Cyrix Corporation experienced a challenging financial year in 1996. Total revenues were $184 million, down from 1995 revenues of $228 million. The Company posted a net loss for the year of $26 million, or $1.33 per share. Clearly, 1996 was not a good year in financial terms.

What happened? We entered the year expecting to transition quickly from the old 486 product line to the 6x86™ processor, an outstanding product that outperforms comparable CPUs on Windows® applications. The 6x86 processor was recognized with numerous awards for its exceptional processing performance, but this product line did not gain broad market acceptance until late in the year. Much of 1996 was spent working closely with motherboard companies and chip set suppliers to achieve compatibility and optimal performance of our products within the existing industry infrastructure. In the second half of the year, we re-evaluated our business practices and our pricing model, and we took actions to clear accumulated inventory and gain market share. These actions, plus favorable industry trends in the fourth quarter, created significant demand for the 6x86 processor, pushing fourth-quarter revenues to $72 million.

Despite the year�s financial results, Cyrix realized a number of accomplishments worthy of notice:

• The 6x86 processor, the broadest alternative to Intel�s Pentium® processor, won a number of important awards for technical achievement. Fourth-quarter results indicate the 6x86 processor has become a credible and widely accepted product in the industry.
• We learned much about the platform environment in which our products must perform, and we slowly established a broad infrastructure base for our products. This learning experience has provided us with a strong foundation that will help us achieve smooth introductions of successor products.
• Despite our financial difficulties, we continued to invest heavily in research and development to help keep 1997 programs on schedule and avoid delays in our long-range initiatives.
• Finally, we significantly improved the balance sheet for the year despite the weak bottom-line results. Year-to-year, cash nearly doubled to $87 million, days-of-sale dropped to 35 from 104 days, and our current ratio improved to 5.1 from 2.1. Additionally, we increased inventory turns to 9.3 in 1996 versus 7.7 in 1995.

In addition to business and product changes, 1996 was a year of leadership changes for Cyrix as well. Gary Stimac, former senior vice president and general manager of the Systems Division of Compaq Computer Corporation, joined the board of directors in September. Jack Kemp resigned from the board in the same month to pursue his candidacy for vice president of the United States, and board member Melvin Sharp did not stand for re-election in April 1996.

On December 9, 1996, Jerry Rogers stepped down as Cyrix�s president and chief executive officer. After co-founding the Company in 1988, Jerry guided Cyrix from its math coprocessor beginnings to its current position as a leading manufacturer of high-performance, Windows-compatible processors. His leadership was instrumental in the Company�s improved fourth-quarter results, and he will continue to provide strategic vision for the Company through his ongoing role as a member of the board.

In the interim, while a search is underway to find a new chief executive officer, an "Office of the President" has been established to be chaired by Jay Swent, senior vice president of finance and administration. In addition, Kevin McDonough, senior vice president of engineering, Nancy Dechaud, vice president of manufacturing, and members of the board of directors will serve in the office.

1996 is behind us, and we have a clear road map for 1997. The award-winning 6x86 processor will continue to be a mainstream product for much of 1997. Our goal is to optimize the profitability of this product and manage the transition to a successor product, code-named M2. This new product will feature significant architectural enhancements and is expected to support and be fully compatible with industry-standard multimedia extension (MMX) technology.

In a new direction, Cyrix has developed the MediaGX™ processor. This unique processor design breaks with traditional PC technology by integrating audio, video and certain system functions within the processor unit. With the MediaGX processor, Cyrix is providing technology to our customers that will help them market fully featured PCs that address the sub-$1,000 price point. The MediaGX processor reinforces the position of Cyrix as a provider of innovative technology and platforms.

Throughout its history, Cyrix has excelled in engineering expertise. Certain of our processors have received the highest scores on third-party benchmark tests and have repeatedly been honored with industry awards. Looking ahead, it is clear our customers want more than performance. They want total system solutions that provide a competitive advantage and a compelling long-term value proposition. In addition, they demand excellence in every aspect of the customer/supplier relationship. In response, we have developed processor technology with a system-level focus to deliver the solutions our customers want. In 1997, we will build on this strength, and we will also augment our non-engineering organizational capabilities to ensure we have the full skill-set required to meet our customers� total needs.

Cyrix is ready to take advantage of new opportunities in the marketplace. Can we do better than we did in 1996? We�re committed to it. Are we on the right track? Absolutely. Cyrix is ready to travel the road ahead.

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