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 December 31, 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 December 31, 1998, there were outstanding 10,081,293 shares of
Issuer's Common Stock.
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements
Condensed Statements of Operations
Three and Nine Months Ended December 31, 1998 and 1997 3
Condensed Balance Sheets
December 31, 1998 and March 31, 1998 4
Condensed Statements of Cash Flows
Nine Months Ended December 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
ii
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
--------------------
CALIFORNIA MICRO DEVICES CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 8,529 $ 7,702 $25,089 $23,764
Technology related revenues - 150 - 531
------- ------- ------- -------
Total revenues 8,529 7,852 25,089 24,295
Cost and expenses:
Cost of sales 6,072 5,972 18,860 17,084
Research and development 1,004 719 2,680 2,298
Selling, marketing and
administrative 1,889 1,904 5,296 5,902
------- ------- ------- -------
Total costs and expenses 8,965 8,595 26,836 25,284
------- ------- ------- -------
Operating loss (436) (743) (1,747) (989)
Other expense, net 190 142 495 396
------- ------- ------- -------
Loss before income taxes (626) (885) (2,242) (1,385)
Income taxes - - - -
======= ======= ======= =======
Net loss $ (626) $ (885) $(2,242) $(1,385)
======= ======= ======= =======
Basic and diluted net loss
per share $ (0.06) $ (0.09) $ (0.22) $ (0.14)
======= ======= ======= =======
Weighted average common
shares outstanding 10,020 9,881 9,998 9,824
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
CONDENSED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
<TABLE>
December 31, March 31,
1998 1998
----------- ----------
(unaudited)
<S> <C> <C>
ASSETS:
- -------
Current assets:
Cash and short-term securities $ 389 $ 480
Short-term investments 3,659 5,110
Accounts receivable, less allowance for
doubtful accounts of $297 and $398 4,554 5,087
Inventories 8,090 8,092
Other assets 654 986
------- ------
Total current assets 17,346 19,755
Property, plant & equipment, net 12,029 12,925
Restricted cash 3,260 2,909
Other long term assets 471 405
------- ------
Total assets $33,106 $35,994
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY:
- -----------------------------------
Current liabilities:
Accounts payable $ 2,982 $ 3,328
Accrued salaries and benefits 885 1,008
Other accrued liabilities 699 802
Deferred margin on shipments to distributors 521 581
Current maturities of long-term debt and
capital lease obligations 500 489
------- ------
Total current liabilities 5,587 6,208
Long-term debt, less current maturities 7,185 7,185
Capital lease obligations, less current maturities 692 974
------- ------
Total liabilities 13,464 14,367
Shareholders' equity:
Common stock-no par value; authorized 25,000,000;issued and
outstanding 10,081,293 and 9,978,151 53,259 53,011
Retained earnings (33,617) (31,384)
------- ------
Total shareholders' equity 19,642 21,627
------- ------
Total liabilities and shareholders' equity $33,106 $35,994
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
Nine Months Ended
December 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,242) $ (1,385)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,165 2,133
Net decrease /(increase) in inventories 2 (611)
Net decrease/(increase) in accounts receivable 533 (363)
Net decrease/(increase) in prepaid expenses and
other current assets 332 (361)
Net decrease in trade accounts payable and
other current liabilities (572) (235)
Net (decrease)/increase in other long term assets (66) 12
(Decrease)/increase in deferred margin
on distributor sales (60) 63
------- -------
Net cash from (used in) operating activities 92 (747)
------- -------
Cash flows from investing activities:
Securities purchases (3,163) (3,927)
Securities sales 4,623 5,003
Capital expenditures (1,269) (1,083)
Net change in restricted cash (351) (334)
------- -------
Net cash used in investing activities (160) (341)
------- -------
Cash flows from financing activities:
Repayments of capital lease obligations (271) (266)
Proceeds from issuance of common stock 248 1,011
------- -------
Net cash (used in)/from financing activities (23) 745
------- -------
Net decrease in cash and cash equivalents (91) (343)
Cash and cash equivalents at beginning of period 480 343
------- -------
Cash and cash equivalents at end of period $ 389 $ -
======= ======
Supplemental disclosures of cash flow information:
Interest paid $ 476 $ 512
Income taxes paid $ - $ -
Supplemental disclosures of non-cash investing and financing activities:
Unrealized gain/(loss) on securities $ 9 $ (34)
Capital expenditures financed through capital
lease obligations $ - $ 163
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
Notes to Condensed 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 December 31, 1998,
results of operations for the three and nine month periods ended December
31, 1998 and 1997, and cash flows for the nine-month periods ended
December 31, 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>
December 31, March 31,
1998 1998
---------- ---------
<S> <C> <C>
Raw materials $ 547 $ 775
Work-in-process 5,716 5,480
Finished goods 1,827 1,837
------ ------
$8,090 $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
reports on Form 10-Q for the quarters ended June 30, 1998 and September
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.
<PAGE>
5. Net 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 are calculated in the same manner as the
Company's basic earnings per common 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 December 31, 1998 and 1997
was $617,000 and $919,000, respectively.
7. Subsequent Events
-----------------
In January 1999, the Company borrowed $650,000 under a credit agreement
collateralized by certain equipment. The term of the agreement is 42
months, carries an interest rate of 9.9%, and has a prepayment option.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
-----------------------------------
Results of Operations
Product sales for the quarter ended December 31, 1998, increased by
$827,000, or 11%, compared to the quarter ended December 31, 1997. Unit
shipments increased 26% to 14.4 million units in the December 31, 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? family of products to the personal computer ("PC")
market. Thin film products accounted for approximately 71% of product
sales and approximately 84% of units shipped for the quarter ended
December 31, 1998 compared to 66% of product sales and 78% of units
shipped in the year-earlier period. Within the thin film category, sales
of the newer thin film PAC? products, including the P/Active? family,
increased to 27% of total product sales and 36% of total units shipped
compared to 21% of total dollar sales and 27% of total units shipments in
the year ago quarter.
Product sales for the nine months ended December 31, 1998, increased by
$1,325,000, or 6%, due to increased sales of the Company's PAC? family
of products. Units' shipments increased 18% in the nine-month period
ended December 31, 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 nine months periods ended December
31, 1998 and 1997. However, sales of the newer thin film PAC? products,
including P/Active?, increased to 26% of total product sales and 37% of
total units shipments in the nine months ended December 31, 1998, compared
to 14% and 18%, respectively, in the year-earlier period, offset by
decreases in older thin film products.
There was no technology related revenue for the three and nine months
ended December 31, 1998, compared to technology revenues of $150,000 and
$531,000 for the three and nine months ended December 31, 1997,
respectively, due to lack of participation by Hitachi Metals, Ltd. (HML)
in shared engineering projects. The Company does not expect to receive
revenue from HML for joint research and development in the future.
Gross margins on product sales increased to 28.8% in the December 31, 1998
quarter compared to 22.5% in the December 31, 1997, quarter due to
improved yields and cost reductions. Compared to a year ago year-to-date
gross margins are lower due to a changing mix of products, continued
pricing pressure in the PC market, .and a lower mix of products for the
US telecommunications market.
R&D expense was $1,004,000 and $2,680,000 for the three and nine months
ended December 31, 1998 compared with $719,000 and $2,298,000 in the year
earlier periods. The increase both for the quarter and year-to-date was
due primarily to increased material costs related to several new product
developments.
Selling, marketing and administrative expenses were $1,889,000 and
$5,296,000 for the three and nine months ended December 31, 1998, compared
to $1,904,000 and $5,902,000 in the year earlier periods. The reduction
in administrative expense for the nine months ended December 31, 1998 was
due to the receipt of a one-time insurance settlement in June 1998.
As a result of the factors discussed above, the operating (loss) for the
three and nine months ended December 31, 1998 and 1997, was ($436,000)
and ($1,747,000), respectively, compared with ($743,000) and ($989,000),
respectively, in the year earlier periods.
Other expense (net) for the three and nine months ended December 31, 1998,
was $190,000 and $495,000 as compared to net expense of $142,000 and
$396,000 in the year earlier periods. The increase for the three month
period compared to the year-earlier period is due primarily to the
settlement of a patent litigation and the increase for the nine month
period is due primarily to that settlement and reduced interest income
from investments.
No income taxes were accrued for the three and nine months ended December
31, 1998, or 1997, due to the availability of tax loss carry forwards and
current periods losses.
<PAGE>
The weighted average common shares outstanding were 10,020,000 shares and
9,998,000 shares for the three and nine months ended December 31, 1998,
respectively, compared to 9,881,000 shares and 9,824,000 shares,
respectively, in the year earlier periods. The increase of shares during
the current periods was partly due to the issuance of 30,000 shares of
restricted common stock issued as part of the above mentioned settlement
of patent litigation. This increase also included the issuance of 66,342
shares of common stock through the employee stock purchase plan during the
nine months ended December 31, 1998.
Earnings (loss) per share were $(0.06) and $(0.22) for the three months
and nine months ended December 31, 1998, compared to $(0.09) and $(0.14)
for the year earlier periods, respectively.
Liquidity and Capital Resources
Net cash, cash equivalents and short-term investments as of December 31,
1998, decreased $1,542,000 from March 31, 1998, primarily due to capital
expenditures of $1,269,000 for equipment, and payment of capital lease
obligations of $271,000. A decrease in accounts receivable of $533,000
was offset by a reduction in accounts payable and other current
liabilities of $572,000.
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
December 31, 1998 and 1997 and there were no borrowings during fiscal 1998
and 1997. The Company is in compliance with its financial covenants.
In January 1999, the Company borrowed $650,000 under a credit agreement
collateralized by certain equipment. The term of the agreement is 42
months, carries an interest rate of 9.9%, and has a prepayment option.
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 mission critical 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 certification statements alone could
potentially place its systems at risk if some level of integration and
system level testing is not also performed. To ensure that these
applications work in CMD's environment, the Company has completed a
consolidated, system level test plan that incorporated testing each of the
key applications. The positive results of these tests have allowed the
Company to proceed with its migration plan to year 2000 compliant systems
and the Company expects to be fully converted by the end of fiscal year
1999 (March 31, 1999). As a result of the above progress, the Company has
not formulated formal contingency plans regarding conversion to year 2000
compliant critical systems. Should any unforeseen difficulties arise in
the implementation
<PAGE>
of these software packages, the Company would convert to alternate
software packages.
The Company has completed its evaluation of 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 $500,000. Most
of these expenditures involve new capital equipment that will amortize
over a three to five year period.
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.
<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 quarters ended June 30, 1998 and September 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.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 Financial Data Schedule*
(b) Reports on Form 8-K
On November 30, 1998, the Company filed a Form 8-K, under Item
5, reporting the release of certain information regarding the
Company's new officer.
*Exhibit on EDGAR filing only.
<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: February 11, 1999 /s/ John E. Trewin
---------------------------
John E. Trewin
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> $ 389
<SECURITIES> $ 3,659
<RECEIVABLES> $ 4,851
<ALLOWANCES> $ (297)
<INVENTORY> $ 8,090
<CURRENT-ASSETS> $ 17,346<F1>
<PP&E> $ 26,745
<DEPRECIATION> $ (14,716)
<TOTAL-ASSETS> $ 33,106<F2>
<CURRENT-LIABILITIES> $ 5,587
<BONDS> $ 0
$ 0
$ 0
<COMMON> $ 53,259
<OTHER-SE> $ (33,617)
<TOTAL-LIABILITY-AND-EQUITY> $ 33,106
<SALES> $ 8,529
<TOTAL-REVENUES> $ 8,529
<CGS> $ 6,072
<TOTAL-COSTS> $ 6,072
<OTHER-EXPENSES> $ 2,877<F3>
<LOSS-PROVISION> $ 0
<INTEREST-EXPENSE> $ 206
<INCOME-PRETAX> $ (626)
<INCOME-TAX> $ 0
<INCOME-CONTINUING> $ 0
<DISCONTINUED> $ 0
<EXTRAORDINARY> $ 0
<CHANGES> $ 0
<NET-INCOME> $ (626)
<EPS-PRIMARY> $ (0.08)
<EPS-DILUTED> $ (0.08)
<FN>
<F1>Includes - Other assets $654K.
<F2>Includes - Restricted cash $3,260K; Other long term assets $471K.
<F3>Includes - Research and development $1,004K; Selling, marketing and
administrative $1,889; Interest (income) $(59K); and Other
income (expense) $43K.
</FN>
</TABLE>
