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 June 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 - 18032
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LATTICE SEMICONDUCTOR CORPORATION
(Exact name of Registrant as specified in its charter)
State of Delaware 93-0835214
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5555 N.E. Moore Court, Hillsboro, Oregon 97124-6421
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(Address of principal executive offices) (Zip Code)
(503) 681-0118
(Registrant's telephone number, including area code)
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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
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At June 29, 1996 there were 22,278,064 shares of the Registrant's common stock,
$.01 par value, outstanding.
LATTICE SEMICONDUCTOR CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -
Three Months Ended June 29, 1996 and
July 1, 1995 3
Consolidated Balance Sheet - June 29, 1996
and March 30, 1996 4
Consolidated Statement of Cash Flows -
Three Months Ended June 29, 1996
and July 1, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, except per share data)
(unaudited)
Three Months Ended
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June 29, July 1,
1996 1995
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Revenue $ 48,168 $ 45,013
Costs and expenses:
Cost of products sold 19,838 18,769
Research and development 6,754 6,383
Selling, general and administrative 7,897 7,371
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Total costs and expenses 34,489 32,523
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Income from operations 13,679 12,490
Other income, net 2,030 1,015
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Income before provision for income taxes 15,709 13,505
Provision for income taxes 5,261 4,659
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Net income $ 10,448 $ 8,846
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Net income per share $ 0.46 $ 0.45
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Weighted average common and
common equivalent shares
outstanding 22,651 19,811
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See accompanying Notes to Consolidated Financial Statements
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
Assets June 29, March 30,
1996 1996
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Current assets: (unaudited)
Cash and cash equivalents $ 47,738 $ 54,600
Short-term investments 180,397 160,570
Accounts receivable 16,338 22,884
Inventories 27,008 21,761
Prepaid expenses and other current assets 20,429 19,301
Deferred income taxes 11,500 9,700
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Total current assets 303,410 288,816
Wafer supply advance 8,773 14,507
Property and equipment, net 27,840 25,471
Investments and other assets 14,137 14,141
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$ 354,160 $ 342,935
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 23,765 $ 22,471
Deferred income on sales to
distributors 17,070 16,896
Income taxes payable 1,708 4,800
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Total current liabilities 42,543 44,167
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized; none
issued or outstanding -- --
Common stock, $.01 par value,
100,000,000 shares authorized, 22,278,064 and
22,123,069 shares issued and outstanding 223 221
Paid-in capital 184,356 181,957
Retained earnings 127,038 116,590
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Total stockholders' equity 311,617 298,768
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$ 354,160 $ 342,935
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See accompanying Notes to Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
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June 29, July 1,
1996 1995
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Cash flows from operating activities:
Net income $ 10,448 $ 8,846
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,910 1,771
Changes in assets and liabilities:
Accounts receivable 6,546 4,375
Inventories (5,247) (2,461)
Prepaid expenses and other assets (202) (91)
Wafer supply advance 4,808 2,148
Deferred income taxes (1,800) (763)
Accounts payable and other accrued
expenses 1,294 (2,551)
Income taxes payable (3,092) (3,249)
Deferred income 174 (285)
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Total adjustments 4,391 (1,106)
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Net cash provided by operating activities 14,839 7,740
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Cash flows from investing activities:
Purchase of short-term investments, net (19,827) (1,548)
Capital expenditures (4,279) (3,545)
Proceeds from sale of equipment -- 21
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Net cash used by investing activities (24,106) (5,072)
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Cash flows from financing activities:
Net proceeds from issuance of stock 2,405 5,248
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Net cash provided by financing activities 2,405 5,248
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Net increase (decrease) in cash and cash
equivalents (6,862) 7,916
Beginning cash and cash equivalents 54,600 7,697
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Ending cash and cash equivalents $ 47,738 $ 15,613
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See accompanying Notes to Consolidated Financial Statements.
LATTICE SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements are unaudited and have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and in the opinion of management include
all adjustments, consisting only of normal recurring adjustments, necessary
for the fair statement of results for the interim periods. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal year
ended March 30, 1996.
The Company reports on a 52 or 53 week fiscal year, which ends on the
Saturday closest to March 31. The accompanying financial statements
include the accounts of Lattice Semiconductor Corporation and its wholly-
owned subsidiaries, Lattice Semiconducteurs SARL, Lattice GmbH, Lattice
Semiconductor KK, Lattice Semiconductor (Shanghai) Co. Ltd., Lattice
Semiconductor Asia Ltd., Lattice Semiconductor International Ltd. and
Lattice UK Limited. The assets, liabilities and results of operations of
the subsidiaries were not material for the periods presented. The results
of the interim period are not necessarily indicative of the results for the
entire year.
(2) Revenue Recognition
Revenue from sales to OEM (original equipment manufacturer) customers is
recognized upon shipment. Certain of the Company's sales are made to
distributors under agreements providing price protection and right of
return on unsold merchandise. Revenue and costs relating to distributor
sales are deferred until the product is sold by the distributor and the
related revenue and costs are then reflected in income.
(3) Net Income Per Share
Net income per share is computed based on the weighted average number of
shares of common stock and common stock equivalents assumed to be
outstanding during the period (using the treasury stock method). Common
stock equivalents consist of stock options and warrants to purchase common
stock.
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(4) Inventories (in thousands): June 29, March 30,
1996 1996
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Work in progress $17,226 $13,174
Finished goods 9,782 8,587
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$27,008 $21,761
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(5) Changes in Stockholders' Equity (in thousands):
Common Paid-in Retained
Stock Capital Earnings Total
------- -------- --------- ---------
Balances, March 30, 1996 $ 221 $181,957 $116,590 $ 298,768
Stock option exercises 2 2,402 -- 2,404
Other -- (3) -- (3)
Net income for the
three-month period -- -- 10,448 10,448
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Balances, June 29, 1996 $ 223 $184,356 $127,038 $ 311,617
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------- -------- --------- ---------
(6) Contingencies
The Company is exposed to certain asserted and unasserted potential claims.
Patent and other proprietary rights infringement claims are
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common in the semiconductor industry and the Company has received a letter
from a semiconductor manufacturer stating that it believes certain patents
held by it cover products previously sold by the Company. While this
manufacturer has offered to license certain of such patents to the Company,
there can be no assurance that, on this or any other claim which may be made
against the Company, the Company could obtain a license on terms or under
conditions that would be favorable to the Company. Management believes that
the disposition of these claims will not have a material adverse effect on
the Company's financial position or results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth in the section
entitled "Factors Affecting Future Results" and elsewhere in this report.
RESULTS OF OPERATIONS
REVENUE
Revenue was $48.2 million in the first quarter of fiscal 1997, an increase of
seven percent as compared to $45.0 million for the first quarter of fiscal 1996.
The majority of the Company's revenue for the periods presented was derived from
sales of GAL-Registered Trademark- (Generic Array Logic) products, which address
the low-density segment of the CMOS programmable logic market. The majority of
the Company's revenue growth for the periods presented resulted from the sales
of new products, primarily in the high-density segment of the PLD market.
Increases in the sales of the Company's high-density products have been
significant and have grown consistently as a percentage of the Company's overall
revenue. For the first quarter of fiscal 1997, revenue from the sale of high-
density products amounted to approximately one-half of the Company's overall
revenue.
Revenue from international sales was 47% of total revenue in the first quarter
of fiscal 1997 as compared to 48% in the same 1996 fiscal period. The Company
expects export sales to continue to represent a significant portion of revenue.
See "Factors Affecting Future Results".
Overall average selling prices increased in the fiscal 1997 first quarter as
compared to the same fiscal 1996 quarter. This was due primarily to a higher
proportion of high-density products included in the revenue mix. Although
selling prices of mature products generally decline over time, this decline
is at times offset by higher selling prices of new products. The Company's
ability to maintain its recent trend of revenue growth and market penetration
is in large part dependent on the continued development, introduction and
market acceptance of new products. See "Factors Affecting Future Results".
GROSS MARGIN
The Company's gross margin as a percentage of revenue was 58.8% in the first
quarter of fiscal 1997 as compared to 58.3% for the same quarter of fiscal 1996.
This increase in gross margin percentage was primarily due to improved capacity
utilization and other reductions in the Company's manufacturing costs offsetting
higher period costs associated with
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increased production of high-density products. Profit margins on older products
generally tend to decrease over time as selling prices decline, but the
Company's strategy has been to offset these decreases by continuously
introducing new products with higher margins.
RESEARCH AND DEVELOPMENT
Research and development expense increased by approximately $371,000, or six
percent, from the first quarter of fiscal 1996 to the first quarter of fiscal
1997, and represented approximately 14% of revenue for each of the fiscal
periods. The spending increases were related primarily to the development of
new technologies and new products, including the Company's high-density product
families and their related software development tools. The Company believes
that a continued commitment to research and development is essential in order to
maintain product leadership in its existing product families and to provide
innovative new product offerings, and therefore expects to continue to make
significant investments in research and development in the future.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased by approximately
$526,000, or seven percent, between the first quarter of fiscal 1996 and the
fiscal 1997 first quarter. This increase was primarily due to expansion of
the Company's sales force and higher sales commissions associated with the
higher revenue levels. Selling, general and administrative expense as a
percentage of revenue was constant at 16.4% for both of the fiscal periods
presented.
INTEREST AND OTHER INCOME
Interest and other income (net of expense) doubled from approximately $1.0
million for the first quarter of fiscal 1996 to approximately $2.0 million for
the same 1997 fiscal quarter. This was due to higher cash and investment
balances resulting from cash generated from operations and the Company's follow-
on public offering of common stock in November 1995.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 33.5% for the first quarter of fiscal 1997
as compared to 34.5% recorded in the same fiscal quarter of 1996. This decrease
is due primarily to a higher amount of non-taxable investment income associated
with the higher cash and investment balances as discussed above.
Deferred tax asset valuation allowances are recorded to offset deferred tax
assets that can only be realized by earning taxable income in distant future
years. Management established the valuation allowances because it cannot
determine if it is more likely than not that such income will be earned.
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FACTORS AFFECTING FUTURE RESULTS
The Company believes that its future operating results will be subject to
quarterly variations based upon a wide variety of factors, including the
cyclical nature of both the semiconductor industry and the markets addressed by
the Company's products, the timing of new product introductions, price erosion,
product obsolescence, substantial adverse currency exchange rate movements,
variations in product mix, scheduling, rescheduling and cancellation of large
orders, competitive factors, the availability of manufacturing capacity, the
ability to develop and implement new process technologies, fluctuations in
manufacturing yields, changes in effective tax rates and litigation expenses.
Due to these and other factors, the Company's past results are a less useful
predictor of future results than is the case in more mature and stable
industries. The Company has over time increased its level of operating expenses
and investment in manufacturing capacity in anticipation of future growth in
revenues. To the extent that this revenue growth does not materialize, the
Company's operating results would be adversely affected.
The semiconductor industry is highly cyclical and has been subject to
significant downturns at various times that have been characterized by
diminished product demand, production overcapacity and accelerated erosion of
average selling prices. The Company's rate of growth in recent periods has been
impacted by the cyclicality in the semiconductor industry. Any material
imbalance in industry-wide production capacity relative to demand, shift in
industry capacity toward products competitive with the Company's products,
reduced demand or reduced growth in demand or other factors could result in a
decline in the demand for or the prices of the Company's products and could
have a material adverse effect on the Company's operating results.
The market price of the Company's Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results,
shortfalls in revenues or earnings from levels expected by securities analysts
and other factors such as announcements of technological innovations or new
products by the Company or by the Company's competitors, government regulations,
developments in patent or other proprietary rights, and developments in the
Company's relationships with parties to collaborative agreements. In addition,
the stock market has recently experienced significant price fluctuations. These
fluctuations at times have been unrelated to the operating performance of the
specific companies whose stocks are traded. Broad market fluctuations, as well
as economic conditions generally and in the semiconductor industry specifically,
could adversely affect the market price of the Company's Common Stock.
The Company does not manufacture finished silicon wafers. Its products,
however, require wafers manufactured with state-of-the-art fabrication equipment
and techniques. Accordingly, the Company's strategy has been to
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maintain relationships with large semiconductor manufacturers for the production
of its wafers. Substantially all of its silicon wafers are currently
manufactured by Seiko Epson Corporation ("Seiko Epson") in Japan and sold to the
Company, through Seiko Epson's affiliated U.S. distributor, S MOS Systems Inc.
("S MOS"). In connection with a series of agreements entered into in September
1995 with United Microelectronics Corporation ("UMC") providing for the
formation of a separate Taiwanese company, United Integrated Circuits
Corporation ("UICC"), for the purpose of building and operating an advanced
semiconductor manufacturing facility in Taiwan, Republic of China, UMC committed
to supply the Company with sub-micron wafers beginning in the first calendar
quarter of 1996. The Company received the first of such wafers during the
first calendar quarter of 1996. A significant interruption in supply from
Seiko Epson through S MOS, or from UMC, could have a material adverse effect
on the Company's business.
Worldwide manufacturing capacity for silicon wafers is limited and inelastic.
Therefore, significant increases in demand or interruptions in supply could
adversely affect the Company. Although current commitments are anticipated to
be adequate through fiscal 1997, there can be no assurance that existing
capacity commitments will be sufficient to permit the Company to satisfy all
of its customers' demand in future periods. The Company negotiates wafer
prices and wafer supply commitments with its principal wafer suppliers on a
periodic basis. Moreover, wafer prices and commitments are subject to
continuing review and revision by the parties. However, there can be no
assurance that Seiko Epson, S MOS or UMC will not reduce their allocations of
wafers or increase prices to the Company in future periods. If any
substantial reduction of supply or substantial price increase were to occur,
the Company's operating results could be materially adversely affected.
The Company's wafer purchases from Seiko Epson are denominated in Japanese yen.
Historical fluctuations in the dollar/yen exchange rate have been
significant. There is no assurance that the value of the dollar with respect
to the yen will not experience substantial deterioration in the future. Any
substantial prolonged or permanent deterioration of dollar/yen exchange
rates could have a material adverse effect on the Company's results of
operations.
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The Company depends upon wafer suppliers to produce wafers with acceptable
yields and to deliver them to the Company in a timely manner. Substantially all
of the Company's revenues are derived from products based on
E2CMOS-Registered Trademark- process technology. Successful implementation
of the Company's proprietary E2CMOS process technology, UltraMOS-Registered
Trademark-, requires a high degree of coordination between the Company and
its wafer supplier. The manufacture of high performance E2CMOS
semiconductor wafers is a complex process that requires a high degree of
technical skill, state-of-the-art equipment and effective cooperation between
the wafer supplier and the circuit designer to produce acceptable yields.
Minute impurities, errors in any step of the fabrication process, defects in
the masks used to print circuits on a wafer and other factors can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer
to be non-functional. As is common in the semiconductor industry, the
Company has from time to time experienced in the past and expects that it
will experience in the future production yield problems and delivery delays.
Any prolonged inability to obtain adequate yields or deliveries could
adversely affect the Company's operating results.
The Company expects that, as is customary in the semiconductor business, it will
in the future seek to convert its fabrication process technology to larger wafer
sizes, to smaller device geometries or to new or additional suppliers in order
to maintain or enhance its competitive position. Such conversions entail
inherent technological risks that could adversely affect yields and delivery
times and could have a material adverse impact on the Company's operating
results. To a considerable extent, the Company's ability to execute its
strategies will depend upon its ability to maintain and enhance its advanced
process technologies. As the Company does not presently operate its own wafer
fabrication or process development facility, the Company depends upon silicon
wafer manufacturers to provide the facilities and support for its process
development. In light of this dependency and the intensely competitive nature
of the semiconductor industry, there is no assurance that either process
technology development or timely product introduction can be sustained in the
future.
In addition, other unanticipated changes in or disruptions of the Company's
wafer supply arrangements could reduce product availability, increase cost or
impair product quality and reliability. Many of the factors that could result
in such changes are beyond the Company's control. For example, a disruption of
operations at Seiko Epson's or UMC's manufacturing facilities as a result of a
work stoppage, fire, earthquake or other natural disaster, would cause delays in
shipments of the Company's products and would have a material adverse effect on
the Company's operating results.
The Company currently depends on foreign manufacturers -- Seiko Epson, a
Japanese company, and UMC, a Taiwanese company -- for the manufacture of all of
its finished silicon wafers, and anticipates depending on UICC, a Taiwanese
company, for the manufacture of a portion of its finished silicon
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wafers. In addition, after wafer manufacturing is completed and each wafer is
tested, products are assembled by subcontractors in South Korea, the
Philippines, Hong Kong, the United States and Malaysia. Although the Company
has not experienced any interruption in supply from its subcontractors, the
social and political situations in these countries can be volatile, and any
prolonged work stoppages or other disruptions in the Company's ability to
manufacture and assemble its products would have a material adverse effect on
the Company's results of operations. Furthermore, economic risks, such as
changes in currency exchange rates, tax laws, tariffs, or freight rates, or
interruptions in air transportation, could have a material adverse effect on the
Company's results of operations.
Because of the rapid rate of technological change in the semiconductor industry,
the Company's success will ultimately depend in large part on its ability to
introduce new products on a timely basis that meet a market need at a
competitive price and with acceptable margins as well as enhancing the
performance of its existing products. The success of new products, including
the Company's high-density product families, depends on a variety of factors,
including product selection, timely and efficient completion of product design,
timely and efficient implementation of manufacturing and assembly processes,
product performance, quality and reliability in the field and effective sales
and marketing. Because new product development commitments must be made well in
advance of sales, new product decisions must anticipate both future demand and
the technology that will be available to supply that demand. New and enhanced
products are continually being introduced into the Company's markets by others,
and these products can be expected to affect the competitive environment in the
markets in which they are introduced. There is no assurance that the Company
will be successful in enhancing its existing products or in selecting,
developing, manufacturing, marketing and selling new products.
The semiconductor industry is intensely competitive and is characterized by
rapid technological change, sudden price fluctuations, general price erosion,
rapid rates of product obsolescence, periodic shortages of materials and
manufacturing capacity and variations in manufacturing costs and yields. The
Company's competitive position is affected by all of these factors and by
industry competition for effective sales and distribution
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channels. The Company's existing and potential competitors range from
established major domestic and international semiconductor companies to emerging
companies. Many of the Company's competitors have substantially greater
financial, technological, manufacturing, marketing and sales resources than the
Company. The Company faces direct competition from companies that have
developed or licensed similar technology and from licensees of the Company's
products and technology. The Company also faces indirect competition from a
wide variety of semiconductor companies offering products and solutions based on
alternative technologies. Although to date the Company has not experienced
significant competition from companies located outside the United States, such
companies may become a more significant competitive factor in the future. As
the Company and its current competitors seek to expand their markets,
competition may increase, which could have an adverse effect on the Company's
operating results. Competitors' development of new technologies that have
price/performance characteristics superior to the Company's technologies could
adversely affect the Company's results of operations. There can be no assurance
that the Company will be able to develop and market new products successfully or
that the products introduced by others will not render the Company's products or
technologies non-competitive or obsolete. The Company expects that its markets
will become more competitive in the future.
In an effort to secure additional wafer supply, the Company may from time to
time consider various arrangements, including joint ventures with, minority
investments in, advanced purchase payments to, loans to or similar arrangements
with independent wafer manufacturers in exchange for committed production
capacity. Such arrangements are becoming common within the industry as
independent wafer manufacturers increasingly seek to require their customers to
share a portion of the cost of capital intensive wafer fabrication facilities.
The Company entered into an advanced production payment arrangement with Seiko
Epson in 1994 pursuant to which it advanced a total of $42 million to Seiko
Epson. In September 1995, the Company entered into an agreement with UMC to
invest approximately $60 million for a 10% equity interest in a separate
Taiwanese company (UICC) providing for the formation of a joint venture with UMC
and several other companies for the purpose of building and operating an
advanced semiconductor manufacturing facility. To the extent the Company
pursues any other such transactions with Seiko Epson, UMC or any other wafer
manufacturers, such transactions could entail even greater levels of investment
requiring the Company to seek additional equity or debt financing to fund such
activities. There can be no assurance that any such additional funding could be
obtained when needed or, if available, on terms acceptable to the Company.
The Company's success depends in part on its proprietary technology. While the
Company attempts to protect its proprietary technology through patents,
copyrights and trade secrets, it believes that its success will depend more upon
technological expertise, continued development of new products, and successful
market penetration of its silicon and software products. There can be no
assurance that the Company will be able to protect its technology
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or that competitors will not be able to develop similar technology
independently. The Company currently has a number of United States and foreign
patents and patent applications. There can be no assurance that the claims
allowed on any patents held by the Company will be sufficiently broad to protect
the Company's technology, or that any patents will issue from any application
pending or filed by the Company. In addition, there can be no assurance that
any patents issued to the Company will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company.
The semiconductor industry is generally characterized by vigorous protection
and pursuit of intellectual property rights and positions, which have on
occasion resulted in protracted litigation that utilizes cash and management
resources, which can have a significant adverse effect on operating results.
The Company has received a letter from a semiconductor manufacturer stating
that it believes a number of its patents, related to product packaging, cover
certain products previously sold by the Company. While the manufacturer has
offered to license certain of such patents to the Company, there can be no
assurance, on this or any other claim which may be made against the Company,
that the Company could obtain a license on terms or under conditions that
would be favorable to the Company. In addition, there can be no assurance
that other intellectual property claims will not be made against the Company
in the future or that the Company will not be prohibited from using the
technologies subject to such claims or be required to obtain licenses and
make corresponding royalty payments for past or future use.
International revenues accounted for 47% and 48% of the Company's revenues for
the first three months of fiscal 1997 and fiscal 1996, respectively. The
Company believes that international revenues will continue to represent a
significant percentage of revenues. International revenues and operations may
be adversely affected by the imposition of governmental controls, export license
requirements, restrictions on the export of technology, political instability,
trade restrictions, changes in tariffs and difficulties in staffing and managing
international operations.
The future success of the Company is dependent, in part, on its ability to
attract and retain highly qualified technical and management personnel,
particularly highly skilled engineers involved in new product, both silicon and
software, and process technology development. Competition for such personnel is
intense. There can be no assurance that the Company will be able to retain its
existing key technical and management personnel or attract additional qualified
employees in the future. The loss of key technical or management personnel
could delay product development cycles or otherwise have a material adverse
effect on the Company's business.
LIQUIDITY AND CAPITAL RESOURCES
As of June 29, 1996, the Company's principal source of liquidity was
$228.1 million of cash and short-term investments, an increase of
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approximately $13 million from the balance of $ 215.2 million at March 30, 1996.
This increase was primarily the result of cash generated from operations. The
Company also has available an unsecured $10 million demand bank credit facility
with interest due on outstanding balances at a money market rate. This facility
has not been used.
Accounts receivable decreased 29% as compared to the balance at March 30,
1996. This decrease was primarily due to the lower revenue level in the fiscal
1997 first quarter as compared to the fourth quarter of fiscal 1996 and the
timing of billings to end customers and distributors. Inventories increased by
24% versus amounts recorded at March 30, 1996 due to increased production
based on wafer supply commitments made in anticipation of revenue levels
higher than actually attained. The wafer supply advance decreased by
approximately $5.7 million, or 40%, as compared to the balance at March 30,
1996 due to the receipt of wafers under the Advance Production Payment
agreement with Seiko Epson and a $926,000 reclassification to "Prepaid
expenses and other current assets" as an increase in management's estimate of
wafers to be received under this agreement in the next twelve months.
Accounts payable and accrued expenses increased six percent as compared to
the balance at March 30, 1996 due to the higher level of wafer receipts and
timing of payments. The decrease in income taxes payable of $3.1 million
between March 30, 1996 and June 29, 1996 is primarily attributable to the
timing of quarterly tax payments and lower pretax profits in the first fiscal
1997 period as compared to the fourth fiscal quarter of 1996.
Substantially all of the Company's silicon wafer purchases are currently
denominated in Japanese yen. The Company maintains yen-denominated bank
accounts and bills its Japanese customers in yen. The yen bank deposits
utilized to hedge yen-denominated wafer purchases are accounted for as
identifiable hedges against specific and firm wafer purchases.
The Company entered into a series of agreements with UMC in September 1995
pursuant to which the Company has agreed to join UMC and several other companies
to form a separate Taiwanese company, UICC, for the purpose of building and
operating an advanced semiconductor manufacturing facility in Taiwan, Republic
of China. Under the terms of the agreements, the Company will invest
approximately $60 million, payable in three installments over two and one-half
years, for a 10% equity interest in the corporation and the right to receive a
percentage of the facility's wafer production at market prices. The timing of
the payments is related to certain milestones in the development of the advanced
semiconductor manufacturing facility. The first payment, in the amount of
approximately $13.7 million, was paid in January 1996, the second payment, in
the amount of approximately $27.2 million, is anticipated to be required during
the three month period ending February 1997, and the final payment is
anticipated to be required within the six month period ending December 1997.
The Company expects to finance these payments from existing sources and funds
generated from operations. As a result of the future payments, the Company's
working capital will be
-17-
reduced by an aggregate of approximately $46.3 million over the time period of
the remaining payments.
The Company currently anticipates capital expenditures of approximately $15
to $20 million for the fiscal year ending March 29, 1997. A significant portion
of these expenditures is planned for improvements and expansions to the
Company's manufacturing capacity and facilities.
The Company believes its existing sources of liquidity and funds expected
to be generated from operations will provide adequate cash to fund the Company's
anticipated cash needs for the next twelve months, including the anticipated
required payment to UICC during this period.
In an effort to secure additional wafer supply, the Company may from time
to time consider various financial arrangements including joint ventures with,
minority investments in, advance purchase payments to, loans to, or similar
arrangements with independent wafer manufacturers in exchange for committed
wafer capacity. To the extent the Company pursues any such additional financial
arrangements, additional debt or equity financing may be required. There can be
no assurance that any such additional funding could be obtained when needed or,
if available, on terms acceptable to the Company.
-18-
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.1 Computation of Net Income Per Share
27 Financial Data Schedule for Three Months Ended
June 29, 1996
(b) No reports on Form 8-K were filed during the three months ended
June 29, 1996.
-19-
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.
LATTICE SEMICONDUCTOR CORPORATION
Date: August 13, 1996 /S/ Rodney F. Sloss
------------------ -----------------------------
By: Rodney F. Sloss
Vice President, Finance (Principal
Accounting Officer)
-20-
EXHIBIT 11.1
LATTICE SEMICONDUCTOR CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)
(unaudited)
THREE MONTHS ENDED
------------------
JUNE 29, JULY 1,
1996 1995
----------- ----------
Net income $ 10,448 $ 8,846
----------- ----------
----------- ----------
Weighted average common stock and common stock equivalents:
Common stock 22,193 19,031
Options and warrants 458 780
----------- ----------
22,651 19,811
----------- ----------
----------- ----------
Net income per share $ 0.46 $ 0.45
----------- ----------
----------- ----------
5
1,000
3-MOS
MAR-29-1997
MAR-31-1996
JUN-29-1996
47,738
180,397
16,338
827
27,008
303,410
61,100
27,839
354,160
42,543
0
0
0
223
311,394
354,160
48,168
48,168
19,838
34,489
0
0
(2,030)
15,709
5,261
5,261
0
0
0
5,261
0.46
0.46
