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, 1995 and is qualified in its entirety
by the foregoing. The results of operations for the thirteen and thirty-nine weeks ended September 29, 1996 are not
necessarily indicative of results to be expected in future periods.
RESULTS OF OPERATIONS
All comparative comments that follow consider the difference in the number of weeks for the respective periods.
Sales for the 13-week third quarter of 1996 were $33.1 million compared to $27.9 million for the 12-week third quarter
of 1995. Sales for the 39-week period ended September 29, 1996 were $93.0 million compared to $77.1 million for the
36-week period of 1995. Production and test equipment brought on-line in the fourth quarter of 1995 and in 1996
increased capacity and contributed to sequential sales increases in the second and third quarters of 1996 and the
increased sales level for each of the first three quarters of 1996 over the comparable 1995 quarters. The Company is
proceeding to bring on-line additional equipment during the balance of the year to support further sales growth.
Gross profit as a percentage of sales was 41% and 40% for the third quarter and year-to-date period ended September
29, 1996, respectively, compared to 41% and 39% for the corresponding periods of 1995. Maintaining or increasing the
gross profit percentage for the balance of 1996 and thereafter is contingent upon increased sales, product mix and prices
and successful execution by Xicor of its plans to further increase manufacturing capacity and improve manufacturing
efficiencies.
Research and development expenses were 12% of sales for the third quarter and year-to-date period ended September
29, 1996 compared to 14% for the corresponding 1995 periods. The decrease in research and development costs as a
percentage of sales in 1996 was primarily due to the transfer to production of certain new products which had previously
been under development and the effect of higher sales. Research and development activities are requiring an increasing
degree of complexity of design and manufacturing process technology and consequently a larger amount of funds is
expected to be invested in research and development in 1997 than in 1995 or 1996.
Selling, general and administrative expenses as a percentage of sales remained relatively constant in the third quarter and
year-to-date period ended September 29, 1996 compared to the
corresponding periods of 1995. The increase in absolute dollars was primarily due to the increased sales levels.
Interest expense increased in each of the three quarters of 1996 compared to the corresponding 1995 quarters due to the
financing of $4.7 million of capital equipment acquisitions during the latter part of 1995 and $14.1 million in the first three
quarters of 1996. Interest expense for the fourth quarter of 1996 is expected to increase over the third quarter level due
to the planned financing of additional capital equipment acquisitions during the fourth quarter of 1996.
Interest income increased in each of the three quarters of 1996 compared to the corresponding 1995 quarters due to an
increase in the average balance invested caused primarily by funds generated from operations in 1995 and the first three
quarters of 1996.
The provision for income taxes for each of the three quarters of 1996 and 1995 consisted primarily of federal and state
minimum taxes, which result from limitations on the use of net operating loss carryforwards, and foreign taxes. Net
deferred tax assets of $34 million at December 31, 1995 remain fully reserved because of the uncertainty regarding the
ultimate realization of these assets.
"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 increased capacity,
improved manufacturing efficiencies and sales growth. 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 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.
FACTORS AFFECTING FUTURE RESULTS
The semiconductor industry is highly competitive and characterized by rapidly changing technology and steadily declining
product prices. 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 in 1996 and beyond, although there can be no
assurances that such research and development efforts or new products will be successful.
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 September 29, 1996, Xicor had $41.3 million in cash, cash equivalents and short-term investments compared to
$35.4 million at December 31, 1995. During the first three quarters of 1996, Xicor generated $15.3 million of cash from
operating activities which was partially offset by equipment purchases of $6.6 million and long-term debt repayments of
$3.7 million. Xicor used long-term financing to acquire additional capital assets of $14.1 million during the thirty-nine
weeks ended September 29, 1996.
Capital expenditures for the balance of 1996 are planned at approximately $8 million, $5.4 million of which had been
committed as of September 29, 1996. As of September 29, 1996, Xicor had entered into additional equipment purchase
commitments for delivery in 1997 aggregating approximately $5.6 million. The acquisitions consist principally of
production and
test equipment to support sales growth. Xicor is investigating equipment financing for the majority of these acquisitions.
Xicor has a line of credit agreement with a financial institution that expires March 31, 1997, 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 September 29, 1996, 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, expected cash flow from
operations and equipment financing will be adequate to support Xicor's operations for the next twelve months. |
