SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1995
---------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-12695
INTEGRATED DEVICE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2669985
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2975 STENDER WAY, SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 727-6116
NONE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
The number of outstanding shares of the registrant's Common Stock, $.001 par
value, as of October 29, 1995, was 77,253,417.
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
INTEGRATED DEVICE TECHNOLOGY, INC.
----------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
( In thousands, except per share data)
(Unaudited)
Three months Three months
Ended Ended
October 1, October 2,
1995 1994
--------------------------
Revenues $ 178,504 $ 95,585
Cost of revenues 75,719 40,011
--------------------------
Gross profit 102,785 55,574
Operating expenses:
Research and development 33,118 17,956
Selling, general and administrative 21,387 15,538
--------------------------
Total operating expenses 54,505 33,494
Operating income 48,280 22,080
Interest expense (3,339) (895)
Interest income and other, net 5,553 1,480
--------------------------
Income before provision for income taxes 50,494 22,665
Provision for income taxes 16,158 5,659
--------------------------
Net income $ 34,336 $ 17,006
==========================
Net income per share
Primary $ 0.42 $ 0.24
Fully Diluted $ 0.40 $ 0.24
Weighted average shares of common stock
and common stock equivalents
Primary 82,548 71,904
Fully Diluted 89,579 71,904
The accompanying notes are an integral part of these financial statements.
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INTEGRATED DEVICE TECHNOLOGY, INC.
----------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
( In thousands, except per share data)
(Unaudited)
Six months Six months
Ended Ended
October 1, October 2,
1995 1994
--------------------------
Revenues $ 330,699 $ 190,628
Cost of revenues 140,041 80,422
--------------------------
Gross profit 190,658 110,206
Operating expenses:
Research and development 60,865 35,536
Selling, general and administrative 42,071 30,368
--------------------------
Total operating expenses 102,936 65,904
Operating income 87,722 44,302
Interest expense (4,845) (1,854)
Interest income and other, net 9,957 2,721
--------------------------
Income before provision for income taxes 92,834 45,169
Provision for income taxes 29,707 11,285
--------------------------
Net income $ 63,127 $ 33,884
==========================
Net income per share
Primary $ 0.77 $ 0.47
Fully Diluted $ 0.75 $ 0.47
Weighted average shares of common stock
and common stock equivalents
Primary 82,014 72,080
Fully Diluted 87,060 72,080
The accompanying notes are an integral part of these financial statements.
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<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
----------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
( In thousands, except share amounts)
(Unaudited)
<CAPTION>
October 1, April 2,
1995 1995
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 194,770 $ 130,211
Short-term investments 157,687 91,425
Accounts receivable, net 105,990 71,974
Inventory (Note 2) 44,129 37,459
Deferred tax assets 25,166 26,443
Prepayments and other current assets 9,823 7,013
------------------------
Total current assets 537,565 364,525
Property, plant and equipment , net 299,962 178,780
Other assets (Note 8) 63,524 18,670
------------------------
TOTAL ASSETS $ 901,051 $ 561,975
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 89,214 $ 39,814
Accrued compensation and related expense 25,849 22,889
Deferred income on shipments to distributors 30,744 22,348
Income taxes payable 9,294 1,716
Other accrued liabilities 13,344 10,609
Current portion of long term obligations 4,731 5,903
------------------------
Total current liabilities 173,176 103,279
Convertible subordinated notes, net of issuance costs (Note 5) 196,938 --
------------------------
Long term obligations 34,551 36,082
------------------------
Deferred tax liabilities 7,570 7,570
------------------------
Minority interest in subsidiaries (Note 9) 6,630 513
------------------------
Stockholders' equity :
Preferred stock;$.001 par value:
10,000,000 shares authorized; no shares issued
Common stock; $.001 par value: 200,000,000
shares authorized; 77,193,462 and
76,209,268 shares issued and outstanding 77 76
Additional paid-in capital 275,703 271,580
Retained earnings 205,946 142,819
Unrealized gain on available-for-sale securities, net 693 --
Cumulative translation adjustment (233) 56
------------------------
Total stockholders' equity 482,186 414,531
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 901,051 $ 561,975
========================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
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<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
----------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(In thousands)
(Unaudited)
<CAPTION>
Six months Six months
Ended Ended
October 1, October 2,
1995 1994
----------------------------
<S> <C> <C>
Increase (decrease) in cash Operating activities:
Net income $ 63,127 $ 33,884
Adjustments:
Depreciation and amortization 23,629 19,089
Provision for losses on accounts receivable 83 290
Changes in assets and liabilities:
Accounts receivable (34,099) (19,519)
Inventory (6,670) (2,900)
Other assets (3,088) (2,874)
Accounts payable 49,400 10,029
Accrued compensation and related expense 2,960 (677)
Deferred income on shipments to distributors 8,396 8,237
Income taxes payable 8,864 8,296
Other accrued liabilities 2,864 (2,355)
-------------------------
Net cash provided by operating activities 115,466 51,500
-------------------------
Investing activities:
Purchases of property, plant and equipment (143,268) (40,236)
Purchases of short-term investments (153,627) (24,456)
Proceeds from sales of short-term investments 88,058 19,687
Purchases of investments collateralizing facility lease (45,902) --
-------------------------
Net cash used for investing activities (254,739) (45,005)
-------------------------
Financing activities:
Issuance of common stock, net 4,124 1,889
Proceeds from issuance of convertible subordinated notes,
net of issuance costs 196,721 --
Proceeds from sale of subsidiary stock 6,117 7
Payment on capital leases and other debt (3,130) (9,107)
-------------------------
Net cash provided (used) for financing activities 203,832 (7,211)
-------------------------
Net increase in cash and cash equivalents 64,559 (716)
Cash and cash equivalents at beginning of period 130,211 88,490
-------------------------
Cash and cash equivalents at end of period $ 194,770 $ 87,774
=========================
Supplemental disclosure of cash flow information:
Interest paid 838 1,526
Income taxes paid 20,636 2,841
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
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INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
information included therein. While the Company believes that the
disclosures are adequate to make the information not misleading, it is
suggested that these financial statements be read in conjunction with the
audited consolidated financial statements and accompanying notes included
in the Company's Annual Report on Form 10-K for the year ended April 2,
1995. The results of operations for the three and six month period ending
October 1, 1995 are not necessarily indicative of the results to be
expected for the full year.
2. Inventory consists of the following (in thousands):
October 1, 1995 April 2, 1995
--------------- -------------
Raw materials $ 5,273 $ 4,404
Work-in-process 20,969 16,977
Finished Goods 17,887 16,078
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$44,129 $37,459
======= =======
3. The provision for income taxes reflects the estimated annualized effective
tax rate applied to earnings for the interim period. The effective rate
differs from the U.S. statutory rate of 35% primarily due to earnings of
foreign subsidiaries being taxed at lower rates and utilization of research
and development credits.
4. Primary net income per common share is computed under the treasury stock
method using the weighted average number of common shares and dilutive
common stock equivalent shares outstanding during the respective period.
Common stock equivalent shares include shares issuable under the Company's
stock option plans. The Convertible Subordinated Notes issued in May 1995
(see Note 5) are not common stock equivalents and, therefore, have been
excluded from the computation of primary earnings per share. Fully diluted
net income per share is computed by adjusting the primary shares
outstanding and net income for the potential effect of the conversion of
the weighted convertible subordinated notes outstanding during the
respective period and the elimination of the related interest requirements
(net of income taxes).
5. In May 1995, the Company issued $201.3 million of 5.5% Convertible
Subordinated Notes (the "Notes"), due 2002. The Notes are subordinated to
all existing and future senior debt and are convertible into shares of the
Company's
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common stock at a conversion of $28.625 per share and are redeemable at the
option of the Company in whole or in part at any time on or after June 2,
1998 at 102.75% initially and thereafter at prices declining to 100% at
maturity plus accrued interest. Each holder of these Notes has 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 specified repurchase prices plus accrued interest upon the
occurrence of certain events and in certain circumstances. The costs
incurred in connection with the offering ($4,600,000) have been netted
against the Notes balance on the Condensed Consolidated Balance Sheet and
are being amortized over the 7-year term of the Notes using the
straight-line method which approximates the effective interest method.
Interest on the convertible subordinated notes is payable semi-annually on
June 1 and December 1 commencing December 1, 1995.
6. On August 2, 1995, the Company announced a two-for-one stock split of its
Common Stock in the form of a 100% stock dividend payable to stockholders
of record as of August 25, 1995 who received certificates representing one
additional share for every share held at that time on or about September
15, 1995. Share information for all periods presented has been
retroactively adjusted to reflect this stock dividend.
7. Certain amounts in prior year comparative quarter's condensed consolidated
financial statements have been reclassified to conform with second quarter
of fiscal 1996 presentation.
8. The Company's obligations under the five-year $60 million Tax Ownership
Lease transaction for the construction of the Hillsboro, Oregon facility
are secured by a line of credit trust deed on the building. This lease is
also 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, included in other
non-current assets, were $56,350,000 at October 1, 1995 compared to
$10,500,000 at April 2, 1995.
9. In October 1995, the Company's subsidiary Quantum Effect Design (QED),
completed the sale of preferred stock to an outside investor in a private
placement. Aggregate proceeds to QED were $6.0 million which was included
in Minority Interest. The investor received stock representing 25.7% of the
voting power in the Company's subsidiary.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All references are to the company's fiscal periods ended October 1,
1995, and October 2, 1994, unless otherwise indicated.
RESULTS OF OPERATIONS
Revenues for the second quarter and six months of fiscal 1996 increased
to $178.5 million and $330.7 million respectively, representing increases of
86.7% for the quarter and 73.5% for the six-month period over the respective
periods in fiscal 1995. The revenue increases in the quarter and six-month
period were attributable to higher unit volume sales in all product families,
geographic regions and sales channels. Significant unit volume growth was
experienced in embedded RISC based microprocessor, specialty memory, logic and
SRAM memory product families. Higher unit sales in Europe, Asia-Pacific and
Japan contributed to the increase in revenues. Higher average SRAM selling
prices in both the quarter and comparable six-month period were offset in part
by lower unit selling prices in other product families due to competitive market
pricing and maturation of certain products. During the past year the pricing
environment for SRAMs has been generally favorable, however, it is expected that
prices for the Company's SRAMs and other products will decline in the future,
which could adversely affect the Company's future operating results.
Gross profit in the quarter increased by $47.2 million to $102.8
million but declined to 57.7% as a percentage of revenue (gross margin) from
58.1% in the same quarter of the prior year. For the six-month period, gross
profit increased to $190.7 million, or to 57.6% of revenues as compared to
$110.2 million or 57.8%, respectively, for the comparable period of the prior
year. The decline in gross margin was primarily attributable to higher material
costs of SRAM cache memory modules and declining average selling prices on
certain mature products, but was partially offset by manufacturing efficiencies.
Higher material costs were due to increased unit volume associated with SRAM
cache memory modules which grew considerably as a percentage of revenues
compared to the same quarter and six-month periods of the prior year.
Additionally, declining average selling prices on certain products due to
competition and maturing product life cycles also adversely impacted gross
margin. Partially offsetting these unfavorable factors, IDT's manufacturing
capacity was near full utilization and the Company continued a shift to its
smaller die designs and most advanced wafer fabrication processes which resulted
in increased die per wafer yields and therefore lower unit costs. In addition,
more efficient test and burn-in procedures also contributed to improved yields
and efficiencies that further reduced component manufacturing costs. More
selective acceptance of new orders as a result of continued strong demand has
also allowed the Company to shift manufacturing capacity to higher-margin
products.
Research and development (R&D) expenses increased in absolute dollars
but declined as a percentage of revenues for the quarter and the first six
months of fiscal 1996 as compared to the same periods of fiscal 1995. R&D
expenses grew $15.1 million from
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$18.0 million in the quarter ended October 2, 1994 to $33.1 million in the
quarter ended October 1, 1995 but declined as a percentage of revenues to 18.6%
from 18.8% . For the six-month period R&D expenses increased 71.3% to $60.9
million, but decreased to 18.4% of revenues from 18.6% in the corresponding
six-month period of the prior year. IDT continued development of several sub-0.5
micron CMOS process technologies during the first six months of fiscal 1996, and
on-going new product development resulted in the introduction of 29 new products
or product functions during the first six months of fiscal 1996. Significant
facility start-up and staffing expenses were incurred at the Company's new 8"
wafer fabrication facility in Hillsboro, Oregon. In addition, development
continues at IDT's Austin, Texas subsidiary, Centaur Technology, Inc., on
hardware and software components targeted at improvement in the performance of
IDT's MIPS RISC processor family. The Company expects that R&D expenses will
continue to increase during the remainder of fiscal 1996.
Selling, general and administrative (S,G&A) expenses increased by $5.9
million from $15.5 million in the quarter ended October 2, 1994 to $21.4 million
in the quarter ended October 1, 1995, but decreased to 12.0% of revenues from
16.3%. S,G&A expenses increased 38.5% to $42.1 million for the first six months
of fiscal 1996, but declined as a percentage of revenues to 12.7% from 15.9% in
the comparable period of the prior year. The increase in S,G&A expenses in
absolute dollars was attributable to higher costs associated with higher level
of sales, including management bonuses, employee profit sharing and higher sales
commissions, although S,G&A expenses have not increased as rapidly as sales. The
Company anticipates the S,G&A expenses for the remainder of fiscal 1996 will
continue to increase in absolute dollars, but will be lower as a percentage of
revenues compared to fiscal 1995.
Interest expense increased to $3.3 million in the second quarter of
fiscal 1996 compared with $0.9 million for the same quarter a year ago. The
increase resulted primarily from the sale during the first quarter of fiscal
1996 of $201.3 million of 5.5% Convertible Subordinated Notes due in 2002
(the"Notes"). For the six-month period, interest expense increased to $4.8
million from $1.9 million. As a result of the issuance of the convertible notes,
interest expense for the remainder of fiscal 1996 will increase compared to
fiscal 1995.
Interest income and other, net, increased to $5.5 million in the
quarter and $9.9 million for the six-month period as contrasted with $1.5
million and $2.7 million, respectively, for the same periods of the prior year.
The increase in interest income was attributable to significantly higher average
cash balances due to cash generated from operations, proceeds from a Common
Stock offering in December 1994, and the sale of the Notes in June, 1995.
Interest income also reflected a general increase of interest rates for
investment funds in the current quarter and six-month period as compared to the
same periods a year ago. The Company expects that interest income and other,
net, is expected to increase for the remainder of fiscal 1996 when compared to
fiscal 1995.
Income taxes for the quarter and six-month period are provided at an
effective rate of 32%. This compares to an effective rate of 25% provided in the
same periods a year ago. The increase in the effective tax rate in fiscal 1996
as compared to fiscal 1995 is the
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result of the Company's anticipated improved profitability relative to the
magnitude of available tax credits in fiscal 1996 as compared to fiscal 1995.
The effective rate differs from the U. S. statutory rate of 35% primarily due to
earnings of certain foreign subsidiaries being taxed at lower rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $115.5 million of funds from operations in the
first six months of fiscal 1996. At October 1, 1995, cash and cash equivalents
and short-term investments were $352.5 million, representing an increase of
$130.8 million during the first six months of fiscal 1996. Cash provided by
operating activities primarily reflected net income, depreciation and
amortization and changes to working capital.
During the first six months of fiscal 1996, the Company completed the
sale of $201.3 million of 5.5% Convertible Subordinated Notes, due in 2002,
netting $196.7 million in proceeds. The Notes are convertible into shares of
common stock at $28.625 per share.
During the first six months of fiscal 1996, the Company's net cash used
in investing activities was $254.7 million, of which $143.3 million was used for
capital equipment and property and plant improvements. Cash used for net
purchases and sales of short term investments was $65.6 million. In addition,
the Company had $56.4 million of restricted cash including $45.9 million which
became restricted in the first six months of fiscal 1996 as collateral under a
Tax Ownership Operating Lease entered into in January 1995 related to the
construction of the Company's new 8" wafer fabrication facility in Oregon. These
restricted investments collateralizing the facility lease amount 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.
In view of current capacity requirements, the Company anticipates total
fiscal 1996 capital expenditures of approximately $300.0 million. Principal
requirements are for production equipment at the Company's new 8" Hillsboro
wafer fabrication facility. Incremental production test equipment at the
Company's San Jose, Salinas, and Penang, Malaysia facilities is also included in
the planned capital expenditures. In addition, during the last quarter of fiscal
1995, the Company completed the acquisition of land for a new assembly and test
facility in the Philippines. On October 2, 1995, construction of the new
Philippine facility began. The Company anticipates that capital expenditures
related to construction and equipment for the new Philippine facility will
approximate $9.4 million during fiscal 1996.
The Company believes that existing cash and cash equivalents, cash flow
from operations and existing credit facilities, will be sufficient to meet its
working capital, mandatory debt repayment and anticipated capital expenditure
requirements for the remainder of 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.
9
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FACTORS AFFECTING FUTURE RESULTS
The Company and the semiconductor industry in general are subject to a
variety of uncertainties and risks, including the following:
The Company's operating results have been, and in the future may be,
subject to fluctuations due to a wide variety of factors including the timing of
or delays in 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
underutilization or expansion of production capacity, intellectual property
disputes, or other litigation. Further 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.
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. During the past year the markets for some of the
Company's SRAM's, have been characterized by excess demand over supply and
resultant favorable pricing. However, these conditions represent a departure
from the long-term trend of declining average selling prices in the
semiconductor market and the Company expects that average sales prices for the
Company's SRAMs and other products will decline. A material increase in
industry-wide production capacity, shift in industry capacity toward products
competitive with the Company's products, reduced demand, or other factors could
result in a rapid decline in product pricing and could adversely affect the
Company's operating results.
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. Furthermore, any decline in
the demand for advanced microprocessors which utilize SRAM cache memory 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 also adversely affect the Company's operating results.
The Company is operating its domestic wafer fabrication facilities and
Malaysian assembly operations near installed capacity. As a result, the Company
has utilized subcontractors for a majority of its incremental assembly
requirements, typically at higher costs than its own Malaysian operations. The
Company expects to continue utilizing subcontractors until it opens its
Philippine assembly plant. As a result of production capacity constraints, 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
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constraints, any failure by the Company to adequately forecast the mix of
product demand could adversely affect the Company's sales and operating results.
To address its capacity requirements, during the past year the Company has
undertaken extensive production expansion programs including the construction of
an eight inch wafer fabrication line in Oregon and an assembly and test facility
in Philippines. These expansion programs face a number of substantial risks
including, but not limited to, delays in construction, cost overruns, equipment
delays or shortages, manufacturing start-ups 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.
Accordingly, the Company could incur unanticipated process or production
problems. From time to time, the Company 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. 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 was able to obtain other
production capability.
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, the Company 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 anticipates recognizing
substantial depreciation expenses upon commencement of commercial production but
before production of substantial volume is achieved.
New products, process technology and startup costs associated with the
Oregon wafer fabrication facility continue to require significant research and
development expenditures. However, 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. If the Company is unable to develop new products in a
timely manner, and to sell then at gross margins comparable to the Company's
current products, the Company's future results could be adversely affected.
The semiconductor industry is extremely capital-intensive. To remain
competitive, the Company must continue to invest in advanced manufacturing and
test equipment. In fiscal 1996, the Company expects to expend approximately $300
million in capital expenditures, and anticipates significant continuing capital
expenditures in the next several years. There can be no assurance that the
Company will not be required to seek financing to satisfy its cash and capital
needs or that such financing would be available on terms
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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.
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. The
Company 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 will not be asserted in
the future. The intellectual property claims that have been or may be asserted
against the Company could require the Company 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. Further, the failure to
renew or renegotiate existing licenses or significant increases in amount
payable under these licenses could have an adverse effect on the Company.
A substantial percentage of the Company's revenues are derived from
export sales which 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. Recently contract
pricing for raw materials, as well as subcontract assembly services has been
impacted by currency exchange rate fluctuations.
The Company is subject to a variety of regulations related to hazardous
materials used in its manufacturing process. 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.
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 the 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' stock in particular, these factors may
adversely affect the price of the Common Stock.
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PART II OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders
(a) On Thursday, August 24, 1995 the Company held its 1995 Annual Meeting
of Shareholders. At the meeting, 31,385,560 shares of Common Stock were
represented in person or by proxy, representing 81.94% of the total
outstanding shares. All shares referred to in Item 4 do not give effect
to the stock split which occurred after the shareholders meeting.
(b) The meeting involved the election of two Class II Directors - Federico
Faggin and John C. Bolger.
Votes For Votes Withheld
John C. Bolger 31,306,854 78,706
Federico Faggin 31,315,447 70,113
The term of office of the following directors continued after the
meeting:
Leonard C. Perham
D. John Carey
Carl E. Berg
(c) Four additional matters (other than procedural matters) were voted upon
at the meeting, the results of which were as follows:
(i) Amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock and Preferred Stock:
Votes For: 25,138,064
Votes Against: 5,088,399
Votes Withheld: 1,159,097
Broker Non Vote: 0
(ii) Adoption of the 1995 Executive Performance Plan:
Votes For: 29,679,456
Votes Against: 1,029,856
Votes Withheld: 470,234
Broker Non Vote: 206,014
(iii) Amendment to the Company's 1994 Stock Option Plan:
Votes For: 18,773,838
Votes Against: 9,270,471
Votes Withheld: 466,471
Broker Non Vote: 2,874,780
13
<PAGE>
(iv) Ratification of appointment of Price Waterhouse LLP as independent
auditors
Votes For: 31,338,186
Votes Against: 10,226
Votes Withheld: 37,148
Broker Non Vote: 0
Item 5. Other Information
In September 1995 the Company completed a two-for-one split
accomplished in the form of a 100% stock dividend. All share and income
per share amounts in this report reflect the stock dividend.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit
No. Description Page
- --------------------------------------------------------------------------------
10.22 1995 Executive Performance Plan
11 Statement re: Computation of Earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports have been filed on Form 8-K during this quarter.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRATED DEVICE TECHNOLOGY, INC.
Date: November 14, 1995 /s/ Leonard C. Perham
------------------------------------
Leonard C. Perham
Chief Executive Officer
Date: November 14, 1995 /s/ William D. Snyder
------------------------------------
William D. Snyder
Vice President Finance (principal
financial and accounting officer)
16
INTEGRATED DEVICE TECHNOLOGY, INC.
EXECUTIVE PERFORMANCE PLAN
- -------------------------------------------------------------------------------
1. Purposes
The purposes of the Integrated Device Technology, Inc. Executive
Performance Plan are to motivate the Company's key employees to improve
stockholder value by linking a portion of their cash compensation to the
Company's financial performance, to reward key employees for improving the
Company's financial performance, and to help attract and retain key employees.
2. Definitions
A. "Award" means any cash incentive payment made under the plan.
B. "Code" means the Internal Revenue Code of 1986, as amended.
C. "Committee" means the Compensation Committee of Integrated Device
Technology, Inc.'s Board of Directors, or such other committee
designated by that Board of Directors, which is authorized to
administer the Plan under Section 3 hereof. The Committee shall be
comprised solely of directors who are outside directors under Section
162(m) of the Code.
D. "Company" means Integrated Device Technology, Inc. and any
corporation or other business entity of which Integrated Device
Technology, Inc.. (i) directly or indirectly has an ownership interest
of 50% or more, or (ii) has a right to elect or appoint 50% or more of
the board of directors or other governing body.
E. "Key Employee" means any employee of the Company whose performance
the Committee determines can have a significant effect on the success
of the Company.
F. "Participant" means any individual to whom an Award is granted under
the plan.
G. "Plan" means this Plan, which shall be known as the Integrated
Device Technology, Inc. Executive Performance Plan.
3. Administration
A. The plan shall be administered by the Committee. The Committee shall
have the authority to:
(i) interpret and determine all questions of policy and expediency
pertaining to the Plan;
1
<PAGE>
Executive Performance Plan
Page 2
(ii) adopt such rules, regulations, agreements and instruments as it
deems necessary for its proper administration;
(iii) select Key Employees to receive Awards;
(iv) determine the terms of Awards;
(v) determine amounts subject to Awards (within the limits prescribed
in the Plan);
(vi) determine whether Awards will be granted in replacement of or as
alternatives to any other incentive or compensation plan of the Company
or an acquired business unit;
(vii) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Award or any Award notice;
(viii) take any and all other actions it deems necessary or advisable
for the proper administration of the Plan;
(ix) adopt such plan procedures, regulations, subplans and the like as
it deems necessary to enable Key Employees to receive Awards; and
(x) amend the Plan at any time and from time to time, provided however
that no amendment to the Plan shall be effective unless approved by the
Company's stockholders, to the extent such stockholder approval is
required under Section 162(m) of the Code with respect to Awards which
are intended to qualify under that Section.
B. The Committee may delegate its authority to grant and administer
Awards to a separate committee; however, only the Committee may grant and
administer Awards which are intended to qualify as performance-based
compensation under Section 162(m) of the Code.
4. Eligibility
Any Key Employee is eligible to become a Participant in the Plan.
2
<PAGE>
Executive Performance Plan
Page 3
5. Awards
A. Awards may be made on the basis of Company and/or business unit
performance goals and formulas determined by the Committee in its sole
discretion. During any fiscal year of the Company no Participant shall receive
an Award of more than $5,000,000. Total aggregate Awards for any fiscal year
shall not exceed ten percent of the Company's pre-tax operating earnings (before
incentive compensation) for that fiscal year. If total aggregate Awards
calculated for a fiscal year would exceed this aggregate limitation, all Awards
for such fiscal year shall be pro-rated on an equal basis among all Participants
according to a formula established by the Committee.
B. For purposes of qualifying Awards as performance-based compensation
under section 162(m) of the Code, the Committee may in its discretion determine
that such Awards shall be conditioned on the achievement of preestablished
Company and/or business unit goals for revenue and/or profitability. The target
goals and the amounts which may be awarded upon achievement of such target goals
shall be set by the Committee on or before the latest date permissible so as to
qualify under Section 162(m) of the Code. In granting Awards which are intended
to qualify under Section 162(m) of the Code. the Committee shall follow any
procedures determined by it to be necessary or appropriate to ensure such
qualification. No Award intended to qualify under Section 162(m) of the Code
shall be paid unless and until the Committee certifies in writing that the
pre-established performance goals have been satisfied.
C. The Committee, in its discretion, may reduce or eliminate a
Participant's Award at any time before it is paid, whether or not calculated on
the basis of pre-established performance goals or formulas.
D. The Company shall withhold all applicable federal, state, local and
foreign taxes required by law to be paid or withheld relating to the receipt or
payment of any Award.
E. At the discretion of the Committee, payment of an Award or any
portion thereof may be deferred until a time established by the Committee.
Deferrals shall be made in accordance with guidelines established by the
Committee to ensure that such deferrals comply with applicable requirements of
the Code and its regulations. Deferrals shall be initiated by the delivery of a
written, irrevocable election by the Participant to the Committee or its
nominee. Such election shall be made prior to the date specified by the
Committee. The Committee may also credit interest on cash payments that are
deferred and set the rates of such interest.
3
<PAGE>
Executive Performance Plan
Page 4
6. General
A. The Plan shall become effective as of the first day of Integrated Device
Technology, Inc.'s first fiscal quarter, subject to stockholder approval of the
Plan at the 1995 annual meeting of the Company's stockholders. If the Plan is
not approved at the 1995 annual meeting of the Company's stockholders, then all
Awards shall terminate.
B. Any rights of a Participant under the Plan shall not be assignable by
such Participant, by operation of law or otherwise, except by will or the laws
of descent and distribution. No Participant may create a lien on any funds or
rights to which he or she may have an interest under the Plan, or which is held
by the Company for the account of the Participant under the Plan.
C. Participation in the Plan shall not give any Key Employee any right to
remain in the employ of the Company. Further, the adoption of this Plan shall
not be deemed to give any Key Employee or other individual the right to be
selected as a Participant or to be granted an Award.
D. To the extent any person acquires a right to receive payments from the
Company under this Plan, such rights shall be no greater than the rights of an
unsecured creditor of the Company.
E. The Plan shall be governed by and construed in accordance with the laws
of the State of California.
4
Part II. Other information, Item 6a.
<TABLE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
1-Oct-95 2-Oct-94 1-Oct-95 2-Oct-94
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 76,987 67,220 76,706 67,093
Net effect of dilutive stock options 5,561 4,684 5,308 4,987
------- ------- ------- -------
Total 82,548 71,904 82,014 72,080
======= ======= ======= =======
Net income $34,336 $17,006 $63,127 $33,884
======= ======= ======= =======
Earnings per share $ 0.42 $ 0.24 $ 0.77 $ 0.47
======= ======= ======= =======
Fully diluted:
Weighted average shares outstanding 76,987 67,220 76,706 67,093
Net effect of dilutive stock options 5,561 4,684 5,473 4,987
Assumed conversion of convertible subordinated notes 7,031 4,881
------- ------- ------- -------
Total 89,579 71,904 87,060 72,080
======= ======= ======= =======
Net income $34,336 $17,006 $63,127 $33,884
Add:
Convertible subordinated notes interest, net of income taxes $ 1,903 $ 2,496
------- ------- ------- -------
Adjusted net income $36,239 $17,006 $65,623 $33,884
======= ======= ======= =======
Earnings per share $ 0.40 $ 0.24 $ 0.75 $ 0.47
======= ======= ======= =======
<FN>
On August 24, 1995, the Company's Board of Directors approved a two-for-one
stock split in the form of a stock dividend for stockholders of record on August
25, 1995. The distribution of additional shares was on September 15, 1995. Share
information for all periods presented has been retroactively adjusted to reflect
this stock dividend.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> OCT-01-1995
<CASH> 194770
<SECURITIES> 157687
<RECEIVABLES> 109910
<ALLOWANCES> 3920
<INVENTORY> 44129
<CURRENT-ASSETS> 537565
<PP&E> 525121
<DEPRECIATION> 225159
<TOTAL-ASSETS> 901051
<CURRENT-LIABILITIES> 173176
<BONDS> 196938
<COMMON> 77
0
0
<OTHER-SE> 482109
<TOTAL-LIABILITY-AND-EQUITY> 901051
<SALES> 330699
<TOTAL-REVENUES> 330699
<CGS> 140041
<TOTAL-COSTS> 140041
<OTHER-EXPENSES> 102936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4845
<INCOME-PRETAX> 92834
<INCOME-TAX> 29707
<INCOME-CONTINUING> 63127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63127
<EPS-PRIMARY> .77
<EPS-DILUTED> .75
</TABLE>
