-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ENAeBZKn0sq0xf2Ikkyddx0DZR+4KND0jUxyf8za9QtqccbTYKxtce7CosN/18L+ z/EX0Mg7rjLLCg6C+W23YQ== 0000950005-96-000855.txt : 19961106 0000950005-96-000855.hdr.sgml : 19961106 ACCESSION NUMBER: 0000950005-96-000855 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961104 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED DEVICE TECHNOLOGY INC CENTRAL INDEX KEY: 0000703361 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942669985 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12695 FILM NUMBER: 96653823 BUSINESS ADDRESS: STREET 1: 2975 STENDER WAY CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4087276116 MAIL ADDRESS: STREET 1: 2975 STENDER WAY CITY: SANTA CLARA STATE: CA ZIP: 95054 10-Q 1 FORM 10-Q 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 September 29, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number: 0-12695 INTEGRATED DEVICE TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) Delaware 94-2669985 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2975 Stender Way, Santa Clara, California 95054 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 727-6116 NONE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- The number of outstanding shares of the registrant's Common Stock, $.001 par value, as of October 27, 1996, was 78,298,846. PART I. FINANCIAL INFORMATION ----------------------------- Item 1. Financial Statements INTEGRATED DEVICE TECHNOLOGY, INC. ---------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (In thousands, except per share data) (Unaudited) Three months Ended Three months Ended September 29, 1996 October 1, 1995 -------------------------------------- Revenues $ 120,485 $178,504 Cost of revenues 82,291 75,719 -------------------------------------- Gross profit 38,194 102,785 -------------------------------------- Operating expenses: Research and development 37,753 33,118 Selling, general and administrative 18,262 21,387 -------------------------------------- Total operating expenses 56,015 54,505 -------------------------------------- Operating income (loss) (17,821) 48,280 Interest expense (2,812) (3,339) Interest income and other, net 4,854 5,553 -------------------------------------- Income (loss) before income taxes (15,779) 50,494 Provision (benefit) for income taxes (5,445) 16,158 -------------------------------------- Net income (loss) $ (10,334) $34,336 ====================================== Net income (loss) per share: Primary $(0.13) $0.42 Fully Diluted $(0.13) $0.40 Weighted average shares: Primary 77,898 82,548 Fully Diluted 77,898 89,579 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 INTEGRATED DEVICE TECHNOLOGY, INC. ---------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (In thousands, except per share data) (Unaudited) Six months Ended Six months Ended September 29, 1996 October 1, 1995 ---------------------------------------- Revenues $ 263,024 $330,699 Cost of revenues 153,907 140,041 ---------------------------------------- Gross profit 109,117 190,658 ---------------------------------------- Operating expenses: Research and development 76,838 60,865 Selling, general and administrative 39,199 42,071 ---------------------------------------- Total operating expenses 116,037 102,936 ---------------------------------------- Operating income (loss) (6,920) 87,722 Interest expense (4,738) (4,845) Interest income and other, net 8,921 9,957 ---------------------------------------- Income (loss) before income taxes (2,737) 92,834 Provision (benefit) for income taxes (1,272) 29,707 ---------------------------------------- Net income (loss) $ (1,465) $63,127 ======================================== Net income (loss) per share: Primary $(0.02) $0.77 Fully Diluted $(0.02) $0.75 Weighted average shares: Primary 77,797 82,014 Fully Diluted 77,797 87,060 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 INTEGRATED DEVICE TECHNOLOGY, INC. ---------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (In thousands, except share amounts) (Unaudited)
September 29, 1996 March 31, 1996 ------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $142,207 $157,228 Short-term investments 77,481 104,046 Accounts receivable, net 67,089 85,026 Inventory 49,410 46,630 Deferred tax assets 38,712 38,712 Prepayments and other current assets 28,636 15,658 ------------------------------------------------- Total current assets 403,535 447,300 Property, plant and equipment, net 471,399 415,214 Other assets 72,816 76,920 ------------------------------------------------- TOTAL ASSETS $947,750 $939,434 ================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $82,388 $78,821 Accrued compensation and related expense 14,987 29,237 Deferred income on shipments to distributors 34,518 31,325 Other accrued liabilities 12,876 17,918 Current portion of long-term obligations 6,367 3,799 ------------------------------------------------- Total current liabilities 151,136 161,100 ------------------------------------------------- 5.5% Convertible Subordinated Notes, net of issuance costs 182,858 182,558 ------------------------------------------------- Long-term obligations 62,407 46,049 ------------------------------------------------- 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; 77,971,014 and 77,496,833 shares issued and outstanding 78 77 Additional paid-in capital 290,570 287,064 Retained earnings 261,524 262,989 Unrealized gain (loss) on available-for-sale securities, net (248) 102 Cumulative translation adjustment (575) (505) -------------------------------------------------- Total stockholders' equity 551,349 549,727 -------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $947,750 $939,434 ================================================== The accompanying notes are an integral part of these condensed consolidated financial statements.
3 INTEGRATED DEVICE TECHNOLOGY, INC. ---------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (In thousands) (Unaudited)
Six months Ended Six months Ended September 29,1996 October 1, 1995 ------------------------------------------------------ Operating activities: Net income (loss) $ (1,465) $63,127 Adjustments: Depreciation and amortization 46,039 23,629 Changes in assets and liabilities: Accounts receivable 17,937 (34,016) Inventory (2,780) (6,670) Prepaid expenses and other current assets (11,602) (1,533) Other assets (747) (278) Accounts payable 5,846 49,400 Accrued compensation and related expense (14,250) 2,960 Deferred income on shipments to distributors 3,193 8,396 Income taxes payable (5,626) 7,587 Other accrued liabilities (545) 2,864 ------------------------------------------------------ Net cash provided by operating activities 36,000 115,466 ------------------------------------------------------ Investing activities: Purchases of property, plant and equipment (152,868) (143,473) Proceeds from sale of property, plant and equipment 49,714 205 Purchases of short-term investments (16,710) (153,627) Proceeds from sales of short-term investments 42,925 88,058 Purchases of equity investments (6,960) -- Proceeds from (purchases of) sales of investments collateralizing facility lease 10,662 (45,902) ------------------------------------------------------ Net cash used for investing activities (73,237) (254,739) ------------------------------------------------------ Financing activities: Issuance of common stock, net 3,507 4,124 Proceeds from issuance of convertible subordinated notes, net of issuance costs -- 196,721 Proceeds from secured equipment financing 20,959 -- Proceeds from sale of subsidiary stock -- 6,117 Payments on capital leases and other debt (2,250) (3,130) ------------------------------------------------------ Net cash provided by financing activities 22,216 203,832 ------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (15,021) 64,559 Cash and cash equivalents at beginning of period 157,228 130,211 ------------------------------------------------------ Cash and cash equivalents at end of period $142,207 $194,770 ====================================================== Supplemental disclosures: Interest paid $5,701 $838 Income taxes paid 11,514 20,636 The accompanying notes are an integral part of these condensed consolidated financial statements.
4 INTEGRATED DEVICE TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of 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 31, 1996. The results of operations for the three and six-month periods ending September 29, 1996 are not necessarily indicative of the results to be expected for the full year. 2. Inventory consists of the following (in thousands): September 29, 1996 March 31, 1996 ------------------ -------------- Raw materials $ 8,013 $ 5,171 Work-in-process 22,793 22,538 Finished goods 18,604 18,921 ---------- ----------- $ 49,410 $ 46,630 ========== =========== 3. For the first six months of fiscal 1997 the Company recognized a benefit for income taxes at an effective tax rate different from the U.S. statutory rate of 35% because of the timing of available loss carrybacks and due to earnings of foreign subsidiaries being taxed at different rates. Income taxes in state jurisdictions are not significant due to available investment tax credits and research and development credits. 4. Primary net income (loss) per common share is computed using the weighted average number of common shares and the dilutive effects of common stock equivalent shares outstanding during the period. Common stock equivalent shares include shares issuable under the Company's stock option plans. Fully diluted net income (loss) per share is computed by adjusting the primary shares outstanding and net income (loss) for the potential effect of the conversion of the 5.5% Convertible Subordinated Notes (the Notes) outstanding and the elimination of the related interest and deferred debt issue costs (net of income taxes). When the effect of including common stock equivalents or the conversion of the Notes on primary or fully diluted net income (loss) per share is antidilutive, as is the case in the quarter and six months ended September 29, 1996, these securities are not included in the calculation of net income (loss) per share. 5. The Company's obligations under the five-year $64 million Tax Ownership Lease transaction for the construction of the Hillsboro, Oregon facility are secured by a 5 line of credit trust deed on the building. Initially, this lease was collateralized by cash and/or investments (restricted securities) up to 105% of the lessor's construction costs. During the first quarter of fiscal 1997, in accordance with the terms of the lease, the collateral requirement was reduced to 89.25% of the lessor's cost. Restricted securities collateralizing this lease, included in other non-current assets, were $57,120,000 at September 29, 1996 compared to $67,782,000 at March 31, 1996. 6. In September 1996, the Company completed two secured equipment financing agreements which amounted to $21 million at interest rates of 8.41% and 8.48% collaterized by equipment purchased for the Oregon fabrication facility. The borrowing arrangements fully amortize over the 60 month terms of the notes. The Company also completed several sale and leaseback transactions with various leasing companies. The sale and leaseback transactions generated financing proceeds of $49.7 million. Under these leasing arrangements, equipment purchased for the Oregon fabrication facility with a net book value at the time of the sale and leaseback transaction of $50.1 million was sold to the leasing companies and leased back for use at the Oregon facility under leases classified as operating leases. With respect to the secured equipment financing and leasing arrangements, the Company is not required to maintain compliance with any financial covenants. 7. Certain amounts in the condensed consolidated financial statements for the prior year's quarter and six-month periods have been reclassified to conform with the fiscal 1997 presentation. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations All references are to the Company's fiscal periods ended September 29, 1996, and October 1, 1995, unless otherwise indicated. Quarterly financial results may not be indicative of the financial results of future periods. The following discussion contains forward looking statements that involve a number of risks and uncertainties. Factors that could cause actual results to differ materially are included, but are not limited to, those identified in "Factors Affecting Future Results". RESULTS OF OPERATIONS Revenues Revenues in the second quarter and six months of fiscal 1997 decreased to $120.5 million and $263 million respectively, representing decreases of 33% for the quarter and 20% for the six-month period, over the respective periods in fiscal 1996. Total units shipped remained approximately constant when comparing the same periods in the current year to those of the prior year. When comparing the second quarter and six months of fiscal 1997 to the same periods of fiscal 1996, net unit sales of the RISC microprocessor family more than doubled, and specialty memory and logic units sold increased, but offsetting these increases were declines in SRAM unit sales of approximately 25% for the quarter and 18% for six months. The revenue decrease in both periods was primarily attributable to lower average selling prices for industry standard SRAM products in all geographic regions and sales channels, and fewer net SRAM units sold. SRAM average selling prices have experienced market price declines of as much as 80% over the last twelve months. Lower average SRAM and related module product selling prices in the quarter and six months of 1997 were also attributable to maturation of certain products. Microprocessor average selling prices also declined as product mix sold in fiscal 1997 reflects a greater proportion of embedded controller products which command lower average selling prices in the market than standard microprocessor products. The microprocessor product family mix sold is expected to continue to include a greater proportion of embedded controllers. The semiconductor industry is highly cyclical and is 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 products is therefore dependent upon industry-wide demand and capacity, and such prices have been historically subject to rapid change. Reflecting market conditions, average selling prices of SRAM-related products were favorable for the first two quarters of fiscal 1996, while orders shipped in the first two quarters of fiscal 1997 were at significantly lower prices. New SRAM orders continue to be at low prices, and the Company expects that these prices will continue to adversely affect the Company's operating results. 7 Gross Profit Gross profit in the second quarter of fiscal 1997 decreased by $64.6 million to $38.2 million and gross margin decreased from 57.6% to 31.7% when comparing the second quarter of fiscal 1997 to the same quarter of the prior year. For the six-month period, gross profit decreased to $109.1 million or to 41.5% of revenues, as compared to $190.7 million or 57.7%, respectively, for the comparable period of the prior year. The decrease in gross profit in the second quarter and six-month periods of fiscal 1997 compared to the fiscal 1996 periods was primarily attributable to significant erosion of average selling prices for SRAM and related module products as well as adjustments for SRAM and other component inventories. Also adversely impacting gross profit during the second quarter of fiscal 1997 were costs associated with the new 8" wafer fabrication facility located in Hillsboro, Oregon. During the first quarter of fiscal 1997, significant production capacity at the Oregon facility was not available. Therefore, during the first quarter, substantially all operating expenses associated with the new Oregon facility were classified as process engineering research and development expense, given that production of salable die was not significant. In the second quarter, costs associated with the Oregon facility negatively impacted gross margins, as this facility continued its production ramp. A majority of total facility operating costs were allocated to the manufacture of products charged to cost of goods sold, and the remainder of the operating costs were charged to process engineering research and development expense, based on activities performed. For the remaining quarters of fiscal 1997, the level of expense associated with the Oregon fabrication facility is expected to increase over the levels of expense incurred during the first six months of fiscal 1997. The anticipated increased costs are associated with additional equipment to be installed and other costs incurred which are necessary to achieve more effective utilization of the facility. Additionally, in future quarters the percentage of these costs recorded as cost of goods sold may increase, based upon production volumes and activities performed. The Oregon facility provides the Company with significant additional available production capacity, and, as a result of current market conditions, the Company's production volumes at its wafer fabrication facilities have not increased sufficiently to take full advantage of the additional capacity. Further, the Company is unable to predict whether demand for industry standard SRAM products or IDT's share of the available market will improve. Should IDT's production volumes, especially at its fabrication facilities, remain constant or decline and should the Company be unable to otherwise decrease costs per unit sold, the Company's results of operations will continue to be adversely impacted. Therefore, because pricing on industry-standard SRAM products and market demand for production volumes may not improve and a greater percentage of the Oregon facility's operating costs may be allocated to cost of goods sold, based on activities performed, the Company can give no assurance of any improvement in its gross profit in the third quarter of fiscal 1997. The Company continued its efforts to shift to smaller die designs and its most advanced wafer fabrication processes, which result in increased die per wafer and therefore lower unit costs. However, declining average selling prices primarily for SRAM 8 products more than offset manufacturing efficiencies gained during the first quarter and six months of fiscal 1997. Research and Development Research and development (R&D) expenses increased in absolute spending and as a percentage of revenues for the quarter and the first six months of fiscal 1997 when compared to the same periods of fiscal 1996. R&D expenses grew $4.7 million from $33.1 million in the quarter ended October 1, 1995 to $37.8 million in the quarter ended September 29, 1996, and such expenses increased as a percentage of revenues to 31.3% from 18.6%. For the six-month period, R&D expenses increased 26.2% to $76.8 million and as a percentage of sales increased to 29.2% up from 18.4% for the corresponding six-month period of fiscal 1996. The Company's policy is to not capitalize preoperating costs associated with new manufacturing facilities, and significant facility start-up and staffing expenses were incurred at the new 8" wafer fabrication facility in Hillsboro, Oregon. In the first quarter of fiscal 1997, substantially all operating expenditures associated with the Oregon fabrication facility were classified as process engineering R&D expense given that production of salable die was not significant. Such expenditures were $13.3 million during the first quarter of fiscal 1997 and were not significant during the first quarter of fiscal 1996. In the second quarter of fiscal 1997, while total facility operating costs increased, because a majority of the operating costs were charged to cost of goods sold, only approximately $8 million of the costs were classified as process R&D expenditure, based upon activities performed. IDT continued development of several sub-0.5 micron CMOS process technologies during the first six months of fiscal 1997. Additionally, with the goal of expanding product offerings, the Company continues its research into applications of Fusion Memory technology and continues its efforts to develop a family of specialty memory products for the ATM market. IDT believes that high levels of R&D investment are required to support its strategy of providing products to its customers which are not readily available from its competitors. However, there can be no assurance that additional research and development investment will result in new product offerings or that any new offerings will acheive market acceptance. Selling, General and Administrative Expenses Selling, general and administrative (S,G&A) expenses decreased by $3.1 million from $21.4 million in the quarter ended October 1, 1995 to $18.3 million in the quarter ended September 29, 1996, but increased as a percentage of revenues to 15.2% from 12.0%. S,G&A expenses decreased 6.8% to $39.2 million for the first six months of fiscal 1997, but increased as a percentage of revenues to 14.9% from 12.7% in the comparable period of the prior year. A portion of S,G&A expenses, such as sales commissions, management bonuses and employee profit sharing, vary with sales and Company profitability and have decreased as sales and profitability have declined. While S,G&A expenses have decreased in terms of absolute dollars, they have increased as a percentage of sales because of the magnitude of the sales decrease in fiscal 1997 and the fixed nature 9 of a majority of these costs. Also partially offsetting declines in expenses which vary with sales and profitability are expenses associated with initiatives to implement enterprise-wide management information systems. The Company anticipates the S,G&A expenses for the remainder of fiscal 1997 will remain constant as a percentage of revenues. However, should revenues decrease or expenses increase significantly, S,G&A as a percentage of sales may increase. Interest expense Interest expense decreased to $2.8 million in the second quarter of fiscal 1997 compared with $3.3 million for the same quarter a year ago. Interest expense is primarily associated with debt sold during the first quarter of fiscal 1996. $201.3 million of 5.5% Convertible Subordinated Notes due in 2002 (the "Notes") were issued, of which $15 million was subsequently retired at a discount. The decrease in interest expense between the quarters is primarily attributable to debt retirement. For the six-month period, interest expense decreased to $4.7 million from $4.8 million. During the first six months of fiscal 1997, interest capitalization associated with the Oregon fabrication facility and the Philippines assembly and test facility amounted to approximately $1.7 million. As the construction of both the Oregon and Philippines facilities is complete, interest capitalization in connection with these projects has ceased. With the cessation of interest capitalization for the Oregon and Philippine projects, the Company anticipates that for the remainder of fiscal 1997, interest expense will increase when compared to fiscal 1996. Further, as discussed under Liquidity and Capital Resources, late in the second quarter of fiscal 1997, the Company borrowed $21 million under secured lending facilities. Interest incurred under these 60 month borrowing arrangements will increase interest expense in future quarters. Interest income and other Interest income and other, net, decreased to $4.9 million in the second quarter and $8.9 million for the six-month period of fiscal 1997 compared to $5.6 million and $10.0 million for the same periods of the prior year. Interest income decreased because of lower average cash balances as the Company has continued to pay cash for significant capital expenditures in fiscal 1997. Also included as other income in the second quarter of fiscal 1997 is a gain in the amount of $1.9 million realized on the sale of an equity investment. The Company expects that interest income and other, net, will decrease for the remainder of fiscal 1997 when compared to fiscal 1996 because of lower interest income associated with lower average cash balances. Income taxes For the first six months of fiscal 1997 the Company recognized a benefit for income taxes at an effective tax rate of 46%. This benefit rate reflects carryback of the current loss for Federal purposes in the United States. The rate differs from the U. S. statutory rate of 35% because of the timing of available loss carrybacks and due to earnings of foreign subsidiaries being taxed at different rates. Historically, income taxes in state jurisdictions have not been significant due to available investment tax credits and 10 research and development credits. The Company has consumed substantially all of the tax benefits associated with its Malaysian subsidiary. LIQUIDITY AND CAPITAL RESOURCES The Company generated $36.0 million of funds from operations in the first six months of fiscal 1997, down from $115.5 million of funds from operations during the first six months of fiscal 1996. At September 29, 1996, cash and cash equivalents were $142.2 million, a decrease of $15.0 million during the first six months of fiscal 1997. Cash provided by operating activities primarily reflects a net loss offset by depreciation and amortization and changes to working capital. Significant changes in operating assets and liabilities result from collection of accounts receivable, timing of payments for accrued payroll and bonus, increased deferred income on shipments to distributors and an accrual of an income tax refund receivable. Increased depreciation and amortization charges in fiscal 1997 are associated with new facilities, improvements to existing facilities and new equipment. During the first six months of fiscal 1997, the Company's net cash used in investing activities was $73.2 million. $152.9 million was used for capital equipment and property and plant improvements. Cash proceeds from the equipment sale and lease back arrangements in September 1996 amounted to $49.7 million. Cash generated from the sale of short-term investments, net of purchases of short-term investments, was $26.2 million. In addition, at September 29, 1996, the Company had $57.1 million of restricted securities as collateral under a Tax Ownership Operating Lease entered into in January 1995 related to the construction of the new 8" wafer fabrication facility in Oregon. At March 31, 1996, the securities pledged as collateral amounted to 105% of the lessor's construction costs, as required until the building was completed. During the first quarter of fiscal 1997, the facility was completed, and in accordance with the terms of the facility lease, the collateral requirement was reduced to 89.25% of the lessor's cost to construct the facility. Therefore, as the facility was completed during the first quarter of fiscal 1997, the lessor released as collateral $10.7 million of restricted securities. In view of current capacity requirements, the Company anticipates total fiscal 1997 capital expenditures of approximately $155 million, net of assets purchased and then sold and leased back, which is a reduction of approximately $100 million from the amount originally planned for the fiscal year. This reduction in planned capital spending primarily reflects a reduction in planned equipment additions associated with lower capacity requirements to meet current market demand for industry standard SRAM parts. In the first six months of fiscal 1997, $103.1 million, net, was expended for planned capital additions. Fiscal 1997 capital requirements are principally in connection with continued installation of equipment in the new Oregon facility plus continued equipping of the new Philippine plant and other capacity improvements. These expenditures are required to achieve more effective utilization of these facilities. The Company's ability to invest to satisfy its capacity requirements is in part dependent on the Company's ability to generate cash from operations. Cash flow from operations depends significantly on the average selling prices, variable cost per unit and other industry conditions which the Company cannot predict. Future declines in selling 11 prices for industry standard SRAM products or other products manufactured by the Company, which cannot be otherwise offset, will adversely impact the Company's ability to generate funds from operations. If the Company is not able to generate sufficient funds from operations or other sources to fund its capacity and R&D requirements, the Company's results from operations, cash flows and financial condition will be adversely impacted. In September 1996, the Company completed secured equipment financing agreements which total approximately $21.0 million for equipment purchased for the Oregon fabrication facility. The borrowing arrangements fully amortize over the 60 month terms of loans. Additionally, in September 1996 the Company completed equipment sale and lease back arrangements with several leasing companies. Equipment purchased by the Company for the Oregon fabrication facility with a net book value of $50.1 million was sold to the leasing companies and leased back for use at the Oregon facility under leases classified as operating leases. In May 1995, the Company completed the sale of $201.3 million of the 5.5% Convertible Subordinated Notes (the Notes), netting $196.7 million in proceeds. The Notes are convertible into shares of common stock at $28.625 per share. In January 1996, the Company completed the repurchase of approximately $15.0 million of the Notes at a price of approximately $790 per bond. During the remainder of fiscal 1997, the Company does not anticipate making additional repurchases of debt. 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. While the Company is reviewing all operations with respect to cost savings opportunities and has implemented a reduction of approximately 5% of its domestic work force and is planning other cost containment measures, 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 other financing sooner, the unavailability of financing on terms satisfactory to IDT could have a material adverse effect on the Company. FACTORS AFFECTING FUTURE RESULTS Except for the historical information contained in this Quarterly Report on Form 10-Q, the matters discussed in this report are forward looking statements. These forward looking statements concern matters that involve risks and uncertainties, including but not limited to those set forth below, that could cause actual results to differ materially from those projected in the forward looking statements. In any event, the matters set forth below should be carefully considered when evaluating the Company's business and prospects. IDT's operating results have been, and in the future may be, subject to fluctuations due to a wide variety of factors including the timing of or delays in new product and process technology announcements and introductions by the Company or its competitors, competitive pricing pressures, particularly in the SRAM memory market, 12 fluctuations in manufacturing yields, changes in the mix of product sold, availability and costs of raw materials, the cyclical nature of the semiconductor industry, industry-wide wafer processing capacity, economic conditions in various geographic areas, and costs associated with other events, such as underutilization or expansion of production capacity, intellectual property disputes, or other litigation. Further, there can be no assurance that the Company will be able to compete successfully in the future against existing or potential competitors or that the Company's operating results will not be adversely affected by increased price competition. The semiconductor industry is highly cyclical. Early in fiscal 1996, markets for some of the Company's SRAMs were characterized by excess demand relative to supply and the resulting favorable pricing. During the later part of fiscal 1996, a number of companies, principally foreign, shifted manufacturing capacity to SRAMs causing rapid adjustments to supply and consequently impacting market prices. The resulting significant downward trend in prices in an extremely short period negatively affected SRAM gross margins, and adversely affected the Company's operating results. Current market conditions characterized by excess supply of SRAMs relative to demand and resultant pricing declines may continue. Although recently some competitors have made adjustments to the rate at which they will implement capacity expansion programs, the Company is unable to accurately estimate the amount of worldwide production capacity dedicated to industry standard products which it produces. A material increase in industry-wide production capacity, shift in industry capacity toward products competitive with the Company's products, reduced demand, or other factors could result in a further decline in product pricing and could also materially adversely affect the Company's operating results. The Company has taken measures to manage costs, including deferral of capacity expansion plans and work force reductions, but there can be no assurance that these measures will be sufficient to return to profitability. Where necessary to achieve more full and effective use of the facilities, the Company continues to install new equipment at the Oregon facility and to equip the new Philippine plant. However, the amount of capacity to be placed into production and future yield improvements by the Company's competitors could dramatically increase the world-wide supply of products which compete with the Company's products and could create further downward pressure on pricing. The Company ships a substantial portion of its quarterly sales in the last month of a quarter. If anticipated shipments in any quarter do not occur, the Company's operating results for that quarter could be adversely affected. In addition, a substantial percentage of the Company's products are incorporated into computer and computer-related products, which have historically been characterized by significant fluctuations in demand. Furthermore, any decline in the demand for advanced microprocessors which utilize SRAM cache memory could adversely affect the Company's operating results. In addition, demand for certain of the Company's products is dependent upon growth in the communications market. Any slowdown in the computer and related peripherals or communications markets could also materially adversely affect the Company's operating results. 13 In the first six months of fiscal 1997, the Company began producing saleable products at the Oregon fabrication and Philippines assembly and test facilities. Historically, the Company has utilized subcontractors for the majority of its incremental assembly requirements, typically at higher costs than its own Malaysian assembly and test operations. The Company expects to continue utilizing subcontractors extensively as its Philippines assembly and test plant ramps its production volumes. Due to production lead times and current capacity constraints, especially in the assembly and test production areas, any failure by the Company to adequately forecast the mix of product demand could adversely affect the Company's sales and operating results. These capacity expansion programs in Oregon and the Philippines face a number of substantial risks including, but not limited to cost overruns, equipment delays or shortages, manufacturing start-up or process problems or difficulties in hiring key managers and technical personnel. In addition, the Company has never operated an eight-inch wafer fabrication facility. Accordingly, the Company could incur unanticipated process or production problems. From time to time, the Company has experienced production difficulties that have caused delivery delays and quality problems. There can be no assurance that the Company will not experience manufacturing problems and product delivery delays in the future as a result of, among other things, changes to its process technologies, ramping production and installing new equipment at its facilities, including the facilities in Oregon and the Philippines. Further, the Company's older wafer fabrication facilities are located relatively near each other in Northern California. If the Company were unable to use these facilities, as a result of a natural disaster or otherwise, the Company's operations would be materially adversely affected until the Company was able to obtain other production capability. The Company's capacity additions 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 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 goods sold, which, in the second quarter of fiscal 1997, has reduced gross margins. As commercial production continues in fiscal 1997, the Company anticipates incurring substantial additional operating costs and depreciation expenses relating to the 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 will be adversely impacted. New products and process technology costs associated with the Oregon wafer fabrication facility will 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 14 gross margins comparable to the Company's current products, the future results of operations could be adversely impacted. The Company's manufacturing operations depend upon obtaining adequate raw materials on a timely basis. The number of vendors of certain raw materials, such as silicon wafers, ultra-pure metals and certain chemicals and gases, is very limited. In addition, certain packages used by the Company require long lead times and are available from only a few suppliers. From time to time, vendors have extended lead times or limited supply to the Company due to capacity constraints. The Company's results of operations would be adversely affected if it were unable to obtain adequate supplies of raw materials in a timely manner or if there were significant increases in the costs of raw materials. The semiconductor industry is extremely capital-intensive. To remain competitive, the Company must continue to invest in advanced manufacturing and test equipment. In fiscal 1997, the Company expects to expend approximately $155 million in capital expenditures, net of assets sold and leased back and anticipates significant continuing capital expenditures in the next several years. There can be no assurance that the Company will not be required to seek financing to satisfy its cash and capital needs or that such financing will be available on terms satisfactory to the Company. If such financing is required and if such financing is not available on terms satisfactory to the Company, its operations would be materially adversely affected. The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which have resulted in significant and often protracted and expensive litigation. In recent years, there has been a growing trend of companies to resort to litigation to protect their semiconductor technology from unauthorized use by others. The Company in the past has been involved in patent litigation, which adversely affected its operating results. Although the Company has obtained patent licenses from certain semiconductor manufacturers, the Company does not have licenses from a number of semiconductor manufacturers who have a broad portfolio of patents. The Company has been notified that it may be infringing patents issued to certain semiconductor manufacturers and other parties and is currently involved in several license negotiations. There can be no assurance that additional claims alleging infringement of intellectual property rights will not be asserted in the future. The intellectual property claims that have been made or 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 costs and damages and to develop noninfringing technology. There can be no assurance that the Company would be able to obtain such licenses on acceptable terms or to develop noninfringing technology. Further, the failure to renew or renegotiate existing licenses, or significant increases in amounts payable or the inability to obtain a license, could have a materially adverse effect on the Company. A substantial percentage of the Company's revenues are derived from export sales, which are generally denominated in local currencies. The Company's offshore assembly and test operations and export sales are subject to risks associated with foreign operations, including political instability, currency controls and fluctuations, 15 changes in local economic conditions and import and export controls, as well as changes in tax laws, tariffs and freight rates. Recently, contract pricing for raw materials used in the fabrication and assembly processes, as well as for subcontract assembly services, has been impacted by currency exchange rate fluctuations. 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 and the 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 the Notes. 16 PART II OTHER INFORMATION Item 4. Submission of Matters to a vote of Security Holders (a) On Wednesday, August 28, 1996 the Company held its 1996 Annual Meeting of Shareholders. At the meeting, 72,498,795 shares of Common Stock were represented in person or by proxy, representing 93.01% of the total outstanding shares. (b) The meeting involved the election of two Class III Directors - D. John Carey and Carl E. Berg Votes For Votes Withheld D. John Carey 71,098,140 1,400,655 Carl E. Berg 71,042,409 1,456,386 The term of office of the following directors also continued after the meeting: Leonard C. Perham Federico Faggin John C. Bolger (c) Two additional matters were voted upon at the meeting, the results of which were as follows: (i) Amendment to the Company's 1994 Stock Option Plan to increase the number of shares reserved thereunder from 7,250,000 to 10,750,000: Votes For: 57,234,157 Votes Against: 10,537,125 Votes Withheld: 658,543 Broker Non Votes: 4,068,970 (ii) Ratification of appointment of Price Waterhouse LLP as independent auditors for fiscal 1997: Votes For: 71,842,086 Votes Against: 371,380 Votes Withheld: 285,329 Broker Non Votes: 0 17 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 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTEGRATED DEVICE TECHNOLOGY, INC. Date: November 4, 1996 /s/ Leonard C. Perham ------------------------------------ Leonard C. Perham Chief Executive Officer Date: November 4, 1996 /s/ William D. Snyder ------------------------------------ William D. Snyder Vice President Finance (principal financial and accounting officer) 19 EX-11 2 EXHIBIT 11 Part II. Other information, Item 6a. EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share amounts)
Three Months Ended Six Months Ended 29-Sep-96 1-Oct-95 29-Sep-96 1-Oct-95 Primary: Weighted average shares outstanding 77,898 76,987 77,797 76,706 Net effect of dilutive stock options - 5,561 - 5,308 ---------------------- -------------------- Total 77,898 82,548 77,797 82,014 ====================== ==================== Net income (loss) $ (10,334) $ 34,336 $ (1,465) $63,127 ====================== ==================== Net income (loss) per share $ (0.13) $ 0.42 $ (0.02) $ 0.77 ====================== ==================== Fully diluted: Weighted average shares outstanding 77,898 76,987 77,797 76,706 Net effect of dilutive stock options - 5,561 - 5,473 Assumed conversion of 5.5% Convertible Subordinated Notes (Note 1) - 7,031 - 4,881 ---------------------- -------------------- Total 77,898 89,579 77,797 87,060 ====================== ==================== Net income (loss) $ (10,334) $ 34,336 $ (1,465) $63,127 Add: Convertible subordinated notes interest and related expenses, net of taxes (Note 1) - 1,903 $ - 2,496 ---------------------- -------------------- Adjusted net income (loss) $ (10,334) $ 36,239 $ (1,465) $65,623 ====================== ==================== Net income (loss) per share $ (0.13) $ 0.40 $ (0.02) $ 0.75 ====================== ==================== Note 1: The potential effect of stock options and conversion of the 5.5% Convertible Subordinated Notes have not been included in the primary and fully diluted EPS calculation respectively, for the second quarter and first six months of fiscal 1997 because the stock options and Notes have an anti-dilutive impact on the calculation.
20 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS MAR-30-1997 SEP-29-1996 142,207 77,481 73,694 6,605 49,410 403,535 752,659 281,260 947,750 151,136 182,858 78 0 0 551,271 947,750 263,024 263,024 153,907 153,907 116,037 0 4,738 (2,737) (1,272) (1,465) 0 0 0 (1,465) (0.02) (0.02)
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