<PAGE>
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 June 30, 1996.
[_] 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 0-25236
M I C R E L, I N C O R P O R A T E D
(Exact name of Registrant as specified in its charter)
California 94-2526744
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1849 Fortune Drive, San Jose, CA 95131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 944-0800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
As of June 30, 1996 there were 9,206,302 shares of common stock, no par value,
outstanding.
This Report on Form 10-Q includes 18 pages with the Index to Exhibits located on
page 15.
<PAGE>
MICREL, INCORPORATED
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1996
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets -- June 30, 1996 and
December 31, 1995........................................... 3
Condensed Consolidated Statements of Income -- For the Quarter
and Six Months Ended June 30, 1996 and 1995................. 4
Condensed Consolidated Statements of Cash Flows -- Six
Months Ended June 30, 1996 and 1995......................... 5
Notes to Condensed Consolidated 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............................................. 14
ITEM 2. Changes in Securities......................................... 14
ITEM 4. Submission of Matters to a Vote of Security Holders........... 14
ITEM 5. Other Information............................................. 15
ITEM 6. Exhibits and Reports on Form 8-K.............................. 15
Signature..................................................... 16
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
MICREL, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,077 $ 1,901
Short-term investments 11,943 12,174
Accounts receivable, net 8,702 9,281
Inventories 13,673 11,414
Other current assets 2,486 2 ,181
------- -------
Total current assets 39,881 36,951
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 13,980 11,284
OTHER ASSETS 603 107
------- -------
TOTAL $54,464 $48,342
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,002 $ 2,878
Deferred income on shipments to 1,127 957
distributors
Other current liabilities 4,327 4,622
------- -------
Total current liabilities 10,456 8,457
LONG-TERM OBLIGATIONS 3,272 3,852
SHAREHOLDERS' EQUITY:
Preferred stock, no par value -
5,000,000 shares authorized; -- --
issued and outstanding: none
Common stock, no par value -
50,000,000 shares authorized;
issued and outstanding:
1996 - 9,206,302; 1995 -
8,898,532 19,868 19,162
Unrealized gain (loss) on (4) 5
short-term investments
Retained earnings 20,872 16,866
------- -------
Total shareholders' equity 40,736 36,033
------- -------
TOTAL $54,464 $48,342
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
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MICREL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -----------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET REVENUES $ 15,317 $ 13,286 $ 29,227 $25,173
COST OF REVENUES 7,505 6,773 14,363 12,921
------- ------- ------- -------
GROSS MARGIN 7,812 6,513 14,864 12,252
------- ------- ------- -------
OPERATING EXPENSES:
Research and development 1,891 1,527 3,756 3,020
Selling, general and administrative 2,880 2,428 5,390 4,536
------- ------- ------- -------
Total operating expenses 4,771 3,955 9,146 7,556
------- ------- ------- -------
INCOME FROM OPERATIONS 3,041 2,558 5,718 4,696
OTHER INCOME, NET 157 170 351 361
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 3,198 2,728 6,069 5,057
PROVISION FOR INCOME TAXES 1,086 955 2,064 1,770
------- ------- ------- -------
NET INCOME $ 2,112 $ 1,773 $ 4,005 $ 3,287
======= ======= ======= =======
NET INCOME PER COMMON
AND EQUIVALENT SHARE $ 0.21 $ 0.18 $ 0.40 $ 0.33
======= ======= ======= =======
SHARES USED IN COMPUTING
PER SHARE AMOUNTS 9,932 9,949 9,938 9,918
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MICREL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 5,154 $ 878
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (4,234) (3,273)
Proceeds from sale of equipment 19 --
Maturities of short-term investments 11,345 9,013
Purchases of short-term investments (11,124) (12,152)
-------- --------
Net cash used for investing activities (3,994) (6,412)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings -- 1,000
Principal payments on long-term debt (691) (490)
Proceeds from the issuance of common stock 707 462
-------- --------
Net cash provided by financing activities 16 972
-------- --------
NET INCREASE (DECREASE) IN CASH AND 1,176 (4,562)
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS - Beginning of period 1,901 6,894
-------- --------
CASH AND CASH EQUIVALENTS - End of period $ 3,077 $ 2,332
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 164 $ 231
======== ========
Cash paid for income taxes $ 2,468 $ 2,042
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
MICREL, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying condensed consolidated
financial statements include the accounts of Micrel, Incorporated and its
wholly-owned subsidiaries ("Micrel" or the "Company"). All significant
intercompany accounts and transactions have been eliminated.
INTERIM FINANCIAL INFORMATION - The accompanying condensed consolidated
financial statements of the Company as of June 30, 1996 and for the three
and six months ended June 30, 1996 and 1995 are unaudited. In the opinion
of management, the condensed consolidated financial statements include all
adjustments (consisting only of normal recurring accruals) that management
considers necessary for a fair presentation of its financial position,
operating results and cash flows for the interim periods presented.
Operating results and cash flows for interim periods are not necessarily
indicative of results for the entire year.
It is suggested that this financial data be read in conjunction with the
audited financial statements and notes thereto included in the Company's
1995 Annual Report to Shareholders and Report on Form 10-K for the year
ended December 31, 1995.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consist of cash and
equivalents, short-term investments, and accounts receivable. Cash and
equivalents and short-term investments consist primarily of commercial
paper and bank certificates of deposit and are regularly monitored by
management. Credit risk with respect to the trade receivables is spread
over a large number of geographically diverse customers, who make up the
Company's customer base. At June 30, 1996 and December 31, 1995, no single
customer accounted for ten percent or more of total accounts receivable.
NET INCOME PER COMMON AND EQUIVALENT SHARE is based on the weighted average
number of common and common equivalent shares outstanding during the
period. Common equivalent shares include common stock options (using the
treasury stock method).
2. INVENTORIES
Inventories consist of the following (in thousands):
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
Finished goods $ 2,020 $ 2,363
Work in process 9,056 7,317
Raw materials 2,597 1,734
-------- -------
$ 13,673 $11,414
======== =======
3. BORROWING ARRANGEMENTS
Under a revolving bank line of credit and security agreement, the Company can
borrow up to 80% of its eligible accounts receivable to a maximum borrowing
of $3.0 million. This operating line of credit expires October 1, 1996.
Borrowings under the line of credit agreement bear interest at prime (8.25%
at June 30,
6
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MICREL, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1996) and are subject to collateralization by substantially all assets of the
Company. The line of credit contains certain restrictive covenants, including
maintenance of a quick ratio of not less than 1.75:1, tangible net worth of
$25 million and a ratio of total debt (less debt subordinated to the bank) to
total net worth of less than 0.75 to 1. The Company must also maintain on a
fiscal year basis a ratio of net after-tax profit plus depreciation and
amortization to current maturities of long-term liabilities and capitalized
leases of not less than 1.5 to 1. In addition, the Company must remain
profitable on a quarterly basis and is prohibited from declaring and paying
dividends without the lender's consent. The Company was in compliance with
its covenants at June 30, 1996. There were no borrowings under this revolving
line of credit at June 30, 1996.
Under the same loan security agreement, the Company has a non-revolving bank
line of credit of $5.0 million for funding purchases of capital equipment.
Amounts borrowed under this credit line may be converted to four-year
installment notes. All equipment notes are collateralized by the equipment
purchased, bear interest of prime and are subject to the same restrictive
covenants as the operating line of credit. The Company has borrowed $2.5
million against the line of which $2.1 million is outstanding at June 30,
1996 and $2.5 million is available to the Company through October 1, 1996.
Under another non-revolving bank line of credit that has expired, the Company
had $1.2 million outstanding at June 30, 1996. The notes are collateralized
by the equipment purchased.
4. SIGNIFICANT CUSTOMERS AND EXPORT SALES
One customer accounted for $3.5 million (12%) of net revenues during the six
months ended June 30, 1996. During the comparable period in 1995, a different
customer accounted for $4.3 million (17%) of net revenues. Export sales were
$11.6 million (40%) of net revenues and $5.4 million (39%) of net revenues
for the first six months of 1996 and 1995, respectively. Export sales are
principally to Asia and Europe.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Micrel was founded in 1978 and was initially engaged in the business of
providing semiconductor test services. In 1981, Micrel expanded its business
operations and began to provide wafer fabrication services and to manufacture
custom integrated circuits for sale to customers. At present, the Company
continues to shift its focus and revenue base from custom and foundry products
to standard products. Standard products sales increased to 65% of net revenues
for the quarter ended June 30, 1996 as compared to 56% for the same period in
the prior year. For the first six months ended June 30, 1996 and 1995, the
Company's standard products sales accounted for 64% and 53% of the Company's net
revenues, respectively. The Company believes that a substantial portion of its
net revenues in the future will depend upon standard products sales.
The Company has experienced and expects to continue to experience fluctuations
in its results of operations. Factors that affect the Company's results of
operations include the volume and timing of orders received, changes in the mix
of products sold, competitive pricing pressures and the Company's ability to
meet increasing demand. 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.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of total
net revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues............................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 49.0 51.0 49.1 51.3
---- ---- ---- ----
Gross margin........................... 51.0 49.0 50.9 48.7
---- ---- ---- ----
Operating expenses:
Research and development............... 12.3 11.5 12.9 12.0
Selling, general and administrative.... 18.8 18.3 18.4 18.0
---- ---- ---- ----
Total operating expenses.......... 31.1 29.8 31.3 30.0
---- ---- ---- ----
Income from operations..................... 19.9 19.2 19.6 18.7
Other income, net.......................... 1.0 1.3 1.2 1.4
---- ---- ---- ----
Income before income taxes................. 20.9 20.5 20.8 20.1
Provision for income taxes................. 7.1 7.2 7.1 7.0
---- ---- ---- ----
Net income................................. 13.8% 13.3% 13.7% 13.1%
==== ==== ==== ====
</TABLE>
Net Revenues. Net revenues increased for the quarter and six months ended June
- - ------------
30, 1996 as compared to the corresponding periods of the prior year. Net
revenues increased 15% to $15.3 million for the quarter
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
ended June 30, 1995 from $13.3 million for the comparable period in 1995. Net
revenues for the first six months of 1996 totaled $29.2 million, an increase of
16% over the $25.2 million level recorded in the same prior year period. The
growth in net revenues on a quarterly and year-to-date basis is due, in part, to
higher standard products revenues which grew to 65% and 64% of net revenues for
the quarter and six months ended June 30, 1996, respectively, from 56% and 53%
for each of the comparable periods in 1995. Sales of standard products by the
Company increased primarily as a result of increased shipments to manufacturers
of portable computing, computing peripherals and industrial products.
International sales represented 41% and 39% of net revenues for the quarters
ended June 30, 1996 and 1995, respectively. Revenues from international sales in
the first six months of 1996 and 1995 accounted for 40% and 34% of net revenues,
respectively. The dollar increase in international sales resulted from shipments
to manufacturers of personal computers and communications products, and
reflected growing demand for the Company's products primarily in Asian markets
and, to a lesser extent, in Europe. If the Company's standard products sales
continue to increase as a percentage of net revenues, the Company believes that
international sales will similarly increase as a percentage of net revenues.
The Company believes that the lessening of demand currently experienced by the
general technology sector is also being experienced by other companies in the
analog segment of the semiconductor industry. The Company's ability to predict
demand in future quarters has been reduced by the increased ability of its
customers to place orders closer to desired shipment dates, which is the result
of the Company's customers reducing their long term purchasing commitments in
response to less predictable demand for their products and increased product
availability in the semiconductor industry. The Company is positioning itself
to respond to these reduced order lead times through faster production cycles.
Gross Margin. Gross margin is affected by the volume of product sales, product
- - ------------
mix, manufacturing utilization, product yields and average selling prices. The
Company's gross margin increased to 51% for the quarter and the six months ended
June 30, 1996 from 49% for the comparable periods in 1995. The improvement in
gross margin reflected an increase in manufacturing efficiency resulting from
greater capacity utilization which was partially offset by an increase in fixed
expense levels associated with the expansion of manufacturing and increased
sales of standard products which carry proportionately higher margins than the
Company's traditional foundry products. In addition, gross margins in the first
six months of the prior year were adversely affected by the low margin sales of
foundry products to one major customer, which have been discontinued.
Research and Development Expenses. Research and development expenses include
- - ---------------------------------
costs associated with the development of new processes and the definition,
design and development of standard products. The Company also 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's research and development expenses increased by approximately $0.4
million, or 27%, to $1.9 million for the quarter ended June 30, 1996 from $1.5
million for the comparable period in 1995. During the first six months of 1996,
research and development expenses increased by $0.8 million or 27%, to $3.8
million from $3.0 million for the comparable period in 1995. The increase in
research and development expenses during 1996 was primarily due to increased
costs associated with design services, prototype wafers and increased
engineering staffing to support the development of new standard products.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
The Company believes that the development and introduction of new standard
products is critical to its future success and expects that research and
development expenses will increase in the future.
Selling, General and Administrative Expenses. Selling, general and
- - --------------------------------------------
administrative expenses increased on a dollar basis to approximately $2.9
million or 19% of net revenues for the second quarter in 1996 from $2.4 million
or 18% of net revenues for the comparable period in 1995. For the six months
ended June 30, 1995, these expenses increased on a dollar basis by $0.9 million
or 21% to $5.4 million from $4.5 million for the same period in 1995 while
remaining unchanged on a percentage basis at 18% of net revenues for the six
months ended June 30, 1996 and 1995 The dollar increase was principally
attributable to higher commissions, compensation, and other sales and marketing
and promotion expenses associated with the growth of the Company's sales
organization to support continuing revenue growth.
Other Income, Net. Other income, net reflects interest income realized by the
- - -----------------
Company from the investment of cash balances in short-term investment grade
securities, which is partially offset by interest incurred by the Company on its
line of credit borrowings and term notes. Other income, net decreased by $13,000
to $157,000 for the quarter ended June 30, 1996 from $170,000 for the comparable
prior year period. For the six months ended June 30, 1996, other income, net
decreased slightly to $351,000 from $361,000 for the comparable period in 1995.
During both the quarter and six months ended June 30, 1996, interest income
declined slightly due to a decrease in average investment balances and related
interest rates coupled with an increase in average borrowings and related costs
of funds.
Provision for Income Taxes. For the quarter and six months ended June 30, 1996
- - --------------------------
the provision for taxes on income was approximately $1.1 million and $2.1
million, respectively, or 34% of income before provision for taxes for both such
periods. The provision for taxes on income for the second quarter and first six
months of 1995 was $1.0 million and $1.8 million, respectively, or 35% of income
before provision for taxes, for both such periods. The income tax provision for
interim periods reflects the Company's estimated annual income tax rate. The
1996 income tax provision differs from taxes computed at the federal statutory
rate due to the effect of state taxes offset by the benefit from the foreign
sales corporation established by the Company in the first quarter of 1995, state
research and experimentation credits and state manufacturing credits. Such
difference in 1995 was due to the effect of state taxes offset in part by the
benefit of research and experimentation credits.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's principal sources of funding have been its cash
from operations, a bank line of credit and sales of common stock. Principal
sources of funding at June 30, 1996 consisted of cash and short-term investments
of $15.0 million and a borrowing facility consisting of (i) $3.0 million under a
revolving line of credit, of which all was unused and available, and (ii) $5.0
million under a non-revolving line of credit, of which $2.5 million was unused
and available. The revolving and non-revolving lines of credit are covered by
the same loan and security agreement. This agreement, expires on October 1,
1996, subject to automatic renewal on a month to month basis thereafter unless
terminated by either party upon 30 days notice. This agreement is collateralized
by substantially all of the Company's assets and contains restrictive covenants
that apply to both the revolving and non-revolving lines of credit, including
maintenance of a quick ratio of not less than 1.75:1, tangible net worth of $25
million and a ratio of total debt (less debt subordinated to the bank) to total
net worth of less than 0.75 to 1. The Company must also maintain on a fiscal
year basis a ratio of net after-tax profit plus depreciation and amortization to
current maturities of long-term liabilities and capitalized leases of not less
than 1.5 to 1. In addition, the Company
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
must remain profitable on a quarterly basis and is prohibited from declaring and
paying dividends without the lender's consent. The Company was in compliance
with these covenants at June 30, 1996.
The Company's working capital increased by $0.9 million to $29.4 million as of
June 30, 1996 from $28.5 million as of December 31, 1995. The increase was
primarily attributable to increases in inventories partially offset by increases
in accounts payable. The Company's working capital was principally invested in
short-term investment grade, interest-bearing securities.
The Company's operating activities provided net cash of approximately $5.2
million for the quarter ended June 30, 1996 as net income, adjusted for non-cash
items, and increases in accounts payable and decreases in accounts receivable
were partially offset by increases in inventories and prepaid expenses. Cash
provided by operations totaled approximately $0.9 million for the six months
ended June 30, 1995 as net income, adjusted for non-cash items totaled $4.2
million, and increases in accounts payable, accrued expenses and deferred
revenue more than offset increases in accounts receivable and inventories and a
reduction in the income tax liability.
The Company's investing activities during the six months ended June 30, 1996
used cash of approximately $4.0 million as net cash provided by operating
activities and $11.3 million of maturing short-term investments were used to
purchase $11.1 million of short-term investments and $4.2 million of equipment
and leasehold improvements.
Financing activities during the six months ended June 30, 1996 provided cash of
approximately $16,000 as $707,000 in proceeds from the issuance of common stock
through the exercise of stock options more than offset principle payments on
long-term debt of $691,000.
The Company currently intends to spend up to approximately $8.0 million through
mid-1997 primarily for the purchase of additional wafer and test manufacturing
equipment and leasehold improvements. The Company expects that its cash
requirements through mid-1997 will be met by its existing cash balances and
short-term investments, cash from operations and its existing credit facilities.
FACTORS THAT MAY AFFECT OPERATING RESULTS
The statements contained in this Report on Form 10-Q that are not purely
historical are 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, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. Forward looking statements
include: statements regarding future products or product development; statements
regarding future research and development spending and the Company's product
development strategy; and statements regarding the levels of international
sales. All forward looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward looking statements. It is important to
note that the Company's actual results could differ materially from those in
such forward looking statements. Some of the factors that could cause actual
results to differ materially are set forth below.
The Company has experienced and expects to continue to experience fluctuations
in its results of operations. Factors that affect the Company's results of
operations include the volume and timing of orders received, changes in the mix
of products sold, market acceptance of the Company's and its
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
customers' products, competitive pricing pressures, the Company's ability to
meet increasing demand, the Company's ability to introduce new products on a
timely basis, the timing of new product announcements and introductions by the
Company or its competitors, changing customer requirements, delays in new
product qualifications, the timing and extent of research and development
expenses, fluctuations in manufacturing yields, cyclical semiconductor industry
conditions, the Company's access to advanced process technologies and the timing
and extent of process development costs. 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 Company is currently transitioning its business to rely more heavily on the
sale of standard products. The Company believes that a substantial portion of
its net revenues in the future will depend upon standard products sales. As
compared with the custom and foundry products business, the standard products
business is characterized by shorter product lifecycles, greater pricing
pressure, larger competitors and more rapid technological change. Generally, the
standard products market is a rapidly changing market in which the Company faces
the risk that, as the market changes, its product offerings will become
obsolete. The Company competes in the standard products market with established
companies, most of which have substantially greater financial, engineering,
manufacturing and marketing resources than the Company. No assurance can be
given that the Company will be able to compete successfully in the standard
products market or that it will be able to successfully introduce new standard
products in the future. The failure of the Company to compete successfully in
the standard products business would materially and adversely affect the
Company's financial condition and results of operations.
The analog semiconductor industry is highly competitive and subject to rapid
technological change. Significant competitive factors in the analog market
include product features, performance, price, the timing of product
introductions, the emergence of new computer standards, quality and customer
support. Because the standard products market for analog integrated circuits is
diverse and highly fragmented, the Company encounters different competitors in
its various market areas. Most of these competitors have substantially greater
technical, financial and marketing resources and greater name recognition than
the Company. Due to the increasing demands for analog circuits, the Company
expects intensified competition from existing analog circuit suppliers and the
entry of new competition, including companies from Japan. Increased competition
could adversely affect the Company's financial condition or results of
operations. There can be no assurance that the Company will be able to compete
successfully in either the standard products or custom and foundry products
business in the future or that competitive pressures will not adversely affect
the Company's financial condition and results of operations.
The fabrication of integrated circuits is a highly complex and precise process.
Minute impurities, contaminants in the manufacturing environment, difficulties
in the fabrication process, defects in the masks used to print circuits on a
wafer, manufacturing equipment failures, wafer breakage or other factors can
cause a substantial percentage of wafers to be rejected or numerous die on each
wafer to be nonfunctional. Moreover, there can be no assurance that the Company
will be able to maintain acceptable manufacturing yields in the future.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. There can be no assurance that
these existing claims or any other assertions (or claims for indemnity resulting
from infringement claims) will not materially adversely affect the Company's
business, financial condition and results of operations.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
The Company's future success depends in part upon its intellectual property,
including patents, trade secrets, expertise and continuing technology
innovation. There can be no assurance that the steps taken by the Company to
protect its intellectual property will be adequate to prevent misappropriation
or that others will not develop competitive technologies or products. There can
be no assurance that any patent owned by the Company will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's pending or
future patent applications will be issued with the scope of the claims sought by
the Company, if at all. Furthermore, there can be no assurance that others will
not develop technologies that are similar or superior to the Company's
technology, duplicate the Company's technology or design around the patents
owned by the Company.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain claims and lawsuits have arisen against the Company in its normal course
of business. The Company believes that these claims and lawsuits will not have a
material adverse effect on the Company's financial position, cash flow or
results of operation.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 16, 1996 at 10:00
a.m., pacific daylight time, at its principal corporate offices located at 1931
Fortune Drive, San Jose, California. The Annual Meeting was held for the purpose
of (a) electing the Board of Directors, (b) ratifying and approving an amendment
to the Micrel, Incorporated 1994 Stock Option Plan to increase the number of
shares reserved for issuance thereunder from 1,482,334 shares to 2,482,334
shares, (c) ratifying and approving the Company's independent auditors for the
fiscal year ending December 31, 1996 and (d) transacting other business as may
properly come before the Annual Meeting. The three matters below were voted upon
and approved:
Matter No. 1 - Election of Board of Directors:
The following persons were duly elected to the Board for the ensuing year and
until their successors are elected:
NOMINATION FOR ABSTAINED
------------------- --------- ---------
Raymond D. Zinn 7,498,678 105,951
Warren H. Muller 7,508,678 95,951
Larry L. Hansen 7,508,678 95,951
George Kelly 7,508,678 95,951
Dale L. Peterson 7,508,478 96,151
Matter No. 2 - Ratification of the amendment to the Micrel, Incorporated 1994
Stock Option Plan to increase the number of shares reserved for issuance
thereunder from 1,482,334 shares to 2,482,334 shares:
NOMINATION FOR AGAINST ABSTAINED
- - ------------------------- --------- --------- ---------
Amendment to 1994 Plan 5,725,890 1,021,787 25,031
Matter No. 3 - Ratification of the Appointment of Deloitte & Touche LLP as the
Independent Auditors for the Fiscal Year Ending December 31, 1996:
NOMINATION FOR AGAINST ABSTAINED
- - ------------------------ --------- ------- ---------
Deloitte & Touche LLP 7,591,929 730 11,970
14
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
---------
Exhibit
Number Description Page(s)
- - ---------- -------------------------------------------------------- -------
11.1 Statement Regarding Calculation of Net Income Per Share. 17
27.0 Financial Data Schedule 18
(b) Reports on Form 8-K. The Company did not file any Reports on Form 8-K
-------------------
during the quarter ended June 30, 1996.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICREL, INCORPORATED
--------------------
(Registrant)
Date: July 29, 1996 By /S/ ROBERT J. BARKER
---------------------
Robert J. Barker
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
16
<PAGE>
EXHIBIT 11.1
MICREL, INCORPORATED
COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
(In thousands except per share data)
----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 9,095 8,667 9,037 8,659
Dilutive effect of stock options. 837 1,282 901 1,259
------ ------ ------ ------
Number of shares used in computing per
share amounts 9,932 9,949 9,938 9,918
====== ====== ====== ======
Net income $2,112 $1,773 $4,005 $3,287
====== ====== ====== ======
Net income per common and equivalent
share $ 0.21 $ 0.18 $ 0.40 $ 0.33
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,077
<SECURITIES> 11,943
<RECEIVABLES> 8,702
<ALLOWANCES> 0
<INVENTORY> 13,673
<CURRENT-ASSETS> 39,881
<PP&E> 13,980
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,464
<CURRENT-LIABILITIES> 10,456
<BONDS> 0
0
0
<COMMON> 19,868
<OTHER-SE> 20,872
<TOTAL-LIABILITY-AND-EQUITY> 54,464
<SALES> 29,227
<TOTAL-REVENUES> 29,227
<CGS> 0
<TOTAL-COSTS> 14,363
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,069
<INCOME-TAX> 2,064
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,005
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.40
</TABLE>
