-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lz2HK9s8QmSVgQ95FdIA8Yy4Ma3jXO0oLVHmD2w8VstLYeVFUE7COMZSGFUp37EX /nt0Uj8XQEiAJkNaJYFX6Q== 0000891618-98-003603.txt : 19980806 0000891618-98-003603.hdr.sgml : 19980806 ACCESSION NUMBER: 0000891618-98-003603 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980805 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: XICOR INC CENTRAL INDEX KEY: 0000319191 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942526781 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09653 FILM NUMBER: 98677863 BUSINESS ADDRESS: STREET 1: 1511 BUCKEYE DR CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4084328888 MAIL ADDRESS: STREET 1: 1511 BUCKEYE DRIVE CITY: MILPITAS STATE: CA ZIP: 95035 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 --------------- FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________to_____________ --------------- Commission File Number 0-9653 XICOR, INC. (Exact name of registrant as specified in its charter) California 94-2526781 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 1511 Buckeye Drive, Milpitas, California 95035 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (408) 432-8888 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 ----- ------ NUMBER OF SHARES OUTSTANDING AT JUNE 28, 1998 19,119,227 2 XICOR, INC. FORM 10-Q QUARTER ENDED JUNE 28, 1998 INDEX
PAGE ---- PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets at June 28, 1998 1 and December 31, 1997 Consolidated Statements of Operations for the three 2 and six months ended June 28, 1998 and June 29, 1997 Consolidated Statements of Cash Flows for the six 3 months ended June 28, 1998 and June 29, 1997 Notes to Consolidated Financial Information 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 5 CONDITION AND RESULTS OF OPERATIONS PART II: OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 9 SIGNATURES 10
-I- 3 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS XICOR, INC. CONSOLIDATED BALANCE SHEETS
ASSETS June 28, December 31, 1998 1997 ---- ---- (Unaudited) Current assets: Cash and cash equivalents $ 16,900,000 $ 21,106,000 Short-term investments 4,152,000 11,372,000 Accounts receivable 8,303,000 11,003,000 Inventories 20,073,000 23,933,000 Prepaid expenses and other current assets 971,000 1,013,000 ------------- ------------- Total current assets 50,399,000 68,427,000 Property, plant and equipment, at cost less accumulated depreciation 44,520,000 46,628,000 Other assets 192,000 206,000 ------------- ------------- $ 95,111,000 $ 115,261,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,641,000 $ 11,596,000 Accrued expenses 8,021,000 8,133,000 Deferred income on shipments to distributors 11,275,000 13,913,000 Current portion of long-term obligations 7,001,000 6,537,000 ------------- ------------- Total current liabilities 33,938,000 40,179,000 ------------- ------------- Long-term obligations 16,567,000 18,974,000 ------------- ------------- Shareholders' equity: Preferred stock; 5,000,000 shares authorized -- -- Common stock; 75,000,000 shares authorized; 19,119,227 and 19,091,727 shares outstanding 124,240,000 124,204,000 Accumulated deficit (79,634,000) (68,096,000) ------------- ------------- 44,606,000 56,108,000 ------------- ------------- $ 95,111,000 $ 115,261,000 ============= =============
See accompanying notes to consolidated financial information -1- 4 XICOR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended ----------------------------- ------------------------------ June 28, 1998 June 29, 1997 June 28, 1998 June 29, 1997 ------------ ------------ ------------- ------------- Net sales $ 26,787,000 $ 31,970,000 $ 54,533,000 $ 61,483,000 Cost of sales 25,521,000 19,827,000 45,413,000 37,545,000 ------------ ------------ ------------ ------------ Gross profit 1,266,000 12,143,000 9,120,000 23,938,000 ------------ ------------ ------------ ------------ Operating expenses: Research and development 4,628,000 4,598,000 9,194,000 9,211,000 Selling, general and administrative 5,620,000 5,401,000 11,118,000 10,559,000 ------------ ------------ ------------ ------------ 10,248,000 9,999,000 20,312,000 19,770,000 ------------ ------------ ------------ ------------ Income (loss) from operations (8,982,000) 2,144,000 (11,192,000) 4,168,000 Interest expense (481,000) (457,000) (981,000) (867,000) Interest income 279,000 488,000 635,000 990,000 ------------ ------------ ------------ ------------ Income (loss) before income taxes (9,184,000) 2,175,000 (11,538,000) 4,291,000 Provision for income taxes -- 108,000 -- 214,000 ------------ ------------ ------------ ------------ Net income (loss) $ (9,184,000) $ 2,067,000 $(11,538,000) $ 4,077,000 ============ ============ ============ ============ Net income (loss) per common share: Basic $ (0.48) $ 0.11 $ (0.60) $ 0.22 ============ ============ ============ ============ Diluted $ (0.48) $ 0.11 $ (0.60) $ 0.21 ============ ============ ============ ============ Shares used in per share calculations: Basic 19,108,000 18,910,000 19,099,000 18,899,000 ============ ============ ============ ============ Diluted 19,108,000 19,510,000 19,099,000 19,604,000 ============ ============ ============ ============
See accompanying notes to consolidated financial information -2- 5 XICOR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended ----------------------------- June 28, 1998 June 29, 1997 ------------- ------------- Cash flows from operating activities: Net income (loss) $(11,538,000) $ 4,077,000 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,992,000 5,323,000 Changes in assets and liabilities: Accounts receivable 2,700,000 (7,000) Inventories 3,860,000 (4,898,000) Prepaid expenses and other current assets 42,000 (20,000) Other assets 14,000 56,000 Accounts payable and accrued expenses (4,067,000) 110,000 Deferred income on shipments to distributors (2,638,000) 735,000 ------------ ------------ Net cash provided by (used for) operating activities (5,635,000) 5,376,000 ------------ ------------ Cash flows from investing activities: Investments in plant and equipment, net (2,787,000) (6,418,000) Purchases of short-term investments (4,292,000) (16,743,000) Maturities of short-term investments 11,512,000 21,473,000 ------------ ------------ Net cash provided by (used for) investing activities 4,433,000 (1,688,000) ------------ ------------ Cash flows from financing activities: Repayments of long-term obligations (3,040,000) (3,098,000) Proceeds from sale of common stock to employees 36,000 157,000 ------------ ------------ Net cash used for financing activities (3,004,000) (2,941,000) ------------ ------------ Increase (decrease) in cash and cash equivalents (4,206,000) 747,000 Cash and cash equivalents at beginning of year 21,106,000 20,414,000 ------------ ------------ Cash and cash equivalents at end of quarter $ 16,900,000 $ 21,161,000 ============ ============ Supplemental information: Cash paid (refunded) for: Interest expense $ 982,000 $ 867,000 Income taxes (110,000) 136,000 Equipment acquired pursuant to long-term obligations 1,097,000 6,884,000
See accompanying notes to consolidated financial information -3- 6 XICOR, INC. NOTES TO CONSOLIDATED FINANCIAL INFORMATION (Unaudited) NOTE 1 - THE COMPANY: In the opinion of management, all adjustments necessary for a fair statement of the results of the interim periods presented (consisting only of normal recurring adjustments) have been included. These financial statements, notes and analyses should be read in conjunction with Xicor's Annual Report on Form 10-K for the year ended December 31, 1997 filed with the Securities and Exchange Commission. NOTE 2 - NET INCOME (LOSS) PER SHARE: Basic net income (loss) per share is computed using the weighted average number of common shares outstanding. Diluted net income (loss) per share is computed using the weighted average number of common shares and all dilutive potential common shares outstanding. For the three and six months ended June 28, 1998, the number of shares used in the calculation of both earnings per share (EPS) amounts were the same since 197,000 and 163,000 common stock equivalents relating to outstanding stock options were excluded as they were antidilutive. Common stock equivalents were the only reconciling item between the number of shares used to calculate Basic EPS and Diluted EPS for the three and six months ended June 29, 1997. At June 28, 1998, options for 2,203,425 shares were outstanding. NOTE 3 - BALANCE SHEET DETAIL:
June 28, December 31, 1998 1997 ------------- ------------- Inventories: Raw materials and supplies $ 3,292,000 $ 4,229,000 Work in process 12,049,000 13,012,000 Finished goods 4,732,000 6,692,000 ------------- ------------- $ 20,073,000 $ 23,933,000 ============= ============= Property, plant and equipment: Leasehold improvements $ 17,683,000 $ 17,518,000 Equipment 118,213,000 116,349,000 Furniture and fixtures 1,867,000 1,817,000 Construction in progress 8,578,000 8,104,000 ------------- ------------- 146,341,000 143,788,000 Less accumulated depreciation (101,821,000) (97,160,000) ------------- ------------- $ 44,520,000 $ 46,628,000 ============= ============= Accrued expenses: Accrued wages and employee benefits $ 3,814,000 $ 3,984,000 Other accrued expenses 4,207,000 4,149,000 ------------- ------------- $ 8,021,000 $ 8,133,000 ============= =============
Accounts receivable: Accounts receivable at June 28, 1998 and December 31, 1997 are presented net of an allowance for doubtful accounts of $500,000. -4- 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the accompanying Quarterly Financial Information and Notes thereto and Xicor's Annual Report on Form 10-K for the year ended December 31, 1997 and is qualified in its entirety by the foregoing. The results of operations for the three and six months ended June 28, 1998 are not necessarily indicative of results to be expected in future periods. RESULTS OF OPERATIONS Sales for the second quarter of 1998 were $26.8 million, a decrease from second quarter 1997 sales of $32.0 million and first quarter 1998 sales of $27.7 million. Global pricing pressures due to excess global production capacity, lower demand and the economic difficulties in Asia are posing major challenges for Xicor in 1998. During the first half of 1998, Xicor's business in Japan was very slow compared to the first half of 1997. Additionally, in the second quarter of 1998, domestic sales decreased compared to the immediately preceding and prior year quarters. Gross profit as a percentage of sales was 5% and 17% for the three and six months ended June 28, 1998 compared to 38% and 39% for the comparable 1997 periods. In the second quarter of 1998, Xicor wrote down inventories by $2.2 million to cover declining sales prices and inventories of certain devices that are being discontinued as Xicor streamlines its product portfolio. The decline in the 1998 gross profit percentage was primarily due to lower average selling prices as a result of competitive price pressures and Xicor's increased manufacturing cost level associated with increased production capacity and upgrading of the wafer fabrication operations during 1996 and 1997. Additionally, at the beginning of the second quarter of 1998 Xicor substantially reduced the production volume in its factory in response to ongoing weak business conditions. Because of the decreased factory utilization, more costs were expensed instead of being put on the balance sheet as inventory. Until factory utilization increases, the significant negative impact on Xicor's results of operations will continue. Although research and development expenses were higher as a percentage of sales in 1998 compared to 1997 due to the lower 1998 sales, they were relatively level in terms of absolute dollars. Research and development activities require an increasing degree of complexity of design and manufacturing process technology and consequently a similar amount of funds is expected to be invested in research and development during the balance of 1998. Selling, general and administrative expenses increased from 17% of sales for the second quarter and first half of 1997 to 21% and 20%, respectively, for the second quarter and first half of 1998 primarily due to the lower sales level, a $162,000 bad debt write-off in the first quarter of 1998 related to the sudden bankruptcy of an Asian customer and increased selling expenses in the second quarter of 1998 due to intensified sales activities and costs associated with restructuring one sales office. Marketing and selling expenses are expected to increase somewhat in the second half of 1998 due to Xicor's focus on sales and new product introductions. Interest expense increased in the second quarter and first half of 1998 compared to the second quarter and first half of 1997 due to the financing of additional capital equipment acquisitions during 1997. -5- 8 Interest income decreased in the second quarter and first half of 1998 compared to the second quarter and first half of 1997 due to a decrease in the average balance invested caused primarily by funds used for 1997 and 1998 capital asset purchases, ongoing debt repayments and 1998 operating activities. Interest income is expected to decrease during the remaining 1998 quarters principally due to the utilization of funds for operating activities, equipment purchases and normal debt repayments. No taxes were provided for the first half of 1998 due to the net loss. The provision for income taxes for the first half of 1997 consisted primarily of federal and state minimum taxes, which resulted from limitations on the use of net operating loss carryforwards, and foreign taxes. Net deferred tax assets of $33.9 million at December 31, 1997 remain fully reserved because of the uncertainty regarding the ultimate realization of these assets. Xicor incurred losses of $9.2 million and $11.5 million for the second quarter and first half of 1998, respectively, compared to net income of $2.1 million and $4.1 million for the comparable prior year periods. Reduced demand, together with price erosion, were the primary causes of the 1998 losses. In addition, Xicor's manufacturing costs increased in the first half of 1998 compared to the first half of 1997 due to increased production capacity and upgrading of the wafer fabrication operations in 1996 and 1997. At the beginning of the second quarter of 1998, Xicor reduced the production volume in its factory in response to ongoing weak business conditions. The resultant lower factory utilization negatively impacted second quarter 1998 results relative to the first quarter of 1998 and prior year quarter. Second quarter 1998 results were also negatively impacted by inventory write downs as previously discussed. Xicor took steps in the second quarter of 1998 that are expected to reduce costs in the third quarter and plans to implement additional cost reduction measures in the third quarter. However, anticipated continued weak sales, price erosion and factory underutilization are expected to result in a loss for the third quarter of 1998. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding lower factory utilization, anticipated continued weak sales, further price erosion, the level of research and development expenditures during the balance of 1998, the increase in sales and marketing expenditures, additional cost reduction measures in the third quarter of 1998 and the expected loss in the third quarter of 1998. Except for historical information, the matters discussed in this quarterly report are forward-looking statements that are subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected. Factors that could cause actual results to differ materially include the following: general economic conditions (including in Asia) and conditions specific to the semiconductor industry, fluctuations in customer demand, competitive factors such as pricing pressures on existing products and the timing and market acceptance of new product introductions, Xicor's ability to have available an appropriate amount of production capacity in a timely manner, manufacturing efficiencies, the timely development of new products and processes, and the risk factors listed from time to time in Xicor's SEC reports, including but not limited to the "Factors Affecting Future Results" section below and Part I, Item 1. of the Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Xicor undertakes no obligation to publicly release or otherwise disclose the result of any revision to these forward-looking statements which may be made as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. -6- 9 FACTORS AFFECTING FUTURE RESULTS The semiconductor industry is highly competitive and characterized by rapidly changing technology and steadily declining product prices. The current business climate has and will continue to result in less than optimum utilization of Xicor's wafer fabrication factory, which will adversely affect Xicor's business and results of operations. Xicor's results of operations are affected by a wide variety of factors, including general economic conditions and conditions specific to the semiconductor industry, decreases in average selling price over the life of any particular product, the timing of new product introductions (both by Xicor and competitors), availability of new manufacturing technologies, the ability to secure intellectual property rights in a rapidly evolving market and the ability to have an appropriate amount of production capacity in a timely manner. The sales level in any specific quarter is also a function of orders received during that quarter, as customers continue to shorten lead times for purchase commitments. Consistent with industry practice, customer orders are generally subject to cancellation by the customer without penalty. Xicor may be at a disadvantage in competing with major domestic and foreign concerns that have significant financial resources, established and diverse product lines, worldwide vertically integrated production facilities and extensive research and development capabilities. The semiconductor industry is also characterized by substantial capital and research and development investment for products and processes. The rapid rate of technological change within the industry requires Xicor to continually develop new and improved products and processes to maintain its competitive position. Xicor expects to continue to invest in the research and development of new products and manufacturing processes during the balance of 1998 and beyond, although there can be no assurances that such research and development efforts or new products will be successful. Xicor uses a significant number of computer software programs and operating systems in its internal operations, including applications used in financial business systems, manufacturing operations and various administrative functions. To the extent that these software applications are unable to appropriately interpret the upcoming calendar Year 2000, some level of modification and replacement of such software or applications will be necessary. Xicor has installed and is continuing to install Year 2000 compliant software in its major systems. Ongoing efforts are being devoted to complete this activity for the balance of Xicor's systems. The incremental costs associated with these efforts are currently not expected to be material. Xicor presently believes the Year 2000 issue will not pose significant operational problems. However, Year 2000 issues could have a significant impact on Xicor's operations and its financial results if modifications cannot be completed in a timely manner; unforeseen needs or problems arise; or, if the systems operated by our customers, vendors or subcontractors are not Year 2000 compliant. Xicor has an investment portfolio of fixed income securities that are classified as "held to maturity securities". These securities, like all fixed income instruments, are subject to interest rate risk and will fall in value if market interest rates increase. Xicor attempts to limit this exposure by investing primarily in short-term securities. From time-to-time Xicor makes certain capital equipment or other purchases denominated in foreign currencies. As a result, Xicor's cash flows and earnings are exposed to fluctuations in interest rates and foreign currency exchange rates. Xicor attempts to limit these exposures through operational strategies and generally has not hedged currency exposures. -7- 10 Due to the foregoing and other factors, past results are a much less reliable predictor of the future than is the case in many older, more stable and less dynamic industries. In addition, the securities of many high technology companies, including Xicor, have historically been subject to extensive price and volume fluctuations that may adversely affect the market price of their common stock. LIQUIDITY AND CAPITAL RESOURCES At June 28, 1998, Xicor had $21.1 million in cash, cash equivalents and short-term investments compared to $32.5 million at December 31, 1997. During the first half of 1998, Xicor used $5.6 million of cash for operating activities, $2.8 million for equipment purchases and $3 million to repay long-term obligations. Xicor used long-term lease financing to acquire additional capital assets of $1.1 million during the six months ended June 28, 1998. Capital expenditures for the balance of 1998 are planned at less than $4 million, $1.4 million of which had been committed as of June 28, 1998. The acquisitions consist principally of equipment necessary for computer system enhancements, automated design tools and production using the new submicron technology which is in the latter stages of development. Xicor is investigating equipment financing for a portion of these acquisitions, but there is no assurance that such financing will be available. Xicor has a line of credit agreement with a financial institution that expires March 31, 1999, provides for borrowings of up to $7.5 million against eligible accounts receivable and is secured by all of Xicor's assets. Interest on borrowings is charged at the prime lending rate plus 2% and is payable monthly. At June 28, 1998, the entire $7.5 million was available to Xicor based on the eligible accounts receivable balances and the borrowing formulas. To date, no amounts have been borrowed under this line of credit. Management believes that currently available cash and expected equipment financing will be adequate to support Xicor's operations for the next twelve months. -8- 11 PART II: OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On May 29, 1998 the shareholders of Xicor held their annual meeting in Milpitas, California. The holders of 17,777,331 shares of Common Stock were present or represented by proxy, and accordingly, a quorum was present and matters were voted upon as follows: (a) The following persons were elected directors:
Votes for Votes withheld ---------- --------------- Raphael Klein 16,953,595 823,736 Bruce Gray 16,965,113 812,218 Julius Blank 16,965,013 812,318 Andrew W. Elder 16,967,640 809,691 S. Allan Kline 16,959,113 818,218
(b) The following resolutions were submitted to a vote of the shareholders at the meeting: (1) To approve the adoption of the Company's 1998 Employee Stock Purchase Plan and the reservation of shares of Common Stock thereunder. The resolution was passed, 16,095,879 shares voting in favor, 1,563,940 shares voting against and 117,512 shares abstaining. (2) To ratify the designation of Price Waterhouse LLP (now PricewaterhouseCoopers LLP) as independent accountants for the period ending December 31, 1998. The resolution was passed, 17,570,565 shares voting in favor, 154,061 shares voting against and 52,705 shares abstaining. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended June 28, 1998. -9- 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. XICOR, INC., a California Corporation By /s/ Raphael Klein ------------------------- Raphael Klein Chief Executive Officer (Principal Executive Officer) By /s/ Geraldine N. Hench -------------------------- Geraldine N. Hench Vice President, Finance (Principal Financial Officer) Date: August 4, 1998 -10- 13 EXHIBIT INDEX Exhibit Number Description ------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1 6-MOS JAN-03-1999 DEC-29-1997 JUN-28-1998 16,900,000 4,152,000 8,803,000 500,000 20,073,000 50,399,000 146,341,000 101,821,000 95,111,000 33,938,000 0 0 0 124,240,000 79,634,000 95,111,000 54,533,000 54,533,000 45,413,000 45,413,000 9,194,000 0 981,000 (11,538,000) 0 (11,538,000) 0 0 0 (11,538,000) (0.60) (0.60) For Purposes of this Exhibit, Primary means Basic.
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