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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 Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number 0-24758
MICRO LINEAR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-2910085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2092 Concourse Drive 95131
San Jose, California (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (408) 433-5200
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports 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 [ ]
The number of shares of the Registrant's Common Stock outstanding, net of
shares held in treasury, as of September 30, 1996 was 12,310,236.
<PAGE>
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Income for the three and nine months
ended September 30, 1996 and 1995, unaudited.......................3
Condensed Balance Sheets at September 30, 1996, unaudited
and at December 31, 1995...........................................4
Condensed Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995, unaudited.......................5
Notes to Condensed Financial Statements, unaudited.................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................12
SIGNATURES....................................................................14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
MICRO LINEAR CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
------------------------------------ --------------------------------------
<S> <C> <C> <C> <C>
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
----------------- ----------------- ----------------- ------------------
Net revenues......................................$11,713 $15,051 $40,671 $42,175
Cost of revenues....................................5,681 6,421 15,461 19,300
----------------- ----------------- ----------------- ------------------
Gross profit.....................................6,032 8,630 25,210 22,875
Operating expenses:
Research and development.........................2,648 2,714 8,519 7,932
Selling, general and administrative..............2,745 2,433 8,580 7,179
----------------- ----------------- ----------------- ------------------
5,393 5,147 17,099 15,111
----------------- ----------------- ----------------- ------------------
Income from operations.............................639 3,483 8,111 7,764
Interest and other income.............................352 472 1,068 1,177
Interest expense......................................(76) (100) (233) (335)
----------------- ----------------- ----------------- ------------------
Income before provision for taxes on
income.........................................915 3,855 8,946 8,606
Provision for taxes on income.........................366 694 3,578 1 ,549
----------------- ----------------- ----------------- ------------------
Net income......................................$..549 $ 3,161 $5,368 $ 7,057
================= ================= ================= ==================
Net income per share............................$....0.04 $ 0.23 $ 0.40 $ 0.52
================= ================= ================= ==================
Shares used in computing net income
per share amounts 13,125 13,856 13,384 13,693
================= ================= ================= ==================
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MICRO LINEAR CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except per share amounts)
<S> <C> <C>
September 30, December 31,
1996 1995
(Unaudited) (See note below)
--------------------- -------------------
Assets
Current assets:
Cash and cash equivalents........................................................... $3,058 $4,175
Short-term investments.............................................................. 23,928 26,299
Accounts receivable, net of allowance for doubtful accounts of $288 and $240 at
September 30, 1996 and December 31, 1995, respectively............................ 3,507 6,571
Inventories......................................................................... 12,132 8,986
Deferred tax assets................................................................. 4,171 3,452
Other current assets................................................................ 1,059 781
--------------------- -------------------
Total current assets.............................................................. 47,855 50,264
Property, plant and equipment.......................................................... 37,178 36,276
Less accumulated depreciation and amortization......................................... (15,521 ) (19,470)
--------------------- -------------------
21,657 16,806
Other assets........................................................................... 819 901
--------------------- -------------------
Total assets.................................................................... $70,331 $67,971
===================== ===================
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable.................................................................... $ 3,785 $ 3,576
Accrued compensation and benefits................................................... 1,555 1,382
Deferred income on shipments to distributors........................................ 1,320 1,517
Income tax payable.................................................................. - 507
Other accrued liabilities........................................................... 1,964 1,494
Current portion of long-term debt................................................... 290 467
--------------------- -------------------
Total current liabilities......................................................... 8,914 8,943
Long-term debt......................................................................... 3,011 3,181
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
Authorized shares 5,000,000
None issued and outstanding....................................................... - -
Common stock, $.001 par value
Authorized shares 30,000,000
Issued shares 12,743,236 and 12,455,519 at September 30, 1996 and December 31,
1995, respectively
Outstanding shares 12,310,236 and 12,455,519 at September 30, 1996 and December
31, 1995, respectively.......................................................... 13 12
Additional paid-in capital.......................................................... 49,851 49,103
Retained earnings................................................................... 12,100 6,732
Treasury stock, 433,000 shares at cost at September 30, 1996........................ (3,558 ) -
--------------------- -------------------
Total stockholders' equity........................................................ 58,406 55,847
--------------------- -------------------
Total liabilities and stockholders' equity...................................... $70, 331 $67,971
===================== ===================
<FN>
Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at
that date.
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MICRO LINEAR CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
---------------------------------------
<S> <C> <C>
September 30, September 30,
1996 1995
----------------- ----------------
Cash provided by operating activities......................................... $ 6,912 $ 7,084
Investing activities:
Capital expenditures....................................................... (7,116 ) (3,416 )
Purchases of short-term investments........................................ (16,009 ) (22,103 )
Sales of short-term investments............................................ 18,380 12,196
----------------- ----------------
Net cash used in investing activities.................................... (4,745 ) (13,323 )
Financing activities:
Principal payments under capital lease obligations and debt................ (414 ) (964 )
Proceeds from issuance of common stock..................................... 688 731
Acquisition of treasury stock.............................................. (3,558 ) -
----------------- ----------------
Net cash used in financing activities.................................... (3,284 ) (233 )
----------------- ----------------
Net decrease in cash and cash equivalents..................................... (1,117 ) (6,472 )
Cash and cash equivalents at beginning of period.............................. 4,175 23,216
----------------- ----------------
Cash and cash equivalents at end of period.................................... $3,058 $16,744
================= ================
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
MICRO LINEAR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1) Micro Linear Corporation (the "Company") designs, develops and markets high
performance analog and mixed signal integrated circuits for a broad range of
applications within the communications, computer and industrial markets for
sale primarily in North America, Asia and Europe. The accompanying interim
financial statements are unaudited and have been prepared by the Company in
accordance with generally accepted accounting principles and pursuant to the
rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) have been made to present a fair statement of results for the
interim periods presented. The results of operations for the interim periods
shown in this report are not necessarily indicative of results to be
expected for the fiscal year. All information reported in this Form 10-Q
should be read in conjunction with the Company's annual financial statements
on Form 10-K for the year ended December 31, 1995.
2) The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
year 1995 ended on December 31, 1995. The third quarter of 1996 and third
quarter of 1995 ended on September 29, 1996 and October 1, 1995,
respectively. For ease of presentation, the accompanying financial
statements have shown the third quarter of 1996 and 1995 as ending September
30.
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) The accounting policies followed by the Company are set forth in Note 1 of
Notes to Financial Statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
4) Net income per share is computed using the weighted average number of shares
of common stock and from stock options and warrants (using the treasury
stock method). Dual presentation of primary and fully diluted net income per
share is not shown because the differences are not significant.
5) Inventory is stated at the lower of standard cost (which approximates actual
cost on a first-in, first-out basis) or market (estimated net realizable
value).
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1996 1995
---------------- ----------------
Raw Materials........................ $ 1,964 $1,434
Work-in-process...................... 6,648 3,926
Finished Goods....................... 3,520 3,626
------- -------
$12,132 $8,986
======= ======
</TABLE>
6) The Company's provision for taxes on income is based on estimates of the
levels of income and certain deductions expected for the year which may be
subject to change.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The forward-looking statements contained herein
are subject to certain factors that could cause actual results to differ
materially from those projected in the forward-looking statements. Such factors
include, but are not limited to, the factors set forth below and elsewhere in
this Form 10-Q.
Results of Operations
Net Revenues
Net revenues were $11.7 million for the third quarter of 1996, a 22%
decrease from net revenues of $15.1 million for the third quarter of 1995 and a
14% decrease from net revenues of $13.6 million for the second quarter of 1996.
Net revenues were $40.7 million for the first nine months of 1996, a 4% decrease
from net revenues of $42.2 million for the first nine months of 1995. Net
revenues for the third quarter of 1996 compared to the third quarter of 1995
decreased 18% in the communications market, 40% in the industrial market and 19%
in the computer market. Net revenues for the third quarter of 1996 compared to
the second quarter of 1996 decreased 17% in the communications market, decreased
30% in the industrial market and increased 17% in the computer market. Net
revenues for the first nine months of 1996 compared to the first nine months of
1995 increased 19% in the communications market, decreased 30% in the industrial
market and decreased 29% in the computer market. The computer market includes
the Winchester hard disk drive ("HDD") applications segment. Net revenues in the
HDD segment were $925,000 for the third quarter of 1996, a 55% decrease from net
revenues of $2.1 million in the HDD segment for the third quarter of 1995 and a
3% increase over net revenues of $900,000 for the second quarter of 1996. HDD
segment revenues decreased to 8% of total net revenues for the third quarter of
1996 from 14% of total net revenues for the third quarter of 1995. HDD segment
revenues were 7% of total net revenues for the second quarter of 1996. Net
revenues in the HDD segment for the first nine months of 1996 compared to the
first nine months of 1995 decreased 57%. The Company's markets are characterized
by intense competition, relatively short product life cycles and rapid
technological changes. In addition, these markets have undergone rapid growth
and consolidation in the last few years. The Company's net revenues and results
of operations have been and will be materially and adversely affected in the
event of a continued market slowdown.
International net revenues were $3.6 million, or 31% of net revenues, for
the third quarter of 1996, compared to $4.3 million, or 28% of net revenues, for
the third quarter of 1995 and $6.1 million, or 45% of net revenues, for the
second quarter of 1996. The decrease in international net revenues for the third
quarter of 1996 compared to the second quarter of 1996 is primarily attributable
to soft demand from networking customers mainly in Taiwan. International
revenues were $14.7 million, or 36% of net revenues, for the first nine months
of 1996, compared to $13.2 million, or 31% of net revenues, for the first nine
months of 1995. The increase in international revenues for the first nine months
of 1996 compared to the first nine months of 1995 was due to the combination of
stronger demand in Asia Pacific revenues and softness in domestic revenues.
International revenues exclude shipments to Amtron International ("Amtron"), a
domestic distributor. A significant portion of Amtron's purchases are sold to
Samsung Electronics and other Korean customers. Sales to Amtron were 1% of net
revenues in the first nine months of 1996, compared to 15% of net revenues in
the first nine months of 1995. The decline in sales to Amtron as a percent of
net revenues in 1996 compared to 1995 was a result of the Company's HDD products
that were being sold to Samsung reaching the end of their production lives in
the fourth quarter of 1995. Although the Company has received orders for other
HDD products, the net revenue from the sale of these products did not offset the
decline in net revenues of the Samsung HDD products.
Domestic distributor revenues were approximately 17% of net revenues for the
third quarter of 1996, 19% of net revenues for the third quarter of 1995 and 17%
for the second quarter of 1996. Domestic distributor revenues were approximately
16% and 15% of net revenues for the first nine months of 1996 and the first nine
months of 1995, respectively. The Company expects revenues from domestic
distributors to increase in the future as a percentage of total net revenues due
to anticipated shifts in the sales channel mix. In this regard, several of the
Company's OEM (Original Equipment Manufacturer) customers have moved their
manufacturing operations to subcontractors and in turn are placing their orders
through distribution. The Company defers recognition of revenue derived from
sales to domestic distributors until such distributors resell the products to
their end customers; however, revenue is recognized by the Company upon shipment
to international representatives.
<PAGE>
Gross Margin
Gross margin is affected by the volume of product sales, price, product mix,
manufacturing utilization, product yields, inventory obsolescence and the mix of
sales to OEM's and to distributors. Gross margin has been and will continue to
be periodically affected by expenses incurred in connection with start-up of new
products and installation of new process technologies at outside manufacturing
foundries.
The Company's gross margin decreased to 52% in the third quarter of 1996
from 57% in the third quarter of 1995 primarily due to continued higher per unit
manufacturing costs resulting from lower manufacturing utilization. The
Company's product mix also shifted away from the high margin communications
market segment and shifted to the lower margin computer and industrial market
segments due to soft market conditions in the communications market segment. The
Company's gross margin decreased to 52% in the third quarter of 1996 from 66% in
the second quarter of 1996 primarily due to continued higher per unit
manufacturing costs resulting from lower manufacturing utilization, a
manufacturing ramp up for new communications products, and a change in shipment
to lower margin products in the computer and industrial market segments. The
Company's gross margin improved to 62% for the first nine months of 1996 from
54% for the first nine months of 1995. The product mix for the first nine months
of 1996 contained a greater percentage of sales to the communications market
segment compared to the first nine months of 1995 thereby contributing to a
higher gross margin. The Company anticipates lower gross margins will continue
as long as soft market conditions in the communications market segment persist.
The Company's gross margins are adversely impacted by the costs associated
with installing new processes at its foundries. Although the Company has
recently been able to mitigate the adverse impact on gross margin associated
with new wafer manufacturing process costs by relying upon process technologies
existing at its outside wafer foundries, there can be no assurance that the
Company will not be required to incur significant expenses in the future to
develop, or obtain access to, advanced process technologies and to transfer and
install such technologies at one or more of its foundries, which could have a
material adverse affect on the Company's gross margin in the future. The Company
purchases all of its BiCMOS wafers from two wafer foundries, the majority of
which are supplied by one wafer foundry in Taiwan. Although both wafer foundries
are qualified to supply the Company with BiCMOS wafers, the Company's short term
BiCMOS wafer supply could be materially and adversely affected if the wafer
foundry in Taiwan is unable to meet the Company's wafer supply requirements.
Approximately one-third of the Company's bipolar wafers are purchased from a
wafer foundry in Japan and have pricing contracts that are tied to currency
fluctuations of the yen. Wafer pricing for this foundry is adjusted every 6
months, either up or down, depending on the movement of the yen. The Company
does not expect to be significantly impacted by this pricing agreement, however,
due to the uncertainty of the currency markets and the recent fluctuations of
the yen versus the U.S. dollar, there can be no assurance that significant
swings in currency will not have a material adverse effect on the Company's
gross margin in the future due to the impact of such fluctuations on this
contract or other contracts the Company has with foundries in Japan.
The Company currently purchases its wafers from ten wafer suppliers. The
vast majority of the Company's wafer supply is obtained from three wafer
suppliers. The Company's products are assembled and packaged by four vendors.
Any delays or interruptions due to such factors as inadequate capacity or
unavailable raw materials in the Company's wafer suppliers or assembly vendors
could materially and adversely affect product shipments and operating results.
See "Other Factors Affecting Operating Results".
Research and Development Expenses
Research and development expenses include costs associated with the
definition, design and development of standard and semi-standard products, tile
arrays and standard cells. The Company expenses prototype wafers and new
production mask sets related to new products as research and development costs
until products based on new designs are fully characterized by the Company and
are demonstrated to support published data sheets and satisfy reliability tests.
The Company believes that the development and introduction of new products is
critical to its future success. Research and development expenses such as mask
and silicon costs that are related to the development of new products can
fluctuate from quarter to quarter due to the timing of the product design
process.
Research and development expenses were $2.7 million, or 23% of net revenues,
for the third quarter of 1996, compared to $2.7 million, or 18% of net revenues,
for the third quarter of 1995 and $3.2 million, or 24% of net revenues, for the
second quarter of 1996. Research and development expenses were $8.5 million, or
21% of net revenues, for the first nine months of 1996, compared to $7.9
million, or 19% of net revenues, in the first nine months of 1995. For the third
quarter of 1996 compared to the third quarter of 1995, an increase in absolute
dollars attributable to higher prototype inventory costs was offset by lower new
product development and mask costs. The increase in research and development
expenses in absolute dollars in the first nine months of 1996 compared to the
first nine months of 1995 is primarily attributable to increased prototype
inventory costs partially offset by lower new product development and mask
costs. The Company expects that research and development expenses will continue
to increase in absolute dollars over the near term.
Selling, General and Administrative
Selling, general and administrative expenses were $2.8 million, or 23% of
net revenues, for the third quarter of 1996, compared to $2.4 million, or 16% of
net revenues, for the third quarter of 1995 and $3.0 million, or 22% of net
revenues, for the second quarter of 1996. Selling, general and administrative
expenses were $8.6 million, or 21% of net revenues, for the first nine months of
1996 compared to $7.2 million, or 17% of net revenues, for the first nine months
of 1995. The increase in absolute dollars in the third quarter of 1996 compared
to the third quarter of 1995 is primarily attributable to higher staffing
levels, legal fees, travel, contributions and general taxes and fees. The
increases in absolute dollars in the first nine months of 1996 compared to the
first nine months of 1995 is primarily attributable higher staffing levels,
travel, legal fees, manuals, general taxes and fees, product sales support and
demonstration boards. The Company expects selling, general and administrative
spending as a percent of net revenues to remain relatively constant over the
near term.
Interest and Other Income and Interest Expense
Interest and other income was $352,000 for the third quarter of 1996,
$472,000 for the third quarter of 1995 and $358,000 for the second quarter of
1996. Interest income is affected by changes in the Company's cash balance as
well as the prevailing interest rates. Interest expense was $76,000 for the
third quarter of 1996, $100,000 for the third quarter of 1995 and $78,000 for
the second quarter of 1996.
Provision for Income Taxes
The Company's effective tax rate for the first nine months of 1996 was 40%
compared to 18% for the first nine months of 1995. The higher effective tax rate
projected for 1996 was a result of the full utilization of all remaining net
operating loss and tax credit carryforwards in fiscal year 1995. The Company's
provision for taxes on income is based on estimates of the levels of income and
certain deductions expected for the year which may be subject to change.
Liquidity and Capital Resources
Since 1992, the Company has financed its operations and capital requirements
principally through cash flow from operations and the proceeds from its initial
public offering in October 1994. Operations provided $6.9 million of net cash
during the first nine months of 1996, a decrease of $.2 million from the first
nine months of 1995. In the first nine months of 1996, lower net income and
accounts payable and increased inventories were partially offset by lower
accounts receivables, causing a net decrease in operating cash flow.
Cash used in investing activities for the first nine months of 1996 is
attributable to capital expenditures of $7.1 million and cash proceeds received
from net sales of short-term investments of $2.4 million.
Financing activities for the first nine months of 1996 consisted primarily
of the repurchase of the Company's common stock. In January 1996, the Board of
Directors approved a stock repurchase program in which up to $3 million of the
Company's Common Stock would be purchased by the Company on the open market from
time to time, depending upon market conditions, share price and other factors.
In July 1996, the Board of Directors approved an additional $2.7 million to be
used for the stock purchase program. As of November 11, 1996, the Company had
repurchased a total of 613,000 shares of its Common Stock for $4.8 million.
Working capital was $38.9 million as of September 30, 1996, compared to
$41.3 million as of December 31, 1995. Cash and cash equivalents of $3.1 million
and short-term investments of $23.9 million as of September 30, 1996 compares to
cash equivalents of $4.1 million and short-term investments of $26.3 million as
of December 31, 1996.
The Company's liquidity is affected by many factors, including, among
others, the extent to which the Company pursues additional wafer fabrication
capacity from existing foundry suppliers or new suppliers, capital expenditures,
and the level of the Company's product development efforts, and other factors
related to the uncertainties of the industry and global economies. Although the
Company's cash requirements will fluctuate based on the timing and extent of
these factors, the Company anticipates that its existing cash resources and cash
generated from operations will fund necessary purchases of capital equipment and
provide adequate working capital for at least the next twelve months. However,
there can be no assurance that events in the future will not require the Company
to seek additional capital sooner or, if so required, that such capital will be
available on terms acceptable to the Company.
Other Factors Affecting Future Operating Results
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially and adversely affect revenues and
profitability, including the Company's access to advanced process technologies,
the timing and extent of process development costs, the Company's ability to
introduce new products on a timely basis, the volume and timing of orders
received, market acceptance of the Company's and its customers' products, the
timing of new product announcements and introductions by the Company or its
competitors, changes in the mix of products sold, the timing and extent of
research and development expenses, the availability and cost of wafers from
outside foundries, fluctuations in manufacturing yields, fluctuations in the
relative exchange rate of the yen and the U.S. dollar, competitive pricing
pressures and cyclical semiconductor industry conditions. A majority of the
Company's net revenues are derived from sales of a limited number of products.
Historically, average selling prices in the semiconductor industry have
decreased over the life of any particular product. Although the Company has not
generally experienced material decreases in its average selling prices over
time, there can be no assurance that the average selling prices of the Company's
products will not be subject to significant pricing pressures in the future. The
Company's business is characterized by short-term orders and shipment schedules,
and customer orders typically can be canceled or rescheduled without significant
penalty to the customer. Due to the absence of substantial non-cancelable
backlog, the Company typically plans its production and inventory levels based
on internal forecasts of customer demand, which are highly unpredictable and can
fluctuate substantially. In addition, the Company is limited in its ability to
reduce costs quickly in response to any revenue shortfalls. As a result of the
foregoing or other factors, there can be no assurance that the Company will not
experience material fluctuations in future operating results on a quarterly or
annual basis which would materially and adversely affect the Company's business,
financial condition and results of operations.
The markets for the Company's products are characterized by rapid
technological change and frequent new product introductions. To remain
competitive, the Company must develop or obtain access to advanced semiconductor
process technologies in order to reduce die size, increase die performance and
functional complexity, and improve yields. Semiconductor design and process
methodologies are subject to rapid technological change, requiring large
expenditures for research and development. If the Company is unable to develop
or obtain access to advanced wafer processing technologies as they become
needed, or is unable to define, design, develop and introduce competitive new
products on a timely basis, its future operating results will be materially and
adversely affected. In addition, if the Company is unable to transfer and
install such new process technologies to one or more of its foundries in a
timely manner, its business and results of operations could be materially and
adversely affected.
The Company does not own or operate a full wafer fabrication facility, and
all of the Company's wafer requirements are currently supplied by outside
foundries. In particular, a substantial portion of the Company's bipolar wafers
are manufactured by one foundry in Japan and a substantial portion of the
Company's BiCMOS wafers are manufactured by one foundry in Taiwan. There are
certain significant risks associated with the Company's reliance on outside
foundries, including the lack of assured wafer supply and control over delivery
schedules, the unavailability of or delays in obtaining access to key process
technologies and limited control over manufacturing yields and production costs.
Although the Company has undertaken measures to diversify its sources of wafer
supply and works closely with its foundries to minimize the likelihood of
reduced manufacturing yields, the Company's foundries have from time to time
experienced lower than anticipated manufacturing yields, particularly in
connection with the introduction of new products and the installation and
start-up of new process technologies. Such reduced yields have at times
materially and adversely affected the Company's operating results. In addition,
the Company's reliance upon offshore foundries subjects the Company to risks of
exchange rate fluctuations, export and import restrictions, trade sanctions,
tariff increases and political instability.
The Company purchases wafers from its outside foundries pursuant to purchase
orders and does not have a guaranteed level of wafer capacity at any of its
foundries. Therefore, the Company's wafer suppliers could choose to prioritize
capacity for other uses or reduce or eliminate deliveries to the Company on
short notice. Accordingly, there is no assurance that the Company's foundries
will allocate sufficient wafer capacity to satisfy the Company's requirements.
Any sudden demand for an increased amount of wafers or sudden reduction or
elimination of any existing source or sources of wafers could result in a
material delay in the shipment of the Company's products. There can be no
assurance that material disruptions in supply, which have occurred periodically
in the past, will not occur in the future. Any such disruption could materially
and adversely affect the Company's operating results. In the event of any such
disruption, if the Company were unable to qualify alternative manufacturing
sources for existing or new products in a timely manner or if such sources were
unable to produce wafers with acceptable manufacturing yields, the Company's
business and operating results would be materially and adversely affected.
A substantial portion of the Company's net revenues are derived from sales
of products for computer networking applications. Sales of the Company's
products to network equipment manufacturers accounted for approximately 52% of
the Company's net revenues in the first nine months of 1996 and accounted for 8
of the 10 top selling products for the first nine months of 1996. These 8
products contributed 43% of revenues for the same period. The computer
networking equipment market is characterized by intense competition, relatively
short product life cycles and rapid technological change. In addition, the
computer network equipment market has undergone a period of rapid growth and
consolidation in recent years. Although the Company has expanded its product mix
and customer base, the Company expects its dependency on sales to network
equipment manufacturers to continue for the remainder of 1996 and into 1997. The
Company's business and results of operations would be materially and adversely
affected in the event of a significant slowdown in the computer networking
equipment market.
The Company's market diversification and product development activities have
placed, and could continue to place, a significant strain on the Company's
limited personnel and other resources. The Company's ability to manage any
future growth effectively will require it to integrate its new employees into
its overall operations, to continue to improve its operational, financial and
management systems and to attract, train, motivate and manage its employees
successfully. If the Company's management is unable to manage growth
effectively, the Company's business and results of operations could be
materially and adversely affected.
The semiconductor industry is characterized by rapid technological change,
cyclical market patterns, significant price erosion, periods of over-capacity
and production shortages, variations in manufacturing costs and yields and
significant expenditures for capital equipment and product development. The
industry has from time to time experienced depressed business conditions. In
this regard, since early 1996, the industry has experienced significant softness
in demand for many types of products. The Company expects to continue to
experience substantial period-to-period fluctuations in future operating results
due to general semiconductor industry conditions, variations in product mix, or
other factors.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Earnings Per Share.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
<TABLE>
<CAPTION>
Micro Linear Corporation
Statement Re Computation of Earnings Per Share
(Unaudited)
(In thousands, except per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------------ -------------- ------------ -------------
Net income...................................... $549 $3,161 $5,368 $7,057
============ ============== ============ =============
PRIMARY:
Weighted average common shares outstanding...... 12,430 12,203 12,401 12,079
Common equivalents attributable to:
Options and warrants....................... 695 1,653 984 1,614
------------ -------------- ------------ -------------
Total weighted average common and common
equivalent shares outstanding.............. 13,125 13,856 13,384 13,693
============ ============== ============ =============
Net income per share............................ $ 0.04 $ 0.23 $ 0.40 $ 0.52
============ ============== ============ =============
FULLY DILUTED:
Weighted average common shares outstanding...... 12,430 12,203 12,401 12,079
Common equivalents attributable to:
Options and warrants - using quarter-end
market price.......................... 808 1,653 1,024 1,660
------------ -------------- ------------ -------------
Total weighted average common and common
equivalent shares outstanding.............. 13,239 13,856 13,384 13,750
============ ============== ============ =============
Net income per share............................ $ 0.04 $ 0.23 $ 0.40 $ 0.51
============ ============== ============ =============
</TABLE>
<PAGE>
SIGNATURES
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.
MICRO LINEAR CORPORATION
Date: November 14, 1996 By: /s/ J. PHILIP RUSSELL
---------------------
J. Philip Russell
Chief Financial Officer
(Principal Financial
and Accounting Officer)
<TABLE>
<CAPTION>
Micro Linear Corporation
Statement Re Computation of Earnings Per Share
(Unaudited)
(In thousands, except per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------------ -------------- ------------ -------------
Net income...................................... $549 $3,161 $5,368 $7,057
============ ============== ============ =============
PRIMARY:
Weighted average common shares outstanding...... 12,430 12,203 12,401 12,079
Common equivalents attributable to:
Options and warrants....................... 695 1,653 984 1,614
------------ -------------- ------------ -------------
Total weighted average common and common
equivalent shares outstanding.............. 13,125 13,856 13,384 13,693
============ ============== ============ =============
Net income per share............................ $ 0.04 $ 0.23 $ 0.40 $ 0.52
============ ============== ============ =============
FULLY DILUTED:
Weighted average common shares outstanding...... 12,430 12,203 12,401 12,079
Common equivalents attributable to:
Options and warrants - using quarter-end
market price.......................... 808 1,653 1,024 1,660
------------ -------------- ------------ -------------
Total weighted average common and common
equivalent shares outstanding.............. 13,239 13,856 13,384 13,750
============ ============== ============ =============
Net income per share............................ $ 0.04 $ 0.23 $ 0.40 $ 0.51
============ ============== ============ =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Micro Linear Corporation
Financial Data Schedule
This schedule contains summary financial information extracted from the
statements of income and balance sheets on pages 3 and 4 of the Company's Second
Quarter Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 875359
<NAME> Micro Linear Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-START> jul-01-1996
<PERIOD-END> sep-29-1996
<CASH> 3058
<SECURITIES> 23928
<RECEIVABLES> 3507
<ALLOWANCES> 288
<INVENTORY> 12132
<CURRENT-ASSETS> 47855
<PP&E> 37178
<DEPRECIATION> 15521
<TOTAL-ASSETS> 70331
<CURRENT-LIABILITIES> 8914
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 58393
<TOTAL-LIABILITY-AND-EQUITY> 70331
<SALES> 11713
<TOTAL-REVENUES> 11713
<CGS> 5681
<TOTAL-COSTS> 5681
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 915
<INCOME-TAX> 366
<INCOME-CONTINUING> 549
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 549
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
