<PAGE> 1
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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 28, 1998
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 NO. 0-12695
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INTEGRATED DEVICE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-2669985
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2975 STENDER WAY,
SANTA CLARA, CALIFORNIA 95054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
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 26, 1998, was approximately 82,167,000.
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<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JUN. 28, JUN. 29,
1998 1997
-------- --------
<S> <C> <C>
Revenues.................................................... $134,487 $148,873
Cost of revenues............................................ 93,198 92,537
Asset impairment and other.................................. 28,916 --
-------- --------
Gross profit................................................ 12,373 56,336
-------- --------
Operating expenses:
Research and development.................................. 39,425 29,822
Selling, general and administrative....................... 26,534 22,364
-------- --------
Total operating expenses.......................... 65,959 52,186
-------- --------
Operating income (loss)..................................... (53,586) 4,150
Interest expense............................................ (3,287) (3,743)
Interest income and other, net.............................. 1,366 2,219
-------- --------
Income (loss) before income taxes........................... (55,507) 2,626
Provision (benefit) for income taxes........................ (5,551) 735
-------- --------
Net income (loss)........................................... $(49,956) $ 1,891
======== ========
Basic net income (loss) per share........................... $ (0.61) $ 0.02
Diluted net income (loss) per share......................... $ (0.61) $ 0.02
Weighted average shares:
Basic..................................................... 81,668 79,769
Diluted................................................... 81,668 83,359
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 3
INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 28, MARCH 29,
1998 1998
-------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $139,428 $146,114
Short-term investments.................................... 69,159 74,481
Accounts receivable, net.................................. 50,627 68,840
Inventories, net.......................................... 61,420 60,737
Deferred tax assets....................................... 58,107 52,252
Prepayments and other current assets...................... 18,352 22,179
-------- --------
Total current assets........................................ 397,093 424,603
Property, plant and equipment, net.......................... 481,575 475,440
Other assets................................................ 66,676 68,912
-------- --------
Total Assets...................................... $945,344 $968,955
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 44,121 $ 57,572
Accrued compensation and related expenses................. 13,270 15,853
Deferred income on shipments to distributors.............. 50,551 51,835
Other accrued liabilities................................. 51,343 33,821
-------- --------
Total current liabilities......................... 159,285 159,081
Convertible subordinated notes, net......................... 183,905 183,756
Long-term obligations....................................... 79,853 56,640
Deferred tax liabilities.................................... 23,107 23,087
-------- --------
Total liabilities........................................... 446,150 422,564
Stockholders' equity:
Preferred stock........................................... -- --
Common stock and additional paid-in capital............... 321,568 318,623
Retained earnings......................................... 179,008 228,964
Accumulated other comprehensive income (loss)............. (1,382) (1,196)
-------- --------
Total stockholders' equity.................................. 499,194 546,391
-------- --------
Total Liabilities and Stockholders' Equity........ $945,344 $968,955
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JUNE 28, JUNE 29,
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $(49,956) $ 1,891
Adjustments:
Depreciation and amortization.......................... 32,010 26,654
Loss on sale of property, plant and equipment.......... 753 --
Asset impairment and other............................. 18,916 --
Changes in assets and liabilities:
Accounts receivable.................................... 18,213 3,203
Inventories............................................ (683) (2,029)
Prepayments and other assets........................... 6,056 14,641
Deferred tax assets.................................... (5,855) --
Accounts payable....................................... (13,451) 4,048
Accrued compensation and related expenses.............. (2,583) (1,116)
Deferred income on shipments to distributors........... (1,284) 12,605
Other accrued liabilities.............................. 9,927 73
-------- --------
Net cash provided by operating activities................. 12,063 59,970
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment............. (51,137) (44,869)
Proceeds from sales of property, plant and equipment... 1,261 --
Purchases of short-term investments.................... (20,328) (13,941)
Proceeds from sales of short-term investments.......... 25,732 4,905
Purchases of equity investments........................ -- (12,090)
-------- --------
Net cash used for investing activities.................... (44,472) (65,995)
-------- --------
FINANCING ACTIVITIES:
Issuance of common stock, net.......................... 2,945 1,329
Proceeds from secured equipment financing.............. 23,961 --
Payments on capital leases and other debt.............. (1,183) (1,478)
-------- --------
Net cash provided (used) by financing activities.......... 25,723 (149)
-------- --------
Net decrease in cash and cash equivalents................... (6,686) (6,174)
Cash and cash equivalents at beginning of period............ 146,114 155,149
-------- --------
Cash and cash equivalents at end of period.................. $139,428 $148,975
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of Integrated Device Technology, Inc. ("IDT" or the
"Company"), the accompanying unaudited condensed consolidated 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 29, 1998. The
results of operations for the three-month period ended June 28, 1998 are not
necessarily indicative of the results to be expected for the full year.
2. Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
3. In June 1998, the Company recorded a $34.6 million non-recurring charge,
relating primarily to excess SRAM manufacturing equipment and technology
licensing matters. The charge is reflected in the Condensed Consolidated
Statements of Operations as follows: $28.9 million as cost of revenues, $5.5
million as research and development and $0.2 million as general and
administrative.
The first-quarter non-recurring charge includes a provision for excess
manufacturing equipment. Reflecting current economic conditions in the SRAM
marketplace, which continues to experience declines in both demand and price,
the Company identified specific items of manufacturing equipment which are
excess to its needs. The carrying value of excess equipment was reduced to its
estimated fair market value.
The non-recurring charge also reflects the Company's narrowing the focus of
business development activities. As a result, the Company is discontinuing
certain development efforts and has provided for remaining payments required
under technology license agreements and recognized other related costs. The
Company also provided for other intellectual property-related matters.
4. Basic net income (loss) per share is based upon weighted-average common
shares outstanding. Diluted net income (loss) per share is computed using the
weighted-average common shares outstanding plus any potentially dilutive
securities. Dilutive securities include stock options using the treasury stock
method, and convertible debt using the if converted method.
Following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations for the periods
presented below:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------
JUNE 28, JUNE 29,
1998 1997
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Basic:
Net income (loss)(numerator).......................... $(49,956) $ 1,891
======== =======
Weighted average shares outstanding (denominator)..... 81,668 79,769
======== =======
Net income (loss) per share........................... $ (0.61) $ .02
======== =======
Diluted:
Net income (loss)(numerator).......................... $(49,956) $ 1,891
======== =======
Weighted average shares outstanding................... 81,668 79,769
Net effect of dilutive stock options.................. -- 3,590
-------- -------
Total shares (denominator).............................. 81,668 83,359
======== =======
Net income (loss) per share........................... $ (0.61) $ .02
======== =======
</TABLE>
Options to purchase approximately 19.3 million shares were outstanding at
June 28, 1998 (13.6 million at June 29, 1997) but have been excluded from the
computation because they were antidilutive.
5
<PAGE> 6
INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income," as of the first
quarter of fiscal 1999. SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components. Adoption had no impact on
the Company's net income (loss) or stockholders' equity.
The following are the components of comprehensive income (loss):
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------
JUNE 28, JUNE 29,
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)....................................... $(49,956) $1,891
Currency translation adjustments........................ (268) 154
Unrealized gain on available-for-sale investments....... 82 326
-------- ------
Comprehensive income (loss)............................. $(50,142) $2,371
======== ======
</TABLE>
The components of accumulated other comprehensive income (loss) were as
follows:
<TABLE>
<CAPTION>
JUNE 28, MARCH 29,
1998 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cumulative translation adjustments...................... $(1,464) $(1,196)
Unrealized gain on available-for-sale investments....... 82 --
------- -------
$(1,382) $(1,196)
======= =======
</TABLE>
6. Inventories, net, consisted of the following:
<TABLE>
<CAPTION>
JUNE 28, MARCH 29,
1998 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials........................................... $ 3,304 $ 6,647
Work-in-process......................................... 42,703 40,276
Finished goods.......................................... 15,413 13,814
------- -------
$61,420 $60,737
======= =======
</TABLE>
7. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
standards for accounting and reporting on derivatives and is effective for
periods beginning after June 15, 1999. Early adoption is permitted. SFAS No. 133
requires that all derivatives be recognized in the balance sheet as assets or
liabilities and measured at fair value. SFAS No. 133 also requires current
recognition in earnings of changes of these fair values, depending on the
intended use and designation of the derivative. The Company is currently
evaluating the effects of SFAS No. 133 and has not determined its method or
timing of adoption, nor the impact on its financial statements. However, the new
requirement to report currency hedging derivatives at fair value will result in
fluctuations in stockholders' equity.
6
<PAGE> 7
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 28, 1998 ("Q1
1999") and June 29, 1997 ("Q1 1998"), unless otherwise indicated. Quarterly
financial results may not be indicative of the financial results of future
periods. All non-historical information contained in the following discussion
constitutes forward looking statements within the meaning of Section 27a of the
Securities Act of 1933, as amended, and Section 21e of the Securities Exchange
Act of 1934, as amended. These statements are not guarantees of future
performance and involve a number of risks and uncertainties, including but not
limited to: operating results, new product introductions and sales, including
the IDT WinChip(TM) microprocessor, competitive conditions, capital expenditures
and capital resources, cash flows, manufacturing capacity utilization, customer
demand, customer inventory levels, protection of intellectual property in the
semiconductor industry, and the risk factors set forth in the section "Factors
Affecting Future Results." Future results may differ materially from such
forward looking statements as a result of such risks. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
after the date hereof.
IDT ANNOUNCES PLANS TO IMPROVE FINANCIAL RESULTS
On July 22, 1998, the Company announced plans to improve its financial
results. In the fourth quarter of fiscal 1998, IDT's forecast for fiscal 1999
anticipated a stronger semiconductor industry with higher sales volumes, better
utilization of manufacturing capacity and improved profitability. Anticipated
higher revenues and volumes did not materialize during Q1 1999 due to changed
overall market conditions in the semiconductor industry, including lower demand
and prices for SRAMs and x86 microprocessors, as well as continued declines in
business in the Asia-Pacific region. In an effort to return to profitability,
the Company plans to implement the following actions with a goal of generating
annualized savings of more than $45 million:
- Consolidation of manufacturing operations within the Company, including
closing IDT's wafer fabrication facility located in San Jose, California.
This decision reflects current industry oversupply conditions. IDT will
replace manufacturing volumes from the San Jose facility by ramping
production at its Hillsboro, Oregon and Salinas, California facilities.
- Reduction in IDT's employee base by approximately 400 individuals during
the next six months.
- Consolidation of all operating activities of the Company, including
manufacturing and product lines, under the direction of Executive Vice
President Jerry Taylor to improve the Company's ability to allocate IDT's
resources more efficiently and to eliminate duplication of effort within
individual business units.
IDT anticipates that Q2 1999 results will include an additional
non-recurring charge of between $50 and $60 million on a pre-tax basis
associated with these initiatives. Approximately $15 to $20 million of the non-
recurring charges represent anticipated cash payments associated with
de-installation of equipment, facility decommissioning and restoration and
employee severance costs.
RESULTS OF OPERATIONS
REVENUES
Revenues for Q1 1999 were $134.5 million, a decrease of 10.5% from the
immediately prior quarter ("Q4 1998") and a decrease of 9.7% compared to Q1
1998. Net units shipped decreased approximately 8% and 5%, respectively, for the
same comparison periods. In Q1 1999, SRAM and related module revenues declined.
Decreases in SRAM and related revenues in Q1 1999 compared to Q4 1998 and Q1
1998 were approximately 26% and 34% respectively. In general, as of June 1998,
the commodity SRAM market is experiencing declines in both demand and price. The
Company has effectively exited the market for SRAM personal computer cache
memory.
7
<PAGE> 8
During Q1 1999, revenues from the Company's WinChip(TM) x86 microprocessor
and other products did not increase sufficiently to offset the decline in SRAM
related revenues. Sales of WinChip microprocessors in Q1 1999 decreased in
relation to sales in Q4 1998. No revenues were recorded for the sale of WinChip
microprocessors during Q1 1998. During Q1 1999, communications memories revenues
also declined compared to Q4 1998 and Q1 1998, while RISC microprocessor and
logic revenues were essentially flat in Q1 1999 compared to Q4 1998. When
compared to Q1 1998, RISC microprocessor revenues increased in Q1 1999, while
logic revenues decreased. When comparing Q1 1999 to Q1 1998,the increase in RISC
microprocessor revenues is primarily attributable to increased sales to IDT's
computer network infrastructure equipment customers, while the decrease in
revenues in other product lines is generally attributable to current industry
excess capacity and lower levels of demand in the semiconductor marketplace,
which as discussed below is cyclical in nature.
The Company believes revenues and costs associated with new products will
increase in future quarters as the Company executes product introduction
strategies. Information on risks associated with the expansion of IDT's product
families is included in "Factors Affecting Future Results."
The semiconductor industry is highly cyclical and subject to significant
downturns. 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 and other products is
therefore dependent upon industry-wide demand and capacity, and such prices have
been historically subject to rapid change. Low SRAM prices have adversely
affected, and will likely continue to adversely affect, the Company's operating
results.
GROSS PROFIT
In Q1 1999, the Company recorded a non-recurring charge of $28.9 million
which is specifically identified in the Company's Condensed Statements of
Operations as a reduction in gross profit. The $28.9 million charge relates
primarily to excess SRAM manufacturing equipment and certain technology
licensing matters. The portion of the charge which pertains to excess SRAM
related equipment is associated with equipment which is no longer used in the
Company's normal operations because of changes in demand in the semiconductor
marketplace or changes in the Company's product strategy. The equipment related
portion of the charge was computed as the difference between the net book value
of the equipment and third-party estimates of fair market value. Additionally,
the Company recorded a charge of $5.7 million relating primarily to
discontinuing certain technology development initiatives, which have been
classified as research and development expenses in the Company's Condensed
Statements of Operations.
Gross profit for Q1 1999 was $12.4 million, including the $28.9 million
charge for asset impairment and other non-recurring costs, compared to $56.3
million for Q1 1998. Excluding the $28.9 million charge for asset impairment and
other, gross profit in Q1 1999 when compared to both Q4 1998 and Q1 1998
decreased by $15.0 to $41.3 million, and gross margin decreased from to 30.7%
from 37.5% and 37.8%, respectively.
Excluding the $28.9 million charge, the decline in gross margin is
associated with lower revenues, higher manufacturing costs and the fixed nature
of many the costs associated with semiconductor manufacturing facilities. In Q1
1999, IDT planned to manufacture and sell greater volumes of its products.
However, because of changes in marketplace demand, especially for WinChip
microprocessors, greater manufacturing volumes and sales revenues did not
materialize. Also, costs associated with the eight-inch wafer fabrication
facility in Oregon continued to adversely impact gross margin for Q1 1999, as
these costs were not fully absorbed by additional revenues.
In order to improve gross margin, as outlined above, IDT plans to
consolidate its wafer manufacturing facilities from three facilities to two. The
Company expects that it will be able to produce sufficient volumes of
- ---------------
(TM) WinChip and C6 are trademarks of Integrated Device Technology, Inc. All
other brand names and products names are trademarks, registered trademarks or
trade names of their respective holders.
8
<PAGE> 9
products at its remaining wafer fabrication facilities to offset the product
volumes currently manufactured at the facility which will be closed. Further,
the Company believes that incremental available capacity, primarily at IDT's
facility in Hillsboro, Oregon, together with available capacity at the Company's
foundry partners, provide IDT with sufficient capacity to take advantage of
improved business conditions once they occur. The Company believes that the
consolidation of production volumes will improve planned levels of capacity
utilization at the remaining facilities and provide the Company with a lower
cost per unit produced.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expenses increased by $9.7 million and
$9.6 million for Q1 1999 compared to Q4 1998 and Q1 1998, respectively. R&D
expenses for Q1 1999 included $5.5 million in non-recurring costs, primarily
associated with discontinuing certain development efforts and related payments
under technology license agreements. Excluding the non-recurring costs, when
compared to Q4 1998, Q1 1999 R&D spending increased because of increased costs
associated with process R&D. Specifically, the Company allocates costs
associated with its manufacturing facilities between cost of goods sold and
process R&D based upon activities performed. Therefore, because of lower
production volumes associated with reduced demand in Q1 1999 and relatively
constant process R&D activity, the allocation of manufacturing costs to process
R&D expense increased. Also, during Q1 1999, R&D costs incurred at IDT's WinChip
microprocessor design center and photomask costs associated with new products
increased when compared to both Q4 1998 and Q1 1998. Management expects that in
the coming quarters, R&D expense will decrease as IDT narrows its focus of
development projects.
Current R&D activities include developing the next generation of WinChip
microprocessors for use in personal computer applications, conducting research
into applications of high-speed DRAM technology for the communications market,
developing RISC microprocessors for primarily communications and embedded
control applications, developing an advanced SRAM architecture that
significantly improves performance of communications applications requiring
frequent switches between reads and writes, and developing a family of specialty
memory products for the communications and networking markets.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased by $2.8
million and $4.2 million for Q1 1999 compared to Q4 1998 and Q1 1998,
respectively. When comparing Q1 1999 to Q4 1998 and Q1 1998, SG&A costs
associated with marketing efforts for WinChip microprocessors and costs
associated with initiatives to implement and upgrade enterprise-wide management
information systems, which will increase the availability and quality of
management information, both increased. The Company expects that in the coming
quarters, SG&A costs will decrease as management takes steps to reduce the level
of these expenditures as a result of IDT's reduced revenue levels and fiscal
1999 business outlook.
INTEREST EXPENSE
Interest expense is primarily associated with the 5.5% Convertible
Subordinated Notes, due in 2002, and $21.0 million of secured equipment
financing agreements completed in September 1996, which amortize over the term
of the financing agreements. Interest expense decreased by approximately $.5
million from $3.7 million for Q1 1998 to $3.3 million for Q1 1999. The Company
anticipates that interest expense will increase in future quarters in connection
with additional secured equipment financing arrangements entered into in late Q1
1999.
INTEREST INCOME AND OTHER, NET
Interest income and other, net, decreased from $2.2 million for Q1 1998 to
$1.4 million for Q1 1999. Interest income and other, net, includes the Company's
share of net earnings or losses of unconsolidated affiliates. When comparing Q1
1999 to Q1 1998, the decrease in interest income and other, net, is primarily
associated with increases in IDT's share of affiliate net losses.
9
<PAGE> 10
TAXES
Income taxes have been provided in Q1 1999 at a rate of 10% versus 28% for
the entire fiscal year of 1998. The provision for income taxes reflects
management's estimated annualized effective tax rate for fiscal 1999 applied to
earnings for the interim period. The lower fiscal 1999 rate reflects IDT's
reduced business outlook for the year. The rate used differs from the U.S.
statutory rate of 35% primarily due to earnings of foreign subsidiaries,
considered permanently reinvested, being taxed at lower average rates than the
U.S. statutory rate. Income taxes in state jurisdictions are not significant due
to available state tax credits.
LIQUIDITY AND CAPITAL RESOURCES
At June 28, 1998, cash and cash equivalents were $139.4 million, a decrease
of $6.7 million from $146.1 million at March 29, 1998.
The Company generated $12.1 million in cash from operating activities in Q1
1999, down from $60.0 million of funds from operations during Q1 1998.
During Q1 1999, the Company's net cash used for investing activities was
$44.5 million, including $51.1 million for capital expenditures.
Cash provided by financing activities during Q1 1999 was $25.7 million as
compared to cash used in the amount of $.1 million during the same quarter of
fiscal 1998. The Company completed several equipment financing transactions
during Q1 1999. The Company entered into capital leases under which it sold
certain previously purchased semiconductor manufacturing equipment to leasing
companies which leased them back to IDT for use at the Oregon fabrication
facility. These lease transactions generated $19.0 million in cash proceeds. The
Company also entered into other capital leases for manufacturing equipment
during the quarter. In total, the Company's lease obligations under capital
leases increased by $24.0 million in connection with these transactions.
Under another leasing arrangement, equipment purchased for the Oregon
fabrication facility with a net book value of $11.9 million at the time of the
sale and leaseback transaction was sold to a leasing company and leased back for
use at the Oregon facility under a lease classified as operating. The Company
also entered into a $5.0 million secured loan arrangement which is
collateralized by certain manufacturing assets. The Company is not required to
maintain compliance with any financial covenants under any of these new
financing and leasing arrangements.
IDT anticipates capital expenditures of approximately $80 million during
the remainder of fiscal 1999. The Company intends to finance these expenditures
primarily through existing cash and investments. The Company may also
investigate other financing alternatives, depending on whether available terms
are favorable to the Company.
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 next twelve months. However, there can be no assurance 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 additional financing sooner, the
unavailability of financing on terms satisfactory to IDT could have a material
adverse effect on the Company.
FACTORS AFFECTING FUTURE RESULTS
The preceding discussion contains forward-looking statements, which are
based on management's current expectations. These include, in particular, the
statements related to revenues and gross profit, R&D and SG&A expenses and
activities, interest expense, interest income and other, taxes, and capital
spending and financing transactions. Actual results may differ materially.
10
<PAGE> 11
The Company's results of operations and financial condition are subject to
the following risk factors:
FLUCTUATIONS IN OPERATING RESULTS. 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 commodity semiconductor memory and
x86 microprocessor markets; 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. Additionally, many of the
preceding factors also impact the recoverability of the cost of manufacturing,
deferred tax and other assets, and as business conditions change, future
writedowns or abandonment of these assets may occur. 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 competition.
CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY. The semiconductor industry is
highly cyclical. Market conditions characterized by excess supply of SRAMs
relative to demand and resultant pricing declines have occurred in the past and
may occur in the future. Although 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 commodity 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 material declines in product pricing and could
especially adversely affect that portion of the Company's operating results
derived from the sale of industry-standard products. The Company seeks to manage
costs, but there can be no assurance that these efforts will be sufficient to
return to profitability.
The Company ships a substantial portion of its products 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, which include SRAM
and x86 microprocessor products, are incorporated into computer and
computer-related products, which have historically been characterized by
significant fluctuations in demand. 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 adversely
affect the Company's operating results.
In order to achieve more full and effective use of the facilities, the
Company continues to install new equipment at all of its fabrication and
assembly and test facilities. Additional planned production capacity and yield
improvements by the Company's competitors could dramatically increase the
worldwide supply of products which compete with the Company's products and
could, if customer demand does not absorb increased product quantities, create
further downward pressure on pricing.
RISKS ASSOCIATED WITH EXPANSION OF PRODUCT FAMILIES -- X86
MICROPROCESSORS. The Company commenced shipments of the WinChip microprocessor,
IDT's first member of its x86 microprocessor product family in the third quarter
of fiscal 1998. This product represents the Company's first offering to the PC
microprocessor market, which is characterized as a large market dominated by
Intel Corporation ("Intel"), with a very limited number of other competitors.
IDT's success in competing in this market, and therefore the financial results
associated with selling products to this market, are subject, but not limited
to, the following significant risks and uncertainties:
Competition. Intel holds a dominant position in the market for PC
microprocessors. Intel has held its dominant position over all other x86
microprocessor competitors for a substantial period of time, and has
significantly greater financial, technical, manufacturing and marketing strength
than IDT does. Currently, Intel's dominant market position allows it to set and
control x86 microprocessor standards and, therefore, dictate many aspects of the
products that PC manufacturers require in this market.
11
<PAGE> 12
In addition, IDT's x86 microprocessor products are currently targeted at
the low cost desktop and mobile product categories of the microprocessor market.
Intel also offers products which are purchased by PC manufacturers in these
market categories. Intel's financial strength and market dominance have enabled
it to reduce prices on its microprocessor products within a short period of time
following their introduction, which reduces the margins and profitability of its
competitors. Further, Intel's marketing resources are far greater than IDT's.
Therefore, Intel's pricing and marketing strategies in the categories of the
microprocessor market targeted by IDT significantly impact IDT's efforts to
serve this market and, therefore, IDT's results of operations.
In order for customers to purchase IDT's x86 microprocessors, IDT's
products must be compatible with other components supplied to PC manufacturers
such as core-logic chip sets, motherboards, basic input/output system (BIOS)
software and others which are manufactured or produced by other companies,
including Intel and companies in which Intel has strategic investments. In
addition, these companies are able to produce chip sets, motherboards, BIOS
software and other components to support each new generation of Intel's
microprocessors only to the extent that Intel makes its related proprietary
technology available. New versions of microprocessor products that Intel sells
are available only in the form of a chip module that is not compatible with
"Socket 7" motherboards. Therefore, Intel may cease supporting the Socket 7
motherboard infrastructure as it transitions to its latest generation
microprocessors. Because IDT's processor is designed to be Socket 7 compatible,
and will not work with motherboards designed for Intel's new chip module, should
IDT and other companies serving the x86 microprocessor market not be successful
in offering products which extend the life of the Socket 7 infrastructure, IDT
would be required to expend potentially significant resources to redesign its
microprocessor product offerings. There can be no assurance that the Company
would be successful in such efforts.
The market for x86 microprocessors is currently characterized by short
product life cycles, rapid decreases in ASP's, and migration to increasingly
higher performance microprocessors. Failure by IDT to offer WinChip
microprocessors in sufficient quantities and with the speed and other
performance characteristics desired by customers could adversely impact the
Company's results of operations.
In addition to Intel, AMD and National Semiconductor's Cyrix subsidiary
also currently offer commercial quantities of x86 microprocessors for sale. From
time to time, intellectual property rights disputes have arisen between
companies competing in the x86 microprocessor markets (See Intellectual Property
Risks discussion below).
Manufacturing. The pace at which IDT is able to enter its target market
category for x86 microprocessors depends, in part, on how quickly it is able to
ramp production of its microprocessor products in its wafer fabrication and
assembly and test facilities. Before fiscal 1998, the Company had not previously
manufactured x86 microprocessors and has processed only limited quantities of
x86 microprocessors to date. Therefore, as production volumes of x86
microprocessors increase, the Company may encounter unexpected production
problems or delays as a result of, among other things, changes required to
process technologies, product design limitations, installation of equipment, and
development of programs and methodologies which test overall product quality. If
IDT is unable to ramp production of its x86 microprocessor successfully, the
Company's operating results would be adversely affected.
As described above, in fiscal 1998, IDT contracted with IBM for x86
microprocessor wafer manufacturing services using IBM's CMOS process technology.
As IDT increases the number of products offered within the WinChip family of
microprocessors and as demand for these products increases, IDT intends, during
its fiscal 1999, to begin to utilize IBM's manufacturing services to increase
the available volume of WinChip microprocessors. The terms and conditions of the
IBM manufacturing services agreement require IDT to forecast in advance
production quantities that it will purchase and, once production quantities are
ordered, the contract limits IDT's ability to change desired quantities of IBM
manufactured products. Products purchased under the IBM manufacturing services
agreement must meet certain agreed to acceptance criteria. However, these
acceptance criteria do not include the number of usable WinChip processors per
wafer nor the speed at which they will operate. Should IDT not accurately
forecast the demand for IBM manufactured WinChip products, or should the number
of good WinChip processors per IBM manufactured wafer and the speed at
12
<PAGE> 13
which they operate not meet or exceed these and other characteristics of IDT
manufactured products, IDT's results of operations will be adversely impacted.
Compatibility With Software and Performance Certifications. IDT has
obtained WinChip certifications from Microsoft Corp. and other appropriate
certifications from recognized testing organizations. Failure to obtain and
maintain such certifications for future microprocessor products could
substantially impair the Company's ability to market and sell its future x86
products.
PC Market. Because IDT's target market for its x86 microprocessor product
is initially limited to certain segments of the PC industry, the growth and
acceptance of the product is closely tied to trends in and growth of the PC
industry. The Company believes that PC manufacturers will continue their trend
towards accepting and using microprocessor products manufactured by companies
other than Intel and that generally the market for PCs and related components
will continue to grow. However, should these industry trends and growth patterns
not occur or IDT not be able to produce products which meet customers needs, for
whatever reason, IDT's ability to sell x86 microprocessor products would be
impaired.
Rights of Others. In exchange for payments towards product development
costs, IDT licensed the right to make, use and sell the WinChip C6(TM)
microprocessor to a third party. Further, the license with the third party
limits the number of additional licenses that IDT may grant. Thus, the Company
may face competition from the third party in the future and may be limited in
its ability to license the part to others.
Future Products. IDT's ability to bring future x86 products to market
depends on several primary factors including the following three: First, it must
be able to finance such future development. Second, to compete with Intel and
other competitors in the market for future generation x86 microprocessors, IDT
must be able to design and develop the microprocessors themselves, and must
ensure they can be used in PC platforms, including motherboards, designed to
support future Intel or other microprocessors. Third, a failure, for whatever
reason, of the designers and producers of motherboards, chip sets and other
system components to support IDT's x86 microprocessor offerings, including
Socket 7 compatibility, would limit IDT's ability to sell products to the PC
market.
MANUFACTURING RISKS. Historically, the Company has utilized subcontractors
for the majority of its incremental assembly requirements, typically at higher
costs than its own Malaysian and Philippines assembly and test operations. The
Company expects to continue utilizing subcontractors extensively to supplement
its own production volume capacity. Due to production lead times, any failure by
the Company to adequately forecast the mix of product demand could adversely
affect the Company's sales and operating results. The Company is increasing the
production capacity of its Oregon facility to manufacture IDT WinChip products
and absorb the production volumes from its San Jose wafer fabrication facility,
which the Company plans to close. This capacity expansion program in Oregon
faces a number of substantial risks including, but not limited to, equipment
delays or shortages, power interruptions or failures, and manufacturing start-up
or process 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, and ramping production and installing new
equipment at its facilities, including the facility in Oregon. 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 does not carry earthquake
insurance on its facilities, as adequate protection is not offered at
economically justifiable rates. The Company's capacity additions have resulted
in a significant increase in fixed and variable operating expenses which may not
be fully offset by additional revenues for some time. Historically, the Company
has expensed the operating expenses associated with bringing a new fabrication
facility to commercial production status as R&D in the period such expenses were
incurred. However, as commercial production at a new fabrication facility
commences, the operating costs are classified as cost of revenues, and the
Company begins to recognize depreciation expense relating to the facility.
Accordingly, as the Oregon fabrication facility now contributes to revenues, the
Company recognizes substantial operating expenses associated with the facility
as cost of revenues, which has reduced
13
<PAGE> 14
gross margins. As commercial production continues in fiscal 1999, the Company
anticipates incurring substantial additional operating costs and depreciation
expenses relating to this facility. 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.
The Company has announced plans to improve its operating results through
consolidation of certain manufacturing and other activities, together with
headcount reductions and other actions. There can be no assurance that the
expected cost savings from these plans will be sufficient to return the Company
to profitability.
DEPENDENCE ON NEW PRODUCTS. New products and process technology costs
associated with the Oregon wafer fabrication facility will continue to require
significant R&D 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.
DEPENDENCE ON LIMITED SUPPLIERS. The Company's manufacturing operations
depend upon obtaining adequate raw materials on a timely basis. The number of
vendors of certain raw materials, such as silicon wafers, ultra-pure metals and
certain chemicals and gases, is very limited. In addition, certain packages used
by the Company require long lead times and are available from only a few
suppliers. From time to time, vendors have extended lead times or limited supply
to the Company due to capacity constraints. The Company's results of operations
would be adversely affected if it were unable to obtain adequate supplies of raw
materials in a timely manner or if there were significant increases in the costs
of raw materials.
Historically, IDT has been significantly dependent on the design
capabilities of Quantum Effect Design, Inc. ("QED"), an equity affiliate, for
the design and development of derivatives of 64-bit MIPS(R) RISC-based
microprocessors. Currently there are no development contracts in effect between
QED and IDT, and the Company is now designing and developing derivatives of MIPS
RISC-based microprocessors in-house. As necessary to supplement its in-house
design capabilities, from time to time, IDT may contract with third party
semiconductor designers other than QED. As with all new products, there is
significant risk that the Company or its contractors will not do so
successfully. See "Business -- Products and Markets" and "-- Research and
Development."
CAPITAL NEEDS. The semiconductor industry is extremely capital intensive.
To remain competitive, the Company must continue to invest in advanced
manufacturing and test equipment. In fiscal 1999, the Company expects to expend
approximately $150 million in capital expenditures, and anticipates significant
continuing capital expenditures, especially in connection with the introduction
of products for the WinChip microprocessor family, 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 could be materially adversely affected.
INTELLECTUAL PROPERTY RISKS. The semiconductor industry is characterized by
vigorous protection and pursuit of intellectual property rights, which have
resulted in significant and often protracted and expensive litigation. In recent
years, there has been a growing trend by 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 on 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 that 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
14
<PAGE> 15
costs and damages and to develop non-infringing technology. There can be no
assurance that the Company would be able to obtain such licenses on acceptable
terms or to develop non-infringing technology. Further, the failure to renew or
renegotiate existing licenses, or significant increases in amounts payable under
the current or future contracts, or the inability to obtain a license, could
have a material adverse effect on the Company.
RISKS OF INTERNATIONAL OPERATIONS. A substantial percentage of the
Company's revenues are derived from non-U.S. sales. In addition, the Company's
offshore assembly and test operations incur payroll, facilities and other
expenses in local currencies. Accordingly, movements in foreign currency
exchange rates, such as those seen recently in the Far East, can impact both
pricing and demand for the Company's products as well as its cost of goods sold.
The Company's offshore operations and export sales are also subject to risks
associated with foreign operations, including political instability, 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.
Contract pricing for raw materials used in the fabrication and assembly
processes, as well as for subcontract assembly services, can be impacted by
currency exchange rate fluctuations.
ENVIRONMENTAL RISKS. 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.
VOLATILITY OF COMMON STOCK AND NOTES PRICES. The Company's Common Stock and
Convertible Subordinated Notes ("Notes") have 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 and Notes.
IMPACT OF YEAR 2000 ON THE COMPANY'S OPERATIONS. The Company utilizes
numerous software programs throughout its operations which include dates and
make date-sensitive calculations based on two-digit fields which are assumed to
begin with the year 1900. Software programs written based on this assumption are
vulnerable, as the year 2000 approaches, to miscalculations and other
operational errors which may be significant to their overall effectiveness. In
addition, the Company relies upon products and information from critical
suppliers, large customers and other outside parties, in the normal course of
business, whose software programs are also subject to the same problem. Should
miscalculations or other operational errors occur as a result of the Year 2000
issue, the Company or the parties on which it depends may be unable to produce
reliable information or process routine transactions. Furthermore, in the worse
case, the Company or the parties on which it depends may, for an extended period
of time, be incapable of conducting critical business activities, which include
but are not limited to, manufacturing and shipping products, invoicing customers
and paying vendors.
The Company has completed an initial assessment of the extent to which Year
2000 issues may be incorporated into certain products which it sells to its
customers. It did not find any Year 2000 related issues in products which IDT
sells to customers. The Company is now in communication with its critical
suppliers, large customers and other outside parties in an effort to identify
and mitigate Year 2000 matters originating from dependent third parties which
may adversely affect the Company.
Based on the Company's continuing assessment, IDT needs to replace or
materially modify many of its software applications, including those critical to
the Company's normal operations, in order to both avoid significant Year 2000
issues and meet the Company's business requirements. The Company is continuing
to execute its existing plans to upgrade or replace software. While Year 2000
compliance is an important software feature which the Company considers when
purchasing software, the system upgrades and replacements purchased by the
Company also contain important functional improvements which are necessary for
IDT to be competitive as a multinational semiconductor manufacturing company. By
the year 2000, over a five-year period, the Company will have replaced
substantially all of its enterprise wide systems. The Company
15
<PAGE> 16
has not allocated a portion of the total project cost to the Year 2000 issue.
IDT does not believe the incremental project cost associated with Year 2000
compliance to be material, as this feature is included with software purchased
by the Company to satisfy its business needs. In consideration of recently
issued guidance from the Securities and Exchange Commission concerning
disclosure of Year 2000 issues, the Company is reviewing potential additional
disclosure requirements for future filings.
During the process of replacing, upgrading and reprogramming internal
software programs, the Company has formed internal and external teams who are
devoted to upgrading, replacing or modifying IDT's existing programs, including
those which are not Year 2000 compliant. These teams also test the results of
their work to ensure effectiveness. There can be no assurance, that all critical
Year 2000 problems have or will be identified or that the Company will be able
to procure all of the resources necessary to replace all critical Year
2000-deficient software applications on a timely basis. There can also be no
assurance that the critical Year 2000-deficient software programs of the parties
on which the Company depends will be converted on a timely basis or not
converted to systems which are incompatible with the Company's systems.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 31, 1998, a lawsuit was filed by Lemelson Medical Education &
Research Foundation, Limited Partnership ("plaintiff "), against the Company and
25 other corporate defendants. The lawsuit, which alleges that the defendants
are infringing upon 16 patents issued to plaintiff, was filed in the United
States District Court for the District of Arizona, case no. 98 1413PHXPGR. In
the lawsuit, plaintiff seeks an injunction and damages in an unspecified amount.
ITEM 5. OTHER INFORMATION
The following statement is provided pursuant to Rule 14a-5 promulgated
under the Securities Exchange Act of 1934, as amended: Proxies solicited by the
Company for the Company's 1999 Annual Meeting of Stockholders will be voted in
the discretion of the persons voting such proxies with respect to all proposals
presented by stockholders for consideration at such meeting after May 26, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
No reports have been filed on Form 8-K during this quarter.
16
<PAGE> 17
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.
<TABLE>
<S> <C>
INTEGRATED DEVICE TECHNOLOGY, INC.
Date: August 10, 1998 /s/ LEONARD C. PERHAM
----------------------------------------------
Leonard C. Perham
Chief Executive Officer
(duly authorized officer)
Date: August 10, 1998 /s/ ALAN F. KROCK
----------------------------------------------
Alan F. Krock
Vice President, Chief Financial Officer
(principal accounting officer)
</TABLE>
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CONDENSED CONSOLIDATED
BALANCE SHEETS OF INTEGRATED DEVICE TECHNOLOGY, INC. AND IS QUALIFIED IN ITS
ENTIRETY BE REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> JUN-28-1998
<CASH> 139,428
<SECURITIES> 69,159
<RECEIVABLES> 50,627<F1>
<ALLOWANCES> 0
<INVENTORY> 61,420
<CURRENT-ASSETS> 397,093
<PP&E> 941,929
<DEPRECIATION> 460,354
<TOTAL-ASSETS> 945,344
<CURRENT-LIABILITIES> 159,285
<BONDS> 183,905
0
0
<COMMON> 82
<OTHER-SE> 499,112
<TOTAL-LIABILITY-AND-EQUITY> 945,344
<SALES> 134,487
<TOTAL-REVENUES> 134,487
<CGS> 93,198
<TOTAL-COSTS> 122,114
<OTHER-EXPENSES> 39,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,287
<INCOME-PRETAX> (55,507)
<INCOME-TAX> (5,551)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,956)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.61)
<FN>
<F1>ITEM SHOWN NET OF ALLOWANCE
</FN>
</TABLE>
