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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
no par value
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 1997, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $215,539,362 based
upon the closing sales price of the Common Stock as reported on the Nasdaq
National Market on such date. Shares of Common Stock held by officers,
directors and holders of more than ten percent of the outstanding Common Stock
have been excluded from this calculation because such persons may be deemed to
be affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of February 28, 1997, the Registrant had outstanding 9,385,793 shares of
Common Stock.
------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated by reference in this
report: Registrant's Proxy Statement for its 1997 Annual Meeting of
Shareholders (Part III).
This Report on Form 10-K includes 58 pages with the Index to Exhibits
located on pages 25 to 26.
MICREL, INCORPORATED
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1996
Page
PART I
Item 1 Business 3
Item 2 Properties 13
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
PART II
Item 5 Market for the Registrant's Common Equity and Related
Shareholder Matters 14
Item 6 Selected Financial Data 15
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8 Financial Statements and Supplementary Data 22
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 22
PART III
Item 10 Directors and Executive Officers of the Registrant 23
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial Owners
and Management 24
Item 13 Certain Relationships and Related Transactions 24
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 25
Signatures 43
2
PART I
ITEM 1. BUSINESS
General
The Company was incorporated in California in July 1978. References to the
"Company" and "Micrel" refer to Micrel, Incorporated, which also does business
as Micrel Semiconductor. The Company's principal executive offices are located
at 1849 Fortune Drive, San Jose, California 95131. The Company's telephone
number is (408) 944-0800.
Micrel designs, develops, manufactures and markets a range of high-
performance analog integrated circuits. The Company currently ships over 800
standard products and has derived the majority of its standard products revenue
for the year ended December 31, 1996 from sales of analog integrated circuits
for power management. These circuits are used in a wide variety of electronic
products, including those in the communications, computer and industrial
markets. The Company's standard products business has represented the Company's
most rapidly growing revenue source. For the years ended December 31, 1996,
1995, and 1994, the Company's standard products accounted for 66%, 56% and 50%,
respectively, of the Company's net revenues. In addition, the Company
manufactures custom analog and mixed-signal circuits and provides wafer foundry
services for a diverse range of customers who produce electronic systems for
communications, consumer and military applications. The Company manufactures all
of its products at its wafer fabrication facility in San Jose, California.
Recent trends in the communications and computing markets have created
increased demand for power analog circuits, which control, regulate, convert and
route voltage and current in electronic systems. This demand for power analog
circuits has been fueled by the recent growth of battery powered cellular
telephones and computing devices and the emergence of lower voltage
microprocessors and Personal Computer Memory Card International Association
("PCMCIA") standards for peripheral devices. Micrel's standard products business
is focused on addressing this demand for high-performance power analog circuits.
The Company sells a wide range of regulators, references and switches designed
for cellular telephones and laptop computers. The Company believes it was one of
the first companies to offer analog products for the PCMCIA Card market and that
it currently provides a majority of the power analog circuits used in PC Card
sockets. The end-users of the Company's power analog circuits include Compaq,
Ericsson, NEC and Nokia. The Company also offers standard products that address
other markets, including power supplies and automotive, industrial, defense and
avionics electronics.
In addition to standard products, Micrel offers customers various
combinations of design, process and foundry services. Through interaction with
customers in its custom and foundry business, the Company has been able to
enhance its design and process technology capabilities, which in turn provides
engineering and marketing benefits to its standard products business.
Industry Background
Analog Circuit Market
Integrated circuits may be divided into three general categories - digital,
analog (also known as "linear") and mixed-signal. Digital circuits, such as
memories and microprocessors, process information in the form of on-off
electronic signals and are capable of implementing only two values ("1" or "0",
or "on" or "off"). Analog circuits, such as regulators, converters and
amplifiers, process information in the form of continuously varying voltages and
currents that have an infinite number of values or states. Analog circuits
condition, process, measure or control real world variables such as current,
sound, temperature, pressure or speed. Mixed-signal integrated circuits combine
analog and digital functions on one chip.
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Analog circuits are used in virtually every electronic system, and the
largest markets for such circuits are computers, telecommunications and data
communications, industrial equipment, and military, consumer and automotive
electronics. Because of their numerous applications, analog circuits have a wide
range of operating specifications and functions. For each application, different
users may have unique requirements for circuits with specific resolution,
processing linearity, speed, power and signal amplitude capability. Such
differentiation results in a high degree of market fragmentation, which provides
smaller companies an opportunity to compete successfully against larger
suppliers in certain market segments.
As compared with the digital integrated circuit industry, the analog
integrated circuit industry has the following important characteristics:
- Dependence on Individual Design Teams. The design of analog circuits
involves the complex and critical placement of various circuits. Computer-
aided design is less effective for analog devices. Analog circuit design
has traditionally been highly dependent on the skills and experience of
individual design engineers.
- Interdependence of Design and Process. Analog designers, especially at
companies having their own wafer fabrication facility ("fab"), are able to
select from several wafer fabrication processes in order to achieve higher
performance and greater functionality from their designs.
- Longer Product Cycles and More Stable Pricing. Analog circuit manufacturers
offer a greater variety of circuits to a more diverse group of customers,
in a market characterized by greater fragmentation emphasizing
performance, functional value, quality and reliability. Analog circuits
generally have longer product cycles as compared to digital circuits. As a
result, analog circuit pricing has historically been more stable than most
digital circuit pricing.
- Reduced Capital Requirements. As compared to digital circuits, analog
circuits are produced with larger line width geometries in wafer
fabrication facilities that are significantly less costly than state-of-
the-art digital fabrication facilities. The wafer fabrication facilities
for analog circuits generally utilize capital equipment that is less
subject to obsolescence than the capital equipment utilized in digital
fabrication facilities.
Analog circuits are sold to customers as either standard products or custom
products. Standard products are available to customers "off-the-shelf" and are
often sold in large volumes to a wide variety of customers in different
industries. Custom products are designed to an individual customer's
specifications.
Recent Trends in Analog Power Management
Most electronic systems utilize analog circuits to perform power management
functions ("power analog circuits") such as the control, regulation, conversion
and routing of voltages and current. The computer and communications markets
have emerged as two of the largest markets for power analog circuits. In
particular, the recent growth and proliferation of portable, battery powered
devices, such as cellular telephones and laptop computers, have increased demand
and created new technological challenges for power analog circuits.
Cellular telephones, which are composed of components and subsystems that
utilize several different voltage levels, require multiple power analog circuits
to precisely regulate and control voltage. Manufacturers are replacing
traditional pass regulators with higher performance low dropout ("LDO")
regulators to lengthen battery life and are utilizing smaller, more highly
integrated power analog circuits, such as regulators and references.
4
Certain trends in personal computers and other computing devices have also
increased market demand and created new requirements for power analog circuits.
One major trend is the advent of lower voltage microprocessors, such as Intel's
Pentium product. These lower voltage microprocessors reduce power consumption,
thereby prolonging battery life for portable and desktop personal computers.
These mixed voltage personal computers require multiple LDO regulators to manage
power in the system. Another recent trend is the emergence of PCMCIA standards
that require rugged components and a voltage protection capability, thereby
creating new specifications for higher performance power analog switches.
Micrel's Strategy
Micrel seeks to capitalize on the growth opportunities within the high
performance analog semiconductor market. The Company's core competencies are its
analog design and process technology, its large, in-house wafer fabrication
capability and its manufacturing expertise. The Company intends to build a
leadership position in its targeted markets by pursuing the following
strategies:
- Focus on Standard Products for High Growth Markets. Currently, Micrel
ships over 800 standard products, with net revenues from standard products
generating 66% of the Company's net revenues for the year ended December
31, 1996. Micrel intends to continue to transition to standard products
and believes that its long-term growth will depend substantially on its
ability to increase standard products sales in its existing markets and to
penetrate new standard products markets. The Company, however, will from
time to time pursue additional custom and foundry business as
opportunities arise.
- Target Power Analog Circuit Markets. Micrel has leveraged its expertise in
analog circuits by addressing market opportunities in cellular telephones,
battery powered computers and desktop personal computers. A majority of
the Company's standard products net revenues for the year ended December
31, 1996 were derived from standard products relating to power management.
- Maintain Technological Leadership. The Company seeks to utilize its design
strengths and its process expertise to enhance what the Company believes
are its competitive advantages in LDO regulators and PCMCIA sockets
devices. In order to maintain its technology leadership, the Company has
developed plans for successive generations of products with increased
functionality.
- Capitalize on In-house Wafer Fab. The Company believes that its in-house
wafer fab provides a significant competitive advantage because it
facilitates close collaboration between design and process engineers in
the development of the Company's products. The Company intends to expand
its manufacturing capacity by adding additional equipment and employees at
its fabrication facility.
- Maintain a Strategic Level of Custom and Foundry Products Revenue. Micrel
believes that its custom and foundry products business complements its
standard products business by generating a broader revenue base and
lowering overall per unit manufacturing costs through greater utilization
of its fab. Through interaction with customers, Micrel has been able to
enhance its design and process technology capabilities.
Products and Markets
Overview
The following table sets forth the net revenues attributable to the
Company's standard products and its custom and foundry products expressed in
dollars and as a percentage of total net revenues.
5
Net Revenues by Product Category
(dollars in thousands)
Year Ended December 31,
----------------------------
1996 1995 1994
-------- -------- --------
Net Revenue Data:
Standard Products $ 43,530 $ 29,576 $ 17,927
Custom and Foundry Products 22,714 23,459 18,014
-------- -------- --------
Total net revenues $ 66,244 $ 53,035 $ 35,941
======== ======== ========
As a Percentage of Total Net Revenue:
Standard Products 66% 56% 50%
Custom and Foundry Products 34 44 50
-------- ------- -------
Total net revenues 100% 100% 100%
======== ======== ========
For a discussion of the changes in net revenues from period to period, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Standard Products
In recent years, the Company has directed a majority of its development,
sales and marketing efforts towards standard products in an effort to address
the larger markets for these products and to broaden its customer base. The
Company offers power analog circuits that address certain high growth markets
including cellular telephones, battery powered computers and desktop personal
computers. The Company's remaining standard products address other markets,
including power supplies and automotive, industrial, defense and avionics
electronics.
Cellular Telephone Market. Micrel offers a range of power control and
regulating analog circuits to address the demand for cellular telephones with
longer battery lives. Micrel also provides a range of high performance LDO
regulators that convert, regulate, switch and control the DC voltages used in
cellular telephones. Micrel's SuperBeta PNP TM LDO regulators enable cellular
telephones to continue to operate effectively until the battery is almost
completely exhausted. Micrel products are designed to reduce board space and
decrease system cost. In addition, Micrel offers switch mode power supply
("SMPS") regulators that convert AC to useable DC power in battery chargers and
cellular base stations. The major end-users of the Company's products in the
cellular telephone market include Ericsson Mobile Communications, Inc., Nokia
and Qualcomm.
PCMCIA Card and Socket Markets. The Personal Computer Memory Card
International Association, of which Micrel is a member, has established
standards for personal computer cards that are the size of credit cards and for
sockets that allow insertion of such cards into personal computers. Micrel
believes that it is a leader in the design and manufacture of integrated
circuits that enable PC Card sockets to have such compatibility.
Portable Battery Powered Computer Market. The Company makes power analog
circuits for laptop, palmtop computers and pocket organizers. Products in this
growing segment are differentiated on the basis of power efficiency, weight,
small size and battery life. Micrel has developed a family of 95% efficient SMPS
controllers that it believes to be one of the leading solutions for these
applications.
Power Supply Market. Most electronic equipment includes a power supply that
converts and regulates the electrical power source into usable current for the
equipment. In addition to SMPS controllers and single chip SMPS circuits, Micrel
offers a full line of MOSFET drivers, references, LDOs and Super LDOs.
Automotive Electronics Market. Micrel's LDO products, including the line of
monolithic SuperBeta PNP TM LDO regulators, have been designed in for such
automotive controller applications and safety features as
6
automotive airbags and antilock brake systems. Micrel is developing several
other products for the automotive electronic market. During each of the years
ended December 31, 1996, 1995, and 1994, the automotive electronics market
represented less than 2% of net revenue.
General Purpose Analog. During 1996, Micrel introduced a variety of general
purpose analog products including timers, op-amps, and a family of intelligent
controlled one and two amp switches. These products were focused on the low
voltage and low current applications.
The Company's future success will depend in part upon the timely
completion, introduction, and market acceptance of new standard products. As
compared with the Company's 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 its product offerings will quickly become
obsolete. The success of new standard products depends on a variety of factors,
including product selection, successful and timely completion of product
development, achievement of acceptable manufacturing yields by the Company's
foundry and the Company's ability to offer products at competitive prices.
Micrel's new products are generally incorporated into a customer's products
or systems at the design stage. The value of any design win largely depends upon
the commercial success of the customer's product and on the extent to which the
design of the customer's electronic system accommodates incorporation of
components manufactured by the Company's competitors. In addition, products or
systems may be subsequently redesigned so that they no longer require the
Company's products. No assurance can be given that the Company will achieve
design wins or that any design win will result in future revenues. The failure
of the Company to achieve design wins would materially and adversely affect the
Company's financial condition and results of operations.
Custom and Foundry Products
Micrel offers customers various combinations of design, process and foundry
services in order to provide them with the following alternatives:
- Full Service Custom - Based on a customer's specification, Micrel
designs and then manufactures integrated circuits for the customer.
- Custom and Semi-Custom - Based on a customer's high level or partial
circuit design, Micrel uses varying levels of its design and process
technologies to complete the design and then manufactures integrated
circuits for the customer.
- R&D Foundry - Micrel modifies a process or develops a new process for a
customer. Using that process and mask sets provided by the customer,
Micrel manufactures fabricated wafers for the customer.
- Foundry - Micrel duplicates a customer's process to manufacture
fabricated wafers designed by the customer.
Micrel's full service custom, custom and semi-custom products primarily
address consumer and military applications and use both analog and digital
technologies. The military applications include communications, transport
aircraft and cruise missile technology.
With respect to R&D foundry and other foundry products, Micrel provides
wafers to a variety of companies as well as to the military. The Company
believes that the foundry business reduces somewhat the Company's
7
sensitivity to fluctuations in its standard products markets as the Company's
foundry customers are often in different markets that are not affected by the
same business cycles.
Sales, Distribution and Marketing
The Company sells its standard products through a worldwide network of
independent sales representative firms and distributor firms and through a
direct sales staff. The Company currently utilizes 23 independent sales
representative firms at 36 locations in the United States and Canada. The
Company currently utilizes four national distributor firms, and eight regional
distributor firms with a combined total of over 160 locations. In the year ended
December 31, 1996, sales through North American distributor firms accounted for
11% of the Company's net revenues. As the Company continues its transition to
standard products, the Company believes that its sales through representative
firms and distributor firms will be increasingly important and will account for
an increasing percentage of the Company's net revenues.
The Company sells its products in Europe through a direct sales staff in
England as well as independent sales representative firms, independent
distributors and independent stocking representative/distributor firms. Asian
sales are handled through independent stocking representative/distributor firms.
The stocking representatives/distributor firms may buy and stock the Company's
products for resale or may act as the Company's agent in arranging for direct
sales from the Company to an OEM customer.
Sales to customers in North America, Europe and Asia accounted for 59%, 11%
and 30%, respectively, of the Company's net revenues for the year ended December
31, 1996 compared to 66%, 12% and 22%, respectively, of the Company's net
revenues for 1995 and 70%, 11% and 19%, respectively, of the Company's net
revenues for 1994. The Company's standard products are sold throughout the
world, while its custom and foundry products primarily are sold to North
American customers with limited sales to European customers which began during
1996.
The Company's international sales are primarily denominated in U.S.
currency. Consequently, changes in exchange rates that strengthen the U.S.
dollar could increase the price in local currencies of the Company's products in
foreign markets and make the Company's products relatively more expensive than
competitors' products that are denominated in local currencies, leading to a
reduction in sales or profitability in those foreign markets. The Company has
not taken any protective measures against exchange rate fluctuations, such as
purchasing hedging instruments with respect to such fluctuations.
Customers
For the year ended December 31, 1996, one custom products customer,
Lexmark, accounted for 11% of the Company's net revenues. For the year ended
December 31, 1995, no single customer accounted for ten percent or more of the
Company's net revenues. For the year ended December 31, 1994, one custom
products customer, Motorola, accounted for approximately 14% of the Company's
net revenues.
Design and Process Technology
Micrel's proprietary design technology depends on the skills of its analog
design team. The Company has experienced analog design engineers who utilize an
extensive macro library of analog and mixed-signal circuits and computer
simulation models.
8
Micrel can produce integrated circuits using a variety of manufacturing
processes, some of which are proprietary and provide enhanced product features.
Designers at companies that do not have in-house fabs or have a limited
selection of available processes often have to compromise design methodology in
order to match process parameters.
The Company utilizes the following process technologies:
- Bipolar - Bipolar technology is one of the oldest technologies. It is
utilized where precision analog elements are required.
- SuperBeta PNP TM - The Company's proprietary SuperBeta PNP TM process
technology allows power transistors to be driven with much lower current
as compared to conventional PNP Bipolar technology, which gives such
transistors a competitive advantage.
- CMOS - CMOS technology is the technology most widely used in digital
applications. It has the advantages of low power consumption and high
packing density.
- BiCMOS - Bipolar/CMOS ("BiCMOS") merges the Bipolar and CMOS technologies
and offers the benefits of both technologies. This process, however, adds
more expense to a product.
- BCD - Bipolar/CMOS/DMOS ("BCD") merges three technologies, Bipolar, CMOS
and DMOS. DMOS is best suited for handling high current and is used in the
output section of the circuit. BCD combines the high speed, ruggedness and
power of DMOS and the benefits of BiCMOS.
Research and Development
The ability of the Company to compete will be substantially dependent on
its ability to define, design, develop and introduce on a timely basis new
products offering design or technology innovations. Research and development in
the analog integrated circuit industry is characterized primarily by circuit
design and product engineering that enables new functionality or improved
performance. The Company's research and development efforts are also directed at
its process technologies and focus on cost reductions to existing manufacturing
processes and the development of new process capabilities to manufacture new
products and add new features to existing products. With respect to more
established products, the Company's research and development efforts also
include product redesign, shrinkage of device size and the reduction of mask
steps in order to improve yields per wafer and reduce per device costs.
The Company's design engineers principally focus on developing next
generation standard products. The Company's new product development strategy
emphasizes a broad line of standard products that are based on customer input
and requests. The Company often develops new standard products with the
cooperation of customers in order to better ensure market acceptance. The
Company is currently developing products to expand its line of PCMCIA switches,
SMPS regulators, LDOs and MOSFET drivers.
In 1996, 1995, and 1994 the Company spent approximately $8.6 million, $6.5
million, and $3.8 million, respectively, on research and development. The
Company expects that it will continue to spend substantial funds on research and
development activities. The Company is currently developing, and may in the
future develop, certain types of standard products with which the Company has
only limited experience. Certain of these new standard products will be targeted
at emerging market segments in which the Company has not previously
participated. Additionally, there can be no assurance that the Company will be
able to identify new standard product opportunities successfully and develop and
bring to market such new products or that the Company will be able to respond
effectively to new technological changes or new product announcements by others.
9
Patents and Intellectual Property Protection
The Company seeks patent protection for those inventions and technologies
for which such protection is suitable and is likely to provide competitive
advantage to the Company. The Company currently holds 24 United States patents
on semiconductor devices and methods, with various expiration dates. The Company
has applications for seven filed United States patents currently pending. The
Company holds no issued foreign patents and has applications for 24 foreign
patents pending. In addition to the filed patent applications, there are two
unfiled U.S. patent applications in process and six foreign, unfiled patent
applications in process. The Company has also routinely protected its numerous
original mask sets under mask work laws. 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
issue or will be issued with the scope of the claims sought by the Company.
Notwithstanding the Company's active pursuit of patent and mask work protection,
the Company believes that its future success will depend primarily upon the
technical expertise, creative skills and management abilities of its officers
and key employees rather than on patent and copyright ownership.
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. To the extent that the
Company becomes involved in such intellectual property litigation, it could
result in substantial costs and diversion of resources to the Company and could
have a material adverse effect on the Company's results of operations or
financial condition.
On May 9, 1994, Linear Technology Corporation ("Linear"), a competitor of
the Company, filed a complaint against the Company, entitled "Linear Technology
Corporation v. Micrel, Incorporated," in the United States District Court in San
Jose, California, alleging patent and copyright infringement and unfair
competition. All claims, except the patent infringement claim, have been settled
or dismissed. In this lawsuit, Linear claims that two of the Company's products
infringe one of Linear's patents. The complaint in the lawsuit seeks unspecified
compensatory damages, treble damages and attorneys' fees as well as preliminary
and permanent injunctive relief against infringement of the Linear patent at
issue. The Company has asserted defenses of invalidity and unenforceability of
the Linear patent at issue, as well as noninfringement of such patent. The
Company believes that the ultimate outcome of this action will not result in a
material adverse effect on the Company's financial condition, cash flow or
results of operation. However, litigation is subject to inherent uncertainties,
and no assurance can be given that the Company will prevail in such litigation.
Accordingly, any such litigation could result in substantial costs and diversion
of resources and could have a material adverse effect on the Company's results
of operations or financial condition. In addition, Linear has previously
notified the Company that certain of the Company's products may infringe other
Linear patents.
Supply of Materials and Purchased Components
Micrel currently purchases certain components from a limited group of
vendors. The packaging of the Company's products which is performed by, and
certain of the raw materials included in such products are obtained from a
limited group of suppliers. For example, four inch silicon substrates, which are
a key ingredient in the Company's products, are currently available from four
suppliers and are subject to long ordering lead times. Although the Company
seeks to reduce its dependence on its sole and limited source suppliers,
disruption or termination of any of these sources could occur and such
disruptions could have at least a temporary adverse effect on the Company's
financial condition or results of operations. The Company has rarely experienced
delays in obtaining raw materials, which have adversely affected production.
10
Manufacturing
All of Micrel's wafers are manufactured at its facility in San Jose,
California. This 57,000 square foot office and manufacturing facility contains
an 18,000 square foot clean room facility, which provides all production
processes. The San Jose facility is classified as a Class 10 facility (the
facility achieves a clean room level of fewer than 10 foreign particles larger
than 0.5 microns in size in each cubic foot of space). In the third quarter of
1996, the Company began an expansion of the wafer fabrication clean room to
24,800 square feet. In addition, the Company began purchasing equipment that
will allow the processing of six inch wafers and allow process lithography as
small as one micron. In February 1995, the Company leased approximately 63,000
square feet of additional adjacent space in San Jose and began using the
structure as a testing facility in June 1995.
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 failure, wafer breakage or other
factors can cause a substantial percentage of wafers to be rejected or numerous
die on each wafer to be nonfunctional. There can be no assurance that the
Company in general will be able to maintain acceptable manufacturing yields in
the future.
Generally, each die on the Company's wafers is electrically tested for
performance, and most of the wafers are subsequently sent to independent
assembly contract facilities in Taiwan and other Asian countries. At such
facilities, the wafers are separated into individual circuits and packaged. The
Company's reliance on independent assemblers may subject the Company to longer
manufacturing cycle times. The Company from time to time has experienced
competition with respect to these contractors from other manufacturers seeking
assembly of circuits by independent contractors. Although the Company currently
believes that alternative foreign assembly sources could be obtained without
significant interruption, there can be no assurance that such alternative
sources could be obtained quickly.
The Company manufactures all of its products at one wafer fabrication
facility. Given the nature of the Company's products, it would be difficult to
arrange for independent manufacturing facilities to supply such products. Any
prolonged inability to utilize the Company's manufacturing facility as a result
of fire, natural disaster or otherwise, would have a material adverse effect on
the Company's financial condition and results of operations.
Competition
The analog semiconductor industry is highly competitive and subject to
rapid technological change. Significant competitive factors in the analog market
for standard products include product features, performance, price, the timing
of product introductions, the emergence of new computer standards, quality and
customer support. The Company believes that it competes favorably in all these
areas.
Because the standard products market for analog integrated circuits is
diverse and highly fragmented, the Company encounters different competitors in
its various market areas. The Company's principal competitors include Linear
Technology Corporation and National Semiconductor Corporation in one or more of
its product areas. Other competitors include Texas Instruments, Motorola, Maxim
Integrated Products, Inc. and certain Japanese manufacturers. Each of these
companies has 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 competitors, including companies
from Japan.
With respect to the custom and foundry products business, significant
competitive factors include product quality and reliability, established
relationships between customers and suppliers, timely delivery of products and
price. The Company believes that it competes favorably in all these areas. The
Company's principal competitors in
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the custom and foundry products business include American Microelectronics,
Inc., Callogic Corporation and certain local foundry companies.
Backlog
At December 31, 1996, the Company's backlog was approximately $21.6
million. All of the $21.6 million year-end 1996 backlog is scheduled to be
shipped during the first six months of 1997. At December 31, 1995, the Company's
backlog was approximately $15.1 million. Orders in backlog are subject to
cancellation or rescheduling by the customer, generally with a cancellation
charge in the case of custom and foundry products. The Company's backlog
consists of distributor and customer released orders required to be shipped
within six months. Shipments to United States and Canadian distributors are not
recognized as revenue by the Company until the product is sold from the
distributor stock and through to the end-users. Because of possible changes in
product delivery schedules and cancellation of product orders and because the
Company's sales will often reflect orders shipped in the same quarter that they
are received, the Company's backlog at any particular date is not necessarily
indicative of actual sales for any succeeding period.
Environmental Matters
Federal, state and local regulations impose various environmental controls
on the storage, handling, discharge and disposal of chemicals and gases used in
the Company's manufacturing process. The Company believes that its activities
conform to present environmental regulations. Increasing public attention has,
however, been focused on the environmental impact of semiconductor operations.
While the Company has not experienced any materially adverse effects on its
operations from environmental regulations, there can be no assurance that
changes in such regulations will not impose the need for additional capital
equipment or other requirements or restrict the Company's ability to expand its
operations. Any failure by the Company to adequately restrict the discharge of
hazardous substances could subject the Company to future liabilities or could
cause its manufacturing operations to be suspended.
Employees
As of December 31, 1996, the Company had 409 full-time employees. The
Company's employees are not represented by any collective bargaining agreements,
and the Company has never experienced a work stoppage. The Company believes that
its employee relations are good.
12
ITEM 2. PROPERTIES
The Company's main executive, administrative, manufacturing and technical
offices are located in a 57,000 square foot facility in San Jose, California
under a lease which expires in May 2005. The Company fabricates its wafers at
this facility in an 18,000 square foot clean room facility, which provides all
production processes. In the third quarter of 1996, the Company began an
expansion of the wafer fabrication clean room to 24,800 square feet. The Company
also leases approximately 63,000 square feet of additional space in San Jose,
California under a lease which also expires in May 2005. The new facility is
adjacent to the Company's main offices in San Jose, and the Company began using
it as a testing facility in June 1995.
The Company believes that its existing and planned facilities are adequate
for its current manufacturing needs. The Company believes that if it should need
additional space, such space would be available at commercially reasonable
terms.
ITEM 3. LEGAL PROCEEDINGS
On May 9, 1994, Linear Technology Corporation, a competitor of the Company,
filed a complaint against the Company, entitled "Linear Technology Corporation
v. Micrel, Incorporated," in the United States District Court in San Jose,
California, alleging patent and copyright infringement and unfair competition.
All claims, except the patent infringement claim, have been settled or
dismissed. In this lawsuit, Linear claims that two of the Company's products
infringe one of Linear's patents. The complaint in the lawsuit seeks unspecified
compensatory damages, treble damages and attorneys' fees as well as preliminary
and permanent injunctive relief against infringement of the Linear patent at
issue. The Company has asserted defenses of invalidity and unenforceability of
the Linear patent at issue, as well as noninfringement of such patent. The
Company believes that the ultimate outcome of this action will not result in a
material adverse effect on the Company's financial condition, cash flow or
results of operation. However, litigation is subject to inherent uncertainties,
and no assurance can be given that the Company will prevail in such litigation.
Accordingly, any such litigation could result in substantial costs and diversion
of resources and could have a material adverse effect on the Company's results
of operations or financial condition. In addition, Linear has previously
notified the Company that certain of the Company's products may infringe other
Linear patents.
Certain additional claims and lawsuits have also 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.
In the event of an adverse ruling in any intellectual property litigation
that now exists or might arise in the future, the Company might be required to
discontinue the use of certain processes, cease the manufacture, use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to the infringing technology. There can be no
assurance, however, that under such circumstances, a license would be available
under reasonable terms or at all. In the event of a successful claim against the
Company and the Company's failure to develop or license a substitute technology
on commercially reasonable terms, the Company's financial position and results
of operations could be adversely affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996, no matters were submitted to a vote of
security holders.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market tier of
The Nasdaq National Market under the trading Symbol "MCRL". The range of daily
closing prices per share for the Company's common stock from January 1, 1995 to
December 31, 1996 was:
Year Ended December 31, 1996: High Low
Fourth quarter $ 32.50 $ 19.25
Third quarter $ 23.75 $ 12.50
Second quarter $ 18.75 $ 12.25
First quarter $ 20.25 $ 12.50
Year Ended December 31, 1995: High Low
Fourth quarter $ 27.00 $ 14.75
Third quarter $ 32.00 $ 18.25
Second quarter $ 24.25 $ 16.25
First quarter $ 19.75 $ 13.50
The reported last sale price of the Company's Common Stock on the Nasdaq
National Market on December 31, 1996 was $31.63. The approximate number of
holders of record of the shares of the Company's Common Stock was 92 as of
February 28, 1997. This number does not include shareholders whose shares are
held in trust by other entities. The actual number of shareholders is greater
than this number of holders of record. The approximate number of beneficial
shareholders of the shares of the Company's Common Stock as of February 28, 1997
was 2,100.
The Company has authorized Common Stock of no par value and Preferred
Stock. The Company has not issued any Preferred Stock.
The Company has not paid any cash dividends on its capital stock. The
Company currently intends to retain its earnings to fund the development and
growth of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's existing credit
facilities prohibit the payment of cash or stock dividends on the Company's
capital stock without the bank's prior written consent. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Note 4 of Notes to
Consolidated Financial Statements contained in Item 8.
During the year ended December 31, 1996, the Company did not sell any
equity securities that were not registered under the Securities Act of 1933, as
amended.
14
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31,
------------------------------------------------
1996 1995 1994 1993(1) 1992
-------- -------- -------- --------- --------
(in thousands, except per share amounts)
Income Statement Data:
Net revenues.................$ 66,244 $ 53,035 $ 35,941 $ 17,615 $ 18,330
Cost of revenues............. 32,407 26,843 20,863 10,739 9,859
-------- -------- -------- -------- --------
Gross margin............... 33,837 26,192 15,078 6,876 8,471
-------- -------- -------- -------- --------
Operating expenses:
Research and development... 8,613 6,469 3,792 2,573 2,484
Selling, general and
administrative.......... 11,936 9,083 6,457 3,836 3,270
Relocation................. - - - 225 1,646
-------- -------- -------- -------- --------
Total operating expenses 20,549 15,552 10,249 6,634 7,400
-------- -------- -------- -------- --------
Income from operations....... 13,288 10,640 4,829 242 1,071
Other income (expenses), net 730 682 (231) (64) (43)
-------- -------- -------- -------- --------
Income before income taxes
and cumulative effect of
accounting change.......... 14,018 11,322 4,598 178 1,028
Income tax expense (benefit) 4,766 3,963 1,656 (132) 189
-------- -------- -------- -------- --------
Income before cumulative
effect of accounting change 9,252 7,359 2,942 310 839
Cumulative effect of
change in accounting
for income taxes.......... - - - 401 -
-------- -------- -------- -------- --------
Net income.................. $ 9,252 $ 7,359 $ 2,942 $ 711 $ 839
======== ======== ======== ======== ========
Net income per common
and equivalent share...... $ 0.92 $ 0.74 $ 0.38 $ 0.10 $ 0.12
======== ======== ======== ======== ========
Shares used in computing
per share amounts........ 10,024 9,975 7,766 7,116 7,008
======== ======== ======== ======== ========
December 31,
------------------------------------------------
1996 1995 1994 1993(1) 1992
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data:
Working capital..............$ 32,978 $ 28,494 $ 23,313 $ 6,066 $ 4,801
Total assets................. 60,008 48,342 36,482 12,962 11,786
Long-term debt............... 1,287 2,523 1,561 1,416 449
Total shareholders' equity... 47,431 36,033 26,634 7,662 6,851
- --------------------
(1) Net income per common and equivalent share includes the cumulative effect of
adoption of the change in accounting for income taxes in 1993 of $.06 per
share.
15
ITEM 7. 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 providing wafer fabrication services and manufacturing
custom integrated circuits. The Company established its own design capability
in 1988 and commenced marketing internally designed standard products in 1990.
In 1992, the Company leased an additional wafer fabrication facility in San
Jose, California, and in 1993, the Company consolidated its operations into
this facility.
Presently, the Company continues to shift its focus and revenue base from
custom and foundry products to standard products. For 1996, 1995, and 1994 the
Company's standard products sales accounted for 66%, 56%, and 50%,
respectively, of the Company's net revenues. The Company believes that a
substantial portion of its net revenues in the future will depend upon standard
products sales. The standard products 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. Since most standard
products backlog is cancelable without significant penalty, the Company
typically plans its production and inventory levels based on internal forecasts
of customer demand, which is 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.
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 and 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.
Year Ended December 31,
--------------------------
1996 1995 1994
------- ------- -------
Net revenues.................................... 100.0% 100.0% 100.0%
Cost of revenues................................ 48.9 50.6 58.0
------- ------- -------
Gross margin.................................. 51.1 49.4 42.0
------- ------- -------
Operating expenses:
Research and development...................... 13.0 12.2 10.6
Selling, general and administrative........... 18.0 17.1 18.0
------- ------- -------
Total operating expenses.................... 31.0 29.3 28.6
------- ------- -------
Income from operations.......................... 20.1 20.1 13.4
Other income (expenses), net.................... 1.1 1.3 (0.6)
------- ------- -------
Income before income taxes...................... 21.2 21.4 12.8
Income tax expense.............................. 7.2 7.5 4.6
------- ------- -------
Net income...................................... 14.0% 13.9% 8.2%
======= ======== =======
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Net Revenues. Net revenues increased approximately 25% to $66.2 million
for the year ended December 31, 1996 from $53.0 million in 1995 principally due
to higher standard product revenues, which grew to 66% of net revenues from 56%
in 1995. Sales of standard products by the Company were led by the increased
sales of low dropout regulators, computer peripherals, latched drivers and
metal oxide semiconductor drivers and such products were sold to manufacturers
of portable computing, computing peripherals, industrial and telecommunications
products.
The Company believes that a lessening of demand is continuing to be
experienced by the general technology sector. Such lessening is also being
experienced by companies in the analog segment of the semiconductor industry
which are still experiencing weak order patterns, pricing pressures and shorter
than normal order lead times. These factors affect the Company's ability to
predict future sales growth, profitability and forward visibility. The
Company's ability to predict demand in future quarters also continues to be
affected by the trend of its customers to place orders closer to desired
shipment dates and to reduce their long-term purchasing commitments, which is
the result of less predictable demand for such customers' products and
increased product availability in the semiconductor industry. The Company is
seeking to address these reduced order lead times by implementing faster
production cycles.
Net revenues increased approximately 48% to $53.0 million for the year
ended December 31, 1995 from $35.9 million in 1994 principally due to higher
standard product revenues, which grew to 56% of net revenues from 50% in 1994.
Sales of standard products by the Company increased primarily as a result of
increased shipments to manufacturers of personal computers and communications
products and increased shipments through distributors. Foundry products sales
to Motorola were approximately $4.7 million (9%) and $5.1 million (14%) of net
revenues for the years ended December 31, 1995 and 1994, respectively. During
1995 Motorola began producing internally a majority of the foundry products
that the Company had been producing and selling to it. As a result, sales to
Motorola declined substantially during the year and represented only one
percent of net revenues in the fourth quarter of 1995. The Company replaced
such sales with sales to other custom and foundry customers during 1995.
International sales represented 41%, 34% and 30% of net revenues for the
years ended December 31, 1996, 1995 and 1994, respectively. The 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. The Company believes that if the Company's standard products sales
continue to increase as a percentage of net revenues, international sales will
similarly increase as a percentage of net revenues.
The Company's international sales are primarily denominated in U.S.
currency. Consequently, changes in exchange rates that strengthen the U.S.
dollar could increase the price in local currencies of the Company's products
in foreign markets and make the Company's products relatively more expensive
than competitors' products that are denominated in local currencies, leading to
a reduction in sales or profitability in those foreign markets. The Company has
not taken any protective measures against exchange rate fluctuations, such as
purchasing hedging instruments with respect to such fluctuations.
The Company defers recognition of revenue derived from sales to domestic
and Canadian distributors until such distributors resell the Company's products
to their customers. Sales to international distributors are recognized upon
shipment. The Company estimates international distributor returns and provides
an allowance as the revenue is recognized.
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 year
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
ended December 31, 1996 from 49% for the year ended December 31, 1995. The
improvement in gross margin reflected the continuing shift in product mix with
increased sales of standard products which carry proportionately higher margins
than the Company's traditional foundry products and by higher margins on custom
and foundry business that replaced sales to one major customer, Motorola.
Additionally, the improvement in gross margin reflects 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 facilities.
The Company's gross margin increased to 49% for the year ended December
31, 1995 from 42% for the year ended December 31, 1994. The improvement in
gross margin reflected increased sales of standard products which carry
proportionately higher margins than the Company's traditional foundry products
and by higher margins on custom and foundry business that replaced sales to
Motorola.
Manufacturing yields, which affect gross margin, may from time to time
decline because the fabrication of integrated circuits is a highly complex and
precise process. Factors such as minute impurities and difficulties in the
fabrication process can cause a substantial percentage of wafers to be rejected
or numerous die on each wafer to be nonfunctional. There can be no assurance
that the Company in general will be able to maintain acceptable manufacturing
yields in the future.
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
$2.1 million or 32% to $8.6 million for the year ended December 31, 1996 from
$6.5 million during 1995. The increase in research and development expenses for
the year ended December 31, 1996 was primarily due to increased costs
associated with the Company's conversion to six inch wafer fabrication and with
design services, and prototype wafers used to support the development of new
standard products. In addition to these factors, the increase in research and
development expenses for the year ended December 31, 1996 was also due to
increased salary expenses associated with expanded engineering staffing to
support the development of new standard products. In 1996, the Company
introduced 20 new product families consisting of 84 additional products. In
comparison, the Company introduced 11 new product families consisting of 44
additional products in 1995. 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.
The Company's research and development expenses increased by approximately
$2.7 million or 71% to $6.5 million for the year ended December 31, 1995 from
$3.8 million during 1994. The increase in research and development expenses
during 1995 was primarily due to increased costs associated with design
services, prototype wafer use and increased engineering staffing to support the
development of new standard products. 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 $11.9
million for the year ended December 31, 1996 from $9.1 million for 1995 while
increasing on a percentage basis to 18% during 1996 from 17% of net revenues in
1995. The dollar increase was due, in part, 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 as well as a profit sharing accrual to promote personnel
retention. Although the Company expects that selling, general and
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
administrative expenses will increase on an dollar basis in the future, the
Company seeks to have such expenses not increase as a percentage of net
revenues.
Selling, general and administrative expenses increased to approximately
$9.1 million for the year ended December 31, 1995 from $6.5 million for 1994
while declining on a percentage basis to 17% during 1995 from 18% of net
revenues in 1994. The dollar increase was principally attributable to higher
commissions, compensation, and other sales and marketing and promotion expenses
associated with the growth of the standard products sales organization, and
increased staffing in the sales, administration and finance departments to
support the organizational growth.
Other Income (Expenses), Net. Other income (expenses), net reflects
interest income from investments in short-term investment grade securities
offset by interest incurred on line of credit borrowings and term notes. Other
income (expenses), net increased by approximately $48,000 to a net other income
amount of $730,000 during 1996 from a net other income amount of $682,000 in
1995. Such increase reflected a $120,000 gain on the settlement of litigation,
which was offset by a $84,000 decrease in interest income due to a decline in
average interest rates and an increase in interest expenses of $18,000 due to
higher average outstanding loan balances. The Company expects to continue to
utilize term financing as appropriate to finance its capital equipment needs.
Other income (expenses), net increased by approximately $913,000 to a net
other income amount of $682,000 during 1995 from a net other expenses amount of
$231,000 in 1994 as interest income earned on investments of the proceeds from
the Company's 1994 initial public offering more than offset increases in
average interest rates and balances borrowed under the Company's outstanding
line of credit during 1995.
Provision for Income Taxes. For the year ended December 31, 1996 the
provision for taxes on income was $4.8 million or 34% of income before
provision for taxes compared to $4.0 million or 35% for 1995. 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, state manufacturing credits and the
reinstitution of the federal research and development tax credit in July 1996.
For the year ended December 31, 1995 the provision for taxes on income was
$4.0 million or 35% of income before provision for taxes compared to $1.7
million or 36% for 1994. The 1995 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, research and experimentation credits and state
manufacturing credits. Such difference in 1994 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 liquidity at December 31, 1996 consisted of cash and short-
term investments of $16.6 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, under
which there were no outstanding borrowings at December 31, 1996. The two lines
of credit are covered by the same loan and security agreement. This agreement
expires on September 30, 1997, subject to automatic renewal on a month to month
basis thereafter unless terminated by either party upon 30 days notice. These
borrowings are collateralized by substantially all of the Company's assets and
the agreement contains restrictive covenants that apply to both the revolving
lines of credit and notes payable, including maintenance of a quick ratio of
not less than 1.75:1, tangible net worth of $30 million and a ratio of total
debt (less debt subordinated to
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
the bank) to total net worth of less than 0.75:1. 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 1.5:1. In addition, the Company must
remain profitable on a quarterly basis, although the Company is permitted one
calendar quarter in which it does not earn an after-tax profit from operations
so long as the loss from operations during such quarter does not exceed
$500,000, and is prohibited from declaring and paying dividends without the
lender's consent. The Company was in compliance with these covenants at
December 31, 1996.
With respect to the non-revolving bank line of credit that is covered by
the loan agreement described above, this $5.0 million line can be used to fund
purchases of capital equipment under which the Company may borrow up to 100% of
the cost, excluding installation charges, sales tax, freight and software
charges. 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 at prime and are subject to the same restrictive
covenants as the revolving line of credit. The Company had no borrowings
outstanding under the line at December 31, 1996 and $5.0 million is available
under this agreement through September 30, 1997.
Under two other notes payable, the Company had $0.7 million and $1.8
million outstanding at December 31, 1996. The notes are collateralized by the
equipment purchased.
The Company's working capital increased by $4.5 million to $33.0 million
as of December 31, 1996 from $28.5 million as of December 31, 1995. The
increase was primarily attributable to increases in cash, cash equivalents and
short-term investments of $2.5 million combined with increases in inventory of
approximately $2.5 million, which was partially offset by a $1.0 million
increase in accrued compensation for the year ended December 31, 1996. The
Company's short-term investments were principally invested in investment grade,
interest-bearing securities.
The Company's cash flows from operating activities increased to
approximately $12.3 million for the year ended December 31, 1996 from
approximately $3.8 million for the year ended December 31, 1995. The
increase was primarily attributable to net income of $12.6 million, adjusted
for non-cash items, and increases in income taxes payable and accrued expenses
coupled with decreases in accounts receivable, which were offset by increases
in inventories. For the year ended December 31, 1995, cash flows from operating
activities increased to approximately $3.8 million from approximately $3.3
million for the year ended December 31, 1994. The increase was primarily
attributable to net income of $7.4 million, adjusted for non-cash items, and
increases in deferred revenue and accrued expenses which were offset by
increases in accounts receivable and inventories.
The Company's investing activities during the year ended December 31, 1996
used cash of approximately $10.8 million. Approximately $28.0 million of
maturing short-term investments, combined with cash from operations, were used
to purchase $29.1 million of short-term investments and $9.6 million of
equipment and leasehold improvements.
Financing activities during the year ended December 31, 1996 used cash of
approximately $200,000, which was the result of $1.5 million in principal
payments on long-term debt as offset by $1.3 million in proceeds from the
issuance of common stock upon exercise of stock options.
The Company currently intends to spend up to approximately $20.0 million
during the next twelve months primarily for the purchase of additional wafer
and test manufacturing equipment and leasehold improvements. The Company
expects that its cash requirements through 1997 will be met by its existing
cash balances and short-term investments, cash from operations and its existing
credit facilities.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Factors That May Affect Operating Results
The statements contained in this Report on Form 10-K 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
significant 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 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, 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 Company is also currently transitioning to the processing of six inch
wafers, which will involve process lithography that will handle items as small
as one micron. For such manufacturing capability, the Company has begun
purchasing equipment and preparing production facilities to provide for such
manufacturing capabilities. There can be no assurance that the transition to
six inch wafer processing will be achieved on schedule without encountering any
delays in the process implementation. Nor can there be any assurance that the
Company will achieve acceptable manufacturing yields or that the operating
income margins on such products will be comparable to those realized in
connection with the Company's four inch wafer fabrication processes. Failure to
achieve acceptable yields or margins could adversely affect the Company's
financial condition and results of operations.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONCLUDED)
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, timing of product
introductions, 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.
The Company's future success depends in part upon its intellectual
property, including patents, trade secrets, know-how 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements are set forth on pages 28 through 43,
which follow Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors of the Company is included in the
Company's Proxy Statement to be filed in connection with the Company's 1997
annual meeting of shareholders under the caption "Election of Directors" and is
incorporated herein by reference. The information concerning the executive
officers of the Company required by this item is as follows:
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of December 31,
1996, are as follows:
Name Age Position
- ------------------ ----- ---------------------------------------------------
Raymond D. Zinn..... 59 President, Chief Executive Officer
Warren H. Muller.... 57 Vice President, Test Operations, Secretary
Robert J. Barker.... 50 Vice President, Finance and Chief Financial Officer
John D. Husher...... 64 Vice President, Wafer Fabrication Division
George T. Anderl.... 57 Vice President, Sales and Marketing
Lawrence R. Sample.. 50 Vice President, Design
Mr. Zinn is a co-founder of the Company and has been its President, Chief
Executive Officer and a member of its Board of Directors since its incorporation
in 1978. Prior to co-founding Micrel, Mr. Zinn held various management and
manufacturing executive positions in the semiconductor industry at Electromask
TRE, Electronic Arrays, Inc., Teledyne, Inc., Fairchild Semiconductor
Corporation and Nortek, Inc. He holds a B.S. in Industrial Management from
Brigham Young University and a M.S. in Business Administration from San Jose
State University.
Mr. Muller is a co-founder of the Company and has served as a member of the
Company's Board of Directors and as its Vice President of Test Operations since
its incorporation in 1978. He was previously employed in various positions in
semiconductor processing and testing at Electronic Arrays, Inc. and General
Instruments Corporation. Mr. Muller holds a B.S.E.E. from Clarkson College.
Mr. Barker joined the Company as Vice President, Finance and Chief
Financial Officer in April 1994. From April 1984 until he joined Micrel, Mr.
Barker was employed by Waferscale Integration, Inc., where his last position was
Vice President of Finance and Secretary. Prior to 1984, Mr. Barker held various
accounting and financial positions at Monolithic Memories and Lockheed Missiles
and Space Co. He holds a B.S. in Electrical Engineering and a M.B.A. from
University of California at Los Angeles.
Mr. Husher joined the Company in May 1982 and his current position is Vice
President and General Manager, Wafer Fabrication Division. He was previously
employed in engineering and management positions with Sprague Semiconductor and
Fairchild Semiconductor Corp. Mr. Husher received his B.S.E.E. from the
University of Pittsburgh.
23
Mr. Anderl joined the Company in June 1996 as its Vice President, Sales and
Marketing. From 1991 until he joined Micrel, Mr. Anderl was employed by Quality
Semiconductor, where his last position was Vice President, Worldwide Sales. His
prior employers include Austek Microsystems, Advanced Micro Devices, and
Monolithic Memories. Mr. Anderl holds a B.S.E.E. degree from Purdue University
and a M.S.E.E. from Santa Clara University.
Mr. Sample joined the Company in September 1989 and is currently its Vice
President, Design. Prior to joining Micrel, Mr. Sample was employed by Motorola
and National Semiconductor Corporation in various engineering positions of
analog semiconductor products. Mr. Sample received his B.S.E.E. degree from the
University of Illinois and his M.S.E.E. from Arizona State University.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
"Executive Compensation" and "Stock Option Grants and Exercise" in the Company's
Proxy Statement to be filed in connection with the Company's 1997 annual meeting
of shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement to be filed in connection with the Company's 1997
annual meeting of shareholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption
"Certain Transactions" in the Company's Proxy Statement to be filed in
connection with the Company's 1997 annual meeting of shareholders and is
incorporated herein by reference.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following financial statements of the
Company and the Report of Deloitte & Touche LLP, Independent Auditors,
are included in this Report on the pages indicated:
Page
Independent Auditors' Report........................................... 27
Consolidated Balance Sheets as of December 31, 1996 and 1995........... 28
Consolidated Income Statements for the Years ended December 31,
1996, 1995 and 1994.................................................. 29
Consolidated Statements of Shareholders' Equity for the Years ended
December 31, 1996, 1995 and 1994..................................... 30
Consolidated Statements of Cash flows for the Years ended December 31,
1996, 1995 and 1994.................................................. 31
Notes to Consolidated Financial Statements............................. 32
2. Financial Statement Schedules. The following financial statement
schedule of the Company for the years ended December 31, 1996, 1995
and 1994 is filed as part of this report on Form 10-K and should be
read in conjunction with the financial statements.
Schedule Title Page
-------- ---------------------------------------------------- ----
Independent Auditors' Report 41
II Valuation and Qualifying Accounts 42
Schedules not listed above have been omitted because they are not
applicable, not required, or the information required to be set forth
therein is included in the Consolidated Financial Statements or notes
thereto.
3. Exhibits. See Exhibit Index on pages 25 and 26 hereof for a list of
exhibits filed or incorporated by reference as a part of this report.
(b) Reports on Form 8-K. No Report on Form 8-K was filed by the Company in
the quarter ended December 31, 1996.
(c) Exhibits Pursuant to Item 601 of Regulation S-K
Exhibit
Number Description
------- ------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the
Registrant.(1)
3.2 Certificate of Amendment of Articles of Incorporation of the
Registrant. (2)
3.3 Amended and Restated Bylaws of the Registrant. (2)
4.1 Certificate for Shares of Registrant's Common Stock. (3)
10.1 Indemnification Agreement between the Registrant and each of its
officers and directors. (3)
10.2 1989 Stock Option Plan and form of Stock Option Agreement. (1) *
10.3 1994 Stock Option Plan and form of Stock Option Agreement. (1) *
10.4 1994 Stock Purchase Plan. (4)
10.5 Lease Agreement dated November 1, 1981 between the Registrant and
Pastoria Limited Partnership, as amended March 3, 1988. (1)
25
10.6 Lease Agreement dated June 24, 1992 between the Registrant and GOCO
Realty Fund I, as amended August 6, 1992 and February 5, 1993. (1)
10.7 Amended and Restated Loan and Security Agreement dated November 29,
1990 between the Registrant and Bank of the West, as amended
February 11, 1991, August 6, 1991, October 31, 1991, June 24, 1992,
September 24, 1992, August 16, 1993, April 29, 1994, July 2, 1994,
August 23, 1994, September 30, 1994, October 24, 1994. (1)
10.8 Form of Domestic Distribution Agreement. (2)
10.9 Form of International Distributor Agreement. (2)
10.10 Second Amendment dated February 20, 1995 between the Registrant and
TR Brell Cal Corporation to Lease Agreement dated June 24, 1992
between the Registrant and GOCO Realty Fund I, as amended August 6,
1992 and February 5, 1993. (3)
10.11 Amended and Restated Loan and Security Agreement dated November 29,
1990 between the Registrant and Bank of the West, as amended
March 31, 1995. (4)
10.12 Amended and Restated Loan and Security Agreement dated November 29,
1990 between the Registrant and Bank of the West, as amended
September 30, 1996. (5)
10.13 1994 Stock Option Plan and Form of Stock Option Agreement. (6) *
10.14 Amended and Restated 1994 Employee Stock Purchase Plan, as amended
January 1, 1996.
11.1 Statement regarding calculation of net income per share.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney. (See Signature Page.)
27.1 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 ("Registration Statement"), File No. 33-85694,
in which this exhibit bears the same number, unless otherwise
indicated.
(2) Incorporated by reference to Amendment No. 1 to the Registration
Statement, in which this exhibit bears the same number, unless
otherwise indicated.
(3) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, in which this exhibit
bears the same number, unless otherwise indicated.
(4) Incorporated by reference to exhibit 10.1 filed with the Company's
quarterly report on Form 10-Q for the period ended March 31, 1995.
(5) Incorporated by reference to exhibit 10.1 filed with the Company's
quarterly report on Form 10-Q for the period ended September 30,
1996.
(6) Incorporated herein by reference to the Company's Registration
Statement on Form S-8, File No. 33-90396, in which this exhibit
bears the number 4.1.
(d) Financial Statement Schedules. The financial statement schedule
required by this Item is listed under Item 14(a)(2) above.
26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Micrel, Incorporated:
We have audited the accompanying consolidated balance sheets of Micrel,
Incorporated and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company and its subsidiaries at December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 23, 1997
27
MICREL, INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(in thousands, except share amounts)
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,239 $ 1,901
Short-term investments 13,334 12,174
Accounts receivable,
less allowances: 1996, $1,224; 1995, $688 8,748 9,281
Inventories 13,922 11,414
Prepaid expenses and other 447 305
Deferred income taxes 2,591 1,876
-------- --------
Total current assets 42,281 36,951
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 17,476 11,284
OTHER ASSETS 251 107
-------- --------
TOTAL $ 60,008 $ 48,342
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,409 $ 2,878
Accrued compensation 2,244 1,250
Income taxes payable 913 493
Other accrued liabilities 720 862
Accrued commissions 685 584
Deferred income on shipments
to domestic distributors 1,180 957
Current portion of long-term debt 1,152 1,433
-------- --------
Total current liabilities 9,303 8,457
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION 1,287 2,523
DEFERRED RENT 917 803
DEFERRED INCOME TAXES 1,070 526
COMMITMENTS AND CONTINGENCIES (Notes 7 and 12)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - authorized:
5,000,000 shares; issued and outstanding: none - -
Common stock, no par value - authorized:
50,000,000 shares; issued and outstanding:
1996 - 9,330,643; 1995 - 8,898,532 21,315 19,162
Net unrealized gains (losses) on
short-term investments (2) 5
Retained earnings 26,118 16,866
-------- --------
Total shareholders' equity 47,431 36,033
-------- --------
TOTAL $ 60,008 $ 48,342
======== ========
See notes to consolidated financial statements.
28
MICREL, INCORPORATED
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands, except per share amounts)
1996 1995 1994
-------- -------- --------
NET REVENUES $ 66,244 $ 53,035 $ 35,941
COST OF REVENUES 32,407 26,843 20,863
-------- -------- --------
GROSS MARGIN 33,837 26,192 15,078
-------- -------- --------
OPERATING EXPENSES:
Research and development 8,613 6,469 3,792
Selling, general and administrative 11,936 9,083 6,457
-------- -------- --------
Total operating expenses 20,549 15,552 10,249
-------- -------- --------
INCOME FROM OPERATIONS 13,288 10,640 4,829
OTHER INCOME (EXPENSES):
Interest income 866 950 45
Interest expense (281) (263) (257)
Other, net 145 (5) (19)
-------- -------- --------
Total other income (expenses), net 730 682 (231)
-------- -------- --------
INCOME BEFORE INCOME TAXES 14,018 11,322 4,598
PROVISION FOR INCOME TAXES 4,766 3,963 1,656
-------- -------- --------
NET INCOME $ 9,252 $ 7,359 $ 2,942
======== ======== ========
NET INCOME PER COMMON AND
EQUIVALENT SHARE $ 0.92 $ 0.74 $ 0.38
======== ======== ========
SHARES USED IN COMPUTING PER SHARE AMOUNTS 10,024 9,975 7,766
======== ======== ========
See notes to consolidated financial statements.
29
MICREL, INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands, except share amounts)
Net Unrealized
Common Stock Gains (Losses)
------------------- on Short-Term Retained
Shares Amount Investments Earnings Total
--------- ---------- ------------- --------- -------
Balances, January 1, 1994 6,568,833 $ 1,097 $ - $ 6,565 $ 7,662
Common stock issued pursuant
to initial public offering
(net of issuance costs of
$2,066) 2,000,000 15,934 - - 15,934
Employee stock transactions 81,536 96 - - 96
Net income - - - 2,942 2,942
--------- -------- --------- --------- -------
Balances, December 31, 1994 8,650,369 17,127 - 9,507 26,634
Employee stock transactions 248,163 806 - - 806
Tax benefit of employee stock
transactions - 1,229 - - 1,229
Change in net unrealized gains
from short-term investments - - 5 - 5
Net income - - - 7,359 7,359
--------- -------- --------- -------- -------
Balances, December 31, 1995 8,898,532 19,162 5 16,866 36,033
Employee stock transactions 432,111 1,309 - - 1,309
Tax benefit of employee stock
transactions - 844 - - 844
Change in net unrealized gains
from short-term investments - - (7) - (7)
Net income - - - 9,252 9,252
--------- -------- --------- --------- -------
Balances, December 31, 1996 9,330,643 $ 21,315 $ (2) $ 26,118 $47,431
========= ======== ========= ========= =======
See notes to consolidated financial statements.
30
MICREL, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
1996 1995 1994
-------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,252 $ 7,359 $ 2,942
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,420 2,176 1,217
Loss on disposal of assets 6 - 32
Deferred rent 114 113 302
Deferred taxes (171) (365) (107)
Changes in operating assets and liabilities:
Accounts receivable 533 (3,662) (2,523)
Inventories (2,508) (3,650) (2,209)
Prepaid expenses and other assets (296) (45) (63)
Accounts payable (469) (425) 1,827
Accrued commissions 101 379 109
Income taxes payable 1,264 922 800
Accrued compensation and other liabilities 852 269 736
Deferred income on shipments to domestic
distributors 223 721 236
--------- -------- ---------
Net cash provided by operating activities 12,321 3,792 3,299
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (9,608) (7,719) (3,863)
Purchases of short-term investments (29,118) (26,567) (8,844)
Proceeds from sales and maturities of
short-term investments 27,951 23,242 -
--------- -------- ---------
Net cash used in investing activities (10,775) (11,044) (12,707)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (1,517) (1,047) (824)
Proceeds from the issuance of
common stock, net 1,309 806 16,030
Cash overdraft - - (107)
Short-term borrowings - - 1,400
Repayments of short-term borrowings - - (1,400)
Proceeds from long-term borrowings - 2,500 1,200
--------- -------- --------
Net cash provided by (used in)
financing activities (208) 2,259 16,299
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,338 (4,993) 6,891
CASH AND CASH EQUIVALENTS - Beginning of year 1,901 6,894 3
--------- -------- --------
CASH AND CASH EQUIVALENTS - End of year $ 3,239 $ 1,901 $ 6,894
--------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 103 $ 257 $ 244
========= ========= =======
Income taxes $ 2,598 $ 3,407 $ 1,065
========= ========= =======
See notes to consolidated financial statements.
31
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Company develops, manufactures and markets analog
semiconductor devices and provides custom and foundry services which include
silicon wafer fabrication, integrated circuit assembly and testing. The
Company's standard integrated circuits are sold principally in North
America, Asia, and Europe for use in a variety of products, including those
in the computer, communication, and industrial markets. The Company's
custom circuits and wafer foundry services are provided to a wide range of
customers which produce electronic systems for communications, consumer and
military applications. All products are manufactured at the Company's wafer
fabrication facility located in San Jose, California.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Micrel, Incorporated and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Use of Estimates - In accordance with generally accepted accounting
principles, the management utilizes certain estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include the allowance
for doubtful accounts receivable and net realizable value of inventory.
Actual results could differ from those estimates.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with remaining maturities of less than three months to be cash
equivalents.
Short-term Investments - Short-term investments consist primarily of highly
liquid debt instruments purchased with an original maturity date of greater
than 90 days. Short-term investments are classified as available for sale
securities and are stated at market value with unrealized gains and losses
included in shareholders' equity, net of income taxes. At December 31, 1996
and 1995, short-term investments consisted of corporate debt securities
(commercial paper) and repurchase agreements with a major financial
institution with maturities of less than one year.
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. Risks
associated with cash are mitigated by banking with creditworthy
institutions. Cash 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 December 31, 1996, one customer accounted
for 15% of total accounts receivable and at December 31, 1995, no single
customer accounted for ten percent or more of total accounts receivable.
Inventories - Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Equipment and Leasehold Improvements - Equipment and leasehold improvements
are stated at cost. Depreciation on equipment is computed using straight-
line and accelerated methods over estimated useful lives of three to five
years. Leasehold improvements are amortized over the shorter of the lease
term or the useful lives of the improvements.
32
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
Revenue Recognition - Revenues from products sold directly to customers is
recognized upon shipment. Certain of the Company's sales are made to United
States and Canadian distributors under agreements allowing certain rights of
return and price protection on merchandise unsold by these distributors.
Accordingly, the Company defers recognition of such revenues until the
merchandise is sold by the distributors. Sales to international
distributors are recognized upon shipment. The Company estimates
international distributor returns and warranty costs, and provides
allowances as revenue is recognized. Warranty costs have not been material
in any period.
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.
Income Taxes - Income taxes are provided at current rates. Deferred income
taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and amounts used for income tax purposes.
Stock-based Awards - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Net Income per Common and Equivalent Share - Net income per 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.
Fair Value of Financial Instruments - Financial instruments included in the
Company's consolidated balance sheets at December 31, 1996 and 1995 consist
of cash, cash equivalents and long-term debt. The Company believes that the
carrying amounts of financial instruments as reported in the balance sheet
as of December 31, 1996 and 1995 approximate fair market value. For cash,
the carrying amount is a reasonable estimate of the fair value. The carrying
amount for cash equivalents approximates fair value because of the short
maturity of those investments. The fair value of long-term debt
approximates the carrying amount as the borrowings are at adjustable
interest rates and reprice based on fluctuations in market conditions.
2. INVENTORIES
Inventories at December 31 consist of the following (in thousands):
1996 1995
--------- --------
Finished goods $ 2,735 $ 2,363
Work in process 8,313 7,317
Raw materials 2,874 1,734
-------- --------
$ 13,922 $ 11,414
======== ========
33
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements at December 31 consist of the following
(in thousands):
1996 1995
----------- ----------
Manufacturing equipment $ 28,510 $ 20,509
Leasehold improvements 1,620 711
Office furniture and equipment 799 729
Automobiles 85 85
--------- ---------
31,014 22,034
Accumulated depreciation and amortization (13,538) (10,750)
--------- ---------
$ 17,476 $ 11,284
========= =========
4. BORROWING ARRANGEMENTS
Under a revolving line of credit and security agreement, expiring September
30, 1997, the Company can borrow up to 80% of its eligible accounts
receivable to a maximum of $3.0 million. Borrowings under the line of credit
agreement bear interest at prime (8.25% at December 31, 1996) and are
collateralized by substantially all of the assets of the Company. There were
no borrowings under this revolving line of credit at December 31, 1996.
Under the same loan agreement, the Company has a non-revolving bank line of
credit of $5.0 million for funding purchases of capital equipment under
which the Company may borrow up to 100% of the cost, excluding installation
charges, sales tax, freight and software charges. 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
at prime and are subject to the same restrictive covenants as the operating
line of credit. The Company has not borrowed against the line at December
31, 1996 and $5.0 million is available under this agreement through
September 30, 1997.
Long-term debt at December 31, collateralized by equipment, consists of the
following (in thousands):
1996 1995
-------- --------
Notes payable bearing interest at prime plus 0.75%,
payable in monthly installments through various dates
to September 1998 $ 689 $ 1,561
Notes payable bearing interest at prime, payable
in monthly installments through various dates to
December 1999 1,750 2,395
------- -------
Total long-term debt 2,439 3,956
Current portion (1,152) (1,433)
------- -------
Long-term debt $ 1,287 $ 2,523
======= =======
Maturities of long-term debt after December 31, 1996 are as follows:
$1,152,000 in 1997, $787,000 in 1998, and $500,000 in 1999.
34
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
The agreement contains certain restrictive covenants which include a
restriction on the declaration and payment of dividends without the lender's
consent. The Company was in compliance with all such covenants at December
31, 1996.
5. SHAREHOLDERS' EQUITY
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, no par
value, of which none were issued or outstanding at December 31, 1996. The
preferred stock may be issued from time to time in one or more series. The
Board of Directors is authorized to determine or alter the rights,
preferences, privileges and restrictions of such preferred stock.
Stock Option Plans
Under the Company's 1994 and 1989 Stock Option Plans (the "Option Plans"),
3,482,334 shares of common stock were authorized for issuance to key
employees. The Option Plans provide that the option price will be determined
by the Board of Directors at a price of not less than the fair value at the
date of grant. Certain shareholder/employees of the Company are granted
options at 110% of the current fair market value. Options granted become
exercisable in not less than cumulative annual increments of 20% per year
from the date of grant. During 1996, the Board of Directors approved an
amendment to the 1994 Stock Option Plan which authorized an additional
1,000,000 shares to be made available for issuance under the 1994 Stock
Option Plan. At December 31, 1996, 1,387,598 shares were available for
future grants under the Option Plans.
Option activity under the Option Plans is as follows:
Weighted
Average
Number Exercise
of Shares Price
----------- ------------
Outstanding, January 1, 1994 858,700 $ 1.20
Granted 739,000 3.27
Exercised (81,536) 1.18
Canceled (101,064) 2.14
---------
Outstanding, December 31, 1994 (550,100
exercisable at a weighted average
price of $1.19) 1,415,100 2.22
Granted 219,250 19.68
Exercised (194,096) 2.04
Canceled (13,200) 6.96
---------
Outstanding, December 31, 1995 (582,654
exercisable at a weighted average
price of $1.42) 1,427,054 4.88
Granted 468,500 16.70
Granted (at 110% of fair market value) 50,000 15.13
Exercised (399,400) 2.12
Canceled (238,250) 7.93
---------
Outstanding, December 31, 1996 (384,654
exercisable at a weighted average
price of $3.15) 1,307,904 $ 9.79
=========
35
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
Additional information regarding options outstanding as of December 31, 1996
is as follows:
Stock Options Outstanding Options Exercisable
---------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (yrs) Price Exercisable Price
- ----------------- ----------- ----------- -------- ----------- --------
$ 1.00 to $ 5.00 564,904 7.4 $ 1.72 327,404 $ 1.23
$ 5.01 to $ 15.00 291,750 9.3 $ 11.33 25,800 $ 6.58
$ 15.01 to $ 20.00 328,750 8.9 $ 16.93 16,950 $ 17.63
$ 20.01 to $ 35.00 122,500 9.2 $ 24.18 14,500 $ 23.64
--------- -------
1,307,904 8.4 $ 9.79 384,654 $ 3.15
========= =======
Employee Stock Purchase Plan
Under the 1994 Employee Stock Purchase Plan, (the "Purchase Plan"), eligible
employees are permitted to have salary withholdings to purchase shares of
common stock at a price equal to 85% of the lower of the market value of the
stock at the beginning or end of each six-month offer period, subject to an
annual limitation. Stock issued under the Purchase Plan was 32,711, and
54,067 in 1996 and 1995, at weighted average prices of $14.16 and $7.65,
respectively. At December 31, 1996, there are 86,804 shares of common stock
issued under the Purchase Plan and 213,196 shares were reserved for future
issuances under the Purchase Plan. The Purchase Plan was suspended
effective June 30, 1995 and subsequently amended and restated effective
January 1, 1996. The amended Purchase Plan excludes all Company Officers (as
defined in the Purchase Plan) from participation in the Purchase Plan.
Additional Stock - Based Award Information
As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
and its related interpretations. Accordingly, no compensation expense has
been recognized in the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation", ("SFAS 123") requires the disclosure of pro forma net
income and earnings per share had the Company adopted the fair value method
as of the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-
based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions,
which significantly differ from the Company's stock option awards. These
models also require subjective assumptions, including future stock
volatility and expected time to exercise, which greatly affect the
calculated values. The Company's calculations were made using the Black-
Scholes option pricing model with the following weighted average
assumptions: expected life, 60 months following vesting; stock volatility,
75.3% in 1996 and 1995; risk free interest rates, 6.16% in 1996 and 1995;
and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach and forfeitures are as they
occur. If the computed fair values of the 1996 and 1995 awards under both
the Option Plans and the Purchase Plan had been amortized to expense over
the vesting period of the awards, pro forma net income would have been $7.7
million ($0.82 per share) in 1996 and $6.7 million ($0.77 per share) in
36
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
1995. However, the impact of outstanding stock options granted prior to
1995 has been excluded from the pro forma calculation; accordingly, the 1996
and 1995 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock
options.
6. INCOME TAXES
The provision for income taxes for the years ended December 31 consists of
the following (in thousands):
1996 1995 1994
-------- -------- --------
Currently payable:
Federal $ 4,440 $ 4,365 $ 1,910
Research and experimentation tax credits (451) (285) (483)
------- ------- -------
3,989 4,080 1,427
------- ------- -------
State 1,309 1,097 546
Research and experimentation and manufacturing
tax credits (361) (849) (210)
------- ------- -------
948 248 336
------- ------- -------
Total currently payable 4,937 4,328 1,763
Deferred income taxes:
Federal (148) (283) (90)
State (23) (82) (17)
------- ------- -------
Total deferred (171) (365) (107)
------- ------- -------
Total provision $ 4,766 $ 3,963 $ 1,656
======= ======= =======
A reconciliation of the statutory federal income tax rate to the effective
tax rate is as follows:
1996 1995 1994
-------- -------- --------
Statutory federal income tax rate 35% 35% 35%
State income taxes (net of federal
income tax benefit) 2 2 5
Research and experimentation credits (1) (3) (5)
Export sales tax credit (2) - -
Other - 1 1
----- ----- -----
Effective tax rate 34% 35% 36%
===== ===== =====
37
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
Temporary differences that give rise to deferred tax assets and liabilities
at December 31 are as follows (in thousands):
1996 1995
------- --------
Deferred tax assets:
Inventory reserves and capitalization $ 812 $ 1,239
Allowance for doubtful accounts 510 268
Deferred revenue 433 -
Accrued compensation 342 281
Deferred rent 337 -
State income taxes 157 88
------- -------
Total 2,591 1,876
Deferred tax liabilities - depreciation (1,070) (526)
------- -------
Net deferred tax asset $ 1,521 $ 1,350
======= =======
7. OPERATING LEASES AND COMMITMENTS
The Company leases manufacturing and office facilities through 2005 (with an
option to extend the term for five years) under an operating lease
agreement. The lease provides for escalating rental payments over the lease
period. Rent expense is recognized on a straight-line basis over the term
of the lease. Deferred rent represents the difference between rental
payments and rent expense recognized on a straight-line basis. Future
minimum payments under this agreement are as follows (in thousands):
Year Ending
December 31,
------------
1997 $ 982
1998 1,056
1999 1,095
2000 1,127
2001 1,144
Thereafter 3,969
--------
$ 9,373
========
Rent expense under operating leases was $1,014,000, $896,000, and $648,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
8. RELATED PARTY TRANSACTIONS
Prior to 1996 the Company held maintenance agreements and purchased capital
equipment from a company owned by a non-employee shareholder of the Company.
During 1996, the non-employee shareholder disposed of nearly all holdings of
the Company's stock and is no longer considered to be a related party.
Prior to 1996, total expenses incurred under this agreement were
approximately $559,000 and $364,000 for the years ended December 31, 1995
and 1994, respectively. During the years ended December 31, 1995 and 1994,
the Company purchased approximately $214,000 and $76,000, respectively, of
capital equipment from the same company.
38
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
9. PROFIT-SHARING 401(k) PLAN
The Company has a profit-sharing plan and deferred compensation plan (the
"Plan"). All employees completing six months of service are eligible to
participate in the Plan. Participants may contribute 1% to 12% of their
annual compensation on a before tax basis, subject to Internal Revenue
Service limitations. Profit-sharing contributions by the Company are
determined at the discretion of the Board of Directors. The Company accrued
$400,000 in 1996, $100,000 in 1995 and made no contributions in 1994.
Participants vest in Company contributions ratably over six years of
service.
10. SIGNIFICANT CUSTOMERS
In 1996 one customer accounted for $7.1 million (11%) of net revenues. In
1995, no single customer accounted for ten percent or more of net revenues.
In 1994, one customer accounted for $5.1 million (14%) of net revenues.
11. EXPORT SALES INFORMATION
The Company develops, manufactures and markets analog semiconductor devices
and provides custom and foundry services which include silicon wafer
fabrication, integrated circuit assembly and testing in its one industry
segment.
Micrel's products are manufactured at the Company's wafer fabrication
facility located in the United States and are sold principally in North
America, Asia, and Europe. The Company markets internationally through both
exports, a foreign-based sales force and international distributors. The
following table presents a summary of export sales by geographic region.
1996 1995 1994
(In thousands) -------- -------- --------
Net revenues from unaffiliated customers
by geographical region:
United States of America $ 38,982 $ 34,747 $ 25,181
Taiwan 10,726 6,883 2,651
Other Asian Countries 8,754 4,763 4,216
Europe 7,562 6,642 3,893
Other 220 - -
------- ------- -------
Consolidated net revenues from
unaffiliated customers $ 66,244 $ 53,035 $ 35,941
======== ======== ========
12. CONTINGENCIES
On May 9, 1994, Linear Technology Corporation, a competitor of the Company,
filed a complaint against the Company, entitled Linear Technology
Corporation v. Micrel, Incorporated, in the United States District Court in
San Jose, California, alleging patent and copyright infringement and unfair
competition. All claims, except the patent infringement claim, have been
settled or dismissed. In this lawsuit, Linear claims that two of the
Company's products infringe one of Linear's patents. The complaint in the
lawsuit seeks unspecified compensatory damages, treble damages and
attorneys' fees
39
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
as well as preliminary and permanent injunctive relief against infringement
of the Linear patent at issue. The Company has asserted defenses of
invalidity and unenforceability of the Linear patent at issue, as well as
noninfringement of such patent. Management believes that the ultimate
outcome of this action will not result in a material adverse effect on the
Company's financial condition, cash flow or results of operation.
Certain additional claims and litigation against the Company have also
arisen in the normal course of business. Management believes that it is
unlikely that the outcome of these claims and lawsuits will have a material
adverse effect on the Company's financial position or results of operations.
13. QUARTERLY RESULTS - UNAUDITED
The following table sets forth certain unaudited financial information for
the quarters in the years ended December 31, 1995 and 1996. The Company
believes that all necessary adjustments, consisting only of normal recurring
accruals, have been included in the amounts stated below to present fairly
the selected quarterly information when read in conjunction with the
financial statements and the notes thereto included elsewhere herein.
Three Months Ended
-------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands, except per share amounts)
Net revenues $ 11,887 $ 13,286 $ 13,928 $ 13,934 $ 13,910 $ 15,317 $ 17,614 $ 19,403
Gross margin $ 5,739 $ 6,513 $ 6,925 $ 7,015 $ 7,052 $ 7,812 $ 9,012 $ 9,961
Net income $ 1,514 $ 1,773 $ 1,997 $ 2,075 $ 1,893 $ 2,112 $ 2,418 $ 2,829
Net income per common and
equivalent share $ 0.15 $ 0.18 $ 0.20 $ 0.21 $ 0.19 $ 0.21 $ 0.24 $ 0.28
Shares used in computing per
share amounts 9,888 9,949 10,080 9,985 9,944 9,932 10,038 10,181
40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Micrel, Incorporated:
We have audited the consolidated financial statements of Micrel,
Incorporated as of December 31, 1996 and 1995, and for each of the three
years in the period ended December 31, 1996, and have issued our report
thereon dated January 23, 1997. Our audits also included the financial
statement schedule of Micrel, Incorporated, listed in Item 14 (a) (2). This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
January 23, 1997
SCHEDULE II
MICREL, INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1996, 1995 and 1994
(Amounts in thousands)
Balance at Additions Write-offs
Beginning of Charges to and Balance at
Description Year Expenses Deductions End of
Year
- ------------------------------ ------------ --------- --------- ---------
Year Ended December 31, 1996
- ----------------------------
Accounts receivable allowance... $ 688 $ 536 $ - $ 1,224
Year Ended December 31, 1995
- ----------------------------
Accounts receivable allowance... $ 752 $ - $ (64) $ 688
Year Ended December 31, 1994
- ----------------------------
Accounts receivable allowance... $ 131 $ 668 $ (47) $ 752
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in San Jose,
California on the 28th day of March, 1997.
MICREL, INCORPORATED
By /S/ RAYMOND D. ZINN
----------------------
Raymond D. Zinn
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Raymond D. Zinn and Robert J. Barker, and
each of them, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form 10-
K and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
- --------------------- -------------------------------------- ----------------
/S/ RAYMOND D. ZINN President, Chief Executive Officer and March 28, 1997
- ----------------------
Raymond D. Zinn Chairman of the Board of Directors
(Principal Executive Officer)
/S/ ROBERT J. BARKER Vice President, Finance and March 28, 1997
- ----------------------
Robert J. Barker Chief Financial Officer
(Principal Financial and Accounting
Officer)
/S/ WARREN H. MULLER Vice President, Secretary and Director March 28, 1997
- ----------------------
Warren H. Muller
/S/ GEORGE KELLY Director March 28, 1997
- ----------------------
George Kelly
/S/ DALE L. PETERSON Director March 28, 1997
- ----------------------
Dale L. Peterson
/S/ LARRY L. HANSEN Director March 28, 1997
- ----------------------
Larry L. Hansen
43
Micrel, Incorporated
Exhibits Pursuant to Item 601 of Regulation S-K
Exhibit
Number Description
------- -------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the
Registrant.(1)
3.2 Certificate of Amendment of Articles of Incorporation of the
Registrant. (2)
3.3 Amended and Restated Bylaws of the Registrant. (2)
4.1 Certificate for Shares of Registrant's Common Stock. (3)
10.1 Indemnification Agreement between the Registrant and each of its
officers and directors. (3)
10.2 1989 Stock Option Plan and form of Stock Option Agreement. (1) *
10.3 1994 Stock Option Plan and form of Stock Option Agreement. (1) *
10.4 1994 Stock Purchase Plan. (4)
10.5 Lease Agreement dated November 1, 1981 between the Registrant and
Pastoria Limited Partnership, as amended March 3, 1988. (1)
10.6 Lease Agreement dated June 24, 1992 between the Registrant and GOCO
Realty Fund I, as amended August 6, 1992 and February 5, 1993. (1)
10.7 Amended and Restated Loan and Security Agreement dated November 29,
1990 between the Registrant and Bank of the West, as amended
February 11, 1991, August 6, 1991, October 31, 1991, June 24, 1992,
September 24, 1992, August 16, 1993, April 29, 1994, July 2, 1994,
August 23, 1994, September 30, 1994, October 24, 1994. (1)
10.8 Form of Domestic Distribution Agreement. (2)
10.9 Form of International Distributor Agreement. (2)
10.10 Second Amendment dated February 20, 1995 between the Registrant and
TR Brell Cal Corporation to Lease Agreement dated June 24, 1992
between the Registrant and GOCO Realty Fund I, as amended August 6,
1992 and February 5, 1993. (3)
10.11 Amended and Restated Loan and Security Agreement dated November 29,
1990 between the Registrant and Bank of the West, as amended
March 31, 1995. (4)
10.12 Amended and Restated Loan and Security Agreement dated November 29,
1990 between the Registrant and Bank of the West, as amended
September 30, 1996. (5)
10.13 1994 Stock Option Plan and Form of Stock Option Agreement. (6) *
10.14 Amended and Restated 1994 Employee Stock Purchase Plan, as amended
January 1, 1996.
11.1 Statement regarding calculation of net income per share.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney. (See Signature Page.)
27.1 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 ("Registration Statement"), File No. 33-85694,
in which this exhibit bears the same number, unless otherwise
indicated.
44
(2) Incorporated by reference to Amendment No. 1 to the Registration
Statement, in which this exhibit bears the same number, unless
otherwise indicated.
(3) Incorporated by reference to the Company's Annual Report on Form 10-
K for the year ended December 31, 1995, in which this exhibit bears
the same number, unless otherwise indicated.
(4) Incorporated by reference to exhibit 10.1 filed with the Company's
quarterly report on Form 10-Q for the period ended March 31, 1995.
(5) Incorporated by reference to exhibit 10.1 filed with the Company's
quarterly report on Form 10-Q for the period ended September 30,
1996.
(6) Incorporated herein by reference to the Company's Registration
Statement on Form S-8, File No. 33-90396, in which this exhibit bears
the number 4.1.
(d) Financial Statement Schedules. The financial statement schedule
required by this Item is listed under Item 14(a)(2) above.
45