United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934 For the Period Ended September 30, 1998
or
[ ] Transition Report Pursuant To Section 10 Or 15(D) Of The Securities
Exchange Act Of 1934 For The Transition Period From _________ To ________
Commission File Number 0-15449
CALIFORNIA MICRO DEVICES CORPORATION
(Exact name of registrant as specified in its charter)
California 94-2672609
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 Topaz Street, Milpitas, California 95035-5430
-------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(408) 263-3214
--------------
(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name, former address, and former
fiscal year if changed since last report)
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
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of September 30, 1998, there were outstanding 9,984,951 shares of Issuer's
Common Stock.
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements
Statements of Operations
Three and Six Months Ended September 30, 1998 and 1997 2
Balance Sheets
September 30, 1998 and March 31, 1998 3
Statements of Cash Flows
Six Months Ended September 30, 1998 and 1997 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
ii
<pag>
ITEM 1. Financial Statements.
---------------------
CALIFORNIA MICRO DEVICES CORPORATION
STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ----------------
1998 1997 1998 1997
------ ------- ------ --------
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 8,328 $ 7,954 $16,560 $16,062
Technology related revenues - 175 - 381
------ ------- ------- -------
Total revenues 8,328 8,129 16,560 16,443
Cost and expenses:
Cost of sales 6,238 5,847 12,787 11,112
Research and development 774 771 1,676 1,579
Selling, marketing and administrative 1,926 1,981 3,407 3,997
------ ------- ------- -------
Total costs and expenses 8,938 8,599 17,870 16,688
------ ------- ------- ------
Operating (loss) (610) (470) (1,310) (245)
Other expense net 160 145 305 254
------ ------- ------- -------
(Loss) before income taxes (770) (615) (1,615) (499)
Income taxes - - - -
------ ------- ------- -------
Net (loss) $ (770) $ (615) $(1,615) $ (499)
======= ====== ======= ======
Basic and diluted net (loss) per share $ (0.08) $(0.06) $ (0.16) $(0.05)
======= ====== ======= ======
Weighted average common shares outstanding 9,985 9,837 9,984 9,797
======= ====== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
(Unaudited)
<TABLE>
September 30, March 31,
1998 1998
------------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and short-term securities $ 113 $ 480
Short-term investments 4,253 5,110
Accounts receivable, less allowance for
doubtful accounts of $398 and $380 4,718 5,086
Inventories 8,245 8,092
Other assets 405 987
-------- --------
Total current assets 17,734 19,755
Property, plant & equipment, net 12,569 12,925
Restricted cash 3,038 2,909
Other long term assets 397 405
-------- --------
Total assets $ 33,738 $ 35,994
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 3,099 $ 3,328
Accrued salaries and benefits 1,034 1,008
Other accrued liabilities 608 802
Deferred margin on shipments to distributors 458 581
Current maturities of long-term debt and
capital lease obligations 398 489
-------- --------
Total current liabilities 5,597 6,208
Long-term debt, less current maturities 7,185 7,185
Capital lease obligations, less current maturities 881 974
-------- --------
Total liabilities 13,663 14,367
Shareholders' equity:
Common stock - no par value; authorized
25,000,000; issued and outstanding
9,984,951 and 9,874,131 53,041 53,011
Retained Earnings (32,966) (31,384)
-------- --------
Total shareholders' equity 20,075 21,627
Total liabilities and shareholders' equity $ 33,738 $ 35,994
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
September 30,
------------------
1998 1997
-------- --------
<TABLE>
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,615) $ (499)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,424 1,403
Net increase in inventories (153) (969)
Net decrease/ (increase) in accounts receivable 369 (39)
Net decrease in prepaid expenses and other current assets 589 311
Net decrease in trade accounts payable and other
current liabilities (397) (274)
Net decrease in other long term assets - 8
(Decrease)/ increase deferred margin on distributor sales (123) 89
-------- --------
Net cash provided by operating activities 94 30
-------- --------
Cash used in investing activities:
Securities purchases (2,006) (507)
Securities sales 2,896 1,505
Capital expenditures (1,068) (770)
Net change in restricted cash (129) (483)
-------- --------
Net cash used in investing activities (307) (255)
-------- --------
Cash flows from financing activities:
Repayments of capital lease obligations (184) (195)
Repayments of long-term debt - -
Proceeds from issuance of common stock 30 671
-------- --------
Net cash (used in)/ provided by financing activities (154) 476
-------- --------
Net (decrease)/ increase in cash and cash equivalents (367) 251
Cash and cash equivalents at beginning of period 480 343
-------- --------
Cash and cash equivalents at end of period $ 113 $ 594
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 449 $ 474
Income taxes paid $ - $ -
Supplemental disclosures of non-cash investing and financing activities:
Unrealized gain/(loss) on securities $ (5) $ (31)
Capital expenditures financed through capital
lease obligations $ - $ 92
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
Notes to Financial Statements
1. Basis of Presentation
----------------------
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments (which include only normal recurring
accruals) necessary to present fairly California Micro Devices Corporation's
(the "Company") financial position as of September 30, 1998, results of
operations for the three and six month periods ended September 30, 1998 and
1997, and cash flows for the six-month periods ended September 30, 1998 and
1997. Results for the quarter are not necessarily indicative of fiscal year
results.
The condensed financial statements should be read in conjunction with the
financial statements included with the Company's annual report on Form 10-K
for the fiscal year ended March 31, 1998.
2. 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.
3. Inventories
-----------
The components of inventory consist of the following (amounts in thousands):
<TABLE>
<S> <C> <C>
September 30, March 31,
1998 1998
------------- ---------
Raw materials $ 711 $ 775
Work-in-process 5,376 5,480
Finished goods 2,158 1,837
--------- ---------
$ 8,245 $ 8,092
========= =========
</TABLE>
4. Litigation
----------
Reference should be made to the Company's filings with the SEC, including its
report on Form 10-K for its fiscal year ended March 31, 1998, and its report
on Form 10-Q for the quarter ending June 30, 1998.
The Company is a party to or target of lawsuits, claims, investigations, and
proceedings, including commercial and employment matters, which are being
handled and defended in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the financial condition or overall trends in the results of
operation of the Company.
The Company believes, with regard to these matters and those previously
reported, it has, to the best of its knowledge, made such adjustments to its
financial statements by means of reserves and expensing the costs thereof, that
these matters will not have any additional material adverse impact on the
Company's financial condition.
5
<PAGE>
5. Net Income (Loss) Per Share
----------------------------
Basic earnings per common share are computed using the weighted-average number
of common shares outstanding during the period. Diluted earnings per common
share incorporate the incremental shares issuable upon the assumed exercise of
stock options and other dilutive securities. Diluted earnings per common share
do not differ from the Company's previously reported earnings per common and
common equivalent share.
6. Adoption of FAS 130
-------------------
Effective in the first quarter of fiscal year 1999, the Company adopted
Statement 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or shareholders' equity. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities, which prior to adoption
were reported separately in stockholders' equity to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of Statement 130.
Comprehensive loss for the three months ended September 30, 1998 and 1997 was
$772,000 and $619,000, respectively.
6
<PAGE>
ITEM 2. Management's Discussion And Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
Results of Operations
Product sales for the quarter ended September 30, 1998, increased by $374,000
or 5% compared to the quarter ended September 30, 1997. Unit shipments
increased 17% to 13.4 million units in the September 30, 1998 quarter
compared to 11.5 million units in the year-earlier quarter. The increase
in product sales was primarily due to increased sales of the Company's
P/Active(R) family of products to the personal computer ("PC") market.
Thin film products accounted for approximately 68.5% of product sales and
approximately 82% of units shipped for both the quarters ended September
30, 1998 and 1997. However, sales of the newer thin film PAC(tm) products,
including the P/Active(R) family, increased from 15% of total product sales
and 20% of total units shipped in the year ago quarter to 30% of total
dollar sales and 40% of total units shipments in the quarter ended September
30, 1998, offset by decreases in older thin film products.
Product sales for the six month period ended September 30, 1998, increased by
$498,000, or 3%, also due to increased sales of the Company's P/Active(R)
family of products. Units shipments increased 13% in the six month period
ended September 30, 1998, compared to the year-earlier period. Thin film
products represented approximately 67% of product sales and approximately
80% of unit shipments, for both the six months periods ended September 30,
1998 and 1997.
However, sales of the newer thin film PAC(tm) products, including P/Active(R),
increased from 10% of total product sales and 13% of total units shipments in
the six months ended September 30, 1997, to 26% of total product sales and 38%
of total unit shipments in the six months ended September 30, 1998, offset by
decreases in older thin film products.
There was no technology related revenue for the three and six months ended
September 30, 1998, compared to technology revenues of $175,000 and $381,000
for the three and six months ended September 30, 1997, respectively, due to
lack of participation by Hitachi Metals, Ltd. ("HML") in shared engineering
projects. The Company expects no revenue from HML for joint research and
development in the future.
Gross margins increased sequentially to 25% in the September 30, 1998 quarter
compared to 20% in the June 30, 1998 quarter due to improved yields and cost
reductions. Compared to a year ago gross margins are lower due to a changing
mix of products and continued pricing pressure in the PC market and lower mix
of products for the US telecommunications market.
R&D expense was $774,000 and $1,676,000 for the three and six months ended
September 30, 1998 compared with $771,000 and $1,579,000 in the year earlier
periods.
Selling, marketing and administrative expenses were $1,926,000 and $3,407,000
for the three and six months ended September 30, 1998, compared to $1,981,000
and $3,997,000 in the year earlier periods. The reduction in administrative
expense for the six months ended September 30, 1998 was due to the receipt of a
one-time insurance settlement in June 1998.
As a result of the factors discussed above, operating losses for the three and
six months ended September 30, 1998, were $610,000 and $1,310,000 compared to
operating losses of $470,000 and $245,000 in the year earlier periods.
Other income/expense for the three and six months ended September 30, 1998, was
an expense of $160,000 and $305,000 as compared to expense of $145,000 and
$254,000 in the year earlier periods. This increase was due primarily to
reduced interest income from investments.
No income taxes were accrued for the three and six months ended September 30,
1998, or September 30, 1997, due to the availability of tax loss carry forwards
and current periods losses.
7
<PAGE>
The weighted average common shares outstanding were 9,985,000 shares and
9,984,000 shares for the three and six months ended September 30, 1998,
respectively, compared to 9,837,000 shares and 9,797,000 shares, respectively,
in the year earlier periods.
Liquidity and Capital Resources
Net cash and cash equivalents as of September 30, 1998, decreased $1,224,000
from March 31, 1998. Inventory levels increased by $153,000 due to increased
finished goods for the higher-volume P/Active(R) products. Purchases of new
production and computer equipment amounted to $850,000. In addition, $336,000
was expended for end-of-lease buyouts of production equipment. Off setting
this was a drop in accounts receivables of $368,000 partially offset by a
reduction in accounts payable of $229,000.
The Company has a $3.0 million line of credit agreement that expires on
July 31, 1999. Under the terms of the line of credit, the Company can borrow
up to $3.0 million at prime, collateralized by short-term investments managed
by the bank. There were no bank borrowings at September 30, 1998 and 1997
and there were no borrowings during fiscal 1998 and 1997. The Company is
in compliance with its financial covenants.
The Company expects to fund its future liquidity needs through its existing
cash balances, cash flows from operations, bank borrowings, and equipment
lease and loan financing arrangements. Depending on market conditions and
the results of operations, the Company may pursue other sources of liquidity.
The Company believes that it has sufficient financial resources to fund its
operations for at least the next twelve months.
Impact of Year 2000
Many computer systems employ a two-digit date field and could experience
problems beyond the year 1999. Also, some systems assign special meaning to
certain dates, such as 9/9/99, and the year 2000 is a leap year, which some
systems may not recognize. The Company has evaluated its management
information systems (MIS) and has developed a plan, as described herein,
to convert all of its MIS applications to year 2000 compliant versions by
March 31, 1999. This plan is intended to encompass all major categories of
systems in use by the Company, including manufacturing, sales, finance and
human resources.
California Micro Devices utilizes software packages supplied by outside vendors
for all of its critical computer applications. These software vendors have
supplied the Company with versions of their software that they have certified
to be year 2000 compliant. However, the Company recognizes that relying on
certifying statements alone could potentially place our systems at risk if some
level of integration and system level testing is not also performed. To ensure
that these applications work in its environment, the Company has developed a
consolidated, system level test plan that incorporates testing each of the key
applications. If problems are detected, these will be reported to the
appropriate vendors for corrective action.
To facilitate its conversion to year 2000 compliant systems as well as to
eventually improve system redundancy, the Company has purchased and installed a
new minicomputer system with the objective of providing a parallel test
environment on which the Company can fully execute its test plan. As a result
of this expenditure, the Company plans to test its critical applications
utilizing copies of its current databases. Once the testing process is
completed, the data will be transferred from the existing system and the older
system will be brought up to the same level of software and serve as a
redundant system for contingency purposes.
Due to its reliance on widely used software packages that have been certified
as year 2000 compliant, the Company has not developed a formal contingency
plan. Should unforeseen problems surface during its
8
<PAGE>
testing of those packages, the Company will evaluate its alternatives, such as
utilizing different software packages.
The Company is in the process of evaluating computers and software utilized in
its manufacturing operations. Nothing has come to the attention of the Company
that would indicate a material impact of year 2000 issues on the Company's
results of operation or financial condition.
The Company is also evaluating the possible impact of year 2000 issues on its
key suppliers and subcontractors. Noncompliance with year 2000 issues on the
part of key suppliers and subcontractors could result in disruption of the
Company's operations. However, the potential impact and related costs are not
known at this time.
The out-of-pocket expenditures incurred to date related to these programs are
less than $200,000. The Company currently expects that the total incremental
expenditures of these programs will not exceed $300,000.
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party modification plans
and other factors. There can be no assurance that these estimates will be
achieved and actual results could differ materially from those anticipated.
Based on currently available information, management does not believe that the
year 2000 matters discussed above related to internal systems or products sold
to customers will have a material adverse impact on the Company's financial
condition or overall trends in results of operations; however, it is uncertain
to what extent the Company may be affected by such matters. In addition, there
can be no assurance that the failure to ensure year 2000 capability by a
supplier or another third party would not have a material adverse effect on the
Company.
Cautionary Statement
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Act of 1934, as amended. Except for the historical
information contained in this discussion of the business and the discussion
and analysis of financial condition and results of operations, the matters
discussed herein are forward-looking statements. Such forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements
regarding revenues, orders, and sales involve a number of risks and
uncertainties, including but not limited to, demand for the Company's
product, pricing pressures which could affect the Company's gross margin or
the ability to consummate sales, unit volumes, intense competition within
the industry, the Company's ability to attract and retain high quality
people, the need for the Company to keep pace with technological
developments and respond quickly to changes in customer needs, the Company's
dependence on third party suppliers for components for its products, cost
reductions, year 2000 issues, and the Company's dependence upon intellectual
property rights which, if not available to the Company, could have a
material adverse effect on the Company. These same factors, as well as
others, such as the continuing litigation involving the Company, could also
affect the liquidity needs of the Company. Actual results could differ
materially from those projected in the forward-looking statements as a
result of factors set forth above and elsewhere in this Form 10-Q.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
------------------
Reference should be made to the Company's filings with the SEC, including its
report on Form 10-K for its fiscal year ended March 31, 1998, and its report on
Form 10-Q for the quarter ending June 30, 1998.
The Company is a party to or target of lawsuits, claims, investigations, and
proceedings, including commercial and employment matters, which are being
handled and defended in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the financial condition or overall trends in the results of
operation of the Company.
The Company believes, with regard to these matters and those previously
reported, it has, to the best of its knowledge, made such adjustments to its
financial statements by means of reserves and expensing the costs thereof, that
these matters will not have any additional material adverse impact on the
Company's financial condition.
ITEM 6. Exhibits and Reports on Form 8-K.
Exhibit Description
------- -----------
(a) FDS Financial Data Schedule (For EDGAR Filing Only)
(b) Form 8-K None
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALIFORNIA MICRO DEVICES CORPORATION
------------------------------------
(Registrant)
Date: November 10, 1998 /s/ John E. Trewin
------------------
John E. Trewin
Vice President and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> $ 113
<SECURITIES> 4,253
<RECEIVABLES> 5,116
<ALLOWANCES> (398)
<INVENTORY> 8,245
<CURRENT-ASSETS> $ 17,734<F1>
<PP&E> 26,544
<DEPRECIATION> (13,975)
<TOTAL-ASSETS> $ 33,738<F2>
<CURRENT-LIABILITIES> $ 5,597
<BONDS> 0
0
0
<COMMON> 53,041
<OTHER-SE> (32,966)
<TOTAL-LIABILITY-AND-EQUITY> $ 33,738
<SALES> $ 8,328
<TOTAL-REVENUES> 8,328
<CGS> 6,238
<TOTAL-COSTS> 6,238
<OTHER-EXPENSES> 2,639<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> $ (770)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $ (770)
<EPS-PRIMARY> $ (0.08)
<EPS-DILUTED> $ (0.08)
<FN>
<F1>Includes - Other assets - $397K.
<F2>Includes - Restricted cash - $3,038K; Other long term assets $397K.
<F3>Includes - Research and development - $774K; Selling,
marketing, and administrative - $1,926K; Interest
(income) - ($83K); and Other (income)/expense - $22K.
</FN>
</TABLE>
