10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 7, 2001
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001.
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: 0-21184
MICROCHIP TECHNOLOGY INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 86-0629024
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2355 W. CHANDLER BLVD., CHANDLER, AZ 85224-6199
(480) 792-7200
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's
Principal Executive Offices)
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 the filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of common stock, $.001 Par Value, outstanding as of November 2,
2001: 133,312,842 shares.
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MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 2001 and March 31, 2001...........................3
Condensed Consolidated Statements of Income -
Three and Six Months Ended September 30, 2001
and September 30, 2000..........................................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended September 30, 2001 and
September 30, 2000..............................................5
Notes to Condensed Consolidated Financial Statements -
September 30, 2001..............................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......22
PART II. OTHER INFORMATION.
Item 4. Submission of Matters to a Vote of Security Holders..............23
Item 6. Exhibits and Reports on Form 8-K.................................23
SIGNATURES....................................................................24
2
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
ASSETS
See accompanying notes to condensed consolidated financial statements
3
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(Unaudited)
See accompanying notes to condensed consolidated financial statements
4
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
See accompanying notes to condensed consolidated financial statements
5
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Microchip Technology Incorporated and its wholly-owned
subsidiaries (the "Company"). All intercompany balances and transactions have
been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles in the
United States of America, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments of a normal recurring nature which are necessary for a fair
presentation have been included. Certain information and footnote disclosures
normally included in audited consolidated financial statements have been
condensed or omitted pursuant to such Securities and Exchange Commission rules
and regulations. It is suggested that these condensed consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended March 31, 2001. The results of operations for the three
and six months ended September 30, 2001 are not necessarily indicative of the
results that may be expected for the year ended March 31, 2002.
On January 16, 2001, we merged with TelCom Semiconductor, Inc. The merger
has been accounted for as a pooling of interests. Accordingly, the condensed
consolidated financial statements have been restated to include the operations
of TelCom for all periods presented.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (amounts in thousands):
September 30, March 31,
2001 2001
---------- ----------
Trade accounts receivable $ 73,243 $ 79,966
Other 953 768
---------- ----------
74,196 80,734
Less allowance for doubtful accounts 4,219 4,191
---------- ----------
$ 69,977 $ 76,543
========== ==========
6
(3) INVENTORIES
The components of inventories consist of the following (amounts in
thousands):
September 30, March 31,
2001 2001
---------- ----------
Raw materials $ 8,060 $ 9,945
Work in process 63,506 51,197
Finished goods 22,589 34,557
---------- ----------
$ 94,155 $ 95,699
========== ==========
Inventory impairment charges establish a new cost basis for inventory and
charges are not subsequently reversed to income even if circumstances later
suggest that increased carrying amounts are recoverable.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (amounts in
thousands):
September 30, March 31,
2001 2001
---------- ----------
Land $ 23,685 $ 23,685
Building and building improvements 183,840 167,297
Machinery and equipment 712,187 688,096
Projects in process 214,172 225,172
---------- ----------
1,133,884 1,104,250
Less accumulated depreciation
and amortization 378,191 324,234
---------- ----------
$ 755,693 $ 780,016
========== ==========
Certain reclassifications have been made to the March 31, 2001 amounts to
properly reflect the portion of the Company's property in Puyallup, Washington
that has not been placed in service. This reclassification had no effect on the
Company's results of operations.
Depreciation and amortization expense attributed to property and equipment
was $54.4 million and $48.7 million for the six months ended September 30, 2001
and September 30, 2000, respectively.
(5) LINES OF CREDIT
The Company has an unsecured revolving credit facility with a syndicate of
banks totaling $100,000,000, bearing interest at LIBOR plus 0.625%. The Company
can elect to increase the facility to $150,000,000, subject to certain
conditions set forth in the credit agreement. This facility has a termination
date of May 31, 2003. The Company had no borrowings against this line of credit
as of September 30, 2001. The credit facility requires the Company to achieve
certain financial ratios and achieve operating results to maintain the credit
facility. The Company's ability to fully utilize this credit facility is
dependent on it being in compliance with such covenants and ratios. The Company
was in compliance with these covenants as of September 30, 2001.
7
The Company has an additional unsecured line of credit with various
financial institutions in Asia for up to $24,600,000 (U.S. Dollar equivalent).
These borrowings are predominantly denominated in U.S. Dollars, bearing interest
at the Singapore Interbank Offering Rate (SIBOR) of 2.70% at September 30, 2001
plus 0.5% (average) and expiring on various dates through September 2002. There
were no borrowings against this line of credit as of September 30, 2001, but an
allocation of $911,000 of the available line was made, relating to import
guarantees associated with the Company's business in Thailand.
(6) STOCKHOLDERS' EQUITY
The Company had a net shares settled forward contract outstanding as of
September 30, 2001. In connection with this contract, the Company made a net
delivery of 381,763 shares of its common stock during the six months ended
September 30, 2001, and received 184,893 shares of its common stock during the
six months ended September 30, 2000. The net shares settled forward contract
could obligate the Company to make a delivery of common stock in the future if
the price of its common stock is below the strike price of the contract. The
final settlement date of the net shares settled forward contract is May 2002.
(7) NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share amounts):
Three Months Ended Six Months Ended
September 30, September 30,
-------- -------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net income $ 23,148 $ 46,235 $ 44,921 $ 88,367
Weighted average common
shares outstanding 132,806 128,528 132,120 128,254
Dilutive effect of stock options 6,252 8,902 6,218 9,032
-------- -------- -------- --------
Weighted average common and
potential common shares
outstanding 139,058 137,430 138,338 137,286
======== ======== ======== ========
Basic net income per share $ 0.17 $ 0.36 $ 0.34 $ 0.69
======== ======== ======== ========
Diluted net income per share $ 0.17 $ 0.34 $ 0.32 $ 0.64
======== ======== ======== ========
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of
net sales for the periods indicated:
Three Months Ended Six Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
------------------ ------------------
2001 2000 2001 2000
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 50.0% 45.1% 50.0% 45.6%
------ ------ ------ ------
Gross profit 50.0% 54.9% 50.0% 54.4%
Research and development 14.2% 10.1% 14.2% 9.9%
Selling, general and
administrative 14.2% 14.0% 14.8% 14.3%
------ ------ ------ ------
Operating income 21.6% 30.8% 21.0% 30.2%
====== ====== ====== ======
NET SALES
We operate in one industry segment and engage primarily in the design,
development, manufacture and marketing of semiconductor products. We sell our
products to distributors and original equipment manufacturers, referred to as
OEMs, in a broad range of market segments, perform on-going credit evaluations
of our customers and generally require no collateral. Our net sales for the
quarter ended September 30, 2001 were $141.7 million, an increase of 2.0% from
the previous quarter's sales of $138.9 million, and a decrease of 27.1% from net
sales of $194.5 million in the quarter ended September 30, 2000. Our net sales
for the six months ended September 30, 2001 were $280.6 million, a decrease of
24.6% from our net sales of $372.2 million for the six months ended September
30, 2000. The decrease in our net sales in the three and six month periods ended
September 30, 2001, as compared to the three and six month periods ended
September 30, 2000, is the result of inventory corrections at our customers,
slowing demand from end markets and overall semiconductor industry conditions.
Net sales of our microcontroller products increased approximately 2% in the
three months ended September 30, 2001, as compared to the three months ended
June 30, 2001. The growth in net sales of our microcontroller products can be
attributed to our strong design win performance and the overall positioning of
our product offering. Net sales of our analog and interface products increased
approximately 18% in the three months ended September 30, 2001 as compared to
the three months ended June 30, 2001. The growth in net sales of our analog and
interface products can be attributed to our sales focus of designing our analog
products into the applications of our existing microcontroller customers. Net
sales of our Serial EEPROM memory products decreased approximately 6% in the
three months ended September 30, 2001, as compared to the three months ended
June 30, 2001. Unit volume sales of our Serial EEPROM memory products increased
in the three months ended September 30, 2001 over the three months ended June
30, 2001, however, average pricing decreases for these products of approximately
10% in the September quarter resulted in the decrease in net sales.
9
Sales by product line for the three and six months ended September 30, 2001
and 2000 were as follows (in thousands):
Our net sales in any given quarter depend upon a combination of shipments
from backlog and orders received in that quarter for shipment in that quarter,
which we refer to as turns orders. We measure turns orders at the beginning of a
quarter based on the orders needed to meet the revenue targets that we set
entering the quarter. We have emphasized our ability to respond quickly to
customer orders as part of our competitive strategy, resulting in customers
placing orders with shorter delivery schedules. Turns orders directly correlate
to product lead times, which are currently between two and four weeks generally,
as compared to four to 12 weeks generally a year ago. Shorter lead times have
the effect of increasing turns orders as a percentage of our business in any
given quarter and reducing our visibility on future product shipments. With
current lead times between two and four weeks, customers do not place orders in
advance and therefore, we do not currently have the order visibility we
experienced in the first half of fiscal 2001. The percentage of turns orders in
any given quarter is dependent on overall semiconductor industry conditions and
product lead times. As such, our percentage of turns orders has fluctuated over
the last three years between 20% and 65%. At October 1, 2001, we required turns
orders of approximately 51% in order to achieve our projected net sales for the
third quarter of fiscal 2002. At July 1, 2001, we required turns orders of
approximately 45% to achieve our projected net sales for the second quarter of
fiscal 2002.
Turns orders are difficult to predict, and we may not experience the
combination of turns orders and shipments from backlog in any quarter that would
be sufficient to achieve anticipated net sales. If we do not achieve a
sufficient level of turns orders in a particular quarter, our net sales and
operating results will suffer.
Historically, average selling prices in the semiconductor industry decrease
over the life of any particular product. The overall average selling prices of
our microcontroller products have remained relatively constant, while average
selling prices of our memory products have declined over time. During the fiscal
year ended March 31, 2001, we initially experienced price increases in our
Serial EEPROM products, but in the fourth quarter of fiscal 2001 we experienced
pricing and competitive pressures which resulted in price reductions averaging
approximately 10% as compared to the third quarter of fiscal 2001. Pricing for
Serial EEPROM products declined by an average of approximately 15% in the first
quarter of fiscal 2002, as compared to the fourth quarter of fiscal 2001.
Pricing for Serial EEPROM products declined by an average of approximately 10%
in the second quarter of fiscal 2002, as compared to the first quarter of fiscal
2002. We expect that pricing pressures affecting Serial EEPROM products will
continue throughout fiscal 2002.
10
We have experienced, and expect to continue to experience, moderate pricing
pressure in certain microcontroller product lines, due primarily to competitive
conditions. We have been able to maintain average selling prices for
microcontroller products by introducing new products with more features and
higher prices, thereby offsetting price declines in older products.
We may be unable to maintain average selling prices for our microcontroller
or other products as a result of increased pricing pressure in the future, which
would reduce our operating results.
THE FOREGOING STATEMENTS REGARDING THE LEVEL OF TURNS ORDERS REQUIRED TO
MEET OUR REVENUE TARGETS FOR THE THIRD QUARTER OF FISCAL 2002, AVERAGE SELLING
PRICES, PRICING PRESSURES AFFECTING OUR SERIAL EEPROM PRODUCTS THROUGHOUT FISCAL
2002, AND PRICING PRESSURES IN CERTAIN MICROCONTROLLER PRODUCT LINES ARE
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY BECAUSE OF
THE FOLLOWING FACTORS, AMONG OTHERS: THE LEVEL OF ORDERS THAT ARE RECEIVED AND
CAN BE SHIPPED IN A QUARTER; DEMAND FOR OUR PRODUCTS; INVENTORY MIX AND TIMING
OF CUSTOMER ORDERS; COMPETITION AND COMPETITIVE PRESSURES ON PRICING AND PRODUCT
AVAILABILITY; CUSTOMERS' INVENTORY LEVELS, ORDER PATTERNS AND SEASONALITY;
POSSIBLE DISRUPTION IN COMMERCIAL ACTIVITIES OCCASIONED BY TERRORIST ACTIVITY
AND ARMED CONFLICT, SUCH AS CHANGES IN LOGISTICS AND SECURITY ARRANGEMENTS, AND
REDUCED END-USER PURCHASES RELATIVE TO EXPECTATIONS; IMPACT OF EVENTS OUTSIDE
THE UNITED STATES, SUCH AS THE BUSINESS IMPACT OF FLUCTUATING CURRENCY RATES OR
UNREST OR POLITICAL INSTABILITY; THE CYCLICAL NATURE OF BOTH THE SEMICONDUCTOR
INDUSTRY AND THE MARKETS ADDRESSED BY OUR PRODUCTS; MARKET ACCEPTANCE OF OUR NEW
PRODUCTS AND THOSE OF OUR CUSTOMERS; FLUCTUATIONS IN PRODUCTION YIELDS,
PRODUCTION EFFICIENCIES AND OVERALL CAPACITY UTILIZATION; CHANGES IN PRODUCT
MIX; AND ABSORPTION OF FIXED COSTS, LABOR AND OTHER FIXED MANUFACTURING COSTS.
Distributors accounted for approximately 61% of our net sales in the three
months ended September 30, 2001, and approximately 62% of our net sales in the
three months ended September 30, 2000. Distributors accounted for approximately
62% of our net sales in the six months ended September 30, 2001, and
approximately 64% of our net sales in the six months ended September 30, 2000.
Our largest distributor accounted for approximately 13% of our total net sales
for the three and six months ended September 30, 2001, and approximately 14% of
our total net sales for the three and six months ended September 30, 2000.
Generally, we do not have long-term agreements with our distributors and our
distributors may terminate their relationships with us with little or no
advanced notice. The loss of, or the disruption in the operations of, one or
more of our distributors could reduce our future net sales in a given quarter
and could result in an increase in inventory returns.
Sales by geography for the three and six months ended September 30, 2001
and 2000 were as follows (in thousands):
Our sales to foreign customers have been predominately in Asia and Europe,
which we attribute to the manufacturing strengths in those areas for automotive,
communications, computing, consumer and industrial control products. Americas
sales include sales to customers in the United States, Canada, Central America
11
and South America. Sales to foreign customers accounted for approximately 68% of
our net sales in the three months ended September 30, 2001 and approximately 67%
of our net sales in the three months ended September 30, 2000. Sales to foreign
customers accounted for approximately 69% of our net sales in each of the six
month periods ending September 30, 2001 and September 30, 2000. The majority of
our foreign sales are U.S. Dollar denominated.
We enter into hedging transactions from time to time in an attempt to
minimize our exposure to currency rate fluctuations. Although none of the
countries in which we conduct significant foreign operations have had a highly
inflationary economy in the last five years, there is no assurance that
inflation rates or fluctuations in foreign currency rates in countries where we
conduct operations will not adversely affect our operating results in the
future.
GROSS PROFIT
Our gross profit was $70.9 million in the three months ended September 30,
2001, and $106.7 million in the three months ended September 30, 2000. Our gross
profit was $140.3 million in the six months ended September 30, 2001 and $202.5
million in the six months ended September 30, 2000. Gross profit as a percent of
sales was 50.0% in the three months ended September 30, 2001, and 54.9% in the
three months ended September 30, 2000. Gross profit as a percent of sales was
50.0% in the six months ended September 30, 2001, and 54.4% in the six months
ended September 30, 2000. The most significant factors affecting gross profit
percentage in the periods covered by this report were:
* reduced levels of manufacturing capacity utilization in the June 2001
and September 2001 quarters
* continued cost reductions in wafer fabrication and assembly and test
manufacturing in all periods covered by this report
* the ability to maintain average selling prices for our microcontroller
products where moderate pricing pressures have been offset by new
product introductions with more features and higher selling prices
* declines in Serial EEPROM memory product pricing in the June 2001 and
September 2001 quarters
* fluctuations in the product mix of proprietary microcontroller and
analog products and related commodity memory products as illustrated
in the chart in Net Sales on page 10, and
* cost reductions associated with one-week plant shutdowns in April 2001
and July 2001.
As of March 31, 2001, we had reduced cumulative wafer capacity at our wafer
fabs by approximately 24% in response to business conditions that resulted in
decreased product demand. During the June and September 2001 quarters our wafer
fabs operated at approximately 70% of their capacity due to the capacity
reductions implemented in the March 2001 quarter and the one-week plant
shutdowns in April 2001 and July 2001. We believe that these capacity reductions
have aligned our capacity with our current assessment of demand. Beginning with
the March 2001 quarter, our overall gross margins have been negatively impacted
by these actions due to the relatively high fixed costs inherent in our wafer
fabrication manufacturing, which continue even at lower capacity levels.
The start-up date of our Puyallup, Washington semiconductor manufacturing
complex has been delayed until December 2002, subject to business conditions and
capacity requirements. We currently intend to maintain the Puyallup facility at
a minimum cost basis until it is required for capacity expansion.
12
We continue to transition products to our 0.7-micron and 0.5-micron process
technologies to reduce future manufacturing costs. In the three and six months
ended September 30, 2001, approximately 80% of our production was on 8-inch
wafers. In fiscal 2001, products produced on 8-inch wafers increased from
approximately 55% at the beginning of fiscal 2001 to approximately 80% at the
end of fiscal 2001. We anticipate that gross margins will fluctuate over time,
driven primarily by the product mix of microcontroller products and related
memory products, manufacturing yields, fixed cost absorption, wafer fab loading
levels and competitive and economic conditions.
THE FOREGOING STATEMENTS RELATING TO OUR BELIEF THAT OUR CAPACITY REDUCTION
ACTIONS HAVE ALIGNED CAPACITY WITH OUR CURRENT ASSESSMENT OF DEMAND, THE
ANTICIPATED START-UP DATE OF THE PUYALLUP FACILITY, THE TRANSITION TO HIGHER
YIELDING MANUFACTURING PROCESSES TO REDUCE FUTURE OPERATING COSTS AND THE
FLUCTUATION OF GROSS MARGINS OVER TIME ARE FORWARD-LOOKING STATEMENTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS:
FLUCTUATIONS IN PRODUCTION YIELDS, PRODUCTION EFFICIENCIES AND OVERALL CAPACITY
UTILIZATION; ABSORPTION OF FIXED COSTS, LABOR AND OTHER DIRECT MANUFACTURING
COSTS; DEMAND FOR OUR PRODUCTS; COMPETITION AND COMPETITIVE PRESSURE ON PRICING;
POSSIBLE DISRUPTION IN COMMERCIAL ACTIVITIES OCCASIONED BY TERRORIST ACTIVITY
AND ARMED CONFLICT, SUCH AS CHANGES IN LOGISTICS AND SECURITY ARRANGEMENTS, AND
REDUCED END-USER PURCHASES RELATIVE TO EXPECTATIONS; IMPACT OF EVENTS OUTSIDE
THE UNITED STATES, SUCH AS THE BUSINESS IMPACT OF FLUCTUATING CURRENCY RATES OR
UNREST OR POLITICAL INSTABILITY; THE ABILITY TO INCREASE MANUFACTURING CAPACITY
AS NEEDED; COST AND AVAILABILITY OF RAW MATERIALS; CHANGES IN PRODUCT MIX; AND
OTHER INDUSTRY AND ECONOMIC CONDITIONS.
Currently, approximately half of our assembly operations are performed by
third-party contractors located throughout Asia. The balance of our assembly
operations is performed at our Thailand facility. As of September 30, 2001,
approximately 48% of our assembly requirements were being performed in our
Thailand facility, as compared to approximately 32% as of September 30, 2000.
Substantially all of our test requirements were being performed in our Thailand
facility as of September 30, 2001, as compared to approximately 82% as of
September 30, 2000. We believe that the assembly and test operations performed
at our Thailand facility provide us with significant cost savings when compared
to third-party contractor assembly and test costs, as well as increased control
of these portions of the manufacturing process.
Our reliance on third parties involves some reduction in our level of
control over the portions of our business that we subcontract. While we review
the quality, delivery and cost performance of these third-party contractors, our
future operating results could suffer if any third-party contractor is unable to
maintain manufacturing yields, assembly and test yields and costs at
approximately their current levels.
Our reliance on foreign operations, maintenance of substantially all of our
finished goods in inventory at foreign locations, and significant foreign sales
exposes us to foreign political and economic risks, including:
* political, social and economic instability
* trade restrictions and changes in tariffs
* import and export license requirements and restrictions
* difficulties in staffing and managing international operations
* disruptions in international transport or delivery
* fluctuations in currency exchange rates
* difficulties in collecting receivables
* economic slowdown in the worldwide markets served by us, and
* potentially adverse tax consequences.
13
To date, we have not experienced any significant interruptions in our
foreign business operations. If any of these risks materialize, our sales could
decrease and our operations performance could suffer.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended September 30,
2001 were $20.2 million, or 14.2% of sales, compared to $19.5 million, or 10.0%
of sales for the three months ended September 30, 2000. Research and development
expenses for the six months ended September 30, 2001 were $39.7 million, or
14.2% of sales, compared to $36.9 million, or 9.9% of sales for the six months
ended September 30, 2000. We are committed to investing in new and enhanced
products, including development systems software, and in our design and
manufacturing process technologies. We believe these investments are significant
factors in maintaining our competitive position. We expense all research and
development costs as incurred. Research and development expenses include
expenditures for labor, masks, prototype wafers, and expenses for the
development of process technologies, new packages, and software to support new
products and design environments.
Research and development expenses increased $0.7 million, or 3.4% for the
three months ended September 30, 2001 over the same period last year. Research
and development expenses increased $2.8 million, or 7.5% for the six months
ended September 30, 2001 over the same period last year. Research and
development expenses increased $0.7 million, or 3.2% for the three months ended
September 30, 2001 over the three months ended June 30, 2001. The primary reason
for the dollar increase in research and development costs in each of these
periods was the increased labor costs associated with expanding our technical
resources.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the three months ended
September 30, 2001 were $20.2 million, or 14.2% of sales, compared to $27.2
million, or 14.0% of sales for the three months ended September 30, 2000.
Selling, general and administrative expenses for the six months ended September
30, 2001 were $41.6 million, or 14.8% of sales, compared to $53.3 million, or
14.3% of sales in the six months ended September 30, 2000. Selling, general and
administrative expenses include salary expenses related to field sales,
marketing and administrative personnel, advertising and promotional
expenditures, and legal expenses. Selling, general and administrative expenses
also include costs related to direct sales force and field applications
engineers who work in sales offices worldwide to stimulate demand by assisting
customers in the use and proper selection of our products. Selling, general and
administrative expenses fluctuate over time, primarily due to revenue and
operating expense investment levels.
Selling, general and administrative expenses decreased $1.3 million, or
6.0% for the three months ended September 30, 2001 over the June 30, 2001
quarter. The primary reason for the dollar decrease in selling, general, and
administrative costs in the September 2001 quarter as compared to the June 2001
quarter relate to reductions in travel and sales meeting expenses. Selling,
general and administrative expenses decreased $7.1 million, or 26.0% for the
three months ended September 30, 2001 over the same period last year. Selling,
general and administrative expenses decreased $11.7 million, or 21.9%, for the
six months ended September 30, 2001 over the same period last year. The primary
reason for the dollar decreases in selling, general and administrative costs in
these periods relate to reductions in bonuses and recruitment costs and one-week
plant shutdowns in April 2001 and July 2001.
14
OTHER INCOME (EXPENSE)
Interest income in the three months ended September 30, 2001 decreased from
the corresponding period of the previous fiscal year as a result of lower
invested cash balances due primarily to the significant levels of capital
expenditures incurred. Additionally, the interest rates applicable to our
invested cash balances were significantly lower during the three months ended
September 30, 2001, as compared to the rates applying during the corresponding
period of the previous fiscal year. Although we will have higher invested cash
balances in the third quarter of fiscal 2002, we expect interest income to
remain relatively flat because the interest rates applying to these cash
balances will be lower.
THE FOREGOING STATEMENT REGARDING OUR ANTICIPATED INTEREST INCOME IN THE
THIRD QUARTER OF FISCAL 2002 IS A FORWARD-LOOKING STATEMENT. ACTUAL RESULTS
COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS: ACTUAL
LEVELS OF CASH INVESTED; INTEREST RATE FLUCTUATIONS; REVENUE LEVELS; RESULTS OF
OPERATIONS; AND GENERAL ECONOMIC CONDITIONS.
PROVISION FOR INCOME TAXES
Provisions for income taxes reflect tax on foreign earnings and federal and
state tax on U.S. earnings. We had an effective tax rate of 27.0% for the six
months ended September 30, 2001, and 27.1% for the six months ended September
30, 2000. We believe that our tax rate for the foreseeable future will be
approximately 27.0% due primarily to lower tax rates at our foreign locations.
THE FOREGOING STATEMENT REGARDING OUR ANTICIPATED FUTURE TAX RATE IS A
FORWARD-LOOKING STATEMENT. ACTUAL RESULTS COULD DIFFER MATERIALLY BECAUSE OF THE
FOLLOWING FACTORS, AMONG OTHERS: CURRENT TAX LAWS AND REGULATIONS; TAXATION
RATES IN GEOGRAPHIC REGIONS WHERE WE HAVE SIGNIFICANT OPERATIONS; AND CURRENT
TAX HOLIDAYS AVAILABLE IN FOREIGN LOCATIONS.
EURO CONVERSION ISSUES
We operate in the European Market and currently generate approximately
one-third of our total net sales from customers located in Europe. Our
commercial headquarters in Europe are located in the United Kingdom, which is
not currently one of the 11 member states of the European Union converting to a
common currency.
We currently conduct 97.7% of our business in Europe in U.S. Dollars and
0.4% of our business in Europe in Pounds Sterling. The balance of our net sales
in Europe is conducted in currencies which will eventually be replaced by the
Euro. We will monitor the potential commercial impact of converting a portion of
our current business to the Euro, but we do not currently anticipate any
material impact to our business or operations based on this transition.
THE FOREGOING STATEMENTS REGARDING THE ANTICIPATED IMPACT OF THE TRANSITION
TO THE EURO CURRENCY ARE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS: LEVELS OF SALES IN
EUROPE THAT MAY BE CONDUCTED IN THE EURO CURRENCY; AND FLUCTUATIONS IN CURRENCY
EXCHANGE RATES.
LIQUIDITY AND CAPITAL RESOURCES
We had $171.1 million in cash and cash equivalents at September 30, 2001,
an increase of $41.2 million from the March 31, 2001 balance. The increase in
cash and cash equivalents over this time period is primarily attributable to
cash generated from operating activities. We maintain an unsecured revolving
15
credit facility with a syndicate of banks totaling $100.0 million. We can elect
to increase the facility to $150.0 million, subject to certain conditions set
forth in the credit agreement. This facility has a termination date of May 31,
2003. There were no borrowings against this line of credit as of September 30,
2001. We are required to achieve certain financial ratios and operating results
to maintain this line of credit and were in compliance with these requirements
at September 30, 2001.
We also maintain an unsecured short-term line of credit for up to $24.6
million with various financial institutions in Asia. There were no borrowings
under the foreign line of credit as of September 30, 2001, but an allocation of
$911,000 of the available line was made, relating to import guarantees
associated with our business in Thailand. There are no covenants related to the
foreign line of credit.
At September 30, 2001, an aggregate of $123.7 million of our credit
facilities was available, subject to financial covenants and ratios with which
we were in compliance. Our ability to fully utilize our credit facilities is
dependent on our remaining in compliance with such covenants and ratios.
During the six months ended September 30, 2001, we generated $54.2 million
of cash from operating activities, a decrease of $125.1 million from the six
months ended September 30, 2000. The decrease in cash flow from operations was
primarily due to decreased profitability and the impact of changes in accounts
payable and accrued liabilities, depreciation and other assets and liabilities.
Our level of capital expenditures varies from time to time as a result of
actual and anticipated business conditions. Capital expenditures in the six
months ended September 30, 2001 were $30.9 million, as compared to $261.5
million for the six months ended September 30, 2000. The primary reason for the
dollar decrease in capital expenditures from the prior year was the reduction in
the level of capacity expansion activities in response to reduced demand.
Capital expenditures in the six months ended September 30, 2001 were primarily
for the addition of research and development equipment. We currently intend to
spend approximately $80.0 million during the next 12 months to invest in
equipment to maintain, and selectively increase, capacity to meet our currently
anticipated needs.
We expect to finance capital expenditures through our existing cash
balances, cash flows from operations, available debt arrangements and other
sources of financing, including issuance of equity and debt securities depending
on market conditions. We believe that the capital expenditures anticipated to be
incurred over the next 12 months will provide sufficient manufacturing capacity
to meet our currently anticipated needs.
THE FOREGOING STATEMENTS REGARDING THE ANTICIPATED LEVEL OF CAPITAL
EXPENDITURES OVER THE NEXT 12 MONTHS AND THE FINANCING AND SUFFICIENCY OF SUCH
CAPITAL EXPENDITURES ARE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY BECAUSE OF THE FOLLOWING FACTORS, AMONG OTHERS: THE CYCLICAL NATURE
OF THE SEMICONDUCTOR INDUSTRY AND THE MARKETS ADDRESSED BY OUR PRODUCTS; DEMAND
FOR OUR PRODUCTS; UTILIZATION OF CURRENT MANUFACTURING CAPACITY; MARKET
ACCEPTANCE OF OUR PRODUCTS AND OF OUR CUSTOMERS' PRODUCTS; THE AVAILABILITY AND
COST OF RAW MATERIALS, EQUIPMENT AND OTHER SUPPLIES; AND THE ECONOMIC, POLITICAL
AND OTHER CONDITIONS IN THE WORLDWIDE MARKETS SERVED BY US.
Net cash provided by financing activities was $16.9 million for the six
months ended September 30, 2001, as compared to $19.8 million for the six months
ended September 30, 2000. Repayments on lines of credit were $9.0 million for
the six months ended September 30, 2000. Proceeds from the sale of stock and put
options were $16.9 million in the six months ended September 30, 2001 and $28.8
million in the six months ended September 30, 2000.
16
We had a net shares settled forward contract outstanding as of September
30, 2001. In connection with this contract we made a net delivery of 381,763
shares of our common stock during the six months ended September 30, 2001, and
received 184,893 shares of our common stock during the six months ended
September 30, 2000. The net shares settled forward contract could obligate us to
make a delivery of common stock in the future if the price of our common stock
is below the strike price of the contract. The final settlement date of the net
shares settled forward contract is May 2002.
We believe that our existing sources of liquidity combined with cash
generated from operations will be sufficient to meet our currently anticipated
cash requirements for at least the next 12 months. However, the semiconductor
industry is capital intensive. In order to remain competitive, we must
constantly evaluate the need to make significant investments in capital
equipment for both production and research and development. We may seek
additional equity or debt financing during the next 12 months for the capital
expenditures required to maintain or expand our wafer fabrication and product
assembly and test facilities, or other purposes. The timing and amount of any
such capital requirements will depend on a number of factors, including demand
for our products, changes in industry conditions, product mix, and competitive
factors. There can be no assurance that such financing will be available on
acceptable terms, and any additional equity financing could result in
incremental dilution to existing investors.
ADDITIONAL FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS
When evaluating Microchip and its business, you should give careful
consideration to the factors listed below, in addition to the information
provided elsewhere in this Form 10-Q and in other documents that we file with
the Securities and Exchange Commission.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE DUE TO FACTORS THAT COULD
REDUCE OUR NET SALES AND PROFITABILITY.
Our quarterly operating results are affected by a wide variety of factors
that could reduce our net sales and profitability, many of which are beyond our
control. Some of the factors that may affect our operating results include:
* demand for our products in the distribution and OEM channels
* the level of orders that are received and can be shipped in a quarter
(turns orders)
* market acceptance both of our products and our customers' products
* customer order patterns and seasonality
* possible disruption in commercial activities occasioned by terrorist
activity and armed conflict, such as changes in logistics and security
arrangements, and reduced end-user purchases relative to expectations
* impact of events outside the United States, such as the business
impact of fluctuating currency rates or unrest or political
instability
* disruption in the supply of wafers or assembly services
* availability of manufacturing capacity and fluctuations in
manufacturing yields
* the availability and cost of raw materials, equipment and other
supplies
* economic, political and other conditions in the worldwide markets
served by us.
We believe that period-to-period comparisons of our operating results are
not necessarily meaningful and that you should not rely upon any comparisons as
indications of future performance. In future periods, our operating results may
fall below the expectations of public market analysts and investors, which would
likely have a negative effect on the price of our common stock.
17
OUR OPERATING RESULTS WILL SUFFER IF WE FAIL TO MAINTAIN MANUFACTURING
YIELDS.
The manufacture and assembly of integrated circuits, particularly
non-volatile, erasable CMOS memory and logic devices such as those that we
produce, are complex processes. These processes are sensitive to a wide variety
of factors, including the level of contaminants in the manufacturing
environment, impurities in the materials used and the performance of our
fabrication personnel and equipment. As is typical in the semiconductor
industry, we have from time to time experienced lower than anticipated
manufacturing yields. Our operating results will suffer if we are unable to
maintain yields at approximately the current levels.
INTENSE COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED SALES OF OUR
PRODUCTS AND REDUCED MARKET SHARE.
The semiconductor industry is intensely competitive and has been
characterized by price erosion and rapid technological change. We compete with
major domestic and international semiconductor companies, many of which have
greater market recognition and substantially greater financial, technical,
marketing, distribution and other resources than we have with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Emerging companies are also increasing their participation in the market for
embedded control applications. In addition, our ability to compete successfully
depends on a number of factors both within and outside our control, including:
* the quality, performance, reliability, features, ease of use, pricing
and diversity of our products
* the quality of our customer services and our ability to address the
needs of our customers
* our success in designing and manufacturing new products including
those implementing new technologies
* manufacturing capacity utilization and manufacturing yields
* hiring and retention of qualified engineering and management personnel
* adequate supplies of raw materials and other supplies at acceptable
prices
* the rate at which customers incorporate our products into their own
products
* product introductions by our competitors
* the number, nature and success of our competitors in a given market
* general market and economic conditions, and
* protection of our products and processes by effective utilization of
intellectual property laws.
We may be unable to compete successfully in the future, which could harm
our business.
OUR OPERATING RESULTS MAY BE IMPACTED BY THE WIDE FLUCTUATIONS OF SUPPLY
AND DEMAND IN THE SEMICONDUCTOR INDUSTRY.
The semiconductor industry is characterized by wide fluctuations of supply
and demand. The industry is currently experiencing a significant economic
downturn, characterized by diminished product demand and production
over-capacity. We have sought to reduce our exposure to this industry
cyclicality by selling proprietary products, that cannot be easily or quickly
replaced, to a geographically diverse base of customers across a broad range of
market segments. However, we have experienced substantial period-to-period
fluctuations in operating results in recent quarters and may, in the future,
experience period-to-period fluctuations in operating results due to general
industry or economic conditions.
18
WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL TO BE SUCCESSFUL, AND
COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE IN OUR MARKET.
Our success depends to a significant extent upon the efforts and abilities
of our senior management, engineering and other personnel. The competition for
qualified engineering and management personnel is intense. We may be
unsuccessful in retaining our existing key personnel or in attracting and
retaining additional key personnel that we require. The loss of the services of
one or more of our key personnel or the inability to add key personnel could
harm our business. We have no employment agreements with any member of our
senior management team.
OUR SUCCESS DEPENDS ON OUR ABILITY TO INTRODUCE NEW PRODUCTS ON A TIMELY
BASIS.
Our future operating results will depend to a significant extent on our
ability to develop and introduce new products on a timely basis which can
compete effectively on the basis of price and performance and which address
customer requirements. The success of new product introductions depends on
various factors, including:
* proper new product selection
* timely completion and introduction of new product designs
* development of support tools and collateral literature that make
complex new products easy for engineers to understand and use, and
* market acceptance of our customers' end products.
Because our products are complex, we have experienced delays from time to
time in completing development of new products. In addition, our new products
may not receive or maintain substantial market acceptance. We may be unable to
design, develop and introduce competitive products on a timely basis, which
could reduce our future operating results.
Our success also depends upon our ability to develop and implement new
design and process technologies. Semiconductor design and process technologies
are subject to rapid technological change and require significant research and
development expenditures. Companies in the industry have experienced
difficulties in effecting transitions to advanced process technologies and,
consequently, have suffered reduced manufacturing yields or delays in product
deliveries. Our future operating results could be reduced if our transition to
advanced process technologies is substantially delayed or inefficiently
implemented.
WE ARE DEPENDENT ON SEVERAL THIRD-PARTY CONTRACTORS IN ASIA TO PERFORM KEY
MANUFACTURING FUNCTIONS FOR US.
We depend on several third-party contractors located throughout Asia for a
portion of the assembly and testing of our products and for a portion of the
wafer fabrication of our analog products. Although we seek to reduce our
dependence on these third-party contractors, disruption or termination of any of
these sources could harm our business and operating results. Our reliance on
third parties involves some reduction in our level of control over the portions
of our business that we subcontract. Our future operating results could suffer
if any third-party contractor were to experience financial, operations or
production difficulties, or if they were unable to maintain manufacturing
yields, assembly and test yields and costs at approximately their current
levels.
19
WE MAY LOSE SALES IF OUR SUPPLIERS OF RAW MATERIALS AND EQUIPMENT FAIL TO
MEET OUR NEEDS.
Our semiconductor manufacturing operations require raw materials and
equipment that must meet exacting standards. We generally have more than one
source for these supplies, but there are only a limited number of suppliers
capable of delivering various raw materials and equipment that meet our
standards. In addition, the raw materials and equipment necessary for our
business could become more difficult to obtain as worldwide demand for
semiconductor products increases. We have experienced supply shortages from time
to time in the past, and on occasion our suppliers have told us they need more
time than expected to fill our orders. An interruption of any raw materials or
equipment sources could harm our business.
WE ARE HIGHLY DEPENDENT ON FOREIGN SALES AND OPERATIONS, WHICH EXPOSES US
TO FOREIGN POLITICAL AND ECONOMIC RISKS.
Sales to foreign customers account for a substantial portion of our net
sales. During the quarter ended September 30, 2001, and for the fiscal year
ended March 31, 2001, approximately 68% of our net sales were made to foreign
customers. We purchase a substantial portion of our raw materials and equipment
from foreign suppliers. In addition, we own assembly and test facilities located
near Bangkok, Thailand. We also use various third-party contractors located
throughout Asia for a portion of our assembly and test requirements and a
portion of our analog product wafer fabrication requirements.
POTENTIAL INTELLECTUAL PROPERTY CLAIMS AND LITIGATION COULD SUBJECT US TO
SIGNIFICANT LIABILITY FOR DAMAGES AND COULD INVALIDATE OUR PROPRIETARY RIGHTS.
Our ability to obtain patents, licenses and other intellectual property
rights covering our products and manufacturing processes is important for our
success. To that end, we have acquired certain patents and patent licenses and
intend to continue to seek patents on our inventions and manufacturing
processes. The process of seeking patent protection can be long and expensive,
and patents may not be issued from currently pending or future applications. In
addition, our existing patents and any new patents that are issued may not be of
sufficient scope or strength to provide meaningful protection or any commercial
advantage to us. We may be subject to or may initiate interference proceedings
in the U.S. Patent and Trademark Office, which can require significant financial
and management resources. In addition, the laws of certain foreign countries do
not protect our intellectual property rights to the same extent as the laws of
the United States.
As is typical in the semiconductor industry, we and our customers have from
time to time received, and may in the future receive, communications from third
parties asserting patents or other intellectual property rights on certain of
our products and technologies. In the event a third party were to make a valid
intellectual property claim and a license or other agreement was not available
on commercially reasonable terms, our operating results could be harmed.
Litigation, which could result in substantial cost to us and a diversion of our
resources, may also be necessary to enforce our patents or other intellectual
property rights or to defend us against claimed infringement of the rights of
others. An unfavorable outcome in any such suit could harm our business,
financial condition or results of operations.
OUR MANUFACTURING FACILITIES MAY BE SUBJECT TO DISRUPTION FOR REASONS
BEYOND OUR CONTROL.
Operations at any of our primary manufacturing facilities, or at any of our
wafer fabrication or test and assembly subcontractors, may be disrupted for
reasons beyond our control, including work stoppages, fire, earthquake, floods,
or other natural disasters. If operations at any of our facilities or by any of
20
our subcontractors are interrupted, we may not be able to shift production to
other facilities on a timely basis. If this occurs, we may experience delays in
shipments of products to our customers and alternate sources for production may
be unavailable on acceptable terms. This could result in the cancellation of
orders or loss of customers.
WE ARE SUBJECT TO STRINGENT ENVIRONMENTAL REGULATION, WHICH MAY FORCE US TO
INCUR SIGNIFICANT EXPENSES.
We must comply with many different federal, state and local governmental
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in our manufacturing processes.
Although we believe that our activities conform to presently applicable
environmental regulations, our failure to comply with present or future
regulations could result in the imposition of fines, suspension of production or
a cessation of operations. Any such regulation could require us to acquire
costly equipment or to incur other significant expenses to comply with
environmental regulations. Any failure by us to control the use of or adequately
restrict the discharge of hazardous substances could subject us to future
liabilities. Environmental problems may occur that could subject us to future
costs or liabilities.
In 1993, TelCom acquired the semiconductor manufacturing operations of
Teledyne, Inc. previously conducted at TelCom's Mountain View, California
facility. The semiconductor manufacturing operations conducted by Teledyne at
the facility allegedly contaminated the soil and groundwater of the facility,
and the groundwater of properties located down-gradient of the facility.
Although TelCom was indemnified by Teledyne against, among other things, any
liabilities arising from any such contamination, and although we should be able
to benefit from this indemnification as a successor to TelCom's business, we
cannot assure you that claims will not be made against us or that such
indemnification will be available or will provide meaningful protection at the
time any such claim is brought. To the extent that we are subject to a claim
that is not covered by the indemnity from Teledyne or as to which Teledyne is
unable to provide indemnification, our financial condition or operating results
could suffer.
THE FUTURE TRADING PRICE OF OUR COMMON STOCK COULD BE SUBJECT TO WIDE
FLUCTUATIONS IN RESPONSE TO A VARIETY OF FACTORS.
The market price of our common stock has fluctuated significantly in the
past and is likely to fluctuate in the future. The future trading price of our
common stock could be subject to wide fluctuations in response to a variety of
factors, many of which are beyond our control, including:
* quarterly variations in our operating results and the operating
results of other semiconductor companies
* actual or anticipated announcements of technical innovations or new
products by us or our competitors
* changes in analysts' estimates of our financial performance or
buy/sell recommendations
* general conditions in the semiconductor industry, and
* worldwide economic and financial conditions.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the market prices for many high
technology companies and that often have been unrelated to the operating
performance of such companies. These broad market fluctuations and other factors
may harm the market price of our common stock.
21
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS 144
The Financial Accounting Standards Board, or FASB, recently issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that is
applicable to financial statements issued for fiscal years beginning after
December 15, 2001. The FASB's new rules on the asset impairment supersede FASB
Statement 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and portions of APB Opinion 30, "Reporting
the Results of Operations." SFAS No. 144 provides a single accounting model for
long-lived assets to be disposed of and significantly changes the criteria that
must be met to classify an asset as "held-for-sale." Classification as
"held-for-sale" is an important distinction since such assets are not
depreciated and are stated at the lower of fair value and carrying amount. SFAS
No. 144 also requires expected future operating losses from discontinued
operations to be displayed in the period(s) in which the losses are incurred,
rather than as of the measurement date as presently required. The provisions of
SFAS No. 144 are not expected to have an effect on our financial position or
operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our investment portfolio, consisting of fixed income securities, was $164.0
million as of September 30, 2001, and $130.1 million as of March 31, 2001. These
securities, like all fixed income instruments, are subject to interest rate risk
and will decline in value if market interest rates increase. If market rates
were to increase immediately and uniformly by 10% from the levels of September
30, 2001 and March 31, 2001, the decline in the fair value of our investment
portfolio would not be material. Additionally, we have the ability to hold our
fixed income investments until maturity and, therefore, we would not expect to
recognize an adverse impact on income or cash flows.
We have international operations and are thus subject to foreign currency
rate fluctuations. To date, our exposure related to exchange rate volatility has
not been significant. If the foreign currency rates fluctuate by 15% from the
rates at September 30, 2001 and March 31, 2001, the effect on our financial
position and results of operations would not be material.
During the normal course of our business, we are routinely subjected to a
variety of market risks, examples of which include, but are not limited to,
interest rate movements and foreign currency fluctuations, as we discuss in this
Item 3, and collectability of accounts receivable. We constantly assess these
risks and have established policies and procedures to protect against the
adverse affects of these other potential exposures. Although we do not
anticipate any material losses in these risk areas, no assurance can be made
that material losses will not be incurred in these areas in the future.
We believe that our market risk, as discussed in this Item 3, has not
materially changed from March 31, 2001.
22
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) We held our Annual Meeting of Stockholders on August 17, 2001.
(b) Steve Sanghi, Albert J. Hugo-Martinez, L.B. Day, Matthew W. Chapman and
Wade F. Meyercord were elected as Directors at the Annual Meeting.
(c) The results of the vote on the matters voted upon at the Annual Meeting
were as follows:
(i) ELECTION OF DIRECTORS:
DIRECTOR FOR WITHHELD/ABSTAIN
-------- --- ----------------
Steve Sanghi 99,873,318 19,182,316
Albert J. Hugo-Martinez 118,901,038 154,596
L.B. Day 118,904,059 151,575
Matthew W. Chapman 118,915,451 140,183
Wade F. Meyercord 118,906,147 149,487
(ii) APPROVAL OF THE 2001 MICROCHIP EMPLOYEE STOCK PURCHASE PLAN:
FOR AGAINST WITHHELD/ABSTAIN BROKER NON VOTES
--- ------- ---------------- ----------------
117,042,422 1,933,246 79,966 -0-
(iii) RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING MARCH 31, 2002:
FOR AGAINST WITHHELD/ABSTAIN BROKER NON VOTES
--- ------- ---------------- ----------------
118,500,589 485,805 69,240 -0-
The foregoing matters are described in more detail in our definitive proxy
statement dated July 9, 2001 relating to the Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 10.1
2001 Microchip Employee Stock Purchase Plan.
(b) Reports on Form 8-K.
None.
23
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.
MICROCHIP TECHNOLOGY INCORPORATED
Date: NOVEMBER 7, 2001 By: /s/ GORDON W. PARNELL
---------------- ------------------------------------------
Gordon W. Parnell
Vice President and Chief Financial Officer
(Duly Authorized Officer, and
Principal Financial and Accounting Officer)
24