-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XMZKA8kPYyIEeSsl9aa2i4J4IM2YLf/nWF0SvexNmHcDak6pWKDPyRFT53hbykbM ebwLpjfZlEa61AZ5slV4tg== 0000065771-94-000002.txt : 19940216 0000065771-94-000002.hdr.sgml : 19940216 ACCESSION NUMBER: 0000065771-94-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940101 FILED AS OF DATE: 19940215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MA COM INC CENTRAL INDEX KEY: 0000065771 STANDARD INDUSTRIAL CLASSIFICATION: 3674 IRS NUMBER: 042090644 STATE OF INCORPORATION: MA FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 001-04236 FILM NUMBER: 94508963 BUSINESS ADDRESS: STREET 1: M/S 213 1011 PAWTUCKET BOULEVARD STREET 2: P.O. BOX 3295 CITY: WAKEFIELD STATE: MA ZIP: 01880-6210 BUSINESS PHONE: 6172245600 MAIL ADDRESS: STREET 1: 1011 PAWTUCKET BLVD., M/S-213 STREET 2: P.O. BOX 3295 CITY: LOWELL STATE: MA ZIP: 01853-3295 FORMER COMPANY: FORMER CONFORMED NAME: MICROWAVE ASSOCIATES INC DATE OF NAME CHANGE: 19780803 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 1, 1994 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 No. 1-4236 M/A-COM, INC. - ------------- (Exact name of registrant as specified in its charter) Massachusetts - ------------- (State, or other jurisdiction of incorporation or organization) 04-2090644 - ---------- (I.R.S. Employer Identification No.) 401 Edgewater Place, Wakefield, MA 01880-6210 - -------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 224-5600 - -------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) As of February 4, 1994, M/A-COM, Inc. had outstanding 25,521,354 shares of Common Stock, $1.00 par value (exclusive of 18,484,355 shares held in its treasury). PART I. FINANCIAL INFORMATION Item 1. Financial Statements M/A-COM, INC. AND SUBSIDIARIES The accompanying condensed consolidated financial statements include, in the opinion of management, all adjustments which are normal and recurring (with the exception of the cumulative effect of a change in accounting for income taxes) and necessary to a fair statement of the results for the interim periods presented. Neither the results for the current period nor comparison with the corresponding period of the preceding fiscal year should be considered indicative of the results which may be expected for the fiscal year ending October 1, 1994. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 1993. We have engaged our independent accountants, Price Waterhouse, to conduct a limited review of the condensed financial information included in this report for the quarter ended January 1, 1994. They have reported to us that such review, which does not constitute an audit, has been completed in accordance with standards established for such reviews by the American Institute of Certified Public Accountants. They proposed no adjustments or additional disclosure which they believed should be reflected in the financial information accompanying this report. Price Waterhouse's report on their review is enclosed with this report. M/A-COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share amounts) UNAUDITED
First Quarter Ended ------------------------------- January 1, January 2, 1994 1993 ------------------------------- Net sales $79,120 $79,135 ------- ------- Costs and expenses: Cost of sales 51,720 55,674 Company sponsored research and development 4,710 3,894 Selling, general and administrative expenses 19,471 17,570 Interest expense 2,255 2,100 Interest income (136) (571) ------- ------- 78,020 78,667 ------- ------- Income before income taxes and cumulative effect 1,100 468 Income tax provision 330 94 ------- ------- Income before cumulative effect 770 374 Cumulative effect of a change in accounting for income taxes 3,300 - ------- ------- Net income $ 4,070 $ 374 ======= ======= Income per share: Income before cumulative effect $ .03 $ .02 Cumulative effect of accounting change .13 - ----- ----- Net income per share $ .16 $ .02 ===== ===== Shares used in income per share calculation 25,808 23,963 ====== ====== See accompanying notes.
M/A-COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In thousands)
---------------------------- January 1, October 2, 1994 1993 (Unaudited) ---------------------------- ASSETS - ------ Current assets: Cash and cash equivalents $ 5,647 $ 10,024 Marketable securities 1,250 1,250 Accounts receivable, net 66,255 72,730 Unbilled revenue under customer contracts 473 1,744 Inventories 63,079 58,629 Other current assets 14,654 7,157 --------- --------- Total current assets 151,358 151,534 --------- --------- Plant assets 263,087 251,942 Less - Accumulated depreciation (153,214) (145,235) --------- --------- 109,873 106,707 --------- --------- Other assets 57,467 56,462 --------- --------- Total Assets $ 318,698 $ 314,703 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Notes payable and current portion of long-term debt $ 14,780 $ 6,737 Accounts payable-trade 15,687 21,255 Accrued liabilities and taxes 77,064 94,264 --------- --------- Total current liabilities 107,531 122,256 --------- --------- Long-term debt 68,198 68,352 --------- --------- Other long-term liabilities 29,269 16,220 --------- --------- Stockholders' equity: Paid-in-capital 43,655 41,900 Retained earnings 70,045 65,975 --------- --------- Total stockholders' equity 113,700 107,875 --------- --------- Commitments and contingencies Total Liabilities and Stockholders' Equity $ 318,698 $ 314,703 ========= ========= See accompanying notes.
M/A-COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) UNAUDITED
First Quarter Ended ------------------------------- January 1, January 2, 1994 1993 ------------------------------- Cash provided by (used by) operating activities $ (6,988) $ 778 -------- -------- Cash applied to investing activities: Additions to plant assets (3,980) (8,020) -------- -------- Cash flows from financing activities: Proceeds from short-term borrowings 8,026 1,551 Repayment of debt (193) (189) Repurchases of common stock - (1,001) Stock options exercised 955 20 -------- -------- Cash provided by financing activities 8,788 381 -------- -------- Cash applied to discontinued operations (2,197) (894) -------- -------- Decrease in cash and cash equivalents (4,377) (7,755) Cash and cash equivalents at beginning of period 10,024 36,136 -------- -------- Cash and cash equivalents at end of period $ 5,647 $ 28,381 ======== ======== See accompanying notes.
M/A-COM, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements - ---------------------------------------------------- (Unaudited except for October 2, 1993 amounts) Note 1 - Changes in the Business Sale of Product Line In the first quarter of 1993, the Company sold its high power, narrow band receiver protector product line. Sales and gross profits have been excluded from the date of the sale. The sale was for cash of $5.1 million and resulted in a gain of $2.3 million which was recorded as a reduction of selling, general and administrative expenses in the accompanying consolidated statement of income. Note 2 - Unusual Items As a result of its decision to refocus the direction of its commercial business, in the fourth quarter of 1993 the Company recorded a charge of $5.3 million for anticipated losses on technically complex development programs related to existing commercial contracts. In the first quarter of 1994, the Company reduced its orders and backlog to reflect the termination of one such technically complex contract. This termination resulted in a reduction in the anticipated losses related to this contract and the Company reversed $1.0 million of previously established reserves. This amount was recorded as a reduction to cost of sales. In the first quarter of 1993, a production facility of a foreign subsidiary was damaged by fire. The Company recorded a gain of approximately $1.0 million related to the excess of insurance recovery over the net book value of the assets damaged by the fire. The gain was recorded as a reduction of selling, general and administrative expenses in the accompanying consolidated statement of income. Note 3 - Income Taxes In the first quarter of 1994, the Company prospectively adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), effective as of October 3, 1993. SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance. Previously the Company used the SFAS 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. The adjustments to the balance sheet to adopt SFAS 109 netted to $3.3 million. This amount is reflected in the consolidated statement of income for the first quarter of 1994 as the cumulative effect of a change in accounting principle. It primarily represents the reversal of deferred tax assets and liabilities resulting from the adoption of SFAS 109. The deferred tax assets and liabilities were established in connection with a previous acquisition and were recorded as reductions of the respective assets and liabilities to which they relate. Additionally, SFAS 109 had no material impact on the provision for income taxes for the first quarter of 1994. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss carry forwards. The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of the date of adoption (in thousands):
Deferred Tax Assets: - ------------------- Inventory capitalization and reserves $ 13,716 Capitalized R&D 5,353 Deferred compensation 3,101 Net operating loss carryovers 27,098 Restructuring 11,464 Other accruals and reserves 13,809 74,541 -------- Deferred Tax Liabilities: - ------------------------ Depreciation and amortization (23,017) Other (5,645) (28,662) -------- Valuation allowance (50,775) -------- Net deferred tax liability $ (4,896) ========
The net current deferred tax asset of $10.7 million is included in other current assets and the deferred tax liability of $15.7 million is included in the other long-term liabilities in the accompanying condensed consolidated balance sheet at January 1, 1994. The difference between the net deferred tax liabilities at the date of adoption and January 1, 1994 is attributable to the deferred tax provision in the first quarter of 1994. The Company has not provided deferred taxes on the undistributed earnings of its foreign subsidiaries as such earnings are expected to be reinvested for an indefinite period of time. Note 4 - Common Stock Transactions and Debt The Company has an unsecured revolving credit agreement with maximum borrowings of $15.0 million that expires on February 28, 1994. As of January 1, 1994, the Company had borrowed $5.5 million under this agreement at a weighted average interest rate approximating 5.5%. Subsequent to the end of the quarter, the Company borrowed an additional $1.5 million under this agreement. The Company is currently in the routine process of renegotiating its revolving credit agreement. The Company's foreign subsidiaries have lines of credit available to fund local working capital requirements. The lines of credit provide for borrowings aggregating approximately $18.1 million. During the first quarter of 1994, the Company increased its borrowings by approximately $2.5 million under its foreign lines of credit. As of January 1, 1994, total borrowings under the foreign lines of credit aggregated approximately $8.5 million. In the first quarter of 1994, the Company repaid $2.6 million of an Industrial Revenue Bond ("IRB") associated with a previously discontinued operation. The IRB had been included in the accrued liabilities of discontinued operations in the Company's balance sheet at October 2, 1993. In the first quarters of 1994 and 1993, the Company contributed a total of 118,000 and 146,000 shares of common stock, respectively, to match employee contributions to the Company's defined contribution retirement plan. During the first quarter of 1993, the Company acquired 226,000 shares for $1.0 million under its common stock repurchase program. Note 5 - Inventories Inventories are summarized as follows (in thousands):
January 1, October 2, 1994 1993 ---------------------------------- Raw materials $22,839 $22,829 Work in process 32,047 26,291 Finished goods 8,193 9,509 ------- ------- $63,079 $58,629 ======= =======
Note 6 - Computation of Income per Share The shares used in the computation of income per share were as follows (in thousands):
First Quarter Ended ------------------------------ January 1, January 2, 1994 1993 ------------------------------ Weighted average shares outstanding during period 25,357 23,963 Add: Incremental shares to reflect dilutive effect of stock option and deferred compensation plans 451 - ------ ------ 25,808 23,963 ====== ======
Inclusion of common stock equivalents in the computation of earnings per share for the first quarter ended January 2, 1993 would not be dilutive. Fully diluted earnings per share have not been presented as the effect would not be dilutive in either period. Note 7 - Litigation On October 27, 1993, at the request of the Company's insurance carrier, the Company entered into a Stipulation of Settlement in connection with the class action entitled Rand, et al. v. M/A-COM, Inc., et al. The Stipulation of Settlement provides that the Company's insurance carrier will pay into a settlement fund the amount of $3.9 million in full settlement of all claims in the action. The Company is not required to make any payment to the plaintiffs out of its own funds, and the Company's insurance carrier has agreed to pay the Company $325,000 to compensate the Company for certain costs associated with the litigation. On February 1, 1994, the court approved the Stipulation of Settlement. M/A-COM, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company reported income before cumulative effect of $.8 million or $.03 per share in the first quarter of 1994 in comparison with $.4 million or $.02 per share in the first quarter of 1993. Net income increased to $4.1 million from $.4 million in the first quarter of 1993. Net income for 1994 includes $3.3 million attributable to the cumulative effect of an accounting change upon the adoption of Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes ("SFAS 109"). Orders were $65.0 million in the first quarter of 1994 compared with $80.2 million in the same period of 1993. The decrease in orders reflects the anticipated decline in demand for United States defense-related products of $10.4 million coupled with a decrease of $3.4 million for the non-defense United States government and foreign government markets. As part of its previously disclosed decision to refocus the direction of its commercial business, the Company reduced its orders and backlog by $3.9 million in the first quarter of 1994 to reflect the termination of a technically complex development contract. The majority of this order was originally recorded in the first quarter of 1993. New commercial orders grew by $2.6 million in the first quarter of 1994 compared with the first quarter of 1993. In the fourth quarter of 1993, the Company formulated a plan for additional consolidation and downsizing. During the first quarter of 1994, the Company announced the closing of a facility in southern New Hampshire and reduced its workforce by approximately 75 persons. It is anticipated that additional workforce reductions will occur over the remainder of the current year. The facility closure and workforce reductions are expected to produce overall cost reductions; however, these cost reductions may be offset by reduced revenues and increased costs for salaries and related benefits for personnel and increases to other costs. Results of Continuing Operations Net sales for the first quarter of 1994 remained constant with the first quarter of 1993 as an $8.5 million increase in the sales of commercial products and a $3.1 million increase in sales to non-defense U.S. government agencies and foreign governments were offset by a decrease of $11.6 million in the sales of U.S. defense-related products. The Company's gross margin improved to 34.6% in the first quarter of 1994 from 29.7% in the first quarter of 1993. The improvement in gross margin is mainly attributable to increased productivity in the Company's Microelectronics Division of 2.1%; the reversal of previously established reserves related to a terminated contract of 1.3% (see Note 2 to the Condensed Consolidated Financial Statements); and increased sales of higher margin circulator and power amplifier products of 1.8%. The improvement in margins from the Microelectronics Division is primarily a result of the Company's consolidation and downsizing which have resulted in reduced facility and personnel costs. Company sponsored research and development increased by $.8 million in the first quarter of 1994 versus the comparable period of 1993. The Company also incurred $2.3 million and $4.4 million of costs, included in cost of sales, on customer sponsored research and development contracts ($.3 million and $.7 million, respectively, of which was not recoverable under fixed price engineering contracts) in the first quarter of 1994 and 1993, respectively. The increase in company sponsored research and development expense is attributable to a reallocation of engineers from production to research and development as the Company continues to invest in products with significant potential in both commercial and defense applications. The decrease in customer sponsored research and development expense reflects the change to the commercial business environment where customer funding for research and development is less prevalent than in government contracting and a decrease in development costs for contracts which have moved from the development stage into production. Selling, general and administrative expenses ("SG&A") increased by $1.9 million in the first quarter of 1994 compared with the first quarter of 1993. However, this increase is inclusive of a $2.3 million gain on the sale of a product line and a $1.0 million gain attributed to the excess of insurance recovery over the net book value of assets damaged by a fire which were recorded as reductions of SG&A in the first quarter of 1993. After consideration of these two items, comparable SG&A spending decreased by $1.4 million during the first quarter of 1994, mainly attributable to the results of the Company's consolidation and downsizing. Net interest expense increased by $.6 million in the first quarter of 1994 compared with the same period of 1993. The increase is mainly attributable to interest expense on increased borrowings and a decrease in interest income due to lower invested cash balances. The variance between the statutory federal tax rate of 35% and the Company's effective tax rate of 30% is attributable to the differential in tax rates applied to the earnings of foreign subsidiaries and Puerto Rico operations. Liquidity and Capital Resources The Company's cash and marketable securities position at January 1, 1994 was $6.9 million in comparison with $11.3 million at October 2, 1993. The Company's operating activities used $7.0 million in cash during the first quarter of 1994, mainly attributable to the Company's restructuring program and accrued payroll and employee benefit costs. The Company also expended $4.0 million for additions to plant assets. During the quarter, the Company borrowed $5.5 million under its revolving credit agreement and increased the amount of borrowing by its foreign subsidiaries by a net $2.5 million to fund working capital requirements. The Company also repaid $.2 million of current maturities on its long-term debt. Additionally, the Company received $1.0 million from the exercise of stock options. The Company settled $2.2 million in liabilities retained in the disposal of certain discontinued operations, mainly attributable to the $2.6 million repayment of an Industrial Revenue Bond offset by royalty income and asset sales associated with the previously disposed operations. At January 1, 1994, the Company's days sales outstanding of accounts receivable increased to 74 days compared with 70 days at October 2, 1993. The increase is attribuable to a shift in sales mix from defense and other government customers to commercial customers with longer collection periods. Defense and other government customers occasionally permit progress billings and customer advance payments which reduce collection periods. These contract provisions are less typical in commercial business. The Company's inventory balance at January 1, 1994 increased by $4.5 million in comparison with the inventory balance at October 2, 1993. The increase is mainly attributable to level production at several divisions coupled with lower shipments during the first quarter of 1994, resulting in a build up of inventory of $3.7 million. The Company's unsecured revolving credit agreement, which permits maximum borrowings of $15.0 million, expires on February 28, 1994. The Company is currently in the routine process of renegotiating its revolving credit agreement. The Company believes that its existing cash balances, funds to be generated by future operating activities and available borrowing capacity are sufficient to finance operating requirements, the previously described restructuring action, to provide for ongoing capital and research and development requirements and to take advantage of investment opportunities. Part II. Other Information Item 1. Legal Proceedings The information set forth in Note 7 to the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits: Method of Filing ---------------- Exhibit 11 Statement Re: Computation of Per Incorporated from Share Earnings. Note 6 to Condensed Consolidated Financial Statements. Exhibit 15 Letter Re: Unaudited Interim Filed herewith. Financial Information. (b) Reports on Form 8-K No report on Form 8-K has been filed during the quarter ended January 1, 1994. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on February 14, 1994. M/A-COM, Inc. By: PETER J. RICE - -------------------------------- Peter J. Rice Vice President, Chief Accounting Officer and Controller February 4, 1994 To the Board of Directors and Stockholders of M/A-COM, Inc. We have reviewed the condensed consolidated balance sheet of M/A-COM, Inc. and its consolidated subsidiaries as of January 1, 1994 and January 2, 1993 (not presented herein) and the related consolidated statement of income and the condensed consolidated statement of cash flows for the three-month periods then ended. These financial statements are the responsibility of the company's management. We conducted our review in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statement taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial information for it to be in conformity with generally accepted accounting principles. We previously examined, in accordance with generally accepted auditing standards, the consolidated balance sheet as of October 2, 1993, and the related consolidated statements of income and cash flows for the year then ended (not presented herein), and in our report dated November 2, 1993 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of October 2, 1993, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. PRICE WATERHOUSE EX-15 2 EXHIBIT 15 - COMPUTATION OF EARNINGS PER SHARE Exhibit 15 February 14, 1994 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Dear Sirs: We are aware that M/A-COM, Inc. has included our report dated February 4, 1994 (issued pursuant to the provisions of Statements on Auditing Standards No. 71) in the Prospectuses constituting part of its Registration Statements on Form S-3 (No. 2-99637) and Form S-8 (Nos. 2-17757; 2-25410; 2-31632; 2- 47195; 2-53255; 2-53257; 2-68734; 2-68809; 2-69195; 2-69202; 2-69259; 2- 70247; 2-71043; 2-72234; 2-72235; 2-76292; 2-81497; 2-81907; 2-92614; 2- 92616; 2-92617; 33-10913; 33-10916; 33-33372; 33-35845; 33-36846; 33-44212). We are also aware of our responsibilities under the Securities Act of 1933. Very truly yours, PRICE WATERHOUSE -----END PRIVACY-ENHANCED MESSAGE-----