-----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, V0XEd05HTrAKkwGqqVB8tJMe6zg6qU+80BL9wv6apfKtLBL/3M6IBZQeZ0lhKIWU waTB3O9UbGb5ee/xgs7eHA== 0000898430-98-001844.txt : 19980513 0000898430-98-001844.hdr.sgml : 19980513 ACCESSION NUMBER: 0000898430-98-001844 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VITESSE SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0000880446 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770138960 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19654 FILM NUMBER: 98616541 BUSINESS ADDRESS: STREET 1: 741 CALLE PLANO CITY: CAMARILLO STATE: CA ZIP: 93012 BUSINESS PHONE: 8053883700 MAIL ADDRESS: STREET 1: 741 CALLE PLANO CITY: CAMARILLO STATE: CA ZIP: 93012 10-Q 1 FOR QUARTERLY PERIOD ENDED MARCH 31, 1998 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 NUMBER 0-19654 - -------------------------------------------------------------------------------- VITESSE SEMICONDUCTOR CORPORATION (Exact name of registrant as specified in its charter) - -------------------------------------------------------------------------------- DELAWARE 77-0138960 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 741 CALLE PLANO CAMARILLO, CA 93012 (Address of principal executive offices) (805) 388-3700 (Registrant's telephone number, including area code) ----------------------------------- 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 AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS: YES [X] NO [ ]. AS OF MARCH 31, 1998, THERE WERE 36,313,319 SHARES OF $0.01 PAR VALUE COMMON STOCK OUTSTANDING. ================================================================================ VITESSE SEMICONDUCTOR CORPORATION TABLE OF CONTENTS -----------------
Page Number PART I FINANCIAL INFORMATION Item 1 Financial Statements: Consolidated Balance Sheets as of March 31, 1998 2 and September 30, 1997 Consolidated Statements of Operations for the Three 3 Months ended March 31, 1998, March 31, 1997, and December 31, 1997, and the Six Months ended March 31, 1998 and March 31, 1997. Consolidated Statements of Cash Flows for the Six 4 Months ended March 31, 1998 and March 31, 1997 Notes to Consolidated Financial Statements 5 Item 2 Management's Discussion and Analysis of 6 Financial Condition and Results of Operations PART II OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders 13 Item 6 Exhibits and Reports on Form 8-K 13
1 PART I FINANCIAL INFORMATION VITESSE SEMICONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
March 31, 1998 Sept. 30, 1997 -------------- -------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 92,243 $ 97,358 Short-term investments 52,053 58,486 Accounts receivable, net 28,779 21,072 Inventories, net: Raw material 2,654 2,421 Work in process 8,382 6,762 Finished goods 2,454 2,626 -------- -------- 13,490 11,809 Prepaid expenses 2,274 1,121 Deferred tax asset 14,800 14,800 -------- -------- Total current assets 203,639 204,646 -------- -------- Property and equipment, net 55,366 41,684 Restricted long-term deposits 58,669 45,556 Other assets 622 394 -------- -------- $318,296 $292,280 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of capital lease obligations and term loans $ 153 $ 256 Accounts payable 14,882 19,758 Accrued expenses and other current liabilities 12,988 7,017 -------- -------- Total current liabilities 28,023 27,031 -------- -------- Capital lease obligations and term loans, less current installments 71 147 Shareholders' equity: Common stock, $.01 par value. Authorized 100,000,000 shares; issued and outstanding 36,313,319 shares on Mar. 31, 1998, and 35,913,738 shares on Sept. 30, 1997 363 359 Additional paid-in capital 279,830 277,169 Retained earnings (accumulated deficit) 10,009 (12,426) -------- -------- Net shareholders' equity 290,202 265,102 -------- -------- $318,296 $292,280 ======== ========
2 VITESSE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share and per share data)
Three Months Ended Six Months Ended ------------------------------------------------ ------------------------------- Mar. 31, 1998 Mar. 31, 1997 Dec. 31, 1997 Mar. 31, 1998 Mar. 31, 1997 -------------- -------------- -------------- -------------- -------------- Revenues, net $ 40,212 $ 24,562 $ 34,701 $ 74,913 $ 46,394 Costs and expenses: Cost of revenues 16,012 10,833 14,194 30,206 20,691 Engineering, research and development 6,462 3,914 5,555 12,017 7,394 Selling, general and administrative 4,849 3,273 4,262 9,111 6,205 ----------- ----------- ----------- ----------- ----------- Total costs and expenses 27,323 18,020 24,011 51,334 34,290 ----------- ----------- ----------- ----------- ----------- Income from operations 12,889 6,542 10,690 23,579 12,104 Other income (expense): Interest income 2,189 2,222 2,293 4,482 3,421 Interest and other expense (8) (119) (10) (18) (210) ----------- ----------- ----------- ----------- ----------- Total other income 2,181 2,103 2,283 4,464 3,211 ----------- ----------- ----------- ----------- ----------- Income before income taxes 15,070 8,645 12,973 28,043 15,315 Income taxes 3,014 863 2,594 5,608 1,530 ----------- ----------- ----------- ----------- ----------- Net income $ 12,056 $ 7,782 $ 10,379 $ 22,435 $ 13,785 =========== =========== =========== =========== =========== Net income per share Basic $0.33 $0.22 $0.29 $0.62 $0.42 =========== =========== =========== =========== =========== Diluted $0.31 $0.20 $0.27 $0.57 $0.37 =========== =========== =========== =========== =========== Basic weighted average common shares outstanding 36,177,939 34,693,231 35,952,714 36,075,058 33,057,747 =========== =========== =========== =========== =========== Diluted weighted average common shares outstanding 39,388,300 38,472,727 39,058,026 39,274,097 36,923,609 =========== =========== =========== =========== ===========
3 VITESSE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Six Months Ended ------------------------------- Mar. 31, 1998 Mar. 31, 1997 -------------- -------------- Cash flows from operating activities: Net income $ 22,435 $ 13,785 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,144 2,893 Change in assets and liabilities: (Increase) decrease in: Receivables, net (7,707) (154) Inventories (1,681) (275) Prepaid expenses (1,153) (235) Other assets (228) (78) Increase (decrease) in: Accounts payable (4,876) 186 Accrued expenses and other current liabilities 5,971 3,718 -------- -------- Net cash provided by operating activities 18,905 19,840 -------- -------- Cash flows from investing activities: Short-term investments 6,433 (65,371) Capital expenditures (19,826) (8,458) Restricted long-term investment (13,113) (6,300) -------- -------- Net cash used in investing activities (26,506) (80,129) -------- -------- Cash flows from financing activities: Principal payments under capital lease obligations & term loans (179) (511) Proceeds from issuance of common stock, net 2,665 120,596 -------- -------- Net cash provided by financing activities 2,486 120,085 -------- -------- Net (decrease) increase in cash & cash equivalents (5,115) 59,796 Cash & cash equivalents at beginning of period 97,358 52,436 -------- -------- Cash & cash equivalents at end of period $ 92,243 $112,232 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 25 $ 36 ======== ======== Income taxes $ 248 $ 56 ======== ========
4 VITESSE SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. GENERAL The accompanying consolidated financial statements include the accounts of Vitesse Semiconductor Corporation and its subsidiaries. All intercompany accounts and transactions have been eliminated. In management's opinion, all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of financial condition and results of operations are reflected in the attached interim financial statements. All amounts are unaudited except the September 30, 1997 balance sheet. This report should be read in conjunction with the audited financial statements presented in the 1997 Annual Report. Footnotes and other disclosures which would substantially duplicate the disclosures in the Company's audited financial statements for fiscal year 1997 contained in the Annual Report have been omitted. The interim financial information herein is not necessarily representative of the results to be expected for any subsequent period. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 specifies new standards designed to improve the earnings per share (EPS) information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, for which common stock equivalents are not considered, (b) eliminating the modified treasury stock method and 3% materiality provision and (c) revising the contingent share provision and the supplemental EPS data requirements. SFAS No. 128 also makes a number of changes to existing disclosure statements issued for periods ending after December 15, 1997, including interim periods. All earnings per share amounts for all periods have been presented and, where necessary, restated to conform to SFAS No. 128 requirements. NOTE 2. YEAR 2000 PROBLEM The Company has developed a plan to address the Year 2000 problem. The plan provides for the Company's computer systems to be Year 2000 compliant by the end of fiscal 1999. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. The Company is expensing all costs related to this issue as the costs are incurred. The Company does not believe that such costs will be material to the financial statements. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" below includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), in particular, in "Results of Operations-- Revenues and Income Taxes," and in "Liquidity and Capital Resources--Investing and Financing Activities," and is subject to the safe harbor created by that section. Factors that realistically could cause results to differ materially from those projected in the forward looking statements are set forth below in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors." RESULTS OF OPERATIONS Revenues Total revenues in the second quarter of fiscal 1998 were $40,212,000, a 64% increase over the $24,562,000 recorded in the second quarter of fiscal 1997 and a 16% increase over the $34,701,000 recorded in the prior quarter. For the six months ended March 31, 1998, total revenues were $74,913,000, a 61% increase over the $46,394,000 recorded in the six months ended March 31, 1997. The increase in total revenues in the second quarter of 1998 and in the six months ended March 31, 1998 was due to an increase in production revenues as a result of increased shipments to customers in the communications and ATE markets. The Company has recently commenced initial shipments from its new Colorado Springs, Colorado wafer fabrication facility and is currently conducting extensive product and process qualification procedures. Revenues in the second quarter of fiscal 1998 from the new facility were approximately $1,000,000. This facility is not expected to begin volume commercial production until the third quarter of fiscal 1998. Cost of Revenues Cost of revenues as a percentage of total revenues in the second quarter of fiscal 1998 was 39.8% compared to 44.1% in the second quarter of fiscal 1997 and 40.9% in the prior quarter. For the six months ended March 31, 1998 and 1997, cost of revenues as a percentage of total revenues was 40.3% and 44.6%, respectively. The decrease in cost of revenues as a percentage of total revenues was due to a reduction in per unit costs associated with increased production, as well as increased manufacturing yields. The Company's manufacturing yields vary significantly among products, depending on a particular IC's complexity and the Company's experience in manufacturing it. Historically, the Company has experienced difficulties achieving acceptable yields on some ICs, which has resulted in shipment delays. The Company's overall yields are lower than yields experienced in a silicon process because of the large number of different products manufactured in limited volume and because the Company's H-GaAs process technology is significantly less developed. The Company expects that many of its current and future products may never be produced in volume. 6 Regardless of the process technology used, the fabrication of semiconductors is a highly complex and precise process. Defects in masks, impurities in the materials used, contamination of the manufacturing environment, equipment failure and other difficulties in the fabrication process can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. Because the majority of the Company's costs of manufacturing are relatively fixed, maintenance of the number of shippable die per wafer is critical to the Company's results of operations. Yield decreases can result in substantially higher unit costs and may result in reduced gross profit and net income. There can be no assurance that the Company will not suffer periodic yield problems in connection with new or existing products which could cause the Company's business, operating results and financial condition to be materially adversely affected. Inventory is valued at the lower of cost or market. Because allocable manufacturing costs can be high, new product inventory is often valued at market. In addition, a portion of work-in-process inventory consists of wafers in various stages of fabrication. Consequently, the Company estimates yields per wafer in order to estimate the value of inventory. If yields are materially different than projected, work-in-process inventory may need to be revalued. In addition, the ability of customers to change designs and to cancel or reschedule orders can also result in adverse adjustments to inventory. There can be no assurance that such adjustments will not occur in the future and have a material adverse effect on the Company's results of operations. Engineering, Research and Development Costs Engineering, research and development expenses were $6,462,000 in the second quarter of fiscal 1998 compared to $3,914,000 in the second quarter of fiscal 1997 and $5,555,000 in the prior quarter. For the six months ended March 31, 1998, engineering, research and development costs were $12,017,000 compared to $7,394,000 in the six months ended March 31, 1997. The increase was principally due to increased headcount and higher costs to support the Company's continuing efforts to develop new products. As a percentage of total revenues, engineering, research and development costs were 16% in each of the second quarters of 1998 and 1997, in the prior quarter, and in the six months ended March 31, 1998 and 1997. The Company's engineering, research and development costs are expensed as incurred. Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) were $4,849,000 in the second quarter of 1998, compared to $3,273,000 in the second quarter of 1997 and $4,262,000 in the prior quarter. For the six months ended March 31, 1998, SG&A expenses were $9,111,000 compared to $6,205,000 in the same period in 1997. This increase was primarily due to increased headcount. As a percentage of total revenues, however, SG&A expenses decreased to 12% in the second quarter of 1998 from 13% in the second quarter of 1997 and was unchanged from the prior quarter. For the six months ended March 31, 1998, SG&A expenses as a percentage of total revenues decreased to 12% from 13% in the comparable period a year ago. These decreases were the result of the Company's revenues growing faster than SG&A expenses. 7 Interest Income Interest income decreased to $2,189,000 in the second quarter of fiscal 1998 from $2,222,000 in the second quarter of 1997 and $2,293,000 in the prior quarter. This was due to a lower average cash balance in the second quarter of fiscal 1998 as compared to the prior periods, primarily due to the financing of the new wafer fabrication facility in Colorado Springs, Colorado. For the six months ended March 31, 1998, interest income increased to $4,482,000 from $3,421,000 in the comparable period a year ago. This was due to a higher average cash balance in the first six months of fiscal 1998 as compared to the same period of fiscal 1997. Interest Expense Interest expense decreased to $8,000 in the second quarter of fiscal 1998 from $119,000 in the second quarter of fiscal 1997 and $10,000 in the prior quarter. For the six months ended March 31, 1998, interest expense declined to $18,000 from $210,000 in the comparable period a year ago. These decreases were caused by a decrease in the Company's average debt balance. Income Taxes The Company recorded a provision for income taxes in the amount of $3,014,000 in the second quarter of fiscal 1998 and $863,000 in the second quarter of fiscal 1997 principally for federal alternative minimum taxes, state income taxes, and taxes due to foreign jurisdictions, in light of the Company's existing net operating loss carryforwards. The Company had a deferred tax asset balance in the amount of $14,800,000 as of March 31, 1998, net of a valuation allowance of $17,047,000. The Company has net operating loss carryforwards of $60,466,000 and $15,734,000 for federal and state income tax purposes. In determining the future realizability of deferred tax assets associated with net operating loss carryforwards, the Company has considered all available evidence, both positive and negative. On the positive side, the Company has experienced a recent trend of profitable operations and a growing backlog of sales. The negative evidence includes significant tax benefits derived from incentive stock options during the past three years. These tax benefits are expected to continue into the foreseeable future to reduce taxable income and thus reduce the Company's ability to utilize its NOLs. In addition, considering the significant uncertainty and business risks associated with the new wafer fabrication facility, the Company has concluded that it is more likely than not that the deferred tax asset associated with the NOL carryforward will not be realized and has therefore established an appropriate valuation allowance. LIQUIDITY AND CAPITAL RESOURCES Operating Activities The Company generated $18,905,000 and $19,840,000 from operating activities in the six month periods ended March 31, 1998 and 1997, respectively. 8 Investing Activities Capital expenditures, principally for manufacturing and test equipment, were $19,826,000 in the six month period ended March 31, 1998 compared to $8,458,000 in the six month period ended March 31, 1997. The Company intends to continue investing in manufacturing, test and engineering equipment and currently expects to spend an additional $10 to $15 million for capital expenditures in fiscal 1998, which the Company intends to finance with working capital. Financing Activities In the six month period ended March 31, 1998, the Company generated $2,486,000 in financing activities. Net proceeds from the issuance of common stock was $2,665,000, offset by $179,000 in payments on debt obligations. Management believes that the Company's cash flow from operations is adequate to finance its planned growth and operating needs for the next 12 months FACTORS AFFECTING FUTURE OPERATING RESULTS CUSTOMER AND INDUSTRY CONCENTRATION The Company is, and intends to continue, focusing its sales efforts on a relatively small number of companies in the telecommunications, data communications and ATE markets that require high performance ICs. Certain of these companies are also competitors of Vitesse. VARIABILITY OF QUARTERLY RESULTS The Company's quarterly results of operations have varied significantly in the past and may continue to do so in the future. These variations have been due to a number of factors, including: the loss of major customers; variations in manufacturing yields; the timing and level of new product and process development costs; changes in inventory levels; changes in the type and mix of products being sold; changes in manufacturing capacity and variations in the utilization of this capacity; and customer design changes, delays or cancellations. The Company has also from time to time incurred significant new product and process development costs due to the Company's policy of expensing costs as incurred relating to the manufacture of new products and the development of new process technology. There can be no assurance that the Company will not incur such charges or experience revenue declines in the future. MANUFACTURING CAPACITY LIMITATIONS; NEW PRODUCTION FACILITY The Company has recently commenced initial shipments from its six-inch wafer fabrication facility in Colorado Springs, Colorado. The facility includes a 10,000 square foot Class 1 clean room with the capability for future expansion to 15,000 square feet. For the second quarter of fiscal 1998, approximately $1,000,000 of revenue was generated from this facility. The Company is currently conducting extensive product and process qualification procedures at this facility and does not believe it will begin volume commercial production until the third quarter of fiscal 1998. 9 The successful operation of the new wafer fabrication facility, if completed, as well as the Company's overall production operations, will also be subject to numerous risks. The Company has no prior experience with the operation of equipment or the processes involved in producing finished six-inch wafers, which differ significantly from those involved in the production of four-inch wafers. The Company will be required to hire, train and manage production personnel successfully in order to effectively operate the new facility. The Company does not have excess production capacity at its Camarillo facility to offset any failure of the new facility to meet planned production goals. As a result of these and other factors, the failure of the Company to successfully operate the new wafer fabrication facility could have a material adverse effect on its business, operating results or financial condition. The Company will also have to effectively coordinate and manage the Colorado Springs and Camarillo facilities to successfully meet its overall production goals. The Company has no experience in coordinating and managing full scale production facilities which are located at different sites. The failure to successfully coordinate and manage the two sites could adversely affect the Company's overall production and could have a material adverse effect on its business, operating results or financial condition. COMPETITION The high-performance semiconductor market is highly competitive and subject to rapid technological change, price erosion and heightened international competition. The telecommunications, data communications and ATE industries, which are the primary target markets for the Company, are also becoming intensely competitive because of deregulation and heightened international competition, among other factors. In the telecommunications market, the Company currently competes primarily against other GaAs-based companies such as Triquint Semiconductor and the GaAs fabrication operations of system companies such as Rockwell. In the data communications and the ATE markets, the Company competes primarily against silicon ECL and BiCMOS products offered principally by semiconductor manufacturers such as Fujitsu, Hewlett Packard, Motorola, National Semiconductor and Texas Instruments and bipolar silicon IC manufacturers such as Applied Micro Circuits Corporation and Synergy Semiconductor Corporation. Many of these companies have significantly greater financial, technical, manufacturing and marketing resources than the Company. In addition, in lower- frequency applications, the Company faces increasing competition from CMOS-based products, particularly as the performance of such products continues to improve. Competition in the Company's markets for high-performance ICs is primarily based on price/performance, product quality and the ability to deliver products in a timely fashion. Some prospective customers may be reluctant to adopt Vitesse's products because of perceived risks relating to GaAs technology. In addition, product qualification is typically a lengthy process and certain prospective customers may be unwilling to invest the time or incur the costs necessary to qualify suppliers such as the Company. Prospective customers may also have concerns about the relative speed, complexity and power advantages of the Company's products compared to more familiar ECL of BiCMOS semiconductors or about the risks associated with relying on a relatively small company for a critical sole-sourced component. 10 ASIAN ECONOMIC ISSUES The Company's international business is subject to risks customarily encountered in foreign operations, including the recent financial turmoil in Asia. Although management believes that the financial turmoil in Asia will not have a material impact on the financial statements, there can be no assurance that the Company will not be affected by such economic issues in Asia. PRODUCT AND PROCESS DEVELOPMENT AND TECHNOLOGICAL CHANGE The market for the Company's products is characterized by rapid changes in both product and process technologies. The Company believes that its future success will depend, in part, upon its ability to continue to improve its product and process technologies and develop new technologies in order to maintain its competitive position, to adapt its products and processes to technological changes and to adopt emerging industry standards. There can be no assurance that the Company will be able to improve its product and process technologies and develop new technologies in a timely manner or that such improvements or developments will result in products that achieve market acceptance. The failure to successfully improve its existing technologies or develop new technologies in a timely manner could adversely affect the Company's business, operating results and financial condition. DEPENDENCE ON THIRD PARTIES The Company depends upon third parties for performing certain processes and providing a variety of components and materials necessary for the production of its H-GaAs ICs. A majority of the Company's ICs are packaged in plastic by third parties since the Company has no internal capability to perform such plastic packaging. The balance of the Company's ICs are packaged in its Camarillo facility using customized ceramic packaging which is presently available from only one source. Other components and materials for H-GaAs ICs are available from only a limited number of sources. The inability to obtain sufficient sole- or limited-source services or components as required could result in delays or reductions in product shipments which could adversely affect the Company's business, operating results and financial condition. ENVIRONMENTAL REGULATIONS The Company is subject to a variety of federal, state and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing process. Any failure to comply with present or future regulations could result in the imposition of fines on the Company, the suspension of production or a cessation of operations. In addition, such regulations could restrict the Company's ability to expand its facilities at its present location or could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations or to clean up prior discharges. The Company uses significant amounts of water throughout its manufacturing process. Previous droughts in California have resulted in restrictions being placed on water use by manufacturers and residents in the states. In the event of future drought, reductions in water use 11 may be mandated generally, and it is unclear how such reductions will be allocated among California's different users. No assurance can be given that near term reductions in water allocations to manufacturers will not occur, possibly requiring a reduction in the Company's level of production, and materially and adversely affecting the Company's operations. See "Business-- Environmental Matters." MANAGEMENT OF GROWTH The management of the Company's growth requires qualified personnel and systems. In particular, the operation of the Company's wafer fabrication facility in Colorado Springs and its integration with the Company's current facility will require significant management, technical and administrative resources. There can be no assurance that the Company will be able to manage its growth or effectively integrate its planned wafer fabrication facility, and failure to do so could have a material adverse effect on the Company's business, operating results or financial condition. DEPENDENCE ON KEY PERSONNEL The Company's success depends in part upon attracting and retaining the services of its managerial and technical personnel. The competition for qualified personnel is intense. There can be no assurance that the Company can retain its key managerial and technical employees or that it can attract, assimilate or retain other skilled technical personnel in the future, and failure to do so could have a material adverse effect on the Company's business, operating results or financial condition. 12 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On January 27, 1998, the Company held its regular Annual Meeting of Stockholders. The purpose of the meeting was to elect Directors to serve for the ensuing year, to approve a proposal to amend the Company's Restated Certificate of Incorporation to authorize an increase in the authorized shares of the Company's Common Stock from 50,000,000 to 100,000,000, and to ratify the appointment of KPMG Peat Marwick LLP as independent auditors for the Company for the 1998 fiscal year. The following individuals were elected to serve as Directors for the ensuing year:
Name Age Principal Occupation ---- --- -------------------- Pierre R. Lamond 68 General Partner of Sequoia Capital and Chairman of the Board of Directors of the Company James A. Cole 55 General Partner of Spectra Enterprise Associates Alex Daly 36 Sr. Vice President, C-Cube Microsystems John C. Lewis 62 Chief Executive Officer and Chairman of Amdahl Corporation Thurman J. Rodgers 49 President and Chief Executive Officer of Cypress Semiconductor Corporation Louis R. Tomasetta 49 President, Chief Executive Officer and Director of the Company
Additionally, the following items were voted upon and approved by the shareholders:
Against or Votes Votes for Withheld Abstained --------- ---------- --------- Amendment of the Company's Restated Certificate of Incorporation to increase the number of authorized shares from 50,000,000 to 100,000,000 32,526,819 980,669 67,889 Ratification of appointment of KPMG Peat Marwick LLP as independent auditors for the fiscal year ending September 30, 1998 33,504,812 25,463 45,042
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K (A) EXHIBITS 27 - FINANCIAL DATA SCHEDULE (B) REPORTS ON FORM 8-K None. 13 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. VITESSE SEMICONDUCTOR CORPORATION May 12, 1998 By: /s/ Eugene F. Hovanec -------------------------------- Eugene F. Hovanec Vice President, Finance and Chief Financial Officer 14 EX-27 2 FINANCIAL DATA SCHEDULE - ARTICLE 5
5 1,000 3-MOS 6-MOS SEP-30-1998 SEP-30-1998 JAN-01-1998 OCT-01-1997 MAR-31-1998 MAR-31-1998 92,243 92,243 52,053 52,053 29,984 29,984 1,205 1,205 13,490 13,490 203,639 203,639 87,447 87,447 32,081 32,081 318,296 318,296 28,023 28,023 71 71 0 0 0 0 280,193 280,193 10,009 10,009 318,296 318,296 40,212 74,913 40,212 74,913 16,012 30,206 27,323 51,334 0 0 0 0 8 18 15,070 28,043 3,014 5,608 12,056 22,435 0 0 0 0 0 0 12,056 22,435 0.33 0.62 0.31 0.57
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