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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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: March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-15449
CALIFORNIA MICRO DEVICES CORPORATION
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(Exact name of registrant as specified in its charter)
California 94-2672609
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(State or other jurisdiction of incorporation) (IRS Employer Identification
No.)
215 Topaz Street, Milpitas, CA 95035-5430
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (408) 263-3214
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 files pursuant to Item 405 of
Regulation S-K (Section 209.405 of this chapter) is not contained herein, and
will not be contained to the best of registrant's knowledge, in any definitive
proxy or information statement incorporated by reference in Part II of this Form
10-K or any amendment to this Form 10-K.
Yes X No
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 31, 1998, was approximately $32,503,000.00 based upon the
last sale price of the common stock reported for such date on the NASDAQ
National Market System. For purposes of this disclosure, common stock held by
persons who hold more than 5% of the outstanding voting shares and common stock
held by executive officers and directors of the Registrant have been excluded in
that such persons may be deemed to be "affiliates" as that term is defined under
the rules and regulations promulgated under the Securities Act of 1933. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 31, 1998, the number of shares of the Registrant's common stock
outstanding were 9,978,351.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the Registrant's Annual Meeting of Shareholders to be
held August 7, 1998.
PART I
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Act of 1934, as amended. Except for the historical
information contained in this discussion of the business and the
discussion and analysis of financial condition and results of operations,
the matters discussed herein are forward-looking statements. Such
forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements regarding revenues, orders, and sales involve a
number of risks and uncertainties, including but not limited to, demand
for the Company's product, pricing pressures which could affect the
Company's gross margin or the ability to consummate sales, intense
competition within the industry, the Company's ability to attract and
retain high quality people, the need for the Company to keep pace with
technological developments and respond quickly to changes in customer
needs, the Company's dependence on third party suppliers for components
for its products, year 2000 issues, and the Company's dependence upon
intellectual property rights which, if not available to the Company, could
have a material adverse effect on the Company. These same factors, as well
as others, such as the continuing litigation involving the Company, could
also affect the liquidity needs of the Company. Actual results could
differ materially from those projected in the forward-looking statements
as a result of factors set forth below and elsewhere in this Form 10-K.
ITEM 1. BUSINESS.
General
The business strategy of California Micro Devices Corporation ("California Micro
Devices" or "the Company") is to develop and capitalize on the potential high
growth market for Thin Film Passive Devices and related semiconductor solutions.
The Company serves Original Equipment Manufacturers (OEM) and End User
electronic systems manufacturers who need higher density, higher performance,
lower cost, unique functionality, and faster time to market. The Company
combines multiple Thin Film Passive Electronic Components (resistors and
capacitors) and/or semiconductor devices into single chip solutions for many of
the industry's most difficult problems, and allows its customers to build
systems which provide superior value to their users. California Micro Devices
has forged a leadership position by combining proprietary materials, and
semiconductor process and design technologies, while providing specialized
applications support to its customers.
The Company's Integrated Passive Devices fall into two basic categories. The
Company's new P/Active(R) Integrated Passive products incorporate the latest in
high density, high frequency, high reliability technology in Application
Specific Passive Networks for high volume industry standard applications or
devices which complement industry leaders' semiconductor solutions. The second
category is the traditional IPEC(TM) family, which consists primarily of custom
and general purpose devices for solving unique customer problems.
Unlike traditional discrete passive components that were developed during the
age of the transistor, these devices are targeted to complement many of today's
most sophisticated and cost effective integrated circuit based systems.
Applications in fields such as high-speed computers and peripherals,
telecommunications, networking, and medical instrumentation demonstrate the
value that the Company can bring to almost any electronics application.
During fiscal year 1998, the Company also introduced the first devices in a new
line of semiconductor products designed to provide electrostatic discharge
protection to today's faster, more sensitive electronic systems. These are
marketed as part of the Company's P/Active(R) family of products.
California Micro Devices also designs, manufactures, and sells certain
semiconductor products (primarily analog and mixed signal products for the
telecommunications industry). These sales continue to be a significant portion
of the Company's business, accounting for approximately 35% of product sales
over the last three fiscal years. The sales of these older products, which have
historically constituted the bulk of the Company's semiconductor revenue,
continue to decline. Sales of new P/Active(R), plus the onset of revenue from
foundry services, have begun to dominate the revenue for the semiconductor
operation's portion of the Company's business.
California Micro Devices has a relationship with Hitachi Metals Ltd., a
subsidiary of Hitachi Ltd., that involves equity participation, product
development, plus manufacturing, marketing and non-exclusive worldwide
distribution rights. During fiscal 1998, the Company recognized $569,000 in
technology revenue from Hitachi and $732,000 of product revenue. The Company
does not expect to have technology revenue from Hitachi in fiscal 1999.
The Company was incorporated in 1980, and has been a public company since 1986.
It utilizes 86,000 square feet of facilities in Milpitas, California and Tempe,
Arizona.
Passive Components
Passive components - principally resistors and capacitors - are used in
virtually all electronic products. They filter, condition, shape, terminate and
improve the characteristics of the electrical signals used and transmitted by
active components such as microprocessors, Application Specific Integrated
Circuits ("ASIC's") and dynamic random access memories ("DRAM's"). Although the
role of passive components has changed over the years, their usage has continued
to grow with the transition to higher levels of semiconductor integration. For
many years the number of passive components in systems such as personal
computers was decreasing, being offset in the market by increasing numbers of
systems. However, in the last few years there has been a reversal of this trend.
The number of passives in a PC reached a minimum with the 486 generation and is
now showing dramatic increases in the Pentium(R), Pentium Pro(R), Pentium II(R)1
and equivalent workstation generations. Similar trends are occurring in other
areas where new functionality and higher frequencies are being incorporated in
state of the art systems, dramatically increasing the demands on passive
components.
According to industry sources, the worldwide market for selected passive
components includes over $5.0 billion for resistors and resistor networks, and
over $9.0 billion for capacitors. Unit consumption continues to grow
significantly, driven by the increasing complexity of products such as personal
computers, networking equipment and telecommunications devices, and the
increasing volume of portable products such as cellular phones, personal
communication systems ("PCS"), pocket pagers, personal digital assistants
("PDA's") and notebook computers. In addition, market growth has been augmented
by greater electronic content in products such as automobiles and appliances.
During calendar year 1996, over-capacity in the passives industry led to
significant price reductions that continued unabated through 1997, so that even
in the face of increased unit demands, total industry revenue has declined.
Although California Micro Devices only addresses a small portion of the overall
market for passive components, these are some of the largest and most rapidly
growing segments.
The target applications for the Company's Integrated Passive Devices (IPD's) are
those traditionally served by multi-layered ceramic capacitors ("MLCs") and
thick-film resistors interconnected on PC boards. Passive components so
manufactured, which comprise most of the worldwide market for resistors and
small value capacitors, are generally discrete components, able to perform only
a single function per device. Traditionally the direction among the
manufacturers of these devices has been to make them smaller and cheaper. But
the size is now being limited by the ability to physically handle them, and we
estimate that the total conversion costs of the devices (the total cost to use
them), now exceeds the raw cost of the component by factors of 5X to 20X.
In the last few years there have been efforts on the part of discrete passive
manufacturers to achieve some of the benefits that the Company achieves with
it's integrated passives. The nature and variety of materials involved in MLCs
and thick film resistors have limited the ability of thick film manufacturers to
achieve significant levels of integration to date. Four resistor packages, where
all of the resistors are the same, and 8 resistors packages, where all resistors
are the same and are in a limited interconnected configuration, have become
reasonably common. Eight capacitor configurations have been relatively
unsuccessful, and resistor capacitor combinations are even more limited.
However, it is clear that traditional discrete passive manufacturers are
embracing the need for integration, and will compete to the limits of their
technology.
In contrast, continuing improvements in silicon fabrication technology have
enabled integrated circuit manufacturers to integrate increasing numbers of
active components, principally transistors, onto single semiconductor chips.
This integration has increased the number of functions performed by each chip,
improved performance, and significantly reduced the cost per function. The
failure of passive components to match the improvements in active components has
led to a relative increase in the cost of using passive components as compared
to the cost of the active elements, increased the proportion of space occupied
by passive components on many printed circuit boards ("PCB's"), and in some
cases limited the ability of system designers to take advantage of higher
performance integrated circuits. This is the opportunity California Micro
Devices looks to exploit. Most of the traditional thick film passive
manufacturers have recognized the advantages of thin film devices, announced
their intentions to enter the market, and acknowledged the Company's leadership
in the field. Standards organizations such as the Electronic Industries
Associate (EIA) are now drafting standards for Integrated Passive Devices
(IPD's), a sign of the increasing role that these devices are beginning to play
in the industry.
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1 Pentium, Pentium Pro, and Pentium II are registered trademarks of Intel Corp.
2
California Micro Devices' Goal/Strategies
The Company's goal, as the leader in Integrated Passive Devices, is to create a
high growth company by converting significant portions of the thick film passive
market to its thin film, Integrated Passive technology. The Company's strategy
for achieving this is to target specific market segments which place a high
value on the Company's capabilities, develop solutions to targeted high volume
applications (standard or custom), and leverage its thin film and semiconductor
expertise - which it believes is a unique combination in the industry - to
provide products with significant cost, size, performance and reliability
advantages over traditional passive components. The Company also intends to
leverage its base of thin film technology to enhance its semiconductor
technology and to provide components, which complement its unique passive
solutions to customer problems. Key elements of the Company's strategy include:
Target High Volume Solutions - The Company targets manufacturers of
products in growth markets such as personal computers, cellular phones, pagers,
networking, wireless computer networks and high performance graphics
workstations, all of which have an increasing need for higher performance,
higher density passive components. The Company attempts to identify common high
volume applications or, when appropriate, designs customized solutions to meet
particular customer applications.
Commit to Technology Leadership - California Micro Devices uses its
extensive thin film processing and materials expertise in combination with its
semiconductor capabilities to develop and expand its product technology. For
example, during fiscal 1998, the Company announced the introduction of its
second generation P/Active(R) RC technology that effectively doubled the
capacitance density, which could be achieved without sacrificing other
characteristics such as reliability and frequency. This new device structure
allowed the Company to expand its product capabilities, integrate more devices
in a single package, and serve a broader segment of the passive component
markets by lowering the cost of manufacturing. This development strategy is the
equivalent of Moore's law for increasing density in the semiconductor industry.
The Company is also using its expertise in integrating different components to
develop combinations of passive components and certain active components (such
as MOS transistors and Schottky diodes with passives), into its P/Active(R)
solutions. In addition, the Company has been developing its own new
semiconductor products for the mobile telecommunications market and other custom
applications.
Enhance Position as Low Cost Solution Provider - California Micro
Devices believes that, through the use of its thin film technology, it can
provide one of the lowest total cost solutions for its customer's passive
component needs. Having made significant capital and technology investments to
enhance its position during fiscal year 1997, the Company embarked on an
aggressive pricing policy in fiscal year 1998 aimed at penetrating markets in
which cost savings are a dominant driver. While this has short-term negative
impacts, the Company believes that this strategy is necessary in order to break
out of the more traditional, limited roles, to which Integrated Passives have
historically been assigned.
Leverage the Volume Capabilities of California Micro Devices' Technology
and Facilities - the Company has historically had underutilized fabrication
facilities, both in Semiconductors and in Thin Film (both currently 25% to 30%
utilization). The Company is taking advantage of this capability to be
aggressive on volume pricing. It has also begun doing foundry work (contract
wafer manufacturing) for other semiconductor manufacturers to leverage the fixed
investment. While these activities provide a lower average margin than the
Company's traditional products, they provide an opportunity for additional fixed
cost absorption and higher incremental margin, while the Company fine tunes its
manufacturing operations for even lower costs.
P/Active(R) Products
In the spring of 1996, California Micro Devices introduced its new P/Active(R)1
family of integrated passive components. These devices represent a major step
forward in the development of high performance, lower cost passive components.
In fiscal year 1998 these products began to generate revenue and now represent
the most rapidly growing segment of the business.
Historically, integrated thin film passive components have been built on silicon
wafers. But for all intents and purposes, the silicon was incidental to the
devices themselves. Silicon wafers are relatively cheap, readily available, of
extremely high quality, and are supported by many generations of semiconductor
processing equipment. They make an outstanding vehicle on which to deposit thin
films for creating higher performance passive components. But the role of the
silicon was historically that of an inactive carrier.
In late calendar 1990 and early 1991, California Micro Devices made the first
change in this role when it introduced a family of multiple resistor-capacitor
configurations in a package. As originally conceived, construction of these
devices would have involved the deposition of multiple layers of conducting and
insulating thin films on the top of the traditional "passive" silicon
- - -----------------
1 P/Active(R) is a registered trademark and IPEC and PAC are trademarks of
California Micro Devices.
3
substrate, using metal films to interconnect them. The Company pioneered a
method of using very low resistance semiconductor wafers for the substrate to
interconnect the common ground node of all the capacitors through the "silicon
interconnect" provided by the wafer, instead of using metals. These products
were a major success, providing new levels of performance and reliability.
California Micro Devices new P/Active(R) family recognizes the power of this
concept and extends it further. In the P/Active(R) family, the silicon substrate
fills a variety of roles. In some products, it is used to provide this original
silicon interconnect function although in additional configurations. In some,
the silicon is used to enhance and control the electrical characteristics. In
others, ESD protection mechanisms for high performance capacitors are created in
the substrate and integrated with the passives. And in still others, the
integration of Schottky diodes both as simple networks and in combination with
other passive devices is provided.
In summary, California Micro Devices has changed the traditional role of the
silicon wafer in thin film passives from being a non-contributing, passive
carrier upon which thin films were deposited, to that of an active part of the
functioning device. In doing so, it extracts the full measure of capability from
the silicon substrate to provide customer solutions that have performance
exceeding the limitations of traditional devices. The Company's semiconductor
capabilities are central to this solution. The Company is not aware of any other
company that has achieved this level of capability to date.
California Micro Devices Advantages
The Company integrates multiple passive elements into a single integrated
circuit. The Company believes that its thin film products have the following
desirable advantages over traditional thick film technology components:
Smaller Size for Miniaturization and Portability - Customer demand for
smaller, more portable products and more functionality within a given space has
created a need to reduce component size. Discrete passive components typically
require significant space on the PCB, limiting either the ability to shrink
product size or to incorporate additional features. This is particularly
important in devices such as portable computers, cellular phones and pagers. The
integration of multiple passive devices on a single integrated circuit reduces
the size and weight of the passive components. This has been the most important
factor in the Company's sales to date. For instance, cellular phones generally
require hundreds of discrete semiconductors and passive components, which can
consume as much as 2/3 of the PCB space. Even one of the Company's older
IPEC(TM) products, which integrates 18 capacitors and 18 resistors, reduces the
space used on the PCB by up to 80% compared to the use of the same number of
discrete elements. Discrete components have been introduced in smaller sizes in
an attempt to provide space savings. But such tiny devices create significant
assembly rework and reliability problems for manufacturers, which significantly
increases costs. It appears that discrete passive components are reaching the
limits of size reduction and there is increasing interest in integrating more
components in a given package as the Company is doing. The traditional passives
manufacturers seem to be acknowledging this by their attempts in the last couple
of years to introduce their own limited levels of integration.
Lower Total Cost Solutions - Manufacturers of electronic products face
intense price competition, especially in the last couple of years. By
integrating multiple passive elements onto a single chip, the Company is able to
offer a lower total cost solution than that offered by most discrete passive
component manufacturers. The cost of purchasing and placing one of the Company's
thin film integrated resistor/capacitor networks - which may combine as many as
76 components in a single surface mount package - can be as much as 75% less
than the cost of purchasing and installing an equivalent number of thick film
discrete elements. The Company's Super PAC(TM) 1284 solution for the parallel
ports of PC's and Workstations replaces 25 discrete resistors, 17 capacitors,
and the equivalent of 34 ESD protection diodes with one miniature IC package.
The customer also realizes further cost savings by reducing the size of the
printed circuit board, and by eliminating board interconnection. Not all
potential customers acknowledge the savings to be gained by integrating passive
components, so selling this advantage remains one of the Company's most
significant challenges.
Performance at Higher Frequencies - The increasing use of faster
microprocessors in computers, and higher frequencies in communication products,
has created a significant demand for improved passive component performance.
Traditional passive components do not perform well at many of today's higher
frequencies due to a variety of problems including variation of characteristics
with frequency, signal matching delays, and inconsistencies in characteristics
between devices and the PCB's on which they are used. These problems often keep
higher frequency systems from operating to their full capability. The Company's
thin film technology components perform well at high frequencies due to the
inherently smaller size of the component and the ability to achieve consistent
placement of the components relative to each other. The Company's new PAC(TM) RC
family of filters operate properly at up to 10 times the frequency of
traditional discrete components. Other devices such as the PAC(TM) RG have been
characterized at frequencies up to 10 GHz (well beyond the functional limits of
traditional devices) and are being adopted by some customers to achieve the
operating frequency they need for the operation of next generation systems.
4
Unique Electrostatic Discharge (ESD) Protection Capabilities - All of
California Micro Devices P/Active(R) family of products have been designed to
tolerate high levels of electrostatic discharge, and these capabilities are
constantly being enhanced to keep pace with increasingly stringent industry
requirements. Recently the European Community has introduced new electrostatic
discharge requirements for systems aimed at improving system reliability in the
field. The Company has taken a leadership position in providing protection
devices, which meet the most stringent levels of these new standards, while
simultaneously increasing the ESD capabilities of its PAC(TM) RC family of
products to not only survive the tests themselves, but also to help protect
other devices to which they might be connected.
EMI/RFI Filtering Capabilities - Electronic systems designed to operate
at high frequencies can emit high levels of Electromagnetic Interference/ Radio
Frequency Interference (EMI/RFI). These emissions are strictly regulated by the
Federal Communications Commission ("FCC") and the European Community. Because
systems manufacturers can only test for the existence of EMI/RFI emission
problems late in the product design cycle, non-compliance with FCC requirements
can result in costly delayed product introductions. As products run at higher
frequencies and become smaller and more mobile, the difficulty in suppressing
these emissions increases. The Company's filters are capable of suppressing
EMI/RFI noise by as much as 10X more than combinations of thick film components
at high frequencies. The Company believes that this provides a significant
advantage for state of the art digital cellular phones, high performance
microcomputers and workstations as well as portable electronic equipment. The
Company's new P/Active(R) filters are effective to over 3 GHz, as much as 10
times the frequency at which traditional capacitors stop acting like capacitors
and start behaving like inductors (stop filtering). This can result in fewer
problems in final FCC testing.
Improved Reliability - the Company's thin film technology is more
reliable than traditional thick film technology due to greater tolerance to
hostile environmental conditions and the reduction in the number of component
interconnections. Depending on the system, over 40% of all system failures can
be attributed to poor interconnections. Increased integration, along with the
Company's use of reliable processes common to the semiconductor industry, reduce
the number of connections and eliminate many of the problems with solder
migration, cracking and peeling, sensitivity to environmental conditions, and
poor solder joints which often accompany the use of thick film technologies.
Sales and Marketing
The Company has focused its marketing efforts in the areas of personal computers
and their peripherals, portable communications devices, high performance
workstations, and networking systems. Additionally, the Company focuses its own
efforts on major world wide electronic system manufacturers who are considered
market leaders in these segments, and where the Company feels it has the
greatest opportunities and ability to influence the industry at large. This
often involves a longer design-in cycle, but has greater long-term business
potential.
The sales process requires that the Company achieve design wins in which its
products are specified for specific projects. The Company's products are
generally not specified without engineer to engineer contact, as well as strong
interaction with procurement, and sometimes other functions within the
customer's organization.
The Company works with existing and potential new customers to identify passive
and specialized semiconductor component needs which the Company's capabilities
address, and seeks to have customers design the Company's products into the
customer's electronic systems. The Company facilitates these efforts by
providing customized solutions as necessary to meet customer design
requirements. These customized designs, and the knowledge acquired during the
process, can often be used to create standard products, which the Company can
then offer for similar application requirements in other areas.
During fiscal 1998, the Company further strengthened its marketing applications
efforts to understand in detail the problems facing the users in its chosen
segments. The goal is to be able to specify and ultimately design Application
Specific Passive Networks, which satisfy the needs of multiple customers.
Progress in this area is particularly evident in the improved strength of the
Company's applications engineering group and the increased numbers of
application notes and seminars the group has completed. The Company has become a
value-added partner with some of its customers, as well as leading vendors of
semiconductor devices, to provide the knowledge and the passive networks to
complement the active devices in a system.
California Micro Devices sells its products to OEMs, distributors, and contract
manufacturers. The Company's sales channels consist primarily of independent
regional sales representatives supported by the Company's sales force, which is
located in Milpitas, California and in three regional sales offices. The Company
believes that independent sales representatives generally provide an effective
sales force at a lower cost than a dedicated internal sales force. Independent
sales representatives are generally able to leverage their sales efforts by
offering multiple, although normally not competing, products from different
vendors to their customers. This makes them ideal channels for opening the doors
at customer sites. Toward the end of fiscal year 1998 the Company also took
actions to increase the amount of direct presence it has in the field, with the
intention of
5
providing a greater degree of the Company support and direction to the
representatives. The Company's major accounts are also supported by headquarters
directed efforts of the sales, marketing and applications engineering staff.
The Company sells through distributors, both in the U.S.A. and in the Far East
and Europe, to provide sources of its products at locations close to the
customers. As the Company's standard product line expands, the Company expects
that more of its sales may be through national, international, and regional
distributors. Distributors are particularly effective in serving smaller
customers and those with particular service requirements. In the last year there
has also been a slight shift towards the use of distributors to support the
short lead times required by many contract manufacturers.
There is a distinct shift towards the use of contract manufacturing within the
Company's customers base, and the indications are that this trend will continue.
By the end of fiscal 1998, a contract manufacturer had become the Company's
single largest direct purchaser of product.
The Company's foreign product sales accounted for 35%, 36%, and 31% of product
sales for fiscal years ended March 31, 1998, 1997, and 1996, respectively. The
Company uses independent foreign sales representatives and distributors to
provide international sales support. The Company expects that international
sales will continue to represent a significant portion of its sales for the
foreseeable future. The Company's sales are denominated in US dollars to avoid
currency risk.
In fiscal 1998, Bell Milgray Inc., a distributor, accounted for just over 10% of
net product sales. A significant portion of the Company's sales is made to a
relatively small number of customers including several distributors. It remains
a goal of the Company to get more balanced penetration and become less
susceptible to swings in any specific application area or with any given
customer. During fiscal 1997, Motorola accounted for 11% of the net product
sales. During fiscal 1996, no customer accounted for more than 10% of net
product sales.
Most of the systems into which the Company's products are designed have short
life cycles. As a result, the Company requires a significant number of new
design wins on an ongoing basis to maintain and grow revenue.
Generally, the Company's sales are not subject to long-term contracts but rather
to short-term releases of customer's purchase orders, most of which are
cancelable on relatively short notice. The timing of these releases for
production as well as custom design work are in the control of the customer, not
the Company. Because of the short life cycles involved with its customers'
products, the order pattern from individual customers can be erratic with
significant accumulation and de-accumulation of inventory during phases of the
life cycle. For these reasons, the Company's backlog and bookings as of any
particular date may not be representative of actual sales for any succeeding
period.
In addition, the Company derives technology revenue and revenue from product
sales through agreements with Hitachi Metals Ltd. The Company expects little or
no revenue from HML for joint research and development in the future.
Products
Thin Film Products
The Company's thin film product offerings fall into two categories:
o The Company's new P/Active(R) family of components, which optimize high
frequency performance, density, reliability, and other capabilities.
These devices are Application Specific Passive Networks targeted to
solve industry standard applications or to complement the semiconductor
offerings of the industry's leading chip suppliers.
o IPECs(TM), the Company's traditional custom products which are cost
effective for customers with unique high volume requirements or who can
take advantage of the Company's capabilities to provide tight
tolerances, low temperature coefficients, tight matching between
components, or other special characteristics.
All these devices provide the benefits of combining multiple thin film
resistors, capacitors, diodes, etc. into single high-density packages. Resistors
impede the flow of electrical current and dissipate electrical energy as heat.
They are used to divide, pull-up/pull-down voltage, terminate and control
current and filter out noise. Capacitors store electrical charges and pass
alternating current while blocking direct current. Integrated
resistors-capacitors are used for a variety of purposes including filtering
electromagnetic radio frequency interference, creating high-pass or low-pass
filters, and terminating transmission lines.
6
The Company offers a variety of precision and non-precision thin film resistors
and capacitors as well as combinations of those elements with and without
semiconductor devices. The Company has particular strength in the area of
resistor-capacitor filters, one of the most rapidly growing and difficult
segments of the integrated passive component business. The Company's current
product line addresses a substantial portion of the resistor and resistor
network market, and a small percentage of the total capacitor market.
The Company sells these products both in standard semiconductor industry
packages, primarily Surface Mount Technology (SMT), and as unpackaged die.
Packaged devices represent the dominant portion of the Company's business. As
the pressure for higher performance and density continues to mount on systems
manufacturers, there is growing interest in the Company's capability to provide
"bumped" die for flip chip assembly.
Historically, most of the Company's thin film business was custom in nature, and
typically its products were only sold to one customer. In late fiscal year 1997,
the Company began the effort to define standard products which would not only
provide a greater degree of stability to the overall revenue base, but could
also be used as technology drivers for improving the cost and manufacturability
of its products.
During fiscal year 1998, the Company announced a partnership with Flip Chip
Technologies and Avex Corporation targeted at providing Flip Chip Integrated
Passives for use in standard electronic systems. The success of this program and
its acceptance by the industry would have an enormous impact on both the space
savings and cost savings ability of integrated passives.
Semiconductor Products
The Company's semiconductor facilities are nominally limited to the production
of CMOS or BiCMOS circuits using greater than 1.5 micron minimum feature size.
This requires the Company to focus on specialized circuits, rather than
competing at the leading edge of the semiconductor technology.
The Company's semiconductor business includes analog and mixed signal integrated
circuits that combine digital and analog functions on a single chip. Product
groups include data communications and interface families, and telecommunication
dual tone multi-frequency receiver and transceiver (DTMF) products. These
products are used in customer applications such as personal computers, answering
machines, portable telephones and switching systems.
With the significant strengthening of its design resources during fiscal year
1998, the Company has begun the development of a number of new integrated
circuit families. The first of these, the new ElectroStatic Discharge protection
circuits, have recently been introduced to the market and received a very
positive response. Other devices in this family and other categories will be
announced in fiscal year 1999 as a result of the Company's new developments.
The Company participates in the foundry business, in which wafers are fabricated
to customer specifications, using customer designed tooling. Most of these
products are built using unique processes which are not directly competitive
with the mainstream foundries in Southeast Asia and elsewhere. The Company's
intent is to do foundry work to leverage the underutilization of its capacity in
Tempe, Arizona while it builds its own products and establishes relationships
with key partners. The Company sees the foundry business as being a long-term
component of its revenue.
Manufacturing
The Company's manufacturing processes are complex, and require production in a
highly controlled, clean environment suitable for fine tolerances. Normal
manufacturing risks include errors in fabrication processes, defects in raw
materials, as well as other factors that can affect yields. The Company
currently operates wafer fabrication facilities in Milpitas, California and
Tempe, Arizona. The Milpitas facility includes a 10,000 square foot clean room
and primarily uses 4 and 5 inch round and 4 1/2 inch square wafers to
manufacture thin film passive components. The Tempe facility includes a 16,000
square foot clean room and is equipped for five-inch wafer fabrication of both
thin film and semiconductor products. The Company estimates that its wafer
capacity utilization for the year ended March 31, 1998, was approximately 25% in
Tempe and 30% in Milpitas. Obtaining full wafer fabrication capacity from both
of these locations would require moderate additional capital expenditures.
During fiscal 1997, both the Milpitas facility and the Tempe facility received
ISO 9000 certification, and the second phase of this work was completed in
fiscal 1998. This certification is an internationally recognized acknowledgment
that the Company has established and adheres to detailed operational controls.
7
The Company manufactures its products using industry standard semiconductor
wafer fabrication equipment that the Company modifies as necessary to produce
thin film products. The Company has historically purchased used processing
equipment at significantly lower cost than new equipment, but has also purchased
new equipment for some operations where it could be shown to be more cost
effective.
During fiscal 1996, and continuing in fiscal 1997, the Company made substantial
investments in capital equipment to both upgrade its capabilities and to
increase capacity in areas such as test and finish of thin film products. This
investment level declined substantially in fiscal 1998. Much of the Company's
equipment is still very old, resulting in higher maintenance costs, more
downtime, and in some cases the risk of the unavailability of spare parts or the
expertise to maintain the equipment. Selective investments in capital equipment
enhance productivity, improve costs, and increase the Company's revenue
potential.
The Company uses subcontractors in Asia, primarily in Thailand and secondarily
in Malaysia, for assembly and packaging most of its product. Although the
Company has not typically experienced any significant disruption of deliveries
due to the use of foreign subcontractors, this common industry practice is
subject to political, economic and other risks. Also, due to its volume of
product, it is impractical for the Company to spread its use of subcontractors
over more than a few suppliers without significant increase in its costs. Should
the operations of its subcontractors be disrupted in both Thailand and Malaysia,
the Company would have to reevaluate its sources of supply for these services.
The volatility of the semiconductor industry has occasionally resulted in
shortages of subcontractor capacity and other disruptions of supply. This
capacity was in short supply during much of fiscal 1996, but is presently in
ample supply as a result of additional investments by vendors coupled with a
slowdown in the semiconductor industry growth rate.
Additionally, during fiscal 1997, the Company began testing and finishing a
large portion of its product at its foreign subcontractors, and the proportion
of the Company's product tested there has continued to increase. The Company
also "drop-ships" product from these foreign vendors to customers. This has the
effect of both saving freight charges and reducing the delivery cycle time.
However, it increases the Company's exposure to disruptions in operations not
under its direct control and has required the Company to enhance its MIS systems
to coordinate this remote activity. The Company monitors the financial health of
its Southeast Asian vendors in an attempt to anticipate any financial problems
there.
Management Information Systems
In the last half of fiscal 1996, the Company installed new management
information systems for work in process tracking, order processing, and
financial management. During fiscal year 1997, these systems were solidified and
new capabilities installed. The Company is now able to analyze costs and
variances at the detailed operational level and is using these tools for cost
analysis and reduction. Also, the new systems provide greatly improved insight
into customer order patterns and requirements.
During fiscal 1998, the Company established a web site on the Internet and this
has become an extremely effective method of communicating with all of the
Company's constituents. Both Internet and the internal networks have
significantly improved the Company's operations. In fiscal 1998, the Internet
was combined with the Company's MIS systems to provide efficient low cost
methods of implementing production control techniques around the world.
Many computer systems employ a two-digit date field and could experience
problems beyond the year 1999. The Company has evaluated its management
information systems (MIS) and has a plan to convert all its MIS applications to
year 2000 compliant versions by the end of calendar 1998. The Company is in the
process of evaluating computers and software utilized in its manufacturing
operations. Nothing has come to the attention of the Company that would indicate
a material impact of year 2000 issues on the Company's results of operation or
financial condition.
The Company is also evaluating the possible impact of year 2000 issues on its
key suppliers and subcontractors. Noncompliance with year 2000 issues on the
part of key suppliers and subcontractors could result in disruption of the
Company's operations. However, the potential impact and related costs are not
known at this time.
Competition
Competition in the passives industry is based on a number of factors, including
price, product performance, established customer relationships, manufacturing
capabilities, product development and customer support. The primary competition
for the Company has come from established competitors and from pre-existing
technologies. Many of the Company's competitors have announced that they will be
providing thin film products as well as their traditional thick film devices.
The Company has seen only sporadic thin film competition, but continues to
believe that this competition will become more prominent. From
8
information the Company has, these competitors are trying to emulate the
Company's traditional product line, but no one has yet been successful in
imitating the Company's new P/Active(R) products because of the significant
component of semiconductor technology involved.
The Company's primary competitors for its resistors, resistor networks and
capacitors are substantially larger foreign and domestic companies as listed
below. Although most of them employ older technology manufacturing methods such
as thick film, multi-layer ceramic and wire wound technology, they have
substantially greater resources than the Company and their technologies are
usually the accepted standard for existing applications. They also have
significantly greater sales and distribution capabilities and typically operate
at lower gross margins than the Company targets. Competitors include:
AVX/Kyocera; IRC; Beckman Industrial Corp.; KOA Electronics, Inc.; Matsushita
Electronics Components Co., Ltd.; Murata-Erie of North America, Inc.; ROHM Co.,
Ltd.; TDK Corp. of America; and Vishay Intertechnology, Inc.
The Company believes its competitive strengths include unique high density
capabilities, product performance characteristics, its understanding of customer
product requirements, high quality, high technology processing and manufacturing
facilities, cost efficient operations, dual manufacturing locations, and
experienced management and technical staff.
The Company believes its competitive weaknesses include its relative size
compared to its competitors, its limited sales, marketing and distribution
capabilities, a less mature manufacturing infrastructure, and less presence with
major corporations around the world. All of these factors result in
inefficiencies in the day-to-day operations of the Company as well as
limitations on the speed at which the Company can penetrate new customers and
markets.
Research and Development
The Company's research and development (R&D) programs consist primarily of
developing new products, processes and materials in response to identified
market needs. Additionally, the Company redesigns products to reduce costs and
expand the capabilities and performance of its existing products. During fiscal
1997, the Company focused most of its efforts on introducing the new P/Active(R)
family of products and in developing next generation base technologies. This
resulted in a new family of devices with substantially higher frequency
performance. In fiscal year 1998, the level of investment in process development
declined significantly while the direct investment in new products increased
significantly. While there will continue to be additional base technology
developments and refinements, particularly in the areas of enhanced capacitor
technologies and improved ESD diode technologies, the concentration of effort
going forward will be on new products.
In mid fiscal 1998, the Company was able to hire additional mid-level engineers
it needed to expand its staff. Although there continues to be significant risk
that the Company may not be able to recruit the top engineering talent it
requires in the time frame needed, the fiscal 1998 additions represented a major
improvement in the Company's development capability.
For the fiscal years ended March 31, 1998, 1997, and 1996, the Company spent
$3.0 million, $4.2 million, and $3.4 million, respectively, on its research and
development activities. See Item 7 for discussion of fluctuations in R & D
expenditures.
The Company has a Joint Development Agreement (JDA) with Hitachi Metals Ltd.
(HML). Under the terms of the agreement, HML has contributed a percentage of the
actual expenditures for mutually agreed upon joint product development. The
Company includes HML's contribution toward product development in the Statements
of Operations line labeled "Technology related revenues". HML's participation in
and contribution towards joint development programs has been declining and the
Company does not expect their contribution to continue into fiscal 1999 and
beyond.
Employees/Personnel
As of March 31, 1998, the Company had 256 full-time and part-time employees,
including employees in sales and marketing, engineering, and research and
development activities, manufacturing, finance, and administration. Of these
employees, 150 were headquartered in Milpitas, California and 106 in Tempe,
Arizona. The Company's success is highly dependent on its ability to hire and
retain high quality people. Although the Company has been able to recruit many
talented senior managers in the last couple of years, its future progress is
tightly linked to the ability to maintain and extend this base of talent. There
can be no assurance that the required people will be available when needed,
particularly in the difficult recruiting environment which has been
characteristic of semiconductor and related industries in recent years.
9
Patents and Licenses
The Company's policy is to apply for patent protection for its novel products
and manufacturing processes where such protection is warranted. Process
technologies are more often designated as trade secrets. With respect to mask
works, the Company's policy is to selectively seek copyright protection.
The Company's ability to compete may be affected by how it protects its
intellectual property. The Company believes that it is important to obtain
patent protection for its patentable inventions, and to protect its trade
secrets. The Company's trade secrets are protected by having its employees sign
confidentiality and non-disclosure agreements as part of its personnel policy.
It is not the Company's intention to rely solely on protection of intellectual
property rights to deter competition. However, when and where appropriate, the
Company has taken aggressive action to protect its intellectual property rights.
Although the Company continues to implement protective measures and intends to
defend its intellectual property rights, there can be no assurance that these
measures will be successful.
The Company has been granted six patents related to its thin film technologies.
Two patents relate to the Company's proprietary resistor, capacitor and diode
technology; two patents related to the Company's P/Active(R) production; and two
patents relate to proprietary inductor process technology. These patents have
been designated for filing in Japan and Europe pursuant to the International
Patent Cooperation Treaty. The Company has also been awarded a United States
patent for a BiCMOS Track and Hold Amplifier.
The Company has filed patent applications relating to specific embodiments of
its proprietary resistor, capacitor, diode, process and product technologies.
During fiscal 1998, the Company also filed three important new applications on
its P/Active(R) technology. The Company has obtained approval from the United
States Copyright Office to register certain of its mask works for its passive
component products. It has also established trademarks for its P/Active(R)family
of devices.
The Company has granted a non-exclusive, non-assignable license with respect to
certain of its thin film passive component (including mixed active and passive
components, such as resistors, capacitors, transistors, diodes, and networks of
the same) process and product technology to Hitachi Metals (HML).
As is the case with many companies in the electronics industry, the Company has,
from time to time, been notified of claims that it may be infringing certain
patent rights of others. Where appropriate, these claims have been referred to
counsel, and they are in various stages of evaluation. If it appears necessary
or desirable, the Company may seek licenses for these intellectual property
rights. The Company can give no assurances that licenses will be available, that
the terms will be acceptable, or that the disputes can be reconciled without
litigation.
Environmental Issues
The Company is subject to a variety of federal, state and local regulations in
connection with the discharge and storage of certain chemicals during its
manufacturing processes. The Company believes that it is in compliance with all
such environmental regulations. Industrial waste generated at the Company's
facilities is either processed prior to discharge or stored in barrels with
double containment methods until removed by an independent contractor. The
Company has obtained all necessary permits for such discharges and storage.
The Company believes that it is in compliance with applicable environmental
health and safety regulations.
ITEM 2. PROPERTIES.
The Company currently leases approximately 40,000 square feet of office,
development and manufacturing space including a 10,000 square foot clean room in
Milpitas, California, pursuant to an agreement that expires on June 30, 2002,
that provides for a current monthly rent of $31,689 plus operating expenses.
This rent amount will be increased 3% annually. The Company also owns 5 acres of
land and a 46,000 square foot building in Tempe, Arizona which houses a 16,000
square foot clean room, wafer fabrication, manufacturing, and engineering design
center.
The Company also leases approximately 24,000 square feet of space in Tempe,
Arizona, which formerly housed test facilities and warehouse space. Monthly rent
on the leased Tempe facilities is $13,988 plus operating expenses, pursuant to
an agreement that expires in March 2001. These facilities are currently being
subleased through the term of the lease. The sublease revenue is expected to
cover the costs of the lease. See Note 12 of Notes to Financial Statements.
10
ITEM 3. LEGAL PROCEEDINGS.
From August 5, 1994 through February 16, 1995, eleven purported class action
complaints were filed against the Company in the United States District Court
for the Northern District of California. Other defendants named in the class
actions include certain of the Company's current and former officers and Coopers
& Lybrand L.L.P., the Company's former independent auditor. The class actions
purport to be brought on behalf of classes of shareholders of the Company's
common stock over varying periods of time ranging from September 7, 1993 to
January 9, 1995. The gravamen of the allegations against the Company in the
class actions is that it violated Section 10(b) and Rule 10b-5 of the Securities
Exchange Act of 1934 by disseminating false and misleading financial statements
and reports for the fiscal year ended June 30, 1993 and June 30, 1994. The
complaints seek unspecified compensatory damages and attorneys' fees, as well as
other relief.
By court order dated May 20, 1997, these actions have been settled. The
Company's contribution towards the settlement consisted of the payment of
$6,000,000 in cash and the issuance of 608,696 new shares of the Company's
common stock to the class. Each new share was accompanied by a Contingent Value
Right (CVR), personal to the shareholder, that entitles the shareholder to
receive the difference between $11.50 and the highest 20 day average trading
price of the Company's common stock (assuming the average price is less than
$11.50) over the three years following the Effective Date of the Settlement
Agreement. The CVR expires at the end of that three-year period or when the
$11.50 price is met, whichever occurs first. The total amount of this
settlement, $13,000,000, was expensed in the fiscal year ended March 31, 1995.
In addition, the Company has put $2,000,000 into a restricted account as a
guarantee for performance under the CVR. The cash will cease to be restricted,
without interest, if and when the CVR is extinguished. Since the Effective Date
of the Settlement Agreement, the highest 20-day average trading price of the
Company's common stock has been $8.18. Should any payment to the class be
required under the terms of the CVR, it will be charged to equity, since the
full amount of $11.50 per share was included in the $13,000,000 previously
expensed.
A putative shareholders derivative action was filed against certain former and
present officers and directors of the Company on May 25, 1995, in Santa Clara
County Superior Court. This action has been dismissed with prejudice as to all
defendants.
The Company continues to cooperate with the pending investigations of certain of
its former officers by the Justice Department and the SEC. The Justice
Department has advised the Company that it is not currently a target or subject
of the investigation. The SEC has taken the position that it is premature, at
this stage in its investigation, to discuss the resolution of the investigation
of the Company.
The Company is a party to or target of lawsuits, claims, investigations, and
proceedings, including commercial and employment matters, which are being
handled and defended in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the financial condition or overall trends in the results of
operations of the Company.
The Company believes that, with regard to these matters and those previously
reported, it has to the best of its knowledge, made such adjustments to its
financial statements by means of reserves and expensing the costs thereof, that
these matters will not have any additional adverse impact on the Company's
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS.
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "CAMD".
Closing prices by quarter for fiscal 1998 and 1997 are as follows:
Common Stock
------------
Fiscal 1998 Q1 Q2 Q3 Q4
----------- -- -- -- --
High $ 8 7/8 $ 8 11/16 $ 7 3/4 $ 6 3/4
Low $ 7 $ 6 13/16 $ 5 1/4 $ 4 3/4
Fiscal 1997 Q1 Q2 Q3 Q4
----------- -- -- -- --
High $12 1/ 2 $ 9 $ 7 5/8 $ 9
Low $ 7 3/8 $ 4 7/8 $ 5 1/2 $ 5 1/16
Certain debt covenants restrict the payment of dividends. No dividends were paid
in fiscal 1998, 1997, or 1996. The Company expects to continue that policy in
the foreseeable future. There were approximately 4,400 common shareholders of
record as of March 31, 1998.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data (in thousands except per common share information)
set forth below with respect to operating and balance sheet data are derived
from the financial statements of the Company.
Twelve Months Nine Months Twelve Months
Ended Ended Ended June 30,
March 31, March 31, (unaudited)
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Total revenues $ 33,043 $ 32,936 $ 39,882 $ 23,703 $ 30,073
Income (loss) before income taxes* $ (3,005) $ 704 $ 5,119 $(22,617) $(16,634)
Net income (loss) $ (3,005) $ 704 $ 5,119 $(23,502) $(15,227)
Net income (loss) per common share $ (0.30) $ 0.07 $ 0.48 $ (2.75) $ (1.88)
Total assets $ 35,994 $ 38,270 $ 44,928 $ 40,688 $ 52,097
Long-term obligations $ 8,159 $ 8,499 $ 7,896 $ 9,337 $ 11,762
*And cumulative effect of change in accounting in fiscal year 1995 totaling a
loss of $835,000.
The 1994 financial statements were restated in February 1995 as a result of
certain irregularities uncovered in investigations by current management and the
SEC. The impact of the restatement was to change net income for 1994 from
$5,059,000 or $0.62 per share to a net loss of ($15,227,000) or ($1.88) per
share. The restatement resulted in a decrease of $20,286,000 in retained
earnings at June 30, 1994, from $9,581,000 to an accumulated deficit of
($10,705,000).
The Company's former independent auditors, Coopers & Lybrand L.L.P., resigned as
the Company's auditors in January 1995, and were replaced by Ernst & Young LLP.
Coopers & Lybrand L.L.P. reports were withdrawn; as a result, the Company's
statements of operations, shareholders' equity, and cash flows for the year
ended June 30, 1994 are unaudited. These statements include all adjustments,
which the Company believes necessary for a fair presentation.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In the following discussion, fiscal 1998, 1997, and 1996 refer to the twelve
months ended March 31, 1998, 1997, and 1996, respectively.
RESULTS OF OPERATIONS
Product sales for fiscal 1998 totaled $32.5 million compared to $31.5 million in
fiscal 1997 and $38.6 million in fiscal 1996. The 3% increase in sales in fiscal
1998 over fiscal 1997 reflects primarily the increase in unit sales of the
Company's new P/Active(R) family of products, offset by a decline in some of the
older products. The P/Active(R) family of products accounted for approximately
16% of the Company's sales in fiscal 1998 compared to approximately 3% in fiscal
1997 and none in fiscal 1996. The 18% decrease in sales in fiscal 1997 compared
to fiscal 1996 relates primarily to reduced demand from customers as their
inventories were being reduced and also due to lower shipments of thin film
products into customers' new products. Thin film products (including
P/Active(R)) accounted for approximately 66%, 64%, and 65% of the Company's
sales in fiscal 1998, 1997, and 1996, respectively.
Technology related revenues, consisting of cost-sharing payments by Hitachi
Metals Ltd. (HML) related to joint process and product development projects,
were $569,000 in fiscal 1998, $1,430,000 in fiscal 1997, and $1,240,000 in
fiscal 1996. The decline in fiscal 1998 is due to HML's declining participation
in joint projects. The Company expects little or no revenue from HML for joint
research and development in the future.
Cost of sales were 76%, 67%, and 58% of product sales for fiscal 1998, 1997, and
1996, respectively. The cost of sales percentage increase in fiscal 1998
compared to fiscal 1997 reflects a higher mix of lower margin standard products,
a lower mix of high margin custom products, and pricing pressure on products
shipped to Far East personal computer OEMs. In addition, in fiscal 1997 the
Company's inventories increased by $1,903,000, which provided higher factory
utilization, whereas in fiscal 1998 inventories were reduced by $751,000. Also
engineering charges from manufacturing to research and development decreased by
$1,200,000, as the nature of R&D programs shifted from material intensive
process development projects to product development projects involving a greater
proportion of R&D personnel costs. The cost of sales percentage increase in
fiscal 1997 compared to fiscal 1996 reflects an increased mix of packaged
products, which included significant outside contractor costs, and reduced mix
of sales of product in die form (which generally carry a higher margin), lower
factory utilization due to lower customer demand, and unusual levels of scrap.
Research and development expenses were $3.0 million in fiscal 1998 compared to
$4.2 million and $3.4 million in fiscal 1997 and 1996, respectively. The
decrease in fiscal 1998 compared to fiscal 1997 is due to reduced materials
costs, as the Company's research and development emphasis shifted from process
development efforts to product development. Thus, in fiscal 1998 there were
fewer process development projects involving significant material costs, and
more new product development efforts, which involve more personnel costs. In
fiscal 1998 personnel related costs increased to 60% of research and development
expenditures as compared to 42% in fiscal 1997, while material costs decreased
to 40% as compared to 58% in fiscal 1997. The increase in fiscal 1997 compared
to fiscal 1996 primarily reflects the increase in development costs for the
P/Active(R) products in addition to increased joint process and product
development projects in conjunction with HML.
Selling, marketing, and administrative expenses in fiscal 1998 were $7.9 million
compared to $7.4 million and $10.6 million for fiscal 1997 and 1996,
respectively. Fiscal 1998 expenses reflect increased headcount, advertising, and
other costs in marketing and sales partially offset by reduced administrative
expenses. Fiscal 1997 expenses, as compared to fiscal 1996, reflect reductions
in legal expenses in part due to insurance reimbursements and fee reductions,
reduced consulting fees, reduced sales commission, and reduced bonus expense.
Fiscal 1996 expenses included $1.1 million of unusual legal costs associated
primarily with shareholder litigation. See Note 16 of Notes to Financial
Statements.
Interest expense was $941,000, $739,000, and $1,100,000, in fiscal 1998, 1997,
and 1996, respectively. The increase in interest expense in fiscal 1998 compared
to fiscal 1997 primarily reflects higher interest on capital equipment leases.
The decline in interest expense in fiscal 1997 as compared to fiscal 1996
relates primarily to the expiration of certain equipment leases.
Interest and other income was $511,000 in fiscal 1998 compared to $1.4 million
in fiscal 1997 and $2.8 million in fiscal 1996. The decrease in fiscal 1998 as
compared to fiscal 1997 is primarily due to the lower level of cash and
investments in fiscal
13
1998 compared to fiscal 1997. The higher level of interest and other income in
fiscal 1996 was primarily due to the sale of the Company's interest in Cell
Access for a gain of $1.6 million.
As a result of the above factors, the Company had a net loss of $3.0 million in
fiscal 1998 as compared to a net income of $0.7 million and $5.1 million in
fiscal 1997 and 1996, respectively.
The Company's effective tax rate was 0% in fiscal 1998, 1997 and 1996. At March
31, 1998, the Company had Federal and State tax loss carryforwards of
approximately $25.5 million and $19.5 million, respectively. See Note 13 of
Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Unrestricted cash, cash equivalents, and short-term securities were $5.6 million
at March 31, 1998 compared to $6.8 million at March 31, 1997. Receivables
increased to $5.1 million at March 31, 1998 compared to $3.9 million at March
31, 1997. This increase occurred primarily because fourth quarter product sales
were $1.5 million higher in fiscal 1998 than in fiscal 1997, and secondarily
because a greater proportion of sales shipped in the last month of fiscal 1998
as compared to fiscal 1997. Inventories were $8.1 million at March 31, 1998 as
compared to $8.8 million at March 31, 1997 reflecting reduced raw materials and
finished goods, partially offset by increased work-in-process. Property, plant
and equipment decreased to $12.9 million at March 31, 1998 compared to $14.5
million at March 31, 1997. The Company made significant expenditures in fiscal
1997 and 1996 to upgrade its manufacturing operations and management information
systems as well as to buy out previously leased equipment. This level of
expenditure was not necessary in fiscal 1998. Current liabilities were $6.2
million at both March 31, 1998 and 1997. Long term debt and capital lease
obligations totaled $8.2 million at March 31, 1998 compared to $8.5 million at
March 31, 1997 as the Company's long term financing activities were minimal.
Common stock increased by $1.1 million in fiscal 1998 primarily due to the
operation of the Company's employee stock purchase program.
Significant cash outflows in fiscal 1997 included capital equipment additions of
$6.0 million (including capital lease buy-outs of $2.1 million), $5.0 million
paid as part of the settlement of shareholder litigation, $2.0 million
transferred to restricted cash in connection with the settlement of the
shareholder class action lawsuits (see Item 3), and the payment of previously
accrued legal fees totaling $1.4 million.
The Company made capital lease payments of $0.6 million, $0.9 million, and $2.1
million in fiscal 1998, 1997, and 1996, respectively, and debt repayments of
$0.2 million, $0.4 million, and $0.5 million in fiscal 1998, 1997, and 1996,
respectively.
The Company has a $3.0 million line of credit agreement that expires on July 31,
1998. Under the terms of the line of credit, the Company can borrow up to $3.0
million at prime, collateralized by short-term investments managed by the bank.
There were no bank borrowings at March 31, 1998, 1997, and 1996 and there were
no borrowings during fiscal 1998, 1997, and 1996. The Company is in compliance
with its financial covenants.
The Company expects to fund its future liquidity needs through its existing cash
balances, cash flows from operations, bank borrowings, and equipment lease and
loan financing arrangements. Depending on market conditions and the results of
operations, the Company may pursue other sources of liquidity.
The Company believes that it has sufficient financial resources to fund its
operations for at least the next twelve months.
IMPACT OF YEAR 2000
Many computer systems employ a two-digit date field and could experience
problems beyond the year 1999. The Company has evaluated its management
information systems (MIS) and has a plan to convert all its MIS applications to
year 2000 compliant versions by the end of calendar 1998. The Company is in the
process of evaluating computers and software utilized in its manufacturing
operations. Nothing has come to the attention of the Company that would indicate
a material impact of year 2000 issues on the Company's results of operation or
financial condition.
The Company is also evaluating the possible impact of year 2000 issues on its
key suppliers and subcontractors. Noncompliance with year 2000 issues on the
part of key suppliers and subcontractors could result in disruption of the
Company's operations. However, the potential impact and related costs are not
known at this time.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements and Schedules
Page Number
-----------
Financial Statements:
Report of Ernst & Young LLP, Independent Auditors 16
Balance Sheets 17
March 31, 1998 and March 31, 1997
Statements of Operations 18
Years ended March 31, 1998, March 31, 1997, and March 31, 1996
Statements of Shareholders' Equity 19
Years ended March 31, 1998, March 31, 1997, and March 31, 1996
Statements of Cash Flows 20
Years ended March 31, 1998, March 31, 1997, and March 31, 1996
Notes to Financial Statements 21
Financial Statement Schedule:
Schedule 2 Valuation and Qualifying Accounts 37
15
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
California Micro Devices Corporation
We have audited the accompanying balance sheets of California Micro
Devices Corporation as of March 31, 1998 and 1997, and the related statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended March 31, 1998. Our audits also included the financial
statement schedule listed in the index at Item 14(a)(2). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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
misstatements. 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, the financial statements referred to above present
fairly, in all material respects, the financial position of California Micro
Devices Corporation as of March 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, the related 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.
/s/ERNST & YOUNG LLP
San Jose, California
April 29, 1998
16
CALIFORNIA MICRO DEVICES CORPORATION
BALANCE SHEETS
(Amounts in Thousands, Except Per Share Data)
March 31, March 31,
1998 1997
-------- --------
ASSETS:
Current assets:
Cash and cash equivalents $ 480 $ 343
Short-term investments 5,110 6,467
Accounts receivable, less allowance for doubtful
accounts of $380 in 1998 and $437 in 1997 5,086 3,938
Inventories 8,092 8,843
Other assets 987 874
-------- --------
Total current assets 19,755 20,465
Property and equipment, net 12,925 14,481
Restricted cash 2,909 2,903
Other long-term assets 405 421
-------- --------
Total assets $ 35,994 $ 38,270
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 3,328 $ 2,618
Accrued salaries and benefits 1,008 795
Other accrued liabilities 802 1,457
Deferred margin on shipments to distributors 581 576
Current maturities of long-term debt and capital
lease obligations 489 745
-------- --------
Total current liabilities 6,208 6,191
Long-term debt, less current maturities 7,185 7,315
Capital lease obligations less current maturities 974 1,184
-------- --------
Total liabilities 14,367 14,690
Shareholders' equity:
Preferred stock - no par value; shares authorized
10,000,000; none issued and outstanding -- --
Common stock - no par value; shares authorized
25,000,000; shares issued and outstanding 9,978,351
in 1998 and 9,741,124 in 1997 53,011 51,939
Accumulated deficit (31,384) (28,359)
-------- --------
Total shareholders' equity 21,627 23,580
-------- --------
Total liabilities and shareholders' equity $ 35,994 $ 38,270
======== ========
The accompanying notes are an integral part of these financial statements.
17
CALIFORNIA MICRO DEVICES CORPORATION
STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
Years ended March 31,
--------------------------------------------------
1998 1997 1996
-------- -------- --------
Revenues:
Net product sales $ 32,474 $ 31,506 $ 38,642
Technology related revenues 569 1,430 1,240
-------- -------- --------
Total revenues 33,043 32,936 39,882
Cost and expenses:
Cost of sales 24,701 21,255 22,430
Research and development 3,017 4,180 3,417
Selling, marketing and administrative 7,900 7,412 10,573
-------- -------- --------
Total costs and expenses 35,618 32,847 36,420
-------- -------- --------
Operating (loss) income (2,575) 89 3,462
Interest expense 941 739 1,100
Interest income and other, net (511) (1,354) (2,757)
-------- -------- --------
Net (loss) income $ (3,005) $ 704 $ 5,119
======== ======== ========
Basic (loss) earnings per share $ (0.30) $ 0.07 $ 0.51
======== ======== ========
Diluted (loss) earnings per share $ (0.30) $ 0.07 $ 0.48
======== ======== ========
Weighted average common shares outstanding 9,971 10,234 10,035
Dilutive effect of employee stock options -- 315 610
Weighted average common shares outstanding,
assuming dilution 9,971 10,549 10,645
The accompanying notes are an integral part of these financial statements.
18
CALIFORNIA MICRO DEVICES CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in Thousands, Except Per Share Data)
Common Stock
------------
Number of Accumulated
Shares Amount Deficit Total
----------- ----------- ----------- -----------
Balance at March 31, 1995 10,181,404 $ 54,947 $ (34,302) $ 20,645
Exercise of stock options 124,684 495 -- 495
Unrealized gain on
available-for-sale investments, net -- -- 91 91
Net income -- -- 5,119 5,119
----------- ----------- ----------- -----------
Balance at March 31, 1996 10,306,088 55,442 (29,092) 26,350
Exercise of stock options 214,389 885 -- 885
Revision of settlement with shareholders (891,304) (5,000) -- (5,000)
Employee Stock Purchase Plan 108,951 592 -- 592
Stock award 3,000 20 -- 20
Unrealized gain on
available-for-sale investments, net -- -- 29 29
Net income -- -- 704 704
----------- ----------- ----------- -----------
Balance at March 31, 1997 9,741,124 51,939 (28,359) 23,580
Exercise of stock options 51,742 214 -- 214
Employee Stock Purchase Plan 185,485 858 -- 858
Unrealized loss on
available-for-sale investments, net -- -- (20) (20)
Net loss -- -- (3,005) (3,005)
=========== =========== =========== ===========
Balance at March 31, 1998 9,978,351 $ 53,011 $ (31,384) $ 21,627
=========== =========== =========== ===========
19
CALIFORNIA MICRO DEVICES CORPORATION
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
March 31, March 31, March 31,
1998 1997 1996
-------- -------- --------
Cash flows from operating activities:
Net (loss) income $ (3,005) $ 704 $ 5,119
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 2,852 2,191 1,763
Issuance of cash - settlement -- (5,000) --
Change in operating assets and liabilities:
Inventories 751 (1,903) (2,193)
Accounts receivable (1,148) 562 (1,297)
Other assets (113) (289) 4,860
Trade accounts payable and other current liabilities 268 (3,491) 1,299
Other long-term assets 16 113 145
Deferred margin on distributor sales 5 (463) (118)
-------- -------- --------
Net cash (used in)provided by operating activities (374) (7,576) 9,578
-------- -------- --------
Investing activities:
Securities purchases (6,144) (3,940) (25,833)
Securities sales 7,481 18,140 13,690
Capital expenditures (1,132) (6,011) (4,412)
Net change in restricted cash (6) (1,998) 84
-------- -------- --------
Net cash provided by (used in) investing activities 199 6,191 (16,471)
-------- -------- --------
Financing activities:
Net repayments of capital lease obligations (585) (910) (2,107)
Repayments of debt (175) (372) (539)
Proceeds from issuance of common stock 1,072 1,498 495
-------- -------- --------
Net cash provided by (used in) financing activities 312 216 (2,151)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 137 (1,169) (9,044)
Cash and cash equivalents at beginning of period 343 1,512 10,556
-------- -------- --------
Cash and cash equivalents at end of period $ 480 $ 343 $ 1,512
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 941 $ 896 $ 1,068
Income taxes refunded $ -- $ (60) $ (3,757)
Supplemental disclosures of non-cash investing and financing activities:
Capital expenditures financed through capital lease obligations $ 163 $ 1,455 $ --
Unrealized (loss) gain on securities $ (20) $ 29 $ 91
The accompanying notes are an integral part of these financial statements.
20
CALIFORNIA MICRO DEVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
The Company designs, develops, manufactures and markets a line of passive
electronic components for Original Equipment Manufacturers and distributors who
need higher density, higher performance, lower cost and unique functionality.
The Company uses its silicon-based thin film materials and process technology to
integrate multiple passive elements onto a single integrated circuit.
The Company also designs, manufactures and sells certain semiconductor products,
primarily analog and mixed signal products for the telecommunications industry.
These sales are a significant portion of the Company's business.
The Company's products are marketed primarily to customers in the computer and
computer peripherals, wireless communications, networking, and medical
industries.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the accompanying financial statements, fiscal 1998, 1997, and 1996 refer to
twelve months ended March 31, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity date of
three months or less at the date of purchase to be cash equivalents. Cash
equivalents generally consist of corporate bonds, commercial paper, and money
market funds.
Short-term Investments
The Company invests its excess cash in high quality instruments. All of the
Company's marketable investments are classified as available-for-sale and the
Company views its available-for-sale portfolio as available for use in its
current operations. Accordingly, the Company has classified all investments as
short-term, even though the stated maturity date may be one year or more past
the current balance sheet date.
Available-for-sale securities are stated at fair market value, with unrealized
gains and losses, net of tax, reported as a component of shareholder's equity.
The cost of securities sold is based upon the specific identification method.
Realized gains and losses and declines in value judged to be other than
temporary are included in interest income and other (net).
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the shorter of the estimated useful
lives of the assets, or the remaining lease term. Estimated useful lives of
assets are as follows:
Building 40 years
Machinery and equipment 3-7 years
Leasehold improvements 4 years
Furniture and fixtures 7 years
21
Revenue Recognition
Revenue from product sales to end user customers is recognized upon shipment.
Revenue under license and technology agreements is recognized as technology
related sales upon completion of the appropriate terms of the agreement. Revenue
under product development and engineering design agreements is recognized as
technology related sales using the percentage-of-completion method.
The Company recognizes revenue on shipments to distributors upon the final sales
by the distributor to OEMs or other end users. Distributor agreements allow the
distributors certain rights of return and price protection on unsold
merchandise. As a result, the Company believes that deferral of distributor
sales and related gross margins until the merchandise is resold by the
distributors results in a more meaningful measurement of revenue from
distributors.
Common Stock
On December 16, 1996, the Company reduced the previously issued 1,500,000 shares
of common stock being held in trust, in connection with the anticipated
settlements of shareholder class action, to 608,696 shares. The 1,500,000 shares
have been included in shares outstanding and in the computation of weighted
average common and common share equivalents outstanding beginning with their
issuance in May 1995 until December 16, 1996. The 608,696 shares have been
included in shares outstanding and in the computation of weighted-average shares
and share equivalents outstanding since December 17, 1996. See Note 16 to Notes
to Financial Statements.
Net Income (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options is excluded. The
Company has changed its method of computing earnings per share for fiscal 1998
and has restated fiscal 1997 and fiscal 1996 to conform to the pronouncement.
Basic earnings per common share are computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per common
share incorporate the incremental shares issuable upon the assumed exercise of
stock options and other dilutive securities.
Employee Stock Plans
The Company accounts for its stock option plans and its employee stock purchase
plan in accordance with the provisions of the Accounting Principles Board's
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In 1995,
the Financial Accounting Standards Board released the Statement of Financial
Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based
Compensation." SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. As allowed under SFAS 123, the
Company continues to account for its employee stock plans in accordance with the
provision of APB 25 and has adopted the disclosure provisions of SFAS 123. See
Note 15 of Notes to Financial Statements.
Adoption of FAS 130 and FAS 131
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"reporting Comprehensive Income" ("FAS 130"), and Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these Statements in fiscal 1998. FAS 130
establishes new standards for reporting and displaying comprehensive income and
its components. FAS 131 requires disclosure of certain information regarding
operating segments, products and services, geographic areas of operation, and
major customers.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
22
Reclassifications
Certain amounts presented in prior years have been reclassified to conform with
current year presentation.
3. HITACHI METALS, LTD.
The Company has a Joint Development Agreement with Hitachi Metals Ltd. (HML), a
significant shareholder. Under the terms of the agreement, HML contributes a
percentage of the actual expenditures for mutually agreed upon joint product
development. The Company includes HML's contribution toward product development
in the Statements of Operations line labeled "Technology related revenues". The
Company expects little or no revenue from HML for joint research and development
in the future.
Sales to Hitachi Metals, Ltd., and its subsidiary, Hitachi Kinzoku Shoji, Ltd.,
were $0.7 million, $2.1 million and $1.2 million in fiscal 1998, 1997 and 1996.
Trade accounts receivable from all HML entities at March 31, 1998 and 1997 were
$154,000 and $117,000, respectively.
23
4. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following is a summary of cash, cash equivalents and marketable securities
at March 31, 1998 and March 31, 1997, respectively (amounts in thousands):
March 31, March 31,
1998 1997
------- -------
Cash equivalents
Money market funds $ 1,960 $ 1,370
Commercial paper 520 973
Less:
Amount classified as restricted cash in connection with class action settlement* (2,000) (2,000)
------- -------
Total cash equivalents $ 480 $ 343
======= =======
Short-term investments:
U. S. Treasuries & U.S. Government agencies $ 3,198 $ 5,523
Corporate bonds 1,912
944
------- -------
Total short-term investments $ 5,110 $ 6,467
======= =======
*See Note 16 of Notes to Financial Statements.
The following is a summary of available-for-sale securities at March 31, 1998
and March 31, 1997, respectively (amounts in thousands):
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------ ------ -------- ------
March 31, 1998:
Commercial paper $ 520 $ -- $ -- $ 520
U.S. Treasuries & U.S. government agencies 3,200 -- (2) 3,198
Corporate bonds 1,905 7 -- 1,912
------ ------ -------- ------
Total $5,625 $ 7 $ (2) $5,630
====== ====== ======== ======
March 31, 1997:
Commercial paper $ 973 $ -- $ -- $ 973
U.S. Treasuries & U.S. government agencies 5,503 20 -- 5,523
Corporate bonds 940 4 -- 944
------ ------ -------- ------
Total $7,416 $ 24 $ -- $7,440
====== ====== ======== ======
Of the 1998 securities listed above, $2.6 million of debt securities (at
estimated fair market value) mature within one year and $3.0 million mature
between one and two years. Realized gains and losses on the sales of securities
are reported as other income and were not significant for all years presented.
See Note 5 of Notes to Financial Statements.
5. CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of temporary cash investments and trade receivables.
The Company places its temporary cash investments and short-term securities with
substantial financial service institutions. See Note 4 of Notes to Financial
Statements.
A significant portion of the Company's sales are to customers whose activities
are related to computer and computer peripherals, wireless communications,
networking, medical, and consumer electronics industries, including some who are
located in foreign countries. The Company generally extends credit to these
customers and, therefore, collection of receivables is affected by the
aforementioned industries and economic influences of customers' geographic
locations. However, the Company monitors extensions of credit and requires
collateral, such as letters of credit, whenever deemed necessary.
24
6. CONCENTRATION OF OTHER RISKS
Markets
The Company markets its products into high-technology industries, such as
personal computers, telecommunications, and networking, that are characterized
by rapid technological change, intense competitive pressure, and volatile demand
patterns. Most of the systems into which the Company's products are designed
have short life cycles. As a result, the Company requires a significant number
of new design wins on an ongoing basis to maintain and grow revenue.
Customers
Generally, the Company's sales are not subject to long-term contracts but rather
to short-term releases of customers' purchase orders, most of which are
cancelable on relatively short notice. The timing of these releases for
production as well as custom design work are in the control of the customer, not
the Company. Because of the short life cycles involved with its customers'
products, the order pattern from individual customers can be erratic with
significant accumulation and de-accumulation of inventory during phases of the
life cycle. For these reasons, the Company's backlog and bookings as of any
particular date may not be representative of actual sales for any succeeding
period.
Inventories
The Company records inventory reserves on a part-by-part basis to appropriately
consider excess inventory levels and obsolete inventory based on backlog and
demand, and to consider reductions in sales price. The Company makes specific
provisions for the risk of inventory obsolescence based on backlog and demand.
However, due to the volatility of demand, and the fact that many of the
Company's products are specific to individual customers, backlog is subject to
revisions and cancellations and anticipated demand is constantly changing, which
may require additions to the reserves in the future.
Manufacturing
Manufacturing risks include errors in fabrication processes, defects in and
supply of raw materials, as well as other factors, which can affect yields and
costs. The Company intends to eventually convert from five-inch wafer
manufacturing processes to six-inch. Currently, five-inch wafers are no longer
considered to be economically viable for most applications. While the wafer
manufacturers presently have excess capacity and there is available supply, when
the supply becomes tight, vendors may direct their capacity to larger wafer
sizes. Additionally, there is a risk of disruptions to the manufacturing
processes as upgrading of facilities and equipment are attempted.
Subcontractors
The Company uses subcontractors in Asia, primarily Thailand and the Malaysia,
for assembly, packaging, and test of most of its product. This common industry
practice is subject to political and economic risks and industry volatility has
occasionally resulted in shortages of subcontractor capacity and other
disruptions to supply.
7. INVENTORIES
Inventories consist of the following (amounts in thousands):
March 31, March 31,
1998 1997
------ ------
Raw materials $ 775 $1,316
Work-in-process 5,480 3,821
Finished goods 1,837 3,706
------ ------
$8,092 $8,843
====== ======
In the fourth quarter of fiscal 1998, the Company made adjustments to its
inventory valuations to reflect the increased risk of obsolescence due to the
Company's increasing emphasis on higher volume standard products as compared to
low volume custom products and to reflect increasing pricing pressure in
Southeast Asia. The effect of these valuation adjustments was to reduce
inventories by approximately $900,000.
25
8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (amounts in thousands):
March 31, March 31,
1998 1997
------- -------
Land $ 137 $ 137
Buildings 3,030 3,030
Machinery, equipment and tooling 21,282 20,017
Leasehold improvements 708 685
Furniture and fixtures 367 360
------- -------
25,524 24,229
Less accumulated depreciation and amortization 12,599 9,748
------- -------
$12,925 $14,481
======= =======
9. SHORT-TERM BORROWINGS
The Company has a bank line of credit, which expires July 31, 1998. Under the
terms of the line of credit, the Company can borrow up to $3,000,000, at the
bank's prime rate. The line is collateralized by short-term investments managed
by the bank. There were no bank borrowings during fiscal 1998, 1997 and 1996.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has evaluated the estimated fair value of financial instruments. The
amounts reported as cash and cash equivalents, accounts receivable, short-term
borrowings, accounts payable and accrued expenses approximate fair value due to
their short-term maturities. The fair values of short-term investments are
estimated based on quoted market prices. The fair value for long-term debt was
estimated using discounted cash flow analysis based on estimated interest rates
for similar types of borrowing arrangements.
The carrying amounts and estimated fair values of the Company's long-term debt
are as follows (amounts in thousands):
Carrying Fair
Amount Value
------ ------
Long-term debt (excluding capital leases) $7,315 $8,403
26
11. LONG-TERM DEBT
Long-term debt consists of the following (amounts in thousands):
March 31, March 31,
1998 1997
------ ------
Industrial revenue bonds at 10.5%, due through
March 1, 2018 7,315 $7,430
Industrial revenue bonds at 12%, due through
March 1, 1998 -- 60
------ ------
7,315 7,490
Less current maturities 130 175
------ ------
$7,185 $7,315
====== ======
Industrial revenue bonds are collateralized by a lien on all land and buildings
of the Company in Tempe, Arizona, and certain equipment acquired with the
proceeds of the bonds and require certain minimum annual sinking fund payments
ranging from $130,000 in fiscal 1999 to $780,000 in fiscal 2018. The Company may
prepay the 10.5% Industrial Revenue Bond by redeeming all or part of the
outstanding principal amounts on or after March 1, 1998, with penalties
declining from 2% on March 1, 1998, to zero at March 1, 2000. At March 31, 1998,
cash of $909,000 was held in sinking fund trust accounts of which $800,000 is to
be used for principal and interest payments in the event of default by the
Company, and the balance to be used for semi-annual interest and principal
payments.
The Industrial Revenue Bonds and certain lease agreements require the
maintenance of various financial covenants including certain minimum levels of
net worth, current ratio, quick ratio, ratio of debt to net worth, debt
coverage, and debt to working capital ratio. The Company is in compliance with
these covenants at March 31, 1998. As a result of these covenants, the Company's
ability to pay dividends is restricted.
Future maturities of long-term debt at March 31, 1998 are as follows (amounts in
thousands):
1999 $ 130
2000 140
2001 155
2002 170
2003 185
2004 and thereafter 6,535
------
$7,315
======
12. LEASE COMMITMENTS
Operating Leases
The Company leases certain manufacturing facilities under operating leases
expiring in 2001 and 2002. During 1997, the Company had sublet the leased
facility in Arizona for the remaining period of the lease. The rents received
should equal the amounts owed by the Company during the remaining lease period.
Future gross minimum lease payments, under non-cancelable operating leases, for
the years ended March 31 are as follows (amounts in thousands):
1999 $ 515
2000 524
2001 541
2002 413
2003 69
------
2,062
Sublease receipts (517)
------
$ 1,545
=======
Rent expense net of sublease income was $417,000, $524,000 and $478,000 in
fiscal 1998, 1997, and 1996, respectively.
27
Capital Leases
Obligations under capital leases are at interest rates ranging from
approximately 7% to 10%, depending primarily upon the purchase option
arrangements at the end of the lease term, and are due in monthly installments
through April 2002. Future minimum lease payments, under capital leases for the
years ended March 31, are as follows (amounts in thousands):
1999 $ 473
2000 455
2001 455
2002 181
------
Total minimum lease payments 1,564
Less amount representing interest 231
------
Present value of net minimum lease payments 1,333
Less current portion 359
------
$ 974
======
Machinery and equipment under capital leases are as follows (amounts in
thousands):
March 31, March 31,
1998 1997
------ ------
Cost $1,619 $3,902
Less accumulated amortization 145 973
------ ------
$1,474 $2,929
====== ======
13. INCOME TAXES
Due to current year losses and the availability of tax loss carryforwards, there
was no provision for income taxes for the periods ended March 31, 1998, 1997,
and 1996.
A reconciliation of the Company's effective tax rate to the federal statutory
rate is as follows:
March 31, March 31, March 31,
1998 1997 1996
--------- --------- ---------
Federal statutory tax rate (34)% 34% 34%
Losses with no current benefit 34 -- --
Utilization of loss carryforward -- (34) (34)
--------- --------- ---------
Effective income tax rate 0% 0% 0%
========= ========= =========
At March 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $25,500,000 and $19,500,000 respectively. In
addition, the Company had federal and California credit carryforwards of
approximately $300,000 and $50,000, respectively. These carryforwards will
expire at various dates beginning in 2008 through 2013, except for certain state
net operating losses of approximately $6,900,000, which expire from 1999 through
2003.
28
Deferred income taxes reflect the tax effects of net operating loss and credit
carryforwards and temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax assets and
liabilities are as follows (amounts in thousands):
March 31, March 31,
1998 1997
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 10,000 $ 4,895
Tax credit carryforwards 350 560
Inventory reserves 3,500 2,506
Other non-deductible accruals and reserves 750 1,763
Total deferred tax assets 14,600 9,724
Less valuation allowance (14,100) (9,054)
-------- --------
Net deferred tax asset 500 670
-------- --------
Deferred tax liabilities:
Tax over book depreciation 500 670
-------- --------
Total net deferred tax asset $ -- $ --
======== ========
The valuation allowance increased by $5,046,000 during the year ended March 31,
1998. Approximately $467,000 of the valuation allowance for deferred tax assets
relates to benefits of stock option deductions which, when recognized, will be
directly allocated to common stock.
14. INTEREST INCOME AND OTHER, NET
Interest income and other, net, consists of (amounts in thousands):
March 31, March 31, March 31,
1998 1997 1996
------ ------ ------
Interest income $ 403 $1,024 $1,194
Other income 108 330 1,563
------ ------ ------
$ 511 $1,354 $2,757
====== ====== ======
Interest income reflects the amounts earned from investments in short-term
securities. Other income for fiscal 1997 includes $184,000 from the sale of the
final portion of the Company's interest in Cell Access. Other income for fiscal
1996 reflects the $1.6 million realized from the sale of the Company's interest
in Cell Access.
29
15. EMPLOYEE BENEFIT PLANS
401(K) Savings Plan
The Company maintains a 401(K) Savings Plan covering substantially all of its
employees. Under the plan, eligible employees may contribute up to 15% of their
base compensation to the plan with the Company matching at a rate of 50% of the
participants' contributions up to a maximum of 3% of their base compensation.
Participants' contributions are fully vested at all times. The Company's
contributions vest incrementally over a two-year period. Prior to January 1995,
the Company's contributions were made by issuance of common stock of the
Company; after January 1, 1995, contributions have been made in cash. During
fiscal 1998, 1997, and 1996, the Company expensed $210,000, $136,000, and
$163,000, respectively, relating to its contributions under the plan.
Nonqualified Deferred Compensation Plan
In April 1997, the Company implemented a nonqualified deferred compensation plan
for the benefit of eligible employees. This plan is designed to permit certain
discretionary employer contributions in excess of the tax limits applicable to
the 401(k) plan and to permit employee deferrals in excess of certain tax
limits. During fiscal 1998, the Company expensed $21,000 for this plan and in
fiscal 1997 there was no expense relating to its contributions under the plan.
Stock Option Plans
The 1995 Employee Stock Option Plan, Amended as of July 26, 1996 and July 18,
1997, (the "1995 Plan") is administered by a stock option committee consisting
of not less than two directors who, during the one year period prior to service
as administrator of the plan, shall not have been granted or awarded equity
securities except as permitted under Rule 16b-3 under the Securities Exchange
Act of 1934. The 1995 Plan provides for options for the purchase of shares to be
granted to employees and certain consultants to the Company. The 1995
Non-Employee Directors Plan Amended as of July 26, 1996 and July 18, 1997 (the
"Directors Plan") is administered by not less than three members of the Board
and the amount of shares granted to the directors shall be a fixed amount on an
annual basis, as approved by the shareholders.
Under the Company's 1995 Plan, for fiscal year-ended March 31, 1998 and 1997
1,850,614 and 2,165,163 shares of common stock are reserved for issuance,
respectively. The 1995 Plan provides for issuance of options to employees and
consultants at prices not less than 85% of fair market value for shares issued
under a non-qualified stock option agreement. Options may also be issued to key
employees for not less than 100% of fair market value for shares issued under an
incentive stock option agreement.
Under the Directors Plan, for fiscal year-ended March 31, 1998 and 1997 166,875
and 214,875 shares of common stock are reserved for issuance, respectively. The
1995 Directors Plan provides for a fixed issuance amount to the directors at
prices not less than 100% of the fair market value of the common stock at the
time of the grant.
In addition to the two 1995 plans, the Company has a plan that was adopted in
1981 (The Employee Incentive Stock Option Plan), and another plan that was
adopted in 1987 (The 1987 Stock Option Plan) both of which are still active
although no new options are being issued under these plans. These plans provided
for the issuance of 1,500,000 and 2,500,000 shares of common stock,
respectively. Under these plans, the Company has granted incentive stock options
and non-qualified options to designated employees, officers, and directors.
Generally, options under the plans become exercisable and vest over varying
periods ranging up to four years as specified by the Board of Directors. Option
terms do not exceed ten years from the date of the grant and all plans except
the 1981 Employee Incentive Stock Option Plan (the "1981 Plan") expire within 20
years of date of adoption. The 1981 Plan may be terminated at any time by the
Board of Directors. No option may be granted during any period of suspension or
after termination of any plan. Unexercised options expire upon, or within, three
months of termination of employment, depending upon the circumstances
surrounding termination. On January 22, 1998, the Board of Directors ratified
the decision of the Compensation Committee to reprice all current employee stock
options (except for those granted to Jeffrey C. Kalb) with an exercise price in
excess of $6.00. The repricing was to be the higher of $6.00 or the closing
market price of the Company's stock on the effective date of the repricing,
February 13, 1998. The closing price on February 13 was $5.3125; therefore the
applicable options were repriced at $6.00. Pursuant to the terms of the repriced
options, the repriced options may not be exercised in whole or in part until
February 13, 1999, that is, one year after the effective date. The Board's
action was in response to a decline in the market price of the Company's stock
during the preceding months which had effectively eliminated
30
the incentive value of options with significantly higher exercise prices. A
total of 692,150 options were repriced. The repricing did not apply to options
held by directors or other non-employee option holders.
The following is a summary of stock option activity and related information:
1998 1997 1996
--------------------------- ---------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- ------- --------- ------- --------- ---------
Options:
Outstanding at
beginning of year 2,032,446 $6.1255 1,841,864 $5.7560 1,603,195 $ 5.2831
Granted 1,178,297 $6.1174 515,517 $6.7402 759,700 $ 8.2655
Exercised (51,742) $4.1914 (214,389) $4.1285 (124,684) $ 3.9663
Canceled (843,670) $8.1121 (110,546) $6.4146 (396,347) $ 10.4849
--------- ------- --------- ------- --------- ---------
Outstanding at
end of year 2,315,331 $5.4395 2,032,446 $6.1255 1,841,864 $ 5.7560
========= ======= ========= ======= ========= =========
Available for grant*:
Beginning 137,454 68,198 0
Ending 182,016 137,454 68,198
- - ---------------------------
* Available for grant under plans which are currently active.
The following table summarizes information about options outstanding at March
31, 1998:
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Weighted-Average
Remaining Weighted-Average Weighted-Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life (Years) Price Exercisable Price
------------------------ ----------- ------------ ----- ----------- -----
$ 3.6250 - $ 3.6250 11,666 1.09 $3.6250 11,666 $3.6250
$ 3.9300 - $ 3.9300 680,666 6.74 $3.9300 502,567 $3.9300
$ 4.1250 - $ 5.8750 599,743 7.78 $5.3131 220,579 $5.3114
$ 6.0000 - $ 6.0000 748,000 8.12 $6.0000 16,150 $6.0000
$ 7.0000 - $12.7500 275,778 8.17 $7.9933 110,756 $8.5474
--------- ---- ------- ------- -------
2,315,331 7.60 $5.4395 861,718 $4.9117
========= ==== ======= ======= =======
Employee Stock Purchase Plan
The 1995 Employee Stock Purchase Plan (the "Purchase Plan") is available for all
full-time employees possessing less than 5% of the Company's common stock on a
fully diluted basis. The Purchase Plan provides for the issuance of up to
300,000 shares at 85% of the fair market value of the common stock at certain
defined points in the plan offering periods. Purchase of the shares is to be
through employees' payroll deductions and may not exceed 15% of their total
compensation. The Purchase Plan terminates on February 9, 2005, or earlier at
the discretion of the Company's Board of Directors. As of fiscal year-end March
31, 1998 and 1997, 5,564 and 141,049 shares were reserved for issuance,
respectively.
The following is a summary of stock purchased under the plan:
1998 1997 1996
---- ---- ----
Aggregate purchase price $858,000 $592,000 --
Shares purchased 185,485 108,951 --
Employee participants as of March 31 151 150 139
31
Stock-Based Compensation
As permitted under Statement of Financial Accounting Standards No. 123 ("SFAS
123"),"Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), and related Interpretations, in accounting for
stock-based awards to employees. Under APB 25, the Company generally recognized
no compensation expense with respect to such employee grants.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123 for grants after April 1, 1995, as if the Company
had accounted for its stock-based compensation under the fair value method of
SFAS 123. The fair value of the Company's stock-based grants was estimated using
a Black-Scholes option-pricing model. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options that have
specific vesting schedules and are ordinarily not transferable. Because the
Black-Scholes model requires the input of highly subjective assumptions,
including the expected stock price volatility which can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its grants.
The fair value of the Company's stock-based grants was estimated assuming no
expected dividends and the following weighted-average assumptions:
Options Purchase Plan
---------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Expected Life Years 3.02 3.17 3.15 .34 .5 .5
Volatility 61.39% 64.68% 65.45% 64.10% 64.43% 64.14%
Risk-Free Interest Rate 5.77% 6.20% 5.61% 5.43% 5.25% 5.19%
For pro forma purposes, the estimated fair value of the Company's stock-based
grants is amortized over the options' vesting period for stock options granted
under the 1995 Plan and the Director Plan and the purchase period for stock
purchases under the Purchase Plan. No purchases were made under the Purchase
Plan prior to fiscal year 1997. The Company's pro forma information follows
(amounts in thousands except per share amounts):
1998 1997 1996
--------- --------- ----------
Net income (loss) - pro forma $ (5,073) $ (1,148) $ 4,346
Diluted net income (loss) per share - pro forma $ (0.51) $ (0.11) $ 0.41
Because SFAS 123 is applicable only to options granted subsequent to March 31,
1995, its pro forma effect will not be fully reflected until approximately the
year 2000. The weighted-average fair value of stock options granted in fiscal
1998 and 1997 were $2.30 and $3.24 per share, respectively. The weighted-average
fair value of stock purchase rights granted in fiscal 1998 and 1997 was $1.88
and $2.35 per share, respectively.
32
16. LITIGATION
From August 5, 1994 through February 16, 1995, eleven purported class action
complaints were filed against the Company in the United States District Court
for the Northern District of California. Other defendants named in the class
actions include certain of the Company's current and former officers and Coopers
& Lybrand L.L.P., the Company's former independent auditor. The class actions
purport to be brought on behalf of classes of shareholders of the Company's
common stock over varying periods of time ranging from September 7, 1993 to
January 9, 1995. The gravamen of the allegations against the Company in the
class actions is that it violated Section 10(b) and Rule 10b-5 of the Securities
Exchange Act of 1934 by disseminating false and misleading financial statements
and reports for the fiscal year ended June 30, 1993 and June 30, 1994. The
complaints seek unspecified compensatory damages and attorneys' fees, as well as
other relief.
By court order dated May 20, 1997, these actions have been settled. The
Company's contribution towards the settlement consisted of the payment of
$6,000,000 in cash and the issuance of 608,696 new shares of the Company's
common stock to the class. Each new share was accompanied by a Contingent Value
Right (CVR), personal to the shareholder, that entitles the shareholder to
receive the difference between $11.50 and the highest 20 day average trading
price of the Company's common stock (assuming the average price is less than
$11.50) over the three years following the Effective Date of the Settlement
Agreement. The CVR expires at the end of that three-year period or when the
$11.50 price is met, whichever occurs first. The total amount of this
settlement, $13,000,000, was expensed in the fiscal year ended March 31, 1995.
In addition, the Company has put $2,000,000 into a restricted account as a
guarantee for performance under the CVR. The cash will cease to be restricted,
without interest, if and when the CVR is extinguished. Since the Effective Date
of the Settlement Agreement, the highest 20-day average trading price of the
Company's common stock has been $8.18. Should any payment to the class be
required under the terms of the CVR, it will be charged to equity, since the
full amount of $11.50 per share was included in the $13,000,000 previously
expensed.
A putative shareholders derivative action was filed against certain former and
present officers and directors of the Company on May 25, 1995, in Santa Clara
County Superior Court. This action has been dismissed with prejudice as to all
defendants.
The Company continues to cooperate with the pending investigations of certain of
its former officers by the Justice Department and the SEC. The Justice
Department has advised the Company that it is not currently a target or subject
of the investigation. The SEC has taken the position that it is premature, at
this stage in its investigation, to discuss the resolution of the investigation
of the Company.
The Company is a party to or target of lawsuits, claims, investigations, and
proceedings, including commercial and employment matters, which are being
handled and defended in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the financial condition or overall trends in the results of
operations of the Company.
The Company believes that, with regard to these matters and those previously
reported, it has to the best of its knowledge, made such adjustments to its
financial statements by means of reserves and expensing the costs thereof, that
these matters will not have any additional adverse impact on the Company's
financial condition.
33
17. SEGMENT INFORMATION
The Company maintains thin film and semiconductor product line information only
through the gross margin calculation. Manufacturing facilities are shared and
the sales and marketing force serves all customers and the company may sell both
thin film and semiconductor product lines to the same customer. Therefore, the
Company does not record equipment, receivables, liabilities or operating expense
by product lines. As a result the company does not report earnings and balance
sheet data for each product line.
The Company's principal operations are conducted in the United States. Foreign
sales, primarily in Europe, Canada and Asia, aggregated approximately 35%, 36%,
and 31% of product sales for fiscal 1998, 1997, and 1996, respectively. Foreign
currency transaction gains and losses are not significant.
In fiscal 1998, Bell Milgray Inc., a distributor, accounted for just over 10% of
net product sales. During fiscal 1997, Motorola accounted for 11% of the net
product sales. During fiscal 1996, no customer accounted for more than 10% of
net product sales.
A significant portion of the Company's sales is made to a relatively small
number of customers including several distributors. It remains a goal of the
Company to get more balanced penetration and become less susceptible to swings
in any specific application area or with any given customer.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There were no disagreements with the independent auditors in the three years
ended March 31, 1998, March 31, 1997, and March 31, 1996.
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is set forth in the 1998 Proxy Statement
under the captions "Directors and Executive Officers of the Registrant" and
"Executive Compensation" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth in the 1998 Proxy Statement
under the caption "Executive Compensation" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information related to security ownership of certain beneficial owners and
security ownership of management is set forth in the 1998 Proxy Statement under
the caption "Security Ownership of Certain Beneficial Owners and Management" and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No reportable relationships and transactions.
35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES, AND REPORTS ON FORM 8-K.
The following documents are filed as a part of this Report:
(a) 1. See Item 8 for a list of financial statements filed herein.
2. See Item 8 for a list of financial statement schedules filed. All
other schedules have been omitted because they are not applicable or the
required information is shown in the Financial Statements or the notes thereto.
3. Exhibit Index:
The exhibits listed below are filed herewith or incorporated by
reference as indicated. pursuant to Regulation S-K. The exhibit number refers to
number indicated pursuant to the Instructions to The Exhibit Table for
Regulation S-K.
Exhibit
Number Description Document if Incorporated by Reference
------ ----------- -------------------------------------
3(i) Articles of Incorporation, as Exhibit 3(i) to the Company's Annual
amended Report on Form 10K (File No. 0-15549)
for the fiscal year ended March 31,
1995, ("1995 Form 10-K").
3(ii) By-Laws, as amended. Exhibit 3(ii) to the Company's Annual
Report on Form 10K (File No. 0-15549)
for the fiscal year ended March 31,
1995, ("1995 Form 10-K").
10.11 Commitment letter from Wells Exhibit 10.11 to the Company's Annual
Fargo Bank. Report on Form 10K (File No. 0-15549)
for the fiscal year ended March 31,
1995, ("1995 Form 10-K").
10.12* Waiver and Second Amendment to
Credit Agreement
18 Letter re: change in accounting Exhibit 18 to the Company's Annual
principals. Report on Form 10K (File No. 0-15549)
for the fiscal year ended March 31,
1995, ("1995 Form 10-K").
23.1 Consent of Ernst & Young LLP,
Independent Auditors
27* Financial Data Schedule
(b) 1. Reports on Form 8-K:
None.
*Exhibit on EDGAR filing only.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its 1998 Annual
Meeting of Shareholders (which will be filed with the Securities and Exchange
Commission within 120 days of the end of the fiscal year ended March 31, 1998)
are incorporated by reference into Part III.
36
SCHEDULE 2
CALIFORNIA MICRO DEVICES CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Year Ended March 31, 1998, March 31, 1997, and March 31, 1996
(Amounts in Thousands)
Additions
Balance at Charged to Charged to Balance at
Beginning Cost and Other Deductions End of
of Year Expense Accounts (1) Year
--------- -------- ---------- ---------- ------
Year ended March 31, 1998
Allowance for doubtful accounts
(deducted from accounts receivable) $ 437 $ -- $-- $ 57 $ 380
===== ======= === ===== =====
Year ended March 31, 1997
Allowance for doubtful accounts
(deducted from accounts receivable) $ 900 $ (15) $-- $ 448 $ 437
===== ======= === ===== =====
Year ended March 31, 1996
Allowance for doubtful accounts
(deducted from accounts receivable) $ 832 $ (345) $-- $(413) $ 900
===== ======= === ===== =====
(1) Represents write-offs net of recovery of receivables.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 15th day of June
1998.
CALIFORNIA MICRO DEVICES CORPORATION
(Registrant)
By: /s/ Jeffrey C. Kalb
-------------------------
JEFFREY C. KALB
President and Chief Executive Officer
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 indicated on the 15th day of June 1998.
By:
/s/ Jeffrey C. Kalb President and Chief Executive Officer
-------------------------- and Director (Principal Executive
JEFFREY C. KALB Officer)
/s/ John E. Trewin Vice President and Chief Financial
-------------------------- Officer (Principal Financial and
JOHN E. TREWIN Accounting Officer)
/s/ Wade Meyercord Chairman of the Board
--------------------------
WADE MEYERCORD
/s/ Angel G. Jordan Director
--------------------------
ANGEL G. JORDAN
/s/ Stuart Schube Director
--------------------------
STUART SCHUBE
/s/ John Sprague Director
--------------------------
JOHN SPRAGUE
/s/ Donald Waite Director
--------------------------
DONALD WAITE
38