SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-4236
M/A-COM, INC.
- -------------
(Exact name of registrant as specified in its charter)
Massachusetts
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(State, or other jurisdiction of incorporation or organization)
04-2090644
- ----------
(I.R.S. Employer Identification No.)
401 Edgewater Place, Wakefield, MA 01880-6210
- --------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 224-5600
- --------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
As of February 4, 1994, M/A-COM, Inc. had outstanding 25,521,354 shares of
Common Stock, $1.00 par value (exclusive of 18,484,355 shares held in its
treasury).
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
M/A-COM, INC.
AND SUBSIDIARIES
The accompanying condensed consolidated financial statements include, in the
opinion of management, all adjustments which are normal and recurring (with
the exception of the cumulative effect of a change in accounting for income
taxes) and necessary to a fair statement of the results for the interim
periods presented. Neither the results for the current period nor comparison
with the corresponding period of the preceding fiscal year should be
considered indicative of the results which may be expected for the fiscal
year ending October 1, 1994. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's Annual Report on Form 10-K for the
fiscal year ended October 2, 1993.
We have engaged our independent accountants, Price Waterhouse, to conduct a
limited review of the condensed financial information included in this report
for the quarter ended January 1, 1994. They have reported to us that such
review, which does not constitute an audit, has been completed in accordance
with standards established for such reviews by the American Institute of
Certified Public Accountants. They proposed no adjustments or additional
disclosure which they believed should be reflected in the financial
information accompanying this report. Price Waterhouse's report on their
review is enclosed with this report.
<PAGE>
<TABLE>
M/A-COM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
UNAUDITED
<CAPTION>
First Quarter Ended
-------------------------------
January 1, January 2,
1994 1993
-------------------------------
<S> <C> <C>
Net sales $79,120 $79,135
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Costs and expenses:
Cost of sales 51,720 55,674
Company sponsored research
and development 4,710 3,894
Selling, general and
administrative expenses 19,471 17,570
Interest expense 2,255 2,100
Interest income (136) (571)
------- -------
78,020 78,667
------- -------
Income before income taxes and
cumulative effect 1,100 468
Income tax provision 330 94
------- -------
Income before cumulative effect 770 374
Cumulative effect of a change in
accounting for income taxes 3,300 -
------- -------
Net income $ 4,070 $ 374
======= =======
Income per share:
Income before cumulative effect $ .03 $ .02
Cumulative effect of
accounting change .13 -
----- -----
Net income per share $ .16 $ .02
===== =====
Shares used in income per share
calculation 25,808 23,963
====== ======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
M/A-COM, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<CAPTION>
----------------------------
January 1, October 2,
1994 1993
(Unaudited)
----------------------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 5,647 $ 10,024
Marketable securities 1,250 1,250
Accounts receivable, net 66,255 72,730
Unbilled revenue under customer contracts 473 1,744
Inventories 63,079 58,629
Other current assets 14,654 7,157
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Total current assets 151,358 151,534
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Plant assets 263,087 251,942
Less - Accumulated depreciation (153,214) (145,235)
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109,873 106,707
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Other assets 57,467 56,462
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Total Assets $ 318,698 $ 314,703
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable and current portion of
long-term debt $ 14,780 $ 6,737
Accounts payable-trade 15,687 21,255
Accrued liabilities and taxes 77,064 94,264
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Total current liabilities 107,531 122,256
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Long-term debt 68,198 68,352
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Other long-term liabilities 29,269 16,220
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Stockholders' equity:
Paid-in-capital 43,655 41,900
Retained earnings 70,045 65,975
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Total stockholders' equity 113,700 107,875
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Commitments and contingencies
Total Liabilities and Stockholders' Equity $ 318,698 $ 314,703
========= =========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
M/A-COM, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
UNAUDITED
<CAPTION>
First Quarter Ended
-------------------------------
January 1, January 2,
1994 1993
-------------------------------
<S> <C> <C>
Cash provided by (used by) operating
activities $ (6,988) $ 778
-------- --------
Cash applied to investing activities:
Additions to plant assets (3,980) (8,020)
-------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings 8,026 1,551
Repayment of debt (193) (189)
Repurchases of common stock - (1,001)
Stock options exercised 955 20
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Cash provided by financing
activities 8,788 381
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Cash applied to discontinued
operations (2,197) (894)
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Decrease in cash and cash
equivalents (4,377) (7,755)
Cash and cash equivalents at
beginning of period 10,024 36,136
-------- --------
Cash and cash equivalents at
end of period $ 5,647 $ 28,381
======== ========
See accompanying notes.
</TABLE>
<PAGE>
M/A-COM, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
- ----------------------------------------------------
(Unaudited except for October 2, 1993 amounts)
Note 1 - Changes in the Business
Sale of Product Line
In the first quarter of 1993, the Company sold its high power, narrow band
receiver protector product line. Sales and gross profits have been excluded
from the date of the sale. The sale was for cash of $5.1 million and
resulted in a gain of $2.3 million which was recorded as a reduction of
selling, general and administrative expenses in the accompanying consolidated
statement of income.
Note 2 - Unusual Items
As a result of its decision to refocus the direction of its commercial
business, in the fourth quarter of 1993 the Company recorded a charge of $5.3
million for anticipated losses on technically complex development programs
related to existing commercial contracts. In the first quarter of 1994, the
Company reduced its orders and backlog to reflect the termination of one such
technically complex contract. This termination resulted in a reduction in
the anticipated losses related to this contract and the Company reversed $1.0
million of previously established reserves. This amount was recorded as a
reduction to cost of sales.
In the first quarter of 1993, a production facility of a foreign subsidiary
was damaged by fire. The Company recorded a gain of approximately $1.0
million related to the excess of insurance recovery over the net book value
of the assets damaged by the fire. The gain was recorded as a reduction of
selling, general and administrative expenses in the accompanying consolidated
statement of income.
Note 3 - Income Taxes
In the first quarter of 1994, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"), effective as of October 3, 1993. SFAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in the Company's financial statements or tax returns. In estimating future
tax consequences, SFAS 109 generally considers all expected future events
other than enactments of changes in the tax law or rates. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance.
Previously the Company used the SFAS 96 asset and liability approach that
gave no recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts.
The adjustments to the balance sheet to adopt SFAS 109 netted to $3.3
million. This amount is reflected in the consolidated statement of income
for the first quarter of 1994 as the cumulative effect of a change in
accounting principle. It primarily represents the reversal of deferred tax
assets and liabilities resulting from the adoption of SFAS 109. The deferred
tax assets and liabilities were established in connection with a previous
acquisition and were recorded as reductions of the respective assets and
liabilities to which they relate. Additionally, SFAS 109 had no material
impact on the provision for income taxes for the first quarter of 1994.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes and operating
loss carry forwards. The following is a summary of the significant
components of the Company's deferred tax assets and liabilities as of the
date of adoption (in thousands):
<TABLE>
<CAPTION>
Deferred Tax Assets:
- -------------------
<S> <C> <C>
Inventory capitalization and reserves $ 13,716
Capitalized R&D 5,353
Deferred compensation 3,101
Net operating loss carryovers 27,098
Restructuring 11,464
Other accruals and reserves 13,809 74,541
--------
Deferred Tax Liabilities:
- ------------------------
Depreciation and amortization (23,017)
Other (5,645) (28,662)
--------
Valuation allowance (50,775)
--------
Net deferred tax liability $ (4,896)
========
</TABLE>
The net current deferred tax asset of $10.7 million is included in other
current assets and the deferred tax liability of $15.7 million is included in
the other long-term liabilities in the accompanying condensed consolidated
balance sheet at January 1, 1994. The difference between the net deferred
tax liabilities at the date of adoption and January 1, 1994 is attributable
to the deferred tax provision in the first quarter of 1994.
The Company has not provided deferred taxes on the undistributed earnings of
its foreign subsidiaries as such earnings are expected to be reinvested for
an indefinite period of time.
<PAGE>
Note 4 - Common Stock Transactions and Debt
The Company has an unsecured revolving credit agreement with maximum
borrowings of $15.0 million that expires on February 28, 1994. As of January
1, 1994, the Company had borrowed $5.5 million under this agreement at a
weighted average interest rate approximating 5.5%. Subsequent to the end of
the quarter, the Company borrowed an additional $1.5 million under this
agreement. The Company is currently in the routine process of renegotiating
its revolving credit agreement.
The Company's foreign subsidiaries have lines of credit available to fund
local working capital requirements. The lines of credit provide for
borrowings aggregating approximately $18.1 million. During the first quarter
of 1994, the Company increased its borrowings by approximately $2.5 million
under its foreign lines of credit. As of January 1, 1994, total borrowings
under the foreign lines of credit aggregated approximately $8.5 million.
In the first quarter of 1994, the Company repaid $2.6 million of an
Industrial Revenue Bond ("IRB") associated with a previously discontinued
operation. The IRB had been included in the accrued liabilities of
discontinued operations in the Company's balance sheet at October 2, 1993.
In the first quarters of 1994 and 1993, the Company contributed a total of
118,000 and 146,000 shares of common stock, respectively, to match employee
contributions to the Company's defined contribution retirement plan.
During the first quarter of 1993, the Company acquired 226,000 shares for
$1.0 million under its common stock repurchase program.
Note 5 - Inventories
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
January 1, October 2,
1994 1993
----------------------------------
<S> <C> <C>
Raw materials $22,839 $22,829
Work in process 32,047 26,291
Finished goods 8,193 9,509
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$63,079 $58,629
======= =======
</TABLE>
<PAGE>
Note 6 - Computation of Income per Share
The shares used in the computation of income per share were as follows (in
thousands):
<TABLE>
<CAPTION>
First Quarter Ended
------------------------------
January 1, January 2,
1994 1993
------------------------------
<S> <C> <C>
Weighted average shares
outstanding during period 25,357 23,963
Add: Incremental shares to reflect
dilutive effect of stock option
and deferred compensation plans 451 -
------ ------
25,808 23,963
====== ======
</TABLE>
Inclusion of common stock equivalents in the computation of earnings per
share for the first quarter ended January 2, 1993 would not be dilutive.
Fully diluted earnings per share have not been presented as the effect would
not be dilutive in either period.
Note 7 - Litigation
On October 27, 1993, at the request of the Company's insurance carrier, the
Company entered into a Stipulation of Settlement in connection with the class
action entitled Rand, et al. v. M/A-COM, Inc., et al. The Stipulation of
Settlement provides that the Company's insurance carrier will pay into a
settlement fund the amount of $3.9 million in full settlement of all claims
in the action. The Company is not required to make any payment to the
plaintiffs out of its own funds, and the Company's insurance carrier has
agreed to pay the Company $325,000 to compensate the Company for certain
costs associated with the litigation. On February 1, 1994, the court
approved the Stipulation of Settlement.
<PAGE>
M/A-COM, INC.
AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company reported income before cumulative effect of $.8 million or $.03
per share in the first quarter of 1994 in comparison with $.4 million or $.02
per share in the first quarter of 1993. Net income increased to $4.1 million
from $.4 million in the first quarter of 1993. Net income for 1994 includes
$3.3 million attributable to the cumulative effect of an accounting change
upon the adoption of Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes ("SFAS 109").
Orders were $65.0 million in the first quarter of 1994 compared with $80.2
million in the same period of 1993. The decrease in orders reflects the
anticipated decline in demand for United States defense-related products of
$10.4 million coupled with a decrease of $3.4 million for the non-defense
United States government and foreign government markets. As part of its
previously disclosed decision to refocus the direction of its commercial
business, the Company reduced its orders and backlog by $3.9 million in the
first quarter of 1994 to reflect the termination of a technically complex
development contract. The majority of this order was originally recorded in
the first quarter of 1993. New commercial orders grew by $2.6 million in the
first quarter of 1994 compared with the first quarter of 1993.
In the fourth quarter of 1993, the Company formulated a plan for additional
consolidation and downsizing. During the first quarter of 1994, the Company
announced the closing of a facility in southern New Hampshire and reduced its
workforce by approximately 75 persons. It is anticipated that additional
workforce reductions will occur over the remainder of the current year. The
facility closure and workforce reductions are expected to produce overall
cost reductions; however, these cost reductions may be offset by reduced
revenues and increased costs for salaries and related benefits for personnel
and increases to other costs.
Results of Continuing Operations
Net sales for the first quarter of 1994 remained constant with the first
quarter of 1993 as an $8.5 million increase in the sales of commercial
products and a $3.1 million increase in sales to non-defense U.S. government
agencies and foreign governments were offset by a decrease of $11.6 million
in the sales of U.S. defense-related products.
The Company's gross margin improved to 34.6% in the first quarter of 1994
from 29.7% in the first quarter of 1993. The improvement in gross margin is
mainly attributable to increased productivity in the Company's
Microelectronics Division of 2.1%; the reversal of previously established
reserves related to a terminated contract of 1.3% (see Note 2 to the
Condensed Consolidated Financial Statements); and increased sales of higher
margin circulator and power amplifier products of 1.8%. The improvement in
margins from the Microelectronics Division is primarily a result of the
Company's consolidation and downsizing which have resulted in reduced
facility and personnel costs.
Company sponsored research and development increased by $.8 million in the
first quarter of 1994 versus the comparable period of 1993. The Company also
incurred $2.3 million and $4.4 million of costs, included in cost of sales,
on customer sponsored research and development contracts ($.3 million and $.7
million, respectively, of which was not recoverable under fixed price
engineering contracts) in the first quarter of 1994 and 1993, respectively.
The increase in company sponsored research and development expense is
attributable to a reallocation of engineers from production to research and
development as the Company continues to invest in products with significant
potential in both commercial and defense applications. The decrease in
customer sponsored research and development expense reflects the change to
the commercial business environment where customer funding for research and
development is less prevalent than in government contracting and a decrease
in development costs for contracts which have moved from the development
stage into production.
Selling, general and administrative expenses ("SG&A") increased by $1.9
million in the first quarter of 1994 compared with the first quarter of 1993.
However, this increase is inclusive of a $2.3 million gain on the sale of a
product line and a $1.0 million gain attributed to the excess of insurance
recovery over the net book value of assets damaged by a fire which were
recorded as reductions of SG&A in the first quarter of 1993. After
consideration of these two items, comparable SG&A spending decreased by $1.4
million during the first quarter of 1994, mainly attributable to the results
of the Company's consolidation and downsizing.
Net interest expense increased by $.6 million in the first quarter of 1994
compared with the same period of 1993. The increase is mainly attributable
to interest expense on increased borrowings and a decrease in interest income
due to lower invested cash balances.
The variance between the statutory federal tax rate of 35% and the Company's
effective tax rate of 30% is attributable to the differential in tax rates
applied to the earnings of foreign subsidiaries and Puerto Rico operations.
Liquidity and Capital Resources
The Company's cash and marketable securities position at January 1, 1994 was
$6.9 million in comparison with $11.3 million at October 2, 1993. The
Company's operating activities used $7.0 million in cash during the first
quarter of 1994, mainly attributable to the Company's restructuring program
and accrued payroll and employee benefit costs. The Company also expended
$4.0 million for additions to plant assets. During the quarter, the Company
borrowed $5.5 million under its revolving credit agreement and increased the
amount of borrowing by its foreign subsidiaries by a net $2.5 million to fund
working capital requirements. The Company also repaid $.2 million of current
maturities on its long-term debt. Additionally, the Company received $1.0
million from the exercise of stock options. The Company settled $2.2 million
in liabilities retained in the disposal of certain discontinued operations,
mainly attributable to the $2.6 million repayment of an Industrial Revenue
Bond offset by royalty income and asset sales associated with the previously
disposed operations.
At January 1, 1994, the Company's days sales outstanding of accounts
receivable increased to 74 days compared with 70 days at October 2, 1993.
The increase is attribuable to a shift in sales mix from defense and other
government customers to commercial customers with longer collection periods.
Defense and other government customers occasionally permit progress billings
and customer advance payments which reduce collection periods. These
contract provisions are less typical in commercial business.
The Company's inventory balance at January 1, 1994 increased by $4.5 million
in comparison with the inventory balance at October 2, 1993. The increase is
mainly attributable to level production at several divisions coupled with
lower shipments during the first quarter of 1994, resulting in a build up of
inventory of $3.7 million.
The Company's unsecured revolving credit agreement, which permits maximum
borrowings of $15.0 million, expires on February 28, 1994. The Company is
currently in the routine process of renegotiating its revolving credit
agreement.
The Company believes that its existing cash balances, funds to be generated
by future operating activities and available borrowing capacity are
sufficient to finance operating requirements, the previously described
restructuring action, to provide for ongoing capital and research and
development requirements and to take advantage of investment opportunities.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The information set forth in Note 7 to the condensed consolidated financial
statements contained in this Quarterly Report on Form 10-Q is incorporated
herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits: Method of Filing
----------------
Exhibit 11 Statement Re: Computation of Per Incorporated from
Share Earnings. Note 6 to Condensed
Consolidated
Financial Statements.
Exhibit 15 Letter Re: Unaudited Interim Filed herewith.
Financial Information.
(b) Reports on Form 8-K
No report on Form 8-K has been filed during the quarter ended January 1,
1994.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on February 14, 1994.
M/A-COM, Inc.
By: PETER J. RICE
- --------------------------------
Peter J. Rice
Vice President,
Chief Accounting Officer
and Controller
<PAGE>
February 4, 1994
To the Board of Directors and
Stockholders of M/A-COM, Inc.
We have reviewed the condensed consolidated balance sheet of M/A-COM, Inc.
and its consolidated subsidiaries as of January 1, 1994 and January 2, 1993
(not presented herein) and the related consolidated statement of income and
the condensed consolidated statement of cash flows for the three-month
periods then ended. These financial statements are the responsibility of the
company's management.
We conducted our review in accordance with the standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statement taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously examined, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of October 2, 1993, and the
related consolidated statements of income and cash flows for the year then
ended (not presented herein), and in our report dated November 2, 1993 we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of October 2, 1993, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
PRICE WATERHOUSE
Exhibit 15
February 14, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Dear Sirs:
We are aware that M/A-COM, Inc. has included our report dated February 4,
1994 (issued pursuant to the provisions of Statements on Auditing Standards
No. 71) in the Prospectuses constituting part of its Registration Statements
on Form S-3 (No. 2-99637) and Form S-8 (Nos. 2-17757; 2-25410; 2-31632; 2-
47195; 2-53255; 2-53257; 2-68734; 2-68809; 2-69195; 2-69202; 2-69259; 2-
70247; 2-71043; 2-72234; 2-72235; 2-76292; 2-81497; 2-81907; 2-92614; 2-
92616; 2-92617; 33-10913; 33-10916; 33-33372; 33-35845; 33-36846; 33-44212).
We are also aware of our responsibilities under the Securities Act of 1933.
Very truly yours,
PRICE WATERHOUSE
