<PAGE> 1
UNITED STATES 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 OCTOBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-5609
UNITRODE CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 04-2271186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7 CONTINENTAL BOULEVARD, MERRIMACK, NEW HAMPSHIRE 03054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 424-2410
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of 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
----- -----
There were 31,706,255 shares of common stock outstanding as of October 31, 1998.
-1-
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unitrode Corporation and Consolidated Subsidiaries
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
October 31, 1998 January 31, 1998
Assets (Unaudited)
- -------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 78,603 $ 67,956
Short-term investments - 17,061
Accounts receivable, net of allowance
of $507 in October, 1998
and $489 in January, 1998 24,008 29,109
Notes receivable 725 709
Inventories:
Raw materials 1,839 2,654
Work in process 14,143 9,998
Finished goods 6,462 5,082
-------- --------
Total inventories 22,444 17,734
-------- --------
Deferred income taxes 6,225 8,744
Prepaid expenses and other
current assets 3,719 4,201
-------- --------
Total current assets 135,724 145,514
-------- --------
Property, plant and equipment, at cost 152,275 151,671
Less accumulated depreciation 75,080 68,019
-------- --------
Property, plant and equipment, net 77,195 83,652
-------- --------
Prepayment for production purchases 3,360 3,360
Notes and other receivables, net
of discount 2,443 2,828
Deferred income taxes - 403
Restricted cash and investments 985 1,180
Excess of cost over net assets acquired,
net of accumulated amortization of
$2,607 in October, 1998 and
$2,394 in January, 1998 1,483 1,696
Other assets and deferred charges 1,848 4,254
-------- --------
Total assets $223,038 $242,887
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE> 3
Unitrode Corporation and Consolidated Subsidiaries
Balance Sheets
(in thousands except share data)
<TABLE>
<CAPTION>
October 31, 1998 January 31, 1998
Liabilities and Stockholders' Equity (Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,507 $ 16,125
Income taxes payable 956 4,282
Accrued employee compensation and benefits 2,259 11,155
Accrued distributor liability 6,028 3,348
Capital lease obligations 588 1,229
Deferred income on shipments to distributors - 1,250
Other current liabilities 5,475 7,758
-------- --------
Total current liabilities 24,813 45,147
-------- --------
Deferred income taxes 1,670 2,322
Capital lease obligations 321 702
Other long-term liabilities 946 1,130
-------- --------
Total liabilities 27,750 49,301
-------- --------
Stockholders' equity:
Common stock,$.01 par value:
Authorized - 60,000,000 shares
Issued - 31,706,255 in October, 1998
and 31,316,099 in January, 1998 317 313
Additional paid-in capital 74,396 71,168
Retained earnings 121,346 123,226
Unrealized gain on investments - 12
-------- --------
196,059 194,719
Less: Deferred compensation 771 1,133
-------- --------
Total stockholders' equity 195,288 193,586
-------- --------
Total liabilities and
stockholders' equity $223,038 $242,887
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 4
Unitrode Corporation and Consolidated Subsidiaries
Statements of Operations
(Unaudited)
(in thousands except share data)
<TABLE>
<CAPTION>
For the Three Months Ended October 31, 1998 November 1, 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 40,403 $ 59,348
Cost of revenues 21,373 27,890
------------ -----------
Gross profit 19,030 31,458
------------ -----------
Operating expenses:
Research and development expenses 5,031 5,491
Selling, general and administrative
expenses 7,481 9,741
New fab pre-operating expenses - 1,506
Merger costs 354 -
Restructuring and other costs 5,237 -
------------ -----------
Total operating expenses 18,103 16,738
------------ -----------
Income from operations 927 14,720
------------ -----------
Other income (expense):
Royalty income 416 716
Non-operating income (expense), net (6,645) 112
Interest income, net 928 885
------------ -----------
Total other income (expense) (5,301) 1,713
------------ -----------
Income (loss) before income tax
provision (benefit) (4,374) 16,433
Income tax provision (benefit) (1,508) 5,935
------------ -----------
Net income (loss) $ (2,866) $ 10,498
============ ===========
Earnings (loss) per common share:
Basic $ (.09) $ .34
============ ===========
Diluted $ (.09) $ .31
============ ===========
Average common and common equivalent
shares outstanding:
Basic 31,678,484 30,941,945
============ ===========
Diluted 31,678,484 33,333,312
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE> 5
Unitrode Corporation and Consolidated Subsidiaries
Statements of Operations
(Unaudited)
(in thousands except share data)
<TABLE>
<CAPTION>
For the Nine Months Ended October 31, 1998 November 1, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 116,232 $ 171,535
Cost of revenues 64,302 81,074
------------ ------------
Gross profit 51,930 90,461
------------ ------------
Operating expenses:
Research and development expenses 14,252 16,033
Selling, general and administrative
expenses 23,179 29,196
New fab pre-operating expenses 2,075 4,651
Merger costs 2,672 -
Restructuring and other costs 6,504 -
------------ ------------
Total operating expenses 48,682 49,880
------------ ------------
Income from operations 3,248 40,581
------------ ------------
Other income (expense):
Royalty income 1,416 2,365
Non-operating expenses, net (8,924) (220)
Interest income, net 2,728 2,371
------------ ------------
Total other income (expense) (4,780) 4,516
------------ ------------
Income (loss) before income tax provision (1,532) 45,097
Income tax provision 372 16,526
------------ ------------
Net income (loss) $ (1,904) $ 28,571
============ ============
Earnings (loss) per common share:
Basic $ (.06) $ .94
============ ============
Diluted $ (.06) $ .87
============ ============
Average common and common equivalent
shares outstanding:
Basic 31,570,572 30,485,006
============ ============
Diluted 31,570,572 32,658,106
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE> 6
Unitrode Corporation and Consolidated Subsidiaries
Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended October 31, 1998 November 1, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,904) $ 28,571
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 10,937 9,894
Deferred and other compensation 1,181 71
Writedown of assets 6,786 1,105
Deferred income taxes 2,190 (520)
Other, net (279) 7
(Increase) decrease in assets:
Accounts receivable 3,690 (13,155)
Inventories (6,614) 310
Other current and long-term assets 590 (652)
Increase (decrease) in liabilities:
Accounts payable (6,554) 2,538
Income taxes payable (3,342) 1,701
Accrued employee compensation and benefits (8,846) 7,240
Accrued distributor liability 2,670 1,836
Deferred income on shipments to distributors (1,112) (61)
Other current and long-term liabilities (2,402) 2,567
-------- --------
Total adjustments (1,105) 12,881
-------- --------
Net cash provided (used) by operating activities (3,009) 41,452
-------- --------
Cash flows from investing activities:
Property, plant and equipment and deposits (6,268) (36,497)
Proceeds on sale of assets 149 95
Repayment of notes receivable 666 751
Payment of note for wafer agreement - (2,000)
Restricted cash and investments (2) (369)
Maturities of short-term investments 26,431 46,546
Purchases of short-term investments (8,905) (46,837)
-------- --------
Net cash provided (used) by investing activities 12,071 (38,311)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 2,123 10,556
Purchase of common stock - (274)
Principal payments under capital lease obligations (940) (1,068)
-------- --------
Net cash provided by financing activities 1,183 9,214
-------- --------
Addition of Benchmarq's net cash activity for January, 1998 402 -
-------- --------
Net increase in cash and cash equivalents 10,647 12,355
Cash and cash equivalents at beginning of period 67,956 54,587
-------- --------
Cash and cash equivalents at end of period $ 78,603 $ 66,942
======== ========
Supplemental information:
Interest paid $ 115 $ 211
Income taxes paid, net of tax refunds $ 2,047 $ 15,915
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE> 7
Unitrode Corporation and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
October 31, 1998
(Unaudited)
(in thousands except share data)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Unitrode Corporation and its wholly owned subsidiaries (see Note 6),
and have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
included in the annual reports on Form 10-K of Unitrode Corporation (the
"Company") for the year ended January 31, 1998 and Benchmarq Microelectronics,
Inc. ("Benchmarq") for the year ended December 31, 1997.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the nine-month period
ended October 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending January 31, 1999. Certain amounts for fiscal year
1998 have been reclassified to conform with presentation of similar amounts in
fiscal year 1999.
NOTE 2 - NEW ACCOUNTING STANDARDS
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires disclosure of comprehensive income in interim periods and
additional disclosures of the components of comprehensive income on an annual
basis. Comprehensive income includes all changes in equity during a period
except those resulting from investments by and distributions to the Company's
shareholders. For the periods ended October 31, 1998 and November 1, 1997,
components of the Company's comprehensive income (loss) are listed below:
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------------------------------------------------------------------
Oct. 31, Nov. 1, Oct. 31, Nov. 1,
1998 1997 1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(2,866) $10,498 $(1,904) $28,571
Unrealized gain (loss) on investments (2) 2 (12) 2
------- ------- ------- -------
Comprehensive income (loss) $(2,868) $10,500 $(1,916) $28,573
======= ======= ======= =======
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of this statement will not impact the Company's consolidated financial
position, results of operations or cash flows. The Company will adopt this
statement in its year-end financial statements for fiscal year 1999.
-7-
<PAGE> 8
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Adoption of this
statement will not have a significant effect on the Company's results of
operations or its financial position. The Company will adopt this statement in
its financial statements for fiscal year 2001.
NOTE 3 - EARNINGS PER SHARE
The following tables sets forth the computation of basic and diluted earnings
per share.
<TABLE>
<CAPTION>
Three months ended October 31, 1998 November 1, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ (2,866) $ 10,498
=========== ===========
Basic weighted average shares outstanding 31,678,484 30,941,945
Effect of dilutive securities-stock options - 2,372,598
Effect of dilutive securities-stock warrants - 18,769
----------- -----------
Diluted weighted average shares outstanding 31,678,484 33,333,312
=========== ===========
Basic earnings per share $ (.09) $ .34
=========== ===========
Diluted earnings per share $ (.09) $ .31
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended October 31, 1998 November 1, 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ (1,904) $ 28,571
=========== ===========
Basic weighted average shares outstanding 31,570,572 30,485,006
Effect of dilutive securities-stock options - 2,061,229
Effect of dilutive securities-stock warrants - 111,871
----------- -----------
Diluted weighted average shares outstanding 31,570,572 32,658,106
=========== ===========
Basic earnings per share $ (.06) $ .94
=========== ===========
Diluted earnings per share $ (.06) $ .87
=========== ===========
</TABLE>
Options to purchase a total of 638,439 and 884,716 shares of common stock at
prices ranging from $0.28 to $11.59 and $0.28 to $14.38 were outstanding for the
three months and nine months ended October 31, 1998, respectively, but not
included in the computation of diluted earnings per share because the Company
reported a net loss for these periods.
In addition, the following stock options were not included in the computation of
diluted earnings per share because their exercise prices were greater than the
average market price of the common shares as of such date and were, therefore,
anti-dilutive under the Treasury stock method.
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------ -----------------------
Range of Range of
Exercise Exercise
Options Prices Options Prices
------- -------- ------- ---------
<S> <C> <C> <C> <C>
October 31, 1998 3,862,026 $12.25-$40.36 2,116,983 $14.50-$40.36
November 1, 1997 3,626 $40.36 16,319 $29.53-$40.36
</TABLE>
-8-
<PAGE> 9
NOTE 4 - NON-OPERATING INCOME (EXPENSE)
<TABLE>
<CAPTION>
Three months ended October 31, 1998 November 1, 1997
----------------------------------------------------------------------------------
<S> <C> <C>
Foreign exchange losses $ (7) $ (14)
Gains on sale of fixed assets 88 7
Net rental income 115 119
Legal settlements (6,841) -
------- -----
Total $(6,645) $ 112
======= =====
</TABLE>
<TABLE>
<CAPTION>
Nine months ended October 31, 1998 November 1, 1997
---------------------------------------------------------------------------------
<S> <C> <C>
Foreign exchange losses $ (14) $ (80)
Gains on sale of fixed assets 75 4
Net rental income 356 321
Legal settlements (6,841) -
Writedown of investments (2,500) (465)
------- -----
Total $(8,924) $(220)
======= =====
</TABLE>
NOTE 5 - SPECIAL CHARGES
FIRST QUARTER OF FISCAL YEAR 1999
During the first quarter of fiscal year 1999, the Company recorded pre-tax
special charges totaling $6.4 million of which $2.6 million was charged to cost
of sales, $1.3 million was charged to restructuring and other costs in operating
expenses, and $2.5 million was charged to other income (expense).
The charge of $2.6 million to cost of sales was for inventory writeoffs and
consisted primarily of a custom product which was manufactured in the first
quarter of fiscal year 1999 for a specific disk drive customer. The product did
not meet the customer's specifications and has been scrapped.
The $1.3 million charged to operating expenses was for actions intended to align
the business with reduced customer demand in fiscal year 1999. These
restructuring charges consisted of $0.8 million used to writedown equipment
associated with the production of 4" bipolar wafers to net realizable value and
$0.5 million for severance costs associated with a reduction in the workforce of
about 5% or 34 employees. The annualized reduction in cost resulting from the
restructuring were anticipated to be approximately $1.8 million.
The $2.5 million charge to other income (expense) was to account for a reduction
in the carrying value of the Company's equity investment in an outside foundry
in which the Company maintained a $2.5 million equity investment and a $1.0
million note receivable. The significant reduction in the Company's business in
the first quarter of fiscal year 1999 and the anticipated ramp-up of the
Company's 6" fab in the second half of the year has substantially reduced future
demand for wafers produced at this foundry. The Company currently is the primary
customer of this foundry. The material reduction in wafer output has negatively
impacted this foundry's financial condition and cash flows. The Company did not
establish a valuation allowance on its $1.0 million note receivable as it
believed that the fair market value of the foundry's tangible assets were
sufficient to recover the value of the note.
THIRD QUARTER OF FISCAL YEAR 1999
During the third quarter of fiscal year 1999, the Company recorded pre-tax
special charges totaling $12.1 million of which $5.2 million was charged to
restructuring and other costs in operating expenses, and $6.9 million was
charged to other income (expense).
-9-
<PAGE> 10
THIRD QUARTER OF FISCAL 1999 (continued)
The $5.2 million charged to operating expenses was primarily for costs related
to the integration of Benchmarq Microelectronics, Inc. ("Benchmarq"). These
costs principally consisted of $1.2 million for equipment writedowns intended to
consolidate back-end operations, $2.8 million in severance costs to reduce
redundant activities, and $1.2 million in other integration costs which includes
costs associated with relocating the Dallas test operations to the Company's
Singapore facility.
The $6.9 million charge to other income (expense) consisted of costs incurred to
settle a patent infringement lawsuit between Dallas Semiconductor Corporation
and Benchmarq as well as a patent infringement lawsuit initiated by the Lemelson
Medical Education & Research Foundation, Limited Partnership against Unitrode.
SPECIAL CHARGES ROLLFORWARD:
<TABLE>
<CAPTION>
Balance Sheet
--------------------------------------------------------------------------
Valuation Allowances
Special -------------------- Legal Other
Charges Fixed Employee Costs Paid-in Integration
Provision Inventory Assets Investmts. Accruals Accrual Capital Accruals
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Q1 FY99 Charge $ 6,363 $2,596 $ 665 $2,500 $ 520 $ - $ - $ 82
Q3 FY99 Charge 12,078 - 1,177 - 2,009 6,841 819 1,232
FY99 Payments/Disposals - (2,203) (558) - (663) (6,841) - (815)
------- ------ ------ ------ ------ ------- --- ------
Q3 FY99 Balance $18,441 $ 393 $1,284 $2,500 $1,866 $ - $819 $ 499
======= ====== ====== ====== ====== ======= ==== ======
</TABLE>
NOTE 6 - BENCHMARQ MERGER
On August 3, 1998, the Company completed its acquisition of Benchmarq, a Dallas,
Texas provider of integrated circuits and electronics modules for portable and
power-sensitive electronics systems. In connection with the transaction, the
Company issued approximately 7.2 million shares of its common stock. The merger
was accounted for on a pooling-of-interests basis. Accordingly, the Company's
consolidated financial statements have been restated to include the accounts and
operations of Benchmarq for all periods presented. The Company recorded combined
merger-related transaction costs of $2.7 million primarily for professional
services, such as investment banking, legal, and accounting.
Due to the different fiscal year-ends of the Company and Benchmarq, prior year
financial information for different fiscal periods has been combined. The
audited balance sheet as of January 31, 1998 combines the Company's January 31,
1998 financial position with Benchmarq's December 31, 1997 financial position.
The Company's statements of operations and cash flows for its fiscal year ended
January 31, 1998 are combined with Benchmarq's statements of operations and cash
flows for the fiscal year ended December 31, 1997. Accordingly, the statements
of operations combine the Company's operating results for the three and nine
months ended November 1, 1997 with the corresponding Benchmarq operating results
for the three and nine months ended September 30, 1997. The statement of cash
flows combines the Company's cash flows for the nine months ended November 1,
1997 with the corresponding Benchmarq cash flows for the nine months ended
September 30, 1997. Benchmarq's net income for the one month period ended
January 31, 1998 was $24,000 and was excluded from the Company's combined fiscal
year 1999 operating results. Benchmarq's net cash flows for the one month period
ended January 31, 1998 were $402,000 and have been added as a separate line in
the Company's combined fiscal year 1999 statement of cash flows.
Certain financial statement balances of Benchmarq have been reclassified to
conform with the Company's financial statement presentation. Certain adjustments
have also been made to conform Benchmarq accounting policies to those followed
by Unitrode. Effective in the Company's fiscal third quarter ended October 31,
1998, Benchmarq's revenue recognition policy for distributor sales was changed
from deferral until products were sold by distributors to the Company's policy
of recognizing revenue at the time of shipment as a result of the consolidation
of the Company's distributors.
-10-
<PAGE> 11
NOTE 6 - BENCHMARQ MERGER (CONTINUED)
Revenues and net income of the combined entities for the six-month period prior
to the merger are presented in the following table. Prior to the merger, there
were no intercompany transactions between the two companies and certain
Benchmarq amounts in the financial statements were reclassified to conform to
Unitrode's presentations. Merger-related transaction costs of $2.3 million
recorded in the historical net income for the first six months have been
excluded from the unaudited proforma results.
Six months ended
Proforma Results August 1, 1998
---------------- --------------
Net Revenues:
-------------
Unitrode $57,724
Benchmarq 18,105
-------
Combined $75,829
=======
Net Income:
-----------
Unitrode $1,998
Benchmarq 1,282
------
Combined $3,280
======
The following table represents a reconciliation of net revenues and net income
previously reported by the combining companies to those presented in the
accompanying consolidated financial statements.
<TABLE>
<CAPTION>
Three months ended Nine months ended
November 1, 1997 November 1, 1997
------------------ -----------------
<S> <C> <C>
Net Revenues:
-------------
Unitrode $48,538 $137,556
Benchmarq 10,810 33,979
------- --------
Combined $59,348 $171,535
======= ========
Net Income:
-----------
Unitrode $ 8,850 $ 23,554
Benchmarq 1,648 5,017
------- --------
Combined $10,498 $ 28,571
======= ========
</TABLE>
-11-
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, the percentage
of net revenues represented by certain items in Unitrode's statements of
operations:
<TABLE>
<CAPTION>
Three months ended Nine months ended
- ------------------------------------------------------------------------------------------------
Oct. 31, Oct. 31, Nov. 1, Oct. 31, Oct. 31, Nov. 1,
1998 1998 1997 1998 1998 1997
- ------------------------------------------------------------------------------------------------
Proforma* Proforma*
<S> <C> <C> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 52.9 52.9 47.0 53.1 55.3 47.3
----- ----- ----- ----- ----- -----
Gross profit 47.1 47.1 53.0 46.9 44.7 52.7
----- ----- ----- ----- ----- -----
Operating expenses:
Research & development expenses 12.5 12.5 9.3 12.3 12.3 9.3
Selling, general and
administrative expenses 18.5 18.5 16.4 19.9 19.9 17.0
New fab pre-operating expenses - - 2.5 1.8 1.8 2.7
Merger, restructuring and
and other costs - 13.8 - - 7.9 -
----- ----- ----- ----- ----- -----
Total operating expenses 31.0 44.8 28.2 34.0 41.9 29.0
----- ----- ----- ----- ----- -----
Income from operations 16.1 2.3 24.8 12.9 2.8 23.7
Other income (expense) 3.8 (13.1) 2.9 3.9 (4.1) 2.6
----- ----- ----- ----- ----- -----
Income (loss) before income tax
provision (benefit) 19.9 (10.8) 27.7 16.8 (1.3) 26.3
Net income (loss) 12.5% (7.1)% 17.7% 10.6% (1.6)% 16.7%
</TABLE>
* Excluding special charges and merger costs
Three Months Ended October 31, 1998 versus Three Months Ended November 1, 1997
Net sales for the Company's third quarter ended October 31, 1998 were $40.4
million compared with $59.3 million in the previous year's third quarter, a
decrease of $18.9 million, or 32%. The decline was principally due to a
reduction of approximately $10.1 million in a discontinued custom circuit for a
specific disk drive customer, as well as weakness in the EDP market and
depletion of excess customer inventories. Approximately 61% of sales in the
third quarter were international compared with 68% in the prior year.
Gross profit as a percentage of net sales was 47.1% in the third quarter of
fiscal year 1999 compared to 53.0% in the same quarter of the prior year. The
decrease in the gross profit percentage was primarily due to lower sales volume
which reduced utilization of manufacturing capacity and costs associated with
the initial ramp up of production in the Company's new 6" BiCMOS wafer
fabrication facility.
Weakness, primarily in the EDP market, has affected and may continue to affect
the Company's bookings. As a result of greater manufacturing capacity available
at the Company and in the semiconductor industry as a whole, lead times for
delivery have decreased considerably compared to the prior year. Turns business
(orders booked and shipped in the same quarter) was approximately 30% of sales
in the third quarter of fiscal year 1999 and has increased compared to the prior
two quarters. Customers continue to provide limited visibility as to future
demand and the Company will continue to be dependent upon increased turns
business to maintain the present revenue level.
-12-
<PAGE> 13
RESULTS OF OPERATIONS (continued)
Research and development expenses were approximately 12.5% of net sales, or $5.0
million, compared with 9.3%, or $5.5 million, in the prior year. The percentage
increase was due to the decreased sales volume partially offset by lower
accruals for incentive compensation. Selling, general and administrative
expenses were 18.5% of net sales, or $7.5 million, compared with 16.4%, or $9.7
million, in the previous year's third quarter. The decrease of $2.2 million was
primarily due to reductions in accruals for incentive compensation and sales
commissions.
During the third quarter of fiscal year 1999, the Company recorded merger costs
of $0.4 million, primarily for professional fees, associated with the
acquisition of BENCHMARQ Microelectronics, Inc. ("Benchmarq"). See Note 6 in the
Company's consolidated financial statements for further information.
In the third quarter of fiscal year 1999, the Company recorded special charges
totaling $12.1 million of which $5.2 million was charged to restructuring and
other costs in operating expenses, and $6.9 million was charged to other income
(expense). See Note 5 in the Company's consolidated financial statements for
further information.
The consolidated effective rate of tax benefit for the quarter ended October 31,
1998 was 34.5% compared with an effective tax provision rate of 36.1% for the
quarter ended November 1, 1997. Excluding non-deductible merger costs, the
effective rate of tax benefit was 37.5% in the third quarter of fiscal year
1999.
Net loss for the third quarter of fiscal year 1999 was $(2.9) million, or $(.09)
per diluted share, compared with net income of $10.5 million, or $.31 per
diluted share for the comparable period of the prior year. Excluding special
charges and merger costs, net income would have been $5.0 million, or $.16 per
diluted share, for the third quarter of fiscal year 1999.
Nine Months Ended October 31, 1998 versus Nine Months Ended November 1, 1997
Net sales for the nine months ended October 31, 1998 were $116.2 million
compared with $171.5 million in the previous year's nine-month period, a
decrease of $55.3 million, or 32%. The decline was principally due to a
reduction of approximately $29.9 million in a discontinued custom circuit for a
specific disk drive customer, as well as weakness in the EDP market and
depletion of excess customer inventories. Approximately 62% of sales for the
first nine months were international compared with 66% in the prior year.
Gross profit as a percentage of net sales was 44.7% compared to 52.7% in the
prior year. Excluding the special charge of $2.6 million recorded in the first
quarter to account for inventory writeoffs, gross profit as a percentage of net
sales was 46.9%. The decrease in the gross profit percentage compared to the
prior year, excluding the special charge, was primarily due to lower sales
volume which reduced utilization of manufacturing capacity and costs associated
with the initial ramp up of production in the Company's new 6" BiCMOS wafer
fabrication facility.
Research and development expenses were approximately 12.3% of net sales, or
$14.3 million, compared with 9.3%, or $16.0 million, in the prior year. The
percentage increase was due to the decreased sales volume partially offset by
lower accruals for incentive compensation. Selling, general and administrative
expenses were 19.9% of net sales, or $23.2 million, compared with 17.0%, or
$29.2 million, in the previous year. The decrease of $6.0 million was primarily
due to reductions in accruals for incentive compensation and sales commissions.
The Company's new 6" BiCMOS wafer fabrication facility in Merrimack, New
Hampshire became operational at the end of the second quarter of fiscal year
1999. Pre-operating costs for fiscal year 1999 and for the life of the project
were $2.1 million and $8.4 million, respectively. Pre-operating costs, which
were incurred prior to the commencement of production, related primarily to the
qualification of equipment and manufacturing processes to meet design, test and
reliability specifications as well as to recruit and train personnel.
-13-
<PAGE> 14
RESULTS OF OPERATIONS (continued)
During the first nine months of fiscal year 1999, the Company recorded special
charges totaling $18.5 million of which $2.6 million was charged to cost of
sales, $6.5 million was charged to restructuring and other costs in operating
expenses, and $9.4 million was charged to other income (expense). See Note 5 in
the Company's consolidated financial statements for further information. The
Company also recorded merger-related transaction costs of $2.7 million in fiscal
year 1999 as a result of the Benchmarq acquisition. See Note 6 in the Company's
consolidated financial statements for further information.
The consolidated effective tax rate for the nine months ended October 31, 1998
was 24.3% compared with 36.6% for the nine months ended November 1, 1997.
Excluding non-deductible merger costs, the effective tax rate was 32.6% in the
first nine months of fiscal year 1999.
Net loss for the nine months ended October 31, 1998 was $(1.9) million, or
$(.06) per diluted share, compared with net income of $28.6 million, or $.87 per
diluted share, for the comparable period of the prior year. Excluding special
charges and merger costs, net income would have been $12.3 million, or $.38 per
diluted share, for the nine months ended October 31, 1998.
FINANCIAL CONDITION
Cash and short-term investments at October 31, 1998 decreased by $6.4 million to
$78.6 million since the beginning of fiscal year 1999. The principal uses of
cash were $3.0 million for operating activities and $6.3 million in capital
expenditures offset by $2.1 million in proceeds from exercises of employee stock
options. It is anticipated that the Company's operating cash needs for fiscal
year 1999, including planned capital expenditures, will be met by internally
generated funds and available cash.
Capital expenditures were $6.3 million for the first nine months of fiscal year
1999. In fiscal year 1999, the Company expects capital expenditures to total
approximately $11 million for the support of ongoing operations.
The ratio of current assets to current liabilities was 5.47:1 at October 31,
1998 compared with 3.22:1 at January 31, 1998. Working capital of $110.9 million
at October 31, 1998 increased by $10.5 million from January 31, 1998. Accounts
receivable at October 31, 1998 decreased by $5.1 million from January 31, 1998
primarily due to reduced sales. Receivable day sales outstanding ("DSO") were 51
days at October 31, 1998 compared to 47 days at January 31, 1998. Inventories at
October 31, 1998 increased by $4.7 million since January 31, 1998 primarily to
support the anticipated increase in turns business. Income taxes payable at
October 31, 1998 decreased by a total of $3.3 million from January 31, 1998,
primarily due to tax benefits resulting from the special charges. Accrued
employee compensation and benefits were $8.9 million lower than at year-end due
to the payment of incentive compensation related to the Company's performance in
fiscal year 1998. Accrued distributor liability increased by $2.7 million since
January 31, 1998 principally due to additional estimated inventory returns
associated with consolidating the Company's distributors with Benchmarq.
-14-
<PAGE> 15
NEW ACCOUNTING STANDARDS
See Note 2 in the Company's consolidated financial statements for a discussion
of recently issued accounting standards.
BENCHMARQ MERGER
On August 3, 1998, the Company completed its acquisition of Benchmarq, a Dallas,
Texas provider of integrated circuits and electronics modules for portable and
power-sensitive electronics systems. In connection with the transaction, the
Company issued approximately 7.2 million shares of its common stock. The merger
was accounted for on a pooling-of-interests basis. Accordingly, the Company's
consolidated financial statements have been restated to include the accounts and
operations of Benchmarq for all periods presented.
YEAR 2000 IMPACT
The Company, including the Benchmarq operations, has completed an assessment of
all computer-based software and hardware to ensure Year 2000 compliance. Certain
non-Year 2000 compliant systems and equipment are being modified, scrapped, or
replaced. In addition, the Company has begun replacement of certain business
systems with a Year 2000 compliant enterprise resource planning system ("ERP
system") in order to improve reporting and productivity. Formal communications
have been established with all significant vendors to determine the extent to
which the Company could be impacted by third parties' failure to remediate their
own Year 2000 issues. The Company is currently unaware of any Year 2000 issues
at the Company or a third party that will not be compliant in a timely manner
and could result in a material effect on the Company's business, results of
operations, or financial condition. Year 2000 project expenditures, excluding
capitalized costs associated with the ERP system, have been immaterial to date
and are not anticipated to exceed $1.0 million. The Year 2000 project is
expected to be substantially completed by June, 1999.
FACTORS AFFECTING FUTURE RESULTS
The Company's future operating results are difficult to predict and may be
affected by a number of factors including the timely ability to develop and
market new products, competitive pricing pressures, fluctuations in
manufacturing yields, adequate availability of processed silicon wafers from
foundry sources, insufficient or excess manufacturing and testing capacity, the
timely ability to integrate Benchmarq's operations into the Company, changes in
product mix, and fluctuating economic conditions in the United States, Asia and
other international markets.
Sales to one customer, IBM Corporation, represented approximately 10% and 11% of
sales in the third quarter of fiscal years 1999 and 1998, respectively, and 11%
and 9% of sales in the first nine months of fiscal years 1999 and 1998,
respectively. The loss or a substantial reduction in sales from this customer
would have a material adverse effect upon the Company's business. Sales to
Western Digital Corporation represented approximately 18% of sales for the third
quarter and the first nine months of the prior fiscal year, but were
significantly less than 10% in comparable periods in the current fiscal year.
-15-
<PAGE> 16
FACTORS AFFECTING FUTURE RESULTS (continued)
The semiconductor market historically has been cyclical and subject to
significant economic fluctuations at various times. As a result, orders and
backlog may fluctuate widely from time to time. Weakness, primarily in the EDP
market, has affected and may continue to affect the Company's bookings and the
scheduling of existing backlog. Because of this and other factors, there can be
no assurance that the Company will not experience material fluctuations in
future operating results on a quarterly or annual basis as a result of its
inability to adjust its manufacturing capacity or its cost structure to
increased or reduced customer demand.
Presently, the Company is dependent upon GMT Microelectronics Corporation
("GMT"), an outside foundry, as a significant source of BiCMOS wafers for
certain products. The dependence on GMT is expected to continue until the
Company completes full qualification of manufacturing processes and products at
its 6" wafer fabrication facility and ramps up production. There can be no
assurance that GMT or other third-party foundries will be able to meet the
Company's future BiCMOS wafer production requirements.
After the August 3, 1998 merger with Benchmarq, the Company continued to be
dependent on Taiwan Semiconductor Manufacturing Company ("TSMC") for CMOS wafer
capacity. In May 1996, Benchmarq entered into an Option Agreement with TSMC
which committed the Company to purchase and TSMC to provide specified quantities
of wafers at prevailing market prices through the calendar year 2000.
Additionally, the Company has an option to purchase and TSMC has committed to
provide certain additional wafers through the calendar year 2000. The loss of
the TSMC Option Agreement, the failure of TSMC to honor the TSMC Option
Agreement or the failure to utilize option wafers as specified under the terms
of the TSMC Option Agreement could have a material adverse effect on the
Company.
The Company's new 6" BiCMOS wafer fabrication facility became operational at the
end of the second quarter ended August 1, 1998. Full qualification of
manufacturing processes and products is continuing. There can be no assurance
that certain processes and products will be qualified on time, that the added
capacity will match demand for its products, or that the initial ramp up of
production will result in acceptable manufacturing yields. The Company's
additional capacity has resulted in a significant increase in operating
expenses, such as depreciation, and if revenues do not increase to offset these
additional expenses, the Company's future gross profit percent of sales would be
adversely affected. Meanwhile, other semiconductor manufacturers are also
expanding or planning to expand their production capacity over the next several
years. There can be no assurance that the expansion by the Company and its
competitors will not lead to further over-capacity in the industry, which could
lead to price erosion that could adversely affect the Company's operating
results.
The integration of the Company's operations following the merger with Benchmarq
will require the dedication of management resources that may temporarily divert
attention from the day-to-day business of the combined Company and this
distraction could have an adverse effect on the near-term revenues and operating
results of the combined Company. Also, there can be no assurance that the
combined Company will be able to retain its key technical and management
personnel or that the combined Company will realize all or any of the
anticipated benefits of the merger.
-16-
<PAGE> 17
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a new
"safe harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company desires to
take advantage of the new "safe harbor" provisions of the Act. Certain
information contained herein, particularly the information appearing under the
headings "Results of Operations," "Financial Condition," "Benchmarq Merger,"
"Year 2000 Impact," and "Factors Affecting Future Results" is forward-looking.
Information regarding certain important factors that could cause actual results
of operations or outcomes of other events to differ materially from any such
forward-looking statement appears together with such statement, and/or elsewhere
herein. This information should be read in conjunction with the Company's annual
report on Form 10-K for the year ended January 31, 1998 and Benchmarq's annual
report on Form 10-K for the year ended December 31, 1997.
-17-
<PAGE> 18
PART II. OTHER INFORMATION
Unitrode Corporation and Consolidated Subsidiaries
October 31, 1998
ITEM 1. LEGAL PROCEEDINGS
On July 31, 1998, the Company, along with twenty-five other companies, was named
as a defendant in a lawsuit filed in U.S. District Court for the District of
Arizona by the Lemelson Medical Education & Research Foundation, Limited
Partnership ("Lemelson"). The suit alleged that certain manufacturing operations
of the Company, as well as certain manufacturing operations of the other
defendants, infringe sixteen Lemelson patents. The complaint sought an
injunction against infringement of the patents, damages in an unspecified amount
and attorneys' fees. The Company has entered into a license agreement with the
plaintiff in settlement of the matter and the lawsuit has been dismissed against
the Company.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-18-
<PAGE> 19
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedules
(b) REPORTS ON FORM 8-K: On August 4, 1998, the Registrant
filed a report on Form 8-K announcing that it had acquired
BENCHMARQ Microelectronics, Inc. pursuant to the terms of
the previously reported Agreement and Plan of Merger, dated
as of March 2, 1998, and the amendment thereto, dated as of
June 23, 1998.
On October 7, 1998, the Registrant filed a report on Form
8-K which included the financial statements of the acquired
business, Benchmarq Microelectronics, Inc., ("Benchmarq")
as well as unaudited proforma condensed financial
statements showing the business combination between
Unitrode Corporation and Benchmarq accounted for on a
"pooling-of-interests" basis.
-19-
<PAGE> 20
Unitrode Corporation and Consolidated Subsidiaries
October 31, 1998
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.
UNITRODE CORPORATION
December 15, 1998 /s/ Robert J. Richardson
----------------- --------------------------------------
Date Robert J. Richardson
Chairman and Chief Executive Officer
December 15, 1998 /s/ Cosmo S. Trapani
----------------- --------------------------------------
Date Cosmo S. Trapani
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
-20-
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