UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
Mark One:
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 27, 1998.
---------------
Or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
------ ------
Commission file number 0-11879
VLSI TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2597282
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1109 McKay Drive, San Jose, California, 95131
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(Address of principal executive offices) (Zip Code)
(408) 434-3100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 ( )
Shares outstanding of the Registrant's Common Stock as of March 27, 1998:
45,667,680
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME - unaudited
<CAPTION>
(thousands, except per share amounts)
Three Months Ended
-------------------------
March 27, March 28,
1998 1997
--------- ---------
<S> <C> <C>
Net revenues $141,286 $167,478
Cost of sales 82,940 99,089
-------- --------
Gross profit 58,346 68,389
-------- --------
Operating expenses:
Research and development 28,037 24,015
Marketing, general and administrative 26,297 27,242
-------- --------
Operating income 4,012 17,132
Interest income and other expenses, net 3,808 2,911
Interest expense (3,484) (4,460)
-------- --------
Income from continuing operations before
provision for taxes on income 4,336 15,583
Provision for taxes on income 1,170 4,980
-------- --------
Income from continuing operations 3,166 10,603
Loss from discontinued operation,
net of taxes - (1,617)
-------- --------
Net income 3,166 8,986
-------- --------
Other comprehensive income, net of tax:
Unrealized gain (loss) on available-
for-sale securities 483 (92)
-------- --------
Comprehensive income $ 3,649 $ 8,894
======== ========
Net income (loss) per share - Basic:
Continuing operations $ 0.07 $ 0.23
Discontinued operation - (0.04)
-------- --------
Total $ 0.07 $ 0.19
======== ========
Net income (loss) per share - Diluted:
Continuing operations $ 0.07 $ 0.22
Discontinued operation - (0.03)
-------- --------
Total $ 0.07 $ 0.19
======== ========
Weighted-average common
shares outstanding - Basic 45,748 46,497
======== ========
Weighted-average common
shares outstanding and assumed
conversions - Diluted 47,415 48,197
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited
(thousands)
<CAPTION>
March 27, December 26,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $183,847 $193,899
Marketable securities 98,196 89,585
Accounts receivable, net of allowance
for doubtful accounts and customer
returns of $2,000
($2,000 at December 26, 1997) 94,439 110,869
Inventories:
Raw materials 2,448 2,565
Work-in-process 37,929 40,796
Finished goods 12,025 8,514
-------- --------
Total inventories 52,402 51,875
Deferred and refundable income taxes 82,465 82,870
Prepaid expenses and other current assets 5,892 4,779
-------- --------
Total current assets 517,241 533,877
Property, plant and equipment, at cost 777,294 777,316
Accumulated depreciation and amortization (400,438) (396,412)
-------- --------
Net property, plant and equipment 376,856 380,904
Other assets 9,097 7,297
-------- --------
TOTAL ASSETS $903,194 $922,078
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited (Continued)
(thousands, except per share amounts)
<CAPTION>
March 27, December 26,
1998 1997
--------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,983 $ 57,469
Accrued compensation and benefits 30,563 31,091
Income taxes 12,083 11,436
Patent matters 23,710 23,738
Other accrued liabilities 54,468 59,620
Current portion of long-term debt - 2,874
-------- --------
Total current liabilities 175,807 186,228
Long-term debt 172,500 182,039
Other long-term obligations 25,500 24,960
Deferred income taxes 12,456 12,456
Stockholders' equity:
Preferred Shares, $.01 par value - -
Common Shares, $.01 par value 473 473
Treasury Common Shares, at cost (34,990) (32,653)
Additional paid-in capital 458,763 459,539
Retained earnings 94,566 91,400
Accumulated other comprehensive income (1,881) (2,364)
-------- --------
Total stockholders' equity 516,931 516,395
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $903,194 $922,078
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - unaudited
(thousands)
<CAPTION>
Three Months Ended
---------------------------
March 27, March 28,
1998 1997
--------- ------------
Increase (decrease) in
cash and cash equivalents
<S> <C> <C>
Operating activities:
Net income $ 3,166 $ 8,986
Adjustments to reconcile net income
to cash generated by operations:
Depreciation and amortization 25,338 26,763
Deferred income taxes (1,475) 4,511
Changes in operating assets and liabilities:
Accounts receivable 16,430 9,741
Inventories (527) (693)
Refundable income taxes 1,880 -
Accounts payable, income taxes payable and
accrued liabilities (11,089) 984
Other (3,205) (5,616)
-------- --------
Cash generated by operations 30,518 44,676
-------- --------
Investing activities:
Purchases of marketable securities (83,822) (98,350)
Proceeds from maturities of marketable securities 75,861 47,512
Purchases of property, plant and equipment (33,157) (25,150)
Sale of property, plant and equipment 16,361 -
-------- --------
Net cash flow used for investing activities (24,757) (75,988)
-------- --------
Financing activities:
Payments on debt and capital lease obligations (12,710) (2,146)
Repurchase Treasury Common Shares (4,564) (15,838)
Issuance of Common and Treasury Shares, net 1,461 856
-------- --------
Net cash flow used for financing activities (15,813) (17,128)
-------- --------
Net decrease in cash and cash equivalents (10,052) (48,440)
Cash and cash equivalents, beginning of period 193,899 139,074
-------- --------
Cash and cash equivalents, end of period $183,847 $ 90,634
======== ========
Supplemental disclosures:
Cash outflows for property, plant and equipment $ 33,157 $ 25,150
Change in accrued property, plant
and equipment additions 807 (1,024)
-------- --------
Property, plant and equipment additions $ 33,964 $ 24,126
======== ========
Interest paid $ 678 $ 2,038
======== ========
Income taxes paid, net $ 407 $ 1,344
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying interim consolidated condensed financial statements have
been prepared in conformance with generally accepted accounting principles,
consistent with those applied in the VLSI Technology, Inc. Annual Report on
Form 10-K for the fiscal year ended December 26, 1997 (the 1997 Annual
Report). This Quarterly Report on Form 10-Q (Form 10-Q) should be read in
conjunction with the 1997 Annual Report. The interim financial statements
are unaudited, but reflect all normal recurring adjustments that are, in
the opinion of management, necessary to a fair statement of results for the
interim periods presented. Certain prior year first quarter amounts
reported have been reclassified to reflect the sale of a subsidiary, as
discussed in the 1997 Annual Report. The results for the quarter ended
March 27, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 25, 1998.
2. Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (FAS 130) is effective beginning with the Company's
1998 first fiscal quarter. FAS 130 requires, for all periods presented,
comprehensive income be reported with the same prominence as other
financial statements. As such, the Company has included these amounts on
the face of the income statement.
Comprehensive income includes net income plus other comprehensive income.
Other comprehensive income for VLSI is comprised of changes in unrealized
gains or losses on available-for-sale securities, net of tax.
Accumulated other comprehensive income and changes thereto in 1998 consist
of (thousands):
Accumulated other comprehensive income at
December 26, 1997 (unrealized loss on available-
for-sale securities, net of tax of $1,477) $(2,364)
Change for the three months ended March 27, 1998:
Unrealized gain on available-for-sale securities 696
Tax effect on unrealized gain (213)
-------
Accumulated other comprehensive income at
March 27, 1998 (unrealized loss on
available-for-sale securities, net of tax) $(1,881)
=======
The $92,000 unrealized loss for the three months ended March 28, 1997 is
net of tax benefit of $43,000.
3. Prior year's first quarter net income per share figures have been restated
as required by FAS 128. Net income per share, Basic and Diluted, is as
follows:
Three Months Ended
-----------------------
March 27, March 28,
1998 1997
--------- ---------
(thousands, except
per share amounts)
Net income (loss):
Continuing operations $ 3,166 $10,603
Discontinued operation - (1,617)
-------- -------
Total $ 3,166 $ 8,986
======= =======
Weighted-average common shares - Basic 45,748 46,497
Dilutive options 1,667 1,700
------- -------
Adjusted weighted-average common shares
and assumed conversions - Diluted 47,415 48,197
======= =======
Net income (loss) per share - Basic:
Continuing operations 0.07 0.23
Discontinued operation - (0.04)
------- -------
Total $ 0.07 $ 0.19
======= =======
Net income (loss) per share - Diluted:
Continuing operations 0.07 0.22
Discontinued operation - (0.03)
------- -------
Total $ 0.07 $ 0.19
======= =======
The effect of convertible debt is excluded in both periods from income
available for shareholders and adjusted weighted-average common shares
because they would have been antidilutive. The following amounts have been
excluded:
March 27, March 28,
1998 1997
--------- ---------
(thousands)
Income available to shareholders, net of tax $ 2,597 $ 2,419
======= =======
Potentially dilutive shares 3,148 3,148
======= =======
4. Marketable securities are liquid investments with original maturities
greater than 90 days. The Company classifies these investments as
available-for-sale and records the unrealized gains and losses in a
separate component of equity as accumulated other comprehensive income, as
well as reporting the changes in such balances on the face of the income
statement as other comprehensive income.
5. In January 1996, the Board of Directors (Board) authorized the Company to
repurchase shares of the Company's Common Stock on the open market or in
privately negotiated transactions. The Board authorized the Company to re-
issue these shares at any later date through certain of its employee stock
plans and/or to fund stock or asset acquisitions authorized by the Board.
During the first quarter of 1998, the Company repurchased 240,000 shares at
an average per share price of $19.01. The Company may, from time to time,
continue to repurchase additional shares.
6. The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions. Periodically, the
Company is made aware that technology used by the Company in the
manufacture of some or all of its products may infringe on product or
process technology rights held by others. Resolution of whether the
Company's manufacture of products has infringed on valid rights held by
others could have a material adverse effect on the Company's financial
position or results of operations and may require material changes in
production processes and products. The Company continually evaluates the
adequacy of its reserves for asserted and unasserted patent matters. The
reserve is based on the best available information at the time and it is
reasonably possible that the Company's estimate of the exposure for patent
matters could materially change at any given time.
7. Subsequent events:
In response to a claim by Motorola of infringement by VLSI of Motorola's
patents, in April 1998 the Company concluded a multi-year patent license
agreement with Motorola. The agreement provides that the Company will pay
initial consideration valued at $8 million, in a combination of cash and
stock, and will also pay a royalty through the term of the agreement in
amounts not considered material to the results of any one quarter. The
Company had previously made sufficient reserves regarding this matter.
ARM Holdings PLC (ARM) made an initial public offering (IPO) of its common
stock on April 17, 1998 at $9.72 per share. As an early stage investor in
ARM, the Company's investment equated to 2.5 million shares at the time of
the IPO, and the Company participated in the IPO by selling 473,000 of such
shares. The Company's historical cost basis and carrying value of the ARM
shares at March 27, 1998, was not significant.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS - FIRST QUARTER OF 1998 COMPARED TO THE FIRST QUARTER OF
1997
- --------------------------------------------------------------------------------
This Management's Discussion and Analysis of Financial Condition and Results
of Operations (MDA) should be read in conjunction with the 1997 Annual Report,
inclusive of the MDA therein.
This MDA contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth herein
and in the 1997 Annual Report. Statements made herein are as of the date of
this quarterly filing with the Securities and Exchange Commission. The Company
disclaims any obligation to update the contents of those statements subsequent
to the filing of this Form 10-Q, except as may be required by law.
The following table summarizes the Company's operating results for the three-
month period ended March 27, 1998 as compared to the three-month period ended
March 28, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
First Quarter
-----------------------------------------------------
1998 1997
------------------------------- -------------------
Percent Percent Percent
of Net Change of Net
Amounts Revenues From 1997 Amounts Revenues
------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $141,286 100.0% (15.6)% $167,478 100.0%
Cost of sales 82,940 58.7 (16.3) 99,089 59.2
-------- ----- -------- -----
Gross profit 58,346 41.3 (14.7) 68,389 40.8
Research & development 28,037 19.9 16.7 24,015 14.3
Marketing, general and
administrative 26,297 18.6 (3.5) 27,242 16.3
-------- ----- -------- -----
Operating income 4,012 2.8 (76.6) 17,132 10.2
Interest income
(expense), net 324 0.2 * (1,549) (0.9)
Income taxes 1,170 0.8 (76.5) 4,980 3.0
-------- ----- -------- -----
Net income from
continuing
operations 3,166 2.2 (70.1) 10,603 6.3
Loss from discontinued
operation, net
of taxes - 0.0 * (1,617) (0.9)
-------- ----- -------- -----
Net income $ 3,166 2.2 (64.8) $ 8,986 5.4
======== ===== ======== =====
* Not meaningful
</TABLE>
The Company earned net income of $3.2 million in the first quarter of 1998,
compared to net income of $9.0 million in the first quarter of 1997. This
change primarily reflects decreased net revenues, as discussed below.
Net revenues in the first quarter of 1998 decreased 15.6% from the comparable
1997 period. This decrease is due to the lower sales of computing products, as
well as reduced end market demand of the Company's communications and consumer
digital entertainment products reflecting business uncertainties in the Asia-
Pacific region, and inventory adjustments underway at a range of customers.
International net revenues (including export sales) decreased as a result of
lower end market demand for communications and consumer products. However, as
a percentage of net revenues, international net revenues increased to 55.1% of
net revenues in the first quarter of 1998 compared to 52.7% in the first
quarter of 1997 as a result of the lower sales of computing products in
domestic markets.
Gross profit margins increased slightly to 41.3% in the first quarter of 1998
from 40.8% in the first quarter of 1997 primarily as a result of changes in
the mix of products sold.
Research and development expenditures increased by $4.0 million in the first
quarter of 1998 over expenditures in the same 1997 period and increased as a
percentage of net revenues from 14.3% to 19.9%, reflecting continued increased
investments primarily in process technologies, as well as new products.
Marketing, general and administrative expenses for the first quarter of 1998
decreased by $0.9 million from the first quarter of the prior year yet
increased as a percentage of net revenues from 16.3% to 18.6%. The decrease
in dollar spending is due to tighter expense controls.
Interest income (expense), net was income of $0.3 million in the current
quarter as compared to expense of $1.5 million in the same period a year ago,
reflecting the retirement of equipment loans and higher returns on higher
average cash and investment balances.
The Company's tax rate was 27% and 32% in the first quarter of 1998 and 1997,
respectively. The decrease is the result of a larger proportion of total pre-
tax income being earned in lower tax jurisdictions.
FACTORS AFFECTING FUTURE RESULTS
The Company's business is subject to numerous risks, any one of which, alone
or in combination, could have a material adverse effect on future results of
operations. Some of these factors are:
The Company's stock price, like that of other technology companies, is subject
to significant volatility. If revenue or earnings in any quarter fail to meet
the investment community's expectations, there could be an immediate impact on
the Company's stock price. The stock price may also be affected by broader
market trends unrelated to the Company's performance. Past financial
performance should not be considered a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.
During 1997, the Company's top 20 customers represented approximately three-
quarters of the Company's net revenues. During 1996 and 1995, the Company's
top 20 customers represented approximately two-thirds of net revenues. The
Company's largest customer, Ericsson, accounted for approximately 29% of net
revenues in 1997. As a result of the concentration of the Company's customer
base, loss of business or cancellation of orders from any of these customers,
significant changes in scheduled deliveries to any of these customers or
decreases in the prices of products sold to any of these customers could have
a material adverse effect on the Company's results of operations.
The Company has a high concentration of sales to the communications and
consumer digital entertainment markets. The communications and consumer
digital entertainment markets are rapidly evolving and are characterized by
intense competition among suppliers of integrated circuits, many of whom have
substantially greater experience and resources than the Company. If the
Company, due to competition or other factors, is unable to capture and
maintain significant market share in these areas, there could be a material
adverse effect on the Company's results of operations. Since 1996, the Company
has had a significant focus on the communications and consumer digital
entertainment markets. As a result, the Company's revenues have followed a
seasonal pattern, generally showing growth in the second half of the year,
reflecting the buying pattern of customers in these markets.
The Company's success depends on its ability to continue to develop and
introduce new products that compete effectively on the basis of price and
performance and that satisfy customer requirements. New product development
often requires long-term forecasting of markets, market trends, development
and implementation of new processes and technologies and substantial capital
commitments. In addition, semiconductor design and process methodologies are
subject to rapid technological change. Decreases in geometries call for
sophisticated design efforts, advanced manufacturing equipment and cleaner
fabrication environments. If the Company is unable to design, develop,
manufacture and market new products successfully or introduce new design and
process methodologies in a timely manner, its operating results will be
materially adversely affected.
The Company sells its products under terms and conditions customarily found in
the semiconductor industry. Sales of these products are subject to customer
cancellation with limited advance notice to the Company prior to scheduled
shipment. Due to the Company's relatively narrow customer base for certain
devices and the short product life cycles of such products, such cancellations
can leave the Company with significant inventory exposure, which could have a
material adverse effect on the Company's operating results.
The semiconductor industry has a history of cyclicality and is characterized
by short product life cycles, continuous evolution of process technology, high
fixed costs, additions of manufacturing capacity in large increments and wide
fluctuations in product supply and demand. The industry can move from a period
of capacity shortages to a period of excess capacity, or vice versa, in a very
short time. During a period of excess capacity, profitability can drop sharply
as factory utilization declines and high fixed costs of operating a wafer
fabrication facility are spread over a lower net revenue base. During a period
of capacity shortage, there can be no assurance that the Company can achieve
timely, cost-effective access to additional capacity if and when needed.
The fabrication of integrated circuits is an extremely complex and precise
process consisting of hundreds of separate steps and requiring production in a
highly controlled, clean environment. Minute impurities, errors in any step of
the fabrication process, defects in the masks used to print circuits on a
wafer or a number of other factors can cause a substantial percentage of
wafers to be rejected or numerous die on each wafer to be non-functional.
Semiconductor manufacturing also requires a constant upgrading of process
technology to remain competitive. The Company is planning to commence the
conversion of its San Antonio facility from six-inch to eight-inch wafer
capability in late 1998. Any significant expansion or upgrade of semiconductor
manufacturing capacity has attendant risks. Inefficiencies caused by the work
associated with the modifications of the manufacturing facilities could
adversely affect the Company's results of operations.
The Company relies on outside suppliers for a significant portion of its
assembly and test operations. Allocations by these suppliers of assembly and
test capacity to the Company depend on the Company's needs and supply
availability during periods of capacity shortages. The Company has no long-
term contractual commitments from these suppliers. Any reduction in allocation
from these suppliers could adversely affect the Company's results of
operations. The Company's foreign subcontract manufacturing arrangements are
also subject to risks such as changes in government policies, transportation
delays, fluctuations in foreign exchange rates and export and tax controls.
The semiconductor industry is characterized by vigorous protection and pursuit
of intellectual property rights and positions. Periodically, the Company is
made aware that technology used by the Company in the manufacture of some or
all of its products may infringe on product or process technology rights held
by others. Resolution of whether the Company's manufacture of products has
infringed on valid rights held by others could have a material adverse effect
on the Company's financial position or results of operations and may require
material changes in production processes and products. The Company continually
evaluates the adequacy of its reserves for asserted and unasserted patent
matters. The reserve is based on the best available information at the time
and it is reasonably possible that the Company's estimate of the exposure for
patent matters could materially change at any given time.
VLSI has entered into licensing agreements and technology exchange agreements
with various strategic partners and other third parties in order to allow VLSI
access to third party technology or to allow third parties access to the
Company's technology. The Company is unable to predict whether license
agreements can be obtained or renewed on terms acceptable to the Company or
the magnitude of the costs associated with such terms. Failure to obtain or
renew such licenses could have a material adverse effect on the Company's
financial position or results of operations.
Other factors that may adversely affect the Company's future results include
natural disasters, environmental and other governmental regulations and the
ability to attract and retain key employees. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors Affecting
Future Results" in Item 7 of Part II of the 1997 Annual Report on Form 10-K.
YEAR 2000 DISCLOSURE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year, thus rendering them
incapable of properly managing and manipulating data that includes both 20th
and 21st century dates (Year 2000 Compliant). In connection with a normal plan
of upgrading its computer resources, the Company is currently installing
various new internal information systems in connection with operating its
business. These systems are believed to be Year 2000 Compliant. The Company is
also in the process of determining what other changes to its other information
systems are necessary in order to make them Year 2000 Compliant. While the
Company currently expects that the Year 2000 will not pose significant
internal operational problems, delays in the implementation of new information
systems, or a failure to fully identify all Year 2000 dependencies in the
Company's systems could have a material adverse effect on the Company's
results of operations.
The Company is assessing its products to ensure that they are Year 2000
Compliant. To date, the ongoing assessment has not revealed any significant
compliance issues. However, the inability of these products to properly manage
and manipulate data in the year 2000 could result in a material adverse impact
on the Company, including increased warranty costs, customer satisfaction
issues and potential lawsuits.
The Company has initiated communications with its suppliers and customers to
determine the extent to which the Company's capabilities are vulnerable to
failure by those third parties to remediate their own Year 2000 issues. There
is no guarantee that the systems and products of other companies on which the
Company relies will be timely converted or that they will not have a material
adverse effect on the Company.
While the total cost of the Year 2000 project has not yet been determined, the
current investigation has not identified significant costs to date.
Accordingly, the Company believes it has sufficient resources for the Year
2000 project from currently available cash, cash equivalents, liquid
investments, cash flow expected from operations and/or borrowings under the
committed credit agreement.
LIQUIDITY AND CAPITAL RESOURCES
VLSI generates cash from operations, debt and equipment financings and sales
of its securities. Principal uses of cash include purchases of capital
equipment needed for semiconductor manufacturing and engineering, the
repurchase of common stock and payments of debt and lease obligations.
At March 27, 1998, total cash, cash equivalents and marketable securities
decreased $1.4 million from the 1997 fiscal year-end balance as discussed
below. Working capital decreased to $341.4 million at March 27, 1998 compared
to $347.6 million at December 26, 1997.
During the three-month period ended March 27, 1998, the Company generated
$30.5 million of cash from operations, a 31.7% decrease from the $44.7 million
of cash generated for the three-month period ended March 28, 1997. Accounts
receivable were $16.4 million lower at March 27, 1998 than at December 26,
1997, reflecting lower sales volumes in the first quarter of 1998. Accounts
payable, income taxes payable and accrued liabilities at March 27, 1998
decreased by $11.1 million from December 26, 1997 primarily reflecting
payments of San Antonio property taxes.
Cash used for investing activities was $24.8 million for the three-month
period ended March 27, 1998, as compared to $76.0 million for the three-month
period ended March 28, 1997. The decrease is primarily a result of the timing
of transactions on marketable securities, partially offset by the sale of
property, plant and equipment in connection with sale-leaseback arrangements.
VLSI invested $34.0 million in property, plant and equipment during the first
three months of 1998 compared to $24.1 million in the comparable 1997 period.
VLSI currently estimates that total capital expenditures for 1998 will be
approximately $150 million to $175 million. These expenditures are anticipated
to be used for converting from six-inch to eight-inch wafer technology at the
San Antonio fabrication facility, sub-micron wafer fabrication capability, EDA
tools deployment and other equipment upgrades. The Company expects to
primarily utilize existing cash balances and cash from operations for its 1998
capital expenditures.
Cash used for financing activities was $15.8 million in the first three months
of 1998 compared to $17.1 million in the same 1997 period. The decrease is a
result of lower purchases of treasury stock, partially offset by the repayment
of certain secured equipment loans in conjunction with the sale-leaseback of
equipment.
In response to a claim by Motorola of infringement by VLSI of Motorola's
patents, in April 1998 the Company concluded a multi-year patent license
agreement with Motorola. The agreement provides that the Company will pay
initial consideration valued at $8 million, in a combination of cash and
stock, and will also pay a royalty through the term of the agreement in
amounts not considered material to the results of any one quarter.
The Company has a committed credit agreement for $100.0 million, expiring in
December 2000. While the Company believes that its current capital resources
are sufficient to meet its near-term needs, in order to meet its longer-term
needs, VLSI continues to investigate the possibility of generating financial
resources through technology or manufacturing partnerships, additional
equipment financings, operating leases and offerings of debt or equity
securities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently a party to various legal actions arising out of the
normal course of business, none of which are expected to have a material
effect on the Company's financial position of results of operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - See Index to Exhibits on Page 16.
(b) Reports on Form 8-K - On February 9, 1998, the Company filed a Form
8-K dated February 9, 1998, pursuant to Item 5 of instructions to
Form 8-K, disclosing the effect of adoption of FAS 128, "Earnings per
Share", on the Annual Report on Form 10-K for the fiscal year ended
December 27, 1996 and the related restatement of earnings per share
thereon, so that such information may be incorporated by reference
into a Registration Statement on Form S-8. Restated selected
financial data for fiscal years 1992, 1993, 1994, 1995 and 1996 and
for the fiscal quarters of 1995, 1996 and 1997, and related
disclosures prescribed by FAS 128, "Earnings per Share," were filed
with such Form 8-K.
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.
VLSI TECHNOLOGY, INC.
(Registrant)
Date: May 6, 1998 By: /s/ Balakrishnan S. Iyer
-------------------------- -------------------------------
Balakrishnan S. Iyer
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 6, 1998 By: /s/ Victor K. Lee
-------------------------- -------------------------------
Victor K. Lee
Vice President and Controller
(Principal Accounting Officer)
VLSI TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements in the Quarterly Report on Form 10-Q of VLSI Technology,
Inc. for the quarter ended March 27, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000704386
<NAME> VLSI TECHNOLOGY, INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> MAR-27-1998
<EXCHANGE-RATE> 1
<CASH> 183,847
<SECURITIES> 98,196
<RECEIVABLES> 96,439
<ALLOWANCES> (2,000)
<INVENTORY> 52,402
<CURRENT-ASSETS> 517,241
<PP&E> 777,294
<DEPRECIATION> (400,438)
<TOTAL-ASSETS> 903,194
<CURRENT-LIABILITIES> 175,807
<BONDS> 198,000
<COMMON> 473
0
0
<OTHER-SE> 516,458
<TOTAL-LIABILITY-AND-EQUITY> 903,194
<SALES> 141,286
<TOTAL-REVENUES> 141,286
<CGS> 82,940
<TOTAL-COSTS> 82,940
<OTHER-EXPENSES> 54,379
<LOSS-PROVISION> (45)
<INTEREST-EXPENSE> 3,484
<INCOME-PRETAX> 4,336
<INCOME-TAX> 1,170
<INCOME-CONTINUING> 3,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,166
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
