ITEM 1. BUSINESS
General Development of the Business - ------------------------------------
Unitrode Corporation (the "Company" or "Unitrode") was founded in 1960 and is incorporated under the laws of Maryland. Since its inception, the Company and its subsidiaries have designed, manufactured, marketed, and sold electronic components and sub-systems. After divesting various businesses from 1991 through 1994, Unitrode is now focused on the analog/linear and mixed-signal integrated circuits business.
On May 31, 1991, Unitrode sold its subsidiary, Power General Corporation, to Nidec Corporation. The Company sold its Semiconductor Products Division to Micro USPD Inc., a wholly-owned subsidiary of Microsemi Corporation on July 7, 1992. During fiscal year 1995, the Company divested two additional operating divisions: Powercube Corporation to Natel Engineering Company, Inc. on June 23, 1994 and the Micro Networks Division to SMC Acquisition Corporation on October 12, 1994. For further information, reference is hereby made to Note D to the Company's consolidated financial statements included in Part II, Item 8, hereof.
Financial Information about Industry Segments - ---------------------------------------------
The Company and its subsidiaries operate within a single industry segment, the manufacture and sale of electronic components, and have various product categories within that one segment.
Description of the Business - ---------------------------
GENERAL
The Company currently designs, manufactures, markets and sells a range of analog/linear and mixed-signal integrated circuits (ICs). This business was founded in 1981. The Company's products are principally proprietary, high-performance analog/linear and mixed-signal integrated circuits which are used in a variety of applications in EDP/computer, telecommunications, industrial control and instrumentation, defense/aerospace, and automotive markets. For the most part, the ICs are used either to control switching power supplies and small electronic motors, or as high-speed interface and communication circuits between various pieces of electronic equipment.
THE ANALOG/LINEAR INTEGRATED CIRCUIT INDUSTRY
Integrated circuits are the building blocks of all electronic products today and may be classified as either analog or digital, depending upon the technique used to process or act upon electronic signals. Digital circuits process binary (either "on" or "off") signals that are used mostly in computer memory or logic devices and in micro-processors. Analog circuits process "real world" signals which measure physical conditions, such as temperature, force, speed, and pressure, the frequency and wavelength of which vary continuously. Analog circuits are used to amplify, monitor, condition, or transform these signals or to interpret these signals for use by digital logic. Advancements in technology have led to the development of mixed-signal circuits which combine certain types of analog and digital functions on the same IC in order to reduce space, increase reliability, and improve performance.
Worldwide merchant sales of analog ICs were estimated at approximately $17 billion in calendar year 1996, or approximately 15% of the total integrated circuit market, according to World Semiconductor Trade Statistics, Inc. The Company estimates that its served available market, the portion of the market in which its products directly compete, is about $1.6 billion. The Company's share of this market is estimated at about 8.4%.
The Company believes that the analog/linear integrated circuit market offers certain advantages compared to the digital market. The life cycles of products in the analog integrated circuit market tend to be longer and customer pricing is less volatile than the digital market. The capital requirements for the analog/linear IC business are lower than those in the digital IC area. In addition, foreign competition to date has been less interested in the analog/linear IC business because the products address smaller markets. Unlike products in the digital market, the value in the product is usually the result of
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual Report on Form 10-K - --------------------------------------------------------------------------------
design innovation utilizing a variety of manufacturing process technologies to address specific customer applications, many of which are in so-called "niche" markets.
PRODUCTS AND MARKETS
Advancements in digital processing, such as requirements for lower power and higher operating frequencies, are driving innovation in analog/linear circuitry. Another significant trend in the marketplace is the need to reduce the size and weight of components, particularly for portable and hand-held applications where these features are critical. As a result, more and more functions are designed onto a single chip, requiring both advancements in design and improvements in process technology.
The Company's product offerings are comprised of analog ICs for power supply control, motor control, lighting, power driving, power quality and power factoring, as well as high-speed and high-power interface applications. Products are developed as a result of careful market analysis, a close working relationship with its customers, and a thorough understanding of their applications. As a result, most of the products are based upon proprietary designs and are considered application specific standard products (ASSPs) because they are designed for targeted tasks. Some of these products have become standards in the industry.
The Company's major product categories and their functions are:
POWER MANAGEMENT (about 40% of sales): These circuits are used in switching power supplies (either AC/DC or DC/DC) to modulate, amplify, or regulate current or voltages, or to protect other circuitry from irregular, spurious, or erroneous signals. Examples of such products are current-mode pulse-width modulators (PWMs), resonant-mode ICs, power factor pre-regulator ICs, phase shifted PWMs, power driver circuits, and battery charger ICs. Using these advanced control ICs, a customer can design a power supply that is smaller and more efficient, critical attributes of today's power supply applications.
MOTOR CONTROL (about 34% of sales): These ICs are designed to control the position, speed, braking, and power consumption of small, fractional-horsepower DC electric motors, such as servo, stepper and DC brushless motors. These products combine logic with the power output required to control varied loads. Also included in this product family are full-bridge power amplifiers which serve as voice-coil driver ICs used predominantly for precise positioning applications, such as that required in high-density disk drive heads.
DATA TRANSMISSION/INTERFACE (about 26% of sales): Interface circuits transfer data signals between or within (an) electronic system(s). These circuits are used as drivers and receivers in high-speed data transmission, as well as for active termination. The Company's largest product line in this family is used principally to provide active termination for 18 and 9 lines of data transmission in small computer systems interface (SCSI) applications. Mixing and matching the 18- and 9-line terminators allow designers flexibility in terminating wide-SCSI busses with 18 and 27 lines. In fiscal year 1997, the Company introduced a technically advanced family of 27-line, fast/wide-SCSI circuits which operate at data rates up to 40 megabytes per second and low voltage differential terminators to meet new ULTRA SCSI requirements.
These products serve a broad range of markets including the EDP/computer, telecommunications, industrial control and instrumentation, defense/aerospace, and automotive. The following table identifies the typical user applications by market:
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual Report on Form 10-K - --------------------------------------------------------------------------------
MARKET USER APPLICATION
EDP/Computer Mainframes Desktop & Notebook PCs Terminals Printers Disk Drives, Tape Drives, & RAIDS Plotters Battery Chargers/Monitors Wireless Data Transmission Portable Computers
Telecommunications Switching Stations Routers & Hubs Terminal Servers Modems/Fax Machines Cellular Phones Global Positioning Systems Battery Chargers/Monitors
Industrial Control HVAC & Instrumentation Robotics Utility Equipment Portable Instruments Factory Automation Video Displays Energy Management Lighting Systems Sensors
Defense/Aerospace Satellites Aircraft Controls Advanced Weapons Missile Systems Displays
Automotive High Intensity Lighting Airbags Dashboard Displays
SALES AND DISTRIBUTION
Unitrode's products are sold worldwide by its sales force and through a network of independent sales representatives and distributors. The Company has about 8,200 end customers. About 74% of sales are either through its direct sales force or manufacturer's representatives, and the remaining 26% is through distribution networks.
The Company has three field sales offices to serve selected geographical areas in North America and also has agreements with seven distributors in North America who maintain more than 230 branch locations. Field application engineers are employed to work closely with customers to solve design problems and to anticipate future product directions.
For the year ended January 31, 1997, international sales represented 69% of sales. International sales are conducted through five sales offices, located in England, Germany, Hong Kong, Italy, and Singapore. The Company also has agreements with distributors or sales representatives for locations throughout Europe, Asia, Japan, South America, Australia, New Zealand, and the Middle East.
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The Company warrants its products to be free from defects in material or manufacture and to conform to its published ratings and characteristics in effect at the time and place of shipment. The Company also has agreements with certain distributors to provide price protection for inventories held by the distributor at the time of reductions in published list prices and, under certain circumstances, for stock rotation on unsold product.
CUSTOMERS
The Company's customer base is comprised of merchant manufacturers, electronics distributors, and customers with captive manufacturing operations. The captive manufacturers use the Company's products as integral components of their equipment and systems. In certain cases, product is sold to a subcontract-assembly company specified by the captive manufacturer. The merchant manufacturers typically function as original equipment manufacturers (OEMs) as well as suppliers of sub-systems to other OEMs. About 60% of sales are to customers with applications in the electronic data processing (EDP) market and about 19% are to customers in industrial markets. Revenues from product sales to one of these accounts, Western Digital Corporation, represented approximately 31%, 25% and 22% of sales in fiscal years 1997, 1996 and 1995, respectively. The loss of this customer would have a material adverse effect upon the Company.
The Company has no material contracts with the United States Government.
BACKLOG
The Company's backlog was approximately $40.6 million on January 31, 1997, all of which is expected to be shipped within the current fiscal year. Backlog at January 31, 1996 was approximately $37.7 million. The Company recognizes backlog as orders for product, from an end customer or distributor, that have a specific schedule for delivery within the ensuing twelve months. While annual purchase agreements are common in the industry, the Company does not recognize such agreements as backlog.
MANUFACTURING
In 1981, the Company purchased a manufacturing facility in Merrimack, New Hampshire ("Merrimack"), and converted it for IC wafer fabrication. Since that time, the original building has been expanded several times and upgraded to satisfy the need for increased capacity and additional process technologies, including class-10 lithography capability, as well as to meet requirements for quality and product reliability.
As of January 1997, the Company's major wafer fabrication process technologies included standard and enhanced bipolar, bipolar-CMOS (BiCMOS), and bipolar-CMOS-DMOS (BCDMOS). The majority of the bipolar processing takes place at the Company's Merrimack facility, and all of the BiCMOS and BCDMOS processing occurs at GMT Microelectronics Corporation ("GMT"), an independent foundry in which the Company has a minority investment. (See Note I to the Company's consolidated financial statements included in Part II, Item 8 hereof). The Company's bipolar processes are ideal for both precision analog circuits and power management functions. The BiCMOS process is well-suited for high density linear designs, especially where speed and lower power consumption are of primary importance. The BCDMOS process offers all of the advantages of BiCMOS and, with the addition of lateral DMOS devices, accommodates designs requiring higher current and voltage. Each of the three major fabrication technologies has numerous processing options available to enable the product designer to achieve the optimal product functionality, reliability, and performance.
During fiscal year 1997, the Merrimack wafer fabrication facility produced approximately 82% of the wafers required to meet customer demands. The Company also has agreements with several foundries to supply additional wafers as required, the most significant of which is an agreement with GMT. The agreement stipulates that as long as the Company maintains its investment in GMT, a certain percentage of GMT's capacity will be reserved for the Company.
In fiscal year 1997, the Company began construction of a new 6" BiCMOS wafer fabrication facility in Merrimack to increase manufacturing capacity and expand process capabilities. The initial phase is currently expected to cost approximately $36 million. The construction of the new wafer fabrication facility is expected to be completed by the middle of fiscal year 1998 with equipment installation and the qualification of manufacturing processes scheduled for the remainder of the fiscal year. This new facility is expected to become operational (revenue generating) early in fiscal year 1999.
Following wafer fabrication and wafer testing, the wafers are cut into die which are then assembled into circuit packages. As is common in the industry, most of the assembly is done by various IC assembly vendors located in Asia. The Company
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currently believes that adequate assembly capacity exists and that alternative sources could be obtained, should the need arise, without significant interruption of the manufacturing process.
The Company performs nearly all of its final testing for reliability and conformance on its products at its wholly owned subsidiary, Unitrode Electronics Singapore Pte. Ltd. ("UES"), located in Ayer Rajah, Singapore. The Company opened UES in 1986.
RAW MATERIALS
The Company believes that it has adequate sources of raw materials available. Single crystal silicon is used as a semiconductor material in its integrated circuits. Shortages in the supply of certain raw materials, including silicon wafers and plastic molding compounds for packages, have occurred from time to time. As is typical in the industry, the Company must allow for significant lead times for certain raw materials. In fiscal year 1996, the Company entered into a multi-year agreement with a manufacturer of silicon wafers for a guaranteed wafer supply in order to support the Company's requirements. (See Note J to the Company's consolidated financial statements included in Part II, Item 8 hereof). Multiple sources for raw materials are generally maintained. The Company has not experienced any shortage of energy and none is anticipated.
WORKING CAPITAL
The Company's business does not require working capital in excess of levels that are considered normal in the industry. Further, it has not been necessary for the Company to carry significant or unusual amounts of inventory to meet rapid delivery requirements to customers or to assure itself of a continuous allotment of raw materials from suppliers. The Company initiates most of its production based upon its backlog of orders. As is common in the industry, certain commodity items which are expected by customers to have short lead times are produced in advance of firm orders.
PRODUCT QUALITY ASSURANCE AND RELIABILITY
The Company is committed to the principles of Total Quality Management (TQM) in all aspects of its business. The foundation of the Company's TQM is a Quality System which is continuously reviewed and improved. The disciplines of statistical process control are practiced throughout the manufacturing operations. Rigorous procedures using cross-functional teams are in place to qualify fabrication processes and products prior to shipment. The Company also routinely qualifies suppliers and assembly subcontractors according to established standards.
In fiscal year 1996, the International Standards Organization completed its review of the Company's two manufacturing facilities (Merrimack and UES) and renewed the Company's registration to ISO 9001/9002, respectively. The Merrimack facility has continuously maintained conformance to MIL-STD-883 Class B and Class S since November 1985. In August of 1996, the Defense Supply Center-Columbus (DSCC) granted the Company full certification for MIL-PRF-38535.
PATENTS, LICENSES, AND TRADEMARKS
The Company owns a number of patents for product and processing techniques, as well as certain trademarks relating to its business. The Company also has a number of patent applications pending review. These patents and trademarks provide it with some competitive advantage. However, Unitrode's business prospects are dependent primarily upon the ability of its employees to work closely with customers and develop and deliver high-quality, reliable products at competitive prices, rather than on its ability to obtain and defend patents and trademarks. No patent or trademark related to a particular product is of material importance to the total business.
Unitrode continues to receive royalty payments from International Rectifier Corporation (IRC) as a result of a 1983 exclusive licensing agreement for certain MOSFET technology which, with the Company's consent and in consideration of royalty payments, IRC licenses to others. Depending upon the number of licensees and the uses of the technology, royalty amounts may vary.
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RESEARCH & DEVELOPMENT
The Company's development is directed towards new product design and process technology. At January 31, 1997, 95 employees supported the Company's research and development efforts. Design engineering offices are located in Merrimack, New Hampshire; San Jose, California; and Cary, North Carolina.
Research and development expenditures from continuing operations were approximately $17,976,000, $14,674,000, and $8,766,000 in the years ended January 31, 1997, 1996 and 1995, respectively.
COMPETITION
The Company competes in the high-performance segment of the analog/linear and mixed-signal integrated circuit market specifically addressing power management, motor control, and data transmission/interface applications. Unitrode has a number of competitors, some of which are substantially larger than the Company, with significantly greater resources. Unitrode would be adversely affected if its competitors introduced technologically superior products or offered their products at prices significantly lower than those of the Company's products. The major competitive factors include innovative design, product performance, price, reliability, quality, customer support, and timely delivery. The Company's ability to compete depends in large part upon the timely introduction of products that are technologically innovative and which provide cost-effective solutions for its customers.
SEASONAL ASPECTS
None.
ENVIRONMENTAL REGULATION
The Company expects no material adverse effect upon earnings, capital expenditures, or its competitive position as a result of compliance with federal, state, or local provisions which have been enacted or adopted regulating the discharge of materials to the environment, or otherwise relating to the protection of the environment (see "Legal Proceedings"). Its facilities have been designed to comply with government regulations, and the Company maintains policies and procedures to assure on-going compliance. There can be no assurance, however, that changes in such regulations will not impose costly equipment or other requirements on the Company as well as others in the industry.
EMPLOYEES
As of January 31, 1997, the Company had 562 employees of which 130 were employed outside of the United States. Approximately 350 employees support the manufacturing process, 72 employees conduct the sales and marketing effort, 95 employees support research and development, and 45 employees provide administrative support.
Unitrode has never had a labor work stoppage, and no employees are represented by a labor organization. The Company considers its employee relations to be good.
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Financial Information about Foreign and Domestic Operations and Export Sales - ----------------------------------------------------------------------------
Reference is hereby made to Note L to the Company's consolidated financial statements included in Part II, Item 8 hereof for information about foreign and domestic operations and export sales.
ITEM 2.
ITEM 2. PROPERTIES
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual Report on Form 10-K - --------------------------------------------------------------------------------
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
The Company is involved in investigation and cleanup under the supervision of the Maine Department of Environmental Protection of groundwater and soil contamination at the former Westbrook, Maine wafer fabrication facility of its former Semiconductor Products Division (the "Division"). Although the facility was closed in 1989, the Division was sold in 1992 and the Westbrook, Maine real estate was sold in 1994, the Company has retained responsibility for environmental remediation at this site. The ultimate cost of cleanup at this site is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. However, based upon the Company's experience at this site, the Company has established a reserve, taking into account the probable and reasonably estimable work to be done at this site, which the Company believes to be adequate.
The Company has been notified by responsible state authorities in California that it is one of a number of "potentially responsible parties" under relevant state statutes with respect to a former hazardous waste treatment facility in Escondido, California (the "Site"). The treatment facility was owned and operated by an entity wholly unrelated to the Company. The Company, along with other financially viable potentially responsible parties, has entered into a consent decree with governmental authorities regarding the voluntary payment of cleanup costs and voluntary cleanup measures with respect to the Site. The Company has established a reserve which the Company believes to be adequate for future environmental remediation costs at this Site, based upon the probable and reasonably estimable work to be done at the Site, the other potentially responsible parties involved at the Site and the Company's volumetric level of contribution to the Site which is less than one-half of one percent of the total volume of waste contributed to the Site by the parties to the consent decree. In view of the difficulty in quantifying the potential costs or damages arising from the alleged environmental hazards, it is not possible to determine with certainty the extent of the Company's potential exposure at the Site. However, based upon its investigation to date, the Company believes that its exposure (without giving effect to the joint and several liability provisions referred to below) would not be material and the Company believes that the reserves established with respect to these liabilities will be adequate. Further, although statutes provide that all "potentially responsible parties" may be held jointly and severally liable for the costs of investigation and remediation of a site, after consideration of the liabilities of other "potentially responsible parties" with respect to the Site and their respective levels of financial responsibility, the Company believes that its liability with respect to the Site is not material. If any liability on the part of the Company were to be measured by the ratio of the waste attributable to the Company over the total waste involved, based on information presently available to the Company, the Company's aggregate liability with respect to the Site would not be material.
Environmental reserves are reviewed as events and developments warrant and adjusted to reflect the likelihood of additional environmental expenditures. Based upon information currently available to the Company, management believes that any additional aggregate liability to which the Company may be subjected from all the above-mentioned sites would not be material to future financial results.
OTHER
In addition to the matters described above, from time to time as a normal incidence of the nature of the Company's business, various claims, charges or litigation are or may be asserted or commenced against the Company relating to, among other things, contractual matters, patent disputes, environmental matters and product liability. While there can be no assurance that the Company will prevail in all these matters, the Company does not believe that these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. However, an adverse resolution of one or more of such matters could have an adverse effect on the Company's consolidated results of operations in a quarter in which such matters might be resolved.
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ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's securities holders during the fourth quarter of the fiscal year ended January 31, 1997.
Executive Officers of the Registrant - ------------------------------------
There are no family relationships among these officers, nor any arrangement or understanding between any officer and any other person pursuant to which the officer was elected.
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To the Company's knowledge, based solely upon the review of copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended January 31, 1997 the Company complied with all Section 16(a) filing requirements applicable to its officers, directors and any beneficial owners holding greater than ten percent of its common stock.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Reference is hereby made to Note M to the Company's consolidated financial statements included in Part II, Item 8 hereof regarding the Market for the Registrant's Common Equity and Related Stockholder Matters.
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ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR FINANCIAL SUMMARY
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual Report on Form 10-K - --------------------------------------------------------------------------------
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year 1997 Versus Fiscal Year 1996
Net revenues for fiscal year 1997 were $133.5 million, an increase of $17.4 million or 15% compared with $116.1 million in fiscal year 1996. This increase was primarily due to the rise in demand for products in the computer peripherals segment of the electronic data processing markets. International revenues accounted for approximately 69% of total sales for fiscal year 1997 compared to 67% in fiscal year 1996.
Gross profit as a percentage of net revenues was essentially unchanged at 53% for fiscal year 1997 compared with fiscal year 1996.
Research and development expenses were approximately 13.5% of net revenues, or $18.0 million, compared with 12.6%, or $14.7 million in the prior year. This increase of approximately $3.3 million related primarily to additional product and process development efforts to support opportunities in the Company's markets. Research and development expenses also included a charge of $800,000 for writedowns on equipment no longer in use. Selling, general and administrative expenses decreased to approximately 17.6% of net revenues in fiscal year 1997 compared to 19.2% in fiscal year 1996. This percentage decrease was principally due to cost controls and the increased sales volume.
Interest income in fiscal year 1997 rose by approximately $399,000 principally due to the increase in the Company's cash and cash equivalents.
The consolidated effective tax rate for fiscal year 1997 was 38.6% compared to 37.3% in fiscal year 1996. This increase was due primarily to the absence in fiscal year 1997 of benefits related to tax credits and deferred tax assets that were available in fiscal year 1996.
Net income increased 18% from $17.5 million, or $1.47 per share, in fiscal year 1996 to $20.7 million, or $1.74 per share, in fiscal year 1997.
Backlog at January 31, 1997 increased approximately 8% to $40.6 million compared with $37.7 million at January 31, 1996. Backlog improved due to the growth in the computer peripherals segment of the electronic data processing markets.
RESULTS OF OPERATIONS
Fiscal Year 1996 Versus Fiscal Year 1995
Net revenues in fiscal year 1996 were $116.1 million compared with $95.4 million in fiscal year 1995, an increase of $20.8 million or 22%. Excluding Powercube Corporation ("Powercube") and the Micro Networks Division ("Micro Networks"), which were sold in fiscal year 1995, net revenues in fiscal year 1996 increased by 33% over the prior year. Integrated circuit sales, which now represent the total business of the Company, increased due to strong demand for products in the computer peripherals segment of the electronic data processing markets. Approximately 67% of analog integrated circuit sales in fiscal year 1996 were international compared with 63% in fiscal year 1995. Each of the Company's geographic markets reported increases in net revenues in fiscal year 1996 with the largest volume increase occurring in the Far East.
Gross profit as a percentage of net revenues was approximately 53% in fiscal year 1996 compared with 49% in fiscal year 1995. Excluding the disposed operations, gross profit increased to 53% from 51% in the prior year. This improvement was primarily due to a lower average cost per unit as a result of manufacturing efficiencies on the strength of greater capacity utilization and, therefore, absorption of fixed costs over the increased sales volume.
Research and development expenses from continuing operations were 13% of net revenues, or $14.7 million, compared with 10%, or $8.8 million in the prior year. This increase of approximately $5.9 million related primarily to increased staffing,
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual Report on Form 10-K - --------------------------------------------------------------------------------
additional product and process development efforts to support opportunities in the Company's markets, as well as the start-up of the Company's new design center in San Jose, California. Selling, general and administrative expenses, excluding disposed operations, decreased to approximately 19% of net revenues in fiscal year 1996 compared to 23% in fiscal year 1995. Fiscal year 1995 legal costs of approximately $1.2 million associated with litigation settlements represented 1.4 percentage points of the decrease. In addition, selling, general and administrative expenses have declined as a percentage of net revenues in fiscal year 1996 due to the increased sales volume.
In the fiscal year ended January 31, 1995, the Company had unusual charges of $5.5 million as a result of the disposal of Powercube and Micro Networks. (For further information, see Note D to the Company's consolidated financial statements.)
Interest income rose by approximately $433,000 principally due to an increase in the weighted average interest rate earned on cash and short-term investments.
The consolidated effective tax rate for fiscal year 1996 was 37.3% compared to 26.1% in fiscal year 1995. The effective tax rate in fiscal year 1995 benefited from the sale of Micro Networks and Powercube, as well as a reduction of $1.5 million in the valuation allowance for tax carryforwards.
Net income was $17.5 million in fiscal year 1996 compared with $9.2 million in fiscal year 1995. Excluding disposed operations, net income increased 43% from $12.2 million, or $.99 per share, to $17.5 million, or $1.47 per share.
Backlog at January 31, 1996 increased 34% to $37.7 million compared with $28.1 million at January 31, 1995. Backlog improved due to the strong demand for products in the computer peripherals segment of the electronic data processing markets.
FINANCIAL CONDITION
Cash and cash equivalents at January 31, 1997 increased by $15.8 million during fiscal year 1997. The principal sources of cash were $35.7 million from operating activities and $2.0 million in proceeds from exercises of employee stock options under the Company's stock option plans. The principal uses of cash were $20.9 million for capital commitments and an investment of $1.5 million in the redeemable preferred stock of GMT Microelectronics Corporation, ("GMT"), a wafer fabrication foundry in which the Company maintains a minority interest.
The ratio of current assets to current liabilities improved to 3.52:1 at the end of fiscal year 1997 compared with 2.95:1 at the end of the previous year. Working capital of $62.6 million at January 31, 1997 increased by $15.4 million from January 31, 1996. The Company also has available $25 million under an unused revolving credit agreement. It is anticipated that the Company's operating cash needs for fiscal year 1998, including planned capital expenditures, will be met by internally generated funds and available cash.
In fiscal year 1997, the Company began construction of a new 6" BiCMOS wafer fabrication facility in Merrimack, New Hampshire in order to increase manufacturing capacity and expand process capabilities. The initial phase is expected to cost approximately $36 million. In fiscal year 1997, the Company spent a total of approximately $18.7 million in capital expenditures which included $10.5 million for the new wafer fabrication facility. In addition, the Company spent $2.2 million for deposits on equipment for the new wafer fabrication facility. In fiscal year 1998, the Company plans to spend approximately $41 million in capital expenditures which includes completion of the initial phase of the wafer fabrication facility. The construction of the new wafer fabrication facility is expected to be completed by the middle of fiscal year 1998 with equipment installation and the qualification of manufacturing processes scheduled for the remainder of the fiscal year.
Accounts receivable at January 31, 1997 decreased by $2.0 million from January 31, 1996 to $15.9 million. Receivable days sales outstanding were 44 days at January 31, 1997 compared to 48 days at the end of the prior year. Inventories at January 31, 1997 increased by $1.0 million since January 31, 1996 primarily to support higher production requirements. Prepaid expenses and other current assets at January 31, 1997 increased by $2.2 million from the prior year primarily due to deposits made for equipment to be purchased for the new wafer fabrication expansion program. Accrued employee compensation and benefits has decreased by $3.4 million primarily due to lower incentive compensation benefits relating to fiscal year 1997 performance compared to fiscal year 1996.
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The Board of Directors of the Corporation had previously authorized the repurchase of 4,000,000 shares of its common stock of which 3,425,300 shares were repurchased at a cost of $38.4 million, or an average price of $11.22 per share. Effective October 23, 1996, the Board of Directors rescinded the authorization to repurchase the remaining 574,700 shares.
NEW ACCOUNTING STANDARDS
See Note A in the Company's consolidated financial statements for a discussion of recently issued accounting standards.
INFLATION
Management has concluded the effect of inflation had no significant impact on operations.
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 wafers and manufacturing and test capacity, changes in product mix and economic conditions in the United States and international markets. Revenues from product sales to one of the Company's customers, Western Digital Corporation, represented approximately 31%, 25% and 22% of sales in fiscal years 1997, 1996, and 1995, respectively. The loss of this customer would have a material adverse effect upon the Company's business.
The semiconductor market has historically been cyclical and subject to significant economic fluctuations at various times. As a result, orders and backlog may fluctuate widely from time to time. 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.
The Company has agreements with certain foundries to supply additional wafers as required, the most significant of which is an agreement with GMT. During fiscal year 1998, the Company expects changes in its product mix from new products introduced to significantly increase the volume of wafers produced utilizing BiCMOS processes. Presently, GMT is the Company's sole source for wafers requiring BiCMOS processing. Third-party foundry production is expected to increase from 18% of wafers produced in fiscal year 1997 to approximately 50% of wafers produced in fiscal year 1998. There can be no assurance that third-party foundries will be able to meet the Company's higher production requirements.
The Company has commenced expansion of its production facilities to increase manufacturing capacity and expand process capabilities. There can be no assurance that the Company will complete the expansion of its production facilities on time or that the added capacity will be sufficient to satisfy demand for its products. Delays in equipment installation or the qualification of manufacturing processes to make the wafer fabrication facility operational could significantly increase pre-operating costs. In addition, any constraints in manufacturing and testing capacity could adversely affect the business of the Company's customers and cause them to seek alternative sources for the products currently obtained from the Company. Once operational, the Company's additional capacity will also result 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 operating results could 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 overcapacity in the Company's targeted markets, which could lead to price erosion that could adversely affect the Company's 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,
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particularly the information appearing under the headings "Business," "Results of Operations," "Financial Condition", and "Factors Affecting Future Results" are 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.
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ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual Report on Form 10-K
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
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NOTES TO FINANCIAL STATEMENTS Unitrode Corporation and Consolidated Subsidiaries
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of all domestic and foreign subsidiaries. All material intercompany transactions are eliminated. The accounts of certain immaterial foreign subsidiaries are included on the basis of fiscal years ending in December.
USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION: The Company recognizes revenue at the time of shipment. A portion of the Company's sales are made to certain distributors which provide for price protection and certain rights of return on product unsold by the distributors. The Company records a distributor liability reserve for price adjustments and estimated sales returns.
TRANSLATION OF FOREIGN CURRENCIES: The accounts of foreign subsidiaries have been translated using the U.S. dollar as the functional currency. Monetary and non-monetary asset and liability accounts have been translated at the exchange rate in effect at each year end and historical rates, respectively. Income and expense accounts are translated at average monthly rates, except for depreciation, which is translated at historical rates. Exchange gains and losses are included in other income (expense).
INCOME TAXES: The provision for income taxes is computed on the pretax income of the consolidated subsidiaries located within each taxing country based on the current tax law. Deferred taxes result from the future tax consequences associated with temporary differences between the amount of assets and liabilities recorded for tax and financial accounting purposes.
EARNINGS PER SHARE: Earnings per share is based on the weighted average number of common and common equivalent shares outstanding during the year. Average common and common equivalent shares outstanding were 11,852,565, 11,907,101 and 12,360,405 in fiscal years 1997, 1996 and 1995, respectively.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: The Company considers highly liquid investments in debt securities purchased within three months of their maturity date to be cash equivalents. Investments in debt securities that mature within one year and do not meet the definition of cash equivalents are included in short-term investments. Cash equivalents and short-term investments are classified as held to maturity and valued at amortized cost, which approximates fair market value.
INVENTORIES: Inventories are stated at average cost, but not in excess of net realizable value.
PROPERTY, PLANT AND EQUIPMENT: Depreciation on plant and equipment is computed using the straight-line method over the expected useful lives of the assets. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the statements of operations.
INTANGIBLE ASSETS: The excess cost over net assets acquired is amortized over periods not to exceed 12 years. Patents, copyrights, trademarks, and other intangible assets are amortized over their estimated useful lives.
STOCKHOLDERS' EQUITY: Pursuant to Maryland law, any shares of common stock reacquired by the Company constitute unissued shares.
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FORWARD FOREIGN EXCHANGE CONTRACTS: The Company enters into forward foreign exchange contracts principally as a hedge against trade receivables and firm orders in its backlog denominated in foreign currencies. Realized and unrealized gains and losses on these contracts are included in net income and offset the foreign exchange gains or losses on the hedged trade receivables. At January 31, 1997, the Company had contracts of varying maturities to sell foreign currencies of 0.8 million German marks, 1.5 million French francs, and 0.2 million British pounds, totaling approximately $1.1 million. At January 31, 1996, the Company had contracts of varying maturities to sell foreign currencies of 3.3 million German marks, 6.0 million French francs, and 0.7 million British pounds, totaling approximately $4.4 million.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company has used a variety of methods and assumptions to estimate the fair value of the Company's financial instruments. The carrying amounts for cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate fair value because of the short maturity of these instruments. Forward foreign exchange contracts are valued based on quoted market prices of comparable contracts. The carrying amount of the Company's notes receivable approximate fair value based upon comparable credit risks and the interest rates which incorporate such risks. It was not practicable to estimate the fair value of the Company's investment in an untraded closely held company. This investment is valued at original cost.
NEW ACCOUNTING STANDARDS: In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share", which will require adoption in fiscal year 1998. This statement specifies the computation, presentation and disclosure requirements of earnings per share. The Company is in the process of determining the effect of adoption of this statement on its consoldiated financial statements and related disclosures.
CONCENTRATION OF CREDIT RISK: Financial instruments which subject the Company to concentrations of credit risk consist principally of cash equivalents, short-term investments and trade accounts receivable. The Company invests cash equivalents and short-term investments in high-quality debt securities. Credit exposure to any one entity is limited by Company policy. No losses have been experienced on such investments as of January 31, 1997. The Company's trade accounts receivables are primarily from sales to customers in the EDP/computer and industrial markets. Excluding the disposed operations, the Company's ten largest customers accounted for approximately 58%, 54% and 55% of sales in fiscal years 1997, 1996 and 1995, respectively, and approximately 60% and 53% of accounts receivable at January 31, 1997 and 1996. The Company's largest customer, Western Digital, represented approximately 31%, 25% and 22% of sales in fiscal years 1997, 1996 and 1995, respectively and 31% and 29% of accounts receivable at January 31, 1997 and 1996. The Company does not require collateral and has not historically experienced significant credit losses related to receivables from individual customers or groups of customers in any particular industry or geographic area.
RECLASSIFICATIONS: Certain amounts for fiscal year 1995 and 1996 have been reclassified to conform with presentation of similar amounts in fiscal year 1997.
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NOTE B CASH EQUIVALENTS
NOTE C NOTES AND OTHER RECEIVABLES
NOTE D ACQUISITIONS AND DISPOSALS
On October 12, 1994, the Company sold certain of the assets of its Micro Networks Division ("Micro Networks") to SMC Acquisition Corporation (the "Buyer") pursuant to an Asset Purchase Agreement. The Buyer also assumed certain of the liabilities of Micro Networks. The assets sold consisted principally of accounts receivable, inventory, and machinery and equipment. The liabilities assumed by the Buyer consisted principally of accounts payable and accrued compensation and benefits. Under the agreement, the Buyer agreed to pay approximately $3.7 million as follows: $3.0 million in cash on October 12, 1994 and a $650,000 unsecured note payable in equal quarterly installments over 3 years with interest at prime plus 2 percent. The Buyer also entered into a multi-year lease for use of the building with the Company and agreed to pay royalties on revenues subject to certain provisions. The Company recorded charges of approximately $1.4 million for the writeoff of goodwill, $0.4 million to writedown the building to its estimated fair market value of $2.3 million, and $1.1 million for disposal costs. In addition, the Company established a reserve of $325,000 on the unsecured note which was reclassified in fiscal year 1996 since the Buyer had been timely on all of the note payments. The disposal costs consisted primarily of professional fees, facility related costs, and employee settlements and bonuses.
On June 23, 1994, the Company sold substantially all of the assets of its wholly owned subsidiary, Powercube Corporation ("Powercube") to Natel Engineering Company, Inc. (the "Buyer") pursuant to an Asset Purchase Agreement. The Buyer also assumed certain of the liabilities of Powercube. The assets sold consisted principally of accounts receivable, inventory, and machinery and equipment. The liabilities assumed by the Buyer consisted principally of accounts payable, accrued
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commissions and accrued warranty. Under the agreement, the Buyer paid approximately $2.7 million in cash on June 23, 1994 for substantially all of the assets of Powercube, except for the land and building which the Buyer leased until March 1995. In addition, the Company recorded a charge of approximately $1.3 million for writedowns of certain assets and $0.5 million for disposal costs. The writedown of assets included $0.8 million for the building and $0.5 million for goodwill.
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NOTE E INVENTORIES
NOTE F BORROWING ARRANGEMENTS
On October 20, 1995, the Company entered into a three-year, $25 million domestic revolving credit agreement with a bank. Pursuant to the agreement, interest rates on the amounts borrowed are at the Bank's prime rate. There were no borrowings under this agreement during fiscal years 1997 or 1996. The credit agreement contains various covenants, the most restrictive of which requires a minimum level of tangible net worth. At January 31, 1997, tangible net worth (as defined in the agreement) exceeded the required level by approximately $20 million.
Prior to October 20, 1995, the Company maintained a $15 million domestic revolving credit agreement with another bank. There were no borrowings under this credit agreement during fiscal years 1996 and 1995.
NOTE G LEASES
Rental expenses incurred for operating leases amounted to $999,000, $700,000 and $604,000 for the years ended January 31, 1997, 1996 and 1995, respectively. These leases are principally for the rental of office and manufacturing space. Many of the leases contain renewal options and some provide for the payment of a proportionate share of maintenance, insurance and taxes in addition to the minimum annual rentals.
The Company has a non-cancelable sublease agreement to rent its Lexington office facilities to a third party which expires July 31, 1999. The Company collected rent payments of $177,000 in fiscal year 1997 and has a commitment from the sublessee to receive $688,000 in future rental payments which will offset the Company's future minimum lease payments of $832,000. At January 31, 1997, the Company's reserve for future minimum lease payments on its Lexington office lease was $144,000.
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NOTE H STOCK OPTIONS AND RESTRICTED STOCK
The Company's stock option plans provide for the granting of options to qualified employees and non-employee directors to purchase the Company's stock at the fair market value on the date of grant. These options become exercisable as designated in the grant, not exceeding four years, and may expire up to ten years from the date of grant.
Options were exercisable for 666,154 shares at January 31, 1997. There were 583,579, 778,554 and 381,005 shares available at January 31, 1997, 1996 and 1995, respectively, for future grants of options. In June 1995, the Company increased by 1,000,000 the number of shares available for grant under one of its plans.
Under its Restricted Stock and Cash Bonus Plans, the Company may award shares of restricted common stock to key executives. Subject to certain conditions, the restrictions lapse in five equal annual installments, beginning one year from the date of the award. Upon lapse of the restrictions, the Company pays the participant a cash bonus to help defray the related personal income taxes. The cash bonus is the lesser of the amount required to defray the federal income tax at the maximum marginal tax rate then in effect, or 200% of the fair market value of the shares at the date of the original award. There may be up to five such cash bonuses, but the maximum aggregate cash bonus payable over the five years is the fair market value of the shares on the date of the grant. Upon termination of employment, the key executive must remit to the Company all shares still subject to the restrictions. No shares were available for grant at January 31, 1997, 1996 and 1995 for future awards of restricted stock.
Amortization charged to expense under the Restricted Stock and Cash Bonus Plans was $125,594, $205,625 and $240,314 for fiscal years 1997, 1996 and 1995, respectively. Cash bonus payments under the Plans were $153,581, $247,465 and $331,481 for fiscal years 1997, 1996 and 1995, respectively.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 requires that companies either recognize compensation expense for grants of stock, stock options and other equity instruments based on fair value, or provide pro forma disclosure of net income and earnings per share in the notes to the financial statements. The Company adopted the disclosure provisions of SFAS No. 123 in fiscal year 1997 and has applied APB Opinion No. 25 and related Interpretations in accounting for its plans.
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The effects of applying SFAS No.123 for the purpose of providing pro forma disclosures may not be indicative of the effects on reported net income and net income per share for future years, as the pro forma disclosures include the effects of only those awards granted after January 31, 1995.
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NOTE I OTHER ASSETS AND DEFERRED CHARGES
On January 9, 1995, the Company entered into an agreement with GMT Microelectronics Corporation ("GMT"), a Norristown, Pennsylvania foundry, to supply wafers. As part of the agreement, the Company invested $2.0 million in GMT as follows: $1.0 million in exchange for one million shares or an approximate 9% interest in GMT's common stock, and a $1.0 million 11.75% subordinated debenture due January 9, 2002. On February 28, 1996, the Company invested an additional $1.5 million in GMT, 5% ten-year redeemable preferred stock. Preferred shares may be redeemed quarterly by GMT if certain wafer yields exceed specified levels as defined in a wafer production agreement with the Company.
At January 31, 1997, property for sale consisted of $2,360,599 for the land and building in Worcester, Massachusetts and $100,000 for a chemical vapor deposition system. During fiscal year 1997, the Company recorded a charge of approximately $800,000 to research and development expense to writedown a chemical vapor deposition system to estimated fair market value as a result of the discontinuation of pre-production of certain products and related process technologies. The Company expects to sell this equipment in fiscal year 1998.
The land and building in Worcester, Massachusetts is currently occupied by the acquirers of the former Micro Networks Division under a multi-year lease and the Company is actively seeking a buyer for the property. An expected disposal date is unknown at this time. The Company recorded a charge of $350,000 to unusual items in fiscal year 1995 as part of the sale of Micro Networks to writedown the Worcester building to its estimated fair market value.
On December 29, 1995, the Company sold the land and building in Billerica, Massachusetts for $1,150,000. A gain of $59,000 was recognized on the sale.
NOTE J COMMITMENTS AND CONTINGENT LIABILITIES
ENVIRONMENTAL MATTERS
The Company is involved in investigation and cleanup under the supervision of the Maine Department of Environmental Protection of groundwater and soil contamination at the former Westbrook, Maine wafer fabrication facility of its former Semiconductor Products Division ( the "Division"). Although the facility was closed in 1989, the Division was sold in 1992 and the Westbrook, Maine real estate was sold in 1994, the Company has retained responsibility for environmental remediation at this Site. The ultimate cost of cleanup at this Site is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. However, based upon the Company's experience at the Site, the Company has established a reserve, taking into account the probable and reasonably estimable work to be done at the Site, which the Company believes to be adequate.
The Company has been notified by responsible state authorities in California that it is one of a number of "potentially responsible parties" under relevant state statutes with respect to a former hazardous waste treatment facility in Escondido, California (the "Site"). The treatment facility was owned and operated by an entity wholly unrelated to the Company. The Company, along with other financially viable potentially responsible parties, has entered into a consent decree with governmental authorities regarding the voluntary payment of cleanup costs and voluntary cleanup measures with respect to
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this Site. The Company has established a reserve which the Company believes to be adequate for future environmental remediation costs at this Site, based upon the probable and reasonably estimable work to be done at the Site, the other potentially responsible parties involved at the Site and the Company's volumetric level of contribution to the Site which is less than one-half of one percent of the total volume of waste contributed to the Site by the parties to the consent decree. In view of the difficulty in quantifying the potential costs or damages arising from the alleged environmental hazards, it is not possible to determine with certainty the extent of the Company's potential exposure at the Site. However, based upon its investigation to date, the Company believes that its exposure (without giving effect to the joint and several liability provisions referred to below) would not be material and the Company believes that the reserves established with respect to these liabilities will be adequate. Further, although statutes provide that all "potentially responsible parties" may be held jointly and severally liable for the costs of investigation and remediation of a site, after consideration of the liabilities of other "potentially responsible parties" with respect to the Site and their respective levels of financial responsibility, the Company believes that its liability with respect to the Site is not material. If any liability on the part of the Company were to be measured by the ratio of the waste attributable to the Company over the total waste involved, based on information presently available to the Company, the Company's aggregate liability with respect to the Site would not be material.
Environmental reserves are reviewed as events and developments warrant and adjusted to reflect the likelihood of additional environmental expenditures. Based upon information currently available to the Company, management believes that any additional aggregate liability to which the Company may be subjected from all the above-mentioned sites would not be material to future financial results.
OTHER LEGAL MATTERS
From time to time as a normal incidence of the nature of the Company's business, various claims, charges or litigation are or may be asserted or commenced against the Company relating to, among other things, contractual matters, patent disputes, environmental matters and product liability. While there can be no assurance that the Company will prevail in all these matters, the Company does not believe that these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. However, an adverse resolution of one or more of such matters could have an adverse effect on the Company's consolidated results of operations in a quarter in which such matters might be resolved.
COMMITMENTS
In fiscal year 1996, the Company entered into a supply agreement with a manufacturer of silicon wafers. Under this agreement, the Company made a $1 million deposit in advance of production to guarantee certain quantities of silicon wafers starting in fiscal year 1997. The advance payment will be repaid to the Company in the form of credits against the price of silicon wafers purchased from this manufacturer, based upon the monthly allocations in the contract.
The Company has entered into change-of-control agreements with certain key executives which grant these officers the right to receive up to twice their annual salaries and bonuses plus continuation of certain benefits following a change of control in the Company and termination of these officers.
Capital commitments at January 31, 1997 for an expansion of the wafer fabrication facility and office space in Merrimack, New Hampshire were $18.1 million for construction costs and equipment.
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NOTE K INCOME TAXES
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Based on the Company's history of taxable income and projections of future earnings, management believes that it is more likely than not that sufficient taxable income will be generated in the foreseeable future to realize the deferred tax assets.
The Company does not provide for income taxes that may be due upon the remittance of the earnings of its foreign subsidiaries as the Company intends to indefinitely reinvest such earnings outside of the United States. As of January 31, 1997, such earnings approximated $7.4 million and the related unrecognized deferred tax liability approximated $2.4 million.
NOTE L INDUSTRY SEGMENT/INTERNATIONAL OPERATIONS
The Company and its subsidiaries operate within a single industry segment - the manufacture and sale of electronic components. Its products are sold throughout the world into the EDP/computer, telecommunications, industrial controls and instrumentation, defense/aerospace, and automotive markets.
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The Company did not declare any cash dividends during fiscal years 1997 and 1996. The Company's common stock is listed on the New York Stock Exchange.
NOTE N EMPLOYEE BENEFIT PLANS
The Company contributes to the Unitrode Corporation Profit Sharing/401(k) Savings Plan (the "Plan") which covers all active U.S. employees with at least three months of service. Under the profit sharing component of the Plan, Company contributions are made at the discretion of the Board of Directors. The amounts charged to operations were $1,348,000, $1,915,000, and $1,596,000 for the years ended January 31, 1997, 1996 and 1995, respectively.
Also, the Company matches 50% of employee contributions up to 2% of compensation under the 401(k) savings component of the Plan. Company contributions charged to operations were $206,000, $160,000 and $118,000 for the years ended January 31, 1997, 1996 and 1995, respectively, including disposed operations.
The Company established a deferred incentive compensation plan for selected engineers in fiscal year 1995. Plan assets consists of restricted cash and investments which are held in trust until individual payments are required.
NOTE O STOCKHOLDERS' EQUITY
On April 30, 1990, the Company's Board of Directors adopted a Shareholder Rights Plan (the "Plan") and declared a special dividend of one right for each share of the Company's common stock outstanding at the close of business on May 14, 1990. Each right, when exercisable upon the occurrence of certain events, entitles the registered holder to purchase from the Company a unit consisting of one-one hundredth of a share (a "Unit") of Series A Junior Participating Preferred Stock, par value $1.00 per share, at a purchase price of $30.00 per Unit. Upon the occurrence of certain further events, such as the acquisition of 20% or more of the Company's common stock by a person or group or the designation of a person or group as an Adverse Person by the Company's Board of Directors, a holder of a Unit (except holders who are Acquiring Persons or Adverse Persons, as defined in the Plan) will be entitled to receive common stock of the Company having a market value equal to twice the exercise price. Also, if the Company is acquired in a merger in which the Company is not the surviving corporation, or there is a sale of 50% or more of the Company's assets or earning power, each Unit (except Units held by Acquiring Persons or Adverse Persons) may receive common stock of the acquiring company having a value equal to twice the exercise price of the right. In general, the Company may redeem the rights at $.01 per right at any time until 10 days following public announcement that a 20% position has been acquired in the Company (which period may be extended at any time while the rights are still redeemable). So long as the rights are not separately transferable, the Company will issue
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one right with each new share of common stock issued. The total number of rights outstanding at January 31, 1997 was 11,632,798.
On November 21, 1995, the Company issued 247,883 warrants to purchase Unitrode Common Stock as final settlement of a class action lawsuit. The warrants were determined to have a value of $1.5 million at the time of issuance and are combined with additional paid-in-capital on the Company's balance sheet. Each warrant entitles the holder to purchase one share of Unitrode Common Stock at a price of $28.467 per share. The warrants became exercisable on August 21, 1996, and expire on August 21, 1997.
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REPORT OF MANAGEMENT
The management of Unitrode Corporation is responsible for the preparation of the consolidated financial statements in accordance with generally accepted accounting principles and for the integrity and objectivity of all the financial data included in this annual report. In preparing the financial statements, management makes informed judgments and estimates as to the expected effects of events and transactions currently being reported.
To meet this responsibility, the Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and that transactions are properly executed and recorded. The system includes policies and procedures, and reviews by officers of the Company.
The Board of Directors, through its Audit Committee, is responsible for determining that management fulfills its responsibility with respect to the Company's financial statements and the system of internal accounting controls.
The Audit Committee is composed solely of outside directors. The Committee meets periodically and, when appropriate, separately with representatives of the independent accountants and officers of the Company to monitor the activities of each.
Coopers & Lybrand L.L.P., the independent accountants, have been selected by the Board of Directors to examine the Company's financial statements. Their report appears herein.
Cosmo S. Trapani Robert L. Gable Executive Vice President Chairman and Chief Executive and Chief Financial Officer Officer
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Unitrode Corporation:
We have audited the consolidated financial statements and the financial statement schedule of Unitrode Corporation and Consolidated Subsidiaries listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unitrode Corporation and Consolidated Subsidiaries as of January 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P. Boston, Massachusetts February 27, 1997
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is hereby incorporated by reference from the Registrant's definitive proxy statement for the Annual Meeting of Stockholders to be held June 2, 1997.
Information regarding executive officers is included in Part I hereof.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference from the Registrant's definitive proxy statement for the Annual Meeting of Stockholders to be held June 2, 1997.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is hereby incorporated by reference from the Registrant's definitive proxy statement for the Annual Meeting of Stockholders to be held June 2, 1997.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES PAGE - ---------------------------------- ----
Report of Independent Accountants 36
(a) 1. Financial Statements:
Balance Sheets as of January 31, 1997 and 1996 17-18
Statements of Operations for the Years Ended January 31, 1997, 1996 and 1995 19
Statements of Cash Flows for the Years Ended January 31, 1997, 1996 and 1995 20
Statements of Stockholders' Equity for the Years Ended January 31, 1997, 1996 and 1995 21
Notes to Financial Statements 22-34
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(a) 2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 42
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
Individual financial statements of the Registrant have been omitted because consolidated financial statements of the Registrant and all of its subsidiaries are furnished.
(a) 3. List of Exhibits: The exhibits listed below are filed as a part of this report.
Executive Compensation Plans and Arrangements:
10A Unitrode Corporation 1983 Stock Option Plan, adopted June 6, 1983, as amended (filed as Exhibit 4F to the Registration Statement on Form S-8 for the Registrant (Registration No. 33-12353) and incorporated herein by reference).
10B Unitrode Corporation 1984 Restricted Stock and Cash Bonus Plan (filed as Exhibit 4E to the Registration Statement on Form S-8 for the Registrant (Registration No. 33-12353) and incorporated herein by reference).
10C Unitrode Corporation Amended and Restated 1986 Non-Employee Director Option Plan adopted January, 1986 and amended February, 1992 (filed as Exhibit 4 to the Registration Statement on Form S-8 for the Registrant (Registration No. 33-54544) and incorporated herein by reference).
10D Forms of Change of Control Employment Agreements (filed as Exhibit 10K to the Annual Report on Form 10-K filed by the Registrant for the fiscal year ended January 31, 1991 and incorporated herein by reference).
10E Unitrode Corporation 1992 Employee Stock Option Plan, adopted February 1992 (filed as Exhibit 4 to the Registration Statement on Form S-8 for the Registrant (Registration No. 33-54542) and incorporated herein by reference).
10F Unitrode Corporation Fiscal Year 1997 Supplementary Compensation Programs (filed as Exhibit 10H to the Annual Report on Form 10-K filed by the Registrant for the fiscal year ended January 31, 1996, and incorporated herein by reference).
10G Amendments to the Unitrode Corporation 1992 Employee Stock Option Plan, adopted April, 1995 (filed as Exhibit 10H to the Annual Report on Form 10-K filed by the Registrant for the fiscal year ended January 31, 1995, and Exhibit 4.5 to the Registration Statement on Form S-8 for the Registrant (Registration No. 333-00107) and incorporated herein by reference).
10H Amendment to the Unitrode Corporation 1992 Employee Stock Option Plan, adopted March 17, 1997.
10I Unitrode Corporation Fiscal Year 1998 Supplementary Compensation Programs.
10J Restricted Stock Award Agreement dated as of August 9, 1993 between Unitrode Corporation and Robert L. Gable.
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual report on Form 10-K - --------------------------------------------------------------------------------
Other Exhibits:
3A Articles of Restatement of the Charter of the Registrant and Articles of Amendment to the Charter of the Registrant previously filed and incorporated by reference to Exhibit 3A to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 31, 1989.
3B Articles Supplementary to the Charter of the Registrant, previously filed and incorporated by reference to Exhibits 3(A)(1) and (6) to the Registrant's current Report on Form 8-K filed May 4, 1990.
3C Articles of Amendment to the Charter of the Company, previously filed and incorporated by reference to Exhibit 3B for the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1992.
3D By-laws of the Company, as amended (filed as Exhibit 3C to the Annual Report on Form 10-K filed by the Registrant for the fiscal year ended January 31, 1992, and incorporated herein by reference).
10K Rights Agreement dated as of May 2, 1990 between the Company and The First National Bank of Boston as Rights Agreement (filed as Exhibit 1 to the Company's Registration Statement on Form 8-A dated May 3, 1990, and incorporated herein by reference).
10L Agreement between Micro USPD, Inc. and Unitrode Corporation dated May 28, 1992 (filed as Exhibit 10L to the Annual Report on Form 10-K filed by the Company for the fiscal year ended January 31, 1993, and incorporated herein by reference).
10M First Amendment, dated as of April 30, 1993, to the Rights Agreement, dated as of May 2, 1990,between the Company and The First National Bank of Boston, as Rights Agreement(filed as Exhibit 1 to Form 8-A/A, Amendment to Registration Statement on Form 8-A, dated May 26, 1993, and incorporated herein by reference).
10N Agreement among Natel Engineering Company, Inc., Unitrode Corporation and Powercube Corporation dated June 23, 1994 (filed as Exhibit 2 to Form 8-K dated June 23, 1994, and incorporated herein by reference).
10O Agreement between SMC Acquisition Corporation and Unitrode Corporation dated October 11, 1994 (filed as Exhibit 2 to Form 8-K dated October 12, 1994, and incorporated herein by reference).
10P Credit Agreement dated as of October 20, 1995 between Unitrode Corporation and BayBank (filed as Exhibit 10N to the Annual Report on Form 10-K filed by the Company for the fiscal year ended January 31, 1996, and incorporated herein by reference).
10Q Warrant Agreement between Unitrode Corporation and the First National Bank of Boston (filed as Exhibit 1 to Registration Statement on Form 8-A dated November 2, 1995, and incorporated herein by reference).
11 Calculation of Primary and Fully Diluted Net Income Per Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual report on Form 10-K - --------------------------------------------------------------------------------
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the fourth quarter of the fiscal year ended January 31, 1997.
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual Report on Form 10-K
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SIGNATURES
UNITRODE CORPORATION AND CONSOLIDATED SUBSIDIARIES Annual Report on Form 10-K
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SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Unitrode Corporation and Consolidated Subsidiaries