UTStarcom Releases Financial Results for the Third Quarter of 2010

UTStarcom, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(Unaudited)

September 30,

December 31,

2010

2009

ASSETS

Current assets:

Cash, cash equivalents and short-term investments

$          337,998

$        266,881

Accounts and notes receivable, net

42,093

43,773

Inventories and deferred costs

174,397

202,753

Prepaids and other current assets

69,730

74,354

Total current assets

624,218

587,761

Long-term assets:

Property, plant and equipment, net

4,810

130,612

Long-term deferred costs

152,562

184,978

Other long-term assets

29,394

25,760

Total assets

$          810,984

$        929,111

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$            29,724

$          54,115

Customer advances

86,450

120,364

Deferred revenue

181,785

170,777

Other current liabilities

87,250

147,914

Total current liabilities

385,209

493,170

Long-term liabilities:

Long-term deferred revenue and other liabilities

172,467

179,790

Total liabilities

557,676

672,960

Total equity

253,308

256,151

Total liabilities and equity

$   810,984

$        929,111

UTStarcom, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)

Three months ended
September 30,

Nine months ended
September 30,

2010

2009

2010

2009

Net sales

$  61,394

$  70,504

$ 215,406

$  270,007

Cost of net sales

49,301

46,315

153,232

240,004

Gross profit

12,093

24,189

62,174

30,003

20 %

34 %

29 %

11 %

Operating expenses:

Selling, general and administrative

24,530

33,139

75,882

114,290

Research and development

9,922

14,246

29,023

51,983

Restructuring

2,336

8,909

9,627

41,485

Net (Gain) loss on divestiture

(1,436)

1,689

(5,244)

332

Total operating expenses

35,352

57,983

109,288

208,090

Operating loss

(23,259)

(33,794)

(47,114)

(178,087)

Interest income, net

524

438

1,184

1,266

Other income (expense), net

6,967

(1,556)

7,067

(3,341)

Loss before income taxes

(15,768)

(34,912)

(38,863)

(180,162)

Income taxes benefit (expense)

(1,400)

317

(3,243)

(6,166)

Net loss

(17,168)

(34,595)

(42,106)

(186,328)

Net (income) loss attributable to noncontrolling interest

(4)

15

6

32

Net loss attributable to UTStarcom, Inc.

$ (17,172)

$ (34,580)

$ (42,100)

$ (186,296)

Net loss per share attributable to UTStarcom, Inc. - Basic and Diluted

$     (0.13)

$     (0.27)

$     (0.32)

$       (1.47)

Weighted average shares used in per share calculation:

Basic and Diluted

135,550

127,875

131,781

126,930

UTStarcom, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three months ended

September 30,

Three months ended

June 30,

2010

2010

(In thousands)

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net cash used in operating activities

(12,441)

(40,849)

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to property, plant and equipment

(790)

(1,356)

Net proceeds from divestitures

1,348

-

Proceeds from sale of building (net of tax payments)

-

117,372

Change in restricted cash  

4,381

(1,997)

Proceeds from settlement of an investment interest

-

59

Purchase of an investment interest

-

13

Purchase of short-term investments

(2,750)

(4,150)

Proceeds from sale of short-term investments

2,410

2,151

Other

(639)

157

Net cash provided by investing activities

3,960

112,249

CASH FLOWS FROM FINANCING ACTIVITIES:

Insurance of stock and option, net of expense

34,587

-

Repurchase of common stock

(21)

(5)

Net cash provided by (used in) financing activities

34,566

(5)

Effect of exchange rate changes on cash and cash equivalents

4,100

1,005

Net increase in cash and cash equivalents

30,185

72,400

Cash and cash equivalents at beginning of period

306,841

234,441

Cash and cash equivalents at end of period

$                 337,026

$           306,841

UTStarcom, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine months ended

September 30,

2010

2009

(In thousands)  

Net cash used in operating activities

(97,405)

(89,202)

Cash flows from investing activities:

Additions to property, plant and equipment

(2,616)

(1,651)

Net proceeds from divestitures

2,848

11,508

Proceeds from sale of building (net of tax payments)

123,955

-

Change in restricted cash  

7,379

1,895

Proceeds from settlement of an investment interest

481

1,600

Purchase of an investment interest

(550)

-

Purchase of short-term investments

(12,002)

(6,514)

Proceeds from sale of short-term investments

7,825

7,625

Other

332

437

Net cash provided by investing activities

127,652

14,900

Cash flows from financing activities:

Issuance of stock, net of expense

34,594

367

Repurchase of common stock

(58)

-

Other

-

(755)

Net cash provided by (used in) financing activities

34,536

(388)

Effect of exchange rate changes on cash and cash equivalents

6,400

2,199

Net increase (decrease) in cash and cash equivalents

71,183

(72,491)

Cash and cash equivalents at beginning of period

265,843

309,603

Cash and cash equivalents at end of period

$ 337,026

$ 237,112

 UTSTARCOM, INC.  

 Nov 3, 2010 Conference Call  

 RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE  

 ($ in millions)  

 (Unaudited)  

 To supplement our condensed consolidated financial statements presented on a GAAP basis, UTStarcom uses certain non-GAAP measures which are adjusted to present those metrics as if both PCD had been divested and the Korea handsets business had been wound down prior to each time period reflected below.  We believe this enables year over year comparisons to our recent financial results.  These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of UTStarcom’s underlying results and trends.  In addition, these adjusted  non-GAAP results are among the information management uses as a basis for our planning and forecasting of future periods.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles in the United States.  

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31-Mar-09

30-Jun-09

30-Sep-09

31-Dec-09

31-Dec-09

31-Mar-10

30-Jun-10

30-Sep-10

GAAP Revenue (a)

$119

$80

$71

$116

$386

$81

$73

$61

Less: PCD Segment Revenue (b)

-

-

-

-

-

-

-

-

Less: Korea Handset Sales to PCD (c)

39

(3)

8

12

56

3

-

-

Non-GAAP Revenue

$80

$83

$63

$104

$330

$78

$73

$61

(a) GAAP Revenue for each period is the consolidated revenue as reported on Form 10-Q or Form 10-K, as applicable, for such period, except for the consolidated revenue for the quarters ended December 31, 2008 and 2009, which is derived from the revenue reported in the Form 10-Qs and Form 10-K with respect to fiscal years 2008 and 2009.

(b) Effective July 1, 2008 the PCD segment was divested by the Company.

(c) Prior to the July 1, 2008 divestiture of PCD, Korea handset did not record revenue for units shipped to PCD as this activity was an intercompany transfer.  

After July 1, 2008 this activity was recorded as a third party sale in the Handset segment.

UTSTARCOM, INC.

Nov 3, 2010 Conference Call

RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT

($ in millions)

(Unaudited)

To supplement our condensed consolidated financial statements presented on a GAAP basis, UTStarcom uses certain non-GAAP measures which are adjusted to present those metrics as if both PCD had been divested and the Korea handsets business had been wound down prior to each time period reflected below.  We believe this enables year over year comparisons to our recent financial results.  These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of UTStarcom’s underlying results and trends.  In addition, these adjusted non-GAAP results are among the information management uses as a basis for our planning and forecasting of future periods.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles in the United States.

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Qtr ended

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Qtr ended

31-Mar-09

30-Jun-09

30-Sep-09

31-Dec-09

31-Dec-09

31-Mar-10

30-Jun-10

30-Sep-10

GAAP Gross Profit (a)

$22

($16)

$24

$35

$65

$27

$23

$12

  GAAP Gross Margin %

18%

(20%)

34%

30%

17%

34%

32%

20%

Less: PCD Segment Gross Profit (b)

-

-

-

-

-

0

0

-

Less: Korea Handset Gross Profit from Sales to PCD (c)

3

(28)

2

2

(21)

1

1

(1)

Non-GAAP Gross Profit

$19

$12

$22

$33

$86

$26

$22

$13

  Non-GAAP Gross Margin %

24%

14%

35%

32%

26%

33%

30%

20%

(a) GAAP Gross Profit and GAAP Gross Margin % for each period is the consolidated gross profit and gross margin % as reported on Form 10-Q or Form 10-K, as applicable, for such period,

except for the consolidated gross profit and gross margin % for the quarter ended December 31, 2008 and 2009, which is derived from the gross profit and gross margin % reported in the

Form 10-Qs and Form 10-K with respect to fiscal years 2008 and 2009.

(b) Effective July 1, 2008 the PCD segment was divested by the Company.

(c) Prior to the July 1, 2008 divestiture of PCD, Korea handset earned a gross profit on the intercompany transfer of inventory to PCD.  

This gross profit was recorded in the Handset segment.  After July 1, 2008 this activity was recorded as a third party transaction.

 UTSTARCOM, INC.  

 Nov 3, 2010 Conference Call  

 RECONCILIATION OF GAAP OPERATING EXPENSE TO NON-GAAP OPERATING EXPENSE  

 ($ in millions)  

 (Unaudited)  

 To supplement our condensed consolidated financial statements presented on a GAAP basis, UTStarcom uses certain non-GAAP measures which are adjusted to present those metrics as if both PCD had been divested and the Korea handsets business had been wound down prior to each time period reflected below.  We believe this enables year over year comparisons to our recent financial results.  These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of UTStarcom’s underlying results and trends.  In addition, these adjusted non-GAAP results are among the information management uses as a basis for our planning and forecasting of future periods.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles in the United States.  

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31-Mar-09

30-Jun-09

30-Sep-09

31-Dec-09

31-Dec-09

31-Mar-10

30-Jun-10

30-Sep-10

GAAP Operating Expense (a)

$81

$70

$58

$76

$285

$46

$28

$35

Less: PCD Operating Expense (b)

-

-

-

-

-

-

-

-

Less: Korea Handset Operating Expense (c)

3

2

1

-

6

-

-

-

Non-GAAP Operating Expense

$78

$68

$57

$76

$279

$46

$28

$35

(a) GAAP Operating Expense for each period is the consolidated operating expense as reported on Form 10-Q or Form 10-K, as applicable, for such period,

 except for the consolidated operating expense for the quarter ended December 31, 2008 and 2009, which is derived from the operating expenses reported in the

Form 10-Qs and Form 10-K with respect to the fiscal years 2008 and 2009.

(b) Effective July 1, 2008 the PCD segment was divested by the Company.

(c) Both prior to and after the July 1, 2008 divestiture of PCD, all direct operating expense relating to Korea handset has been recorded in the Handset segment.

 UTSTARCOM, INC.  

 Nov 3, 2010 Conference Call  

 RECONCILIATION OF GAAP OPERATING LOSS TO  NON-GAAP OPERATING LOSS  

 ($ in millions)  

 (Unaudited)  

 To supplement our condensed consolidated financial statements presented on a GAAP basis, UTStarcom uses certain non-GAAP measures which are adjusted to present those metrics as if both PCD had been divested and the Korea handsets business had been wound down prior to each time period reflected below.  We believe this enables year over year comparisons to our recent financial results.  These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of UTStarcom’s underlying results and trends.  In addition, these adjusted non-GAAP results are among the information management uses as a basis for our planning and forecasting of future periods.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles in the United States.  

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31-Mar-09

30-Jun-09

30-Sep-09

31-Dec-09

31-Dec-09

31-Mar-10

30-Jun-10

30-Sep-10

GAAP Operating Loss (a)

($59)

($85)

($34)

($41)

($219)

($19)

($5)

($23)

Less:  PCD Operating Profit (b)

-

-

-

-

-

0

-

-

Less: Korea Handset Operating Income (Loss) (c)

-

(30)

1

2

(27)

1

1

(1)

Non-GAAP Operating Loss

($59)

($55)

($35)

($43)

($192)

($20)

($6)

($24)

(a)  GAAP Operating Loss for each period is the consolidated operating loss as reported on Form 10-Q or Form 10-K, as applicable, for such period, except for the

consolidated operating loss for the quarter ended December 31,  2008 and 2009, which is derived from the operating loss reported in the Form 10-Qs and Form 10-K

with respect to fiscal years 2008 and 2009.

(b) Effective July 1, 2008 the PCD segment was divested by the Company.

(c) Both prior to and after the July 1, 2008 divestiture of PCD, the operating loss relating to Korea handset has been recorded in the Handset segment.

 UTSTARCOM, INC.  

 Nov 3, 2010 Conference Call  

 ABBREVIATED NON-GAAP P&L STATEMENT (a)  

 ($ in millions)  

 (Unaudited)  

 To supplement our condensed consolidated financial statements presented on a GAAP basis, UTStarcom uses certain non-GAAP measures which are adjusted to present those metrics as if both PCD had been divested and the Korea handsets business had been wound down prior to each time period reflected below.  We believe this enables year over year comparisons to our recent financial results.  These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of UTStarcom’s underlying results and trends.  In addition, these adjusted non-GAAP results are among the information management uses as a basis for our planning and forecasting of future periods.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles in the United States.  

Qtr ended

Qtr ended

Qtr ended

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Year ended

Qtr ended

Qtr ended

Qtr ended

31-Mar-09

30-Jun-09

30-Sep-09

31-Dec-09

31-Dec-09

31-Mar-10

30-Jun-10

30-Sep-10

Non-GAAP Revenue

$80

$83

$63

$104

$330

$78

$73

$61

Non-GAAP Gross Profit

19

12

22

33

86

26

22

13

  Non-GAAP Gross Margin %

24%

14%

35%

32%

26%

33%

30%

20%

Non-GAAP Operating Expense

78

68

57

76

279

46

28

35

Non-GAAP Operating Loss

($59)

($55)

($35)

($43)

($192)

(20)

($6)

($24)

(a) Please refer to the preceding reconciliation tables for the adjustments to GAAP Revenue, Gross Profit, Operating Expense and Operating Loss.