%, 47%,
and 40% of net sales in fiscal 2001, 2000, and 1999, respectively. Export sales
to customers located in Japan were 39%, 19%, and 25% of net sales. All other
export sales were 7%, 8%, and 8% of net sales, in fiscal 2001, 2000, and 1999,
respectively.
Our sales are denominated primarily in U.S. dollars. From time to time, we
enter into foreign currency forward exchange and option contracts to reduce the
foreign currency exposures related to sales and balance sheet accounts
denominated in yen.
In fiscal 2001, sales to Fujitsu accounted for 24% of net sales, and sales
to Western Digital accounted for 13% of net sales. As set forth above, we
anticipate a significant reduction in the sales made to both Fujitsu and Western
Digital in the next two quarters. One customer accounted for approximately 12%
of net sales in fiscal 2000. Two customers accounted for approximately 14% and
13%, respectively of net sales in fiscal 1999. No other customers accounted for
10% or more of net sales in fiscal 2001, 2000, or 1999. The loss of a
significant customer or a significant reduction in such a customer's orders
could have an adverse effect on our sales.
GROSS MARGIN
Gross margin was 38% in fiscal 2001. Gross margin decreased during fiscal
2001, primarily due to lower margins on sales of magnetic storage products.
Also, we recognized an inventory charge of $17.4 million during the fourth
quarter of fiscal 2001, mainly to reserve inventory that is excess to short-term
usage forecasts.
Gross margin was 40% in fiscal 2000. Gross margin in fiscal 2000 was
impacted by declining average selling prices in the audio, magnetic and optical
storage businesses. This was partially offset by lower production costs in the
audio and magnetic storage units. Additionally, our sales mix in fiscal 2000
shifted toward lower margin analog business group products.
20
23
Gross margin for fiscal 1999 was negative 8%. Included in gross margin for
fiscal 1999 was $188.4 million related to the write-off of both MiCRUS and
Cirent joint venture assets, which were deemed to be impaired in fiscal 1999
based upon an assessment that future cash flows were insufficient to recover the
carrying value of the assets, $90.3 million of charges related to excess wafer
purchase commitments with MiCRUS and Cirent joint ventures, and $34.5 million
were inventory write-downs associated with businesses being phased out.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenditures increased by $6.2 million in fiscal
2001, primarily due to an increase in total employees and the change in employee
mix from fiscal 2000. At the end of fiscal 2001, approximately 43% of employees
were engaged in research and development, compared to 36% at the end of fiscal
2000. Although these expenses increased in total dollars in fiscal 2001, as a
percentage of net sales they have decreased from 24% to 16% over the last three
fiscal years. Research and development expenses expressed as a percentage of net
sales were 16%, 22%, and 24% in fiscal 2001, 2000, and 1999, respectively.
Research and development expenditures decreased by $28.3 million in fiscal
2000 and $46.5 million in fiscal 1999, primarily due to lower headcount related
to the fiscal 1999 restructuring efforts to focus research and development on
our precision linear and mixed-signal positions in the Analog, Internet, and
Magnetic Storage markets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses increased by $17.9 million in
fiscal 2001, mainly due to an increase in headcount of 8% over last year and
compensation expense recognized in connection with the acquisition of
AudioLogic, Inc. Although these expenses increased in total dollars in fiscal
2001, as a percentage of net sales they have decreased from 16% to 14% over the
last three fiscal years. Selling, general, and administrative expenses expressed
as a percentage of net sales represented approximately 14%, 16%, and 16% in
fiscal 2001, 2000, and 1999, respectively.
Selling, general, and administrative expenses decreased $10.1 million in
fiscal 2000 and $18.5 million in fiscal 1999, primarily due to a decrease in bad
debt expense attributable to our efforts to collect accounts receivable, a
decrease in the allowance for bad debts, and restructuring activities during
fiscal 1999, which included the divestiture of several non-core businesses and
headcount reductions made in order for the support structure to be in line with
our current business model.
RESTRUCTURING COSTS AND OTHER, NET
In fiscal 2001, we recorded $12.5 million in income to recognize the
receipt of two previously-reserved notes from Intel Corporation on behalf of
Basis Communications Corporation. We also recorded $1.8 million in income,
related to the final resolution of the MiCRUS restructuring agreement. As of
March 31, 2001 we have a remaining restructuring accrual of $0.5 million, which
we expect to discharge in fiscal 2002 through cash payments.
On May 2, 2001, we announced a change to our business model, in which we
are de-emphasizing our magnetic storage chip business and are focusing on
consumer-entertainment electronics. On May 15, 2001, we announced cost-reduction
actions to align company resources and expenses with this new business model. In
connection with these strategic decisions, we reduced our workforce by
approximately 120 employees worldwide, or about nine percent of the total
workforce. We estimate annualized savings of approximately $10-$12 million from
the combination of these layoffs and reductions in third-party contractor
expenses. We expect to record a special charge of approximately $1.5-$2.0
million in the first quarter of fiscal 2002 to cover costs associated with these
workforce reductions.
During fiscal 2000, we substantially completed the restructuring activities
that were initiated in fiscal 1999. We restructured our relationships with our
manufacturing joint ventures and returned to a fabless business model. In fiscal
2000, we recorded restructuring charges of $126.6 million, $1.0 million of which
is in cost of sales. These restructuring charges included a $135.0 million
direct cash payment to one of the joint
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venture partners, $36.8 million related to certain Cirrus Logic common stock
that we issued to one of the joint venture partners, $9.3 million of lease
buyout costs, and $16.4 million of equipment write-offs. These charges were
partially offset by the reversal of approximately $71.9 million of
previously-accrued wafer purchase commitment charges due to the renegotiated
terms of our purchase commitments with our former partners.
During fiscal 1999, we recorded restructuring charges of approximately
$390.0 million. The charges included cost of sales of $188.0 million related to
asset impairment, $90.0 million related to wafer purchase commitment charges,
and $35.0 million related to inventory write-downs. In addition, we recorded
charges of $78.0 million related to severance and related benefits, along with
facilities scale back and other costs.
ACQUIRED IN-PROCESS RESEARCH & DEVELOPMENT EXPENSES
During fiscal 2000, we recorded $8.0 million, or 1% of net sales of
acquired in-process research and development expenses, resulting from our
acquisition of AudioLogic, Inc. We expensed these amounts on the acquisition
date because the acquired technology had not yet reached technological
feasibility and had no future alternative uses. Future acquisitions of
businesses, products or technologies by us might also result in charges for
acquired in-process research and development that may cause fluctuations in our
quarterly or annual operating results.
ABANDONMENT OF ASSETS CHARGE
During fiscal 2000, we discontinued development efforts previously
undertaken on the manufacturing component of our enterprise resource planning
software. In connection with this decision, we recorded an asset abandonment
charge of approximately $11.3 million.
INTEREST EXPENSE
Interest expense was $11.8 million, $23.8 million, and $22.3 million in
fiscal 2001, 2000, and 1999, respectively. The decrease in interest expense in
fiscal 2001 compared to fiscal 2000 is primarily due to the repurchase and
conversion of $299.0 million of our 6% convertible subordinated notes.
INTEREST INCOME
Interest income in fiscal 2001 was $18.2 million, compared to $8.1 million
in fiscal 2000, and $16.8 million in fiscal 1999. The increase in interest
income in fiscal 2001 is primarily due to the interest earned on the increased
cash and cash equivalent balances at March 31, 2001, compared to March 25, 2000.
Interest income in fiscal 2000 declined from fiscal 1999 due to cash payments
required in connection with the restructuring activities in the first quarter.
This was partially offset by cash inflows later in the year from the liquidation
of certain investments.
REALIZED GAINS ON THE SALE OF MARKETABLE EQUITY SECURITIES AND INVESTMENTS
We realized net gains of $86.9 million related to the sale of investments
in fiscal 2001, primarily from the sale of our interest in Basis Communications
to Intel Corporation, resulting in a gain of $79.5 million. We realized gains of
$76.8 million in fiscal 2000 due to sales of stock and associated options we
sold in Openwave Systems, Inc. common stock (formerly known as Phone.com). We
also realized a gain of $15.7 million in the fourth quarter of fiscal 2000 due
to the sale of our interest in Ambient Technologies to Intel Corporation.
OTHER INCOME (EXPENSE)
Other expense in fiscal 2001 includes a charge of $2.0 million related to
the settlement of a litigation dispute, $0.5 million write-off of an investment
in a private company, and foreign currency translation losses of $2.4 million.
Other income for fiscal 2000 includes $5.6 million from the release of a
wafer purchase accrual previously established in connection with the sale of a
technology license due to lower wafer demand than was previously
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25
forecasted. Also included in other income is a $3.1 million reduction of a
liability associated with our stock issued as part of the divestiture of the
MiCRUS manufacturing joint venture.
Other income for fiscal 1999 includes gains on the disposal of certain
equity investments and foreign currency transaction gains.
INCOME TAXES
We recorded income tax expense of $15.7 million for fiscal 2001 on income
before provision of income taxes of $157.8 million. Our effective income tax
rate of approximately 10% was lower than the U.S. statutory rate of 35%
primarily because of the utilization of net operating loss carryforwards and tax
credits.
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" provides for the recognition of deferred tax assets if realization of
such assets is more likely than not. In fiscal years 2001, 2000, and 1999, we
provided a valuation allowance equal to our net deferred tax assets due to
uncertainties regarding their realization. Even though we were able to utilize
some of these deferred tax assets in 2001, primarily net operating loss
carryforwards, we continue to provide a valuation allowance equal to our
remaining net deferred tax assets due to uncertainties that remain regarding
their realization. We evaluate the realizability of the deferred tax assets on a
quarterly basis.
We recognized no income tax benefit for fiscal 2000 losses.
The tax provision for fiscal 1999 resulted primarily from $47.0 million of
deferred income tax expense recorded as a valuation allowance to offset net
deferred tax assets which had been recognized as of March 28, 1998.
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26
QUARTERLY FINANCIAL INFORMATION
(Amounts in thousands, except per share data)
The following table sets forth certain quarterly statement of operations
data for each full fiscal quarter within the two most recent fiscal years. This
information has been derived from our unaudited financial statements. In the
opinion of management, this unaudited information has been prepared on the same
basis as the annual financial statements and includes all adjustments consisting
only of normal recurring adjustments necessary for a fair presentation of the
information for the quarters presented. Certain reclassifications have been made
to conform to the 2001 presentation. Such reclassifications had no effect on the
results of operations or stockholders' equity. This information should be read
in conjunction with the financial statements and related notes included
elsewhere in this document. The operating results for any quarter are not
necessarily indicative of results for any future period.
FISCAL YEARS BY QUARTER
--------------------------------------------------------------------------------------
2001 2000
----------------------------------------- ------------------------------------------
4TH++++ 3RD+++ 2ND++ 1ST+ 4TH**** 3RD*** 2ND** 1ST*
-------- -------- -------- -------- -------- -------- -------- ---------
Operating summary:
Net sales............................... $199,725 $207,998 $189,537 $181,412 $160,246 $150,759 $132,842 $ 120,553
Cost of sales........................... 143,183 124,760 110,513 107,899 102,534 90,410 77,075 68,289
Restructuring costs, (gain) loss on sale
of assets and other, net.............. -- -- (1,848) (12,514) (1,599) -- -- 127,210
Acquired in-process research &
development expenses.................. -- -- -- -- -- -- 8,013 --
Abandonment of assets charge............ -- -- -- -- 1,026 11,174 -- --
Income (loss) from operations........... 1,530 22,178 17,024 28,720 6,002 (6,056) (5,395) (127,400)
Income (loss) before income taxes....... 4,208 26,628 18,287 108,697 62,081 27,923 (9,354) (127,746)
Income (loss) before extraordinary gain
and accounting change................. 3,952 23,877 16,468 98,105 62,081 27,923 (9,354) (127,746)
Cumulative effect of accounting
change................................ -- -- -- (1,707) -- -- -- --
Extraordinary gain, net of income tax... -- -- -- 2,482 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- ---------
Net Income........................ $ 3,952 $ 23,877 $ 16,468 $ 98,880 $ 62,081 $ 27,923 $ (9,354) $(127,746)
======== ======== ======== ======== ======== ======== ======== =========
Net Income (loss) per share --
Basic:
Before cumulative effect of accounting
change and extraordinary gain....... $ .05 $ .32 $ .25 $ 1.50 $ 0.99 $ 0.45 $ (0.15) $ (2.12)
Accounting change..................... -- -- -- (0.03) -- -- -- --
Extraordinary gain, net of income tax.... -- -- -- 0.04 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- ---------
Basic................................... $ .05 $ 0.32 $ 0.25 $ 1.51 $ 0.99 $ 0.45 $ (0.15) $ (2.12)
======== ======== ======== ======== ======== ======== ======== =========
Net Income (loss) per share --
Diluted:
Before cumulative effect of accounting
change and extraordinary gain....... $ 0.05 $ 0.30 $ 0.23 $ 1.26 $ 0.82 $ 0.40 $ (0.15) $ (2.12)
Accounting change..................... -- -- -- (0.02) -- -- -- --
Extraordinary gain, net of income tax.... -- -- -- 0.03 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- ---------
Diluted++............................. $ 0.05 $ 0.30 $ 0.23 $ 1.27 $ 0.82 $ 0.40 $ (0.15) $ (2.12)
======== ======== ======== ======== ======== ======== ======== =========
Weighted average common shares
outstanding:
Basic................................... 79,447 75,127 66,041 65,549 62,593 62,134 61,353 60,171
Diluted................................. 83,034 80,388 70,918 80,684 81,599 80,911 61,353 60,171
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- ---------------
+ Results include revenue of $5.2 million, cost of sales of
$3.5 million, and a cumulative effect of change in
accounting principle of $1.7 million related to a change in
accounting policy as a result of the issuance by the
Securities and Exchange Commission of Staff Accounting
Bulletin No. 101. We also changed our estimate of the amount
of revenue that is deferred on distributor transactions with
limited rights of return. Results include revenue of $5.4
million, cost of sales of $2.0 million and income of $3.4
million related to this change in estimate. Restructuring
costs and other includes income of $12.5 million primarily
related to the receipt of payment for two
previously-reserved notes due from Basis Communications and
$0.9 million of research and development expenses related to
the amortization of acquired intangible assets. We sold our
shares in Basis Communications to Intel for a gain of $78.5
million, and recorded gains of $1.1 million related to the
sale of options in Openwave Systems, Inc. common stock
(formerly known as Phone.com). We recognized a $2.5 million
extraordinary gain, net of income tax, related to the
repurchase, on the open market, of $28.1 million par value
of our 6% convertible notes.
++ Includes $1.8 million of income primarily due to the final
resolution of the MiCRUS restructuring agreement, $0.9
million of research and development expenses related to the
amortization of acquired intangible assets, $1.0 million of
research and development expenses related to compensation
paid in connection with the acquisition of AudioLogic, and
$1.5 million of selling, general and administrative expenses
also related to the compensation paid in connection with the
acquisition of AudioLogic. Includes $1.9 million of gains
related to the sale of options in Openwave Systems common
stock.
+++ Includes $0.9 million of research and development expenses
related to the amortization of acquired intangible assets.
We recognized $3.0 in gains related to the sale of options
in Openwave Systems, Inc. common stock, and recorded a $0.5
million write-off of an investment in a private company.
++++ Includes $0.7 million of research and development expenses
related to the amortization of acquired intangible assets,
$0.5 million related to merger and acquisition activities,
and $2.0 million related to the settlement of a litigation
dispute. Also during the fourth quarter of fiscal 2001, we
recognized gains of $1.1 million related to the sale of
options in Openwave Systems, Inc. common stock and
recognized a net gain of $1.2 million related to the sale of
investments and marketable securities.
* Includes $128.2 million in restructuring charges, $1.0
million of which is in cost of sales, due to the
restructuring of our relationships with our manufacturing
joint venture partners.
** Includes $8.0 million acquired in-process research &
development expenses, which were incurred due to the
acquisition of AudioLogic.
*** Includes $10.2 million in asset abandonment charges due to
the write-off of costs incurred for the manufacturing module
of the enterprise resource planning software. Also, in the
third quarter, we sold a portion of our common stock
interest in Openwave Systems, Inc. for a gain of $34.3
million.
**** Includes gains on the sale of common stock in Openwave
Systems, Inc. and Ambient Technologies for a combined $58.2
million.
++ Diluted earnings per share for the first quarter of fiscal
2001 includes an adjustment to increase net income by $3.7
million and diluted shares outstanding by 15.2 million
shares, which is the quarterly after-tax interest savings
associated with the convertible debt and options that could
have been exercised. Diluted earnings per share for the
third and fourth quarter of fiscal 2000 includes an
adjustment to increase net income by $4.5 million, which is
the quarterly after tax interest savings associated with the
convertible debt.
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LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2001, we generated $1.1 million of cash from operating
activities as opposed to using $180.3 million and $15.8 million of cash from
operating activities during fiscal 2000 and 1999, respectively. The cash
generated in operations in fiscal 2001 was primarily the result of operating
profits offset by increases in accounts receivable and inventory of $43.4
million and $55.9 million, respectively. The cash used in fiscal 2000 was
primarily due to a net loss of $139.6 million (excluding gains from the sale of
securities of $92.5 million) combined with a $79.4 million reduction in accounts
payable. The fiscal 1999 decrease in operating cash flow was primarily due to
the net loss of $427.4 million realized in fiscal 1999, $292.3 million of which
was related to non-cash transactions unique to fiscal 1999. The remaining
decrease related to an increase in payments during the year for accounts payable
and accrued liabilities offset by lower collections of accounts receivable due
to the decrease in sales during fiscal 1999.
We generated $114.4 and $184.5 million from investing activities in fiscal
2001 and fiscal 2000, respectively. We used cash of $31.7 million in investing
activities during fiscal 1999. During fiscal 2001 and fiscal 2000, we sold $89.4
million of common stock investments. Also, the release of $47.2 million of
restricted cash due to reduced lease commitments provided additional funding in
fiscal 2001. These increases were partially offset by investments of $22.9
million in new equipment and technology licenses. During fiscal 2000, we sold
$74.6 million of short-term investments. We also sold approximately two-thirds
of our holdings in the common stock of Phone.com, and our interest in Ambient
Technologies for a combined $92.5 million. In addition, we sold our interest in
the Cirent manufacturing facility for $14 million. Additionally, the release of
$29.1 million of restricted cash due to reduced lease commitments provided
additional funding. These increases were partially offset by investments of
$27.0 million into new equipment, software and an ERP system. Cash used by
investing activities for 1999 related to proceeds received from the sale of
assets and termination of the UMC agreement and were offset by the manufacturing
agreement and payments to joint ventures.
Net cash used in financing activities was $6.4 million, $4.6 million, and
$115.3 million in fiscal 2001, 2000, and 1999, respectively. We used cash for
financing activities in fiscal 2001 for the repurchase of convertible
subordinated notes and payments on long term debt and capital lease obligations.
These uses of cash were partially offset in fiscal 2001 by cash provided from
employee stock option exercises. We used cash for financing activities in fiscal
2000 for payments on long term debt and capital lease obligations which was
partially offset by cash provided from employee stock option exercises. Cash
used in financing activities for fiscal 1999 was primarily due to our repurchase
of $100.1 million worth of treasury stock, as well as payments on long-term
debt.
As of March 31, 2001, we have issued a $9 million letter of credit secured
by $10 million cash. The letter of credit was issued to secure certain of our
obligations under our lease agreement for a new headquarters facility in Austin,
Texas. The cash collateral for this letter of credit is classified as restricted
cash.
Although we can not assure that we will be able to generate cash in the
future, we anticipate that our existing capital resources and cash flow
generated from future operations will enable us to maintain our current level of
operations for the foreseeable future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks associated with interest rates on our debt
investment securities, equity price risk on investment securities, and currency
movements on non-U.S. dollar denominated assets and liabilities. We assess these
risks on a regular basis and have established policies to protect against the
adverse effects of these and other potential exposures. All of the potential
changes noted below are based on sensitivity analyses at March 31, 2001. Actual
results may differ materially.
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29
INTEREST RATE RISK
At March 31, 2001, our marketable securities consisted of short-term, fixed
rate securities. An immediate 10% change in interest rates would not have a
material effect on either the fair value of our investments or our results of
operations.
EQUITY PRICE RISK
We are exposed to price risk on publicly traded equity investment
securities. A 10% change in the value of the related securities would not have a
material effect on our operations.
FOREIGN CURRENCY EXCHANGE RISK
A majority of our revenue and spending is transacted in U.S. dollars;
however, we do enter into transactions in other currencies, primarily Japanese
yen through our Japanese subsidiary. We repatriate these amounts on a quarterly
or monthly basis, depending on underlying accounts receivable collections. We
attempt to limit our exposure to changing foreign exchange rates through
financial market instruments, principally through foreign exchange forward
contracts. The foreign exchange contracts are "marked to market" on a monthly
basis based upon fluctuations of the underlying currency in relation to the U.S.
dollar, and the gains or losses are reflected in operations.
During fiscal 2001 and 2000, we entered into various foreign currency
forward contracts to mitigate the foreign exchange risk of certain
yen-denominated net balance sheet accounts and sales. As of March 31, 2001, we
had 10 foreign currency forward exchange contracts outstanding to purchase $22.1
million at an average exchange rate of 118 Japanese yen per dollar. As of March
25, 2000, we did not have any foreign exchange contracts outstanding.
At March 31, 2001, an immediate 10% change in the value of the Japanese yen
relative to the U.S. dollar would not have a material effect on our results of
operations. In addition to the direct effects of changes in exchange rates on
the value of the exchange contracts, changes in exchange rates can also affect
the volume of sales or the foreign currency sales prices of our products. The
Company's sensitivity analysis of the effects of changes in foreign currency
exchange rates does not factor in a potential change in sales levels or local
currency sales prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K
---------
Report of Independent Auditors.............................. 28
Consolidated Balance Sheets as of March 31, 2001 and March
25, 2000.................................................. 29
Consolidated Statements of Operations for the fiscal years
ended March 31, 2001, March 25, 2000, and March 27,
1999...................................................... 30
Consolidated Statements of Cash Flows for the fiscal years
ended March 31, 2001, March 25, 2000, and March 27,
1999...................................................... 31
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency) for the fiscal years ended March 31, 2001,
March 25, 2000, and March 27, 1999........................ 32
Notes to Consolidated Financial Statements.................. 33 to 52
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cirrus Logic, Inc.
We have audited the accompanying consolidated balance sheets of Cirrus
Logic, Inc. as of March 31, 2001 and March 25, 2000, and the related
consolidated statements of operations, stockholders' equity (net capital
deficiency), and cash flows for each of the three fiscal years in the period
ended March 31, 2001. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cirrus Logic,
Inc. at March 31, 2001 and March 25, 2000, and the consolidated results of its
operations and its cash flows for each of the three fiscal years in the period
ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Austin, Texas
April 30, 2001
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31
CIRRUS LOGIC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, MARCH 25,
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 253,136 $ 144,034
Restricted cash........................................... 10,000 57,173
Marketable equity securities.............................. 6,581 48,077
Accounts receivable, less allowance for doubtful accounts
of $2,200 in 2001 and $3,870 in 2000.................... 136,102 94,672
Inventories, net.......................................... 109,161 53,288
Other current assets...................................... 18,217 23,421
--------- ---------
Total current assets............................... 533,197 420,665
Property and equipment, at cost:
Machinery and equipment................................... 171,899 159,404
Furniture and fixtures.................................... 12,405 11,903
Leasehold improvements.................................... 20,593 20,063
--------- ---------
204,897 191,370
Less accumulated depreciation and amortization............ (172,557) (156,640)
--------- ---------
Property and equipment, net........................ 32,340 34,730
Other assets................................................ 32,468 49,437
--------- ---------
$ 598,005 $ 504,832
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 77,899 $ 87,970
Accrued salaries and benefits............................. 15,519 12,578
Current maturities of long-term debt and capital lease
obligations............................................. 3,133 12,829
Income taxes payable...................................... 41,053 40,193
Deferred revenues......................................... 9,765 13,989
Other accrued liabilities................................. 12,071 16,030
--------- ---------
Total current liabilities.......................... 159,440 183,589
Capital lease obligations................................... -- 321
Long-term debt.............................................. 336 3,147
Other long-term liabilities................................. 3,983 2,477
Convertible subordinated notes.............................. -- 299,000
Commitments and contingencies
Stock issued under the restructuring agreement with IBM..... -- 32,000
Minority interest in eMicro................................. 1,703 --
Stockholders' Equity (Net capital deficiency):
Series A Participating Preferred Stock, $0.001 par value;
1,500 shares authorized, none issued.................... -- --
Common stock, $0.001 par value, 280,000 shares authorized,
79,704 shares issued and outstanding in 2001 and 63,306
outstanding in 2000..................................... 80 63
Additional paid-in capital................................ 715,710 367,952
Accumulated deficit....................................... (287,825) (431,001)
Accumulated other comprehensive income.................... 4,578 47,284
--------- ---------
Total Stockholders' equity (net capital
deficiency)....................................... 432,543 (15,702)
--------- ---------
$ 598,005 $ 504,832
========= =========
The accompanying notes are an integral part of these financial statements.
29
32
CIRRUS LOGIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEARS ENDED
----------------------------------
MARCH 31, MARCH 25, MARCH 27,
2001 2000 1999
--------- --------- ----------
Net sales.................................................. $778,673 $ 564,400 $ 628,105
Costs and expenses:
Cost of sales............................................ 486,355 338,308 680,088
Research and development................................. 127,599 121,410 149,756
Selling, general and administrative...................... 109,629 91,706 101,807
Gain on sale of assets, net.............................. -- -- (3,988)
Restructuring costs and other, net....................... (14,362) 125,612 80,505
Abandonment of assets charge............................. -- 12,201 --
Acquired in-process research and development expenses.... -- 8,013 --
-------- --------- ----------
Total costs and expenses......................... 709,221 697,250 1,008,168
-------- --------- ----------
Income (loss) from operations.............................. 69,452 (132,850) (380,063)
Realized gain on the sale of marketable equity
securities............................................... 86,886 92,463 --
Interest expense........................................... (11,759) (23,754) (22,337)
Interest income............................................ 18,168 8,096 16,786
Other income (expense)..................................... (4,928) 8,949 4,242
-------- --------- ----------
Income (loss) before provision for income taxes............ 157,819 (47,096) (381,372)
Provision for income taxes................................. 15,715 -- 46,031
Minority interest in loss of eMicro........................ ( 297) -- --
-------- --------- ----------
Income (loss) before extraordinary gain and accounting
change................................................... 142,401 (47,096) (427,403)
Extraordinary gain, net of income taxes of $276............ 2,482 -- --
Cumulative effect of change in accounting principle........ (1,707) -- --
-------- --------- ----------
Net income (loss).......................................... $143,176 $ (47,096) $ (427,403)
======== ========= ==========
Basic net income (loss) per share:
Before extraordinary gain and accounting change.......... $ 1.99 $ (0.77) $ (6.77)
Extraordinary gain, net of income tax................. 0.03 -- --
Cumulative effect of change in accounting principle... (0.02) -- --
-------- --------- ----------
$ 2.00 $ (0.77) $ (6.77)
======== ========= ==========
Diluted net income (loss) per share:
Before extraordinary gain and accounting change.......... $ 1.85 $ (0.77) $ (6.77)
Extraordinary gain, net of income tax................. 0.03 -- --
Cumulative effect of change in accounting principle... (0.02) -- --
-------- --------- ----------
$ 1.86 $ (0.77) $ (6.77)
======== ========= ==========
Weighted average common shares outstanding:
Basic.................................................... 71,678 61,554 63,149
Diluted.................................................. 82,654 61,554 63,149
Proforma amounts assuming the change in accounting
principle is applied retroactively:
Net income (loss)........................................ $144,883 $ (47,432) $ (428,143)
Basic net income (loss) per share........................ 2.02 (0.77) $ (6.78)
Diluted net income (loss) per share...................... 1.88 (0.77) $ (6.78)
The accompanying notes are an integral part of these financial statements.
30
33
CIRRUS LOGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
MARCH 31, MARCH 25, MARCH 27,
2001 2000 1999
--------- --------- ---------
Cash flows from operating activities:
Net income (loss)......................................... $143,176 $ (47,096) $(427,403)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization........................... 29,127 32,218 62,281
Deferred tax asset valuation allowance.................. -- -- 46,698
Non-cash portion of restructuring charges............... -- 30,768 52,147
Write-off and write-down of property and equipment...... 825 12,201 5,029
Write-off of manufacturing payments and advances for
equipment and leasehold improvements to joint
ventures.............................................. -- -- 188,386
Write-off investment in technology...................... 1,500 -- --
Gain on sale of assets.................................. -- -- (3,988)
Acquired in-process research and development expenses... -- 8,013 --
Gain on sale of marketable equity securities............ (86,886) (92,463) --
Compensation related to the issuance of certain employee
stock options and restricted stock.................... 347 4,008 1,781
Extraordinary gain, net of income tax................... (2,482) -- --
Minority interest in loss of eMicro..................... (297) -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... (43,397) (28,338) 36,963
Inventories............................................. (55,873) (12,856) 54,936
Funds received for joint venture equipment leased,
net................................................... -- -- 32,676
Other assets............................................ 10,204 (5,002) (5,381)
Accounts payable........................................ (10,071) (79,418) (38,221)
Accrued salaries and benefits........................... 2,941 (4,128) (29,130)
Income taxes payable.................................... 12,830 3,600 (1,460)
Other accrued liabilities............................... (863) (1,837) 8,886
-------- --------- ---------
Net cash provided by (used in) operations................... 1,081 (180,330) (15,800)
-------- --------- ---------
Cash flows from investing activities:
Purchase of investments................................... -- -- (215,405)
Proceeds from sale of short term investments.............. -- 74,616 266,167
Proceeds from sale of equity investments.................. 89,354 92,956 --
Proceeds from sale of assets, net......................... -- -- 4,273
(Increase) decrease in manufacturing agreements and
investment in joint venture............................. -- 14,000 (7,500)
Additions to property and equipment....................... (18,461) (8,412) (12,665)
Investments in technology................................. (4,395) -- --
Change in deposits and other assets....................... 773 (18,558) (20,521)
Cash acquired from AudioLogic, Inc. acquisition, net of
cash costs.............................................. -- 841 --
(Increase) decrease in restricted cash.................... 47,173 29,104 (46,040)
-------- --------- ---------
Net cash provided by (used in) investing activities......... 114,444 184,547 (31,691)
-------- --------- ---------
Cash flows from financing activities:
Repurchase of convertible subordinated notes.............. (25,811) -- --
Payments on long-term debt................................ (11,610) (20,854) (21,287)
Payments on capital lease obligations..................... (1,136) (1,542) (5,508)
Unrealized foreign currency translation................... (719) 940 232
Borrowings on short-term debt............................. -- 200 --
Issuance of common stock, net of issuance costs........... 27,853 16,616 11,412
Repurchase and retirement of common stock................. -- -- (100,085)
Cash contributions from minority partners................. 5,000 -- --
-------- --------- ---------
Net cash used in financing activities....................... (6,423) (4,640) (115,236)
-------- --------- ---------
Net (decrease) increase in cash and cash equivalents........ 109,102 (423) (162,727)
Cash and cash equivalents at beginning of year.............. 144,034 144,457 307,184
-------- --------- ---------
Cash and cash equivalents at end of year.................... $253,136 $ 144,034 $ 144,457
======== ========= =========
Non-cash investing and financing activities:
Acquisition of AudioLogic, Inc. for common stock.......... $ -- $ 22,712 $ --
Cash payments (refunds) for:
Interest.................................................. $ 10,491 $ 22,641 $ 23,724
Income taxes.............................................. $ 2,801 $ (3,600) $ 1,116
The accompanying notes are an integral part of these financial statements.
31
34
CIRRUS LOGIC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(IN THOUSANDS)
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS OTHER
--------------- PAID-IN (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) INCOME (LOSS) TOTAL
------ ------ ---------- ------------ ------------- ---------
Balance, March 28, 1998............. 68,175 $ 68 $368,554 $ 89,429 $ (1,708) $ 456,343
Components of comprehensive income
(loss):
Net loss.......................... -- -- -- (427,403) -- (427,403)
Change in unrealized gain on
foreign currency translation
adjustments..................... -- -- -- -- 232 232
---------
Total comprehensive income
(loss).......................... -- -- -- -- -- (427,171)
---------
Issuance of stock under stock
plans........................... 1,636 2 11,410 -- -- 11,412
Repurchase of Common Stock........ (9,708) (10) (54,144) (45,931) -- (100,085)
Compensation related to the
issuance of certain employee
options......................... -- -- 1,781 -- -- 1,781
------ ---- -------- --------- -------- ---------
Balance, March 27, 1999............. 60,103 60 327,601 (383,905) (1,476) (57,720)
Components of comprehensive income
(loss):
Net loss.......................... -- -- -- (47,096) -- (47,096)
Unrealized gain on marketable
equity securities............... -- -- -- -- 47,820 47,820
Change in unrealized gain on
foreign currency translation
adjustments..................... -- -- -- -- 940 940
---------
Total comprehensive income
(loss).......................... -- -- -- -- -- 1,664
---------
Issuance of stock under stock
plans........................... 1,993 2 16,614 -- -- 16,616
Issuance of stock for acquisition
of AudioLogic, Inc. ............ 1,210 1 22,711 -- -- 22,712
Compensation related to the
issuance of certain employee
options......................... -- -- 1,026 -- -- 1,026
------ ---- -------- --------- -------- ---------
Balance, March 25, 2000............. 63,306 63 367,952 (431,001) 47,284 (15,702)
Components of comprehensive income:
Net income........................ -- -- -- 143,176 -- 143,176
Change in unrealized gain on
marketable equity securities.... -- -- -- -- (41,987) (41,987)
Change in unrealized gain on
foreign currency translation
adjustments..................... -- -- -- -- (719) (719)
---------
Total comprehensive income........ -- -- -- -- -- 100,470
---------
Issuance of stock under stock
plans........................... 2,835 4 27,849 -- -- 27,853
Tax benefit of stock option
exercises....................... -- -- 11,970 -- -- 11,970
Interest in cash contributed to
eMicro by minority partners..... -- -- 3,000 -- -- 3,000
Stock issued under the
restructuring agreement with
IBM............................. 2,382 2 31,998 -- -- 32,000
Conversion of convertible debt.... 11,181 11 272,594 -- -- 272,605
Compensation related to the
issuance of certain employee
options......................... -- -- 347 -- -- 347
------ ---- -------- --------- -------- ---------
Balance, March 31, 2001............. 79,704 $ 80 $715,710 $(287,825) $ 4,578 $ 432,543
====== ==== ======== ========= ======== =========
The accompanying notes are an integral part of these financial statements.
32
35
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Founded in 1984 in Silicon Valley, Cirrus Logic is a leading supplier of
high-performance analog and DSP chip solutions for Internet entertainment
electronics, analog and magnetic markets. The Company designs and manufactures
integrated circuits, or chips, that use high-performance analog and digital
signal processing technologies. Our mixed signal devices are designed for
specific markets that derive value from our expertise in advanced mixed-signal
design processing, systems-level engineering and software knowledge. Our
products, sold under our own name and the Crystal(R), Maverick(R), and 3CI(TM)
product brands, enable our customers to quickly deliver leading-edge technology
products that are in high demand from consumers.
In February 1999, the Company was reincorporated in the State of Delaware.
In the first quarter of fiscal year 2002, we announced that we would be
focusing our business on consumer-entertainment electronics, with strength in
analog and DSP technologies. We also announced that we would be de-emphasizing
our magnetic storage chip business.
Basis of Presentation
The Company prepares financial statements on a 52- or 53-week year that
ends on the Saturday closest to March 31. Fiscal year 2001 ended on March 31,
2001, fiscal year 2000 on March 25, 2000, and fiscal year 1999 on March 27,
1999. Fiscal year 2001 has 53 weeks presented whereby fiscal years 2000 and 1999
have 52 weeks presented.
Principles of Consolidation and Foreign Currency Translation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Accounts
denominated in foreign currencies of subsidiaries with a U.S. dollar functional
currency have been remeasured in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, "Foreign Currency Translation," in net
income. Translation adjustments relating to Cirrus Logic K.K. and eMicro
Corporation, whose functional currencies are the Japanese yen and Singapore
dollar, respectively, are included as components of stockholders' equity and
comprehensive income (loss).
Use of Estimates
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the use of
management estimates and assumptions that affect the reported amounts of assets
and liabilities, and related disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Estimates are used for, but not limited
to, the accounting for doubtful accounts, inventory reserves, depreciation and
amortization, sales returns, taxes and contingencies. Actual results could
differ from these estimates.
Cash, Cash Equivalents and Restricted Cash
Cash, restricted cash and cash equivalents consist primarily of overnight
deposits, commercial paper, U.S. Government Treasury and Agency instruments with
original maturities of three months or less at the date of purchase, and money
market funds.
Marketable Securities
We determine the appropriate classification of marketable debt and equity
securities at the time of purchase as either held-to-maturity, trading or
available-for-sale in accordance SFAS No. 115, "Accounting
33
36
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for Certain Investments in Debt and Equity Securities." We reevaluate such
designation as of each balance sheet date. All marketable securities for fiscal
2001 and fiscal 2000 were classified as available-for-sale securities.
Available-for-sale securities, which include investments in marketable
equity securities, are carried at fair value, with unrealized gains and losses,
net of tax, included as a component of stockholders' equity and comprehensive
income (loss). Realized gains and losses, declines in value judged to be other
than temporary, and interest on available-for-sale securities are included in
net income.
Foreign Exchange Contracts
We enter into foreign currency forward exchange and option contracts to
mitigate certain of our foreign currency exposures, primarily expected cash
flows of our Japanese subsidiary. Foreign currency contracts are typically
entered into for a period of four months. The transactions are marked to market
monthly, and the cumulative gains or losses are recognized in net income.
During fiscal 2001, 2000 and 1999, we purchased foreign currency option
contracts to hedge certain yen exposures. As of March 31, 2001, we had 10
foreign currency forward exchange contracts to purchase $22.1 million at an
average forward exchange rate of 118 Japanese yen per dollar. As of March 25,
2000, we did not have any foreign exchange contracts outstanding.
While the contract amounts provide one measure of the volume of the
transactions outstanding at March 31, 2001 and March 25, 2000, they do not
represent the amount of our exposure to credit risk. Our exposure to credit risk
(arising from the possible inability of the counterparties to meet the terms of
their contracts) is generally limited to the amount, if any, by which the
counterparty's obligations exceed our obligations. As of March 31, 2001, the
fair value of the open contracts was $1.2 million.
We realized transaction gains on yen option contracts of $0.4 million in
fiscal 2001. Transaction gains and losses were not material in fiscal 2000 or
1999.
Risks and Uncertainties
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
investments, foreign currency exchange contracts and trade accounts receivable.
We are exposed to credit risk to the extent of the amounts recorded on the
balance sheet. By policy, we place our cash equivalents and foreign currency
exchange contracts only with high credit quality financial institutions and,
other than U.S. Government Treasury instruments, limit the amounts invested in
any one institution or in any type of instrument. We perform ongoing credit
evaluations of our customers' financial condition, limit our exposure to
accounting losses by limiting the amount of credit extended whenever deemed
necessary, utilize letters of credit where appropriate and available, and
generally do not require collateral from our customers. We sell a significant
amount of products in the Pacific Rim and Japan. Our exposure to risk with Asian
customers has been largely mitigated through the use of letters of credit.
34
37
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes of the changes in the allowance for doubtful
accounts (in thousands):
Balance, March 28, 1998.................................... $11,176
Additions charged to costs and expenses.................. --
Write-off of uncollectible accounts, net of recoveries... (1,880)
-------
Balance, March 27, 1999.................................... 9,296
-------
Additions charged to costs and expenses.................. 357
Write-off of uncollectible accounts, net of recoveries... (5,783)
-------
Balance, March 25, 2000.................................... 3,870
-------
Additions (release) charged to costs and expenses........ (1,670)
Write-off of uncollectible accounts, net of recoveries... --
-------
Balance, March 31, 2001.................................... $ 2,200
=======
Property and Equipment
Property and equipment is recorded at cost, net of depreciation and
amortization. Depreciation and amortization is on a straight-line basis over
estimated useful lives, ranging from three to seven years, or over the life of
the lease for equipment under capitalized leases, if shorter. Leasehold
improvements are amortized over the term of the lease or their estimated useful
life, whichever is shorter. Depreciation and amortization expense for property
and equipment for fiscal years 2001, 2000, and 1999 was $17.7 million, $27.8
million, and $37.0 million, respectively.
Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," we recognize
impairment losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. We measure any
impairment loss by comparing the fair value of the asset to its carrying amount.
We estimate fair value based on discounted future cash flows.
Wafer Purchase Commitments
We rely on third-party wafer fabricators for our wafer manufacturing needs.
During the 1990s, we formed two joint ventures to expand our wafer supply
sources by taking direct ownership interests in wafer manufacturing entities. In
fiscal 2000 and 1999, we terminated these ventures and returned to the fabless
business model. Our contracts with the third party wafer fabricators only commit
us to product that we have ordered.
In addition to our wafer supply arrangements, we currently contract with
third-party assembly vendors to package the wafer die into finished products. We
qualify and monitor assembly vendors using procedures similar in scope to those
used for wafer procurement. Assembly vendors provide fixed-cost-per-unit
pricing, as is common in the semiconductor industry.
Revenue Recognition
Revenue from product sales direct to customers is recognized upon customer
receipt and title passage of inventory. Sales made to certain distributors are
under agreements allowing rights of return and price protection on products
unsold by distributors. Accordingly, we defer revenue and gross profit on such
sales until the product is sold by the distributors and customer acceptance and
passage of title occurs. Shipping and handling costs are included in cost of
goods sold.
35
38
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." We
recorded a cumulative effect of a change in accounting principle in the first
quarter of fiscal 2001 to reflect our adoption of new revenue recognition
policies as a result of this guidance. Effective with the first quarter of
fiscal 2001, we have recognized revenue on international shipments based on
customer receipt and title passage of inventory rather than on the date of
shipment, which was our historical method. The cumulative effect of the change
for prior years resulted in a charge to income of $1.7 million. The effect of
the change for the fiscal year 2001 was to increase revenue $5.2 million,
increase cost of sales $3.5 million, increase income before extraordinary gain
and net income before the change in accounting principle $1.7 million, and
increase basic and diluted earnings per share by $.02 per share.
During the first quarter of fiscal 2001, we also changed our estimate of
the amount of revenue that is deferred on certain distributor transactions under
agreements with only limited rights of return. Results for the fiscal period
ended March 31, 2001 include revenue of $5.4 million, cost of sales of $2.0
million and income of $3.4 million related to this change in estimate. The
effect of this estimate change increased basic and diluted earnings per share by
$0.03 for the fiscal year ended March 31, 2001.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising costs were
$2.3 million, $2.2 million, and $3.3 million in fiscal years 2001, 2000, and
1999, respectively.
Stock-Based Compensation
We account for stock-based awards to employees using the intrinsic value
method in accordance with Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation cost
has been recognized for our fixed cost stock option plans or our associated
stock purchase plan when the exercise price is equal to the fair value on the
date of grant. We provide additional pro forma disclosures as required under
SFAS No. 123, "Accounting for Stock-Based Compensation" (See Note 15).
On March 31, 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, which is an interpretation of APB No. 25, governing
accounting principles applicable to equity incentive plans. The interpretation
did not have a material impact on our results of operations or financial
condition.
Income Taxes
SFAS No. 109, "Accounting for Income Taxes," provides for the recognition
of deferred tax assets if realization of such assets is more likely than not. We
have provided a valuation allowance equal to our net deferred tax assets due to
uncertainties regarding their realization. We evaluate the realizability of our
deferred tax assets on a quarterly basis.
Reclassifications
Certain reclassifications have been made to the 2000 and 1999 financial
statements to conform to the 2001 presentation. Such reclassifications had no
effect on the results of operations or stockholders' equity.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued and is effective April 1, 2001. It requires that
all derivatives be marked-to-market on an ongoing basis. This applies to
stand-alone derivative instruments, such as forward currency exchange contracts
and also embedded derivatives acquired after 1998. Under SFAS No. 133, certain
special hedge accounting is available
36
39
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
if hedge criteria are met. Adoption of SFAS No. 133 on April 1, 2001 is not
expected to have a material impact.
3. INVENTORIES
We use the lower of cost or market method to value our inventories. One of
the factors we consistently evaluate in application of this method is the extent
to which products are accepted into the marketplace. By policy, we evaluate
market acceptance based on known business factors and conditions by comparing
forecasted customer unit demand for our products over a specific future period
or demand horizon to quantities on hand at the end of each accounting period.
On a quarterly and annual basis, we analyze inventories on a part-by-part
basis. Inventory quantities on hand in excess of forecasted demand, as adjusted
by management, are considered to have reduced market value and, therefore, the
cost basis is adjusted to the lower of cost or market. Typically, market value
for excess or obsolete inventories is considered to be zero. The short product
life cycles and the competitive nature of the industry are factors considered in
the estimation of customer unit demand at the end of each quarterly accounting
period.
We produce inventory based on orders received and forecasted demand. We
must order wafers and build inventory well in advance of product shipments.
Because our markets are volatile and subject to rapid technology and price
changes, there is a risk that we will forecast incorrectly and produce excess or
insufficient inventories of particular products. This inventory risk is
heightened because many of our customers place orders with short lead times.
Demand will differ from forecasts and such differences may have a material
effect on actual results of operations.
Inventories are comprised of the following (in thousands):
MARCH 31, MARCH 25,
2001 2000
--------- ---------
Work-in process............................................. $ 81,272 $44,539
Finished goods.............................................. 27,889 8,749
-------- -------
$109,161 $53,288
======== =======
Prior to the third quarter of fiscal 2001, we recognized inventory being
manufactured by third-party wafer fabricators, but not yet received, as a
liability prior to our acceptance of the inventory. This liability was
recognized because of our joint venture relationships and other contractual
obligations with certain suppliers. The agreements with those suppliers have now
expired and therefore the inventory and liability are no longer included in the
balance sheet.
37
40
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NET INCOME PER SHARE
Basic and diluted net income (loss) per share is calculated in accordance
with SFAS No. 128, "Earnings per Share".
The following table sets forth the computation of basic and diluted net
income (loss) per share (in thousands, except per share amounts):
MARCH 31, MARCH 25, MARCH 27,
2001 2000 1999
--------- --------- ---------
Numerator:
Income (loss) before extraordinary gain and
accounting change.............................. $142,401 $(47,096) $(427,403)
Extraordinary gain, net of tax.................... 2,482 -- --
Cumulative effect of change in accounting
principle...................................... (1,707) -- --
-------- -------- ---------
Net income (loss)................................. 143,176 (47,096) (427,403)
-------- -------- ---------
Effect of convertible subordinated notes.......... 10,806 -- --
-------- -------- ---------
Net income (loss) including assuming conversion of
subordinated notes............................. $153,982 $(47,096) $(427,403)
======== ======== =========
Denominator:
Denominator for basic net income (loss) per
share -- weighted-average shares outstanding... 71,678 61,554 63,149
Assumed conversion of convertible subordinated
notes.......................................... 6,410 -- --
Dilutive effect of stock options outstanding...... 4,566 -- --
-------- -------- ---------
Denominator for diluted net income (loss) per
share.......................................... 82,654 61,554 63,149
======== ======== =========
Basic net income (loss) per share:
Before extraordinary gain and accounting change... $ 1.99 $ (0.77) $ (6.77)
Extraordinary gain................................ 0.03 -- --
Cumulative effect of change in accounting
principle...................................... (0.02) -- --
-------- -------- ---------
Basic income (loss) per share....................... $ 2.00 $ (0.77) $ (6.77)
======== ======== =========
Diluted income (loss) per share:
Before extraordinary gain and accounting change... $ 1.85 $ (0.77) $ (6.77)
Extraordinary gain................................ 0.03 -- --
Cumulative effect of change in accounting
principle...................................... (0.02) -- --
-------- -------- ---------
Diluted income (loss) per share..................... $ 1.86 $ (0.77) $ (6.77)
======== ======== =========
Incremental common shares attributable to the exercise of outstanding
options of 4,566,000, 2,298,000, and 5,836,000 shares as of March 31, 2001,
March 25, 2000, and March 27, 1999, respectively, were excluded from the
computation of diluted net income (loss) per share because the effect would be
antidilutive. Also included in diluted earnings per share for fiscal 2001 is an
adjustment to increase net income by $10.8 million and diluted shares by
6,410,000 million, which is the after-tax interest savings and shares which were
issued in connection with the convertible debt.
As of March 25, 2000, the Company had outstanding convertible notes to
purchase approximately 12,387,000 shares of common stock that were not included
in the computation of diluted net income (loss) per share because the effect
would have been antidilutive. These notes converted to common stock during
fiscal 2001. See Note 10.
38
41
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, approximately 2.3 million shares issued as part of the
divestiture of the MiCRUS manufacturing joint venture (see Note 13) were
excluded from the computation of diluted net loss per share for the year ended
March 25, 2000 because the effect would have been antidilutive.
5. FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments
We used the following methods and assumptions to estimate our fair value
disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
Marketable securities: The fair values for marketable debt and equity
securities are based on quoted market prices.
Foreign currency exchange and option contracts: We estimated the fair
values of our foreign currency exchange forward and option contracts based
on quoted market prices of comparable contracts, adjusted through
interpolation where necessary for maturity differences.
Long-term debt: We estimated the fair value of long-term debt based
on estimated current market rates for debt instruments with similar terms
and remaining maturities. We based the fair value of the subordinated notes
upon quoted market prices.
The carrying amounts and fair values of our financial instruments at March
31, 2001 are as follows (in thousands):
CARRYING
AMOUNT FAIR VALUE
-------- ----------
Cash........................................................ $222,048 $222,048
Marketable securities:
Commercial paper.......................................... 41,088 41,266
Marketable equity securities.............................. 6,581 6,581
Foreign exchange contracts.................................. 1,178 1,178
Long-term debt and capital lease obligations................ 3,469 3,469
The carrying amounts and fair values of our financial instruments at March
25, 2000 are as follows (in thousands):
CARRYING
AMOUNT FAIR VALUE
-------- ----------
Cash........................................................ $148,238 $148,238
Marketable securities:
Commercial paper.......................................... 30,205 30,398
US Government Agency instruments.......................... 22,764 22,949
Marketable equity securities.............................. 48,077 48,077
Long-term debt.............................................. 315,297 318,695
At March 31, 2001, all available-for-sale debt securities have contractual
maturities of less than one year. Gross realized and unrealized gains and losses
on all classes of debt securities were immaterial at and for the periods ended
March 31, 2001 and March 25, 2000. Unrealized gains on marketable equity
securities were $6 million at March 31, 2001 and $48 million at March 25, 2000.
39
42
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACQUISITION OF AUDIOLOGIC, INC.
On July 27, 1999, we acquired AudioLogic, Inc. (AudioLogic), a
Colorado-based company specializing in low power mixed-signal integrated circuit
design for approximately 1.2 million shares of Cirrus Logic common stock. In
addition, each outstanding, unexercised option in AudioLogic granted under the
AudioLogic 1992 Stock Option Plan was exchanged for an option to purchase the
common stock of Cirrus Logic.
The aggregate initial purchase price of $22.7 million was allocated
primarily to various intangible assets. Management estimated that $8.0 million
of the purchase price represented purchased in-process technology that had not
yet reached technological feasibility and had no alternative future use.
Accordingly, this amount was expensed in fiscal year 2000.
As part of the stock transaction, we guaranteed the value of the shares and
unexercised options would be at least $25 million on the one-year anniversary of
the closing. We valued the per share consideration paid for AudioLogic based on
the price of our stock on the closing date of the transaction, combined with the
discounted difference between the guaranteed price per share and the price per
share on the closing date. Based on the value of our stock on the one-year
anniversary date of the completion of the transaction, we issued an additional
66,185 shares in fiscal 2001.
7. JOINT VENTURE
During fiscal 2001, we signed a definitive agreement with Creative
Technology Ltd. (Creative) and Vertex Technology Fund (II) Ltd. (Vertex),
whereby Creative and Vertex made investments in eMicro Corporation (eMicro), a
fabless joint manufacturing venture based in Singapore in which we have a 75%
interest. Under the terms of the agreement, eMicro is a licensee of our
proprietary circuits and a strategic supplier of audio codecs and other
mixed-signal chip solutions to Creative. We consolidate the amounts of eMicro in
our financial statements.
8. OBLIGATIONS UNDER CAPITAL LEASES
We have capital lease agreements for machinery and equipment as follows (in
thousands):
MARCH 31, MARCH 25,
2001 2000
--------- ---------
Capitalized cost............................................ $ 19,736 $ 19,736
Accumulated amortization.................................... (19,415) (18,501)
-------- --------
Total............................................. $ 321 $ 1,235
======== ========
Amortization expense on assets capitalized under capital lease obligations
is included in depreciation and amortization. The lease agreements are secured
by the leased property.
Future minimum lease payments under capital leases, together with the
present value of the net minimum lease payments as of March 31, 2001, are $.3
million. All minimum lease payments are due in fiscal year 2002.
40
43
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
MARCH 31, MARCH 25,
2001 2000
--------- ---------
Installment notes with interest rates ranging from 6.12% to
9.47%..................................................... $ 3,147 $ 14,840
Less current maturities..................................... (2,811) (11,693)
------- --------
Long-term debt, all due in fiscal 2003...................... $ 336 $ 3,147
======= ========
10. CONVERTIBLE SUBORDINATED NOTES
During May 2000, we repurchased in the open market $28.1 million aggregate
principal amount of our 6% Convertible Subordinated Notes. We recognized a $2.5
million extraordinary gain, net of tax, as a result of these repurchases. On
September 25, 2000, we entered into an agreement to issue 990,967 shares of
common stock and to pay $0.1 million to holders of $24 million aggregate
principal amount of our 6% Convertible Subordinated Notes. In October and
November 2000, a total of $246.9 million aggregate principal amount of our 6%
Convertible Subordinated Notes and accrued interest were converted into
10,189,703 shares of our common stock by the holders of the notes. As a result
of these conversions, stockholders' equity increased $272.6 million.
11. BANK ARRANGEMENTS
As of March 31, 2001, we have issued a $9 million letter of credit secured
by $10 million cash. The letter of credit was issued to secure certain of our
obligations under our lease agreement for a new headquarters facility in Austin,
Texas. The cash collateral for this letter of credit is classified as restricted
cash.
12. COMMITMENTS
Facilities and Equipment Under Operating Lease Agreements
The Company leases its facilities and certain equipment under operating
lease agreements, some of which have renewal options. Certain of these
arrangements provide for lease payment increases based upon future fair market
rates. During fiscal 2001, we entered in to an operating lease for approximately
192,000 square feet of office space in Austin, Texas, where we will be
relocating our headquarters facility tentatively scheduled for 2002.
The aggregate minimum future rental commitments under all operating leases
for the following fiscal years are (in thousands):
NET FACILITIES EQUIPMENT TOTAL
FACILITIES SUBLEASES COMMITMENTS COMMITMENTS COMMITMENTS
---------- --------- -------------- ----------- -----------
2002....................... $ 8,932 $ 6,230 $ 2,702 $143 $ 2,845
2003....................... 11,830 6,150 5,680 18 5,698
2004....................... 13,939 6,318 7,621 -- 7,621
2005....................... 13,177 5,468 7,709 -- 7,709
2006....................... 12,114 5,230 6,884 -- 6,884
Thereafter................. 45,842 12,459 33,383 -- 33,383
-------- ------- ------- ---- -------
Total minimum lease
payments................. $105,834 $41,855 $63,979 $161 $64,140
======== ======= ======= ==== =======
41
44
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense was approximately $10.4 million, $9.0 million, and $7.3
million for fiscal 2001, 2000, and 1999, respectively. Sublease rental income
was $5.6 million, $3.9 million, and $2.6 million for fiscal 2001, 2000 and 1999,
respectively.
Wafer Purchase Commitments
As of March 31, 2001, we had one volume purchase agreement. The agreement
was executed in August 2000 and expires on March 31, 2003. This agreement is
purchase-order based and does not have "take/pay" clauses. There are
cancellation fees of 50% once the vendor acknowledges a purchase order. There
are cancellation fees of 100% once the vendor begins manufacturing a purchase
order. Purchase order commitments at the end of fiscal 2001 were $71.2 million
for yielded wafers to be delivered through September 2001. Additionally, we had
non-cancelable assembly purchase orders with numerous vendors totaling $5.2
million.
During fiscal 1999 and 2000, we had firm commitments to purchase wafers
from third party suppliers. When our firm wafer purchase commitments exceeded
our wafer needs, we accrued losses on firm wafer purchase commitments in excess
of estimated wafer needs over the short-term (six months) to the extent they
would result in inventory losses were the Company to fulfill the commitment and
take delivery of the inventory. The following table summarizes our accrued wafer
purchase commitments (in thousands):
Balance, March 28, 1998................................... $ 63,800
Additions charged to costs and expenses................. 90,300
Payments/deductions..................................... (79,600)
--------
Balance, March 27, 1999................................... 74,500
--------
Additions charged to costs and expenses................. --
Payments/deductions..................................... (73,824)
--------
Balance, March 25, 2000................................... 676
--------
Additions charged to costs and expenses................. --
Payments/deductions..................................... (676)
--------
Balance, March 31, 2001................................... $ --
========
13. RESTRUCTURING CHARGES AND OTHER
In fiscal 2001, we recorded $12.5 million in income to recognize the
receipt of two previously-reserved notes from Intel Corporation on behalf of
Basis Communications Corporation. In addition, we recognized gains on the sale
to Intel of stock we held in Basis Communications of $79.5 million. We also
recorded $1.8 million in income due to the final resolution of the MiCRUS
restructuring agreement. As of March 31, 2001, we have a remaining restructuring
accrual of $0.5 million, which we expect to discharge in fiscal 2002 through
cash payments.
During fiscal 2000, we substantially completed the restructuring activities
that were initiated in fiscal 1999. We restructured our relationships with our
manufacturing joint ventures and returned to a fabless business model. In fiscal
2000, we recorded restructuring charges of $126.6 million, $1.0 million of which
is in cost of sales. These restructuring charges included a $135.0 million
direct cash payment to one of the joint venture partners, $36.8 million related
to certain Cirrus common stock that we issued to one of the joint venture
partners, $9.3 million of lease buyout costs, and $16.4 million of equipment
write-offs. These charges were partially offset by the reversal of approximately
$71.9 million of previously accrued wafer purchase commitment charges due to the
renegotiated terms of our purchase commitments with our former partners.
During fiscal 1999, we recorded restructuring charges of approximately
$390.0 million. These charges included cost of sales of $188.0 million related
to asset impairment, $90.0 million related to wafer purchase
42
45
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitments, and $35.0 million related to inventory write downs. In addition, we
recorded charges of $78.0 million related to severance and related benefits
along with facilities scale back and other costs.
The terms of the MiCRUS restructuring agreement, entered into during fiscal
2000, required us to pay $135 million in cash to IBM and issue into an escrow
account shares of our common stock with a fair value (based on the average
closing price of our common stock for the 20 days prior to closing) of $32
million. Under the escrow arrangement, the escrow period ended on April 3, 2000.
On that date, 2.4 million shares were released to IBM and the remaining shares
were returned to us due to contractual limitations on the value to be realized
by IBM. During the six-month period following April 3, 2000, IBM could sell on
the open market the Company stock it received. If at the end of the six month
period on September 30, 2000, IBM had sold at least 15% of our stock, it could
require us to purchase the remaining shares for cash such that the total
received by IBM, including the amounts IBM received in open market sales, was
$32 million. IBM could keep all proceeds from the sale of the stock in excess of
$32 million up to a maximum of $48 million. Amounts received by IBM in excess of
$48 million had to be returned to us.
As of September 23, 2000, IBM had sold all of the shares of our common
stock issued under the MiCRUS restructuring agreement. The proceeds from these
sales were approximately $48 million. As a result, at September 23, 2000, we
reclassified $32 million of temporary equity to permanent equity, since our
obligation under the restructuring agreement had ceased.
The following sets forth the activity in our fiscal 2000 and 2001
restructuring accruals as of March 31, 2001 (in thousands):
SEVERANCE
AND FACILITIES SCALE
RELATED BACK AND
BENEFITS OTHER COSTS TOTAL
----------- ---------------- ---------
Fiscal 1999 provision.......................... $ 8,466 $ 69,938 $ 78,404
Amount utilized................................ (7,657) (57,165) (68,822)
Adjustments.................................... -- -- --
------- --------- ---------
Balance, March 25, 1999........................ $ 809 $ 12,773 $ 13,582
------- --------- ---------
Fiscal 2000 provision.......................... 8 195,900 195,908
Amount utilized................................ (605) (203,150) (203,755)
Adjustments.................................... (212) 1,256 1,044
------- --------- ---------
Balance, March 25, 2000........................ $ -- $ 6,779 $ 6,779
------- --------- ---------
Fiscal 2001 provision.......................... -- -- --
Amount utilized................................ -- (3,617) (3,617)
Adjustments.................................... -- (2,670) (2,670)
------- --------- ---------
Balance, March 31, 2001........................ $ -- $ 492 $ 492
======= ========= =========
14. EMPLOYEE BENEFIT PLANS
We have adopted various 401(k) Profit Sharing Plans (the "Plans") covering
substantially all of our qualifying domestic employees. Under the Plans,
employees may elect to contribute up to 15% of their annual compensation,
subject to annual limitations. The Plans permit, but do not require, additional
discretionary contributions by us on behalf of all participants. During fiscal
2001, 2000, and 1999, we matched employee contributions up to various maximums
per plan for a total of approximately $331,000, $478,000, and $1,156,000,
respectively. We expect to continue the contributions in fiscal 2002.
43
46
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. STOCKHOLDERS' EQUITY
Employee Stock Purchase Plan
In March 1989, we adopted the 1989 Employee Stock Purchase Plan (the
"ESPP"). As of March 31, 2001, 984,327 shares of common stock are reserved for
future issuance under this plan. During fiscal 2001, 2000, and 1999, we issued
248,746; 409,666; and 526,921 shares, respectively, under the ESPP.
Preferred Stock
The Board of Directors authorized 1.5 million shares of Series A
Participating Preferred Stock, which is unissued.
Stock Option Plans
We have various stock option plans (the "Option Plans") under which
officers, key employees, non-employee directors and consultants may be granted
qualified and non-qualified options to purchase shares of our authorized but
unissued Common Stock. Options are generally priced at the fair market value of
the stock on the date of grant. Options are either exercisable upon vesting or
exercisable immediately, but any unvested shares are held in escrow and are
subject to repurchase at the original issuance price. Options currently expire
no later than ten years from the date of grant.
In fiscal 2001, 2000, and 1999, we issued 32,000, 70,000 and 250,000 shares
of restricted stock, respectively, to certain employees at no cost which vest
over one to four years. The non-vested portion of these shares has been excluded
from the income (loss) per share number in accordance with SFAS No. 128. We
recognize the excess of the grant date fair market value over the exercise price
as compensation expense ratably over the vesting period. The weighted average
fair value of shares granted in fiscal 2001, 2000 and 1999 was $32.56, $8.93,
and $9.50, respectively. We recorded compensation expense of $347,000,
$1,026,000, and $1,781,000, in fiscal 2001, 2000, and 1999, respectively,
relating to restricted stock.
44
47
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information relative to stock option activity is as follows (in thousands,
except per share amounts):
OUTSTANDING OPTIONS
-----------------------
WEIGHTED
OPTIONS AVAILABLE AVERAGE
FOR GRANT SHARES EXERCISE PRICE
----------------- ------ --------------
Balance, March 28, 1998......................... 2,739 10,264 $ 9.96
Shares authorized for issuance................ 2,100 -- --
Options granted............................... (2,572) 2,572 7.13
Options exercised............................. -- (1,115) 6.18
Options cancelled............................. 2,882 (2,882) 10.37
Options expired............................... (1,953) -- --
------ ------ ------
Balance, March 27, 1999......................... 3,196 8,839 $ 9.47
Shares authorized for issuance................ 2,000 -- --
Options granted............................... (4,154) 4,154 8.79
Options exercised............................. -- (1,588) 8.80
Options cancelled............................. 2,854 (2,854) 9.40
Options expired............................... (679) -- --
------ ------ ------
Balance, March 25, 2000......................... 3,217 8,551 $ 9.29
Shares authorized for issuance................ 3,500 -- --
Options granted............................... (6,743) 6,743 26.38
Options exercised............................. -- (2,519) 9.26
Options cancelled............................. 1,747 (1,747) 16.00
Options expired............................... (52) -- --
------ ------ ------
Balance, March 31, 2001......................... 1,669 11,028 $18.68
====== ====== ======
As of March 31, 2001, approximately 12.7 million shares of common stock
were reserved for issuance under the Option Plans.
The following table summarizes information concerning currently outstanding
and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------- -------------- ----------- -------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
$ 0.00 - $ 8.69 2,201 7.20 $ 7.06 651 $ 7.77
$ 8.70 - $12.13 2,277 6.89 9.76 1,606 9.53
$12.14 - $18.50 2,439 8.97 16.77 208 14.74
$18.51 - $31.75 972 9.57 23.65 33 22.59
$31.76 - $44.13 3,139 9.51 33.27 9 42.00
------ ---- ------ ----- ------
11,028 8.39 $18.68 2,507 $ 9.79
====== ==== ====== ===== ======
As of March 25, 2000 and March 27, 1999, the number of options exercisable
was 3,621,894 and 4,546,887.
45
48
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation
If we had calculated compensation cost for our stock option plans based
upon the fair value at the grant date for awards under the Option Plans
consistent with the optional methodology prescribed under SFAS No. 123,
"Accounting for Stock-Based Compensation," the net income (loss) and net income
(loss) per share would have been as shown below (in thousands, except per share
data):
2001 2000 1999
-------- -------- ---------
Net income (loss) as reported....................... $143,176 $(47,096) $(427,403)
Proforma net income (loss).......................... 82,471 (81,763) (438,849)
Basic net income (loss) per share as reported....... 2.00 (0.77) (6.77)
Proforma basic net income (loss) per share.......... 1.15 (1.33) (6.95)
Diluted net income (loss) per share as reported..... 1.86 (0.77) (6.77)
Proforma diluted net income (loss) per share........ 1.13 (1.33) (6.95)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period (for options)
and the six-month purchase period (for stock purchases under the ESPP).
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because our options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.
The effects on pro forma disclosure of applying SFAS No. 123 are not likely
to be representative of the effects on pro forma disclosures of future years.
We estimated the fair value of each option grant on the date of grant using
the Black-Scholes option-pricing model using a dividend yield of 0% and the
following additional weighted-average assumptions:
2001 2000 1999
----- ----- -----
Employee Option Plans:
Expected stock price volatility........................... 76.26% 68.52% 69.21%
Risk-free interest rate................................... 6.0% 6.1% 5.0%
Expected lives (in years)................................. 5.3 5.2 5.0
Employee Stock Purchase Plan:
Expected stock price volatility........................... 76.26% 68.52% 69.21%
Risk-free interest rate................................... 5.7% 5.7% 5.2%
Expected lives (in years)................................. 0.5 0.5 0.5
During fiscal 2001, 2000 and 1999, all options were granted at an exercise
price equal to the closing market price on the grant date. Using the
Black-Scholes option valuation model, the weighted average estimated fair values
of employee stock options granted in fiscal 2001, 2000 and 1999 were $20.90,
$6.51, and $4.74, respectively. The weighted average estimated fair values for
purchase rights granted under the ESPP for fiscal 2001, 2000 and 1999 were
$5.90, $2.99, and $3.44, respectively.
Rights Plan
In May 1998, the Board of Directors declared a dividend of one preferred
share purchase right (a "Right") for each share of common stock outstanding held
as of May, 15, 1998. Each Right will entitle
46
49
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stockholders to purchase one one-hundredth of a share of our Series A
Participating Preferred Stock at an exercise price of $60. The Rights only
become exercisable in certain limited circumstances following the tenth day
after a person or group announces acquisitions of or tender offers for 15% or
more of our common stock. For a limited period of time following the
announcement of any such acquisition or offer, the Rights are redeemable by the
Company at a price of $0.01 per Right. If the Rights are not redeemed each Right
will then entitle the holder to purchase common stock having the value of twice
the exercise price. For a limited period of time after the exercisability of the
Rights, each Right, at the discretion of the Board, may be exchanged for one
share of common stock per Right. The Rights will expire in the fiscal year 2009.
Stock Repurchase
In fiscal 1998, the Board of Directors authorized the purchase of up to 10
million shares of our common stock in the open market from time to time,
depending upon market conditions, share price and other conditions. During
fiscal 1999, we completed our stock repurchase plan by repurchasing and retiring
approximately 9.7 million shares of our common stock from the open market for
approximately $100 million.
47
50
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. INCOME TAXES
Income (loss) before provision (benefit) for income taxes consists of (in
thousands):
2001 2000 1999
-------- -------- ---------
United States....................................... $176,507 $ 33,304 $(264,088)
Foreign............................................. (18,688) (80,400) (117,284)
-------- -------- ---------
Total..................................... $157,819 $(47,096) $(381,372)
======== ======== =========
The provision (benefit) for income taxes consists of (in thousands):
2001 2000 1999
------- ---- -------
Federal
Current.................................................. $12,092 $ -- $(1,096)
Deferred................................................. -- -- 33,757
------- ---- -------
12,092 -- 32,661
State
Current.................................................. 2,880 -- --
Deferred................................................. -- -- 12,941
------- ---- -------
2,880 -- 12,941
Foreign
Current.................................................. 743 -- 429
------- ---- -------
$15,715 $ -- $46,031
======= ==== =======
The provision (benefit) for income taxes differs from the amount computed
by applying the statutory federal rate to pretax income as follows:
2001 2000 1999
----- ----- -----
Expected income tax provision (benefit) at the US federal
statutory rate.......................................... 35.0% (35.0)% (35.0)%
Provision for state income taxes, net of federal effect... 1.2 -- 2.2
In-process research and development expenses.............. -- 6.0 --
Change in deferred tax asset valuation allowance.......... (34.2) (30.9) 33.9
Unbenefited foreign losses................................ 7.9 59.7 10.8
Other..................................................... 0.1 0.2 0.2
----- ----- -----
Provision (benefit) for income taxes...................... 10.0% --% 12.1%
===== ===== =====
48
51
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of our deferred tax assets and liabilities are (in
thousands):
MARCH 31, MARCH 25,
2001 2000
--------- ---------
Deferred tax assets:
Inventory valuation....................................... $ 8,505 $ 3,480
Accrued expenses and allowances........................... 2,419 13,650
Net operating loss carryforwards.......................... -- 54,712
Research and development credit carryforwards............. 19,221 34,849
State investment tax credit carryforwards................. 4,026 4,192
Joint venture impairment.................................. -- 8,858
Capitalized research and development...................... 18,848 --
Deferred royalty income................................... 12,950 --
Other..................................................... 5,450 11,391
-------- --------
Total deferred tax assets......................... $ 71,419 $131,132
Valuation allowance for deferred tax assets....... (61,740) (99,495)
-------- --------
Net deferred tax assets..................................... 9,679 31,637
Deferred tax liabilities:
Unrealized gains.......................................... 2,158 17,693
Depreciation and Amortization............................. 6,594 12,699
Other..................................................... 927 1,245
-------- --------
Total deferred tax liabilities.................... 9,679 31,637
-------- --------
Total net deferred tax assets..................... $ -- $ --
======== ========
SFAS No. 109, "Accounting for Income Taxes," provides for the recognition
of deferred tax assets if realization of such assets is more likely than not. We
have provided a valuation allowance equal to our net deferred tax assets due to
uncertainties regarding their realization. We evaluate the realizability of our
deferred tax assets on a quarterly basis.
The valuation allowance decreased by $37.8 million and $49.6 million in
fiscal years 2001 and 2000 respectively.
At March 31, 2001, we had fully utilized the cumulative net operating loss
carryforwards for federal and state income tax purposes. However, there are tax
credit carryforwards for federal income tax purposes of $11.8 million that
expire in 2005 through 2020. We also had state tax credit carryforwards of
approximately $11.4 million that expire in 2002 through 2008.
In fiscal 1999, we recorded deferred income tax expense of $47 million as a
valuation allowance against previously recorded net deferred tax assets
recognized as of March 28, 1998.
17. SEGMENT INFORMATION
We design and manufacture integrated circuits that employ precision linear
and advanced mixed-signal processing technologies. We are organized into three
principal businesses or operating segments: Analog Products Business Group,
Internet Solutions Business Group and the Magnetic Storage Business Group with
the remaining products grouped as End of Life. Each of these business groups has
one or more general managers who report directly to the Chief Executive Officer
(CEO). The CEO has been identified as the Chief Operating Decision Maker as
defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
49
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CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Analog Products Business Group includes audio products for both the
consumer audio and PC markets. These products provide digital high-fidelity
audio record and playback for high-end professional recordings, set-top audio
decoders, digital audiotapes, CD players, Compact Disk Interactive, automotive
stereo systems and CD-quality sound and mixing capabilities for PC's and
workstations. It also includes advanced analog and digital integrated circuits
for data acquisition, instrumentation and imaging applications along with
developing network products for LAN, WAN and the Internet environment. These
products are used in industrial automation, instrumentation, medical, military,
geophysical and communications applications.
The Internet Products Business Group consists of optical storage and
embedded processor solutions. Optical storage provides integrated circuits for
advanced optical disc drives. This includes integrated circuits for the CD-RW
market as well as the integrated DVD Drive Manager for the electronics DVD
market. Our embedded processor solutions are used in a wide variety of consumer
products, including Internet appliances, smart phones, screen phones, game
boxes, hand-held digital assistants, and portable Internet audio decoders.
The Magnetic Storage Business Group provides integrated circuits contained
in advanced magnetic and removable disk drives. This group helps its customers
engineer and develop higher capacity 3.5-inch disk drives for desktop computers
and workstations and 2.5-inch form factor drives for portable computers. Our
products in all operating groups are sold directly to original equipment
manufacturers and distributors throughout the world.
The End of Life Segment includes our product lines, which have either been
discontinued or subsequently sold. These product lines primarily consist of
graphics, modem, communications and flat panel electronics. Core revenues
exclude the revenue of end of life products.
Operating segments do not have material sales to other segments, and
accordingly, there are no inter-segment revenues to be reported. We also do not
allocate our restructuring charges, interest and other income, interest expense
or income taxes to operating segments. We do not identify or allocate assets by
operating segments, nor does the CEO evaluate the business groups based upon
these criteria.
Information on reportable segments for fiscal 2001, 2000 and 1999 is as
follows (in thousands):
BUSINESS SEGMENT NET REVENUES: 2001 2000 1999
- ------------------------------ -------- -------- --------
Analog............................................. $323,727 $311,472 $268,972
Internet........................................... 83,352 43,437 24,995
Magnetic Storage................................... 329,477 133,058 213,919
Corporate and all other............................ 5,957 484 9,371
-------- -------- --------
Core Revenue............................... $742,513 $488,451 $517,257
End of Life........................................ 36,160 75,949 110,848
-------- -------- --------
Total...................................... $778,673 $564,400 $628,105
======== ======== ========
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CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BUSINESS SEGMENT OPERATING PROFIT (LOSS): 2001 2000 1999
- ----------------------------------------- -------- --------- ---------
Analog........................................... $ 33,820 $ 5,482 $ 2,326
Internet......................................... (12,315) (16,402) (8,414)
Magnetic Storage................................. 33,577 (114) 25,288
End of Life...................................... 4,495 20,529 (41,062)
Corporate and all other.......................... (4,487) 3,480 (281,684)
Restructuring costs, gain on sale of assets and
other, net.................................... 14,362 (145,825) (76,517)
-------- --------- ---------
Consolidated income (loss) from
operations............................. 69,452 (132,850) (380,063)
-------- --------- ---------
Interest Expense................................. (11,759) (23,754) (22,337)
Interest Income.................................. 18,168 8,096 16,786
Other income (expense), net...................... 81,958 101,412 4,242
-------- --------- ---------
Income (loss) before provision for income
taxes.................................. $157,819 $ (47,096) $(381,372)
======== ========= =========
Geographic Area
The following illustrates revenues by geographic locations based on product
shipment destination and royalty payer location (in thousands):
2001 2000 1999
-------- -------- --------
United States...................................... $142,484 $143,358 $165,989
Pacific Rim........................................ 279,574 265,268 251,787
Japan.............................................. 304,188 107,800 158,189
Other foreign countries............................ 52,427 47,974 52,140
-------- -------- --------
Total consolidated revenues........................ $778,673 $564,400 $628,105
======== ======== ========
The following illustrates property, plant and equipment (net) by geographic
locations, based on physical location (in thousands):
2001 2000
------- -------
United States............................................... $31,014 $32,778
Singapore................................................... 263 1,127
Pacific Rim (including Japan)............................... 976 710
Other foreign countries..................................... 87 115
------- -------
Total consolidated property, plant and equipment, net....... $32,340 $34,730
======= =======
Two customers accounted for approximately 24% and 13% of net sales in
fiscal 2001. One customer accounted for approximately 12% of net sales in fiscal
2000. Two customers accounted for approximately 14% and 13%, respectively of net
sales in fiscal 1999. The loss of a significant customer or a significant
reduction in such a customer's orders could have an adverse effect on our sales.
18. LEGAL MATTERS
From time to time, various claims, charges, and litigation are asserted or
commenced against the Company arising from, or related to, contractual matters,
intellectual property, personal injury, insurance coverage and personnel and
employment disputes. Frequent claims and litigation involving patent and other
intellectual property rights are not uncommon in the semiconductor industry. As
to any such claims or
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CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
litigation, the Company cannot predict the ultimate outcome with certainty. In
the event a third party makes a valid intellectual property claim and a license
is not available on commercially reasonable terms, we could be forced either to
redesign or to stop production of products incorporating that intellectual
property, and our operating results could be materially and adversely affected.
Litigation may also be necessary to enforce our intellectual property rights or
to defend us against claims of infringement, and this litigation may be costly
and divert the attention of key personnel.
We are involved in some litigation that, while we cannot predict the
outcome with certainty, we do not expect to have a material adverse effect on
our consolidated financial position.
19. SUBSEQUENT EVENTS
On April 11, 2001, we repurchased approximately 6.4 million shares of our
common stock from a former member of the Board of Directors for approximately
$69 million.
On April 30, 2001, we completed the acquisition of the assets of Peak
Audio, Inc. ("Peak"), a Colorado-based company specializing in commercial audio
networking products. The acquisition was structured as a cash purchase of Peak's
assets for an initial consideration of $11 million. As part of the acquisition,
the shareholders of Peak can potentially earn up to an additional $16 million in
consideration based on the financial performance of the purchased assets over a
two-year period. The contingent consideration can be paid in cash or Cirrus
Logic common stock at our discretion.
On May 2, 2001, we announced a change to our business model, in which we
are de-emphasizing our magnetic storage chip business and are focusing on
consumer-entertainment electronics. On May 15, 2001, we announced cost-reduction
actions to align company resources and expenses with this new business model. In
connection with these strategic decisions, we reduced our workforce by
approximately 120 employees worldwide, or about nine percent of the total
workforce. We expect to record a special charge of approximately $1.5-$2.0
million in the first quarter of fiscal 2002 to cover costs associated with these
workforce reductions.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is set forth in the Proxy
Statement to be delivered to stockholders in connection with our Annual Meeting
of Stockholders to be held on July 25, 2001 under the headings "Proposal for
Election of Directors" and "Executive Officers," which information is
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the Proxy
Statement under the heading "Executive Compensation and Other Information,"
which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth in the Proxy
Statement under the heading "Stock Ownership," which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth in the Proxy
Statement under the heading "Certain Relationships and Related Transactions,"
which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements
- Report of Ernst & Young LLP, Independent Auditors.
- Consolidated Balance Sheets as of March 31, 2001 and March 25, 2000.
- Consolidated Statements of Operations for the fiscal years ended
March 31, 2001, March 25, 2000, and March 27, 1999.
- Consolidated Statements of Cash Flows for the fiscal years ended
March 31, 2001, March 25, 2000, and March 27, 1999.
- Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency) for the fiscal years ended March 31, 2001, March 25,
2000, and March 27, 1999.
- Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
All schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission
of the schedule or because the information required is included in the
consolidated financial statements or notes thereto.
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3. Index to Exhibits
(a) The following exhibits are filed as part of or incorporated by
reference into this Report:
NUMBER DESCRIPTION
------ -----------
3.1 * -- Certificate of Incorporation of Registrant, filed with
the Delaware Secretary of State on August 26, 1998.
3.2 * -- Agreement and Plan of Merger, filed with the Delaware
Secretary of State on February 17, 1999.
3.3 * -- Certificate of Designation of Rights, Preferences and
Privileges of Series A Preferred Stock, filed with the
Delaware Secretary of State on March 30, 1999.
3.4 * -- By-laws of Registrant.
10.1 +(1) -- Amended 1987 Stock Option Plan.
10.2 +(2) -- 1989 Employee Stock Purchase Plan, as amended.
10.3 +(3) -- 1990 Directors Stock Option Plan with form of Stock
Option Agreement, as amended.
10.4 +(4) -- 1996 Stock Plan, as amended.
10.5 * -- Form of Indemnification Agreement.
10.6 +* -- Employment Agreement by and between Registrant and David
D. French, dated April 25, 2001.
10.7 * -- Lease between TPLP Office and Registrant, dated April 1,
2000 for 54,385 square feet located at 4210 S. Industrial
Drive, Austin, Texas.
10.8 * -- Lease between ProLogis Trust and Registrant, dated March
31, 1995 for 176,000 square feet located at 4129
Commercial Center Drive and 4209 S. Industrial, Austin,
Texas, as amended through December 20, 1996.
10.9 * -- Lease between American Industrial Properties and
Registrant, dated September 15, 1999 for 18,056 square
feet located at 4120 Commercial Drive, Austin, Texas.
10.10* -- Lease Agreement by and between Desta Five Partnership,
Ltd. and Registrant, dated November 10, 2000 for 192,000
square feet located at 2901 Via Fortuna, Austin, Texas.
21.1 * -- Subsidiaries of the Registrant.
23.1 * -- Consent of Ernst & Young LLP, Independent Auditors.
24.1 * -- Power of Attorney (see signature page).
- ---------------
+ Indicates a management contract or compensatory plan or
arrangement.
* Filed with this Form 10-K.
(1) Incorporated by reference to Registrant's Report on Form 10-K for
the fiscal year ended March 30, 1996.
(2) Incorporated by reference to Registrant's Registration Statement
on Form S-8 filed with the Commission on October 18, 1999
(Registration No. 333-89243).
(3) Incorporated by reference to Registrant's Registration Statement
on Form S-8 filed with the Commission on February 18, 1999
(Registration No. 333-72573).
(4) Incorporated by reference to Registrant's Registration Statement
on Form S-8 filed with the Commission on October 23, 2000
(Registration No. 333-48490).
(b) Reports on Form 8-K:
(1) On April 7, 2000, Registrant filed a report on Form 8-K to report
under Item 2 the partial disposition of Registrant's interest in the common
stock of Phone.com, Inc. to Lehman Brothers
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57
Finance, S.A. The Letter Agreements between Lehman Brothers Finance S.A.
and the Registrant were filed as exhibits to the report on Form 8-K.
(2) On May 10, 2000, Registrant filed a report on Form 8-K to report
under Item 5 the appointment of four vice presidents.
(3) On June 2, 2000, Registrant filed a report on Form 8-K to report
under Item 2 the disposition of Registrant's equity interest in Basis
Communications Corporation.
(4) On October 4, 2000, Registrant filed a report on Form 8-K to
report under Item 5 that it had called for an October 19, 2000 redemption
of $135,000,000 aggregate principal amount of its 6% Convertible
Subordinated Notes, due 2003. Registrant also reported under Item 5 that it
had been authorized to take action with respect to the remaining
$111,885,000 uncalled 6% Convertible Subordinated Notes, due 2003.
(5) On October 4, 2000, Registrant filed a report on Form 8-K to
report under Item 5 that its Board of Directors voted in favor of adding
Dr. Harold J. Raveche as a member of the Board of Directors to fill an
existing vacancy on the Board of Directors.
(6) On October 23, 2000, Registrant filed a report on Form 8-K to
report under Item 5 that it had called for a November 7, 2000 redemption of
$111,875,000 aggregate principal amount of its 6% Convertible Subordinated
Notes, due 2003.
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58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CIRRUS LOGIC, INC.
By: /s/ ROBERT W. FAY
----------------------------------
Robert W. Fay
Vice President,
Chief Financial Officer
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Robert W. Fay and Steven D.
Overly, his attorneys-in-fact, with the power of substitution, for him in any
and all capacities, to sign any amendments to this report on Form 10-K and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of the attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL L. HACKWORTH Chairman of the Board and June 20, 2001
- ----------------------------------------------------- Director
Michael L. Hackworth
/s/ DAVID D. FRENCH President, Chief Executive June 20, 2001
- ----------------------------------------------------- Officer and Director
David D. French
/s/ ROBERT W. FAY Vice President, Chief Financial June 20, 2001
- ----------------------------------------------------- Officer
Robert W. Fay
/s/ STEVEN D. OVERLY Senior Vice President, June 20, 2001
- ----------------------------------------------------- Administration, General
Steven D. Overly Counsel and Secretary
/s/ D. JAMES GUZY Director June 20, 2001
- -----------------------------------------------------
D. James Guzy
/s/ SUHAS S. PATIL Chairman Emeritus and Director June 20, 2001
- -----------------------------------------------------
Suhas S. Patil
/s/ HAROLD J. RAVECHE Director June 20, 2001
- -----------------------------------------------------
Harold J. Raveche
/s/ WALDEN C. RHINES Director June 20, 2001
- -----------------------------------------------------
Walden C. Rhines
/s/ ROBERT H. SMITH Director June 20, 2001
- -----------------------------------------------------
Robert H. Smith
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59
EXHIBIT INDEX
(a) The following exhibits are filed as part of or incorporated by
reference into this Report:
NUMBER DESCRIPTION
------ -----------
3.1 -- Certificate of Incorporation of Registrant, filed with
the Delaware Secretary of State on August 26, 1998.
3.2 -- Agreement and Plan of Merger, filed with the Delaware
Secretary of State on February 17, 1999.
3.3 -- Certificate of Designation of Rights, Preferences and
Privileges of Series A Preferred Stock, filed with the
Delaware Secretary of State on March 30, 1999.
3.4 -- By-laws of Registrant.
10.5 -- Form of Indemnification Agreement.
10.6 -- Employment Agreement by and between Registrant and David
D. French, dated April 25, 2001.
10.7 -- Lease between TPLP Office and Registrant, dated April 1,
2000 for 54,385 square feet located at 4210 S. Industrial
Drive, Austin, Texas.
10.8 -- Lease between ProLogis Trust and Registrant, dated March
31, 1995 for 176,000 square feet located at 4129
Commercial Center Drive and 4209 S. Industrial, Austin,
Texas, as amended through December 20, 1996.
10.9 -- Lease between American Industrial Properties and
Registrant, dated September 15, 1999 for 18,056 square
feet located at 4120 Commercial Drive, Austin, Texas.
10.10 -- Lease Agreement by and between Desta Five Partnership,
Ltd. and Registrant, dated November 10, 2000 for 192,000
square feet located at 2901 Via Fortuna, Austin, Texas.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
24.1 -- Power of Attorney (see signature page).
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