<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 JULY 31, 1999
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 32,510,443 shares of common stock outstanding as of July 31, 1999.
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unitrode Corporation and Consolidated Subsidiaries
Balance Sheets
(in thousands)
July 31, 1999 January 31, 1999
Assets (Unaudited)
- ------ ----------- ----------------
Current assets:
Cash and cash equivalents $102,856 $ 91,551
Accounts receivable, net of allowances
of $1,947 in July, 1999
and $2,206 in January, 1999 30,477 23,541
Notes receivable 464 631
Inventories:
Raw materials 1,542 1,659
Work in process 14,365 13,766
Finished goods 7,933 6,931
-------- --------
Total inventories 23,840 22,356
-------- --------
Deferred income taxes 5,926 5,232
Royalty receivable 1,156 6,215
Deposits 1,178 1,448
Prepaid expenses and other
current assets 5,925 2,320
-------- --------
Total current assets 171,822 153,294
-------- --------
Property, plant and equipment, at cost 164,623 156,020
Less accumulated depreciation 83,267 78,674
-------- --------
Property, plant and equipment, net 81,356 77,346
-------- --------
Deposits 2,800 2,800
Notes and other receivables, net
of discount 957 1,323
Restricted cash and investments 400 1,035
Excess of cost over net assets acquired,
net of accumulated amortization of
$2,820 in July, 1999 and
$2,678 in January, 1999 1,270 1,412
Other assets and deferred charges 1,695 2,754
-------- --------
Total assets $260,300 $239,964
======== ========
The accompanying notes are an integral part of the financial statements.
2
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Unitrode Corporation and Consolidated Subsidiaries
Balance Sheets
(in thousands except share data)
July 31, 1999 January 31, 1999
Liabilities and Stockholders' Equity (Unaudited)
- ------------------------------------ ----------- ----------------
Current liabilities:
Accounts payable $ 18,160 $ 12,623
Income taxes payable 1,223 3,836
Accrued employee compensation and benefits 5,220 2,025
Accrued distributor liability 3,558 4,007
Capital lease obligations - 701
Other current liabilities 3,773 4,059
-------- --------
Total current liabilities 31,934 27,251
-------- --------
Deferred income taxes 4,224 2,540
Other long-term liabilities 670 943
-------- --------
Total liabilities 36,828 30,734
-------- --------
Stockholders' equity:
Common stock,$.01 par value:
Authorized - 60,000,000 shares
Issued - 32,510,443 in July, 1999
and 32,018,766 in January, 1999 325 320
Additional paid-in capital 85,480 77,748
Retained earnings 138,221 131,861
-------- --------
224,026 209,929
Less: Deferred compensation (554) (699)
-------- --------
Total stockholders' equity 223,472 209,230
-------- --------
Total liabilities and
stockholders' equity $260,300 $239,964
======== ========
The accompanying notes are an integral part of the financial statements.
3
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Unitrode Corporation and Consolidated Subsidiaries
Statements of Operations
(Unaudited)
(in thousands except share data)
For the Three Months Ended July 31, 1999 August 1, 1998
- -------------------------- ------------- --------------
Net revenues $50,431 $38,901
Cost of revenues 25,727 20,655
------- -------
Gross profit 24,704 18,246
------- -------
Operating expenses:
Research and development expenses 6,162 4,421
Selling, general and administrative
expenses 8,700 7,467
New fab pre-operating expenses - 966
Merger costs 3,665 968
Restructuring and other costs 3,752 -
------- -------
Total operating expenses 22,279 13,822
------- -------
Income from operations 2,425 4,424
------- -------
Other income (expense):
Royalty income 1,978 442
Non-operating income (expense), net (21) 355
Interest income, net 853 815
------- -------
Total other income (expense) 2,810 1,612
------- -------
Income before income tax
provision 5,235 6,036
Income tax provision 3,204 2,575
------- -------
Net income $ 2,031 $ 3,461
======= =======
Earnings per common share:
Basic $ .06 $ .11
======= =======
Diluted $ .06 $ .11
======= =======
Shares used to compute earnings
per common share:
Basic 32,295 31,584
======= =======
Diluted 34,323 32,342
======= =======
The accompanying notes are an integral part of the financial statements.
4
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Unitrode Corporation and Consolidated Subsidiaries
Statements of Operations
(Unaudited)
(in thousands except share data)
For the Six Months Ended July 31, 1999 August 1, 1998
- ------------------------ ------------- --------------
Net revenues $94,739 $75,829
Cost of revenues 48,760 42,929
------- -------
Gross profit 45,979 32,900
------- -------
Operating expenses:
Research and development expenses 11,405 9,221
Selling, general and administrative
expenses 16,894 15,698
New fab pre-operating expenses - 2,075
Merger costs 3,665 2,318
Restructuring and other costs 3,752 1,267
------- -------
Total operating expenses 35,716 30,579
------- -------
Income from operations 10,263 2,321
------- -------
Other income (expense):
Royalty income 2,898 1,000
Non-operating income (expense), net 609 (2,278)
Interest income, net 1,701 1,799
------- -------
Total other income (expense) 5,208 521
------- -------
Income before income tax
provision 15,471 2,842
Income tax provision 6,991 1,880
------- -------
Net income $ 8,480 $ 962
======= =======
Earnings per common share:
Basic $ .26 $ .03
======= =======
Diluted $ .25 $ .03
======= =======
Shares used to compute earnings
per common share:
Basic 32,182 31,517
======= =======
Diluted 33,613 32,524
======= =======
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)
For the Six Months Ended July 31, 1999 August 1, 1998
- ------------------------------------- ------------- ---------------
Cash flows from operating activities:
Net income $ 8,480 $ 962
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 8,321 6,891
Deferred and other compensation 3,167 254
Writedown of assets -- 5,615
Deferred income taxes 990 2,921
Other, net (583) (124)
(Increase) decrease in assets:
Accounts receivable (6,936) 7,070
Inventories (1,484) (3,768)
Other current and long-term assets 2,729 (336)
Increase (decrease) in liabilities:
Accounts payable 5,537 (5,865)
Income taxes payable (2,613) (2,573)
Accrued employee compensation and benefits 3,195 (9,081)
Accrued distributor liability (449) 287
Other current and long-term liabilities (559) (3,120)
-------- -------
Total adjustments 11,315 (1,829)
-------- -------
Net cash provided (used) by operating activities 19,795 (867)
-------- -------
Cash flows from investing activities:
Property, plant and equipment and deposits (12,225) (4,016)
Proceeds on sale of assets 2,010 87
Repayment of notes receivable 545 391
Restricted cash and investments 635 72
Maturities of short-term investments -- 14,063
Purchases of short-term investments -- (8,058)
-------- -------
Net cash provided (used) by investing activities (9,035) 2,539
-------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 4,591 1,738
Purchase of common stock (3,345) --
Principal payments under capital lease obligations (701) (657)
-------- -------
Net cash provided by financing activities 545 1,081
-------- -------
Addition of Benchmarq's net cash activity
for January 1998 -- 402
-------- -------
Net increase in cash and cash equivalents 11,305 3,155
Cash and cash equivalents at beginning of period 91,551 67,956
-------- -------
Cash and cash equivalents at end of period $102,856 $71,111
======== =======
The accompanying notes are an integral part of the financial statements.
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Unitrode Corporation and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
July 31, 1999
(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, 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 report on
Form 10-K of Unitrode Corporation (the "Company") for the year ended January 31,
1999.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the six-month period
ended July 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending January 31, 2000. Certain amounts for fiscal year
1999 have been reclassified to conform with presentation of similar amounts in
fiscal year 2000.
NOTE 2 - NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains and losses resulting from changes in the values of those
derivatives should be reported in the statements of operations or as a deferred
item, depending on the use of the derivatives and whether they qualify for hedge
accounting. This standard is effective for the Company's fiscal year ending
January 31, 2002, and the Company has not yet determined the effect, if any, of
adopting the new standard.
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NOTE 3 - EARNINGS PER SHARE
The following tables sets forth the computation of basic and diluted earnings
per share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 2,031 $ 3,461 $ 8,480 $ 962
=========== =========== =========== ===========
Basic weighted average shares outstanding 32,295,453 31,583,580 32,182,358 31,516,617
Effect of dilutive securities-stock options 2,027,178 758,199 1,430,282 1,007,854
----------- ----------- ----------- -----------
Diluted weighted average shares outstanding 34,322,631 32,341,779 33,612,640 32,524,471
=========== =========== =========== ===========
Basic earnings per share $ .06 $ .11 $ .26 $ .03
=========== =========== =========== ===========
Diluted earnings per share $ .06 $ .11 $ .25 $ .03
=========== =========== =========== ===========
</TABLE>
The following stock options were outstanding as of July 31, 1999 and August 1,
1998 but 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 for the three-and six-month periods ended and were, therefore,
anti-dilutive under the Treasury stock method.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
Range of Range of
Options Exercise Prices Options Exercise Prices
--------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
July 31, 1999 1,072,177 $26.44-$40.36 2,006,287 $23.28-$40.36
August 1, 1998 2,187,804 $13.50-$40.36 1,167,070 $15.75-$40.36
</TABLE>
NOTE 4 - NON-OPERATING INCOME (EXPENSE)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- ---------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- -------
<S> <C> <C> <C> <C>
Foreign exchange gains (losses) $(20) $236 $(10) $ (8)
Gains (losses)on sale of assets (2) (3) 577 (13)
Net rental income 1 122 44 244
Writedown of assets -- -- -- (2,500)
Other -- -- (2) (1)
---- ---- ---- -------
Total $(21) $355 $609 $(2,278)
==== ==== ==== =======
</TABLE>
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<PAGE> 9
NOTE 5 - SPECIAL CHARGES
Special Charges Rollforward:
<TABLE>
<CAPTION>
Balance Sheet
-----------------------------------------------------------------------------------------
Valuation Allowances Other Current Liabilities
Special ------------------------------------- --------------------------------
Charges Fixed Other Assets & Employee Legal Paid-in
Provision Inventory Assets Deferr.charges Costs Costs Other Capital
--------- --------- ------ -------------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Q1 FY99 Charge $ 6,363 $2,596 $ -- $3,165 $ 520 $ -- $ 82 $ --
Q3 FY99 Charge 12,078 -- 550 627 2,411 6,841 1,001 648
FY99 Payments/Disposals -- (2,596) -- (633) (1,382) (6,841) (583) --
------- ------ ---- ------ ------ ------ ------ ------
1/31/99 Balance $18,441 -- 550 3,159 1,549 -- 500 648
======= ====== ==== ====== ====== ====== ====== ======
Q2 FY00 Charge $ 3,752 -- -- -- 730 -- -- 3,022
FY00 Payments/Disposals -- -- (270) (15) (1,069) -- (175) --
------- ------ ---- ------ ------ ------ ------ ------
7/31/99 Balance $ 3,752 $ -- $280 $3,144 $1,210 $ -- $ 325 $3,670
======= ====== ==== ====== ====== ====== ====== ======
</TABLE>
FISCAL YEAR 2000 SPECIAL CHARGES
SECOND QUARTER
During the second quarter of fiscal year 2000, the Company recorded pre-tax
special charges totaling $3.7 million which was charged to operating expenses as
"restructuring and other costs". These costs were primarily to account for
non-cash compensation on stock options associated with severance agreements with
former Unitrode executives.
FISCAL YEAR 1999 SPECIAL CHARGES
FIRST QUARTER
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 operating expenses as "restructuring and
other costs", and $2.5 million was charged to other income (expense).
The charge of $2.6 million to cost of sales was to account for inventory
write-offs and consisted primarily of a custom product which was manufactured in
the first quarter of fiscal year 1999 for a specific customer. The product did
not meet the customer's specifications and has been scrapped.
A charge to operating expenses of $1.3 million 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 was anticipated to be approximately $1.8 million.
The $2.5 million charge to other income (expense) was to establish a valuation
allowance on the Company's equity investment in an outside foundry. The
significant reduction in the Company's business during the first quarter of
fiscal year 1999 and the subsequent ramp-up of the Company's 6" fab have
substantially reduced expected future demand for wafers produced at this foundry
and negatively impacted this foundry's financial condition and cash flows. The
Company continues to be the primary customer of this foundry.
9
<PAGE> 10
THIRD QUARTER
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
operating expenses as "restructuring and other costs", and $6.9 million was
charged to other income (expense).
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, $3.0 million in severance costs to reduce
redundant activities, and $1.0 million in other integration costs which includes
costs associated with relocating the Dallas probe and 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
the Company.
NOTE 6 - BENCHMARQ ACQUISITION
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 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:
Three months ended Six months ends
Net Revenues August 1, 1998 August 1, 1998
------------ -------------- --------------
Unitrode $29,705 $57,724
Benchmarq 9,196 18,105
------- -------
Combined $38,901 $75,829
======= =======
Net Income
----------
Unitrode $ 2,962 $ 613
Benchmarq 499 349
------- -------
Combined $ 3,461 $ 962
======= =======
NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES
LEGAL PROCEEDINGS
In June 1997, Linear Technology Corporation ("LTC") filed a complaint in the
U.S. District Court for the Northern District of California (San Jose Division)
alleging that certain products of the Company and products of four other
defendants infringe an LTC patent. The complaint seeks damages and an injunction
against infringement of the patent. The Company has denied any infringement and
has filed a counterclaim seeking that the patent be declared invalid. The
Company believes that the resolution of this action will not have a materially
adverse effect on the Company's financial condition or results of operations.
10
<PAGE> 11
NOTE 8 - INDUSTRY SEGMENT
The Company and its subsidiaries operate within a single industry segment, the
manufacture and sale of semiconductors, and have various product categories
within that one segment that share common technologies, markets, and
applications.
Data on the Company's net revenues by product category is presented below:
Three Months Ended
--------------------------------------
July 31, 1999 August 1, 1998
---------------- ----------------
Product Categories: Revenues % Revenues %
------------------- -------- ----- -------- -----
Power management $20,300 40.3% $15,900 40.9%
Data transmission/interface 17,300 34.3% 12,900 33.1%
Portable power management 9,800 19.4% 6,800 17.5%
Non-volatile and other 3,031 6.0% 3,301 8.5%
------- ----- ------- -----
Total $50,431 100.0% $38,901 100.0%
======= ===== ======= =====
Six Months Ended
--------------------------------------
July 31, 1999 August 1, 1998
---------------- ----------------
Product Categories: Revenues % Revenues %
------------------- -------- ----- -------- -----
Power management $38,900 41.1% $30,500 40.2%
Data transmission/interface 32,400 34.2% 24,500 32.3%
Portable power management 18,100 19.1% 13,700 18.1%
Non-volatile and other 5,339 5.6% 7,129 9.4%
------- ----- ------- -----
Total $94,739 100.0% $75,829 100.0%
======= ===== ======= =====
NOTE 9 - PROPOSED MERGER
On July 26, 1999, the Company announced that it had entered into a definitive
agreement to be acquired by Texas Instruments, Incorporated ("TI"). Under the
terms of the proposed transaction, each share of Unitrode common stock
outstanding will be exchanged for the number of shares of TI common stock equal
to $38.60 ("assumed exchange price") divided by an average of TI trading prices
over a 20-day trading period ending the second trading day prior to the merger,
but in no event less than .5023 or more than .5774 of a share of TI common
stock. Based on the assumed exchange price and 32.5 million Unitrode shares
outstanding as of July 31, 1999, the transaction is valued at approximately
$1.25 billion. The transaction is intended to be accounted for as a "Pooling of
Interests" and is subject to approval by Unitrode stockholders and other
customary conditions. On August 18, 1999, the Federal Trade Commission notified
the Company that it has granted early termination of the waiting period required
by the Hart-Scott-Rodino Antitrust Improvements Act.
In the second quarter ended July 31, 1999, the Company recorded merger-related
transaction costs of $3.7 million primarily for professional services, such as
investment banking, legal and accounting fees. The transaction is expected to
close in the third quarter of fiscal year 2000.
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<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The following tables set forth the percentage of net revenues and the yearly
percentage change in certain financial data for the periods indicated:
<TABLE>
<CAPTION>
Items as a percentage of net revenues Percent changes year to year
- ------------------------------------------------------------------------------------ ----------------------------
July 31, July 31,
1999/ 1999*/
July 31, July 31, Aug.1, Aug.1, August 1, August 1,
Three months ended 1999 1999* 1998 1998* 1998 1998*
- ------------------ ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0% 29.6% 29.6%
Cost of revenues 51.0 51.0 53.1 53.1 24.6 24.6
----- ----- ----- ----- ----- ----
Gross profit 49.0 49.0 46.9 46.9 35.4 35.4
Operating expenses:
Research & development 12.2 12.2 11.3 11.3 39.4 39.4
expenses
Selling, general and
administrative expenses 17.3 17.3 19.2 19.2 16.5 16.5
New fab pre-operating -- -- 2.5 2.5 NMF NMF
expenses
Merger costs 7.3 -- 2.5 -- 278.6 --
Restructuring and other
costs 7.4 -- -- -- NMF --
----- ----- ----- ----- ----- ----
Total operating 44.2 29.5 35.5 33.0 61.2 15.6
expenses ----- ----- ----- ----- ----- ----
Income from operations 4.8 19.5 11.4 13.9 (45.2) 82.5
Other income (expense) 5.6 5.6 4.1 4.1 74.3 74.3
----- ----- ----- ----- ----- ----
Income before
income tax provision 10.4 25.1 15.5 18.0 (13.3) 80.6
Income tax provision 6.4 9.0 6.6 6.6 24.4 76.9
----- ----- ----- ----- ----- ----
Net income 4.0 16.1 8.9 11.4 (41.3) 82.8
===== ===== ===== ===== ===== ====
Items as a percentage of net revenues Percent changes year to year
- ------------------------------------------------------------------------------------ ----------------------------
July 31, July 31,
1999/ 1999*/
July 31, July 31, Aug.1, Aug.1, August 1, August 1,
Six months ended 1999 1999* 1998 1998* 1998 1998*
- ---------------- ----- ----- ----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0% 24.9% 24.9%
Cost of revenues 51.5 51.5 56.6 53.2 13.6 20.9
----- ----- ----- ----- ----- -----
Gross profit 48.5 48.5 43.4 46.8 39.8 29.5
Operating expenses:
Research & development 12.0 12.0 12.2 12.2 23.7 23.7
expenses
Selling, general and
administrative expenses 17.8 17.8 20.7 20.7 7.6 7.6
New fab pre-operating -- -- 2.7 2.7 NMF NMF
expenses
Merger costs 3.9 -- 3.0 -- 58.1 --
Restructuring and other
costs 4.0 -- 1.7 -- 196.1 --
----- ----- ----- ----- ----- -----
Total operating 37.7 29.8 40.3 35.6 16.8 4.8
expenses ----- ----- ----- ----- ----- -----
Income from operations 10.8 18.7 3.1 11.2 342.2 107.9
Other income (expense) 5.5 5.5 0.7 4.0 899.6 72.4
----- ----- ----- ----- ----- -----
Income before income
tax provision 16.3 24.2 3.8 15.2 444.4 98.6
Income tax provision 7.3 8.8 2.5 5.6 271.9 95.0
----- ----- ----- ----- ----- -----
Net income 9.0 15.4 1.3 9.6 781.5 100.8
===== ===== ===== ===== ===== =====
</TABLE>
*Pro forma results exclude special charges and merger-related costs.
NMF: Not meaningful
12
<PAGE> 13
THREE MONTHS ENDED JULY 31, 1999 VERSUS THREE MONTHS ENDED AUGUST 1, 1998
Net revenues in the second quarter ended July 31, 1999 were $50.4 million, an
increase of $11.5 million, or 30%, compared with $38.9 million in the previous
year's second quarter. The increase was primarily due to strength in demand for
products from all three of the Company's major business lines, power management,
portable power, and interface. Approximately 58% of sales in the second quarter
were international compared with 62% in the prior year.
Broad-based strength in the industrial, EDP, and communications markets is
driving the increased demand for the Company's products. The level of the
Company's turns business (orders booked and shipped within the quarter) was
about 33%, approximately the same rate as the first quarter.
Gross profit as a percentage of net sales was 49.0% in the second quarter of
fiscal year 2000, up from 46.9% in the second quarter of the previous fiscal
year. The increase in the gross profit percentage resulted from the benefits
associated with increased factory utilization, reduced costs from wafers
supplied by an outside foundry, and lower assembly and test costs. These
benefits were somewhat offset by increased depreciation expense associated with
the new BiCMOS wafer fabrication facility ("BiCMOS fab") and pricing pressures
on selected products.
Research and development expenses were approximately 12.2% of net sales, or $6.2
million, compared to 11.3%, or $4.4 million, in last year's second quarter. The
$1.8 million increase was due to higher employee compensation costs primarily
for accruals for bonus and profit sharing awards. Selling, general and
administrative expenses were 17.3% of net sales, or $8.7 million, compared with
19.2%, or $7.5 million, in the previous year's second quarter. The decrease in
the percentage of net sales was due to the increased sales volume, partially
offset by accruals for bonus and profit sharing awards.
In the second quarter of fiscal year 1999, the Company incurred $1.0 million in
pre-operating expenses associated with the BiCMOS fab. The new facility became
operational in July 1998. No further pre-operating expenses were recorded with
respect to this facility.
The Company recorded special charges of $7.4 million in this year's second
quarter, all of which was charged to operating expenses. On July 26, 1999, the
Company announced that it had entered into a definitive agreement to be acquired
by Texas Instruments Incorporated. As a result, the Company recorded
merger-related transaction costs of $3.7 million primarily for professional
services. The remaining charge of $3.7 million was primarily to account for
non-cash compensation on stock options associated with severance agreements with
former Unitrode executives. During the second quarter of fiscal year 1999, the
Company recorded merger costs of $1.0 million, primarily for professional fees
associated with the acquisition of Benchmarq Microelectronics, Inc. See Notes 5
and 9 in the Company's consolidated financial statements for further
information.
Royalty income in the second quarter increased by $1.5 million compared to the
prior year primarily due to a lump sum royalty payment from International
Rectifier ("IRC"), the result of a license agreement between IRC and a third
party covering certain IRC patents relating to power MOSFET technology.
The consolidated effective tax rate for the quarter ended July 31, 1999 was
61.2% compared with 42.7% in last year's second quarter. Excluding
non-deductible merger costs, the effective tax rate was 36.0% and 36.8% in the
second quarter of fiscal year 2000 and fiscal year 1999, respectively.
13
<PAGE> 14
THREE MONTHS ENDED JULY 31, 1999 VERSUS THREE MONTHS ENDED AUGUST 1, 1998
(continued)
Net income in the second quarter of fiscal year 2000 was $2.0 million, or $.06
per diluted share, compared with $3.5 million, or $.11 per diluted share in last
year's second quarter. Excluding the effect of merger-related transaction costs
and special charges, net income in this year's second quarter was $8.1 million,
or $.24 per diluted share, compared to $4.4 million, or $.14 per diluted share
in the year-ago quarter.
SIX MONTHS ENDED JULY 31, 1999 VERSUS SIX MONTHS ENDED AUGUST 1, 1998
Net revenues for the six months ended July 31, 1999 were $94.7 million, compared
with $75.8 million in the previous year's six-month period, an increase of $18.9
million, or 25%. The increase was principally due to strength in demand for
products from all three of the Company's major business lines, power management,
portable power, and interface. Approximately 57% of sales in the first six
months were international compared with 62% in the prior year.
Gross profit as a percentage of net sales was 48.5% of net sales in the first
six months compared to 43.4% in first six months of the prior year. Excluding
the special charge of $2.6 million recorded in last year's first quarter to
account for inventory writeoffs, gross profit as a percentage of net sales in
the first six months of last year was 46.8%. The increase in the gross profit
percentage resulted from the benefits associated with increased factory
utilization, reduced costs from wafers supplied by an outside foundry, and lower
assembly and test costs. These benefits were somewhat offset by increased
depreciation expense associated with the BiCMOS fab and pricing pressures on
selected products.
Research and development expenses were approximately 12.0% of net sales, or
$11.4 million, compared with 12.2%, or $9.2 million, in the first six months of
the prior year. The $2.2 million increase was due to higher employee
compensation costs primarily for accruals for bonus and profit sharing awards.
Selling, general and administrative expenses were $16.9 million, or 17.8% of net
sales, compared to $15.7 million, or 20.7% of net sales in the first six months
of last year. The decrease in the percentage of net sales was due to the
increased sales volume, partially offset by accruals for bonus and profit
sharing awards.
The Company incurred $2.1 million in pre-operating expenses associated with the
BiCMOS fab in the first six months of fiscal year 1999. The new facility became
operational in July 1998. No further pre-operating expenses were recorded with
respect to this facility.
During the first half of fiscal year 2000, the Company recorded special charges
of $7.4 million, all of which were charged to operating expenses. On July 26,
1999, the Company announced that it had entered into a definitive agreement to
be acquired by Texas Instruments Incorporated. As a result, the Company recorded
merger-related transaction costs of $3.7 million primarily for professional
services. The remaining charge of $3.7 million was primarily to account for
non-cash compensation on stock options associated with severance agreements with
former Unitrode executives. During first six months of fiscal year 1999, the
Company recorded merger costs and special charges totaling $8.7 million of which
$2.6 million was charged to cost of sales, $3.6 million was charged to operating
expenses and $2.5 million was charged to other income (expense). See Notes 5 and
9 in the Company's consolidated financial statements for further information.
Royalty income in the first six months increased by $1.9 million compared to the
prior year primarily due to a lump sum royalty payment from International
Rectifier ("IRC"), the result of a license agreement between IRC and a third
party covering certain patents relating to MOSFET technology.
14
<PAGE> 15
SIX MONTHS ENDED JULY 31, 1999 VERSUS SIX MONTHS ENDED AUGUST 1, 1998
(continued)
The consolidated effective tax rate for the six months ended July 31, 1999 was
45.2% including non-deductible merger costs and 36.5% without the charges. The
consolidated effective tax rate for the first six months of the prior year was
66.2% including last year's non-deductible merger costs, and 36.4% excluding the
charges.
Net income for the first six months of fiscal year 2000 was $8.5 million, or
$.25 per diluted share, compared with $1.0 million, or $.03 per diluted share in
the first six months of last year. Excluding the effect of merger-related
transaction costs and special charges, net income in the first six months of
this year was $14.6 million, or $.43 per diluted share, compared to $7.2
million, or $.22 per diluted share in first six months of the prior year.
FINANCIAL CONDITION
Cash and cash equivalents at July 31, 1999 increased by $11.3 million to $102.9
million since the beginning of fiscal year 2000. The principal sources of cash
were $19.8 million from operating activities and $4.6 million from exercises of
employee stock options under the Company's stock option plans; these were offset
by $12.2 million in capital expenditures and $3.3 million in repurchases of
Company stock.
In March 1999, the Company entered into a new three-year multi-bank revolving
credit agreement that provides for borrowings up to $50 million. Borrowings
under the credit agreement bear interest at variable spreads over LIBOR. There
were no borrowings in the first six months of the fiscal year.
Capital spending to support ongoing operations totaled approximately $12.2
million in the first six months of the fiscal year. The Company plans to spend
approximately $17 to $20 million for capital assets in fiscal year 2000. It is
anticipated that the Company's operating cash requirements for fiscal year 2000,
including planned capital expenditures, will be met by internally generated
funds and available cash.
The ratio of current assets to current liabilities was 5.38:1 at July 31, 1999
compared with 5.63:1 at January 31, 1999. Working capital of $139.9 million at
July 31, 1999 increased by $13.8 million from the beginning of the fiscal year.
Accounts payable at July 31, 1999 increased by $5.5 million from year-end due to
the timing of payments for merger-related transaction costs and capital
equipment. Accrued employee compensation and benefits were $3.2 million higher
than at year-end due to accruals for incentive compensation relative to the
Company's expected performance for fiscal year 2000.
Accounts receivable at July 31, 1999 increased by $6.9 million from the
beginning of the fiscal year primarily due to the higher sales volume.
Receivable days outstanding were 51 days compared with 52 days at January 31,
1999 and 45 days in the previous year's second quarter.
On March 15, 1999, the Board of Directors of the Company authorized the
repurchase of up to one million shares of its common stock. During the first six
months of the year, the Company repurchased 172,400 shares at an average price
of $19.40 per share for a total of $3.3 million. The repurchase program was
rescinded on July 25, 1999.
NEW ACCOUNTING STANDARDS
See Note 2 in the Company's consolidated financial statements for a discussion
of recently issued accounting standards.
15
<PAGE> 16
IMPACT OF THE YEAR 2000 ISSUE
The Company's Year 2000 project was substantially completed in July 1999. Year
2000 project expenditures, excluding capitalized costs associated with the ERP
system, were immaterial. 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 were
modified, scrapped, or replaced. In addition, the Company has replaced certain
business systems with a Year 2000 compliant enterprise resource planning ("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.
PROPOSED MERGER
On July 26, 1999, the Company announced that it had entered into a definitive
agreement to be acquired by Texas Instruments, Incorporate ("TI"). Under the
terms of the proposed transaction, each share of Unitrode common stock
outstanding will be exchanged for the number of shares of TI common stock equal
to $38.60 ("assumed exchange price") divided by an average of TI trading prices
over a 20-day trading period ending the second trading day prior to the merger,
but in no event less than .5023 or more than .5774 of a share of TI common
stock. Based on the assumed exchange price and 32.5 million Unitrode shares
outstanding as of July 31, 1999, the transaction is valued at approximately
$1.25 billion. The transaction is intended to be accounted for as a "Pooling of
Interests" and is subject to approval by Unitrode stockholders and other
customary conditions. On August 18, 1999, the Federal Trade Commission notified
the Company that it has granted early termination of the waiting period required
by the Hart-Scott-Rodino Antitrust Improvements Act.
In the second quarter ended July 31, 1999, the Company recorded merger-related
transaction costs of $3.7 million primarily for professional services, such as
investment banking, legal and accounting fees. The transaction is expected to
close in the third quarter of fiscal year 2000.
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
amount of product booked and shipped within a quarter, changes in product mix,
and fluctuating economic conditions in the United States, Asia and other
international markets.
Sales to one customer, Compaq Computer Corporation, represented approximately
12% and 8% of sales in the second quarter of fiscal years 2000 and 1999,
respectively, and 11% and 8% of sales in the first six months of fiscal years
2000 and 1999, respectively. The loss or a substantial reduction in sales from
this customer would have a material adverse effect upon the Company's business.
The semiconductor market historically has been cyclical and subject to
significant fluctuations. As a result, orders and backlog may fluctuate widely
from time to time. Weakness in the EDP, communications or industrial markets may
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.
16
<PAGE> 17
FACTORS AFFECTING FUTURE RESULTS (continued)
The Company is dependent upon a combination of its own wafer fabrication
facility in Merrimack, New Hampshire, and outside foundries for manufacturing
capacity. There can be no assurance that its internal capacity will match demand
or that the Company will provide sufficient orders to meet its contractual
obligations to its outside suppliers.
The Company's new 6" BiCMOS wafer fabrication facility became operational in
July 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 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 continue to offset these additional expenses, the Company's
future gross profit as a percentage 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
over-capacity in the industry, which could lead to price erosion that could
adversely affect the Company's operating results.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. There can be no assurance that
future claims or assertions will not materially adversely affect the Company's
business, financial condition, results of operations, or cash flows.
The proposed acquisition of the Company by Texas Instruments requires the
dedication of management resources that may temporarily divert attention from
the day-to-day business of the Company and this distraction could have an
adverse effect on near-term revenues and operating results.
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," "Impact of the Year
2000 Issue," 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, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary exposures to market risk are the effect of fluctuations in
interest rates earned on its cash equivalents and short-term investments, and
the effect of volatility in currencies on its foreign-denominated trade
receivables and cash.
At July 31, 1999, the Company held $90.4 million in cash equivalents consisting
of taxable and tax-exempt municipal securities. Cash equivalents are classified
as held to maturity and valued at amortized cost which approximates fair market
value. A hypothetical 10 percent increase in interest rates would not have a
material impact on the fair market value of these instruments due to their short
maturity.
The Company enters into forward foreign exchange contracts as a hedge against
trade receivables and cash denominated in foreign currencies. Realized and
unrealized
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)
gains and losses on these contracts are included in net income and offset the
foreign exchange gains or losses on the hedged trade receivables and cash. At
July 31, 1999, the Company had one-month forward contracts to sell foreign
currencies of 2.2 million German marks, and 0.5 million British pounds totaling
approximately $1.9 million. The Company recorded total foreign currency losses
of $58,000 in fiscal year 1999. A hypothetical 10 percent change in foreign
currency rates would not have a material impact on the Company's results of
operations.
18
<PAGE> 19
PART II. OTHER INFORMATION
Unitrode Corporation and Consolidated Subsidiaries
July 31, 1999
ITEM 1. LEGAL PROCEEDINGS
None.
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
Reference is hereby made to Item 4 in the Company's Form 10Q for the quarter
ended May 1, 1999 for information regarding the Company's annual meeting of
stockholders held on June 7, 1999.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Short Term Incentive Plan
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K:
On June 29, 1999, the Registrant filed a report on Form 8-K
announcing that, effective June 28, 1999, Alan R. Schuele had
resigned as President and Chief Operating Officer and that
Robert J. Richardson, Chairman and Chief Executive Officer,
would reassume those duties.
On July 27, 1999, the Registrant filed a report on Form 8-K
announcing the proposed merger of the Company with Texas
Instruments.
19
<PAGE> 20
Unitrode Corporation and Consolidated Subsidiaries
July 31, 1999
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
September 10, 1999 /s/ Robert J. Richardson
- --------------------- -----------------------------------------------
Date Robert J. Richardson
Chairman, President and Chief Executive Officer
September 10, 1999 /s/ John L. Kokulis
- --------------------- -----------------------------------------------
Date John L. Kokulis
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
20
<PAGE> 1
UNITRODE CORPORATION Exhibit 10.1
SHORT TERM INCENTIVE PLAN
A. Establishment and Effective Date
1. Unitrode Corporation (the "Company") has established a Short Term
Incentive Plan (the "Plan") for selected U.S. employees (the
"Participants") of the Company.
2. This Plan is effective beginning February 1, 1999. The Plan shall be
in effect until otherwise determined by the Plan Administrator.
B. Objectives
1. The principal objectives of the Plan are to:
a. Recognize the volatility in the semiconductor market.
b. Share in the company success.
c. Underscore the importance of corporate, team and individual
goals.
C. Responsibility for Administration and Interpretation
1. The Plan Administrator shall be responsible for administration and
interpretation of this plan. Unitrode's Chief Executive Officer and
Vice President, Human Resources shall serve in the capacity of "Plan
Administrator".
2. The Plan Administrator shall have the authority to adopt, amend, and
repeal the administrative rules, guidelines, and practices relating to
the Plan as deemed advisable, including dissolution of the Plan
without advance notice. The Plan Administrator shall also have full
responsibility to interpret provisions of the Plan. The Plan
Administrator will not be liable for any action or determination
relating to the Plan made in good faith. All decisions made by the
Plan Administrator will be final and binding on all persons having or
claiming any interest in the Plan or in any award from the Plan.
3. The Plan Administrator shall have the right to set the maximum amount
of the sum of such awards and the maximum employee participation.
4. The Plan Administrator shall monitor the use of the Plan to assure
that its use remains consistent with its objectives.
Page 1
<PAGE> 2
D. Eligibility
1. Eligibility for awards under the Plan shall be open to all U.S.
employees who are active, regular Company employees on the date of the
award distribution except for those employees who are participants in
any sales incentive plan.
2. Eligibility in any one year shall guarantee neither a right to an
incentive award, nor a right to eligibility in any subsequent year.
E. Participation
1. Awards under the Plan shall be limited to individuals employed by the
Company on the date of payment, except in the case of retirement,
disability, or death, in which case the Plan Administrator may approve
the payment of a full or pro-rated award to the former employee or
his/her estate or beneficiary of record.
2. Participation shall be based on actual results relative to assessment
criteria during the assessment period.
F. Target Awards
1. The Plan Administrators will approve target Incentive Awards for each
classification of eligible employees.
2. Refer to appendix for target award details by employee classification.
3. The establishment of a target award does not guarantee payment at that
level; actual awards are based on results relative to performance
criteria.
G. Performance Criteria and Assessment
1. Performance criteria shall be predetermined by the Plan Administrator
for each employee classification, and shall be based upon specific
company goals and individual performance results. (The performance
criteria weighting can be found in the appendix of this plan
document.)
2. Each performance criteria will be assessed as follows:
a. Earnings Per Share (EPS). Payout begins at 100% of fiscal year
target, with no cap. (The EPS schedule can be found in the
appendix of this plan document.)
b. Management By Objectives (MBOs). Individual performance versus
goals will be assessed to determine achievement of MBOs.
Page 2
<PAGE> 3
3. Awards payments are subject to attainment of the annual EPS target and
MBO achievement. At the beginning of each fiscal year, the criteria
for bonus payments (i.e. minimum attainment of EPS figures) will be
announced.
H. Award Form
1. EPS achievement will be determined at the close of the fiscal year.
2. MBO attainment will be measured quarterly and paid annually.
3. Awards to Participants shall be payable as soon as practical following
award determination at the close of the fiscal year.
4. Awards shall be calculated as a percent of base salary, and shall be
subject to all required taxes, deductions, and withholdings.
I. Relationship to Other Plans
1. Eligibility for or Participation in this Plan does not automatically
preclude eligibility for any other plans that may be established by
the Company.
J. No Contract of Employment
1. Neither the Plan, nor an employee's eligibility or award will be
deemed a contract of employment.
K. No Legal Right
1. Neither the establishment of the Plan, nor any amendment or change to
the Plan, nor the payment of any award under the Plan will be
construed as giving a participant or other person any legal or
equitable right against the Company or any affiliated organization(s).
2. Rights to awards shall terminate upon the termination of the Plan and
any previously calculated awards shall be payable pursuant to Section
H of this Plan.
L. Right to Amend the Plan
1. The Plan Administrator reserves the right to amend or terminate the
Plan to any extent, in any manner, and at any time in the sole
discretion and in the final judgment of the Plan Administrator,
without further obligation.
Page 3
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<PERIOD-START> FEB-01-1999
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