The following table sets forth the range of high and low last reported sales prices for the Company's common stock as reported by the Nasdaq National Market for each quarter of fiscal 1995 and fiscal 1994. At February 1, 1996, the number of record holders of the Company's common stock was approximately 545.
The Company has not paid cash dividends on its common stock and intends to continue a policy of retaining any earnings for reinvestment in its business.
The Company's revenue in fiscal 1991 was derived from the sale of math coprocessors. This revenue enabled the Company to fund development of its first IBM compatible microprocessors, commercial shipments of which began in the second quarter of fiscal 1992. During fiscal 1992, revenue from the sale of microprocessors reached approximately 47% of the Company's net product revenue. Quarterly revenue from microprocessor sales surpassed those from math coprocessor sales for the first time in the third quarter of fiscal 1992; and sales of microprocessors represented approximately 75%, 96% and 99% of net product revenue in fiscal 1993, 1994 and 1995, respectively.
The selected financial data for each of the past five years may not be indicative of the Company's future financial condition or results of operations due to (1) the uncertainties related to litigation described in Item 3. Legal Proceedings, (2) the risk that the Company will not be able to obtain capacity to meet its manufacturing requirements, will not be able to obtain products with acceptable yields or will not have access to necessary process technologies due to the Company's reliance on third-party manufacturers, and (3) the risk that the Company will not be able to successfully develop and introduce on a timely basis price-competitive microprocessor products that embody new features, meet evolving industry standards and achieve market acceptance.
Net Revenues. Net product sales decreased approximately 14.5% in fiscal 1995 compared to fiscal 1994 as a 35% increase in unit volume was more than offset by significant erosion of the average selling prices for 486 microprocessors. During fiscal 1995, most OEMs of desktop personal computers transitioned from the 486 family of microprocessors to the next generation of microprocessors, such as Intel's Pentium microprocessors. The Company did not have available for sale a large enough volume of products with performance competitive with Intel's Pentium microprocessors to offset the declining demand for and average selling prices of 486 microprocessors.
The 108% increase in net product sales in fiscal 1994 compared to fiscal 1993 resulted from the sale of the Company's 486DX and 486DX2 microprocessors, commercial shipments of which began in the fourth quarter of fiscal 1993. During fiscal 1994, sales of 486DX and 486DX2 microprocessors represented over 75% of the Company's net product sales; sales of its math coprocessors and 486DLC and 486SLC microprocessors, which accounted for approximately 70% of the Company's net product sales during fiscal 1993, declined as their average selling prices decreased significantly and unit shipments of such product lines declined.
Sales to international customers were 66%, 52% and 48% of net product sales in fiscal years 1995, 1994 and 1993, respectively. Sales to international customers are made primarily to customers in Europe, Taiwan, Korea and Japan.
The Company received $6.7 million of royalty payments from TI during fiscal 1993 related to the sale by TI of Cyrix-designed products. TI also sold such products during fiscal 1994. However, due to a contractual dispute between the Company and TI, the Company did not recognize any royalty revenue related to the sale by TI of such products in fiscal 1994. On November 18, 1994, the Company and TI entered into a settlement agreement. Pursuant to the settlement, on March 1, 1995, the Company provided TI with the design package for its 486DX2 microprocessor product; and TI paid $15 million to the Company for past and future royalties related to another of the Company's 486 processor products licensed to TI. TI also agreed to pay specified royalties to the Company related to future sales, if any, of 486DX2 microprocessor product and TI paid $2.7 million to the Company during 1995 pursuant to this provision.
The outlook for the Company's revenue growth, if any, is dependent upon the following factors among others: trends in the personal computer market, product development, chip set, motherboard and BIOS infrastructure support for the Company's products, market acceptance, product availability and competition. The current trend in the personal computer market is toward high performance microprocessors with high clock rates. During fiscal 1995, AMD offered a 486DX4 microprocessor product line with clock rates ranging from 75 MHz to 133 MHz, and Intel offered fifth generation IBM compatible Pentium microprocessors with clock rates ranging from 60 MHz to 133 MHz. Intel has introduced its 150 and 166 MHz versions of its Pentium processor family in the first quarter of 1996. During the first nine months of 1995, the Company primarily sold 486DX2 33/66 MHz and 40/80 MHz products and a limited volume of 486DX4 75 MHz and 100 MHz products. During the third quarter of 1995, the Company began commercial shipments of its 5x86 100 MHz processors, which provide system-level performance similar to Intel's entry level Pentium microprocessors. The Company also began limited volume commercial shipments of its 6x86 processors, which provide system-level performance exceeding systems with Intel Pentium microprocessors at similar clock rates. To participate in the more profitable high performance segment of the market, the Company must ramp production of price-competitive 6x86 microprocessor products which deliver the performance characteristics necessary to compete with Intel's Pentium microprocessors with increasing clock rates.
The Company's success during fiscal 1996 is dependent upon getting its sixth generation 6x86 microprocessors into volume production and gaining market acceptance of these new products. The Company shipped to customers volume shipments of its 486DX products, limited volumes of 5x86 and a small quantity of its 6x86 products during fiscal 1995. The Company does not expect to produce any or generate any significant revenue by selling 486 microprocessors in 1996; thus, the Company wrote off substantially all of its 486 inventory during fiscal 1995. Commercial shipments of 5x86 products are expected to continue in the first half of fiscal 1996; however, the Company does not intend to manufacture any more 5x86 products. Production of the 6x86 products is expected to ramp in the first quarter of fiscal 1996 at IBM and the third quarter of 1996 at SGS if SGS is capable of manufacturing that product with acceptable performance and cost. Quarterly growth, if any, in revenue during fiscal 1996 will be dependent upon numerous factors including ongoing performance enhancements to the 6x86 processor design to remain competitive with the leading performance processors in the market, ongoing improvement in manufacturing yields by IBM, successful qualification of the SGS manufacturing process during the first half of fiscal 1996 and production ramp in the second half of 1996, pricing conditions and obtaining design wins at and purchase orders from manufacturers of personal computers. However, designing and manufacturing these complex microprocessors will be difficult, and there can be no assurances that the Company and its suppliers can successfully supply 6x86 products with competitive performance and cost in commercial volumes in such time periods. In addition, there can be no assurances that manufacturers of personal computers will design the 6x86 products into desktop computers or purchase such 6x86 products in volumes and at prices that will enable Cyrix to maintain or increase its quarterly revenues. Further, many of the Company's current and prospective competitors in the x86 market, such as Intel, AMD, IBM, SGS and TI, have significantly greater financial, technical, manufacturing and marketing resources than the Company. Therefore, the Company is subject to ongoing technology, market and competitive risks.
During 1996, a portion of the Company's processors are expected to be incorporated into modules, boards and systems and sold at higher levels of integration. The Company cannot predict the percentage of its processors which will be sold at higher levels of integration or the increase, if any, in revenue which will result from sales of such modules, boards and systems.
Gross Margins. The Company's gross margins as a percentage of net product sales (net revenues excluding royalty revenue) for fiscal 1995, 1994 and 1993 were 32%, 51% and 59%, respectively. Average selling prices and gross margins of the Company's 486DX2 products declined during each quarter of fiscal 1995 as the market continued its transition to higher performance products and the Company priced its products aggressively to compete in the low end of the microprocessor market. Further, during the fourth quarter of fiscal 1995, the average selling prices of 486DX2 microprocessors fell below the Company's cost to purchase these products, the demand for these products declined substantially compared to prior quarters and the Company wrote off substantially all of its 486 inventory, which exceeded $10 million. The Company did not have available for sale a large enough volume of products in fiscal 1995 with performance competitive with Intel's Pentium microprocessors to offset the declining demand for and average selling prices and gross margins of 486 microprocessors.
During fiscal 1993, sales of 486DLC and 486SLC microprocessors and math coprocessors represented approximately 70% of the Company's net product sales. Such products generated relatively high gross margins as these 486SX instruction-set compatible and 386 socket compatible products and related math coprocessors offered features and price/performance characteristics attractive for the entry level 486 market. During fiscal 1994, the average selling prices of the Company's 486DLC and 486SLC microprocessors and math coprocessors decreased significantly when compared to fiscal 1993 due to price competition and the shift in the x86 market to higher performance products. During fiscal 1994, approximately 75% of the Company's revenues were generated through sales of its 486DX 33 MHz, 40 MHz and 50 MHz products as well as 486DX2 25/50 MHz and 33/66 MHz products. The Company priced its 486DX and 486DX2 products aggressively in fiscal 1994 to compete in the low end of the microprocessor market.
A substantial portion of the Company's gross margin in fiscal 1996 will be generated from sales of the Company's 6x86 processors and products integrating Cyrix's 6x86 processors. The Company's gross margin as a percentage of net product sales in fiscal 1996 will be affected by the ratio of the Company's sales of microprocessors in chip form to sales at higher levels of integration such as modules, boards and systems. Quarterly growth, if any, in the Company's gross margin in fiscal 1996 is dependent upon a successful transition from entry level microprocessors to the Company's 6x86 microprocessors, ongoing performance enhancements to the 6x86 processor design to remain competitive with the leading performance processors in the market, ongoing improvement in manufacturing yields by IBM, successful qualification of the SGS manufacturing process during the first half of fiscal 1996 and production ramp in the second half of 1996, pricing conditions and other factors. There can be no assurance, however, that the Company and its suppliers can accomplish these performance improvements and cost reductions. Further, Intel, AMD and other competitors could significantly decrease the price of products which are comparable to the Company's products to protect or gain market share. Risks associated with enhancing the designs of, ramping production of, and obtaining sales orders for such next generation microprocessors are discussed in Net Revenues (above), Reliance on Third-Party Manufacturers (below) and Product Transitions (below).
Marketing, General and Administrative. Marketing, general and administrative expenses for fiscal 1995, 1994 and 1993 were $39.1 million, $44.9 million and $30.5 million, respectively. Marketing, general and administrative expenses for fiscal 1995 decreased compared to the same period of fiscal 1994 primarily due to a reduction in legal expenses to $2.8 million from $7.7 million when comparing the same periods.
Marketing, general and administrative expenses for fiscal 1994 increased compared to fiscal 1993 primarily due to increased marketing efforts and sales expenses. The Company's marketing expenses increased in fiscal 1994 compared to fiscal 1993 as the Company advertised the price/performance advantages of its 486DX and 486DX2 microprocessors and its 386 to 486 microprocessor upgrade products. The Company's sales expenses increased in fiscal 1994 as compared to fiscal 1993 primarily based on increasing sales activities and the Company's use of non-employee representatives to sell its 386 to 486 upgrade microprocessors in the United States and its 486DX and 486DX2 microprocessors in the United States and Asian regions.
While legal expenses for fiscal 1995 decreased compared to fiscal 1994 and compared to $8.3 million in fiscal 1993, they could be significant for fiscal 1996 and subsequent periods due to existing litigation and the possibility that the Company could be subject to additional future litigation. See Item 3. Legal Proceedings and Note 5 to the Consolidated Financial Statements in Part II, Item 8.
Research and Development. The Company's research and development expenses during fiscal 1995, 1994 and 1993 were $29.1 million, $24.8 million and $15.7 million, respectively. The increase of research and development expenses was attributable to the expansion of the Company's engineering staff, design equipment and prototype expenses to support the development of microprocessor products. The Company intends to increase its research and development expenses in fiscal 1996 in an effort to enhance existing products and develop technologically advanced products; however, there can be no assurance that the Company's design efforts will be successful.
Net Interest Income (Expense). Interest income for fiscal year 1995 increased to $2.8 million compared with $1.9 million for fiscal 1994 due to increasing interest rates. Interest expense for fiscal 1995 increased to $6.7 million compared with $721 thousand and $632 thousand for fiscal 1994 and fiscal 1993, respectively, as long-term debt and capitalized lease obligations (including current maturities) increased to $82.4 million as of December 31, 1995 compared to $22.8 million as of January 1, 1995 and $7.9 million as of January 2, 1994. The increase in net interest income for fiscal 1994 compared to fiscal 1993 was primarily due to increased cash and investment balances as a result of positive cash flows during fiscal 1994 and increasing interest rates. The Company expects to incur higher quarterly interest expense in subsequent quarters as the Company incurs debt to finance additional capital equipment investments.
Litigation Settlements. Other income for fiscal 1995 included a one-time settlement of $10 million from Intel related to litigation concerning the Company's microprocessor products as described in Note 5 to the Consolidated Financial Statements. In addition, as described previously, the Company resolved a contractual dispute with TI in November 1994 and recognized $17.7 million in royalty income from TI during fiscal 1995. Other income for fiscal 1994 included a one-time settlement payment of $500 thousand from Intel related to litigation concerning the Company's math coprocessor products.
The final outcome of one or more of the issues subject to litigation as described in Note 5 to the Consolidated Financial Statements in Part II, Item 8, could have a material effect on the Company's results of operations during fiscal 1996 or a subsequent period. In addition, potential future litigation, as described in Part I, Item 3, could have a material adverse effect on the Company's results of operations in future periods.
Provision for Income Taxes. The Company's effective tax rate decreased slightly to 34.3% in fiscal 1995 compared to 34.5% in fiscal 1994 and 35.4% in fiscal 1993.
In summary, the Company's reliance on third-party manufacturers creates risks that the Company will not be able to obtain capacity to meet its manufacturing requirements, will not be able to obtain products with acceptable yields, or will not have access to necessary process technologies. Further, the Company has licensed some of its intellectual property to SGS and IBM to obtain access to specified levels of manufacturing capacity, and the Company could be required to license more of its intellectual property and product rights and proprietary technology to obtain additional manufacturing capacity. Therefore, the Company's reliance on third-party manufacturers could have a material adverse affect on the Company's revenues and operating results.
Product Transitions. Once current microprocessor products have been in the market place for a period of time and begin to be replaced by higher performance microprocessors (whether of the Company's or a competitor's design), the Company expects the price of such earlier generation microprocessors to decline and net sales and gross margins of such microprocessors to decrease. In order to continue to maintain its then current gross margin and levels of revenue growth, if any, the Company will therefore be required to design, develop and successfully commercialize next generation microprocessors in a timely manner. Although the Company is committed to its product development efforts, there can be no assurance that the Company will be able to introduce new products quickly enough to avoid adverse revenue transition patterns during future product transitions.
During fiscal 1995, the Company experienced a product transition as selling prices and gross margins associated with 486DX2 products declined rapidly as such products were replaced in the market by higher performance products, such as Intel's Pentium microprocessors. By the fourth quarter of fiscal 1995, the average selling prices of 486DX2 microprocessors fell below the Company's cost to purchase these products, most large OEMs would not purchase 486DX2 products regardless of price and the Company wrote off substantially all of its 486 inventory. During this transition to next generation processors, the Company completed the designs of and began to ramp production and sales of its next generation 5x86 and 6x86 microprocessors. However, in fiscal 1995 the Company did not have available for sale a large enough volume of products with performance competitive with Intel's Pentium microprocessors to offset the declining demand for and average selling prices and gross margins of 486 microprocessors.
While the Company believes that, in 1996, its 6x86 microprocessors will offer performance competitive with the leading performance processors in the market at competitive prices for desktop personal computers, there can be no assurance that the Company will be able to successfully improve the performance of its microprocessors at the rate required to remain competitive with the leading performance processors in the market or compete against price decreases, since Intel and several of the Company's other competitors have substantially greater financial, technical, manufacturing and marketing resources than the Company. Further, Intel and other competitors are expected to introduce microprocessors with enhanced multimedia functionality and clock rates in excess of 200 MHz during fiscal 1996. There can be no assurances that the Company will not experience delays in introducing and ramping production of microprocessors with features and performance competitive with such high performance, multimedia processors introduced by Intel and other competitors. If the Company does experience such a delay in transitioning to high performance, multimedia processors, the period of time and the impact on profit margins during this product transition will be dependent upon several factors including, but not limited to the following: Cyrix may experience performance difficulties with the new product designs; Cyrix may not be able to successfully ramp production of new products at IBM and SGS without yield problems or other performance issues; and personal computer manufacturers may not design the Company's new products into their notebook and desktop computers in a timely manner or purchase the Company's products in the volumes and at the prices necessary to offset the declining market, average selling prices and profit margins of previous generation processors. Further, Intel, AMD and other competitors could significantly decrease the price of products which compete with the Company's products to protect or gain market share.
The Company must order wafers and build inventory in advance of product shipments. There is a risk that the Company will forecast incorrectly and produce excess inventories as product life cycles become shorter and more difficult to predict and price changes and transitions to new products become more rapid. This inventory risk is heightened because the Company's customers place orders with short lead times and minimal, if any, cancellation penalties. To the extent the Company produces excess inventories, the Company's earnings could be adversely affected. For example, the Company wrote off substantially all of its 486 inventory in the fourth quarter of 1995. There can be no assurance that the Company will not produce excess inventories and incur similar product write-offs or write-downs in the future.
General. The markets for the Company's products are characterized by a highly competitive and rapidly changing environment in which operating results are subject to the effects of frequent product introductions, manufacturing technology innovations and rapid fluctuations in product demand. While the Company attempts to identify and respond to these changes as soon as possible, prediction of and reaction to such events is an ongoing challenge.
The Company's future results of operations and financial condition could be impacted by the following factors, among others: trends in the personal computer market, introduction of new products by competitors, delay in the Company's introduction of higher performance products, chip set, motherboard and BIOS infrastructure support for the Company's products, market acceptance of new products introduced by the Company, intense price competition, interruption in the supply of low-cost microprocessor products from third-party manufacturers, adverse changes in general economic conditions in any of the countries in which the Company does business and adverse decisions in legal disputes with Intel or others.
Due to the factors noted above and elsewhere in Management's Discussion and Analysis of Financial Condition and Results of Operations, the Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. Any shortfall in revenue or earnings from the levels anticipated by securities analysts could have an immediate and significant effect on the trading price of the Company's common stock in any given period. Also, the Company participates in a highly dynamic industry which often results in volatility of the Company's common stock price.
The Company's expenditures for capital equipment during fiscal 1995 were substantially higher than its capital expenditures during any previous year as the Company completed substantially all of the capital equipment investment required by the agreement with IBM. While the Company intends to invest in additional engineering design equipment, software and manufacturing test equipment and expand its corporate headquarters in fiscal 1996, capital expenditures are expected to be substantially lower in fiscal 1996 compared to fiscal 1995. However, the Company is exploring various arrangements to obtain additional manufacturing capacity which would likely require the Company to fund substantial capital equipment purchases, make substantial product prepayments or make some other form of investment. There can be no assurance that the Company will be able to reach an agreement to obtain additional manufacturing capacity with any third party. Further, if the Company does reach such an agreement with a third party, the Company's liquid assets might be insufficient to fund any substantial investment or product prepayment. While the Company may attempt to sell additional equity securities or issue debt to meet any such requirements, there can be no assurance that market conditions will make the sale of additional equity securities or the issuance of debt financially attractive.
The Company's long-term debt and capitalized lease obligations outstanding at December 31, 1995 totaled $82.4 million. Approximately $20.1 million of such debt is scheduled for payment during fiscal 1996. The Company's debt agreements contain provisions regarding the maintenance of certain net income per quarter, net worth, working capital and other financial ratios. As a result of the Company's net loss recorded during the fourth quarter of fiscal 1995, the Company failed to comply with its covenants regarding the maintenance of quarterly net income and specified fixed charge coverage ratios. Each of the Company's creditors issued a waiver of these covenant violations. However, certain lenders have declined for the present time to complete the funding of approximately $4 million for equipment purchases, which represents the balance of their commitment to the Company; therefore, the Company intends to fund such remaining equipment purchases from its current cash balances. There can be no assurance that the Company will maintain the required net income per quarter, net worth, working capital and other financial ratios in the future. If the Company's creditors were to accelerate the maturity of the Company's long-term debt and capitalized lease obligations due to future non-compliance with such covenants, there can be no assurance that the Company's liquid assets could satisfy such obligations or that market conditions will make the sale of additional equity securities or the issuance of debt financially attractive.
The Company has a bank line of credit for up to $37.5 million which expires on January 3, 1997. Availability of the line of credit is subject to borrowing base requirements and compliance with loan covenants and restrictions which are similar to the covenants and restrictions in the Company's equipment financing agreements. Due to the Company's failure to comply with certain financial covenants in the fourth quarter of fiscal 1995, no borrowings were available under the line of credit as of December 31, 1995. The Company's line of credit lender issued a waiver of these covenant violations that allows the Company to draw on the line of credit subject to borrowing base requirements and cash flow based borrowing restrictions. There can be no assurance that the Company will maintain the required net income per quarter, net worth, working capital and other financial ratios in the future.
The Company's current capital plan and estimated working capital requirements are based on various product mix, selling price and unit demand assumptions and are, therefore, subject to revision due to future market conditions. If the Company is successful in achieving its business plan during fiscal 1996, the Company believes that cash flows from operations, current cash balances, the line of credit facility and anticipated available equipment financing will be sufficient to fund operations, capital investments and research and development projects currently planned. The Company's ability to achieve its business plan in fiscal 1996 is dependent upon a successful transition from entry level microprocessors to the Company's 6x86 microprocessors, ongoing performance enhancements to the 6x86 processor design to remain competitive with the leading performance processors in the market, ongoing improvement in manufacturing yields by IBM, successful qualification of the SGS manufacturing process during the first half of fiscal 1996 and production ramp in the second half of 1996, pricing conditions and other factors. There can be no assurance, however, that the Company and its suppliers can accomplish these performance improvements and cost reductions. Further, Intel, AMD and other competitors could introduce products with better performance than the Company's products or significantly decrease the price of products which are comparable to the Company's products to protect or gain market share. Risks associated with enhancing the designs of, ramping production of, and obtaining sales orders for such next generation microprocessors are discussed in Results of Operations - Net Revenues, Reliance on Third-Party Manufacturers and Product Transitions. If the Company's cash flows from operations, current cash balances, the line of credit facility and anticipated available equipment financing are not sufficient to fund operations, capital investments and research and development projects currently planned, the Company may attempt to sell additional equity securities or issue debt to meet any such requirements. However, there can be no assurance that market conditions will make the sale of additional equity securities or the issuance of debt financially attractive.
In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, which provides an alternative to APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for stock-based compensation issued to employees. FASB Statement No. 123 allows for a fair value based method of accounting for employee stock options and similar equity instruments. However, for companies that continue to account for stock-based compensation arrangements under APB Opinion No. 25, FASB Statement No. 123 requires disclosure of the pro forma effect on net income and earnings per share of its fair value based accounting for those arrangements. These disclosure requirements are effective for fiscal years beginning after December 15, 1995, or upon initial adoption of FASB Statement No. 123, if earlier. The Company will continue to account for its stock issued to employees under APB Opinion No. 25 and will make the required disclosures under the FASB Statement No. 123 for the fiscal year ended December 31, 1996.
Financial Statement Schedule:
For the three years ended December 31, 1995: Schedule II - Valuation and Qualifying Accounts
All other schedules and financial statements are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.