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 June 30, 1996
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 0-12695
INTEGRATED DEVICE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2669985
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(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 July 28, 1996, was 78,011,571.
<PAGE>
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
INTEGRATED DEVICE TECHNOLOGY, INC.
-------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(In thousands, except per share data)
(Unaudited)
Three months Ended Three months Ended
June 30, 1996 July 2, 1995
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Revenues $ 142,539 $ 152,195
Cost of revenues 71,616 64,322
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Gross profit 70,923 87,873
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Operating expenses:
Research and development 39,085 27,747
Selling, general and administrative 20,937 20,684
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Total operating expenses 60,022 48,431
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Operating income 10,901 39,442
Interest expense (1,926) (1,506)
Interest income and other, net 4,067 4,404
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Income before provision for income taxes 13,042 42,340
Provision for income taxes 4,173 13,549
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Net income $ 8,869 $ 28,791
======================================
Net income per share:
Primary $ 0.11 $ 0.35
Fully Diluted $ 0.11 $ 0.35
Weighted average shares:
Primary 81,650 81,448
Fully Diluted 81,650 84,442
The accompanying notes are an integral part of these financial statements.
1
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<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(In thousands, except share amounts)
(Unaudited)
<CAPTION>
June 30,1996 March 31, 1996
----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 109,427 $ 157,228
Short-term investments 93,461 104,046
Accounts receivable, net 83,074 85,026
Inventory 48,743 46,630
Deferred tax assets 38,712 38,712
Prepayments and other current assets 15,462 15,658
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Total current assets 388,879 447,300
Property, plant and equipment, net 477,388 415,214
Other assets 68,482 76,920
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TOTAL ASSETS $ 934,749 $ 939,434
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,142 $ 78,821
Accrued compensation and related expense 14,464 29,237
Deferred income on shipments to distributors 37,825 31,325
Income taxes payable 657 5,747
Other accrued liabilities 10,152 12,171
Current portion of long term obligations 3,259 3,799
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Total current liabilities 146,499 161,100
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5.5% Convertible Subordinated Notes, net of issuance costs 182,708 182,558
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Long term obligations 45,624 46,049
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Commitments and Contingencies
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; 77,820,772 and
77,496,833 shares issued and outstanding 78 77
Additional paid-in capital 288,843 287,064
Retained earnings 271,858 262,989
Unrealized gain (loss) on available-for-sale securities, net (308) 102
Cumulative translation adjustment (553) (505)
----------------------------------
Total stockholders' equity 559,918 549,727
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 934,749 $ 939,434
==================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
-------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(In thousands)
(Unaudited)
<CAPTION>
Three months Ended Three months Ended
June 30, 1996 July 2, 1995
--------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 8,869 $ 28,791
Adjustments:
Depreciation and amortization 19,275 11,419
Changes in assets and liabilities:
Accounts receivable 1,952 (10,756)
Inventory (2,113) (2,927)
Other assets (2,310) 360
Accounts payable 1,321 11,316
Accrued compensation and related expense (14,773) (5,734)
Deferred income on shipments to distributors 6,500 (718)
Income taxes payable (5,332) 12,933
Other accrued liabilities (1,840) (15)
--------------------------------------------
Net cash provided by operating activities 11,549 44,669
--------------------------------------------
Investing activities:
Purchases of property, plant and equipment (80,607) (27,043)
Purchases of short-term investments (8,100) (95,361)
Proceeds from sales of short-term investments 18,275 9,956
Proceeds (purchases) from sales of investments
collateralizing facility lease 10,252 (17,086)
--------------------------------------------
Net cash used for investing activities (60,180) (129,534)
--------------------------------------------
Financing activities:
Issuance of common stock, net 1,780 1,778
Proceeds from issuance of convertible
subordinated notes, net of issuance costs -- 196,721
Payments on capital leases and other debt (950) (1,973)
--------------------------------------------
Net cash provided by financing activities 830 196,526
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Net increase (decrease) in cash and cash equivalents (47,801) 111,661
Cash and cash equivalents at beginning of period 157,228 130,211
--------------------------------------------
Cash and cash equivalents at end of period $ 109,427 $ 241,872
============================================
Supplemental disclosures:
Interest paid $ 5,277 $ 484
Income taxes paid 4,903 581
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
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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. These financial statements should 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 March 31, 1996. The results of operations for the three
month period ending June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
2. Inventory consists of the following (in thousands):
June 30, 1996 March 31, 1996
------------- ---------------
Raw materials $ 6,672 $ 5,171
Work-in-process 23,941 22,538
Finished Goods 18,130 18,921
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$48,743 $46,630
======= =======
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. Income tax in state
jurisdictions is not significant due to available investment tax credits
and research and development credits.
4. Primary net income per common share is computed using the weighted average
number of common shares and the dilutive effects of common stock
equivalent shares outstanding during the period. Common stock equivalent
shares include shares issuable under the Company's stock option plans.
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 5.5% Convertible Subordinated Notes (the Notes)
outstanding during the respective period and the elimination of the
related interest and deferred debt issue costs (net of income taxes) when
such Notes are dilutive to net income per primary share. For the first
quarter of fiscal 1997, the potential effect of the conversion of the
Notes has not been included in the fully diluted share calculation because
the result is anti-dilutive. Per share amounts for the first quarter of
fiscal 1996 have been restated to reflect retroactively a 2 for 1 stock
split effected in the form of a stock dividend to stockholders of record
on August 25, 1995.
4
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5. The Company's obligations under the five-year $64 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. Initially,
this lease was collateralized by cash and/or investments (restricted
securities) up to 105% of the lessor's construction costs. During the
first quarter of fiscal 1997, in accordance with the terms of the lease,
the collateral requirement was reduced to 89.25% of the lessors cost.
Restricted securities collateralizing this lease, included in other
non-current assets, were $57,120,000 at June 30, 1996 compared to
$67,782,000 at March 31, 1996.
5
<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 June 30,
1996, and July 2, 1995, unless otherwise indicated. Quarterly financial results
may not be indicative of the financial results of any future periods.
RESULTS OF OPERATIONS
Revenues
Revenues in the first quarter of fiscal 1997 decreased 6% to $142.5
million from the respective period in fiscal 1996, while total units shipped
increased 14% when comparing the same periods. Higher unit sales were recorded
in the RISC microprocessor family, net units sold more than doubled, and
specialty memory and logic units sold increased, while SRAM unit sales declined
approximately ten percent. The revenue decrease in the quarter was primarily
attributable to lower average selling prices for industry standard SRAM
products, in all geographic regions and sales channels. Microprocessor average
selling prices also declined. Lower average SRAM and related module product
selling prices in the quarter were attributable to competitive market pricing
and maturation of certain products. The semiconductor industry is highly
cyclical and has been subject to significant downturns at various times. Such
downturns are characterized by diminished product demand, production over
capacity and accelerated average selling price erosion. The price the Company
receives for its industry standard SRAM products are therefore dependent upon
industry-wide demand and capacity, and such prices have been historically
subject to rapid change. Reflecting market conditions, average selling prices of
SRAM related products were favorable for the first quarter of fiscal 1996, while
orders shipped in the first quarter of fiscal 1997 were at significantly lower
prices. New SRAM orders continue to be at lower prices, and the Company expects
that these prices will continue to adversely affect the Company's future
operating results.
Gross Profit
Gross profit in the quarter decreased by $16.9 million to $70.9 million
and as a percentage of revenue (gross margin) decreased from 57.7% to 49.8% when
comparing the first quarter of fiscal 1997 to the same quarter of the prior
year. The decrease in gross profit in the first quarter of fiscal 1997 compared
to the first quarter of fiscal 1996 was primarily attributable to significant
erosion of average selling prices for SRAM and related module products. The
Company continued its efforts to shift to smaller die designs and its most
advanced wafer fabrication processes, which result in increased die per wafer
and therefore lower unit costs. However, declining average selling prices for
primarily SRAM products more than offset manufacturing efficiencies gained
during the first quarter of fiscal 1997. Partially offsetting lower average
selling prices associated with SRAM memory modules were lower material costs
associated with other electronic components purchased for use in manufacturing
these modules.
6
<PAGE>
During the first quarter of fiscal 1997, the new 8" wafer fabrication
facility located in Hillsboro Oregon began its production ramp. However,
significant production capacity at the Oregon facility was not available during
the quarter. Substantially all operating expenses associated with the new Oregon
fabrication facility were classified as process engineering Research &
Development, given that production to date of saleable die has not been
significant. The level of operating expenses associated with the Oregon facility
is discussed below. The Company expects that in future quarters, costs
associated with the Oregon facility will negatively impact gross margins while
that plant continues on a ramp to increase production and as an increasingly
significant portion of the total costs are allocated to cost of goods sold based
on activities performed. While the Oregon facility increases its production
volumes and available production capacity, the Company is unable to predict
whether demand for industry standard SRAM products will change. Therefore,
should IDT's available manufacturing capacity, especially at its fabrication
facilities, not be fully utilized and the Company be unable to otherwise
decrease costs per unit sold, the Company's results of operations will be
adversely impacted.
Research and Development
Research and development (R&D) expenses increased in absolute spending
and as a percentage of revenues for the quarter when compared to the same period
of fiscal 1996. R&D expenses grew $11.4 million from $27.7 million in the
quarter ended July 2, 1995 to $39.1 million in the quarter ended June 30, 1996,
and expenses increased as a percentage of revenues to 27.4% from 18.2%.
The Company's policy is to not capitalize preoperating costs associated
with new manufacturing facilities, and significant facility start-up and
staffing expenses were incurred at the new 8" wafer fabrication facility in
Hillsboro, Oregon. In the first quarter of fiscal 1997, substantially all
operating expenditures associated with the Oregon fabrication facility are
classified as process engineering R&D given that production to date of saleable
die has not been significant. Such expenditures were $13.3 million during the
first quarter of fiscal 1997 and were not significant during the first quarter
of fiscal 1996. For the remaining quarters of fiscal 1997, the level of expense
associated with the Oregon fabrication facility is expected to increase over the
levels of the first quarter of fiscal 1997, as depreciation charges will be
sustained for each entire future quarter and as equipment is added and
production ramped up. However, the Company expects that in future quarters, the
percentage of total operating expenses associated with the Oregon facility which
are classified as process engineering R&D will decrease as an increasing portion
of the total costs are allocated to cost of goods sold based on activities
performed.
IDT continued development of several sub-0.5 micron CMOS process
technologies during the first three months of fiscal 1997. Additionally with the
goal of expanding product offerings, the Company continues its research into
applications of Fusion Memory technology and continues its efforts to develop a
family of specialty memory products for the ATM market. IDT believes that high
levels of R&D investment are required to support its strategy of providing
products to its customers which are not readily available from its competitors.
7
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative (S,G&A) expenses increased by $0.2
million from $20.7 million in the quarter ended July 2, 1995 to $20.9 million in
the quarter ended June 30, 1996, and increased to 14.7% of revenues from 13.6%.
A portion of S,G&A expenses, such as sales commissions, management bonuses, and
employee profit sharing, vary with sales and Company profitability. While S,G&A
expenses have not increased in terms of absolute dollars, they have increased as
a percentage of sales. Offsetting declines in expenses which vary with sales and
profitability, are expenses associated with higher salary costs and costs
associated with initiatives to improve the Company's competitive advantage
through implementing enterprise-wide management information systems. The Company
anticipates the S,G&A expenses for the remainder of fiscal 1997 will remain
constant as a percentage of revenues.
Interest expense
Interest expense increased to $1.9 million in the first quarter of
fiscal 1997 compared with $1.5 million for the same quarter a year ago. Interest
expense is primarily associated with debt sold during the first quarter of
fiscal 1996. $201.3 million of 5.5% Convertible Subordinated Notes due in 2002
(the "Notes") were issued, of which $15 million was subsequently retired at a
discount. Gross interest expense of $3.1 million during the quarter was reduced
by the capitalization of $1.2 million of interest expense related to the
construction of the facility in Hillsboro. As the current phase of the Oregon
facility is now complete, as of May 26, 1996 interest capitalization in
connection with the current phase of the project has ceased. With the cessation
of interest capitalization for the Oregon project, the Company anticipates that
for fiscal 1997 interest expense will increase when compared to fiscal 1996.
Interest income and other
Interest income and other, net decreased to $4.1 million in the quarter
when contrasted with $4.4 million for the same period of the prior year. The
decrease in interest income was attributable to lower average cash balances as
the Company has continued to pay cash for significant capital expenditures over
the intervening year. The Company expects that interest income and other, net
will decrease for the remainder of fiscal 1997 when compared to fiscal 1996
because of lower interest income associated with lower average cash balances.
Income taxes
Income taxes for the quarter are provided at an effective rate of 32%.
This is the same rate as was in effect during the prior year. The effective rate
differs from the U. S. statutory rate of 35% primarily due to earnings of
foreign subsidiaries being taxed at lower rates. Income tax in state
jurisdictions is not significant due to available investment tax credits and
research and development credits. While the Company has consumed substantially
all of the tax benefits associated with its Malaysian subsidiary and has fully
utilized carried forward R&D credits, lower levels of profitability encountered
in the first quarter of fiscal 1997 have enabled it to maintain the same
effective tax rate.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $11.5 million of funds from operations in the
first three months of fiscal 1997, down from $44.7 million of funds from
operations during the first three months of fiscal 1996. At June 30, 1996, cash
and cash equivalents and short-term investments were $202.9 million,
representing a decrease of $58.4 million during the first three months of fiscal
1997. Cash provided by operating activities primarily reflects net income,
depreciation and amortization and changes to working capital. Significant
changes in operating assets and liabilities result from payments for accrued
payroll and bonus and increased deferred income on shipments to distributors.
The reduction in funds generated from operations in the current quarter when
compared to the same quarter in the prior year primarily reflects the following
factors: lower net income as a result of lower average selling prices for
semiconductor products partially offset by increased depreciation and
amortization charges associated with new facilities, improvements to existing
facilities and new equipment.
In May 1995, the Company completed the sale of $201.3 million of the
Notes, netting $196.7 million in proceeds. The Notes are convertible into shares
of common stock at $28.625 per share. In January 1996, the Company completed the
repurchase of approximately $15.0 million of the Notes at a price of
approximately $790 per bond. During fiscal 1997, the Company does not anticipate
making additional repurchases of debt.
During the first three months of fiscal 1997, the Company's net cash
used in investing activities was $60.2 million, of which $80.6 million was used
for capital equipment and property and plant improvements. Cash generated from
the sale of short-term investments, net of purchases of short-term investments,
was $10.2 million. In addition, at June 30, 1996, the Company had $57.1 million
of restricted securities as collateral under a Tax Ownership Operating Lease
entered into in January 1995 related to the construction of the new 8" wafer
fabrication facility in Oregon. At March 31, 1996, the securities pledged as
collateral amounted to 105% of the lessor's construction costs, as required
until the building was completed. During the first quarter of fiscal 1997, the
facility was completed, and in accordance with the terms of the facility lease,
the collateral requirement was reduced to 89.25% of the lessors cost to
construct the facility. Therefore, as the facility was completed during the
first quarter of fiscal 1997, the lessor released as collateral $10.5 million of
restricted securities.
In view of current capacity requirements, the Company anticipates total
fiscal 1997 capital expenditures of approximately $205 million, which is a
reduction of approximately $50 million from the amount originally planned for
the fiscal year. $80.6 million was expended in the first quarter of fiscal 1997
for planned capital additions. Fiscal 1997 capital requirements are principally
in connection with continued installation of equipment in the new Oregon
facility plus the construction and partial equipping of the new Philippine plant
and other capacity improvements. These expenditures are required to achieve full
and complete utilization of these facilities.
9
<PAGE>
The Company's ability to invest to satisfy its capacity requirements is
in part dependent on the Company's ability to generate cash from operations.
Cash flow from operations depends significantly on the average selling prices,
variable cost per unit and other industry conditions which the Company cannot
predict. Future declines in selling prices for industry standard SRAM products
or other products manufactured by the Company, which cannot be otherwise offset,
will adversely impact the Company's ability to generate funds from operations.
If the Company is not able to generate sufficient funds from operations or other
sources to fund its capacity and R&D requirements, the Company's results from
operations and cash flows will be adversely impacted.
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 1997. While the Company is reviewing
all operations with respect to cost savings opportunities and has implemented a
reduction of approximately 5% of its domestic workforce, 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. If the Company is required to seek other financing
sooner, the unavailability of financing on terms satisfactory to IDT could have
a material adverse effect on the Company.
FACTORS AFFECTING FUTURE RESULTS
Except for the historical information contained in this Quarterly
Report on Form 10-Q, the matters discussed in this report are forward looking
statements. These forward looking statements concern matters that involve risks
and uncertainties, including but not limited to those set forth below, that
could cause actual results to differ materially from those projected in the
forward looking statements. In any event, the matters set forth below should be
carefully considered when evaluating the Company's business and prospects.
IDT'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, particularly in the
SRAM memory market, fluctuations in manufacturing yields, changes in the mix of
product 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 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. Early in fiscal 1996,
markets for some of the Company's SRAMs were characterized by excess demand
relative to supply and the resulting favorable pricing. During the later part of
fiscal 1996, a number of
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companies, principally foreign, shifted manufacturing capacity to SRAMs causing
rapid adjustments to supply and consequently impacting market prices. The
resulting significant downward trend in prices in an extremely short period
negatively affected SRAM gross margins, and adversely affected the Company's
operating results. Current market conditions characterized by excess supply of
SRAMs relative to demand and resultant pricing declines may continue. Although
recently some competitors have made adjustments to the rate at which they will
implement capacity expansion programs, the Company is unable to accurately
estimate the amount of worldwide production capacity dedicated to industry
standard products which it produces. 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
further decline in product pricing and could also materially adversely affect
the Company's operating results.
The Company has taken measures to manage costs, including deferral of
capacity expansion plans and work force reductions, but there can be no
assurance that these measures will be sufficient to sustain the Company's
profitability. Where necessary to achieve full and effective use of the
facilities, the Company continues to install new equipment at the Oregon
facility and to complete and partially equip the new Philippine plant. However,
the amount of capacity to be placed into production and future yield
improvements by the Company's competitors could dramatically increase the
world-wide supply of products which compete with the Company's and could create
further downward pressure on pricing.
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. Any slowdown in the computer and related peripherals or communications
markets could also materially adversely affect the Company's operating results.
In the first quarter of fiscal 1997, significant production capacity
was not available at the Oregon fabrication facility, and the Company operated
its remaining domestic wafer fabrication facilities and Malaysian assembly
operations at approximately available installed equipment capacity. As a result,
the Company has utilized subcontractors for the majority of its incremental
assembly requirements, typically at higher costs than its own Malaysian
operations. The Company expects to continue utilizing subcontractors extensively
until it opens its Philippines assembly plant. At times during fiscal 1996, as a
result of production capacity constraints, the Company was not able to take
advantage of all market opportunities presented to it. For certain limited
products which the Company plans to produce at the Oregon facility, this
condition continued through the first quarter of fiscal 1997. Due to long
production lead times and current capacity constraints, any failure by the
Company to forecast adequately the mix of product
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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 the 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-up or process problems or 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, including the
facility in Oregon, and constructing a new facility in the Philippines. Further,
the Company's older 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. Historically, the Company has expensed the
operating expenses associated with bringing a new fabrication facility to
commercial production as R&D in the period such expenses are incurred. However,
as commercial production at a new fabrication facility commences, the operating
costs will be classified as cost of revenues, and the Company will begin to
recognize depreciation expense relating to the facility. Accordingly, although
the Company expects the Oregon fabrication facility to contribute to revenues in
fiscal 1997, the Company will recognize substantial operating expenses
associated with the facility in fiscal 1997, which could reduce gross margins.
Specifically, as commercial production begins in fiscal 1997, the Company
anticipates incurring substantial operating costs and depreciation expense
relating to the facility before production and sale of substantial volumes is
achieved. Accordingly, if revenue levels do not increase sufficiently to offset
these additional expense levels, or if the Company is unable to achieve gross
margins from products produced at the Oregon facility that are comparable to the
Company's current products, the Company's future results of operations could be
adversely impacted.
New products, process technology and start-up 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 them at gross margins comparable to the Company's
current products, the future results of operations could be adversely impacted.
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
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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 a timely manner or if there were
significant increases in the costs of raw materials.
The semiconductor industry is extremely capital-intensive. To remain
competitive, the Company must continue to invest in advanced manufacturing and
test equipment. In fiscal 1997, the Company expects to expend approximately $205
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 will be available on terms satisfactory to the
Company. If such financing is required and if such financing is not available on
terms satisfactory to the Company, its operations would be materially adversely
affected.
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 made or may be
asserted against the Company could require that the Company 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. 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 amounts payable or the inability to obtain a license,
could have a materially 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 and import and export
controls, as well as changes in tax laws, tariffs and freight rates. Recently,
contract pricing for raw materials used in the fabrication and assembly
processes, as well as for subcontract assembly services, has been impacted by
currency exchange rate fluctuations.
13
<PAGE>
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, 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.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit
No. Description Page
- --------------------------------------------------------------------------------
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: August 9, 1996 /s/ Leonard C. Perham
---------------------------------------
Leonard C. Perham
Chief Executive Officer
Date: August 9, 1996 /s/ William D. Snyder
---------------------------------------
William D. Snyder
Vice President Finance (principal
financial and accounting officer)
Part II. Other information, Item 6a.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Quarter Ended
30-Jun-96 2-Jul-95
Primary:
Weighted average shares outstanding 77,696 76,424
Net effect of dilutive stock options 3,954 5,024
------- -------
Total 81,650 81,448
======= =======
Net income $ 8,869 $28,791
======= =======
Net income per share $ 0.11 $ 0.35
======= =======
Fully diluted:
Weighted average shares outstanding 77,696 76,424
Net effect of dilutive stock options 3,954 5,286
Assumed conversion of
5.5% Convertible Subordinated Notes (Note 1) -- 2,732
------- -------
Total 81,650 84,442
======= =======
Net income $ 8,869 $28,791
Add:
Convertible subordinated notes interest
and related expenses, net of taxes (Note 1) -- $ 594
------- -------
Adjusted net income $ 8,869 $29,385
======= =======
Net income per share $ 0.11 $ 0.35
======= =======
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.
Note 1: The potential effect of conversion of the 5.5% Convertible Subordinated
Notes has not been included in the fully diluted EPS calculation for the
first quarter of fiscal 1997 because the Notes have an anti-dilutive
impact on the calculation.
17
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