SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 December 31, 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
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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
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(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 January 28, 1996, was 77,421,110.
<PAGE>
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Three Months Ended
December 31, 1995 January 1, 1995
----------------------------------------------
<S> <C> <C>
Revenues $188,545 $105,765
Cost of revenues 80,400 45,237
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Gross profit 108,145 60,528
Operating expenses:
Research and development 35,142 18,882
Selling, general and administrative 23,010 15,817
---------------------------------------------
Total operating expenses 58,152 34,699
Operating income 49,993 25,829
Interest expense (2,556) (708)
Interest income and other, net 4,821 1,286
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Income before provision for income taxes 52,258 26,407
Provision for income taxes 16,723 6,608
---------------------------------------------
Net income $35,535 $19,799
=============================================
Net income per share
Primary $0.44 $0.27
Fully Diluted $0.42 $0.27
Weighted average shares of common stock
and common stock equivalents
Primary 81,362 73,754
Fully Diluted 88,393 74,180
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Nine Months Ended Nine Months Ended
December 31, 1995 January 1, 1995
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<S> <C> <C>
Revenues $519,244 $296,393
Cost of revenues 220,441 125,659
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Gross profit 298,803 170,734
Operating expenses:
Research and development 96,007 54,418
Selling, general and administrative 65,081 46,185
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Total operating expenses 161,088 100,603
Operating income 137,715 70,131
Interest expense (7,401) (2,562)
Interest income and other, net 14,778 4,007
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Income before provision for income taxes 145,092 71,576
Provision for income taxes 46,430 17,893
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Net income $98,662 $53,683
===============================================
Net income per share
Primary $1.21 $0.74
Fully Diluted $1.18 $0.73
Weighted average shares of common stock
and common stock equivalents
Primary 81,859 72,626
Fully Diluted 87,460 73,067
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED DEVICE TECHNOLOGY, INC.
-------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share amounts)
(Unaudited)
December 31, 1995 April 2, 1995
----------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $199,478 $130,211
Short-term investments 102,644 91,425
Accounts receivable, net 96,748 71,974
Inventory (Note 2) 46,970 37,459
Deferred tax assets 25,166 26,443
Prepayments and other current assets 14,329 7,013
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Total current assets 485,335 364,525
Property, plant and equipment, net 369,330 178,780
Other assets (Note 9) 78,873 18,670
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TOTAL ASSETS $933,538 $561,975
==============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $97,081 $39,814
Accrued compensation and related expense 23,307 22,889
Deferred income on shipments to distributors 34,444 22,348
Income taxes payable 8,050 1,716
Other accrued liabilities 8,798 10,609
Current portion of long-term obligations 4,108 5,903
----------------------------------------------
Total current liabilities 175,788 103,279
Convertible subordinated notes, net of issuance cost
(Note 6) 197,099 --
Long-term obligations 34,050 36,595
Deferred tax liabilities 7,570 7,570
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; 77,313,115 and
76,209,268 shares issued and outstanding 77 76
Additional paid-in capital 276,758 271,580
Retained earnings 241,481 142,819
Unrealized gain on available-for-sale securities,net 1,069 --
Cumulative translation adjustment (354) 56
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Total stockholders' equity 519,031 414,531
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $933,538 $561,975
==============================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
INTEGRATED DEVICE TECHNOLOGY, INC.
-----------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended Nine Months Ended
December 31, 1995 January 1, 1995
---------------------------------------------
<S> <C> <C>
Increase (decrease) in cash
Operating activities:
Net income $98,662 $53,683
Adjustments:
Depreciation and amortization 37,765 28,671
Provision for losses on accounts receivable 583 290
Changes in assets and liabilities:
Accounts receivable (26,225) (28,268)
Inventory (9,511) (2,640)
Other assets (10,416) (7,683)
Accounts payable 57,911 12,965
Accrued compensation and related expense 418 (2,128)
Deferred income on shipments to distributors 12,096 7,277
Income taxes payable 7,627 9,224
Other accrued liabilities 789 (3,998)
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Net cash provided by operating activities 169,699 67,393
----------------------------------------------
Investing activities:
Purchases of property, plant and equipment (228,137) (59,761)
Purchases of short-term investments (170,003) (44,511)
Proceeds from sales of short-term investments 157,893 28,552
Purchases of investments collateralizing facility lease (57,394) --
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Net cash used for investing activities (297,641) (75,720)
----------------------------------------------
Financing activities:
Issuance of common stock, net 5,179 100,949
Proceeds from issuance of convertible subordinated notes,
net of issuance costs 196,721 --
Payment on capital leases and other debt (4,691) (12,234)
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Net cash provided for financing activities 197,209 88,715
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Net increase in cash and cash equivalents 69,267 80,388
Cash and cash equivalents at beginning of period 130,211 88,490
----------------------------------------------
Cash and cash equivalents at end of period $199,478 $168,878
==============================================
Supplemental disclosure of cash flow information:
Interest paid 6,935 2,120
Income taxes paid 38,535 8,240
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
INTEGRATED DEVICE TECHNOLOGY, INC.
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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 nine month period ending
December 31, 1995 are not necessarily indicative of the results to be
expected for the full year.
2. Inventory consists of the following (in thousands):
December 31, 1995 April 2, 1995
----------------- -------------
Raw materials $ 5,357 $ 4,404
Work-in-process 15,281 16,977
Finished Goods 26,332 16,078
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$ 46,970 $ 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. 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
(See Note 6) outstanding during the respective period and the elimination
of the related interest requirements (net of income taxes).
5. In 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-
Based Compensation." FAS 123 provides an alternative to APB 25, requires
additional disclosure, and is effective for the Company's fiscal year
beginning April 1, 1996. The Company will elect to continue to account for
its employee
<PAGE>
stock plans in accordance with the provisions of APB 25 and provide the
additional disclosures required by FAS 123. Accordingly, FAS 123 is not
expected to have a material impact on the Company's financial position or
results of operations.
6. 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 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 in 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 Notes is payable semi-annually on June 1
and December 1 commencing December 1, 1995.
In January 1996, the Company repurchased $15 million of its Notes at a
cost of approximately $12 million. The impact, net of tax and deferred
issue costs, will be recorded as an extraordinary item in the Company's
consolidated financial statements for the twelve months ending March 31,
1996.
7. 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 have been
retroactively adjusted to reflect this stock dividend.
8. Certain amounts in prior year comparative quarter's condensed consolidated
financial statements have been reclassified to conform with the third
quarter of fiscal 1996 presentation.
9. 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 fourth quarter of fiscal 1996 and 85%
thereafter. Restricted securities collateralizing this lease, included in
other non-current assets, were $67,840,000 at December 31, 1995 compared
to $10,500,000 at April 2, 1995.
<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 December 31,
1995, and January 1, 1995, unless otherwise indicated. Quarterly financial
results may not be indicative of the financial results of any future periods.
RESULTS OF OPERATIONS
Revenues for the third quarter and nine months of fiscal 1996 increased to
$188.5 million and $519.2 million respectively, representing increases of 78.3%
for the quarter and 75.2% for the nine-month period over the respective periods
in fiscal 1995. The revenue increases in the quarter and nine-month period were
attributable to higher unit volume sales in all product families, geographic
regions and sales channels. Higher average SRAM selling prices in both the
quarter and the nine-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. While average selling prices of SRAM products
have been favorable for both the quarter and nine months of fiscal 1996 when
compared to the same periods one year ago, new orders are at significantly lower
prices. It is expected that these lower prices will adversely affect the
Company's future operating results.
Gross profit in the quarter increased by $47.6 million to $108.1 million
and increased slightly to 57.4% as a percentage of revenue (gross margin) from
57.2% in the same quarter of the prior year. For the nine-month period, gross
profit increased by $128.1 million to $298.8 million as compared to $170.7
million for the comparable period of the prior year. As a percentage of revenue
gross profit was 57.5% for the nine-month period in fiscal 1996 and 57.6% for
the same period in fiscal 1995. The increase in gross profit in the third
quarter of fiscal 1996 compared to the third quarter of fiscal 1995 was
primarily attributable to manufacturing efficiencies. In the nine months of
fiscal 1996, IDT's manufacturing capacity was near full utilization, and the
Company continued a shift to smaller die designs and its most advanced wafer
fabrication processes, which resulted in increased die per wafer and therefore
lower unit costs. In addition, improved test and burn-in procedures contributed
to efficiencies that further reduced component manufacturing costs. Partially
offsetting these manufacturing efficiencies were higher material costs due to
increased unit volume associated with SRAM cache memory modules, which material
costs grew considerably as a percentage of revenues compared to the same quarter
and nine-month periods of the prior year. Additionally, declining average
selling prices on certain products due to competition and maturing product life
cycles also partially offset manufacturing efficiencies.
Research and development (R&D) expenses increased in absolute spending and
as a percentage of revenues for the quarter and the first nine months of fiscal
1996 as compared to the same periods of fiscal 1995. R&D expenses grew $16.2
million from $18.9 million in the quarter ended January 1, 1995 to $35.1 million
in the quarter ended
<PAGE>
December 31, 1995 and increased as a percentage of revenues to 18.6% from 17.9%.
For the nine-month period, R&D expenses increased 76.4% to $96.0 million, and
increased to 18.5% of revenues from 18.4% in the corresponding nine-month period
of the prior year. IDT continued development of several sub-0.5 micron CMOS
process technologies during the first nine months of fiscal 1996 and on-going
new product development resulted in the introduction of 55 new products or
product functions during the first nine 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 $7.2
million from $15.8 million in the quarter ended January 1, 1995 to $23.0 million
in the quarter ended December 31, 1995, but decreased to 12.2% of revenues from
15.0%. S,G&A expenses increased 40.9% to $65.1 million for the first nine months
of fiscal 1996, but declined as a percentage of revenues to 12.5% from 15.6% in
the comparable period of the prior year. The increase in S,G&A expenses 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 $2.6 million in the third quarter of fiscal
1996 compared with $0.7 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").
Gross interest expense of $3.6 million was reduced by the capitalization of $1.0
million of interest expense related to the construction of the Company's
facility in Hillsboro. For the nine-month period, interest expense increased to
$7.4 million from $2.6 million. As a result of the issuance of the Notes,
interest expense for the remainder of fiscal 1996 will increase compared to
fiscal 1995.
Interest income and other, net increased to $4.8 million in the quarter
and $14.8 million for the nine-month period as contrasted with $1.3 million and
$4.0 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. Interest income also
reflected a general increase of interest rates for investment funds in the
current quarter and nine-month period as compared to the same periods a year
ago. The Company expects that interest income and other, net will increase for
the remainder of fiscal 1996 when compared to fiscal 1995.
Income taxes for the quarter and nine-month period are provided at an
effective rate of 32%. This compares to an effective rate of 25% provided in the
same periods a
<PAGE>
year ago. The increase in the effective tax rate in fiscal 1996 as compared to
fiscal 1995 is the result of the Company's anticipated improved profitability in
fiscal 1996 relative to the magnitude of available tax credits available 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 foreign subsidiaries being
taxed at lower rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $169.7 million of funds from operations in the first
nine months of fiscal 1996. At December 31, 1995, cash and cash equivalents and
short-term investments were $302.1 million, representing an increase of $80.5
million during the first nine months of fiscal 1996. Cash provided by operating
activities primarily reflected net income, depreciation and amortization and
changes to working capital.
In May 1995, the Company completed the sale of $201.3 million of 5.5%
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. The retirement of $15.0 million in debt at a cost
of approximately $12.0 million will result in a favorable effect on the
Company's fourth quarter and fiscal 1996 results of operations. The impact, net
of taxes and deferred costs, will be recorded as an extraordinary item in the
Company's consolidated financial statements for the twelve months ending March
31, 1996. Additionally, the underlying common stock equivalents will be reduced
in future earnings per share calculations, when calculated on a fully diluted
basis. The Company may consider additional repurchases of debt in the future.
During the first nine months of fiscal 1996, the Company's net cash used
in investing activities was $297.6 million, of which $228.1 million was used for
capital equipment and property and plant improvements. Cash used to purchase
short-term investments, net of the proceeds generated from the sale of
short-term investments, was $12.1 million. In addition, the Company had $67.8
million of restricted cash, including $57.4 million which became restricted in
the first nine 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 anticipated in
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
<PAGE>
during fiscal 1996. Preliminary planned capital expenditures for fiscal 1997 are
approximately $260.0 million.
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 and fiscal 1997. 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.
In 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." FAS 123 provides an alternative to APB 25, requires additional
disclosure and is effective for the Company's fiscal year beginning April 1,
1996. The Company will elect to continue to account for its employee stock plans
in accordance with the provisions of APB 25 and provide the additional
disclosures required by FAS 123. Accordingly, FAS 123 is not expected to have a
material impact on the Company's financial position or results of operations.
FACTORS AFFECTING FUTURE RESULTS
This Form 10-Q contains forward-looking statements that involve a number
of risks and uncertainties. There are certain important factors that could cause
results to differ materially from those anticipated by the statements made
herein. Among, but not limited to, these are 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, particularly
in the SRAM memory market, 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 SRAMs were characterized by excess demand relative to supply and
resultant favorable pricing. Recently, a number of companies, principally
foreign, have shifted manufacturing capacity to SRAMs causing
<PAGE>
rapid adjustments to supply and consequently impacting market prices. The
resulting significant downward trend in prices over such an extremely short
period will negatively affect SRAM gross margins, which could adversely affect
the Company's operating results. 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 also 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. Any 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 equipment capacity. As a result,
the Company has utilized subcontractors for the majority of its incremental
assembly requirements, typically at higher costs that its own Malaysian
operations. The Company expects to continue utilizing subcontractors extensively
until it opens it Philippines 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 constraints, any failure by the Company to forecast adequately 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 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-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 new 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.
<PAGE>
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 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. Specifically, the
Company will recognize substantial R&D expenses associated with its Oregon
fabrication facility in fiscal 1996. Further, if commercial production begins,
as anticipated, in fiscal 1997, the Company anticipates incurring substantial
operating costs and depreciation expense relating to the facility before
production of substantial volume 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 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 $260
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 satisfactory to the
Company.
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
<PAGE>
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 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 and import and export
controls, as well as changes in tax laws, tariffs and freight rates. Recently,
contract pricing for raw materials, as well as for 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, 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.
<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
<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: February 14, 1996 /s/ Leonard C. Perham
------------------------------------
Leonard C. Perham
Chief Executive Officer
Date: February 14, 1996 /s/ William D. Snyder
------------------------------------
William D. Snyder
Vice President Finance (principal
financial and accounting officer)
Part II. Other information, Item 6a.
EXHIBIT 11
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
31-Dec-95 1-Jan-95 31-Dec-95 1-Jan-95
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 77,264 68,820 76,892 67,668
Net effect of dilutive stock options 4,098 4,934 4,967 4,958
--------- -------- -------- --------
Total 81,362 73,754 81,859 72,626
========= ======== ======== ========
Net income $ 35,535 $ 19,799 $ 98,662 $ 53,683
========= ======== ======== ========
Earnings per share $ 0.44 $ 0.27 $ 1.21 $ 0.74
========= ======== ======== ========
Fully diluted:
Weighted average shares outstanding 77,264 68,820 76,892 67,668
Net effect of dilutive stock options 4,098 5,360 4,970 5,399
Assumed conversion of convertible subordinated notes 7,031 5,598
--------- -------- -------- --------
Total 88,393 74,180 87,460 73,067
========= ======== ======== ========
Net income $ 35,535 $ 19,799 $ 98,662 $ 53,683
Add:
Convertible subordinated notes interest, net of income taxes $ 1,903 $ 4,399
--------- -------- --------- ---------
Adjusted net income $ 37,438 $ 19,799 $103,061 $ 53,683
========= ======== ========= =========
Earnings per share $ 0.42 $ 0.27 $ 1.18 $ 0.73
========= ======== ========= =========
</TABLE>
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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 199,478
<SECURITIES> 102,644
<RECEIVABLES> 101,409
<ALLOWANCES> 4,661
<INVENTORY> 46,970
<CURRENT-ASSETS> 485,335
<PP&E> 605,201
<DEPRECIATION> 235,871
<TOTAL-ASSETS> 933,538
<CURRENT-LIABILITIES> 175,788
<BONDS> 197,099
<COMMON> 77
0
0
<OTHER-SE> 518,954
<TOTAL-LIABILITY-AND-EQUITY> 933,538
<SALES> 519,244
<TOTAL-REVENUES> 519,244
<CGS> 220,441
<TOTAL-COSTS> 220,441
<OTHER-EXPENSES> 161,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,401
<INCOME-PRETAX> 145,092
<INCOME-TAX> 46,430
<INCOME-CONTINUING> 98,662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,662
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.18
</TABLE>
