PROSPECTUS
$175,000,000
IMAGE: "IDT LOGO"
5 1/2 % CONVERTIBLE SUBORDINATED NOTES DUE 2002
----------
Interest payable June 1 and December 1
----------
The Notes are convertible at the option of the holder at any time after 60
days following the latest date of original issuance thereof and prior to
maturity, unless previously redeemed or repurchased, into Common Stock, $.001
par value per share (the "Common Stock"), of Integrated Device Technology, Inc.
("IDT" or the "Company") at a conversion price of $57 1/4 per share, subject to
adjustment in certain events. The Common Stock of the Company is traded on The
Nasdaq National Market under the symbol "IDTI." On May 25, 1995, the last
reported sale price of the Common Stock on The Nasdaq National Market was $45
15/16 per share. See "Price Range of Common Stock." Interest on the Notes will
be payable semi-annually on June 1 and December 1 of each year, commencing
December 1, 1995.
Prior to June 2, 1998, the Notes are not redeemable at the option of the
Company. At any time on or after such date, the Notes are redeemable at the
option of the Company, in whole or in part, at the redemption prices set forth
herein plus accrued interest. See "Description of Notes--Optional Redemption by
the Company." No sinking fund is provided for the Notes. In the event that a
Designated Event (as defined) occurs, each holder of Notes will have the right,
subject to certain conditions and restrictions, to require the Company to offer
to repurchase all outstanding Notes, in whole or in part, owned by such holder
subject to certain conditions, at the repurchase prices set forth herein plus
accrued interest. See "Description of Notes--Repurchase at Option of Holders
Upon a Designated Event." The Notes will be subordinated in right of payment to
all existing and future Senior Indebtedness (as defined). See "Description of
Notes--Subordination." Application has been made for quotation of the Notes on
the Nasdaq Small- Cap Market under the symbol "IDTIG."
----------
The Securities Offered Hereby Involve a High Degree of Risk. See "Risk Factors."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Discounts Proceeds to
Public(1) and Commissions(2) Company(1)(3)
- --------------------------------------------------------------------------------
Per Note...... 100% 2.25% 97.75%
- --------------------------------------------------------------------------------
Total (4).... $175,000,000 $3,937,500 $171,062,500
================================================================================
(1) Plus accrued interest, if any, from June 2, 1995.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $350,000.
(4) The Company has granted the Underwriters a 30-day option to purchase up to
$26,250,000 additional principal amount of Notes on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $201,250,000,
$4,528,125 and $196,721,875, respectively. See "Underwriting."
----------
The Notes offered by this Prospectus are offered by the Underwriters subject
to prior sale, withdrawal, cancellation or modification of the offer without
notice, to delivery to and acceptance by the Underwriters and to certain further
conditions. It is expected that delivery of the Notes will be made at the
offices of Lehman Brothers Inc., New York, New York on or about June 2, 1995.
----------
LEHMAN BROTHERS
MONTGOMERY SECURITIES
SMITH BARNEY INC.
May 25, 1995
<PAGE>
AVAILABLE INFORMATION
Integrated Device Technology, Inc. ("IDT" or the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities being offered pursuant to this
Prospectus. This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain items of which are contained in or incorporated by reference as exhibits
to the Registration Statement as permitted by the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement including the exhibits filed or incorporated by reference therein.
Statements contained herein concerning the provisions of documents filed with,
or incorporated by reference in, the Registration Statement as exhibits are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable documents filed with the
Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated herein by reference: (1) the Company's Annual
Report on Form 10-K for the fiscal year ended April 2, 1995; (2) the description
of the Company's Common Stock as set forth in its Registration Statement on Form
8-B dated September 23, 1987, as amended by the Company's Form 8 dated March 28,
1989; and (3) the description of the Company's Preferred Share Purchase Rights
as set forth in the Company's Registration Statement on Form 8-A dated December
20, 1988, as amended by the Company's Form 8-A/A dated February 27, 1992. All
reports and other documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus or the Registration
Statement.
The Company will provide without charge, upon written or oral request of
any person to whom a copy of this Prospectus is delivered, a copy of any or
all of the documents which have been or may be incorporated by reference in
this Prospectus, other than exhibits to such documents. Requests for such
copies shall be directed to Integrated Device Technology, Inc., 2975 Stender
Way, Santa Clara, CA 95054, Attention: Chief Financial Officer, telephone
(408) 727-6116.
----------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY OR SHARES OF THE COMMON STOCK OF THE COMPANY AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere or incorporated by reference in this Prospectus. The
Company's fiscal year ends on the Sunday closest to March 31 and the first,
second and third fiscal quarters end on the Sunday closest to June 30, September
30 and December 31, respectively. As a result, there were 53 weeks in fiscal
1994 and 52 weeks in fiscal 1991, 1992, 1993 and 1995. For ease of reference,
month-end dates are used herein except in the Consolidated Financial Statements
and related notes thereto. Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over- allotment option.
THE COMPANY
Integrated Device Technology, Inc. ("IDT" or the "Company") designs,
develops, manufactures and markets a broad range of high-performance
semiconductor products for the desktop computer, communications, office
automation and workstation/server markets. The Company focuses its development
efforts on providing proprietary and enhanced industry-standard products that
improve the performance of systems incorporating high-performance
microprocessors. The Company offers over 5,000 product configurations in four
product families: SRAM components and modules, specialty memory products, logic
circuits and RISC microprocessors and subsystems.
The Company has introduced over 50 new products in more than 600
configurations since the beginning of fiscal 1995. The Company believes that its
ability to introduce new, higher-performance products has resulted in it
becoming a market leader in SRAMs, SRAM cache modules, FIFO and multi-port
specialty memory products and high-speed CMOS logic circuits. The Company has
made significant investments and commitments in becoming a supplier of
RISC-based microprocessors and now offers a family of 20 microprocessor and
related peripheral products for the embedded systems and desktop computing
markets.
IDT operates sub-micron wafer fabrication facilities in San Jose and Salinas,
California. The Company's Salinas facility includes a 24,000 square foot, class
3, six-inch wafer fabrication line. The Company's San Jose facility includes a
24,000 square foot, class 1, six-inch wafer fabrication line. The Company is
also having built a 192,000 square foot facility containing a 48,000 square
foot, class 1, eight-inch wafer fabrication line in Hillsboro, Oregon. The
Company continues to make significant investments to advance its proprietary
CMOS process technologies in order to improve product performance and lower
product costs through increased yields. The majority of IDT's current products
are manufactured using 0.65 micron processes, an increasing number of products
are being manufactured using the Company's new 0.5 micron processes and several
sub-0.5 micron CMOS processes are under development. IDT believes that
maintaining its own wafer fabrication capability facilitates the implementation
of advanced process technologies and new higher- performance product designs,
provides it with a reliable source of supply of semiconductors and allows it to
be more flexible in shifting production according to product demand.
The Company markets its products on a worldwide basis primarily to OEMs
through a variety of channels, including a direct sales force, distributors and
independent sales representatives. The Company's end-user customers include
Alcatel, AT&T, Apple Computer, Bay Networks, Canon, Cisco Systems, Compaq
Computer, Dell Computer, Digital Equipment, FORE Systems, Hewlett-Packard, IBM,
Intel, Motorola, NEC, Nokia, Olivetti, Siemens Nixdorf, Silicon Graphics, Sun
Microsystems and Tektronix.
The Company was incorporated in California in 1980 and reincorporated in
Delaware in September 1987. Its principal offices are located at 2975 Stender
Way, Santa Clara, California 95054 and its telephone number is (408) 727-6116.
3
<PAGE>
THE OFFERING
Securities Offered .........$175,000,000 principal amount of 5 1/2 % Convertible
Subordinated Notes due 2002 (the "Notes") to be
issued under an indenture (the "Indenture") as more
fully described under "Description of Notes." The
Company has granted to the Underwriters an option
for 30 days to purchase up to $26,250,000 additional
principal amount of Notes, solely to cover over-
allotments.
Maturity ...................June 1, 2002.
Interest ...................Interest on the Notes is payable on the principal
amount thereof at the rate stated on the cover page
of this Prospectus, semi-annually on each June 1 and
December 1, commencing December 1, 1995.
Conversion Rights ..........The Notes are convertible at the option of the
holder at any time after 60 days following the
latest date of original issuance thereof and prior
to maturity, unless previously redeemed or
repurchased, into the Company's Common Stock at a
conversion price of $57 1/4 per share, subject to
adjustment under certain conditions. See
"Description of Notes--Conversion."
Optional Redemption ........The Notes are not redeemable at the option of the
Company prior to June 2, 1998. At any time on or
after such date, the Notes will be redeemable on at
least 15 days' notice at the option of the Company,
in whole or in part, at any time, initially at
102.750% and thereafter at prices declining to 100%
at maturity, together with accrued interest. See
"Description of Notes-- Optional Redemption by the
Company."
Repurchase at Option of
Holders Upon
Designated Event ..........In the event that a Designated Event, which includes
a Change of Control (each as defined in the
Indenture) occurs, each holder of Notes will have
the right, subject to certain conditions and
restrictions, to require the Company to offer to
repurchase all outstanding Notes, in whole or in
part, owned by such holder, at the repurchase prices
set forth herein plus accrued interest. See
"Description of Notes--Repurchase at Option of
Holders Upon a Designated Event."
Subordination ..............The Notes are subordinate in right of payment to all
existing and future Senior Indebtedness (as defined
in the Indenture) of the Company. As of March 31,
1995, the Company had approximately $50.2 million of
outstanding indebtedness which constituted Senior
Indebtedness. The Indenture contains no limitation
on the incurrence of Senior Indebtedness or other
liabilities by the Company or its subsidiaries. See
"Description of Notes--Subordination."
Listing ....................Application has been made for quotation of the Notes
on the Nasdaq Small-Cap Market under the symbol
"IDTIG." Until approximately May 31, 1995 the Notes
will trade on the over-the-counter market. The
Common Stock is traded on the Nasdaq National Market
under the symbol "IDTI."
Use of proceeds ............To equip a new wafer fabrication facility and
construct and equip a new assembly and test
facility, expand existing wafer fabrication
facilities, acquire other capital equipment, fund
the possible investments in or acquisitions of
complementary technologies, product lines or
companies and for other general corporate purposes,
including working capital. See "Use of Proceeds."
4
<PAGE>
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data and ratios)
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
---------------------------------------------------------------
1991 1992(1) 1993 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues .............................................. $198,559 $ 202,734 $ 236,263 $ 330,462 $ 422,190
Gross profit .......................................... 98,611 75,915 103,978 170,835 242,538
Operating income (loss) ............................... 4,138 (29,316) 11,006 52,269 99,515
Income (loss) before provision
(benefit) for income taxes .......................... 836 (34,768) 6,278 50,206 104,403
Net income (loss)(2) .................................. 1,226 (32,808) 5,336 40,165 78,302
Net income (loss) per share(2) ......$ ............... $ .05 $ (1.25) $ .18 $ 1.21 $ 2.09
Shares used in computing net income
(loss) per share .................................... 26,070 26,255 29,701 33,116 37,382
Ratio of earnings to fixed charges(3) ................. 1.11x -- 1.90x 8.95x 24.75x
</TABLE>
MARCH 31, 1995
-------------------------
ACTUAL AS ADJUSTED(4)
--------- -------------
BALANCE SHEET DATA:
Working capital ................................. $271,695 $442,408
Total assets .................................... 561,975 732,688
Total debt ...................................... 42,498 217,498
Stockholders' equity ............................ 414,531 414,531
- ----------
(1) In fiscal 1992, the Company recorded restructuring and other charges of
$24.8 million.
(2) The Company's exemption from Malaysian income taxes expired in fiscal 1994.
See Note 11 of Notes to Consolidated Financial Statements included herein
("Consolidated Financial Statements").
(3) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated income (loss) before income taxes plus
fixed charges and (ii) fixed charges consist of interest expense incurred
and the portion of rental expense under operating leases deemed by the
Company to be representative of the interest factor. Earnings were
inadequate to cover fixed charges by $8.3 million in fiscal 1992.
(4) Adjusted to give effect to the sale by the Company of the Notes offered
hereby and the receipt of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
In addition to the other information contained in or incorporated by
reference in this Prospectus, the following risk factors should be considered
carefully in evaluating the Company and its business before purchasing the
shares of Common Stock offered hereby.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; DEPENDENCE ON COMPUTER AND
COMMUNICATIONS INDUSTRIES
IDT's past operating results have been, and its future operating results may
be, subject to quarterly fluctuations due to a wide variety of factors including
the timing of new product and process technology announcements and introductions
by the Company or its competitors, competitive pricing pressures, fluctuations
in manufacturing yields, changes in the mix of products sold, availability and
costs of raw materials, the cyclical nature of the semiconductor industry,
industry-wide wafer-processing capacity, economic conditions in various
geographic areas and costs associated with other events, such as an expansion of
production capability or litigation. For example, the Company's results in
fiscal 1991 were adversely affected by a delay in the introduction of a
higher-speed 256K (kilobit) SRAM (Static Random Access Memory) and a 1 Meg
(megabit) SRAM, an industry-wide decrease in demand for logic products and, in
late 1991, significant price competition in the SRAM market. In addition, due
primarily to the write-down of excess inventory and underutilized capital
assets, accruals for patent litigation defense costs and charges related to
closure of an older wafer fabrication facility, the Company incurred a
significant loss in fiscal 1992. Any unfavorable changes in manufacturing
yields, product mix, supply or costs of raw materials, delays in new product or
process technology introductions, underutilization of manufacturing capacity,
unfavorable market conditions, increased price competition, intellectual
property rights or other factors could adversely affect the Company's operating
results. Although the Company has benefited in recent periods from SRAM market
conditions characterized by excess demand over supply and resultant favorable
pricing, memory markets have historically been characterized by declining
prices. The Company believes industry wide capacity for SRAM production is
increasing in response to these market conditions. As a result, any significant
price declines for SRAM products in the future, either due to decreased demand
or increased supply, could adversely affect the Company's operating results.
The Company's operating results are also affected by the market's acceptance
of the Company's and its customers' products and the level and timing of orders
received. The Company ships a substantial portion of its quarterly sales in the
last month of a quarter. If anticipated shipments in any quarter do not occur,
the Company's operating results for that quarter could be adversely affected. In
addition, a substantial percentage of the Company's products are incorporated
into computer and computer-related products, which have historically been
characterized by significant fluctuations in demand which in turn have affected
the demand for components used in these computers. Furthermore, the Company's
operating results are affected by the demand for microprocessors, particularly
advanced microprocessors such as the Intel Pentium and the PowerPC, that utilize
SRAM cache memory. Any decline in the demand for advanced microprocessors could
adversely affect the Company's sales of SRAM components and modules, which could
adversely affect the Company's operating results. In addition, demand for
certain of the Company's products is dependent upon growth in the communications
market. A slowdown in the computer and related peripherals or communications
markets could adversely affect the Company's operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CURRENT CAPACITY LIMITATIONS AND RISKS ASSOCIATED WITH PLANNED EXPANSION
The Company has been operating its wafer fabrication facilities in Salinas
and San Jose and its assembly operations in Malaysia near installed equipment
capacity since fiscal 1994. As a result, the Company has not been able to take
advantage of all market opportunities presented to it. Due to long production
lead times and current capacity constraints, any failure by the Company to
adequately forecast the mix of product demand could adversely affect the
Company's sales and operating results. For example, the Company's second quarter
fiscal 1995 results were relatively flat compared to its prior quarter results
due to a slowing in demand from networking customers and an inability to shift
production to other product areas where demand exceeded supply.
6
<PAGE>
To address its capacity requirements, in fiscal 1995 the Company initiated
and substantially completed the conversion of its Salinas wafer fabrication
facility from five-inch to six-inch wafers, added incremental production
equipment to its San Jose wafer fabrication facility and completed a 40,000
square foot expansion of test and assembly facilities in Penang, Malaysia. In
addition, in August 1994 construction commenced on a leased 192,000 square foot
facility containing a 48,000 square foot, class 1, eight-inch wafer fabrication
line in Hillsboro, Oregon. The Company also recently acquired land in the
Philippines and intends to construct a 240,000 square foot assembly and test
facility over the next several years. Delays in the delivery of wafer
fabrication or test equipment to the Company's facilities could delay planned
increases in the Company's production capacity. In connection with the
construction, equipping and commencement of operations at the Oregon and
Philippine facilities, the Company faces a number of substantial additional
risks including, but not limited to, delays in construction, cost overruns,
equipment delays or shortages, manufacturing startup or process problems and
difficulties in hiring key managers and technical personnel. In addition, the
Company has never operated an eight-inch wafer fabrication facility and
eight-inch facilities and production equipment are relatively new to the
industry. Accordingly, the Company could incur unanticipated process or
production problems.
The Company's capacity additions will result in a significant increase in
fixed and operating expenses. If revenue levels do not increase sufficiently to
offset these additional expense levels, the Company's operating results could be
adversely impacted in future periods. In this regard, IDT has historically
expensed as period costs, rather than capitalized, the operating expenses
associated with bringing a fabrication facility to commercial production.
Although the Company does not expect the Oregon fabrication facility to
contribute to revenues until fiscal 1997, the Company will recognize substantial
operating expenses associated with the facility in fiscal 1996 and 1997. In
addition, in fiscal 1997, the Company will begin to recognize substantial
depreciation expenses upon commencement of commercial production but before
production of substantial volume is achieved. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The extensive production expansion programs, including, in particular, the
construction of new facilities in Oregon and the Philippines, could strain the
Company's management and engineering resources. This strain on resources could
be exacerbated by the geographic distances between the Company's facilities.
There can be no assurance that the Company will be able to hire additional
management, engineering and other personnel, as needed, to manage these
expansion programs effectively and to implement new production capacity in a
timely manner and within budget.
The Company believes other manufacturers are also expanding or planning to
expand their fabrication capacity over the next several years. There can be no
assurance that expansion by the Company and its competitors will not lead to
overcapacity in the Company's target markets, which could cause declines in
product prices that would adversely affect the Company's operating results. See
"Business--Manufacturing--Properties."
MANUFACTURING RISKS
The Company's CMOS (Complementary Metal Oxide Silicon) and BiCMOS (Bipolar
CMOS) manufacturing processes are highly complex, require advanced and costly
equipment and are continuously being modified in an effort to improve yields and
product performance. Minute impurities or other difficulties in the
manufacturing process can lower yields. From time to time, IDT has experienced
production difficulties that have caused delivery delays and quality problems.
There can be no assurance that the Company will not experience manufacturing
problems and product delivery delays in the future as a result of, among other
things, changes to its process technologies, ramping production, installing new
equipment at its facilities, and constructing facilities in Oregon and the
Philippines. See "Current Capacity Limitations and Risks Associated with Planned
Expansion." Further, the Company's existing wafer fabrication facilities are
located relatively near each other in Northern California. If the Company were
unable to use these facilities, as a result of a natural disaster or otherwise,
the Company's operations would be materially adversely affected until the
Company were able to obtain other production capability. See "Business--
Manufacturing--Properties."
7
<PAGE>
DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES
The market for the Company's products is characterized by significant price
competition, frequent new product introductions, rapidly changing technology and
evolving industry standards. Notwithstanding the Company's recent experience in
the SRAM market, average selling prices of the Company's products have
historically declined over time and this trend is expected to continue. To
offset these decreases, the Company relies on manufacturing cost reductions and
on timely introductions of new products that meet customers' needs. From time to
time the Company has experienced delays in product introductions. To remain
competitive the Company also must continue to devote significant resources to
advancing process technologies, reducing semiconductor die size, increasing
performance and improving manufacturing yields. IDT is currently converting the
manufacture of several products to its newer generation process technologies.
Often in the past, such conversions have temporarily adversely affected yields.
In particular, as process geometries become smaller, implementation becomes more
difficult. There can be no assurance that the Company will be able to develop
and introduce new products in a timely manner, that new products will gain
market acceptance or that new process technologies can be successfully
implemented. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Research and Development."
COMPETITION
The Company competes with a number of manufacturers in each of its major
product areas. Several of the Company's competitors have substantially greater
technical, marketing, manufacturing and financial resources than the Company. In
addition, several of the Company's foreign competitors receive assistance from
their respective governments, which may give them a competitive advantage. The
Company competes principally on the basis of technical innovation and product
performance, as well as on quality, price and product availability. The ability
of IDT to compete successfully depends upon a number of factors, including new
product and process technology introductions by IDT and its competitors,
customer acceptance of the Company's products, cost effective manufacturing,
assertion of intellectual property rights and general market and economic
conditions. Some of these factors are outside the Company's control. There can
be no assurance that the Company will be able to compete successfully in the
future against existing or potential competitors or that the Company's operating
results will not be adversely affected by increased price competition. See
"Business--Competition--Intellectual Property and Licensing."
CAPITAL NEEDS
The semiconductor industry is extremely capital intensive. To remain
competitive, the Company must continue to invest in advanced manufacturing and
test equipment. Capital expenditures in fiscal 1995 for the purchase of capital
equipment and expansion of facilities amounted to approximately $94.7 million.
In fiscal 1996 the Company expects to expend approximately $260 million for the
purchase of equipment for the Oregon facility, other ongoing capital
expenditures and initial funding for the Philippines assembly and test facility.
The Company currently estimates that the cost to construct and equip the Oregon
and Philippines facilities will be approximately $400 to $500 million and $75
million, respectively. Accordingly, the Company anticipates significant
continuing capital expenditures in the next several years. While the Company
believes that the proceeds from this offering, together with existing cash and
cash equivalents, cash flow from operations, existing credit facilities
(including a $60 million operating lease for the Oregon facility pursuant to
which the lessor will fund construction of the building and improvements) and
possible other financing arrangements for the new Oregon facility, will be
adequate to fund its anticipated capital expenditures and working capital needs
at least through fiscal 1996, there can be no assurance that the Company will
not be required to seek other financing sooner or that such financing, if
required, would be available on terms satisfactory to the Company. In this
regard, any adverse effect upon the Company's operating results due to a
significant downturn in industry pricing or otherwise could accelerate the
Company's need to seek additional outside capital. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
8
<PAGE>
INTELLECTUAL PROPERTY RISKS
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which have resulted in
significant and often protracted and expensive litigation. In recent years,
there has been a growing trend of companies to resort to litigation to protect
their semiconductor technology from unauthorized use by others. The Company in
the past has been involved in patent litigation which adversely affected its
operating results. Although the Company has obtained patent licenses from
certain semiconductor manufacturers, the Company does not have licenses from a
number of semiconductor manufacturers who have a broad portfolio of patents. IDT
has been notified that it may be infringing patents issued to certain
semiconductor manufacturers and other parties, and is currently involved in
several license negotiations. There can be no assurance that additional claims
alleging infringement of intellectual property rights, including infringement of
patents that have been or may be issued in the future, will not be asserted in
the future. The intellectual property claims that have been or may be asserted
against the Company could require IDT to discontinue the use of certain
processes or cease the manufacture, use and sale of infringing products, to
incur significant litigation costs and damages, and to develop noninfringing
technology or to acquire licenses to the alleged infringed technology. There can
be no assurance that the Company would be able to obtain such licenses on
acceptable terms or to develop noninfringing technology. The failure to renew or
renegotiate existing licenses or significant increases in amounts payable under
these licenses could also have an adverse effect on the Company. In addition,
there can be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented or that rights granted thereunder will
provide competitive advantages to the Company. Furthermore, the laws of certain
countries do not protect the Company's intellectual property rights to the same
extent as do the laws of the United States. See "Business--Intellectual Property
and Licensing."
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The semiconductor industry is highly cyclical and has been subject to
significant downturns at various times that have been characterized by
diminished product demand, production overcapacity and accelerated erosion of
average selling prices. In recent periods, the markets for the Company's
products, in particular SRAMs, have been characterized by excess demand over
supply and resultant favorable product pricing. These conditions represent a
departure from the long-term trend of declining average selling prices in the
semiconductor market. Any material increase in industry-wide production
capacity, shift in industry capacity toward products competitive with the
Company's products, reduced demand or reduced growth in demand, or other factors
could result in a rapid decline in product pricing and adversely affect the
Company's operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
MANAGEMENT OF GROWTH
The Company has experienced, and expects to experience in the future, growth
in the number of employees, the scope of its operations and the geographic area
of its operations. This growth has resulted in new and increased reponsibilities
for management personnel and has placed added pressures on the Company's
operating and financial systems. To manage future growth effectively, the
Company must hire additional management and technical personnel, integrate its
new employees into its overall operations and continue to improve its
operational, financial and management systems. If the Company is unable to
manage growth effectively or hire or retain qualified personnel, the Company's
business and results of operations could be materially and adversely affected.
See "Business--Employees."
DEPENDENCE ON THIRD PARTIES
The Company's manufacturing operations depend upon obtaining adequate raw
materials on a timely basis. The number of vendors of certain raw materials,
such as silicon wafers, ultra-pure metals and certain chemicals and gases, is
very limited. In addition, certain packages used by the Company require long
lead times and are available from only a few suppliers. From time to time,
vendors have extended lead times or limited supply to the Company due to
capacity constraints. The Company's results of operations would be adversely
affected if it were unable to obtain adequate supplies of raw materials in
9
<PAGE>
a timely manner or if there were significant increases in the costs of raw
materials. IDT has been dependent on the design capabilities of Quantum Effect
Design, Inc. ("QED"), a majority-owned subsidiary, for the design and
development of derivatives of MIPS RISC based microprocessors. There can be no
assurance that the Company will be able to maintain this design relationship
with QED or that QED will continue to be successful in developing new
microprocessors. See "Business--Manufacturing" and "--Research and Development."
INTERNATIONAL OPERATIONS
Substantially all of the Company's test operations and a significant portion
of its assembly operations are performed at IDT's facilities in Penang,
Malaysia. IDT also uses subcontractors in Korea, the Philippines and Malaysia
for certain assembly operations. In addition, the Company plans to construct an
assembly and test facility in the Philippines. The Company's reliance on these
overseas facilities entails certain risks generally associated with doing
business abroad, such as foreign governmental regulations, currency
fluctuations, potential currency exchange controls, political unrest and
disruptions or delays in shipments. The Company's operations in Penang are
subject to other specific risks. There is currently a very low unemployment
rate, and accordingly a limited pool of skilled workers, in Penang. There can be
no assurance that the Company will be able to hire sufficient skilled personnel
as it expands its operations. In addition, due to current limitations on
electrical power availability in Penang, certain large consumers of power have
been subject to brief shutdowns on a weekly basis. While the Company is not a
large consumer of power and therefore has not been affected by such scheduled
shutdowns, there can be no assurance that, as IDT's and other manufacturers'
operations in Penang expand, electrical power shortages will not adversely
affect the Company's Malaysian operations. The Company's tax rate in fiscal 1996
will increase as a result of decreased tax benefits associated with the
Company's Malaysian subsidiary. See Note 11 of Notes to Consolidated Financial
Statements. If the Company were unable to assemble or test products offshore, or
if air transportation to these foreign facilities were curtailed, the Company's
operations could be materially adversely affected.
A substantial percentage of the Company's revenues are derived from export
sales. In fiscal 1994 and 1995, export sales accounted for 32% and 39%,
respectively, of IDT's revenues. See Note 12 of Notes to Consolidated Financial
Statements. Export sales are generally denominated in local currencies. The
Company's offshore assembly and test operations and export sales are subject to
risks associated with foreign operations, including currency controls and
fluctuations, changes in local economic conditions, import and export controls,
as well as changes in tax laws, tariffs and freight rates. The Company attempts
to hedge against a portion of its short-term exposure to currency fluctuations.
There can be no assurance that the above factors will not adversely affect the
Company's operations in the future or that the Company will be successful in its
hedging efforts. See "Business--Marketing and Sales" and "--Manufacturing" and
Notes 1 and 2 of Notes to Consolidated Financial Statements.
INVENTORY VALUATION ISSUES
In connection with the Company's fiscal 1993 audit, the Company's independent
auditors identified a material weakness in the Company's internal controls with
respect to its inventory management system as it relates to determining the cost
of inventory. A material weakness indicates that a material error or
irregularity may occur in the Company's quarterly financial statements and may
not be detected on a timely basis by the Company's employees in the normal
course of performing their assigned functions, thereby possibly resulting in a
misstatement of the Company's quarterly financial statements. There were no
adjustments to the Company's financial statements in connection with the fiscal
1993 audit and no restatements of any quarterly periods in that year. Beginning
in fiscal 1994, the Company implemented programs aimed at improving its
inventory management and costing systems. The Company's independent auditors did
not identify any material weaknesses with respect to these systems in their
audits for fiscal 1994 and 1995 and noted improvements in the Company's systems,
but indicated that the Company's systems continue to have significant
limitations. While the Company continues to devote resources to the improvement
of its systems, there can be no assurance that the Company will successfully
implement systems that will completely resolve these issues. Failure to devote
adequate resources to address limitations in the Company's inventory management
and costing systems or to improve such systems to the extent sought could result
in a misstatement of operating results.
10
<PAGE>
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of foreign, federal, state and local
governmental regulations related to the discharge and disposal of toxic,
volatile or otherwise hazardous materials used in its manufacturing process.
While the Company believes that it has all environmental permits necessary to
conduct its business and that its activities conform to present environmental
regulations, increasing public attention has been focused on the environmental
impact of semiconductor operations. Any failure by the Company to control the
use of, or to restrict adequately the discharge of, hazardous materials under
present or future regulations could subject it to substantial liability or could
cause its manufacturing operations to be suspended. In addition, IDT could be
held financially responsible for remedial measures if its properties were found
to be contaminated whether or not the Company was responsible for such
contamination.
VOLATILITY OF STOCK PRICE
The Company's Common Stock has experienced substantial price volatility and
such volatility may occur in the future, particularly as a result of quarter to
quarter variations in the actual or anticipated financial results of the Company
or other companies in the semiconductor industry or in the markets served by the
Company, or announcements by the Company or its competitors regarding new
product introductions. In addition, the stock market has experienced extreme
price and volume fluctuations that have affected the market price of many
technology companies' stocks in particular and that have often been unrelated or
disproportionate to the operating performance of these companies. These factors
may adversely affect the market price of the Common Stock. See "Price Range of
Common Stock."
SUBORDINATION OF NOTES
The Notes will be unsecured subordinated obligations of the Company and will
be subordinate to the prior payment in full of all Senior Indebtedness (as
defined in the Indenture) of the Company and will be effectively subordinated to
all indebtedness and other liabilities of the Company's subsidiaries. As of
March 31, 1995, the Company had approximately $50.2 million of outstanding
indebtedness which constituted Senior Indebtedness. In addition, as of March 31,
1995, subsidiaries of the Company had outstanding an aggregate of approximately
$3.6 million of indebtedness to which the Notes are effectively subordinated.
The Indenture will not limit the amount of additional indebtedness, including
Senior Indebtedness, which the Company or any of its subsidiaries can create,
incur, assume or guarantee. During the continuance beyond any applicable grace
period of any default of the payment of principal, premium, interest or any
other payment due on any Senior Indebtedness, no payment of principal, or
premium, if any, or interest on the Notes (including, but not limited to the
redemption price or repurchase price with respect to the Notes) may be made by
the Company. In addition, upon any distribution of assets of the Company
pursuant to any dissolution, winding up, liquidation or reorganization, the
payment of the principal of, or premium, if any, and interest on the Notes is
subordinated to the extent provided in the Indenture to the prior payment in
full of all Senior Indebtedness. By reason of the subordination, in the event of
the Company's liquidation or dissolution, holders of Senior Indebtedness may
receive more, ratably, and holders of the Notes may receive less, ratably, than
the other creditors of the Company.
In addition, the Notes are obligations exclusively of the Company and not of
any of its subsidiaries. The Company's cash flow and ability to service debt,
including the Notes, may be partially dependent upon the earnings of its
subsidiaries and the distribution of those earnings to the Company, or upon
other payments of funds by the subsidiaries to the Company. The subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make any funds
available therefor, whether by dividends, loans or other payments. In addition,
the payment of dividends and the making of loans and advances to the Company by
its subsidiaries may be subject to statutory, contractual or other restrictions,
are dependent upon the earnings of those subsidiaries and are subject to various
business considerations. Any right of the Company to receive assets of any of
its subsidiaries upon their liquidation or reorganization (and the consequent
right of the holders of the Notes to participate in these assets) will be
effectively subordinated to the claims of that subsidiary's creditors (including
trade creditors), except to the extent that the Company is itself recognized as
a
11
<PAGE>
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security interests in the assets of such subsidiary and
any indebtedness of such subsidiary senior to that held by the Company. See
"Description of Notes--Subordination."
LIMITATIONS ON REPURCHASE OF NOTES
Upon a Designated Event, which includes a Change of Control (each as defined
in the Indenture), each holder of Notes will have certain rights, at the
holder's option, to require the Company to repurchase all or a portion of such
holder's Notes. If a Designated Event were to occur, there can be no assurance
that the Company would have sufficient funds to pay the repurchase price for all
Notes tendered by the holders thereof. In addition, the Company's repurchase of
Notes as a result of the occurrence of a Designated Event may be prohibited or
limited by, or create an event of default under, the terms of agreements
relating to borrowings which the Company may enter into from time to time,
including agreements relating to Senior Indebtedness. See "--Anti-Takeover
Provisions" and "Description of Notes--Repurchase at Option of Holders Upon a
Designated Event."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes are a new issue of securities for which there is currently no
public market. Although application has been made for quotation of the Notes on
the Nasdaq Small-Cap Market, there can be no assurance that an active trading
market will develop or be maintained for the Notes. Further, until approximately
May 31, 1995 the Notes will trade on the over-the-counter market. If a market
for the Notes does develop, the Notes may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for similar
securities, the performance of the Company, the market price for the Company's
Common Stock, the performance of the semiconductor industry and other factors.
ANTI-TAKEOVER PROVISIONS
The Company has adopted a number of anti-takeover measures. The Company has
adopted a Stockholder Rights Plan, sometimes referred to as a poison pill,
designed to prevent hostile takeovers not approved by the Board of Directors.
See "Description of Capital Stock--Preferred Stock." In addition, the Company's
Certificate of Incorporation provides (i) that the affirmative vote of the
holders of at least 75% of the voting power of outstanding shares is required to
approve certain corporate transactions involving "related persons" and (ii) for
a staggered board of directors under which no more than three of the Company's
directors are elected in any year. The Company's bylaws also provide that
directors may be removed from office without cause only by the vote of holders
of at least 66 2/3 % of the Company's outstanding shares. To the extent that the
required vote on a change in control and staggered Board elections would
discourage corporate transactions that would likely result in a change in the
Company's management, such management changes may be less likely to occur, or
could, under certain circumstances, permit the Company's Board of Directors or
minority stockholders to frustrate consummation of a business combination that
the holders of a majority of the voting stock of the Company might believe to be
in their best interests. In addition, the Board of Directors has the authority
to issue up to 5,000,000 shares of Preferred Stock (less the shares of Preferred
Stock reserved pursuant to the Stockholder Rights Plan) without any further vote
or action by the stockholders of the Company. Thus, the Board could issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of the holders of Common Stock or with terms calculated to
delay or prevent a change in control of the Company or to make the removal of
management more difficult. In addition, Delaware law includes certain provisions
that may discourage takeovers. See "Description of Capital Stock." In addition,
these anti-takeover measures could adversely affect holders of the Notes in that
they could discourage transactions that would constitute a Change of Control (as
defined in the Indenture) or any other Designated Event (as defined in the
Indenture) that would trigger their rights to require the Company to repurchase
their Notes. See "Description of Notes--Repurchase at Option of Holders Upon a
Designated Event."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered by the
Company are estimated to be $170,713,000 ($196,372,000 if the Underwriters'
over-allotment option is exercised in full).
The Company intends to use the net proceeds of the offering to equip a new
wafer fabrication facility in Hillsboro, Oregon, to construct and equip a new
assembly and test facility in the Philippines, to expand existing wafer
fabrication facilities and to acquire other capital equipment, and for general
corporate purposes, including working capital. A portion of the proceeds may
also be used for the acquisition or investment in complementary businesses,
products or technologies. However, at the present time the Company has no
commitments or understandings, nor are negotiations pending, with respect to any
such investment or acquisition. The Company believes that the proceeds of this
offering, together with existing cash and cash equivalents, short-term
investments, cash flow from operations, existing credit facilities and possible
other financing arrangements for the construction and equipping of the Oregon
and Philippine facilities, will be adequate to fund its anticipated capital
expenditures and working capital needs through at least fiscal 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Pending their application, the
proceeds from this offering will be invested in short-term, interest bearing
instruments.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is traded on The Nasdaq National Market under
the symbol "IDTI." The following table sets forth the high and low last reported
sale prices for the Common Stock as reported by the Nasdaq National Market
during the fiscal quarters indicated.
HIGH LOW
-------- -------
Fiscal 1994:
First Quarter .......................... 11 1/8 6 1/2
Second Quarter ......................... 19 5/8 10 1/2
Third Quarter .......................... 18 7/8 12 3/8
Fourth Quarter ......................... 33 5/8 16 3/4
Fiscal 1995:
First Quarter .......................... 31 3/8 23 7/8
Second Quarter ......................... 28 7/8 16 1/4
Third Quarter .......................... 30 1/16 18 1/2
Fourth Quarter ......................... 40 3/4 28 3/8
Fiscal 1996:
First Quarter (through May 25, 1995) .. 49 3/8 36 1/16
On May 25, 1995, the last reported sale price of the Common Stock was $45
15/16 per share. As of May 25, 1995, there were approximately 820 record holders
of the Common Stock.
DIVIDEND POLICY
The Company intends to retain any future earnings for use in its business
and, accordingly, does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future.
13
<PAGE>
<TABLE>
CAPITALIZATION
The following table sets forth the capitalization of IDT at March, 31, 1995
and as adjusted to reflect the sale by the Company of the Notes offered hereby
and the receipt of the estimated net proceeds therefrom.
<CAPTION>
MARCH 31, 1995
------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long term obligations(1) ...................................................... 5,903 $ 5,903
======== ========
Notes offered hereby ............................................................................. -- $175,000
Long-term obligations excluding current portion(1) ............................................... 36,595 36,595
-------- --------
Total long-term debt ............................................................................. 36,595 211,595
Stockholders' equity:
Preferred Stock; $.001 par value: 5,000,000 shares authorized;
no shares issued ............................................................................ -- --
Common Stock; $.001 par value: 65,000,000 shares authorized;
38,104,634 shares issued and outstanding(2) ................................................. 38 38
Additional paid-in capital .................................................................... 271,618 271,618
Retained earnings ............................................................................. 142,819 142,819
Cumulative translation adjustment ............................................................. 56 56
-------- --------
Total stockholders' equity .................................................................. $414,531 $414,531
-------- --------
Total capitalization ........................................................................ $451,126 $626,126
======== ========
<FN>
- ----------
(1) See Notes 4 and 5 of Notes to Consolidated Financial Statements.
(2) Excludes 5,468,973 shares of Common Stock subject to stock options
outstanding at March 31, 1995 and an additional 1,258,934 shares of Common
Stock reserved for issuance under the Company's stock option and stock
purchase plans. See Note 9 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of March 31, 1994 and
1995 and for each of the years in the three-year period ended March 31, 1995
have been derived from IDT's Consolidated Financial Statements included
elsewhere in this Prospectus, which have been audited by Price Waterhouse LLP,
independent accountants, as indicated in their report thereon appearing
elsewhere herein. The following selected financial data as of March 31, 1991,
1992 and 1993 and for each of the years in the two-year period ended March 31,
1992 have been derived from audited consolidated financial statements not
included herein. The data set forth below are qualified in their entirety by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related notes thereto included elsewhere
in this Prospectus.
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------------------------------
1991 1992(1) 1993 1994 1995
---------- ----------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues .............................................. $198,559 $202,734 $ 236,263 $ 330,462 $ 422,190
Cost of revenues ...................................... 99,948 126,819 132,285 159,627 179,652
---------- ----------- ---------- ---------- ----------
Gross profit .......................................... 98,611 75,915 103,978 170,835 242,538
---------- ----------- ---------- ---------- ----------
Operating expenses:
Research and development ............................ 50,848 52,044 53,461 64,237 78,376
Selling, general and administrative ................. 43,625 48,721 39,511 54,329 64,647
Restructuring charge ................................ -- 4,466 -- -- --
---------- ----------- ---------- ---------- ----------
Total operating expenses .......................... 94,473 105,231 92,972 118,566 143,023
---------- ----------- ---------- ---------- ----------
Operating income (loss) ............................... 4,138 (29,316) 11,006 52,269 99,515
Interest expense ...................................... (6,507) (7,045) (5,855) (5,165) (3,298)
Interest income and other, net ........................ 3,205 1,593 1,127 3,102 8,186
---------- ----------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes .......................... 836 (34,768) 6,278 50,206 104,403
Provision (benefit) for income taxes .................. (390) (1,960) 942 10,041 26,101
---------- ----------- ---------- ---------- ----------
Net income (loss)(2) .................................. $ 1,226 $(32,808) $ 5,336 $ 40,165 $ 78,302
---------- ----------- ---------- ---------- ----------
Net income (loss) per share(2) ....................... $ .05 $ (1.25) $ .18 $ 1.21 $ 2.09
---------- ----------- ---------- ---------- ----------
Shares used in computing net
income (loss) per share ............................. 26,070 26,255 29,701 33,116 37,382
========== =========== ========== ========== ==========
Ratio of earnings to fixed charges(3) ................. 1.11x -- 1.90x 8.95x 24.75x
---------- ----------- ---------- ---------- ----------
</TABLE>
MARCH 31,
------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Working capital ......... $ 63,539 $ 40,493 $ 50,885 $143,248 $271,695
Total assets ............ 258,626 229,730 239,994 349,571 561,975
Total debt .............. 73,858 66,100 62,295 51,646 42,498
Stockholders' equity..... 134,524 104,602 117,760 224,367 414,531
- ----------
(1) In fiscal 1992, the Company recorded restructuring and other charges of
$24.8 million.
(2) As described in Note 11 of Notes to Consolidated Financial Statements, the
Company's Malaysian subsidiary was granted a tax holiday which extended
through June 30, 1993. Such status had the effect of reducing the Company's
provision for taxes by approximately $0.9 million, $1.0 million, and $1.5
million, or $0.04, $0.04 and $0.05 per share, for the years ended March 31,
1991, 1992 and 1993, respectively. Management believes its effective tax
rate in 1996 will increase due to decreased tax benefits associated with its
Malaysian subsidiary.
(3) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated income (loss) before income taxes plus
fixed charges and (ii) fixed charges consist of interest expense incurred
and the portion of rental expense under operating leases deemed by the
Company to be representative of the interest factor. Earnings were
inadequate to cover fixed charges by $8.3 million in fiscal 1992.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
IDT designs, develops, manufactures and markets a broad range of
high-performance semiconductor products for the desktop computer,
communications, office automation and workstation/server markets. The Company's
revenues have increased from $236 million in fiscal 1993 to $330 million in
fiscal 1994 and to $422 million in fiscal 1995. This growth has been due to
increasing market acceptance of new products, the expansion of production output
through additions of capital equipment and improved manufacturing processes and
associated die shrinks and yield improvements, and improvements in overall
market conditions, including strong demand for SRAMS. During these periods, the
Company has achieved unit volume growth across all of its market segments. In
fiscal 1995 as a result of strong demand for fast SRAMs used as secondary cache
for 32-bit and 64-bit micropressors the Company shifted product mix in favor of
SRAMs. The higher selling prices of SRAMs in fiscal 1995 resulted in increasing
average selling prices on a company-wide basis for the year.
The Company's gross profit and operating profit margins have improved
significantly from 44.0% and 4.7%, respectively, in fiscal 1993 to 51.7% and
15.8%, respectively, in fiscal 1994 and to 57.5% and 23.6%, respectively, in
fiscal 1995. These improvements were due to economies of scale associated with
increased unit shipments, higher utilization of manufacturing capacity, wafer
fabrication process improvements, die shrinks and a mix shift to higher margin
products, particularly SRAMs.
The Company has been operating near installed equipment capacity since fiscal
1994. To address this situation, the Company initiated a significant capacity
expansion program in 1995, including conversion of the Company's Salinas wafer
fabrication facility from five-inch to six-inch wafers, purchase of incremental
wafer fabrication equipment for the Company's San Jose facility, expansion of
assembly and test facilities in Penang, Malaysia, construction of a new
eight-inch wafer fabrication facility in Oregon and the construction of a new
assembly and test facility in the Philippines. These programs required
substantial capital expenditures in fiscal 1995 and are expected to require a
substantially higher level of expenditures in fiscal 1996 and beyond. See
"Business--Manufacturing--Properties." The Company initiated and substantially
completed the equipment conversion of the Salinas facility in fiscal 1995, and
recently commenced its last manufacturing start of five-inch wafers in this
facility. The substantial portion of the addition of new equipment to the San
Jose facility has occurred and additional equipment will be added in fiscal
1996. The 40,000 square foot expansion of the Penang facilities was completed at
the end of fiscal 1995. It is expected that the Oregon facility will commence
production during fiscal 1996; however, the Oregon facility is not expected to
contribute to revenues until fiscal 1997. The Company has recently completed the
acquisition of land for the new test and assembly facility in the Philippines.
The increased operating expenses associated with the Company's capacity
expansion programs will adversely affect operating results until the Company
achieves volume production utilizing the new facilities and equipment. Although
the Company does not expect to generate revenues from its new Oregon fabrication
facility until fiscal 1997, the Company will recognize substantial operating
expenses associated with the facility in fiscal 1996 and 1997. The Company will
also begin to recognize in fiscal 1997 substantial depreciation expenses upon
commencement of commercial production but before production of substantial
volumes is achieved.
16
<PAGE>
The following table sets forth certain amounts, as a percentage of revenues,
from the Company's consolidated statements of operations for the three fiscal
years ended March 31, 1993, 1994 and 1995.
FISCAL YEAR ENDED MARCH 31,
-------------------------------------
1993 1994 1995
-------- -------- --------
Revenues ............................... 100.0% 100.0% 100.0%
Cost of revenues ....................... 56.0 48.3 42.5
-------- -------- --------
Gross margin ........................... 44.0 51.7 57.5
-------- -------- --------
Operating expenses:
Research and development ............. 22.6 19.4 18.6
Selling, general and administrative... 16.7 16.5 15.3
-------- -------- --------
Total operating expenses ........... 39.3 35.9 33.9
-------- -------- --------
Operating income ....................... 4.7 15.8 23.6
Net interest income .................... (2.0) (0.6) 1.2
-------- -------- --------
Income before provision for income taxes 2.7 15.2 24.8
Provision (benefit) for income taxes .. 0.4 3.0 6.2
-------- -------- --------
Net income ............................. 2.3% 12.2% 18.6%
======== ======== ========
<TABLE>
Set forth below are selected financial data from the Company's consolidated
statements of operations for the last eight fiscal quarters, reflecting
continued improvements in the Company's operating results:
<CAPTION>
FISCAL 1994 FISCAL 1995
----------------------------------------- --------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- --------- --------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........................ $ 72,766 $ 80,295 $ 85,330 $ 92,071 $ 95,043 $ 95,585 $105,765 $125,797
Gross profit .................... 33,948 39,967 45,419 51,501 54,632 55,574 60,528 71,804
Net income ...................... 4,628 7,733 11,625 16,179 16,878 17,006 19,799 24,619
Net income per
share ......................... $ .15 $ .24 $ .35 $ .45 $ .47 $ .47 $ .54 $ .61
</TABLE>
RESULTS OF OPERATIONS
Fiscal Years 1993, 1994 and 1995. Revenues increased 27.8% to $422.2 million
in fiscal 1995, as compared to revenues of $330.5 million in fiscal 1994, which
in turn represented a 39.9% increase over revenues of $236.3 million in fiscal
1993. The increase in fiscal 1995 was attributable to the higher unit volumes
across all product families and sales channels. Sales in Asia-Pacific (excluding
Japan) and Europe increased substantially in fiscal 1995. In addition, much of
the increase in revenues was driven by increasing demand for fast SRAM memory
utilized by more powerful microprocessors, such as the Pentium and PowerPC,
which utilize secondary cache memory for enhanced system performance. As a
result of strong industry-wide demand and capacity constraints, SRAM prices were
generally higher throughout fiscal 1995 as compared to the prior year,
particularly in the second half of fiscal 1995. The Company also achieved in
fiscal 1995 higher unit sales of specialty memories and embedded
microprocessors, particularly in the telecommunications and networking markets.
In fiscal 1995 microprocessor sales were flat as compared to fiscal 1994, due to
a decline in sales of nonembedded microprocessors as a result of the Company's
strategic shift of focus toward sales of embedded microprocessors. Growth in
fiscal 1994 was due to increased unit sales across all product segments, with
the largest percentage increase in the microprocessor segment, as well as
favorable pricing during the fiscal year on certain products, offset in part by
lower selling prices for some products. Revenue growth in fiscal 1993 was
attributed to increases in product shipments across all market segments, offset
in part by price reductions on several major products. Toward the end of fiscal
1993, pricing firmed in the memory business segment, reversing a trend of steady
price erosion over several years, which had been driven in part by increased
demand across all market segments.
17
<PAGE>
Gross profit in fiscal 1995 increased 42.0% to $242.5 million, or 57.5% of
revenues, as compared to $170.8 million or 51.7% of revenues in fiscal 1994.
Gross profit increased 64.3% in fiscal 1994 from $104.0 million or 44.0% of
revenues in fiscal 1993. The improvements in gross profit and gross margins in
fiscal 1995 were primarily attributable to higher prices on certain products,
particularly SRAMs, higher manufacturing capacity utilization and lower costs
achieved through die shrinks. In fiscal 1995 the Company also continued a shift
to more advanced designs and wafer fabrication processes, which resulted in
increased die per wafer yields and therefore lower unit costs. More efficient
test and burn-in procedures also contributed to improved yields and reduced
manufacturing costs. In addition, selective acceptance of new orders as a result
of continued strong demand allowed the Company to shift manufacturing capacity
to higher-margin products. Gross profit also benefited in fiscal 1995 as
compared to fiscal 1994 as a result of a $3.5 million reduction in patent and
royalty expenses related to license agreements. However, the Company's industry
is characterized by patent claims and license agreements, and there can be no
assurance royalty expenses will not increase in the future. In recent periods
the pricing environment for SRAMs has been favorable, notwithstanding the
long-term trend of price declines in the semiconductor market. Significant price
declines for SRAMs or other products in the future could adversely affect the
Company's operating results. The improvement in gross profit in fiscal 1994 was
primarily attributable to greater capacity utilization, which lowered average
wafer manufacturing costs, significant increases in die per wafer due to wafer
fabrication process improvements, and a mix shift to products with higher
average selling prices, particularly microprocessors.
Research and development expenses increased 22.1% to $78.4 million or 18.6%
of revenues in fiscal 1995, as compared to $64.2 million or 19.4% of revenues in
fiscal 1994. In fiscal 1993, R&D expenses were $53.5 million or 22.6% of
revenues. The increases in R&D expenses were due primarily to continued
investments by the Company in both process technology and new product design and
development. In fiscal 1995, the Company introduced over 50 new products, with
more than 600 configurations, and continued to develop its CMOS processes at 0.5
micron geometries and below. A number of activities will cause absolute R&D
spending to increase substantially, including expansion of R&D activity in both
Atlanta, Georgia and Austin, Texas, new plant start-up costs associated with the
Oregon wafer fabrication facility, particularly in fiscal 1996, and further
development of new products and processes. IDT believes that the continuation of
a high level of R&D investment is essential to continue the flow of new
products.
Selling, general and administrative expenses increased 19% to $64.6 million
in fiscal 1995 or 15.3% of revenues, as compared to $54.3 million or 16.5% of
revenues in fiscal 1994. In fiscal 1993, SG&A expenses were $39.5 million or
16.7% of revenues. The increase in SG&A expenses in fiscal 1995 was attributable
to higher costs associated with the higher level of sales, including higher
sales commissions, employee profit sharing and management bonuses, and an
increase in sales personnel, particularly in Europe, although SG&A expenses did
not increase as rapidly as sales. The fiscal 1994 increase was primarily due to
increases in management bonuses, employee profit sharing and the variable
selling expenses associated with the revenue increase.
Interest expense totaled $3.3 million in fiscal 1995, compared to $5.2
million in fiscal 1994 and $5.9 million in fiscal 1993. Interest expense has
decreased as IDT has retired outstanding debt, primarily equipment financing.
IDT continues to impute interest on a long-term obligation associated with a
patent cross-license.
Interest income and other, net, increased to $8.2 million in fiscal 1995
compared to $3.1 million and $1.1 million in fiscal years 1994 and 1993,
respectively. The increase in interest income resulted from significantly higher
cash balances available for investments, due to cash generated from operations
and net proceeds from Common Stock offerings of $46.8 million in October 1993
and $97.6 million in December 1994. In fiscal 1995 interest income also
reflected the general increase in interest rates available for investment funds.
IDT also received approximately $1.0 million of royalty income in fiscal 1995
compared to $0.3 million in fiscal 1994 and none in fiscal 1993.
The effective tax rates for fiscal 1995, 1994 and 1993 of 25%, 20% and 15%,
respectively, differed from the U.S. statutory rate of 35% in fiscal 1995 and
1994 (34% for fiscal 1993) primarily due to earnings of
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foreign subsidiaries being taxed at lower rates, as well as the utilization of
research and development credits. In addition, fiscal years 1995 and 1994
benefited from the realization of certain deferred tax benefits for which a
valuation allowance was previously required. The Company expects that its
effective tax rate in 1996 will increase to approximately 32% due to decreased
tax benefits associated with its Malaysian subsidiary. See Note 11 of Notes to
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition improved during fiscal 1995. Cash and cash
equivalents and short-term investments increased from $121.8 million at the end
of fiscal 1994 to $232.1 million at the end of fiscal 1995. Working capital
increased from $143.2 million at March 31, 1994 to $271.7 million at March 31,
1995. These increases were due to improved profitability, as well as a public
stock offering in fiscal 1995 yielding net proceeds of approximately $97.6
million. As of March 31, 1995, the Company had $6.1 million available under
unsecured lines of credit, all of which are overseas. See Note 6 of Notes to
Consolidated Financial Statements.
During fiscal 1993, 1994 and 1995, the Company generated $37.2 million,
$100.1 million and $115.8 million, respectively, of cash flow from operations.
The largest single factor influencing cash flow from operations during fiscal
1993 was the depreciation resulting from the Company's San Jose wafer
fabrication facility. The improved operating results in fiscal 1994 and 1995
also had a significant impact on cash flow during those periods. The Company
anticipates that significant depreciation relating to the San Jose facility will
continue through at least fiscal 1996.
During fiscal 1993, 1994 and 1995, the Company's net cash used in investing
activities was $28.8 million, $68.9 million and $163.2 million, respectively, of
which $28.0 million, $37.4 million and $94.7 million, respectively, were used
for capital equipment and property and plant improvements. During fiscal 1993,
the Company's net cash used in financing activities was $5.9 million, due
primarily to net repayments of $8.8 million related primarily to capital
equipment financing. In fiscal 1994, financing activities generated $34.8
million, the primary source of which was net cash of $46.8 million as a result
of the Company's public equity offering in October 1993. This source was
partially offset by net repayments of equipment financing of $20.5 million. In
fiscal 1995 the Company's financing activities generated $89.2 million, the
primary source of which was net cash of $97.6 million as a result of the
Company's public equity offering in December 1994; these funds were partially
offset by net debt repayments of $14.4 million. See Notes 4, 5, 6 and 7 of Notes
to Consolidated Financial Statements for information regarding the Company's
various financing arrangements.
The Company has international subsidiaries which operate and sell products or
manufacture products in foreign markets. In addition, the Company's export sales
are generally denominated in local currencies. The Company also purchases
materials and equipment from foreign suppliers, and incurs labor costs,
particularly at its Malaysia assembly facility, in foreign currencies. As a
result, the Company is exposed to international factors such as changes in
foreign currency exchange rates, imposition of currency exchange controls or
changes in the economic conditions of the countries in which the Company
operates. The Company utilizes forward exchange contracts to hedge against the
short-term impact of foreign currency fluctuations on certain assets or
liabilities denominated in foreign currencies. At March 31, 1995, the Company
had outstanding various forward exchange contracts valued at approximately $18.5
million. See Note 2 of Notes to Consolidated Financial Statements.
In view of current and anticipated capacity requirements, the Company
anticipates capital expenditures of approximately $260 million in fiscal 1996,
principally in connection with its capacity expansion programs. In January 1995
the Company entered into a five-year, $60 million Tax Ownership Lease
transaction with respect to the new Oregon wafer fabrication facility. The lease
obligations are secured by the building and collateralized by cash and/or
investments (restricted securities) up to 105% of the lessor's construction cost
until completion of the building and 85% thereafter. Restricted securities
collateralizing this lease were $10.5 million at March 31, 1995 and are expected
to reach approximately $50 million by the completion of the facility in fiscal
1996. The Company is also contingently liable at the end of the lease to the
extent the lessor is not able to realize 85% of the construction costs of the
building upon sale or
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other disposition of the building by the lessor. The lease requires monthly
payments which vary based upon the London Interbank Offered Rate (LIBOR) plus
0.3% (6.425% at March 31, 1995). See Note 7 to Consolidated Financial
Statements. The Company may consider additional forms of financing to help meet
its anticipated capital needs for its new Oregon facility, including a possible
bond financing through the State of Oregon, which could yield proceeds of up to
$20 million or more. The Company currently estimates that the cost to construct
and equip the Oregon and Philippines facilities will be approximately $400 to
$500 million and $75 million, respectively. Accordingly, the Company anticipates
significant continuing capital expenditures in the next several years. See "Risk
Factors--Current Capacity Limitations and Risks Associated with Planned
Expansion" and "--Capital Needs."
The Company believes that the proceeds from this offering, together with
existing cash and cash equivalents, cash flow from operations, existing credit
facilities and possible other financing arrangements for the new facilities,
will be adequate to fund its anticipated capital expenditures and working
capital needs through at least fiscal 1996. There can be no assurance, however,
that the Company will not be required to seek other financing sooner or that
such financing, if required, will be available on terms satisfactory to the
Company.
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BUSINESS
IDT designs, develops, manufactures and markets a broad range of
high-performance semiconductor products for the desktop computer,
communications, office automation and workstation/server markets. The Company
focuses its development efforts on providing proprietary and enhanced
industry-standard products that improve the performance of systems incorporating
high-performance microprocessors. The Company offers over 5,000 product
configurations in four product families: SRAM components and modules, specialty
memory products, logic circuits and RISC microprocessors and subsystems. The
Company has made significant investments and commitments in becoming a supplier
of RISC based microprocessors and now offers a family of 20 microprocessor and
related peripheral products for the desktop computing and embedded systems
markets.
The Company markets its products on a worldwide basis primarily to OEMs
through a variety of channels, including a direct sales force, distributors and
independent sales representatives. The Company's end-user customers include
Alcatel, AT&T, Apple Computer, Bay Networks, Canon, Cisco Systems, Compaq
Computer, Dell Computer, Digital Equipment, FORE Systems, Hewlett Packard, IBM,
Intel, Motorola, NEC, Nokia, Olivetti, Siemens Nixdorf, Silicon Graphics, Sun
Microsystems and Tektronix.
BACKGROUND
Virtually all electronic systems--whether in personal computers, telephone
switches or automobiles--are designed around microprocessors. Memory and
input/output devices surround and control the flow of data to and from the
microprocessor. Continuing improvements in the speed and performance of
microprocessors have facilitated a trend toward making electronic systems
smaller, faster, more powerful and more accessible to users. However, in order
to take advantage of the full capabilities of the new generations of
microprocessors, electronic systems require faster and higher performance memory
and logic devices. In addition, the decreasing size of electronic systems has
led in many cases to the use of modules or subsystems that integrate a number of
semiconductor components. The foregoing trends are driving the demand for the
Company's four product families.
o SRAM Components and Modules. Today's higher-performance microcomputers
that use advanced microprocessors and more complex operating systems and
applications software require more memory, including SRAM cache memory,
DRAM (Dynamic Random Access Memory) main memory and disk memory. SRAM
cache memory provides intermediate storage between fast microprocessors
and relatively slow DRAM main memory. By serving as an intermediate
high-speed memory, SRAM cache memory significantly increases overall
system speed and performance. Personal computers based on Intel
microprocessor architectures through the 386 family generally did not
utilize SRAM cache memory. The high-performance 32-bit Intel 486
compatible family of microprocessors and 64-bit microprocessors, such as
the Intel Pentium microprocessor and the PowerPC microprocessor, have some
on-chip, or internal, SRAM cache memory. The increased speed of these
newer microprocessors, however, require additional external SRAM cache
memory for enhanced performance. The Company believes that a large portion
of 486-based PCs require SRAM cache memory and that substantially all
Intel Pentium and PowerPC-based computers require such memory. In
addition, low voltage (3.3 volt) SRAM cache memories are increasingly
being used to reduce power consumption in desktop and laptop computers.
o Specialty Memory Products. Complex electronic systems that have different
data transfer rates within the system or use multiple microprocessors may
utilize specialty memory products, such as FIFOs (First In/First Out
memory products) and multi-port memory devices, to enhance performance.
For example, communications systems increasingly use specialty memory
products to improve the flexibility and throughput of the systems. The
trend toward linking computer users within an office or an enterprise so
that they can share data and peripherals has led to the rapid growth of
high-performance local area networks ("LANs") and wide area networks
("WANs") and therefore the increased use of specialty memory products.
o Logic Circuits. The increasing speed, complexity and reduced size of
microprocessor-based systems often require the use of high-speed,
high-performance logic devices to interconnect the
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various elements in a system. While many general logic functions are
increasingly being integrated through the use of programmable logic
devices, many specialized logic elements, such as buffers, clock drivers
and memory drivers, continue to be implemented as discrete functions.
o RISC Microprocessors and Subsystems. Microprocessors manipulate and
control data in electronic systems through a fixed set of instructions.
Some microprocessor architectures use complex instruction set computing
("CISC") while other architectures focus on a reduced number, or subset,
of instructions ("RISC"). Substantially all personal computer systems
today use CISC microprocessors based on the Intel x86 architecture. RISC
microprocessors, however, generally operate at higher speeds than CISC
microprocessors, which has led to the increasing acceptance of RISC
microprocessors in workstations, servers and other high-performance
computers as well as embedded controllers for printers, copiers, facsimile
machines and other electronic products.
STRATEGY
IDT's strategy is to be a leading supplier of products that improve the
performance of microprocessor-based systems. The Company seeks to offer
innovative products with superior cost/performance by utilizing its expertise in
memory design and process technologies. Key elements of the Company's strategy
are:
o Develop High Performance Solutions for Growing Markets. IDT focuses its
development efforts on providing proprietary products and enhanced
industry-standard products for use in applications in the growing desktop
computer, communications, office automation and workstation/ server
markets. Since the beginning of fiscal 1995, the Company has introduced
over 50 new products in more than 600 configurations to meet the needs of
these markets. The Company believes that its emphasis on high-performance,
innovative products has resulted in its becoming a market leader in SRAMs,
SRAM cache modules, FIFOs, multi-port memory products and high-speed CMOS
logic circuits.
o Leverage Expertise in SRAM and Subsystem Design. IDT uses the extensive
experience it has gained in the design of SRAMs and subsystems since its
founding in 1980 to develop new memory products that provide higher
value-added solutions to IDT's customers. The Company is increasingly
integrating components from its various product families into single
devices or modules that provide increased functionality and can in turn be
more easily integrated into its customers' systems. For example, IDT
offers cache memory modules that include cache controller, cache tag SRAM
and cache SRAM components for personal computer applications, and the
SARAM device which incorporates both logic and memory functions for
enhanced functionality in network applications.
o Maintain Process Technology Leadership. The Company is committed to
continuously improving its CMOS process technologies in order to improve
product performance and lower product costs through improved yields. The
Company invests a substantial portion of its research and development
expenditures in order to advance its process technologies. The majority of
IDT's current products are manufactured using its 0.65 micron processes
and an increasing number are being manufactured using the Company's new
0.5 micron processes and sub-0.5 micron CMOS processes are under
development. IDT believes that its advanced process technology capability
allows it to design and manufacture state-of-the-art products, thereby
providing it with a competitive advantage.
o Control and Expand Production Capability. IDT believes that maintaining
its own wafer fabrication capability facilitates the implementation of
advanced process technologies and new higher- performance product designs,
provides it with a reliable source of supply of semiconductors and allows
it to be more flexible in shifting production according to product demand.
In addition, the Company has a greater ability to lower costs at
production volumes by matching manufacturing flow to the processes being
used. The Company has undertaken a significant program to invest in new
capital equipment and facilities in order to increase and improve its
capacity, including the construction and equipping of facilities in Oregon
and the Philippines. Through operating its own test facilities, the
Company believes it is able to maintain quality while controlling costs.
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PRODUCTS AND MARKETS
IDT offers over 5,000 product configurations in four product families: SRAM
components and modules, specialty memory products, logic circuits, and RISC
microprocessors and subsystems. During fiscal 1995, these product families
accounted for 40%, 28%, 21% and 11%, respectively, of product revenues. The
Company markets its products primarily to OEMs in the desktop computer,
communications, office automation and workstation/server markets. IDT's product
design efforts are focused on developing proprietary components and integrating
its components into single devices, modules or subsystems to meet the needs of
customers.
SRAMs. SRAMs are memory circuits used for storage and retrieval of data
during a computer system's operation. SRAMs do not require electrical
refreshment of the memory contents to ensure data integrity, allowing them to
operate at high speeds. SRAMs include substantially more circuitry than DRAMs,
resulting in higher production costs for a given amount of memory, and generally
command higher selling prices than the equivalent density DRAM. The market for
SRAMs is fragmented by differing demands for speed, power, density, organization
and packaging. As a result, there are a number of niche markets for SRAMs.
The Company is focused primarily on the cache memory segment of the SRAM
market. The Company's SRAM product strategy is to offer high-performance 5 volt
and 3.3 volt SRAM components and modules that have differentiated features
optimized to work with specified microprocessors, such as the Intel 486 and
Pentium families of microprocessors, the PowerPC microprocessor and MIPS RISC
microprocessors. Cache memory provides an intermediate storage solution between
fast microprocessors and relatively slow DRAM main memory. Cache memory operates
at the speed of the microprocessor and increases the microprocessor's efficiency
by temporarily storing the most frequently used instructions and data. Special
cache tag SRAMs provide a look-up table function that tells the cache controller
which blocks of data are currently stored in the cache SRAMs.
IDT is a leading supplier of cache SRAM components and modules to personal
computer manufacturers. The Company offers a range of cache SRAMs, including
burst-mode cache SRAMs that support the Intel and PowerPC microprocessors, and
cache tag SRAMs . The Company's cache SRAM components are often integrated into
cache memory modules. These modules include the cache controller, cache tag SRAM
and cache SRAM components and are ready to plug into sockets on a computer
system's motherboard. IDT offers a series of standard and custom cache memory
modules for IBM and IBM- compatible PCs and PowerPC-based personal computers as
well as for certain RISC microprocessor-based systems.
The Company continues to develop its next generation SRAM products to meet
the growing cache memory needs of increasingly faster microprocessors. IDT's new
products are being designed to operate at higher speeds and provide greater
levels of integration.
In order to provide SRAM products that meet the varying needs of its
customers, IDT uses primarily CMOS and, to a lesser extent, BiCMOS process
technologies and offers 16K, 64K, 256K and 1 Meg density SRAMs in a number of
speed, organization, power and packaging configurations.
Specialty Memory Products. The Company's proprietary specialty memory
products include FIFOs and multi-port memory products that offer
high-performance features which allow communications and computer systems to
operate more effectively. FIFOs are used as rate buffers to transfer large
amounts of data at high speeds between separate devices or pieces of equipment
operating at different speeds within a system. Multi-port memory products are
used to speed data transfers and act as the link between multiple
microprocessors or between microprocessors and peripherals when the order of the
data to be transferred needs to be controlled. These products are currently used
primarily in peripheral interface, communications and networking products,
including bridges, hubs, routers and switches.
IDT is a leading supplier of both synchronous and asynchronous FIFOs and has
increasingly focused its resources on the design of synchronous FIFOs.
Synchronous FIFOs have been gaining greater market acceptance because they are
faster and provide an easier user interface. IDT's family of 9-bit SyncFIFOs are
being used in many of the newer networking products.
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The Company is a leading supplier of multi-port memory products. IDT's family
of multi-port memory products is composed primarily of dual-port asynchronous
devices. The Company also offers four-port products, a synchronous dual-port
device and a new device, known as a SARAM, that combines the flexibility of a
multi-port product with the ease of a FIFO. In addition, the Company is
developing a family of specialty memory products for the emerging asynchronous
transfer mode ("ATM") market. The first member of this ATM family, a SAR
(segmentation and reassembly), is a highly integrated, low cost interface device
for ATM network cards. Other members of the ATM family will include low-cost
physical media interface devices, as well as more highly-integrated SAR devices
for ATM networks.
Logic Circuits. IDT is a leading manufacturer of high-speed byte-wide and
double-density 16-bit CMOS logic circuits for high-performance applications.
Logic circuits control data communication between various elements of electronic
systems, such as between a microprocessor and a memory circuit. IDT offers a
wide range of logic circuit products, which support bus and backplane
interfaces, memory interfaces and other logic support applications where
high-speed, low power and high-output drive are critical. IDT's logic circuits
are used in a broad range of markets.
IDT's 16-bit family of logic products is available in small packages,
enabling board area to be reduced, and has gained increasing market acceptance.
These products are designed for new applications in which small size, low power
and extra low noise are as important as high speeds. IDT also supplies a series
of 8-bit and 16-bit 3.3 volt logic products and a 3.3 volt to 5 volt translator
circuit directed at the growing requirements for 3.3 volt systems in the
notebook and laptop computer and other markets. The Company also offers a family
of clock drivers and clock generators. These devices, placed at critical
positions in a system, correct the degradation of timing that occurs the further
the impulses travel from the main system clock.
RISC Microprocessor Components and Subsystems. IDT is a licensed manufacturer
of MIPS RISC microprocessors. IDT now manufactures MIPS architecture 32-bit and
64-bit standard microprocessors and IDT derivative products for the
communications, office automation, workstation/server and desktop computer
markets.
The Company focuses its RISC microprocessor design and marketing efforts
primarily on the embedded controller market. Embedded controllers are
microprocessors that control a single device such as a printer, copier or
network router. The Company sells several proprietary 32-bit derivative products
for the embedded controller market, including devices with on-circuit SRAM cache
memory and floating point functions.
In 1993, the Company introduced its ORION R4600 microprocessor, which is
capable of clock speeds of up to 150 MHz. The R4600 is a higher performance,
lower cost derivative of the 64-bit R4000 and R4400 microprocessors developed by
MIPS Computer Systems, which was acquired by Silicon Graphics in 1992 ("MIPS"),
and introduced by the Company and other MIPS licensees in 1992 and 1993,
respectively. The R4600 was developed for the Company and to the Company's
specifications by Quantum Effect Design, Inc. ("QED"), a consolidated
subsidiary. Systems based on the ORION family of microprocessors are targeted at
both embedded and desktop applications.
The Company also manufactures RISC subsystems, which are board level products
that contain MIPS RISC architecture microprocessors, cache SRAMs, logic circuits
and supporting software. These products are used in development systems for the
evaluation and design of hardware and software or are integrated into customers'
end-user systems, thereby reducing design cycle time.
CUSTOMERS
The Company markets and sells its products primarily to OEMs in the desktop
computer, communications, office automation and workstation/server markets.
Customers often purchase products from more than one of the Company's product
families.
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The following is an alphabetical listing of current representative end-user
customers of the Company, by market:
DESKTOP COMPUTER COMMUNICATIONS OFFICE AUTOMATION WORKSTATION/SERVER
- ---------------- -------------- ----------------- ------------------
Apple Computer Alcatel Canon Digital Equipment
AST Research AT&T Electronics For Imaging EMC
Compaq Computer Bay Networks QMS NEC
Dell Computer Cabletron Samsung Pyramid Technology
Gateway Computers Cisco Systems Tektronix Siemens Nixdorf
Groupe Bull Ericsson Texas Instruments Silicon Graphics
Hewlett-Packard FORE Systems Toshiba Sun Microsystems
IBM Fujitsu Xerox
ICL Motorola
Intel Nokia
Olivetti Siemens
MARKETING AND SALES
IDT markets and sells its products primarily to OEMs through a variety of
channels, including a direct sales force, distributors and independent sales
representatives.
The Company had 50 direct sales personnel in the United States at March 31,
1995. Such personnel are located at the Company's headquarters and in 17 sales
offices in Alabama, California, Colorado, Florida, Illinois, Maryland,
Massachusetts, Minnesota, New Jersey, New York, Oregon and Texas, and are
primarily responsible for marketing and sales in those areas. IDT also utilizes
three national distributors, Hamilton Hallmark, Future Electronics and Wyle
Laboratories, and several regional distributors in the United States. Hamilton
Hallmark accounted for 15% and 13% of the Company's revenues in fiscal 1994 and
1995, respectively. In addition, IDT uses independent sales representatives,
which generally take orders on an agency basis while the Company ships directly
to the customer. The representatives receive commissions on all products shipped
to customers in their geographic area.
The Company had 31 direct sales personnel and eight sales offices located
outside of the United States at March 31, 1995. Sales activities outside North
America are generally controlled by IDT's subsidiaries located in France,
Germany, Hong Kong, Italy, Japan, Sweden and the United Kingdom. The Company
also has a sales office in Taiwan. The Company has recently increased its direct
marketing efforts to OEMs in Europe and to United States companies with
operations in the Asia/Pacific area. A significant portion of export sales,
however, continues to be made through international distributors, which tend not
to carry inventory or carry significantly smaller levels compared to domestic
distributors. During fiscal 1993, 1994 and 1995, export sales accounted for 36%,
32% and 39% of total revenues. Sales outside the United States are generally
denominated in local currencies. Export sales are subject to certain risks,
including currency controls and fluctuations, changes in local economic
conditions, import and export controls, and changes in tax laws, tariffs and
freight rates.
The Company's distributors typically maintain an inventory of a wide variety
of products, including products offered by IDT's competitors, and often handle
small or rush orders. Pursuant to distribution agreements, the Company grants
distributors the right to return slow-moving products for credit against other
products and offers protection to the distributors against inventory
obsolescence or price reductions. Revenue recognition of sales to distributors
is deferred until the products are resold by the distributor.
MANUFACTURING
IDT believes that maintaining its own wafer fabrication capability
facilitates the implementation of advanced process technologies and new
higher-performance product designs, provides it with a reliable source of supply
of semiconductors and allows it to be more flexible in shifting production
according to product demand. The Company currently operates sub-micron wafer
fabrication facilities in San Jose and Salinas, California. The Salinas
facility, first placed in production in fiscal 1986, includes a 24,000 square
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foot, class 3 (less than three particles 0.5 micron or greater in size per cubic
foot) fabrication line. The San Jose facility includes a 24,000 square foot,
class 1 (less than one particle 0.5 micron or greater in size per cubic foot),
six-inch wafer fabrication line that was first placed in production in March
1991. IDT also operates 145,000 square foot component assembly and test
facilities in Penang, Malaysia. Substantially all of the Company's test
operations and a significant portion of its assembly operations are performed at
its Malaysian facility. IDT also uses subcontractors, principally in Korea, the
Philippines and Malaysia, to perform certain assembly operations. If IDT were
unable to assemble or test products offshore, or if air transportation to these
locations were curtailed, the Company's operations could be materially adversely
affected. Additionally, foreign manufacturing exposes IDT to certain risks
generally associated with doing business abroad, including foreign governmental
regulations, currency controls and fluctuation, changes in local economic
conditions and changes in tax rates, tariffs and freight rates. In addition to
this offshore assembly and test capability, the Company has the capacity for
low-volume, quick-turn assembly in Santa Clara as well as limited test
capability in Santa Clara, San Jose and Salinas. Assembly and test of memory
modules and RISC subsystems takes place both domestically and offshore.
The Company has been operating its wafer fabrication facilities in Salinas
and San Jose and its assembly operations in Malaysia near installed equipment
capacity since fiscal 1994. To address its capacity requirements, in fiscal 1995
the Company initiated and substantially completed the conversion of its Salinas
wafer fabrication facility from five-inch to six-inch wafers, and recently
commenced its last manufacturing start of five-inch wafers in this facility. In
fiscal 1995 the Company also added incremental production equipment to its San
Jose facility and completed a 40,000 square foot expansion of assembly and test
facilities in Penang, Malaysia. In addition, in August 1994, construction
commenced on a 192,000 square foot facility containing a 48,000 square foot,
class 1, eight-inch wafer fabrication line in Hillsboro, Oregon. The Company
currently estimates that the cost to construct and equip the Oregon facility
will be approximately $400 to $500 million. The Company believes the
construction of a facility in Oregon reduces the Company's risk of a natural
disaster affecting all of its wafer fabrication facilities which are currently
located in Northern California. It is expected that the Oregon facility will
commence production during fiscal 1996; however, the Oregon facility is not
expected to contribute to revenues until fiscal 1997. In late fiscal 1995 the
Company acquired an interest in approximately 10 acres of land in the
Philippines and intends to construct a 240,000 square foot assembly and test
facility. Construction of the building is expected to begin in the second half
of fiscal 1996 and is projected to be completed in fiscal 1997. The Company
projects the cost to acquire the land, construct the building and equip the
facility in multiple phases will total approximately $75 million in capital
expenditures, of which less than $10 million will be spent in fiscal 1996 and
approximately $40 million in fiscal 1997. The Company faces a number of risks in
order to accomplish its goals to increase production in its existing plants and
to construct, equip and commence operations of the Oregon and Philippines
facilities. See "Risk Factors--Current Capacity Limitations and Risks Associated
with Planned Expansion" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company utilizes proprietary CMOS and BiCMOS process technologies
permitting sub-micron geometries. BiCMOS is a combination of bipolar and CMOS
technologies and is used for applications requiring higher speeds. The majority
of IDT's current products are manufactured using its proprietary 0.65 micron
processes, an increasing number are being manufactured using the Company's new
0.5 micron processes and the Company is currently developing several sub-0.5
micron CMOS processes.
Wafer fabrication involves a highly sophisticated, complex process that is
extremely sensitive to contamination. Integrated circuit manufacturing costs are
primarily determined by circuit size because the yield of good circuits per
wafer generally increases as a function of smaller die. Other factors affecting
costs include wafer size, number of process steps, costs and sophistication of
manufacturing equipment, packaging type, process complexity and cleanliness.
IDT's manufacturing process is complex, involving a number of steps including
wafer fabrication, plastic or ceramic packaging, burn-in and final test. The
Company continually makes changes to its manufacturing process to lower costs
and improve yields. From time to time the Company has experienced manufacturing
problems that have caused delays in shipments or increased costs. There can be
no assurance that IDT will not experience manufacturing problems in the future.
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The Company generally has been able to arrange for multiple sources of raw
materials, but the number of vendors capable of delivering certain raw
materials, such as silicon wafers, ultra-pure metals and certain chemicals and
gases is very limited. Some of the Company's packages, while not unique, have
very long lead times and are available from only a few suppliers. From time to
time vendors have extended lead times or limited supply to the Company due to
capacity constraints. These circumstances could reoccur and could adversely
affect IDT.
BACKLOG
IDT manufactures and markets primarily standard products. Sales are generally
made pursuant to standard purchase orders, which are frequently revised during
the agreement term to reflect changes in the customer's requirements. The
Company has also entered into master purchase agreements with several of its OEM
customers. These agreements do not require the OEMs to purchase minimum
quantities of the Company's products. Product deliveries are scheduled upon the
Company's receipt of purchase orders under the related OEM agreements.
Generally, these purchase orders and OEM agreements also allow customers to
reschedule delivery dates and cancel purchase orders without significant
penalties. Orders are frequently rescheduled, revised or cancelled. In addition,
distributor orders are subject to price adjustments both prior to, and
occasionally after, shipment. For these reasons, IDT believes that its backlog,
while useful for scheduling production, is not necessarily a reliable indicator
of future revenues.
RESEARCH AND DEVELOPMENT
IDT's competitive position has been established, to a large extent, through
its emphasis on the development of proprietary and enhanced performance
industry-standard products, and the development of advanced CMOS and BiCMOS
processes. IDT believes that its focus on continually advancing its process
technologies has allowed the Company to achieve cost reductions in the
manufacture of most of its products. The Company believes that a continued high
level of research and development expenditures is necessary to retain its
competitive position. The Company maintains research and development centers in
Northern California and Atlanta, Georgia and recently opened a facility in
Austin, Texas that will be focused on microprocessor related research and
development. In addition the new plant start-up costs associated with the Oregon
wafer fabrication facility will significantly increase research and development
expenditures in fiscal 1996. Research and development expenditures as a
percentage of revenues were 23%, 19% and 19% in fiscal 1993, 1994 and 1995,
respectively.
The Company's product development activities are focused on the design of new
circuits and modules that provide enhanced performance for growing applications.
In the SRAM family, IDT is utilizing its 5 volt and 3.3 volt SRAM and subsystem
design expertise to develop advanced SRAM cache memories and modules for
microcomputer systems based on Intel's 486 and Pentium families of
microprocessors and the PowerPC microprocessors, as well as MIPS RISC
microprocessors. IDT's efforts in the specialty memory products area are
concentrated on the development for the communications market of advanced
synchronous FIFOs and more sophisticated multi-port memory products. The Company
is also developing a family of specialty memory products for the emerging ATM
market, and a family of lower voltage logic devices for a broad range of
applications. In the RISC component and subsystems product family, the Company
is emphasizing the design of products for embedded control applications, such as
printers and telecommunications switches. The Company also continues to refine
its CMOS and BiCMOS process technologies to increase the speed and density of
circuits in order to provide customers with advanced products at competitive
prices, thus enhancing their competitive positions. The Company is currently
refining its CMOS process technology to achieve several sub-0.5 micron geometry
processes and converting the production of many products, particularly 3.3 volt
devices, to newer generation processes.
In fiscal 1992, the Company purchased an equity interest in QED, a newly
formed corporation. Pursuant to a development agreement between QED and the
Company, QED developed the ORION R4600 microprocessor for IDT. The Company
recently announced two new ORION derivative products being designed for IDT by
QED, the R4700 microprocessor targeted to desktop systems running WindowsNT or
UNIX operating systems, and the R4650 microprocessor targeted to embedded
applications. The Company owns such products, subject to the payment of
royalties and other fees to QED. IDT
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has licensed Toshiba and NKK to manufacture and market certain of these
products. There can be no assurance that QED will continue to design products
for the Company or be successful in developing such products.
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
rapid technological advances, cyclical market patterns, price erosion, evolving
industry standards, occasional shortages of materials, intellectual property
disputes and high capital equipment costs. Many of the Company's competitors
have substantially greater technical, marketing, manufacturing and financial
resources than IDT. In addition, several foreign competitors receive assistance
from their governments in the form of research and development loans and grants
and reduced capital costs, which could give them a competitive advantage. The
Company competes in different product areas, to varying degrees, on the basis of
technical innovation and performance of its products, as well as quality, price
and product availability.
IDT's competitive strategy is to differentiate its products through
high-performance, innovative configurations and proprietary features or to offer
industry-standard products with higher speeds and/or lower power consumption.
There can be no assurance that price competition, introductions of new products
by IDT's competitors, delays in product introductions by IDT or other
competitive factors will not have a material adverse effect on the Company in
the future.
INTELLECTUAL PROPERTY AND LICENSING
IDT has obtained 49 patents in the United States and 17 abroad and has
numerous inventions in various stages of the patent application process. The
Company intends to continue to increase the scope of its patents. The Company
also relies on trade secret, copyright and trademark laws to protect its
products, and a number of the Company's circuit designs are registered pursuant
to the Semiconductor Chip Protection Act of 1984. This Act gives protection
similar to copyright protection for the patterns which appear on integrated
circuits and prohibits competitors from making photographic copies of such
circuits. There can be no assurance that any patents issued to the Company will
not be challenged, invalidated or circumvented, that the rights granted
thereunder will provide competitive advantages to the Company, or that the
Company's efforts generally to protect its intellectual property rights will be
successful.
In recent years, there has been a growing trend of companies to resort to
litigation to protect their semiconductor technology from unauthorized use by
others. The Company in the past has been involved in patent litigation which
adversely affected its operating results. Although the Company has obtained
patent licenses from certain semiconductor manufacturers, the Company does not
have licenses from a number of semiconductor manufacturers who have a broad
portfolio of patents. IDT has been notified that it may be infringing patents
issued to certain semiconductor manufacturers and other parties, and is
currently involved in several license negotiations. There can be no assurance
that additional claims alleging infringement of intellectual property rights,
including infringement of patents that have been or may be issued in the future,
will not be made against the Company in the future or that licenses, to the
extent required, will be available. Should licenses from any such claimant be
unavailable, or not be available on terms acceptable to the Company, the Company
may be required to discontinue its use of certain processes or the manufacture,
use and sale of certain of its products, to incur significant litigation costs
and damages, or to develop noninfringing technology. If IDT is unable to obtain
any necessary licenses, pass any increased cost of patent licenses on to its
customers or develop noninfringing technology, the Company could be materially
adversely affected. In addition, IDT has received patent licenses from several
companies that expire over time, and the failure to renew or renegotiate certain
of these licenses as they expire or significant increases in amounts payable
under these licenses could have an adverse effect on the Company.
On May 1, 1992, IDT and AT&T entered into a five-year royalty-free patent
cross-license agreement. As part of this agreement, patent litigation instituted
by AT&T was settled and dismissed. Under the agreement, IDT made a lump sum
payment and issued shares of its Common Stock to AT&T, granted a discount on
future purchases, and gave credit for future purchases of technology on a
nonexclusive basis.
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On December 10, 1992, IDT and Texas Instruments ("TI") entered into a
five-year patent cross- license agreement. As part of this agreement, patent
litigation instituted by TI was dismissed. Under the agreement, IDT granted to
TI a license to certain IDT technology and products and guaranteed TI that it
will realize certain revenues from the technology and products, and IDT will
develop certain products which will be manufactured and sold by both IDT and TI.
See Note 4 of Notes to Consolidated Financial Statements.
EMPLOYEES
At March 31, 1995, IDT and its subsidiaries employed approximately 2,965
people worldwide, of whom approximately 1,045 were in Penang. IDT's success
depends in part on its ability to attract and retain qualified personnel, who
are generally in great demand. Since its founding, the Company has implemented
policies enabling its employees to share in IDT's success. Examples are stock
option, stock purchase, profit sharing and special bonus plans for key
contributors. IDT has never had a work stoppage, no employees are represented by
a collective bargaining agreement, and the Company considers its employee
relations to be good.
PROPERTIES
The Company presently occupies six major facilities in California and
Malaysia as follows:
LOCATION FACILITY USE SQUARE FEET
- ---------------- ------------------------------------- -------------
Salinas ........... Wafer fabrication, SRAM and multi-
port memory operations 98,000
Santa Clara ....... Logic and RISC microprocessor
operations 62,000
Santa Clara ....... Administration and sales 43,700
Santa Clara ....... Administration and RISC subsystems
operations 50,000
Penang, Malaysia... Assembly and test 145,000
San Jose .......... Wafer fabrication, process technology
development, FIFO and memory
subsystems operations, and research
and development 135,000
The Company leases its Salinas facility from Carl E. Berg, a director, and in
October 1994 purchased a 5.5 acre parcel adjacent to its Salinas facility for
$653,000 from Mr. Berg. IDT leases its Salinas and Santa Clara facilities under
leases expiring in 1999 through 2005. The lease for the Salinas facility has two
five-year renewal options. The Company owns its Malaysian and San Jose
facilities, although the Malaysian facilities are subject to long-term ground
leases and the San Jose facility is subject to a mortgage. IDT leases offices
for its sales force in 17 domestic locations as well as Hong Kong, London,
Milan, Munich, Paris, Stockholm, Taipei and Tokyo. See Note 7 of Notes to
Consolidated Financial Statements for information concerning IDT's obligations
under operating and capital leases. The Company has purchased a 23 acre parcel
in Hillsboro, Oregon and construction has commenced on a 192,000 square foot
facility containing a 48,000 square foot, class 1, eight-inch wafer fabrication
line. It is expected that the Oregon facility will commence production during
fiscal 1996; however, the Oregon facility is not expected to contribute to
revenues until fiscal 1997. In late fiscal 1995 the Company acquired an interest
in approximately 10 acres of land in the Philippines and intends to construct a
240,000 square foot assembly and test facility. See "Risk Factors--Current
Capacity Limitations and Risks Associated With Planned Expansion."
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MANAGEMENT
The executive officers and directors of the Company, and their respective
ages as of April 30, 1995, are as follows:
NAME AGE POSITION
- -------------------- --- -----------------------------------------------
D. John Carey ........ 59 Chairman of the Board
Leonard C. Perham ... 51 Chief Executive Officer, President and Director
William B. Cortelyou.. 39 Vice President, Wafer Operations
Robin H. Hodge ....... 55 Vice President, Assembly and Test
Alan H. Huggins ..... 42 Vice President, Memory Division
Larry T. Jordan ..... 50 Vice President, Marketing
Daniel L. Lewis ..... 46 Vice President, Sales
Chuen-Der Lien ....... 32 Vice President, Technology Development
Jack Menache ......... 51 Vice President, General Counsel and Secretary
Richard R. Picard ... 47 Vice President, Logic and Microprocessor
Products
L. Robert Phillips ... 50 Vice President, Manufacturing
William D. Snyder ... 50 Vice President, Finance and Chief Financial
Officer
Carl E. Berg(1) ..... 57 Director
John C. Bolger(1) ... 48 Director
Federico Faggin ..... 52 Director
- ----------
(1) Member of the Audit, Compensation and Stock Option Committees.
Mr. Carey was elected to the Board of Directors in 1980 and has been Chairman
of the Board since 1982. He served as Chief Executive Officer from 1982 until
his resignation in April 1991 and was President from 1982 until 1986. Mr. Carey
was a founder of Advanced Micro Devices ("AMD") in 1969 and was an executive
officer there until 1978.
Mr. Perham joined IDT in October 1983 as Vice President and General Manager,
SRAM Division. In October 1986, Mr. Perham was appointed President and Chief
Operating Officer and a director of the Company. In April 1991, Mr. Perham was
elected Chief Executive Officer. Prior to joining IDT, Mr. Perham held executive
positions at Optical Information Systems Incorporated and Zilog Inc.
Mr. Cortelyou joined IDT in 1982. In January 1990, he was elected Vice
President, Wafer Operations, Salinas. Mr. Cortelyou currently serves as Vice
President, Wafer Operations. Prior to joining IDT, Mr. Cortelyou was an engineer
at AMD.
Mr. Hodge joined IDT as Director of Assembly Operations in March 1989. In
January 1990, Mr. Hodge was elected Vice President, Assembly Operations. Mr.
Hodge currently serves as Vice President, Assembly and Test. From 1983 until
joining IDT, Mr. Hodge was Director of Assembly Operations for Maxim Integrated
Products.
Mr. Huggins joined IDT in 1983 and was elected Vice President in 1987. Mr.
Huggins currently serves as Vice President, Memory Division. Prior to joining
the Company, Mr. Huggins held various engineering positions at AMD.
Mr. Jordan joined IDT in July 1987 as Vice President, Marketing. Prior to
joining the Company, Mr. Jordan held management positions in marketing and sales
at SEEQ Technology, Inc. and Intel Corporation.
Mr. Lewis joined IDT in 1984 as Eastern Area Sales Manager. In June 1991, he
was elected Vice President, Sales. Prior to joining IDT, Mr. Lewis held
management positions at Avatar Technologies, Inc., Data General and Zilog.
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Dr. Lien joined IDT in 1987 and was elected Vice President, Technology
Development in April 1992. Prior to joining the Company, he held engineering
positions at Digital Equipment Corporation and AMD.
Mr. Menache joined IDT as Vice President, General Counsel and Secretary in
September 1989. From April 1989 until joining IDT, he was General Counsel of
Berg & Berg Developers. From 1986 until April 1989, he was Vice President,
General Counsel and Secretary of The Wollongong Group Inc.
Mr. Picard joined IDT in 1985. In 1989 he was elected Vice President, Static
RAM Product Line. In April 1990 he was appointed Vice President and General
Manager, Logic Products. He was elected Vice President, Logic and Microprocessor
Products in May 1993. Prior to joining IDT, Mr. Picard held management positions
at International Micro Circuits, Zilog and AMD.
Mr. Phillips joined IDT in March 1995 as Vice President, Manufacturing. Prior
to joining IDT, Mr. Phillips was Vice President of Fab, Assembly and Test
Operations at Vitesse Semiconductor and Edsun Labs, and was President of PMT
Manufacturing Technology, Inc.
Mr. Snyder joined the Company as Treasurer in 1985. In May 1990, he was
elected Vice President, Corporate Controller, and in September 1990 Mr. Snyder
was elected Vice President, Finance and Chief Financial Officer. Prior to
joining the Company, Mr. Snyder held financial management positions at Actrix
Computer, Zilog and Digital Equipment Corporation.
Mr. Berg has been a director of the Company since 1982. Mr. Berg has been a
partner of Berg & Berg Developers, a real estate development partnership, since
1979. He is a director of Valence Technology and Videonics.
Mr. Bolger has been a director of the Company since January 1993. Mr. Bolger
is a private investor. He was Vice President--Finance and Administration of
Cisco Systems, Inc., an internetworking systems manufacturer, from 1989 to 1992
and Vice President--Finance and Administration of KLA Instruments, Inc., an
optical inspection equipment manufacturer, from 1988 to 1989. Mr. Bolger is a
director of Data Race, Inc., Integrated Systems, Inc., Sanmina Corporation and
Teknekron Communications Systems, Inc.
Mr. Faggin has been a director of the Company since 1992. Mr. Faggin has been
President, Chief Executive Officer and Director of Synaptics, Inc., a neural
network research and development company, since 1986. He is a director of Aptix,
Inc., Atesla, Inc. and Orbit Semiconductor.
CERTAIN TRANSACTIONS
The Company leases its Salinas facility from Carl E. Berg, a director. The
Company paid rental expense of $1,396,000 and $1,527,000 during fiscal 1994 and
1995, respectively, under a lease agreement that expired in July 1995 and was
renewed through June 2005, with additional options to renew for successive
five-year periods through 2015. In September 1994 the Company exercised its
option to renew the lease at an annual rental expense of $927,000 from July 1995
through July 2005. In connection with the lease renewal, the Company was granted
a right of first refusal to purchase the Salinas facility on the same terms as a
third party offeree and an option to purchase the facility for a purchase price
of approximately $8,509,000 in a tax-free stock exchange. IDT's option is
exercisable for six months beginning on July 1, 2000. In October 1994, the
Company purchased from Mr. Berg a 5.5 acre parcel of undeveloped land adjacent
to its Salinas facility for $653,000.
The Company holds an approximately 56% equity interest in QED, a corporation
formed in 1991. Leonard C. Perham, the President and Chief Executive Officer and
a director of the Company, and Carl E. Berg are members of the board of
directors of QED. Mr. Berg also holds an approximately 5.6% equity interest in
QED. Pursuant to a development agreement between the Company and QED, QED is
developing for the Company derivative products based on MIPS' 64-bit
microprocessor architecture. During fiscal 1994 and 1995, the Company paid QED a
total of $3,075,000 and $2,625,000, respectively, for product development and
nonrecurring engineering. During fiscal 1995, the Company also incurred
royalties of $1,544,000 to QED. See "Business--Research and Development."
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The Company holds an approximately 16% equity interest in Monolithic System
Technology, Inc. ("MoSys"). Leonard C. Perham and Carl E. Berg are members of
the board of directors of MoSys. Mr. Berg also holds an equity interest of
approximately 18% of MoSys. MoSys is developing certain technology that, if
successfully reduced to practice, could relate to the Company's business. During
fiscal 1993 and 1994, the Company purchased a total of 333,500 shares of MoSys
preferred stock for a total of $667,000. During fiscal 1995, the Company
purchased 400,000 shares of MoSys preferred stock for a total of $2,000,000 and
paid MoSys $125,000 for technical support.
The Company has from time to time retained Phillip Perham, a contractor and
the brother of Leonard C. Perham, as an independent contractor to perform
certain construction services in connection with improvements and repairs to
various Company facilities. The Company paid Phillip Perham an aggregate of
approximately $177,570 and $134,250 for such services in fiscal 1994 and 1995,
respectively.
In April 1995, the Company loaned $100,000 to L. Robert Phillips, Vice
President, Manufacturing of the Company, pursuant to a promissory note to secure
a salary advance. The note is due and payable in April 1998 and Mr. Phillips is
obligated to pay interest annually at the rate of 6.69%. In the event that Mr.
Phillips exercises any stock options and sells the underlying shares or receives
a bonus or cash compensation other than salary, then one half of the net
proceeds of such receipts shall be used for repayment of the outstanding
principal.
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DESCRIPTION OF NOTES
The Notes are to be issued under an indenture to be dated as of June 1, 1995
(the "Indenture"), between the Company and The First National Bank of Boston, as
trustee (the "Trustee"). The Indenture will be substantially in the form filed
as an exhibit to the Registration Statement of which this Prospectus is a part,
with such changes as may be required by law or usage. The following descriptions
of certain provisions of the Indenture are intended as summaries only and are
qualified in their entirety by reference to the Indenture, including the
definitions therein of certain terms. Wherever particular Sections, Articles or
defined terms of the Indenture are referred to, such Sections, Articles or
defined terms are incorporated herein by reference. As used in this "Description
of Notes," the term "Company" means only Integrated Device Technology, Inc. and
not its subsidiaries.
GENERAL
The Notes will represent unsecured general obligations of the Company
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination," and convertible into Common Stock as described
below under "Conversion." The Notes will be limited to $175,000,000 aggregate
principal amount ($201,250,000 if the over-allotment option is exercised in
full), will be issued in fully registered form only in denominations of $1,000
or any multiple thereof and will mature on June 1, 2002, unless earlier redeemed
at the option of the Company or repurchased by the Company at the option of the
holder upon a Designated Event (as defined in the Indenture).
The Notes will bear interest from June 2, 1995 at the annual rate set forth
on the cover page hereof, payable semi-annually on June 1 and December 1,
commencing on December 1, 1995, to holders of record at the close of business on
the preceding May 15 and November 15, respectively. Interest will be computed on
the basis of a 360-day year composed of twelve 30-day months.
Principal of and premium, if any, and interest on the Notes will be payable,
the transfer of Notes will be registrable, and the Notes may be presented for
conversion, at the office or agency of the Company maintained for such purposes
in the Borough of Manhattan, The City of New York, or the Corporate Trust Office
of the Trustee located in Canton, Massachusetts. In addition, payment of
interest may, at the option of the Company, be made by check mailed to the
address of the person entitled thereto as it appears in the Note register.
Interest payable to any holder of Notes having an aggregate principal amount in
excess of $5,000,000 shall, at the election of such holder, be paid by wire
transfer in immediately available funds.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. No service charge will
be made for any registration or transfer or exchange of Notes, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. The Company is not required (i) to
issue, register the transfer of or exchange any Note during a period beginning
at the opening of business 15 days before the day of the mailing of a notice of
redemption and ending at the close of business on the date of such mailing, or
(ii) to register the transfer of or exchange any Note selected for redemption in
whole or in part, except the unredeemed portion of Notes being redeemed in part.
The Indenture does not contain any restrictions on the payment of dividends
or the repurchase of securities of the Company or any financial covenants. The
Indenture contains no covenants or other provisions to afford protection to
holders of Notes in the event of a highly leveraged transaction or a change in
control of the Company except to the extent described under "--Repurchase at
Option of Holders Upon a Designated Event" below.
CONVERSION
The holders of Notes will be entitled at any time after 60 days following the
original issuance thereof through the close of business on the final maturity
date of the Notes, subject to prior redemption or repurchase, to convert any
Notes or portions thereof (in denominations of $1,000 or multiples thereof) into
Common Stock of the Company, at the conversion price set forth on the cover page
of this Prospectus, subject to adjustment as described below. Except as
described below, no adjustment will be made on
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<PAGE>
conversion of any Notes for interest accrued thereon or for dividends on any
Common Stock issued. If Notes not called for redemption are converted after a
record date for the payment of interest and prior to the next succeeding
interest payment date, such Notes must be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount so converted. The Company is not required to issue fractional shares of
Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash
adjustment based upon the market price of the Common Stock on the last business
day prior to the date of conversion. In the case of Notes called for redemption,
conversion rights will expire at the close of business on the business day
preceding the date fixed for redemption, unless the Company defaults in payment
of the redemption price.
The initial conversion price of $57 1/4 per share of Common Stock is subject
to adjustment (under formulae set forth in the Indenture) in certain events,
including: (i) the issuance of Common Stock as a dividend or distribution on
Common Stock of the Company; (ii) certain subdivisions and combinations of the
Common Stock; (iii) the issuance to all holders of Common Stock of certain
rights or warrants to purchase Common Stock; (iv) the dividend or other
distribution to all holders of Common Stock of shares of capital stock of the
Company (other than Common Stock) or evidences of indebtedness of the Company or
assets (including securities, but excluding those rights, warrants, dividends
and distributions referred to above); (v) dividends or other distributions
consisting exclusively of cash to all holders of Common Stock in an aggregate
amount that, combined together with (A) all such all-cash distributions made
within the preceding 12 months in respect of which no adjustment has been made
plus (B) any cash and the fair market value of other consideration payable in
respect of any tender offers by the Company or any of its subsidiaries for
Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 10% of the Company's market capitalization
(being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding) on the record date for
such distribution; and (vi) the purchase of Common Stock pursuant to a tender
offer made by the Company or any of its subsidiaries which involves an aggregate
consideration that, together with (X) any cash and the fair market value of any
other consideration payable in any other tender offer made by the Company or any
of its subsidiaries for Common Stock expiring within 12 months preceding such
tender offer in respect of which no adjustment has been made plus (Y) the
aggregate amount of any such all-cash distributions to all holders of Common
Stock within the 12 months preceding the expiration of such tender offer in
respect of which no adjustments have been made pursuant to clause (v) above,
exceeds 10% of the Company's market capitalization on the expiration of such
tender offer.
The Indenture will provide that the Company will promptly (but in no event
later than September 30, 1995) amend its Stockholder Rights Plan to provide that
upon conversion of the Notes the holders will receive, in addition to the Common
Stock issuable upon such conversion, the Rights (whether or not the Rights have
separated from the Common Stock at the time of the conversion). See "Description
of Capital Stock--Rights Plan." The Indenture will also provide that, in the
event of the occurrence of certain events affecting the Rights prior to such
amendment, appropriate adjustments to the conversion price applicable to the
Notes will be made. In addition, the Indenture will provide that, if the Company
implements a new stockholder rights plan, such rights plan must provide that
upon conversion of the Notes the holders will receive, in addition to the Common
Stock issuable upon such conversion, such rights (whether or not such rights
have separated from the Common Stock at the time of such conversion).
Subject to the rights of holders of Notes described below under "Repurchase
at Option of Holders Upon a Designated Event," in the case of (i) any
reclassification or change of the Common Stock or (ii) a consolidation, merger
or combination involving the Company or a sale or conveyance to another
corporation of the property and assets of the Company as an entirety or
substantially as an entirety, in each case as a result of which holders of
Common Stock shall be entitled to receive stock, other securities, other
property or assets (including cash) with respect to or in exchange for such
Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets which they would have owned or been
entitled
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<PAGE>
to receive upon such reclassification, change, consolidation, merger,
combination, sale or conveyance had such Notes been converted into Common Stock
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance (assuming, in a case in which the Company's
stockholders may exercise rights of election, that a holder of Notes would not
have exercised any rights of election as to the stock, other securities or other
property or assets receivable in connection therewith and received per share the
kind and amount received per share by a plurality of non-electing shares).
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
The Company from time to time may, to the extent permitted by law, reduce the
conversion price of the Notes by any amount for any period of at least 20 days,
in which case the Company shall give at least 15 days' notice of such decrease,
if the Board of Directors has made a determination that such decrease would be
in the best interests of the Company, which determination shall be conclusive.
The Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Directors deems advisable to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. See "Certain Federal Income Tax
Considerations."
No adjustment in the conversion price will be required unless such adjustment
would require a change of at least 1% of the conversion price then in effect;
provided that any adjustment that would otherwise be required to be made shall
be carried forward and taken into account in any subsequent adjustment. Except
as stated above, the conversion price will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common Stock
or carrying the right to purchase any of the foregoing.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable at the option of the Company prior to June 2,
1998. At any time on or after that date, the Notes may be redeemed at the
Company's option on at least 15 but not more than 60 days' notice, as a whole
or, from time to time in part, at the following prices (expressed in percentages
of the principal amount), together with accrued interest to the date fixed for
redemption; provided that if a redemption date is an interest payment date, the
semi-annual payment of interest becoming due on such date shall be payable to
the holder of record as of the relevant record date.
If redeemed during the 12-month period beginning June 1:
REDEMPTION
YEAR PRICE
---- ----------
1998 ............................ 102.750%
1999 ............................ 101.375
2000 and thereafter.............. 100.000
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in principal amounts of $1,000 or integral multiples
thereof by lot or, in its discretion, on a pro rata basis. If any Note is to be
redeemed in part only, a new Note or Notes in an aggregate principal amount
equal to the unredeemed principal portion thereof will be issued. If a portion
of a holder's Notes is selected for partial redemption and such holder converts
a portion of such Notes, such converted portion shall be deemed to be taken from
the portion selected for redemption.
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A DESIGNATED EVENT
The Indenture provides that if a Designated Event (as defined in the
Indenture) occurs, each holder of Notes shall have the right, at the holder's
option, to require the Company to repurchase all of such
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holder's Notes, or any portion thereof that is an integral multiple of $1,000,
on the date (the "repurchase date") that is 30 calendar days after the date of
the Company Notice (as defined in the Indenture), for cash at a price (expressed
as a percentage of the principal amount) equal to (i) 105.500% if the repurchase
date is during the 12-month period beginning June 1, 1995, (ii) 104.583% if the
repurchase date is during the 12-month period beginning June 1, 1996, (iii)
103.666% if the repurchase date is during the 12-month period beginning June 1,
1997 and thereafter at the redemption price set forth under "Optional Redemption
by the Company" which would be applicable to a redemption at the option of the
Company on the repurchase date, together with accrued interest, if any (the
"repurchase price").
Within 15 calendar days after the occurrence of a Designated Event, the
Company is obligated to mail to all holders of record of the Notes a notice (the
"Company Notice") of the occurrence of such Designated Event and of the
repurchase right arising as a result thereof. The Company must deliver a copy of
the Company Notice to the Trustee and cause a copy or a summary of such notice
to be published in a newspaper of general circulation in The City of New York.
To exercise the repurchase right, a holder of Notes must deliver, on or before
the 30th day after the date of the Company Notice, irrevocable written notice to
the Company (or an agent designated by the Company for such purpose) and the
Trustee of the holder's exercise of such right together with the Notes with
respect to which the right is being exercised, duly endorsed for transfer. The
submission of such notice together with such Notes pursuant to the exercise of a
repurchase right will be irrevocable on the part of the holder (unless the
Company fails to repurchase the Notes on the repurchase date) and the right to
convert such Notes will expire upon such submission.
"Designated Event" means a Change in Control (as defined in the Indenture) or
a Termination of Trading (as defined in the Indenture).
"Change in Control" means an event or series of events as a result of which
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act) of shares representing more than 50% of
the combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"), (ii) the
Company consolidates with or merges into any other corporation, or conveys,
transfers or leases all or substantially all of its assets to any person, or any
other corporation merges into the Company, and, in the case of any such
transaction, the outstanding common stock of the Company is changed or exchanged
as a result, unless the stockholders of the Company immediately before such
transaction own, directly or indirectly immediately following such transaction,
at least a majority of the combined voting power of the outstanding voting
securities of the corporation resulting from such transaction in substantially
the same proportion as their ownership of the Voting Stock immediately before
such transaction, or (iii) at any time Continuing Directors (as defined in the
Indenture) do not constitute a majority of the Board of Directors of the Company
(or, if applicable, a successor corporation to the Company); provided that a
Change in Control shall not be deemed to have occurred if either (x) the last
sale price of the Common Stock for any five trading days during the ten trading
days immediately preceding the Change in Control is at least equal to 115% of
the conversion price in effect on such day or (y) (a) at least 90% of the
consideration (excluding cash payments for fractional shares) in the transaction
or transactions constituting the Change in Control consists of common stock or
securities convertible into common stock that are, or upon issuance will be,
traded on a United States national securities exchange or approved for trading
on an established automated over-the-counter trading market in the United States
and (b) after giving effect to such transaction or transactions and for a period
of twelve months thereafter the Notes have a rating of "B3" or "B-" or better
(or equivalent ratings under successor ratings classification systems) by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively.
"Continuing Director" means at any date a member of the Company's Board of
Directors (i) who was a member of such board as of the date of this Prospectus
or (ii) who was nominated or elected by at least a majority of the directors who
were Continuing Directors at the time of such nomination or election or whose
election to the Company's Board of Directors was recommended or endorsed by at
least a majority of the directors who were Continuing Directors at the time of
such nomination or election.
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Under this definition, if the current Board of Directors of the Company were to
approve a new director or directors and then resign, no Change in Control would
occur even though the current Board of Directors would thereafter cease to be in
office.
No quantitative or other established meaning has been given to the phrase
"all or substantially all" (which appears in the definition of Change in
Control) by courts which have interpreted this phrase in various contexts under
the laws of the State of New York. To the extent the meaning of such phrase is
uncertain, uncertainty will exist as to whether or not a Change in Control may
have occurred (and, accordingly, as to whether or not the holders of Notes will
have the right to require the Company to repurchase their Notes).
A "Termination of Trading" shall have occurred if the Common Stock (or other
common stock into which the Notes are then convertible) is neither listed for
trading on a United States national securities exchange nor approved for trading
on an established automated over-the-counter trading market in the United
States.
In the event of a Designated Event, any repurchase of the Notes could, absent
payment in full of any outstanding Senior Indebtedness or waiver, be prevented
by the subordination provisions of the Indenture. See "Subordination" below. The
Company may incur Senior Indebtedness under which a Designated Event may
constitute an event of default or the repurchase of Notes upon a Designated
Event may be prohibited. As a result, absent payment in full of any such Senior
Indebtedness or an appropriate waiver from the holders of the Senior
Indebtedness, a repurchase of the Notes could be prevented by the subordination
provisions of the Indenture. The Company's ability to pay cash to the holders of
Notes upon a repurchase may also be limited by certain financial covenants
contained in the Company's credit agreements. Failure by the Company to
repurchase the Notes when required will result in an Event of Default with
respect to the Notes whether or not such repurchase is permitted by the
subordination provisions.
Certain leveraged transactions sponsored by the Company's management or an
affiliate of the Company could constitute a Change in Control that would give
rise to the repurchase right. The Indenture does not provide the Company's Board
of Directors with the right to limit or waive the repurchase right in the event
of any such leveraged transaction. Conversely, the Company could, in the future,
enter into certain transactions, including certain recapitalization of the
Company, that would increase the amount of Senior Indebtedness (or other
indebtedness) outstanding at such time. There are no restrictions in the
Indenture or the Notes on the creation of additional Senior Indebtedness (or any
other indebtedness) of the Company or any of its subsidiaries and the incurrence
of significant amounts of additional indebtedness could have an adverse impact
on the Company's ability to service its debt, including the Notes. The Notes are
subordinate in right of payment to all existing and future Senior Indebtedness
as described under "--Subordination" below.
The right to require the Company to repurchase Notes as a result of a
Designated Event could have the effect of delaying, deferring of preventing a
Change of Control or other attempts to acquire control of the Company unless
arrangements have been made to enable the Company to repurchase all the Notes at
the repurchase date. Consequently, this right may render more difficult or
discourage a merger, consolidation or tender offer (even if such transaction is
supported by the Company's Board of Directors or is favorable to the
stockholders), the assumption of control by a holder of a large block of the
Company's shares and the removal of incumbent management.
No modification of the Indenture regarding the provisions on repurchase at
the option of any holder of a Note is permissible without the consent of the
holder of the Note so affected.
Rule 13e-4 under the Exchange Act requires, among other things, the
dissemination of certain information to security holders in the event of an
issuer tender offer and may apply in the event that the repurchase option
becomes available to holders of the Notes. The Company will comply with this
rule to the extent applicable at that time.
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SUBORDINATION
The indebtedness evidenced by the Notes is, to the extent provided in the
Indenture, subordinate to the prior payment in full of all Senior Indebtedness
(as defined). During the continuance beyond any applicable grace period of any
default in the payment of principal, premium, interest or any other payment due
on any Senior Indebtedness, no payment of principal of, or premium, if any, or
interest on the Notes (including, but not limited to, the redemption price or
repurchase price with respect to the Notes) shall be made by the Company. In
addition, upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization, the payment of the principal of, or
premium, if any, and interest on the Notes is to be subordinated to the extent
provided in the Indenture in right of payment to the prior payment in full of
all Senior Indebtedness.
By reason of the subordination provisions described above, in the event of
the Company's liquidation or dissolution, holders of Senior Indebtedness may
receive more, ratably, and holders of the Notes may receive less, ratably, than
the other creditors of the Company. Such subordination will not prevent the
occurrence of an Event of Default under the Indenture.
Subject to the qualifications described below, the term "Senior Indebtedness"
means the principal of, premium, if any, interest on, and any other payment due
pursuant to, any of the following, whether outstanding on the date of the
Indenture or thereafter incurred or created:
(a) All indebtedness of the Company for money borrowed (including, but not
limited to, any indebtedness secured by a security interest, mortgage or
other lien on the assets of the Company which is (i) given to secure all or
part of the purchase price of property subject thereto, whether given to the
vendor of such property or to another, or (ii) existing on property at the
time of acquisition thereof);
(b) All indebtedness of the Company evidenced by notes, debentures, bonds
or other securities (including but not limited to those which are convertible
or exchangeable for securities of the Company);
(c) All indebtedness of the Company due and owing with respect to letters
of credit (including, but not limited to, reimbursement obligations with
respect thereto);
(d) All lease obligations of the Company which are capitalized on the
books of the Company in accordance with generally accepted accounting
principles and all lease obligations of the Company under any lease or
related document (including a purchase agreement) which provides that the
Company is contractually obligated to purchase or cause a third party to
purchase the leased property and thereby guarantee a minimum residual value
of the leased property to the landlord and the obilgations of the Company
under such lease or related document to purchase or to cause a third party to
purchase such leased property;
(e) All indebtedness consisting of commitment or standby fees due and
payable to lending institutions with respect to credit facilities available
to the Company;
(f) All indebtedness consisting of obligations of the Company due and
payable under interest rate and currancy swaps, floors, caps or other similar
arrangements intended to fix interest rate obligations or hedge foreign
currency exposure;
(g) All indebtedness of others of the kinds described in any of the
preceding clauses (a), (b), (c), (e) or (f) and all lease obligations of the
kind described in the preceding clause (d) assumed by or guaranteed in any
manner by the Company or in effect guaranteed by the Company through an
agreement to purchase, contingent or otherwise; and
(h) All renewals, extensions, refundings, deferrals, amendments or
modifications of indebtedness of the kinds described in any of the preceding
clauses (a), (b), (c), (e), (f) or (g) and all renewals or extensions of
lease obligations of the kinds described in any of the preceding clauses (d)
or (g);
unless in the case of any particular indebtedness, lease, renewal, extension,
refunding, amendment, modification or supplement, the instrument, lease or other
document creating or evidencing the same or the assumption or guarantee of the
same expressly provides that such indebtedness, lease, renewal,
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extension, refunding, amendment, modification or supplement is not superior
in right of payment to, or pari passu with, the Notes. Notwithstanding the
foregoing, Senior Indebtedness shall not include (i) any indebtedness or lease
obligations of any kind of the Company to any subsidiary of the Company, a 38
majority of the voting stock of which is owned, directly or indirectly, by the
Company, and (ii) indebtedness for trade payables or constituting the deferred
purchase price of assets or services incurred in the ordinary course of
business.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, in respect of the Notes before all Senior Indebtedness is paid in
full, then such payment or distribution will be held by the recipient in trust
for the benefit of holders of Senior Indebtedness of the Company or their
representative or representatives to the extent necessary to make payment in
full of all Senior Indebtedness of the Company remaining unpaid, after giving
effect to any concurrent payment or distribution, or provision therefor, to or
for the holders of Senior Indebtedness of the Company.
The Notes are obligations of the Company. Since the operations of the Company
are currently partially conducted through subsidiaries, the cash flow and the
consequent ability to service debt, including the Notes, of the Company, may be
partially dependent upon the earning of its subsidiaries and the distribution of
those earnings to, or upon loans, royalties, license fees, or other payments of
funds by those subsidiaries to, the Company. The subsidiaries are separate and
distinct legal entities, are less than wholly owned in certain cases, and have
no obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether by dividends, loans or
other payments. In addition, the payment of dividends and the making of loans
and advances to the Company by its subsidiaries may be subject to statutory or
contractual restrictions, are dependent upon the earnings those subsidiaries and
are subject to various business considerations.
Any right of the Company to receive assets of any of its subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders of
the Notes to participate in these assets) will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors), except to
the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by the Company.
As of March 31, 1995, the Company had outstanding indebtedness of
approximately $50.2 million that would have constituted Senior Indebtedness. In
addition, as of March 31, 1995 subsidiaries of the Company had outstanding an
aggregate $3.6 million of indebtedness. The amount of Senior Indebtedness or
indebtedness of subsidiaries may change in the future. The Indenture will not
limit the amount of additional indebtedness, including Senior Indebtedness,
which the Company can create, incur, assume or guarantee, nor will the Indenture
limit the amount of indebtedness which any subsidiary of the Company can create,
incur, assume or guarantee.
The Company is obligated to pay reasonable compensation to the Trustee and to
indemnify the Trustee against any losses, liabilities or expenses incurred by it
in connection with its duties relating to the Notes. The Trustee's claims for
such payments will be senior to those of holders of the Notes in respect of all
funds collected or held by the Trustee.
EVENTS OF DEFAULT AND REMEDIES
As Event of Default is defined in the Indenture as being default in payment
of the principal of, or premium, if any, on the Notes; default for 30 days in
payment of any installment of interest on the Notes; default by the Company for
60 days after notice in the observance or performance of any other covenants in
the Indenture; default in the payment of the repurchase price in respect of the
Note on the repurchase date therefor whether or not such payment is prohibited
by the subordination provisions of the Indenture; failure of the Company or any
Significant Subsidiary (as defined in the Indenture) to make any payment at
maturity, including any applicable grace period, in respect of indebtedness,
which term as used in the Indenture means obligations (other than non-recourse
obligations) of, or guaranteed or assumed by, the
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Company or any Significant Subsidiary for borrowed money in excess of
$25,000,000 and continuance of such failure for 30 days after notice; a default
with respect to any Indebtedness, which default results in the acceleration of
Indebtedness in an amount in excess of $25,000,000 without such Indebtedness
having been discharged or such acceleration having been cured, waived, rescinded
or annulled for 30 days after notice; or certain events involving bankruptcy,
insolvency or reorganization of the Company or any Significant Subsidiary. The
Indenture provides that the Trustee may withhold notice to the holders of the
Notes of any default (except in payment of principal, or premium, if any, or
interest with respect to the Notes) if the Trustee considers it in the interest
of the holders of the Notes to do so.
The Indenture provides that if any Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and premium,
if any, on the Notes to be due and payable immediately, but if the Company shall
cure all defaults (except the nonpayment of interest on, premium, if any, and
principal of any Notes which shall have become due by acceleration) and certain
other conditions are met, such declaration may be canceled and past defaults may
be waived by the holders of a majority in principal amount of Notes then
outstanding.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, subject to certain
limitations specified in the Indenture.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than 66 2/3 % in principal amount of
the Notes at the time outstanding, to modify the Indenture or any supplemental
indenture or the rights of the holders of all Notes, except that no such
modification shall (i) extend the fixed principal of any Note, reduce the rate
or extend the time for payment of interest thereon, reduce the principal amount
thereof or premium, if any, thereon, reduce any amount payable upon redemption
or repurchase thereof, change the obligation of the Company to repurchase any
Note upon the happening of a Designated Event, impair or affect the right of a
holder to institute suit for the payment thereof, change the currency in which
the Notes are payable, impair the right to convert the Notes into Common Stock
subject to the terms set forth in the Indenture, or modify the provisions of the
Indenture with respect to the subordination of the Notes in a manner adverse to
the holders of the Notes, without the consent of the holder of each Note so
affected, or (ii) reduce the aforesaid percentage of Notes, without the consent
of the holders of all of the Notes outstanding.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain outstanding if (i) all outstanding Notes will become due and payable at
their scheduled maturity within one year or (ii) all outstanding Notes are
scheduled for redemption within one year, and, in either case, the Company has
deposited with the Trustee an amount sufficient to pay and discharge all
outstanding Notes on the date of their scheduled maturity or the scheduled date
of redemption.
GOVERNING LAW
The Indenture and Notes will be governed by and construed in accordance with
the laws of the State of New York, without giving effect to such State's
conflicts of laws principles.
CONCERNING THE TRUSTEE
The First National Bank of Boston, the Trustee under the Indenture, has been
appointed by the Company as the initial paying agent, conversion agent and
registrar with regard to the Notes. The Company and its subsidiaries may
maintain deposit accounts and conduct other banking transactions with the
Trustee or its affiliates in the ordinary course of business, and the Trustee
and its affiliates may from time to time in the future provide the Company with
banking and financial services in the ordinary course of their business.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 65,000,000 shares of
Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share. The number of shares of Common Stock
outstanding on May 25, 1995 was 38,216,425 shares, held of record by
approximately 820 stockholders. There are no shares of Preferred Stock
outstanding.
COMMON STOCK
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
time and in such amounts as the Board of Directors may, from time to time,
determine in its sole discretion. Holders of Common Stock are also entitled to
one vote for each share of Common Stock held of record on all matters on which
holders of Common Stock are entitled to vote and may cumulate such votes in the
election of directors. The Common Stock is not entitled to preemptive rights and
is not subject to redemption. Upon liquidation, dissolution or winding up of the
Company, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the Common Stock and of any
participating Preferred Stock and payment of creditors' claims. Each outstanding
share of Common Stock is fully paid and nonassessable. The Company's Common
Stock is traded on the Nasdaq National Market under the symbol "IDTI."
PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the designation, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereof, and to increase or decrease the number of
shares of any such series (but not below the number of shares of such series
then outstanding), without any further vote or action by the stockholders of the
Company. Thus, the Board of Directors, without stockholder approval, can issue
Preferred Stock with voting and conversion rights that could adversely affect,
among other things, the voting power of the holders of Common Stock. Because the
terms of the Preferred Stock may be fixed by the Board of Directors without
stockholder action, the Preferred Stock could be issued quickly with terms
calculated to delay or prevent a change in control of the Company or to make the
removal of management more difficult. Under certain circumstances, this could
have the effect of decreasing the market price of the Common Stock.
Stockholder Rights Plan. In December 1988, the Board of Directors of the
Company declared a dividend distribution of one preferred share purchase right
(a "Right") for each share of Common Stock of the Company outstanding as of the
close of business on December 20, 1988 and each share of Common Stock issued
thereafter (subject to certain limitations). The terms of the Rights are
governed by an agreement (the "Stockholder Rights Plan") between the Company and
The First National Bank of Boston, as Rights agent, which provides, among other
things, that after a Distribution Date (as defined below), each Right entitles
the registered holder to purchase from the Company 1/100 th of a share of the
Company's Series A Junior Participating Preferred Stock, $0.001 par value,
initially at a price of $50.00 (the "Purchase Price").
The Rights will expire ten years after the date of issuance, December 20,
1998, unless earlier redeemed, and will become exercisable and transferable
separately from the Common Stock following the tenth day after (i) a public
announcement that a person or group has acquired beneficial ownership of 15% or
more of the Company's Common Stock or (ii) the commencement or announcement of
the intention to make a tender or exchange offer, the consummation of which
would result in ownership by a person or group of 15% or more of the Company's
Common Stock, or such other date after the occurrence of an event described in
clause (i) or (ii) above as may be determined by a majority of Directors not
affiliated with the acquiring group or person (the "Distribution Date"). If an
acquiror obtains 15% or more of the Company's Common Stock, (a) each Right will
(to the extent such Right is then exercisable) entitle the holder thereof (other
than the acquiror) to purchase, at the then-current Purchase Price, a number of
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shares of Common Stock having a then-current market value of twice the Purchase
Price, and (b) the Board of Directors may at any time after the acquiror has
obtained 15% or more of the Company's Common Stock (but not after the acquiror
acquires 50% or more of the outstanding Common Stock) cause each Right, other
than the Rights held by the acquiror, to be exchanged for one share of Common
Stock (subject to adjustment) or substitute consideration with a value equal to
such share. If (i) the Company is acquired in a merger or other business
combination in which the Company is not the surviving entity, (ii) an acquiring
entity merges into the Company and Common Stock of the Company is changed into
or exchanged for securities or assets of another person or (iii) 50% or more of
the Company's assets or earning power is sold or transferred, then each Right
will (to the extent such Right is then exercisable) entitle the holder thereof
(other than the acquiror) to purchase, at the then-current Purchase Price, a
number of shares of common stock of the acquiring person having a then-current
market value of twice the Purchase Price.
The Rights are redeemable at the Company's option for $.01 per Right at any
time on or prior to the tenth day after public announcement that a person or
group has acquired beneficial ownership of 15% or more of the Company's Common
Stock or such later date as may be determined by a majority of the Directors not
affiliated with the acquiring group or person.
The Indenture will provide that the Company will promptly (but in no event
later than September 30, 1995) amend the Stockholder Rights Plan to provide that
upon conversion of the Notes the holders will receive, in addition to the Common
Stock issuable upon such conversion, the Rights (whether or not the Rights have
separated from the Common Stock at the time of the conversion). The Indenture
will also provide that, in the event of the occurrence of certain events
affecting the Rights prior to such amendment, appropriate adjustments to the
conversion price applicable to the Notes will be made. In addition, the
Indenture will provide that, if the Company implements a new stockholder rights
plan, such rights plan must provide that upon conversion of the Notes the
holders will receive, in addition to Common Stock issuable upon such conversion,
such rights (whether or not such rights have separated from the Common Stock at
the time of such conversion).
Pursuant to the Rights Plan, 650,000 shares of authorized Preferred Stock
have been designated Series A Junior Participating Preferred Stock, and reserved
for issuance upon the exercise of Rights issued under the Stockholder Rights
Plan. The Series A Junior Participating Preferred Stock purchasable upon
exercise of the Rights will be nonredeemable and junior to any other series of
Preferred Stock the Company may issue (unless otherwise provided in the terms of
such stock). Each share of Series A Junior Participating Preferred Stock will
have a preferential cumulative quarterly dividend in an amount equal to $.25 per
share (or, if greater, 100 times the amount per share of all cash dividends
distributed to the holders of Common Stock or 200 times the aggregate amount of
all noncash dividends) declared on each share of Common Stock during the quarter
and, in the event of liquidation, the holders of Series A Junior Participating
Preferred Stock will receive a preferred liquidation payment equal to $5.00 per
share (or, if greater, 100 times the amount per share to be distributed to the
holders of Common Stock), plus accrued dividends. Each share of Series A Junior
Participating Preferred Stock will have 100 votes (subject to adjustment in
certain events), and will vote together with the shares of Common Stock. In
certain circumstances, the holders of Series A Junior Participating Preferred
Stock will be entitled to elect two directors. In the event of any merger,
consolidation or other transaction in which shares of Common Stock are exchanged
for or changed into other securities, cash or other property, each share of
Series A Junior Participating Preferred Stock will be entitled to receive 100
times the amount and type of consideration received per share of Common Stock.
Although the Rights should not interfere with a business combination approved
by the Board of Directors in the manner set forth in the Stockholder Rights
Plan, they may cause substantial dilution to a person or group that attempts to
acquire the Company without such approval.
INCREASED VOTE REQUIREMENTS FOR CERTAIN BUSINESS COMBINATIONS
The Company's Certificate of Incorporation provides that the Company may not
enter into certain corporate transactions ("Business Combinations") involving
any "Related Person" unless the transactions
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are approved by, in addition to any affirmative vote ordinarily required under
Delaware law, the affirmative vote of the holders of at least 75% of the voting
power of outstanding voting shares, including the affirmative vote of the
holders of not less than 66 2/3 % of the outstanding voting shares not owned
directly or indirectly by any "Related Person." The term "Related Person" is
defined as a person who, together with the person's affiliates and associates,
beneficially owns 10% or more of the Company's outstanding voting shares. The 66
2/3 % voting requirement does not apply to any proposed Business Combination
approved by the affirmative vote of at least 90% of the Company's outstanding
voting shares. No supermajority vote is required if the Business Combination is
a merger or consolidation and the cash or fair market value of the property,
securities or other consideration to be received per share by the holders of
Common Stock of the Company in the Business Combination is not less than the
highest per share price paid by the Related Person in acquiring any of its
holdings of the Company's Common Stock within the two years prior to the
effective date of the Business Combination.
Although the purpose of these voting requirements is to protect the Company,
its stockholders and its employees from unfavorable corporate transactions, the
voting requirements could, under certain circumstances, permit the Company's
Board of Directors or minority stockholders to frustrate consummation of a
Business Combination that the holders of a majority of the voting stock of the
Company might believe to be in their best interests.
DELAWARE GENERAL CORPORATION LAW SECTION 203
As a corporation organized under the laws of the State of Delaware, the
Company is subject to Section 203 of the Delaware General Corporation Law (the
"DGCL") which restricts certain business combinations between the Company and an
"interested stockholder" (in general, a stockholder owning 15% or more of the
Company's outstanding voting stock) or its affiliates or associates for a period
of three years following the date on which the stockholder becomes an
"interested stockholder." The restrictions do not apply if (i) prior to an
interested stockholder becoming such, the Board of Directors approves either the
business combination or the transaction in which the stockholder becomes an
interested stockholder, (ii) upon consummation of the transaction in which the
stockholder becomes an interested stockholder, such interested stockholder owns
at least 85% of the voting stock of the Company outstanding at the time the
transaction commences (excluding shares owned by certain employee stock
ownership plans and persons who are both directors and officers of the Company)
or (iii) on or subsequent to the date an interested stockholder becomes such,
the business combination is both approved by the Board of Directors and
authorized at an annual or special meeting of the Company's stockholders, not by
written consent, but by the affirmative vote of at least 66 2/3 % of the
outstanding voting stock not owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is The First
National Bank of Boston.
43
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal income
tax considerations relevant to holders of the Notes. This discussion is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor's decision to purchase the Notes, and it is not intended to be wholly
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations and non-United
States persons, may be subject to special rules. In addition, this discussion is
limited to persons that purchase the Notes in the offering and hold the Notes as
a "capital asset" within the meaning of Section 1221 of the Code.
ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK.
Conversion of Notes into Common Stock. In general, no gain or loss will be
recognized for federal income tax purposes on a conversion of the Notes into
shares of Common Stock. However, cash paid in lieu of a fractional share of
Common Stock will likely result in taxable gain (or loss), which will be capital
gain (or loss), to the extent that the amount of such cash exceeds (or is
exceeded by) the portion of the adjusted basis of the Note allocable to such
fractional share. The adjusted basis of shares of Common Stock received on
conversion will equal the adjusted basis of the Note converted, reduced by the
portion of adjusted basis allocated to any fractional share of Common Stock
exchanged for cash. The holding period of an investor in the Common Stock
received on conversion will include the period during which the converted Notes
were held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes--Conversion." Section 305 of the Code
and the Treasury Regulations issued thereunder may treat the holders of the
Notes as having received a constructive distribution, resulting in ordinary
income (subject to a possible dividends received deduction in the case of
corporate holders) to the extent of the Company's then current and/or
accumulated earnings and profits (and resulting in gain or a return of capital,
depending on the amount of the distribution in excess of such earnings and
profits), if and to the extent that certain adjustments in the conversion price
that may occur in limited circumstances (particularly an adjustment to reflect a
taxable dividend to holders of Common Stock) increase the proportionate interest
of a holder of Notes in the fully diluted Common Stock, whether or not such
holder ever exercises its conversion privilege. Moreover, if there is not a full
adjustment to the conversion price of the Notes to reflect a stock dividend or
other event increasing the proportionate interest of the holders of outstanding
Common Stock in the assets or earnings and profits of the Company, then such
increase in the proportionate interest of the holders of the Common Stock
generally will be treated as a distribution to such holders, taxable as ordinary
income (subject to a possible dividends received deduction in the case of
corporate holders) to the extent of the Company's then current and/or
accumulated earnings and profits and taxable as gain, or treated as a return of
capital, depending on the amount of the distribution in excess of such earnings
and profits.
Market Discount. Investors acquiring Notes in this offering should note that
the resale of Notes may be adversely affected by the market discount provisions
of sections 1276 through 1278 of the Code. Under market discount rules, if a
holder of a Note purchases it at market discount in excess of a statutorily-
defined de minimis amount and thereafter recognizes gain upon a disposition or
retirement of the Note, then the lesser of the gain recognized or a portion of
the market discount that accrued on a ratable basis (or, if elected, on a
constant interest rate basis) generally will be treated as ordinary income at
the time of the disposition. Moreover, any market discount on a Note may be
taxable to an investor to the extent of appreciation at the time of certain
otherwise non-taxable transactions (e.g., gifts). Any accrued market discount
not previously taken into income prior to a conversion of a Note, however,
should (under Treasury Regulations not yet issued) carry over to the Common
Stock received on conversion and be treated as ordinary income upon a subsequent
disposition of such Common Stock to the
44
<PAGE>
extent of any gain recognized on such disposition. In addition, absent an
election to include market discount in income as it accrues, a holder of a
market discount debt instrument may be required to defer a portion of any
interest expense that otherwise may be deductible on any indebtedness incurred
or maintained to purchase or carry such instrument until the holder disposes of
the debt instrument in a taxable transaction.
Sale, Exchange or Retirement of Notes. Each holder of Notes generally will
recognize gain or loss upon the sale, exchange, redemption, repurchase,
retirement or other disposition of those Notes measured by the difference (if
any) between (i) the amount of cash and the fair market value of any property
received (except to the extent that such cash or other property is attributable
to the payment of accrued interest not previously included in income, which
amount will be taxable as ordinary income) and (ii) the holder's adjusted tax
basis in those Notes (including any market discount previously included in
income by the holder). Each holder of Common Stock into which the Notes are
converted, in general, will recognize gain or loss upon the sale, exchange,
redemption, repurchase or other disposition of the Common Stock measured under
rules similar to those described in the preceding sentence for the Notes.
Special rules may apply to redemptions or repurchases of Common Stock which may
result in significantly different treatment. Any such gain or loss recognized on
the sale, exchange, redemption, repurchase, retirement or other disposition of a
Note or share of Common Stock should be capital gain or loss (except for
redemptions and repurchases and except as discussed under "Market Discount"
above), and would be long-term capital gain or loss if the Note or the Common
Stock has been held for more than 12 months at the time of the sale or exchange.
An investor's initial basis in a Note will be the cash price it paid therefor.
Back-Up Withholding. A holder of Notes or Common Stock may be subject to
"back-up withholding" at a rate of 31% with respect to certain "reportable
payments," including interest payments, dividend payments and, under certain
circumstances, principal payments on the Notes. These back-up withholding rules
apply if the holder, among other things, (i) fails to furnish a social security
number or other taxpayer identification number ("TIN") certified under penalty
of perjury within a reasonable time after the request therefor, (ii) furnishes
an incorrect TIN, (iii) fails to report properly interest or dividends or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalty of perjury, that the TIN furnished is the correct number and that
such holder is not subject to back-up withholding. A holder who does not provide
the Company with its correct TIN also may be subject to penalties imposed by the
IRS. Any amount withheld from a payment to a holder under the back-up
withholding rules is creditable against the holder's federal income tax
liability, provided the required information is furnished to the IRS. Back-up
withholding will not apply to payments made to certain holders, including
corporations, tax-exempt organizations and certain foreign persons, provided
their exemption from back-up withholding is properly established.
The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
45
<PAGE>
UNDERWRITING
Lehman Brothers Inc., Montgomery Securities and Smith Barney Inc. (the
"Underwriters"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement, to purchase from the Company and the Company has
agreed to sell to each Underwriter the aggregate principal amount of Notes set
forth opposite the names of such Underwriters below:
PRINCIPAL
UNDERWRITERS AMOUNT OF NOTES
------------ ---------------
Lehman Brothers Inc. .................... $ 58,334,000
Montgomery Securities ................... 58,333,000
Smith Barney Inc. ...................... 58,333,000
------------
Total ............................... $175,000,000
============
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the Notes offered
hereby (other than those offered pursuant to the over-allotment option described
below) if any Notes are purchased. In the event of default by any Underwriter,
the Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has been advised that the Underwriters propose to offer the Notes
to the public initially at the public offering price set forth on the cover page
of this Prospectus and to certain selected dealers (which may include the
Underwriters) at such public offering price less a concession not to exceed
1.35% of the principal amount of such Notes. The Underwriters may allow and such
dealers may reallow a concession not to exceed 0.25% of the principal amount of
such Notes to certain other dealers. After the initial offering to the public,
the public offering price, the concession to selected dealers and the
reallowance to other dealers may be changed.
The Notes are a new issue of securities. Application has been made for
quotation of the Notes on the Nasdaq Small-Cap Market under the symbol "IDTIG."
Until approximately May 31, 1995 the Notes will be traded on the
over-the-counter market. The Company has been advised by the Underwriters that
they intend to make a market in the Notes but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Notes.
The Company has granted the Underwriters an option to purchase, in the
aggregate, up to an additional $26,250,000 principal amount of Notes at the
initial public offering price less underwriting discounts and commissions,
solely to cover over-allotments. Such option may be exercised at any time until
30 days after the date of this Prospectus. To the extent that the Underwriters
exercise such option, each Underwriter will be committed, subject to certain
conditions, to purchase an additional amount of Notes proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
The Company has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has agreed not to register for sale, offer, sell, contract to
sell or otherwise dispose of, without the prior written consent of Lehman
Brothers Inc., as representative of the Underwriters, any shares of Common
Stock, any securities convertible into or exercisable or exchangeable for Common
Stock, or any rights to acquire Common Stock for a period of 90 days after the
date of this Prospectus; provided, however, that such restriction shall not
affect the ability of the Company or its subsidiaries to take any such actions
(i) in connection with any employee benefit or incentive plan of the Company or
(ii) in connection with the offering of the Notes made hereby or the conversion
thereof. In addition, certain of the Company's officers and board members have
agreed not to offer, sell, contract or otherwise dispose of, without the prior
written consent of Lehman Brothers Inc. as representative of the Underwriters,
any shares of Common Stock, any securities convertible into or exercisable or
exchangeable for Common Stock, or any rights to acquire Common Stock for a
period of 30 days after the date of this Prospectus.
46
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Notes and the Common Stock issuable
upon conversion thereof will be passed upon for the Company by Fenwick & West,
Palo Alto, California. Certain legal matters will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation
("WSGR"), Palo Alto, California. In December 1994, the Company engaged WSGR as
special counsel to the Company in connection with the facilities lease
arrangement for the Company's Oregon wafer fabrication facility. See Note 7 of
Notes to Consolidated Financial Statements.
EXPERTS
The consolidated financial statements of IDT as of April 3, 1994 and April 2,
1995 and for each of the three years in the period ended April 2, 1995 included
in this Prospectus and the consolidated financial statements incorporated in
this Prospectus by reference to the Annual Report on Form 10-K for the year
ended April 2, 1995 have been so included or incorporated in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Integrated Device Technology,
Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Integrated
Device Technology, Inc. and its subsidiaries at April 3, 1994 and April 2, 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended April 2, 1995, in conformity with generally accepted
accounting principles. These consolidated financial statements are the
responsibility of the Company's management; our responsiblity is to express an
opinion on these consolidated financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
April 21, 1995
F-1
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
APRIL 3, APRIL 2,
1994 1995
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 88,490 $130,211
Short-term investments ................................ 33,351 101,874
Accounts receivable, net of allowance for
returns and doubtful accounts of $4,129 and $3,830 ... 40,643 71,974
Inventory ............................................. 29,855 37,459
Deferred tax assets ................................... 26,276 26,443
Prepayments and other current assets .................. 3,858 7,013
---------- ----------
Total current assets ............................... 222,473 374,974
---------- ----------
Property, plant and equipment, net ..................... 120,838 178,780
Other assets ........................................... 6,260 8,221
---------- ----------
Total assets ........................................... $349,571 $561,975
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $15,925 $ 39,814
Accrued compensation and related expense .............. 16,528 22,889
Deferred income on shipments to distributors .......... 17,592 22,348
Income taxes payable .................................. 1,964 1,716
Other accrued liabilities ............................. 13,032 10,609
Current portion of long-term obligations .............. 14,184 5,903
---------- ----------
Total current liabilities ........................... 79,225 103,279
---------- ----------
Long-term obligations .................................. 37,462 36,595
---------- ----------
Deferred tax liabilities ............................... 8,517 7,570
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.001 par value: 5,000,000 shares
authorized; no shares issued .........................
Common stock; $.001 par value: 65,000,000 shares
authorized; 33,405,552 and 38,104,634 shares
issued and outstanding .............................. 33 38
Additional paid-in capital ............................. 160,221 271,618
Retained earnings ..................................... 64,517 142,819
Cumulative translation adjustment ..................... (404) 56
---------- ----------
Total stockholders' equity ......................... 224,367 414,531
---------- ----------
Total liabilities and stockholders' equity ......... $349,571 $561,975
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED
---------------------------------
MARCH 28, APRIL 3, APRIL 2,
1993 1994 1995
----------- ---------- ----------
Revenues ..................................... $236,263 $330,462 $422,190
Cost of revenues ............................. 132,285 159,627 179,652
-------- -------- -------
Gross profit ................................. 103,978 170,835 242,538
-------- -------- -------
Operating expenses:
Research and development ................... 53,461 64,237 78,376
Selling, general and administrative ....... 39,511 54,329 64,647
-------- -------- -------
Total operating expenses ................... 92,972 118,566 143,023
-------- -------- -------
Operating income ............................. 11,006 52,269 99,515
Interest expense ............................. (5,855) (5,165) (3,298)
Interest income and other, net ............... 1,127 3,102 8,186
-------- -------- -------
Income before provision for income taxes .... 6,278 50,206 104,403
Provision for income taxes ................... 942 10,041 26,101
-------- -------- -------
Net income ................................... $ 5,336 $ 40,165 $ 78,302
======== ======== ========
Net income per share ......................... $ .18 $ 1.21 $ 2.09
========= ======== ========
Shares used in computing net income per share 29,701 33,116 37,382
========= ======== ========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
MARCH 28, APRIL 3, APRIL 2,
1993 1994 1995
--------- ---------- -----------
<S> <C> <C> <C>
Operating activities:
Net income .............................................................. $ 5,336 $ 40,165 $ 78,302
Adjustments:
Depreciation and amortization ......................................... 37,140 37,594 38,816
Provision for losses on accounts receivable ........................... (742) 476 299
Changes in assets and liabilities:
Accounts receivable ................................................... (6,167) 2,071 (31,630)
Inventory ............................................................. (3,843) (2,618) (7,604)
Deferred tax assets ................................................... 2,616 (10,897) 4,012
Other assets .......................................................... (391) (1,247) (7,157)
Accounts payable ...................................................... (804) 106 23,889
Accrued compensation and related expense .............................. 3,158 9,799 6,361
Deferred income on shipments to distributors .......................... 1,093 7,142 4,756
Income taxes payable .................................................. 477 11,574 7,605
Other accrued liabilities ............................................. (679) 5,885 (1,846)
--------- ---------- -----------
Net cash provided by operating activities ............................... 37,194 100,050 115,803
--------- ---------- -----------
Investing activities:
Purchases of property, plant and equipment .............................. (28,010) (37,412) (94,717)
Purchases of short-term investments ..................................... (4,927) (40,221) (106,948)
Proceeds from sales of short-term investments ........................... 4,110 8,747 38,425
--------- ---------- -----------
Net cash used for investing activities .................................. (28,827) (68,886) (163,240)
--------- ---------- -----------
Financing activities:
Issuance of common stock, net ........................................... 2,981 55,337 103,549
Proceeds from borrowings ................................................ 32,161 2,731 --
Payment on capital leases and other debt ................................ (41,006) (23,271) (14,391)
--------- ---------- -----------
Net cash provided by (used for) financing activities .................... (5,864) 34,797 89,158
--------- ---------- -----------
Net increase in cash and cash equivalents ............................... 2,503 65,961 41,721
Cash and cash equivalents at beginning of period .......................... 20,026 22,529 88,490
--------- ---------- -----------
Cash and cash equivalents at end of period ............................... 22,529 $ 88,490 $ 130,211
--------- ---------- -----------
Supplemental disclosures:
Interest paid ........................................................... 5,893 $ 4,713 $ 2,698
Income taxes paid (refunded) ............................................ (2,050) 9,163 13,901
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
-------------------- PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT EQUITY
---------- ------ -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 29, 1992 ................. 26,553,731 $27 $ 85,669 $19,016 $(110) $104,602
Issuance of common stock ............... 1,823,990 1 7,480 -- -- 7,481
Tax benefits of stock option
transactions .......................... -- -- 582 -- -- 582
Translation adjustment ................. -- -- -- -- (241) (241)
Net income ............................. -- -- -- 5,336 -- 5,336
---------- ---- -------- --------- ----- ---------
Balance, March 28, 1993 ................ 28,377,721 28 93,731 24,352 (351) 117,760
Issuance of common stock ............... 2,027,831 2 9,241 -- -- 9,243
Issuance of common stock at $15.71 per
share, pursuant to public offering, net
of expenses of $366 ................... 3,000,000 3 46,761 -- -- 46,764
Tax benefits of stock option
transactions .......................... -- -- 10,488 -- -- 10,488
Translation adjustment ................. -- -- -- -- (53) (53)
Net income ............................. -- -- -- 40,165 -- 40,165
---------- ---- -------- --------- ----- ---------
Balance, April 3, 1994 .................. 33,405,552 33 160,221 64,517 (404) 224,367
Issuance of common stock ............... 889,082 1 5,987 -- -- 5,988
Issuance of common stock at $25.675 per
share, pursuant to public offering, net
of expenses of $261 ................... 3,810,000 4 97,557 -- -- 97,561
Tax benefits of stock option
transactions .......................... -- -- 7,853 -- -- 7,853
Translation adjustment ................. -- -- -- -- 460 460
Net income ............................. -- -- -- 78,302 -- 78,302
---------- ---- -------- --------- ----- ---------
Balance, April 2, 1995 .................. 38,104,634 $38 $271,618 $142,819 $56 $414,531
========== ==== ======== ========= ===== =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-5
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include the
accounts of Integrated Device Technology, Inc. (IDT or the Company) and all of
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Fiscal Year. The Company's fiscal year ends on the Sunday nearest March 31.
Fiscal years 1993 and 1995 each included 52 weeks. The fiscal year ended on
April 3, 1994 was a 53-week year. The fiscal year-end of certain of the
Company's foreign subsidiaries is March 31, and the results of their operations
as of their fiscal year end have been combined with the Company's results of
operations as of April 2, 1995. Transactions during the intervening period were
not significant.
Cash, Cash Equivalents and Short-term Investments. Cash equivalents are
highly liquid investments with original maturities of three months or less at
the time of acquisition or with guaranteed on-demand buy-back provisions.
Short-term investments are valued at amortized cost, which approximates market.
The Company adopted Statement of Financial Accounting Standards (FAS) 115,
"Accounting for Certain Investments in Debt and Equity Securities" effective
April 4, 1994 as required by that pronouncement. The Statement requires
reporting of investments as either held to maturity, trading or available for
sale. The cumulative effect of adopting FAS 115 was not material to the
Company's financial position or results of operations. The Company's investments
are classified as available-for-sale as of April 2, 1995. Investment securities
classified as available-for-sale are measured at market value and net unrealized
gains or losses are recorded as a separate component of stockholders' equity
until realized. Any gains or losses on sales of investments are computed on
specific identification. As of April 2, 1995, gross realized and unrealized
gains and losses on investments available for sale were not material. Management
determines the appropriate classification of debt and equity securities at the
time of purchase and reevaluates the classification at each reporting date.
AVAILABLE-FOR-SALE SECURITIES APRIL 2, 1995
------------------------------ -------------
(IN THOUSANDS)
U.S. Government agency securities .................... $ 36,262
State and local governments ......................... 94,345
Corporate securities ................................. 73,160
Others ............................................... 8,215
--------
Total debt and equity securities ..................... 211,982
--------
Less cash equivalents ................................ 110,108
--------
Short-term investments .............................. $101,874
========
Short-term investments of $47,949,000 mature in less than one year and
$53,925,000 have maturities between one and four years.
Inventory. Inventory is stated at the lower of standard cost (which
approximates actual cost on a first-in, first-out basis) or market. Market is
based upon estimated realizable value reduced by normal gross margin.
Inventory at April 3, 1994 and April 2, 1995 was:
APRIL 3, 1994 APRIL 2, 1995
--------------- ---------------
(IN THOUSANDS)
Inventory:
Raw materials ............. $ 2,834 $ 4,404
Work-in-process ........... 10,201 16,977
Finished goods ............ 16,820 16,078
------- -------
$29,855 $37,459
======= =======
F-6
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Depreciation is computed for property, plant and equipment using the
straight-line method over estimated useful lives of the assets. Leasehold
improvements and leasehold interests are amortized over the shorter of the
estimated useful lives of the assets or the remaining term of the lease.
Accelerated methods of depreciation are used for tax computations. Property,
plant and equipment at April 3, 1994 and April 2, 1995 were:
APRIL 3, 1994 APRIL 2, 1995
--------------- ---------------
(IN THOUSANDS)
Property, plant and equipment:
Land .................................... $ 4,382 $ 6,076
Machinery and equipment ................. 248,095 332,680
Building and leasehold improvements .... 40,063 40,576
Construction-in-progress ................ 76 5,553
--------- ---------
292,616 384,885
Accumulated depreciation and amortization.. (171,778) (206,105)
--------- ---------
$ 120,838 $ 178,780
========= =========
Income Taxes. The Company accounts for income tax in accordance with
Statement of Financial Accounting Standards (FAS) 109, "Accounting for Income
Taxes". FAS 109 is an asset and liability approach which requires that the
expected future tax consequences of temporary differences between book and tax
bases of assets and liabilities be recognized as deferred tax assets and
liabilities.
Net Income Per Share. Net income per share is computed using the weighted
average number of shares of common stock outstanding during the year, plus
incremental common equivalent shares, if dilutive. Common stock equivalents
consist of stock options (using the treasury stock method).
Revenue Recognition. Revenue from product sales is generally recognized upon
shipment and a reserve is provided for estimated returns and discounts. A
portion of the Company's sales is made to distributors under agreements which
allow certain rights of return and price protection on products unsold by the
distributors. Related gross profits thereon are deferred until the products are
resold by the distributors.
Translation of Foreign Currencies. Accounts denominated in foreign currencies
have been translated in accordance with Statement of Financial Accounting
Standard (FAS) 52. The functional currency for the Company's sales operations is
the applicable local currency with the exception of the Hong Kong sales
subsidiary whose functional currency is the U.S. dollar. For subsidiaries whose
functional currency is the local currency, gains and losses resulting from
translation of these foreign currencies into U.S. dollars are accumulated in a
separate component of stockholders' equity. For the Malaysian manufacturing and
the Hong Kong sales subsidiaries, where the functional currency is the U.S.
dollar, gains and losses resulting from the process of remeasuring foreign
currency financial statements into U.S. dollars are included in income.
Aggregate net foreign currency transaction gains (losses) totaled $(93,000),
$(232,000) and $348,000 in fiscal 1993, 1994 and 1995, respectively. The effect
of foreign currency exchange rate fluctuations on cash balances held in foreign
currencies have not been material.
Fair Value Disclosures of Financial Instruments. The estimated fair value of
financial instruments has been determined by the Company, using available market
information and valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, these estimates may not necessarily be indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair value amounts. The estimated fair value of
all of the Company's financial instruments at April 2, 1995 was not materially
different from the values presented in the consolidated balance sheet.
F-7
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk and Off-Balance-Sheet Risk. The Company markets
high-speed integrated circuits to OEMs and distributors primarily in the United
States, Europe and the Far East. The Company performs on-going credit
evaluations of its customers' financial conditions and limits the amount of
credit extended when deemed necessary but generally does not require collateral.
Management believes that any risk of loss is significantly reduced due to the
diversity of its products, customers and geographic sales areas. The Company
maintains a provision for potential credit losses and write-offs of accounts
receivable were insignificant in each of the three years ended April 2, 1995.
The Company sells a significant portion of its products through third-party
distributors. As a result of the merger of two of the Company's national
distributors, the receivable balance from the merged company is significant in
aggregate for fiscal 1994 and 1995. If the financial condition and operations of
this distributor deteriorate below critical levels, the Company's operating
results could be adversely affected. This distributor's receivable balance
represented 11% and 6% of total accounts receivable at April 3, 1994, and April
2, 1995, respectively.
NOTE 2--DERIVATIVE FINANCIAL STATEMENTS
The Company has foreign subsidiaries which operate and sell or manufacture
the Company's products in various global markets. As a result, the Company is
exposed to changes in foreign currency exchange rates. The Company primarily
utilizes forward exchange contracts to hedge against the short- term impact of
foreign currency fluctuations on certain assets or liabilities denominated in
foreign currencies. The total amount of these contracts is offset by the
underlying assets denominated in foreign currencies. The gains or losses on
these contracts are included in income as the exchange rates change. Management
believes that these forward contracts do not subject the Company to undue risk
due to foreign exchange movements because gains and losses on these contracts
are offset by losses and gains on the underlying assets, and transactions being
hedged. These forward exchange contracts are considered identifiable hedges and
realized and unrealized gains and losses are deferred until settlement of the
underlying commitments. At April 2, 1995 deferred losses aggregated $1,160,000
and there were no deferred gains.
Foreign exchange hedge positions, generally with maturities of less than four
months are as follows:
APRIL 3, 1994 APRIL 2, 1995
--------------- ---------------
(IN THOUSANDS OF U.S. DOLLARS)
Japanese Yen--Sell ............ $ 7,234 $10,357
Japanese Yen--Buy ............. -- 1,898
British Pound Sterling--Sell .. 534 992
British Pound Sterling--Buy.... 140 --
German Deutsche Mark--Sell..... 1,736 142
German Deutsche Mark--Buy ..... 84 --
French Franc--Sell ............ 2,079 69
French Franc--Buy ............. 168 --
Malaysian Ringgits--Sell ..... -- 3,022
Malaysian Ringgits--Buy ...... -- 2,003
-------- -------
$11,975 $18,483
======== =======
The Company is exposed to credit-related losses if counterparties to
financial instruments fail to perform their obligations. However, it does not
expect any counterparties, which presently have high credit ratings, to fail to
meet their obligations. The Company controls credit risk through credit
approvals, limits and monitoring procedures including the use of high credit
quality counterparties.
F-8
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--OTHER ASSETS--INTANGIBLES
During fiscal 1993, IDT entered into various royalty-free patent
cross-license agreements. The patents licenses granted to IDT under these
agreements have been recorded at their cost of approximately $8,200,000 and are
being amortized on a straight-line basis over five years. The amortization
relating to patents licenses was $1,647,000 for both fiscal years 1994 and 1995.
NOTE 4--LONG-TERM OBLIGATIONS
The Company leases certain equipment under long-term leases or finances
purchases of equipment under bank financing agreements. Leased assets and assets
pledged under financing agreements which are included under property, plant and
equipment are as follows:
APRIL 3, 1994 APRIL 2, 1995
------------- --------------
(IN THOUSANDS)
Building improvements ............ $ 6,907 $ --
Machinery and equipment .......... 65,403 39,316
-------- --------
Less accumulated depreciation and
amortization .................... 43,949 27,396
-------- --------
$ 28,361 $11,920
======== ========
The capital lease agreements and equipment financings are collateralized by
the related leased equipment and contain certain restrictive covenants.
Future minimum payments under capital leases and equipment financing
agreements, at varying interest rates (4.9%-11.0%) are as follows:
FISCAL YEAR (IN THOUSANDS)
----------- -------------
1996 .................................. $ 5,845
1997 .................................. 3,023
1998 .................................. 1,480
1999 .................................. 3
2000 .................................. --
-------
Total minimum payments ................ 10,351
Less interest ......................... 948
-------
Present value of net minimum payments 9,403
Less current portion .................. 5,219
-------
$ 4,184
=======
During fiscal 1993, IDT recorded a long-term obligation in connection with
the dismissal of certain litigation and entering into a patent cross-license
agreement. The present values of the amount due at the end of the license term
were $7,471,000 and $7,581,000 at April 3, 1994 and April 2, 1995, respectively.
During the year, this amount payable has been reduced by an amount of royalty
income pursuant to certain guaranteed revenues realized on sales of IDT's
products. The Company is accreting $2,500,000 in future interest charges,
reflecting an 8% discount rate, from the recorded amount at April 2, 1995 to the
amount due at the end of the term using the effective interest method.
F-9
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LONG-TERM DEBT
Long-term debt consists of the following:
APRIL 3, 1994 APRIL 2, 1995
--------------- ---------------
(IN THOUSANDS)
Mortgage payable bearing interest at 9.625%
due in monthly installments of $142,000
including interest through April 1, 2005.
The note is secured by property and
improvements in San Jose, California ....... $11,543 $10,922
Term loan payable to a Malaysian bank at 8%
due in monthly installments of $54,000 ..... 791 --
------- -------
12,334 10,922
Less current portion ......................... 1,306 684
------- -------
$11,028 $10,238
======= =======
Principal payments required in the next five years and beyond are as follows
(in thousands): $684 (1996), $752 (1997), $828 (1998), $911 (1999) and $7,747
(2000 and beyond).
NOTE 6--LINES OF CREDIT
The Company's Malaysian subsidiary has unsecured revolving lines of credit
that allow borrowings up to $2,600,000 with three local banks. These lines have
no expiration date. At April 2, 1995 there were no outstanding borrowings
against these lines. The borrowing rate for these lines would be incurred at the
local bank's cost of funds plus 0.75% to 1% (7.25%-7.30% on April 2, 1995).
In fiscal 1995, the Company's Japanese subsidiary had a secured revolving
line of credit that allowed borrowings up to approximately $3,500,000. The line
of credit automatically extends until the Company requests termination. As of
April 2, 1995, no amounts were outstanding under this line of credit. The
borrowing rate for this line of credit is the local bank's short-term prime rate
existing at the borrowing date plus 0.2%. At April 2, 1995 this short-term
borrowing rate was 3.2%.
The Company also has foreign exchange facilities with several banks that
allow the Company to enter into foreign exchange contracts of up to $55,000,000,
of which $36,518,000 was available at April 2, 1995.
NOTE 7--COMMITMENTS
Lease Commitments. The Company leases most of its administrative and
manufacturing facilities under operating lease agreements which expire at
various dates through 2005. One facility was leased from a principal shareholder
and a director. The annual rent paid to this shareholder totaled approximately
$1,396,000, $1,396,000 and $1,527,000 in fiscal 1993, 1994 and 1995,
respectively. This shareholder lease expired during fiscal 1995 and was renewed
through June 2005.
In January 1995, the Company entered into a five-year $60 million Tax
Ownership Lease transaction to lease the wafer fabrication facility being
constructed for its use in Hillsboro, Oregon. This lease requires monthly
payments which vary based on the London Interbank Offered Rate (LIBOR) plus 0.3%
(6.425% at April 2, 1995). This lease also provides the Company with the option
of either acquiring the building at its original cost or arranging for the
building to be acquired at the end of the respective lease term. The Company's
obligations under the lease are secured by a line of credit trust deed on the
building and collateralized by cash and/or investments (restricted securities)
up to 105% of the lessor's construction costs until completion of the building
which is scheduled for the third quarter of fiscal 1996 and 85% thereafter.
Restricted securities collateralizing this lease were $10,500,000 at April 2,
1995 and are expected to reach approximately $50,000,000 upon the completion of
the facility. The Company is also
F-10
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contingently liable under a first-loss clause for up to 85% of the constructed
costs of the building. In addition, the Company must maintain compliance with
certain financial convenants. Management believes that this contingent liability
will not have a material adverse effect on the Company's financial position or
results of operations.
The aggregate minimum rent commitments under all operating leases, including
the Hillsboro facility, which will be approximately $3,800,000 per year
beginning when the facility is completed, estimated to be the third quarter of
fiscal 1996, are as follows:
(FISCAL YEAR) (IN THOUSANDS)
------------ --------------
1996 .......................... $ 5,803
1997 .......................... 7,567
1998 .......................... 7,321
1999 .......................... 7,309
2000 .......................... 6,916
2001 and thereafter ........... 6,861
-------
$ 41,777
========
Rent expense for the years ended March 28, 1993, April 3, 1994 and April 2,
1995 totaled approximately $3,303,000, $3,488,000 and $3,326,000 respectively.
In March 1995, the Company made a down payment of $925,000 on a conditional
purchase of land in the Philippines for the development of a test and
manufacturing facility. The total purchase commitment for this land is
$3,100,000.
As of April 2, 1995, five secured standby letters of credit were outstanding
totaling $8,635,000. Two letters of credit are held in connection with the
Company's workers compensation insurance and mature on June 30, 1995 and June
30, 1996. The other three letters of credit are required for international
purchases and expire in June and December of 1995.
NOTE 8--SALE OF COMMON STOCK
In December 1994, the Company completed a public offering of 3,810,000 shares
of its Common Stock and received net proceeds of $97,600,000. The Company will
use the net proceeds from the offering for construction of its eight-inch wafer
fabrication facility in Hillsboro, Oregon, expansion of existing wafer
fabrication facilities in San Jose and Salinas, California, acquisition of
capital equipment and general corporate purposes, including working capital.
NOTE 9--STOCKHOLDERS' EQUITY
Stock Option Plans. The Company has stock option plans under which key
employees, officers, directors and consultants may be granted options to
purchase shares of the Company's common stock at prices which are not less than
fair market value at the date of grant. Options granted are generally
exercisable in 25% increments each year beginning one year after the grant date.
At April 2, 1995, options for 1,383,018 shares were exercisable at an
aggregate exercise price of $6,990,000. At April 3, 1994, options for 1,172,000
shares were exercisable at an aggregate exercise price of $4,856,000.
F-11
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
Activity under the plans is summarized as follows:
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------------
AVAILABLE AGGREGATE
FOR ISSUANCE NUMBER PRICE PER SHARE PRICE
-------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Balance, March 29, 1992 ........... 2,073,500 4,815,572 $ 3.25-$ 13.25 18,287,000
Additional authorization ........
Granted ......................... (1,358,323) 1,358,323 $3.625-$ 8.25 6,701,000
Surrendered, canceled or expired 254,930 (447,625) $ 3.25-$ 13.25 (1,810,000)
Exercised ....................... -- (529,371) $ 3.25-$ 7.50 (1,933,000)
---------- ---------- -----------
Balance, March 28, 1993 ........... 970,107 5,196,899 $ 3.25-$12.125 21,245,000
Additional authorization ........ 975,000
Granted ......................... (1,850,234) 1,850,234 $ 7.00-$25.375 26,599,000
Surrendered, canceled or expired 284,010 (287,423) $ 3.25-$22.125 (1,738,000)
Exercised ....................... -- (1,780,613) $ 3.25-$17.625 (6,695,000)
---------- ---------- -----------
Balance, April 3, 1994 ............ 378,883 4,979,097 $ 3.25-$25.375 $39,411,000
Additional authorization ........ 1,675,000
Granted ......................... (1,512,056) 1,512,056 $16.50-$39.688 41,595,000
Surrendered, canceled or expired 287,012 (283,601) $ 3.25-$39.688 (4,903,000)
Exercised ....................... -- (738,579) $ 3.25-$28.125 (3,529,000)
---------- ---------- -----------
Balance, April 2, 1995 ............ 828,839 5,468,973 $ 3.25-$39.688 $72,574,000
========== ========== ===========
</TABLE>
Stock Purchase Plan. The Company has a stock purchase plan under which
employees and officers may purchase shares of the Company's common stock. The
purchase price at which shares may be purchased under this plan is 85% of the
lower of the fair market value on the first or last day of each quarterly plan
period. As of April 3, 1994 and April 2, 1995, 1,457,771 and 1,594,905 shares,
respectively, had been purchased by employees, net of repurchases by the
Company, under the terms of the plan agreements. At April 2, 1995, 430,095
shares were reserved and available for issuance under this plan.
Stockholder Rights Plan. In February 1992, the Board approved certain
amendments to the Company's Stockholder Rights Plan. Under the plan, the Company
declared a dividend of one preferred share purchase right (a "Right") for each
outstanding share of common stock. Each Right entitles the holder, under certain
circumstances, to purchase common stock of the Company with a value of twice the
exercise price of the Right. In addition, the Board of Directors may, under
certain circumstances, cause each Right to be exchanged for one share of common
stock or substitute consideration. The Rights are redeemable by the Company and
expire in 1998.
F-12
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--EMPLOYEE BENEFITS PROFIT SHARING PLAN
Prior to September 24, 1993, under the Company's Profit Sharing Plan, the
Board of Directors could authorize semiannual contributions for the benefit of
employees of up to 10% of pre-tax earnings, before profit sharing. Half of the
annual contribution, net of expenses, was in the form of cash payments directly
to all domestic and Malaysian employees meeting certain service criteria, and
the residual half was contributed directly to the Company's Long-Term Incentive
Plan for the purchase of IDT Common Stock on behalf of the Company's employees.
The Company received approval from the IRS to terminate the Long-Term
Incentive Plan effective September 24, 1993. Effective this date, all shares
were 100% vested and no additional shares of IDT stock will be added to this
account. Beginning September 27, 1993, all IDT employees received an increase in
their cash profit sharing from 5% to 7% and the Company contributed an
additional 1% of pre-tax profits, divided equally among all domestic employees,
to the Company's 401(k) plan.
Administrative expenses are netted against the Profit Sharing Plan
contribution. Contributions for the years ended March 28, 1993, April 3, 1994
and April 2, 1995 for this plan were $477,000, $5,128,000 and $8,360,000
respectively. There were no contributions for the year ended March 29, 1992.
NOTE 11--INCOME TAXES
The components of income before provision for income taxes are as follows:
MARCH 28, APRIL 3, APRIL 2,
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
United States ........... $ 2,240 $44,808 $ 96,524
Foreign. ................ 4,038 5,398 7,879
------- ------- --------
$ 6,278 $50,206 $104,403
======= ======= ========
The provisions (benefits) for income taxes consist of the following:
MARCH 28, APRIL 3, APRIL 2,
1993 1994 1995
-------- ------- --------
(IN THOUSANDS)
Current income taxes (benefits):
United States ................... $ (2,467) $14,699 $21,164
State ........................... -- 4,039 3,902
Foreign ......................... 102 798 668
-------- ------- -------
(2,365) 19,536 25,734
-------- ------- -------
Deferred (prepaid) income taxes:
United States ................... 3,307 (5,379) (182)
State ........................... -- (4,116) 549
-------- ------- -------
3,307 (9,495) 367
-------- ------- -------
Provision for income taxes ...... $ 942 $10,041 $26,101
======== ======= =======
F-13
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of deferred assets and liabilities are as follows:
APRIL 3, APRIL 2,
1994 1995
--------- -------
(IN THOUSANDS)
Deferred tax assets:
Deferred income on shipments to distributors $ 7,466 $ 8,768
Non-deductible accruals and reserves ........ 13,527 8,980
Capitalized inventory and other expenses .... 4,071 5,817
Capitalized research and development ........ 825 423
Other ........................................ 273 935
Refund receivables ........................... 2,451 1,520
------- -------
Total deferred tax asset ..................... 28,613 26,443
Valuation allowance .......................... (2,337) --
------- -------
Net deferred tax asset ....................... 26,276 26,443
------- -------
Deferred tax liabilities:
Depreciation ................................. (8,517) (7,570)
------- -------
Total deferred tax liability ................. (8,517) (7,570)
------- -------
Net deferred tax asset ....................... $17,759 $18,873
======= =======
The provision for income taxes differs from the amount computed by applying
the U.S. statutory income tax rate of 35% for the years ended April 3, 1994 and
April 2, 1995 (34% for the year ended March 28, 1993) to income before the
provision (benefit) for income taxes as follows:
MARCH 28, APRIL 3, APRIL 2,
1993 1994 1995
-------- -------- -------
(IN THOUSANDS)
Provision at U.S. statutory rate ................$ 2,134 $17,572 $36,541
Earnings of foreign subsidiaries considered
permanently reinvested, less foreign taxes .... (1,701) (951) (2,444)
General business credits ........................ 0 (2,710) (6,504)
Tax rate differential ........................... 574 (1,167) --
State tax, net of federal benefit ............... -- 3,558 3,245
Valuation allowance ............................. 414 (6,108) (2,337)
Other ........................................... (479) (153) (2,400)
-------- ------- -------
Provision (benefit) for income taxes ............$ 942 $10,041 $26,101
======== ======= =======
The Company's Malaysian subsidiary operates under a tax holiday which
extended through July 1993. Management believes it is likely that carryovers of
depreciation from the tax holiday period along with expected additional
depreciation grants will defer the time when the Malaysian subsidiary will first
begin to pay local taxes beyond its year ended April 2, 1995.
The Company's intention is to permanently reinvest its earnings in all of its
foreign subsidiaries, except its German subsidiary, Integrated Device
Technology, GmbH. Accordingly, U.S. taxes have not been provided on
approximately $26,900,000 of unremitted earnings, of which approximately
$23,200,000 were earned by the Company's Malaysian subsidiary. Upon distribution
of those earnings in the form of dividends or otherwise, the Company will be
subject to both U.S. income taxes and various foreign country withholding taxes.
F-14
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--INDUSTRY SEGMENT, FOREIGN OPERATIONS
IDT operates predominantly in one industry segment and is engaged in the
design, development, manufacture and marketing of high-performance integrated
circuits. No single customer or distributor accounted for more than 10% of net
revenues in fiscal 1993. During fiscal 1994, two of the Company's national
distributors became one entity. Sales through this national distributor
accounted for 15% and 13% of net revenues for fiscal 1994 and 1995,
respectively. If these two distributors had been a single entity during fiscal
1993, it would have accounted for 16% of IDT's total revenues.
Major operations outside the United States include manufacturing facilities
in Malaysia and sales subsidiaries in Japan, the Pacific Rim, and throughout
Europe.
At April 3, 1994, and April 2, 1995 total liabilities for operations outside
of the United States were $20,704,000 and $42,065,000, respectively.
<TABLE>
The following is a summary extract of IDT's foreign operations by geographic
areas for fiscal 1993, 1994 and 1995:
<CAPTION>
TRANSFERS
SALES TO BETWEEN OPERATING
UNAFFILIATED GEOGRAPHIC INCOME IDENTIFIABLE
CUSTOMERS AREAS NET REVENUE (LOSS) ASSETS
-------------- ---------- ----------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fiscal year ended March 28, 1993
United States ................... $ 152,303 $ 23,585 $ 175,888 $ 22,159 $198,993
Japan ........................... 23,022 -- 23,022 (419) 5,651
Europe .......................... 33,907 2,847 36,754 374 8,028
Asia-Pacific .................... 27,031 20,566 47,597 4,715 24,155
Eliminations .................... -- (46,998) (46,998) (94) (24,081)
Corporate ....................... -- -- -- (15,729) 27,248
--------- --------- -------- -------- ---------
Consolidated .................... $ 236,263 $ -- $236,263 $ 11,006 $ 239,994
========= ========= ======== ======== =========
Fiscal year ended April 3, 1994
United States ................... $ 223,600 $ 42,500 $266,100 $ 70,788 $197,385
Japan ........................... 29,959 -- 29,959 (257) 8,033
Europe .......................... 60,064 3,274 63,338 677 8,182
Asia-Pacific .................... 16,839 24,869 41,708 5,146 27,202
Eliminations .................... -- (70,643) (70,643) (408) (24,470)
Corporate ....................... -- -- -- (23,677) 133,239
--------- --------- -------- -------- --------
Consolidated .................... $ 330,462 $ -- $330,462 $ 52,269 $349,571
========= ========= ======== ======== ========
Fiscal year ended April 2, 1995
United States ................... $ 256,014 $ 60,266 $316,280 $111,394 $292,501
Japan ........................... 36,974 -- 36,974 582 11,973
Europe .......................... 85,180 7,566 92,746 9,524 30,788
Asia-Pacific .................... 44,022 30,929 74,951 5,812 36,855
Eliminations .................... -- (98,761) (98,761) (217) (48,797)
Corporate ....................... -- -- -- (27,580) 238,655
--------- --------- -------- -------- --------
Consolidated .................... $ 422,190 $ -- $422,190 $ 99,515 $561,975
========= ========= ======== ======== ========
</TABLE>
F-15
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Transfers between geographic areas are accounted for at amounts which are
generally above cost and consistent with the rules and regulations of governing
tax authorities. Such transfers are eliminated in the consolidated financial
statements. Operating income by geographic areas reflect foreign earnings
reported by the foreign entities and does not include an allocation of general
corporate expenses. Identifiable assets are those assets that can be directly
associated with a particular foreign entity and thus do not include assets used
for general corporate purposes: cash and cash equivalents, short-term
investments and prepaid income taxes.
NOTE 13--CROSS-LICENSE AGREEMENT
During fiscal 1993, the Company entered into a patent cross-license agreement
which obligated the payment of an amount of royalties dependent upon the level
of the Company's profitability. The amount of royalties accrued during fiscal
1994 was approximately $4,400,000 and has been included in other accrued
liabilities. The Company was not impacted by any further royalty payment from
this agreement beginning fiscal 1995.
F-16
<PAGE>
=================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR
A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------
TABLE OF CONTENTS
PAGE
----
Available Information ................... 2
Information Incorporated by Reference ... 2
Prospectus Summary ...................... 3
Risk Factors ............................ 6
Use of Proceeds ......................... 13
Price Range of Common Stock ............. 13
Dividend Policy ......................... 13
Capitalization .......................... 14
Selected Consolidated Financial Data .... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................. 16
Business ................................ 21
Management .............................. 30
Certain Transactions .................... 31
Description of Notes .................... 33
Description of Capital Stock ............ 41
Certain Federal Income Tax Considerations 44
Underwriting ............................ 46
Legal Matters ........................... 47
Experts ................................. 47
Report of Independent Accountants ....... F-1
Consolidated Financial Statements ....... F-2
===============================================
$175,000,000
IMAGE: "IDT LOGO"
5 1/2 % CONVERTIBLE SUBORDINATED
NOTES DUE 2002
----------
PROSPECTUS
May 25, 1995
----------
LEHMAN BROTHERS
MONTGOMERY SECURITIES
SMITH BARNEY INC.
=================================================
