UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 0-25236
M I C R E L, I N C O R P O R A T E D
(Exact name of Registrant as specified in its charter)
California 94-2526744
(State or other jurisdiction of (I.R.S. Employer
incorporation or Organization) Identification No.)
2180 Fortune Drive, San Jose, CA 95131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 944-0800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. [ ]
As of March 15, 2001, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $1,769,300,000 based
upon the closing sales price of the Common Stock as reported on the Nasdaq
Stock Marketr on such date. Shares of Common Stock held by officers,
directors and holders of more than ten percent of the outstanding Common Stock
have been excluded from this calculation because such persons may be deemed to
be affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 15, 2001, the Registrant had outstanding 85,914,885 shares of
Common Stock.
____________________________________________
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated by reference in this
report: Registrant's Proxy Statement for its 2001 Annual Meeting of
Shareholders (Part III).
This Report on Form 10-K/A includes 69 pages with the Index to Exhibits
located on page 41.
EXPLANATORY NOTE
On January 28, 2002, Micrel, Incorporated (the "Company" or "Micrel")
announced that it would restate its consolidated financial statements for the
years ended December 31, 1998, 1999, and 2000, and the quarters ended March
31, 2001, June 30, 2001, and September 30, 2001. This restatement relates to
the Company's past method of setting the exercise price of certain employee
stock options which results in stock compensation expenses and related payroll
and income tax effects that had not been recorded in previously issued
financial statements. This amendment includes in Items 8 and 14 such restated
consolidated financial statements for the years ended December 31, 1998, 1999
and 2000, and other information relating to such restated consolidated
financial statements, including Selected Financial Data (Item 6) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7). Information regarding the effect of the restatement on
the Company's financial position and results of operations is provided in Note
2 of Notes to Consolidated Financial Statements included in Items 8 and 14 of
this amendment.
The Company completed the acquisition of Kendin Communications, Inc.
("Kendin") on May 30, 2001. The transaction has been accounted for as a
pooling of interests and, accordingly, updated information is included
throughout this Form 10-K/A in addition to the amendments related to the
restatement described in the preceding paragraph. Additional information
about the Kendin acquisition is provided in Note 3 of Notes to Consolidated
Financial Statements.
Except for items related to the restatement and the Kendin acquisition (and
except for the fifth paragraph of Item 3 and Note 12 of Notes to Consolidated
Financial Statements which were previously updated by the Company's Current
Report on Form 8-K dated October 3, 2001), no other information included in
the original Report on Form 10-K for the year ended December 31, 2000, is
amended by this amendment.
2
MICREL, INCORPORATED
INDEX TO
ANNUAL REPORT ON FORM 10-K/A
FOR YEAR ENDED DECEMBER 31, 2000
Page
----
PART I
Item 1. Business 4
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners and Management 39
Item 13. Certain Relationships and Related Transactions 39
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 40
Signatures 69
3
PART I
ITEM 1. BUSINESS
General
The Company was incorporated in California in July 1978. References to the
"Company" and "Micrel" refer to Micrel, Incorporated and subsidiaries,
which also does business as Micrel Semiconductor. The Company's principal
executive offices are located at 2180 Fortune Drive, San Jose, California
95131. The Company's telephone number is (408) 944-0800.
Micrel designs, develops, manufactures and markets a range of high-
performance analog power integrated circuits and mixed-signal and digital
integrated circuits. The Company currently ships over 1,400 standard products
and has derived the majority of its product revenue for the year ended
December 31, 2000 from sales of standard analog integrated circuits for power
management. These analog power circuits are used in a wide variety of
electronic products, including those in the computer, telecommunications and
industrial markets. For the years ended December 31, 2000, 1999, and 1998, the
Company's standard products accounted for 79%, 78%, and 72%, respectively, of
the Company's net revenues. In addition, the Company manufactures custom
analog and mixed-signal circuits and provides wafer foundry services for a
diverse range of customers who produce electronic systems for communications,
consumer and military applications. With the Company's acquisition of Synergy
Semiconductor in November 1998, the Company broadened its standard product
offerings to include high performance bipolar integrated circuits sold to
customers within the communications, industrial and computing markets. This
product portfolio is comprised of more than 200 products including
communication transceivers, clock generators, distribution/clock recovery
circuits as well as high-speed logic and memory. In April 2000, Micrel
completed its acquisition of Electronic Technology Corporation ("ETC"), a
company specializing in mixed signal and analog design with a complete
portfolio of voltage supervisor and microprocessor reset circuits. These
products are highly complementary with the Company's power products portfolio
since they accurately monitor the power supplies of critical system components
(e.g. microprocessors) and signal the microprocessor to reset if the voltage
to the device falls out of the specified operating range.
Continuing trends in the communications and computing markets have created
increased demand for power analog circuits, which control, regulate, convert
and route voltage and current in electronic systems. This demand for power
analog circuits has been fueled by the tremendous growth of battery powered
cellular telephones and computing devices and the emergence of lower voltage
microprocessors and Personal Computer Memory Card International Association
("PCMCIA") standards for peripheral devices. Micrel's standard analog products
business is focused on addressing this demand for high-performance power
analog circuits. The Company sells a wide range of regulators, references and
switches designed for cellular telephones and laptop computers. The Company
was one of the first companies to offer analog products for the PCMCIA Card
and universal serial bus ("USB") market. The Company recently introduced a
family of Hot Swap Power controllers for the Compact Peripheral Control
Interface ("CompactPCI"T) bus standard used extensively in PC servers,
networking equipment and industrial control applications. These devices
support 24 hours a day, 7 days per week operation by enabling customers to
remove and insert printed circuit boards during system operation. Future
families of hot swap controllers are being developed to address the higher
voltage requirements of the telecommunications market. The Company also offers
standard analog products that address other markets, including power supplies
and industrial, defense, avionics, and automotive electronics.
4
The Company's standard mixed-signal and digital integrated circuits have
also experienced increased demand in 2000. These products are used primarily
in the wide area network infrastructure and fiber optic communications
marketplaces which both have seen significant growth in recent years due to
the expansion in capacity required in the Internet backbone.
With the acquisition of Altos Semiconductor in November 1999, Micrel
entered the high growth thermal management market. These mixed signal devices
accurately measure the temperature at various "hot spots" in electronic
systems and initiate system cooling by turning on fans or if necessary
initiate a controlled system shutdown. With the continuing trend to provide
more processing power in smaller form factors (e.g. notebook PCs, Personal
Digital Assistants ("PDAs")) the demand for thermal management devices is
growing rapidly.
In addition to standard analog and mixed signal products, Micrel offers
customers various combinations of design, process and foundry services.
Through interaction with customers in its custom and foundry business, the
Company has been able to enhance its design and process technology
capabilities, which in turn provides engineering and marketing benefits to its
standard products business.
Industry Background
Analog Circuit, Mixed-Signal and Digital Integrated Circuits Markets
Integrated circuits may be divided into three general categories - digital,
analog (also known as "linear") and mixed-signal. Digital circuits, such as
memories and microprocessors, process information in the form of on-off
electronic signals and are capable of implementing only two values, "1" or
"0". Analog circuits, such as regulators, converters and amplifiers, process
information in the form of continuously varying voltages and currents that
have an infinite number of values or states. Analog circuits condition,
process, and measure or control real world variables such as current, sound,
temperature, pressure or speed. Mixed-signal integrated circuits combine
analog and digital functions on one chip.
Analog circuits are used in virtually every electronic system, and the
largest markets for such circuits are computers, telecommunications and data
communications, industrial equipment, and military, consumer and automotive
electronics. Because of their numerous applications, analog circuits have a
wide range of operating specifications and functions. For each application,
different users may have unique requirements for circuits with specific
resolution, processing linearity, speed, power and signal amplitude
capability. Such differentiation results in a high degree of market
fragmentation, which provides smaller companies an opportunity to compete
successfully against larger suppliers in certain market segments.
Mixed-signal and digital integrated circuits may be divided into six
general categories, LSI/MSI logic, data processing, signal processing, memory,
FPGA and application specific.
Mixed-signal and digital integrated circuits are used in computer and
communication systems and in industrial products. The primary markets for such
circuits are consumer, communications, personal computer systems, and
industrial. The primary advantages of the Company's bipolar integrated
circuits are high speed and low noise.
As compared with the digital integrated circuit industry, the analog
integrated circuit industry has the following important characteristics:
5
- - Dependence on Individual Design Teams. The design of analog circuits
involves the complex and critical placement of various circuits. Analog
circuit design has traditionally been highly dependent on the skills and
experience of individual design engineers.
- - Interdependence of Design and Process. Analog designers, especially at
companies having their own wafer fabrication facility ("fab"), are able
to select from several wafer fabrication processes in order to achieve
higher performance and greater functionality from their designs.
- - Longer Product Cycles and More Stable Pricing. Analog circuits generally
have longer product cycles as compared to digital circuits. As a result,
analog circuit pricing has historically been more stable than most digital
circuit pricing.
Analog, mixed-signal and digital integrated circuits are sold to customers
as either standard products or custom products. Standard analog products are
available to customers "off-the-shelf" and are often sold in large volumes
to a wide variety of customers in different industries. Custom products are
designed to an individual customer's specifications.
Recent Trends in Analog Power Management, Mixed-Signal and Digital
Integrated Circuits
Most electronic systems utilize analog circuits to perform power management
functions ("power analog circuits") such as the control, regulation,
conversion and routing of voltages and current. The computer and
communications markets have emerged as two of the largest markets for power
analog circuits. In particular, the recent growth and proliferation of
portable, battery powered devices, such as cellular telephones and laptop
computers, continue to increase demand and create new technological challenges
for power analog circuits.
Cellular telephones, which are composed of components and subsystems that
utilize several different voltage levels, require multiple power analog
circuits to precisely regulate and control voltage. Manufacturers are
replacing traditional pass regulators with higher performance low dropout
("LDO") regulators to lengthen battery life and are utilizing smaller, more
highly integrated power analog circuits, such as regulators and references.
The trend toward the use of lower voltage digital processing devices
(microprocessors, digital signal processors ("DSPs") and field programmable
gate arrays ("FPGA"s)) at the core of the latest generation of electronic
systems has also increased market demand and created new requirements for
power analog circuits. These devices require lower voltage, higher current
power supplies and this power must be delivered with high efficiency to
prolong battery life in portable systems and reduce heat in mains powered
systems. These trends are driving the demand for higher efficiency switching
regulators and higher current LDO regulators. Another recent trend is the
emergence of PCMCIA standards that require a voltage protection capability,
thereby creating new specifications for higher performance power analog
switches.
The rapid adoption of the Internet for information exchange, in business
and consumer markets, has led to a significant increase in the need for
broadband communications technology. In addition, the use of more media-rich
technologies on the Internet, like graphics and movies with high bandwidth
requirements, has led to a growing need to increase the speed and capacity of
the Internet infrastructure. One major trend within the communications
industry is the worldwide adoption and deployment of high-speed fiber optic
networks. Such networks require the use of high-speed signal conditioning,
clock recovery and post processing in order to attain high speed data
throughput.
6
Micrel's Strategy
Micrel seeks to capitalize on the growth opportunities within the high-
performance analog and mixed-signal semiconductor market. The Company's core
competencies are its analog design and process technology, its large, in-house
wafer fabrication capability and its manufacturing expertise. The Company also
seeks to capitalize on the growth opportunities within the high performance
bipolar semiconductor market. The Company has expanded upon its core
competencies through the addition of Synergy's expertise in the synchronous
optical network ("SONET") and fiber channel arenas. The Synergy design team,
process technology and wafer fabrication facility complement the historical
Micrel core strengths. The Company intends to build a leadership position in
its targeted markets by pursuing the following strategies:
- - Focus on Standard Products for High Growth Markets. Currently, Micrel ships
over 1,400 standard products, with net revenues from standard products
generating 79% of the Company's net revenues for the year ended December
31, 2000. In November 1998, through the acquisition of Synergy
Semiconductor, the Company has added over 200 new standard products to its
offerings. Micrel believes that its long-term growth will depend
substantially on its ability to increase standard products sales in its
existing markets and to penetrate new standard products markets. The
Company, however, will pursue additional custom and foundry business as
opportunities arise.
- - Target Power Analog, High-Speed Mixed-signal and Digital Markets. Micrel
has leveraged its expertise in power analog circuits by addressing market
opportunities in cellular telephones, battery powered computers and desktop
personal computers. A majority of the Company's standard products net
revenues for the year ended December 31, 2000 were derived from products
relating to power management. Through the acquisitions of Synergy
Semiconductor, Altos Semiconductor and ETC the Company has gained expertise
in high-speed, mixed-signal and digital integrated circuits, required to
address the high bandwidth communication markets as well as increase its
penetration of the power and thermal management markets.
- - Maintain Technological Leadership. The Company seeks to utilize its design
strengths and its process expertise to enhance what the Company believes
are its competitive advantages in LDO regulators, ECL logic products, high-
speed communications devices, PCMCIA and USB devices. In order to maintain
its technology leadership, the Company has developed plans for successive
generations of products with increased functionality. In order to maintain
its technology leadership, the Company has begun development of a sub-
micron process and a high speed silicon germanium process.
- - Develop/Acquire New Complementary Businesses. The Company seeks to identify
complementary business opportunities building on its core strengths in the
analog and mixed signal area. During the past year the Company has
significantly expanded its product scope to include hot swap power
controllers, thermal management products and voltage supervisors. This
enables Micrel to provide a more complete solution to its customers and
further accelerates the Company's growth.
- - Capitalize on In-house Wafer Fab Facilities. The Company believes that its
six-inch in-house wafer fab facilities provide a significant competitive
advantage because they facilitate close collaboration between design and
process engineers in the development of the Company's products.
- - Maintain a Strategic Level of Custom and Foundry Products Revenue. Micrel
believes that its custom and foundry products business complements its
standard products business by generating a broader revenue base and
lowering overall per unit manufacturing costs through greater utilization
of its manufacturing facilities. Through interaction with customers, Micrel
has been able to enhance its design and process technology capabilities.
7
Products and Markets
Overview
The following table sets forth the net revenues attributable to the
Company's two segments, standard products and custom and foundry products
expressed in dollars and as a percentage of total net revenues.
Net Revenues by Segment
(Dollars in thousands)
Years Ended December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Standard Products $ 275,306 $ 155,979 $ 104,329
Custom and Foundry Products 71,029 44,037 40,606
---------- ---------- ----------
Total net revenues $ 346,335 $ 200,016 $ 144,935
========== ========== ==========
As a Percentage of Total Net Revenues:
Standard Products 79% 78% 72%
Custom and Foundry Products 21 22 28
---------- ---------- ----------
Total net revenues 100% 100% 100%
========== ========== ==========
For a discussion of the changes in net revenues from period to period, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Standard Products
In recent years, the Company has directed a majority of its development,
sales and marketing efforts towards standard products in an effort to address
the larger markets for these products and to broaden its customer base. The
Company offers power analog circuits that address certain high growth markets
including cellular telephones, battery powered computers and desktop personal
computers. The Company's remaining standard products address other markets,
including power supplies and industrial, defense, avionics, and automotive
electronics. In November 1998, the Company broadened its standard product
offerings to include high-speed mixed-signal and digital integrated circuits
sold to customers within the networking, communications and computing markets.
Portable Battery Powered Computer Market. The Company makes power analog
circuits for laptop, palmtop computers and pocket organizers. Products in this
growing segment are differentiated on the basis of power efficiency, weight,
small size and battery life.
Cellular Telephone Market. Micrel offers a range of power control and
regulating analog circuits to address the demand for cellular telephones with
longer battery lives. Micrel supplies a range of high performance LDO
regulators and higher efficiency switching regulators that convert, regulate,
switch and control the DC voltages used in cellular telephones. Micrel's
SuperBeta PNPT LDO and CMOS regulators enable cellular telephones to continue
to operate effectively until the battery is almost completely exhausted.
Micrel products are designed to reduce board space and decrease system cost.
In addition, Micrel offers switch mode power supply ("SMPS") regulators that
convert AC to useable DC power in battery chargers and cellular base stations.
8
Universal Serial Bus Market. Universal Serial Bus ("USB") is a novel method
of connecting computer peripherals to a host computer that improves upon the
bandwidth and ease-of-use of previously used computer interconnect solutions.
In addition to implementing data communications between the connected devices,
USB also provides a power source capable of powering the peripheral. Micrel
believes that it is the leader in the design and manufacture of circuits that
safely control the delivery of this power source. Micrel's latest generation
of USB devices are the first to support the new Advanced Control and Power
Interface ("ACPI") standard for lower power consumption.
PCMCIA Card and Socket Markets. The Personal Computer Memory Card
International Association, of which Micrel is a member, has established
standards for personal computer cards that are the size of credit cards and
for sockets that allow insertion of such cards into personal computers.
Micrel believes that it is a leader in the design and manufacture of
integrated circuits that enable PC Card sockets to have such compatibility.
Power Supply Market. Most electronic equipment includes a power supply that
converts and regulates the electrical power source into usable current for the
equipment. In addition to SMPS controllers and single chip SMPS circuits,
Micrel offers a full line of MOSFET drivers, references, LDOs and Super LDOs.
Automotive Electronics Market. Micrel's LDO products, including the line of
monolithic SuperBeta PNP T LDO regulators, have been designed in for such
automotive controller applications and safety features as automotive airbags
and antilock brake systems. For each of the years ended December 31, 2000,
1999, and 1998, the automotive electronics market represented less than 2% of
net revenues.
General Purpose Analog. During 2000, Micrel introduced a variety of general
purpose analog products including high speed, low power op-amps, comparators,
a fan controller and intelligent protected power switches. The Company also
introduced a broad portfolio of voltage supervisors and microprocessor reset
circuits based on its acquisition of ETC. All of these general purpose devices
were focused on low voltage and low current applications.
Thermal Management. Micrel introduced its first thermal management products
in 2000 based on the technology acquired from Altos Semiconductor. The need to
accurately measure temperature in several system locations and control cooling
fans is critical to both the reliability and operating life of today's
electronic systems. The ability to measure temperature accurately allows
customers to optimize system performance. Micrel's thermal management
technology enables high accuracy at low system cost by sensing the temperature
at each location using only one pin connection.
Hot Swap Controllers. During 2000, the Company introduced its first hot
swap power controllers to support the requirement for 24/7 operation in
servers and communications equipment. These products allow customers to
upgrade or replace system boards without having to power down the system. This
family offers the industry's most integrated hot swap solution for CompactPCIT
applications. These devices build on Micrel's expertise in power control and
distribution. Future products are in development to address the higher voltage
requirements of the telecommunications market.
Radio Frequency Data Communications. Micrel continued to add new products
to the QwikRadioTM family of radio frequency ("RF") receivers in 2000. These
devices are designed for use in any system requiring a cost effective, low
data-rate wireless link. Typical examples include garage door openers,
wireless computer peripherals, lighting and fan controls, utility metering,
automotive keyless entry and security systems.
9
Networking and High-Speed Communications Circuits Market. The Company's
Synergy subsidiary has directed a majority of its development, sales and
marketing efforts towards high-speed media interface for SONET/synchronous
digital hierarchy ("SDH") markets. The Synergy subsidiary also develops and
produces communications products targeted at optical modules and wave division
multiplex ("WDM"), dense wave division multiplex ("DWDM") modules as well as
clock recovery and clock distribution circuits.
The Company's future success will depend in part upon the timely
completion, introduction, and market acceptance of new standard products. As
compared with the Company's custom and foundry products business, the standard
products business is characterized by generally shorter product lifecycles,
greater pricing pressure, larger competitors and more rapid technological
change. Generally, the standard products market is a rapidly changing market
in which the Company faces the risk that its product offerings will quickly
become obsolete. The success of new standard products depends on a variety of
factors, including product selection, successful and timely completion of
product development, achievement of acceptable manufacturing yields by the
Company's foundry and the Company's ability to offer products at competitive
prices.
Micrel's new products are generally incorporated into a customer's products
or systems at the design stage. The value of any design win largely depends
upon the commercial success of the customer's product and on the extent to
which the design of the customer's electronic system accommodates
incorporation of components manufactured by the Company's competitors. In
addition, products or systems may be subsequently redesigned so that they no
longer require the Company's products. No assurance can be given that the
Company will achieve design wins or that any design win will result in future
revenues. The failure of the Company to achieve design wins would materially
and adversely affect the Company's financial condition, results of operations
and cash flows.
Custom and Foundry Products
Micrel offers customers various combinations of design, process and foundry
services in order to provide them with the following alternatives:
Full Service Custom. Based on a customer's specification, Micrel designs
and then manufactures integrated circuits for the customer.
Custom and Semi-Custom. Based on a customer's high level or partial circuit
design, Micrel uses varying levels of its design and process technologies to
complete the design and then manufactures integrated circuits for the
customer.
R&D Foundry. Micrel modifies a process or develops a new process for a
customer. Using that process and mask sets provided by the customer, Micrel
manufactures fabricated wafers for the customer.
Foundry. Micrel duplicates a customer's process to manufacture fabricated
wafers designed by the customer.
Micrel's full service custom, custom and semi-custom products primarily
address high bandwidth communications, consumer, automotive and military
applications and use both analog and digital technologies. The military
applications include communications and transport aircraft.
10
With respect to R&D foundry and other foundry products, Micrel provides
wafers to a variety of companies. The Company believes that the custom and
foundry business reduces somewhat the Company's sensitivity to fluctuations in
its standard products markets as the Company's foundry customers are often in
different markets that are not affected by the same business cycles.
Sales, Distribution and Marketing
The Company sells its products through a worldwide network of independent
sales representative firms and distributor firms and through a direct sales
staff. In the year ended December 31, 2000, sales through North American
distributor firms accounted for 15% of the Company's net revenues.
The Company sells its products in Europe through a direct sales staff in
England as well as independent sales representative firms, independent
distributors and independent stocking representative firms. Asian sales are
handled through independent stocking representative firms with Micrel sales
offices in Korea, Japan and Taiwan. The stocking representative firms may buy
and stock the Company's products for resale or may act as the Company's agent
in arranging for direct sales from the Company to an OEM customer.
Sales to customers in North America, Asia and Europe accounted for 58%, 32%
and 10%, respectively, of the Company's net revenues for the year ended
December 31, 2000 compared to 52%, 37% and 11%, respectively, of the Company's
net revenues for the year ended December 31, 1999 and 53%, 36% and 11%,
respectively, of the Company's net revenues for 1998. The Company's standard
products are sold throughout the world, while its custom and foundry products
are primarily sold to North American customers.
The Company's international sales are primarily denominated in U.S.
currency. Consequently, changes in exchange rates that strengthen the U.S.
dollar could increase the price in local currencies of the Company's products
in foreign markets and make the Company's products relatively more expensive
than competitors' products that are denominated in local currencies, leading
to a reduction in sales or profitability in those foreign markets. The Company
has not taken any protective measures against exchange rate fluctuations, such
as purchasing hedging instruments with respect to such fluctuations.
Customers
For the year ended December 31, 2000 one customer, Future Electronics (a
distributor), accounted for 10% of the Company's net revenues. For the years
ended December 31, 1999 and 1998 no customer accounted for 10% or more of the
Company's net revenues.
Design and Process Technology
Micrel's analog proprietary design technology depends on the skills of its
analog design team. The Company has experienced analog design engineers who
utilize an extensive macro library of analog and mixed-signal circuits and
computer simulation models.
Micrel can produce integrated circuits using a variety of manufacturing
processes, some of which are proprietary and provide enhanced product
features. Designers at companies that do not have in-house fabs or have a
limited selection of available processes often have to compromise design
methodology in order to match process parameters.
11
Micrel produces high-speed communication transceivers, clock
generation/distribution circuits, clock recovery circuits as well as high-
speed logic and memory using the Company's proprietary All Spacer Separated
Element Transistor ("ASSET") process.
The Company utilizes the following process technologies:
- - Bipolar - Bipolar technology is one of the oldest technologies. It is
utilized where precision analog elements are required.
- - High Speed Bipolar - This is a variation of bipolar technology that is
specially optimized for very fast transistors and is used where high-speed
switching or signal conditioning is required.
- - SuperBeta PNP T - The Company's proprietary SuperBeta PNP T process
technology allows power transistors to be driven with much lower current as
compared to conventional PNP Bipolar technology, which gives such
transistors a competitive advantage.
- - CMOS - CMOS technology is the technology most widely used in digital
applications. It has the advantages of low power consumption and high
packing density.
- - BiCMOS - Bipolar/CMOS ("BiCMOS") merges the Bipolar and CMOS technologies
and offers the benefits of both technologies. This process, however, adds
more expense to a product.
- - BCD - Bipolar/CMOS/DMOS ("BCD") merges three technologies, Bipolar, CMOS
and DMOS. DMOS is best suited for handling high current and is used in the
output section of the circuit. BCD combines the high speed, ruggedness and
power of DMOS and the benefits of BiCMOS.
- - ASSET - ASSET technology is the Company's proprietary high-speed Bipolar
process developed by the Company's Synergy subsidiary. This technology
allows high speed with low jitter and is ideally suited for high-speed
mixed-signal designs.
The Company continues to develop each of these technologies to improve both
the performance and cost of its new products. Micrel is also developing new
process technologies to support its own product development and the needs of
its foundry customers. For example, a new Silicon Germanium process is
currently in development to meet the needs of the next generation
communication products operating at 10Gbps. Silicon Germanium is ideally
suited for these products given its combination of high speed with low power
consumption.
Research and Development
The ability of the Company to compete will substantially depend on its
ability to define, design, develop and introduce on a timely basis new
products offering design or technology innovations. Research and development
in the analog integrated circuit industry is characterized primarily by
circuit design and product engineering that enables new functionality or
improved performance. Research and development in the high-speed
communications circuit industry is characterized primarily by innovative
process technologies, novel design techniques and high-speed test methodology.
The Company's research and development efforts are also directed at its
process technologies and focus on cost reductions to existing manufacturing
12
processes and the development of new process capabilities to manufacture new
products and add new features to existing products. With respect to more
established products, the Company's research and development efforts also
include product redesign, shrinkage of device size and the reduction of mask
steps in order to improve die yields per wafer and reduce per device costs.
The Company's analog design engineers principally focus on developing next
generation standard products. The Company's new product development strategy
emphasizes a broad line of standard products that are based on customer input
and requests. The Company often develops new standard analog products with the
cooperation of customers in order to better ensure market acceptance. The
Company is currently developing products to expand its line of USB and PCMCIA
switches, SMPS regulators, LDOs, MOSFET drivers and RF transmitters and
receivers. New development areas in analog standard products include high
speed, low power operational amplifiers, thermal management devices, hot swap
power controllers and voltage supervisors.
The Company's mixed-signal design engineers principally focus on high
speed, low noise media driving and clock/data recovery devices used in
communication and advanced computer systems. New product development in this
area includes high speed Current Mode Logic ("CML") for optical networking,
high speed, precision timing devices for next generation 64-bit servers, fiber
optic module components for 10Gbps (OC-192) optical networking, and
communications transceivers for OC-48 and 10 Gigabit Ethernet applications.
In 2000, 1999, and 1998 the Company spent $42.2 million $29.6 million, and
$21.4 million, respectively, on research and development. The Company expects
that it will continue to spend substantial funds on research and development
activities. The Company is currently developing, and may in the future
develop, certain types of standard products with which the Company has only
limited experience. Certain of these new standard products will be targeted at
emerging market segments in which the Company has not previously participated.
Additionally, there can be no assurance that the Company will be able to
identify new standard product opportunities successfully and develop and bring
to market such new products or that the Company will be able to respond
effectively to new technological changes or new product announcements by
others.
Patents and Intellectual Property Protection
The Company seeks patent protection for those inventions and technologies
for which such protection is suitable and is likely to provide competitive
advantage to the Company. The Company currently holds 47 United States patents
on semiconductor devices and methods, with various expiration dates through
2019. The Company has applications for 37 United States patents pending. The
Company holds 31 issued foreign patents and has applications for 25 foreign
patents pending. The Company has also routinely protected certain original
mask sets under mask work laws. There can be no assurance that any patent
owned by the Company will not be invalidated, circumvented or challenged, that
the rights granted thereunder will provide competitive advantages to the
Company or that any of the Company's pending or future patent applications
will issue or will be issued with the scope of the claims sought by the
Company.
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. To the extent that
the Company becomes involved in such intellectual property litigation, it
could result in substantial costs and diversion of resources to the Company
and could have a material adverse effect on the Company's financial condition,
results of operations, or cash flows. See Item 3, Legal Proceedings, of this
report on Form 10-K/A.
13
Supply of Materials and Purchased Components
Micrel currently purchases certain components from a limited group of
vendors. The packaging of the Company's products which is performed by, and
certain of the raw materials included in such products are obtained from, a
limited group of suppliers. Although the Company seeks to reduce its
dependence on its sole and limited source suppliers, disruption or termination
of any of these sources could occur and such disruptions could have an adverse
effect on the Company's financial condition, results of operations, or cash
flows. The Company has rarely experienced delays in obtaining raw materials,
which have adversely affected production.
Manufacturing
The Company produces the majority of its wafers at the Company's wafer
fabrication facilities located in San Jose and Santa Clara, California while a
small percentage of wafer fabrication is subcontracted to outside foundries.
The San Jose facility includes a 57,000 square foot office and manufacturing
facility containing a 24,800 square foot clean room facility, which provides
production processes. The San Jose facility is classified as a Class 10
facility, which means that the facility achieves a clean room level of fewer
than 10 foreign particles larger than 0.5 microns in size in each cubic foot
of space. In the third quarter of 1997, the Company began processing certain
products using six-inch wafers. In the fourth quarter of 1998, approximately
61% of wafer fab outputs were produced using six-inch wafers. The Company
completed its conversion to six-inch wafer fabrication in the second quarter
of 1999. The Company leases approximately 63,000 square feet of additional
adjacent space in San Jose that is used as a testing facility.
In November 1998, in connection with its acquisition of Synergy, the
Company acquired a 70,000 square foot office and manufacturing facility in
Santa Clara, California containing a 9,000 square foot clean room facility,
which provides production processes. The Santa Clara facility was upgraded
from a Class 10 facility to Class 1 in 1999. The facility uses six-inch wafer
technology. The Company is currently in the process of expanding these clean
room facilities with an additional 5,000 square foot Class 1 clean room
expected to be placed in use in calendar 2001.
The fabrication of integrated circuits is a highly complex and precise
process. Minute impurities, contaminants in the manufacturing environment,
difficulties in the fabrication process, defects in the masks used to print
circuits on a wafer, manufacturing equipment failure, wafer breakage or other
factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be nonfunctional. There can be no assurance that
the Company in general will be able to maintain acceptable manufacturing
yields in the future.
Generally, each die on the Company's wafers is electrically tested for
performance, and most of the wafers are subsequently sent to independent
assembly and final test contract facilities in Malaysia and certain other
Asian countries. At such facilities, the wafers are separated into individual
circuits and packaged. The Company's reliance on independent assemblers may
subject the Company to longer manufacturing cycle times. The Company from time
to time has experienced competition with respect to these contractors from
other manufacturers seeking assembly of circuits by independent contractors.
Although the Company currently believes that alternate foreign assembly
sources could be obtained without significant interruption, there can be no
assurance that such alternate sources could be obtained quickly.
The Company manufactures the majority of its products at two wafer
fabrication facilities. Given the nature of the Company's products, it would
be difficult to arrange for independent manufacturing facilities to supply
such products. Any prolonged inability to utilize the Company's manufacturing
facilities as a result of fire, utility interruptions, natural disaster or
otherwise, would have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
14
Competition
The semiconductor industry is highly competitive and subject to rapid
technological change. Significant competitive factors in the market for
standard products include product features, performance, price, the timing of
product introductions, the emergence of new technological standards, quality
and customer support. The Company believes that it competes favorably in all
these areas.
Because the standard products market for analog integrated circuits is
diverse and highly fragmented, the Company encounters different competitors in
its various market areas. The Company's principal analog circuit competitors
include Linear Technology Corporation, Maxim Integrated Products, Inc., and
National Semiconductor Corporation in one or more of its product areas. Other
competitors include Texas Instruments, Motorola, On Semiconductor, and certain
Japanese manufacturers. Each of these companies has substantially greater
technical, financial and marketing resources and greater name recognition than
the Company. Due to the increasing demands for analog circuits, the Company
expects intensified competition from existing analog circuit suppliers and the
entry of new competitors. The Company's principal competitors for products
targeted at the high bandwidth communications market are On Semiconductor,
Applied Micro Circuits Corp., Vitesse Semiconductor Corporation and Conexant.
With respect to the custom and foundry products business, significant
competitive factors include product quality and reliability, established
relationships between customers and suppliers, timely delivery of products and
price. The Company believes that it competes favorably in all these areas.
Backlog
At December 31, 2000, the Company's backlog was approximately $97 million,
all of which was scheduled to be shipped during the first six months of 2001.
At December 31, 1999, the Company's backlog was approximately $87 million.
Orders in backlog are subject to cancellation or rescheduling by the customer,
generally with a cancellation charge in the case of custom and foundry
products. The Company's backlog consists of distributor and customer released
orders required to be shipped within the next six months. Shipments to United
States, Canadian and certain other international distributors are not
recognized as revenue by the Company until the product is sold from the
distributor stock and through to the end-users. Because of possible changes in
product delivery schedules and cancellation of product orders and because an
increasing percentage of the Company's sales are shipped in the same quarter
that the orders are received, the Company's backlog at any particular date is
not necessarily indicative of actual sales for any succeeding period.
Environmental Matters
Federal, state and local regulations impose various environmental controls
on the storage, handling, discharge and disposal of chemicals and gases used
in the Company's manufacturing process. The Company believes that its
activities conform to present environmental regulations. Increasing public
attention has, however, been focused on the environmental impact of
semiconductor operations. While the Company has not experienced any materially
adverse effects on its operations from environmental regulations, there can be
no assurance that changes in such regulations will not impose the need for
additional capital equipment or other requirements or restrict the Company's
ability to expand its operations. Any failure by the Company to restrict the
discharge of hazardous substances adequately could subject the Company to
future liabilities or could cause its manufacturing operations to be
suspended.
15
Employees
As of December 31, 2000, the Company had 980 full-time employees. The
Company's employees are not represented by any collective bargaining
agreements, and the Company has never experienced a work stoppage. The Company
believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's main executive, administrative, and technical offices are
located in a 57,000 square foot facility in San Jose, California under a lease
agreement that expires in April 2011. The majority of the Company's
manufacturing operations are also located in San Jose, California in another
57,000 square foot facility and an adjacent 63,000 square foot facility under
lease agreements that expire in May 2005. The Company fabricates the majority
of its wafers at this location in a 24,800 square foot clean room facility,
which provides all production processes. In addition to wafer fabrication, the
Company also the uses this location as a testing facility. Additional
administrative, technical, and wafer production facilities are maintained at a
70,000 square foot facility in Santa Clara, California which was acquired in
connection with the Company's purchase of Synergy Semiconductor. This facility
is under a lease agreement that expires in 2006. The Company fabricates
mixed-signal and digital integrated circuit wafers at this location in a 9,000
square foot clean room facility, which provides all production processes.
The Company believes that its existing and planned facilities are adequate
for its current manufacturing needs. The Company believes that if it should
need additional space, such space would be available at commercially
reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. To the extent that
the Company becomes involved in such intellectual property litigation, it
could result in substantial costs and diversion of resources to the Company
and could have a material adverse effect on the Company's financial condition
or results of operations.
On July 2, 1999, National Semiconductor Corporation ("National"), a
competitor of the Company, filed a complaint against the Company, entitled
National Semiconductor Corporation v. Micrel Semiconductor, Inc. in the United
States District Court, Northern District of California, in San Jose,
California, alleging that the Company infringes five National Semiconductor
patents. The complaint in the lawsuit seeks unspecified compensatory damages
for infringement, and treble damages as well as permanent injunctive relief
against further infringement of the National patents at issue. The Company
intends to continue defending itself against these claims. The litigation is
currently in the discovery phase. A trial date has not yet been set by the
Court.
On February 26, 1999, the Lemelson Medical, Education & Research Foundation
(the "Lemelson Partnership") filed a complaint which was served on the Company
on June 15, 1999, entitled Lemelson Medical, Education & Research Foundation,
Limited Partnership v. Lucent Technologies Inc., et al. in the United States
District Court in Phoenix, Arizona, against eighty-eight defendants, including
the Company, alleging infringement of Lemelson Foundation patents. The
complaint in the lawsuit seeks unspecified compensatory damages, treble
damages and attorneys' fees, as well as injunctive relief against further
infringement of the Lemelson patents at issue. The Company intends to defend
itself against these claims. The case is currently in the discovery phase and
no trial date has been set.
On May 9, 1994, Linear Technology Corporation ("Linear" or "LTC"), a
competitor of the Company, filed a complaint against the Company, entitled
Linear Technology Corporation v. Micrel, Incorporated, in the United States
16
District Court in San Jose, California, alleging patent and copyright
infringement and unfair competition. All claims, except the patent
infringement claim, have been settled or dismissed. In this lawsuit, Linear
claimed that two of the Company's products infringed one of Linear's patents.
The complaint in the lawsuit sought unspecified compensatory damages, treble
damages and attorneys' fees as well as preliminary and permanent injunctive
relief against infringement of the Linear patent at issue. On August 20, 1999,
the United States District Court in San Jose adjudicated in favor of the
Company in this patent infringement suit brought by the plaintiff. The
plaintiff alleged in the suit that the Company had infringed upon U.S. Patent
No. 4,755,741 which covers design techniques used to increase the efficiency
of switching regulators. The United States District Court in San Jose found
the patent to be invalid under the "on sale bar" defense as the plaintiff had
placed integrated circuits containing the alleged invention on sale more than
a year before filing its patent application. The United States District Court
in San Jose dismissed the plaintiff's complaint on the merits of the case and
awarded the Company its legal costs. A notice of appeal of the Judgment was
filed by Linear on September 17, 1999. Linear filed its appeal brief with the
United States Court of Appeal for the Federal Circuit ("CAFC") in October,
2000. The Company filed its responsive brief with the CAFC in January, 2001.
On June 16, 1999, Paul Boon ("Boon" or "plaintiff"), an ex-employee of the
Company, filed a complaint in the Superior Court of California entitled Paul
Boon v. Micrel Incorporated, dba Micrel Semiconductor, alleging breach of
employment contract, discrimination based upon age, and wrongful termination
in violation of public policy. On October 12, 2000, Boon filed an amended
complaint alleging breach of an implied covenant of good faith and fair
dealing, and breach of written agreement, in addition to the original causes
of action. On February 23, 2001, a jury decided that the Company had breached
an employment contract with plaintiff and awarded plaintiff $1.3 million. On
April 13, 2001, the Company filed a motion for judgement notwithstanding the
verdict or alternatively, a motion for new trial. On May 18, 2001, the Court
granted the Company's motion, issuing an order which vacated and set aside the
judgement in favor of Boon, and ordered a new trial on all issues. A new
trial date was set for July 16, 2001. Prior to the beginning of trial, the
parties settled the matter. On July 27, 2001, the case was dismissed by the
Court.
The Company believes that the ultimate outcome of the legal actions
discussed above will not result in a material adverse effect on the Company's
financial condition, results of operation or cash flows. However, litigation
is subject to inherent uncertainties, and no assurance can be given that the
Company will prevail in these lawsuits. Accordingly, the pending lawsuits as
well as potential future litigation with other companies, could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
Certain additional claims and lawsuits have arisen against the Company in
its normal course of business. The Company believes that these claims and
lawsuits will not have a material adverse effect on the Company's financial
condition, results of operation or cash flows.
In the event of an adverse ruling in any intellectual property litigation
that now exists or might arise in the future, the Company might be required to
discontinue the use of certain processes, cease the manufacture, use and sale
of infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to the infringing technology. There can be no
assurance, however, that under such circumstances, a license would be
available under reasonable terms or at all. In the event of a successful claim
against the Company and the Company's failure to develop or license substitute
technology on commercially reasonable terms, the Company's financial
condition, results of operations, or cash flows could be adversely affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In the fourth quarter of 2000, no matters were submitted to a vote of
security holders.
17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is listed on the Nasdaq Stock Market under the
Symbol "MCRL". The range of daily closing prices per share for the Company's
common stock from January 1, 1999 to December 31, 2000 was:
Year Ended December 31, 2000: High Low
------- -------
Fourth quarter $ 67.00 $ 28.75
Third quarter $ 76.44 $ 41.44
Second quarter $ 53.81 $ 29.78
First quarter $ 62.06 $ 27.19
Year Ended December 31, 1999: High Low
------- -------
Fourth quarter $ 28.75 $ 20.89
Third quarter $ 25.03 $ 18.17
Second quarter $ 18.60 $ 12.23
First quarter $ 14.32 $ 11.22
In June 2000, the Company declared a two-for-one stock split of its Common
Stock in the form of a 100% stock dividend payable June 27, 2000, on shares of
Common Stock outstanding as of June 6, 2000. All share and per share
information has been adjusted to retroactively give effect to the stock split
for all periods presented.
The reported last sale price of the Company's Common Stock on the Nasdaq
Stock Market on December 31, 2000 was $33.69 The approximate number of holders
of record of the shares of the Company's Common Stock was 179 as of March 15,
2001. This number does not include shareholders whose shares are held in
trust by other entities. The actual number of shareholders is greater than
this number of holders of record. The Company estimates that the number of
beneficial shareholders of the shares of the Company's Common Stock as of
March 15, 2001 was approximately 10,000.
The Company has authorized Common Stock, no par value and Preferred Stock,
no par value. The Company has not issued any Preferred Stock.
The Company has not paid any cash dividends on its capital stock. The
Company currently intends to retain its earnings to fund the development and
growth of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's existing
credit facilities prohibit the payment of cash or stock dividends on the
Company's capital stock without the lender's prior written consent. See Item 7
- - "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Note 6 of Notes to
Consolidated Financial Statements contained in Item 8.
Unregistered Sales of Securities. In April 2000, in connection with the
acquisition of Electronic Technology Corporation ("ETC"), the Company issued
76,117 shares of common stock (on a pre-split basis, prior to the June 2000
two-for-one stock split) in exchange for the outstanding shares of capital
stock of ETC. The issuance was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended.
18
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Restated(1) Restated(1) Restated(1) Restated(2) Restated(2)
(in thousands, except per share amounts)
Income Statement Data:
Net revenues $346,335 $200,016 $144,935 $105,170 $ 66,244
Cost of revenues* 149,083 89,572 72,953 50,284 32,424
-------- -------- -------- -------- --------
Gross profit 197,252 110,444 71,982 54,886 33,820
Operating expenses:
Research and development 42,201 29,563 21,373 16,032 9,214
Selling, general and administrative 45,319 29,399 22,562 17,763 12,229
Amortization of deferred stock
compensation*. 6,060 2,109 753 197 19
Purchased in-process technology - 603 3,737 - -
-------- -------- -------- -------- --------
Total operating expenses 93,580 61,674 48,425 33,992 21,462
-------- -------- -------- -------- --------
Income from operations 103,672 48,770 23,557 20,894 12,358
Other income, net 4,739 692 1,138 974 703
-------- -------- -------- -------- --------
Income before income taxes 108,411 49,462 24,695 21,868 13,061
Provision for income taxes 35,104 16,019 9,304 7,068 4,326
-------- -------- -------- -------- --------
Net income $ 73,307 $ 33,443 $ 15,391 $ 14,800 $ 8,735
======== ======== ======== ======== ========
Net income per share:
Basic $ 0.82 $ 0.39 $ 0.19 $ 0.19 $ 0.12
======== ======== ======== ======== ========
Diluted $ 0.75 $ 0.36 $ 0.18 $ 0.18 $ 0.11
======== ======== ======== ======== ========
Shares used in computing per
share amounts:
Basic 89,242 85,762 82,258 77,640 73,631
======== ======== ======== ======== ========
Diluted 98,186 92,906 85,878 84,653 80,449
======== ======== ======== ======== ========
*Amortization of deferred stock
compensation related to:
Cost of revenues $ 2,202 $ 926 $ 275 $ 64 $ 17
======== ======== ======== ======== ========
Operating expenses:
Research and development $ 3,347 $ 1,444 $ 467 $ 68 $ 13
Selling, general and
administrative 2,713 665 286 129 6
-------- -------- -------- -------- --------
Total $ 6,060 $ 2,109 $ 753 $ 197 $ 19
======== ======== ======== ======== ========
December 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Restated(1) Restated(1) Restated(1) Restated(2) Restated(2)
(in thousands, except per share amounts)
(in thousands)
Balance Sheet Data:
Working capital $172,768 $ 91,629 $ 55,206 $ 40,939 $ 34,059
Total assets 359,748 214,171 152,207 89,432 61,777
Long-term debt 5,327 8,854 14,007 552 3,287
Total shareholders' equity 281,835 157,258 100,693 70,527 47,004
(1) See Note 2 of Notes to Consolidated Financial Statements regarding the
restatement of financial statements.
(2) Certain information for the years ended December 31, 1996 and 1997 are
included as "restated" in this Form 10-K/A to reflect the adjustment for stock
compensation and related tax effects for those years.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Restatement of Financial Statements
On January 28, 2002, the Company announced that it would restate its
consolidated financial statements for the years ended December 31, 1998, 1999,
and 2000, and the quarters ended March 31, 2001, June 30, 2001, and September
30, 2001. This restatement relates to the Company's past method of setting
the exercise price of certain employee stock options which results in stock
compensation expenses and related payroll and income tax effects that had not
been recorded in previously issued financial statements. It should be noted
that Micrel sought outside professional advice prior to implementation of the
option grant method that resulted in the unintentional consequence of stock
compensation charges. Information regarding the effect of the restatement on
the Company's financial position and results of operations is provided in Note
2 of Notes to Consolidated Financial Statements. The following discussion is
based on the restated financial information.
Recent Developments
The Company completed the acquisition of Kendin Communications, Inc.
("Kendin") on May 30, 2001. The transaction has been accounted for as a
pooling of interests and, accordingly, updated information is included
throughout this Form 10-K/A in addition to the amendments related to the
restatement described in the preceding paragraph. Additional information
about the Kendin acquisition is provided in Note 3 of Notes to Consolidated
Financial Statements.
Overview
Micrel designs, develops, manufactures and markets a range of high
performance standard analog, high-speed mixed-signal and digital integrated
circuits. These circuits are used in a wide variety of electronics products,
including those in the high bandwidth communications, computer,
telecommunications and industrial markets. In addition to standard products,
the Company manufactures custom analog and mixed-signal circuits and provides
wafer foundry services.
The Company derives a substantial portion of its net revenues from standard
products. For 2000, 1999, and 1998 the Company's standard products sales
accounted for 79%, 78%, and 72%, respectively, of the Company's net revenues.
The Company believes that a substantial portion of its net revenues in the
future will depend upon standard products sales, although such sales as a
proportion of net revenues may vary as the Company adjusts product output
levels to correspond with varying economic conditions and demand levels in the
markets which it serves. The standard products business is characterized by
short-term orders and shipment schedules, and customer orders typically can be
canceled or rescheduled without significant penalty to the customer. Since
most standard products backlog is cancelable without significant penalty, the
Company typically plans its production and inventory levels based on internal
forecasts of customer demand, which is highly unpredictable and can fluctuate
substantially. In addition, the Company is limited in its ability to reduce
costs quickly in response to any revenue shortfalls.
The Company may experience significant fluctuations in its results of
operations. Factors that affect the Company's results of operations include
the volume and timing of orders received, changes in the mix of products sold,
the utilization level of manufacturing capacity, competitive pricing
pressures, the successful development of new products, and the Company's
ability to ramp up manufacturing capacity to meet demand. These and other
factors are described in further detail later in this discussion. As a result
of the foregoing or other factors, there can be no assurance that the Company
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
will not experience material fluctuations in future operating results on a
quarterly or annual basis, which could materially and adversely affect the
Company's business, financial condition, results of operations or cash flows.
Results of Operations
The following table sets forth certain operating data as a percentage of
total net revenues for the periods indicated.
Years Ended
December 31,
---------------------
2000 1999
-------- --------
Restated(1) Restated(1)
Net revenues 100.0% 100.0%
Cost of revenues 43.0 44.8
------ ------
Gross profit 57.0 55.2
------ ------
Operating expenses:
Research and development 12.2 14.8
Selling, general and administrative 13.1 14.7
Amortization of deferred stock compensation 1.8 1.5
Purchased in-process technology - 0.3
------ ------
Total operating expenses 27.1 30.8
------ ------
Income from operations 29.9 24.4
Other income, net 1.4 0.3
------ ------
Income before income taxes 31.3 24.7
Provision for income taxes 10.1 8.0
------ ------
Net income 21.2% 16.7%
====== ======
(1) See Note 2 of Notes to Consolidated Financial Statements
regarding the restatement of financial statements.
Net Revenues. Net revenues increased 73% to $346.4 million for the year
ended December 31, 2000 from $200.0 million in 1999 due primarily to higher
standard product revenues and, to a lesser extent, higher custom and foundry
revenues. Standard product revenues increased to $275.3 million, which
represented 79% of net revenues for the year ended December 31, 2000, compared
to $156.0 million and 78% of net revenues for 1999. Such increases resulted
from increased unit shipments combined with an increase in average selling
prices. Sales of standard products were led by the increased sales of low
dropout regulators, high bandwidth communications products and computer
peripheral products. Such products were sold to manufacturers in the high
bandwidth communications, telecommunications, and industrial markets. Custom
and foundry revenues increased to $71.0 million, which represented 21% of net
revenues for the year ended December 31, 2000, compared to $44.0 million and
22% of net revenues for 1999. Such increases were due primarily to increased
sales of custom high bandwidth communications products and to a lesser extent
increased foundry sales.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Increasing overall end customer demand during the second half of 1999 and
the first half of 2000 resulted in capacity constraints and increasing order
lead times for semiconductor suppliers. Longer lead times and concern about
availability of semiconductor components, resulted in increased order rates
for standard products during the first three quarters of 2000 compared to the
same periods in 1999, resulting in increased order backlog. Orders from OEM
customers and contract manufacturers serving the high speed communications
market were especially strong in the first nine months of 2000 as these
customers attempted to secure semiconductor components to meet their projected
end demand. However, the supply of semiconductors can quickly and
unexpectedly match or exceed demand because customer end demand can change
very quickly and, semiconductor suppliers can rapidly increase production
output. This can lead to a sudden oversupply situation and a subsequent
reduction in order rates as customers adjust their inventories to true demand
rates. Customers continuously adjust their inventories resulting in frequent
changes in demand for the Company's products. The volatility of customer
demand limits the Company's ability to predict future levels of sales and
profitability.
The semiconductor industry experienced such a change in the supply and
demand situation during 2000. Shipments to mobile handset manufacturers
declined in the second and third quarters compared to the first quarter as
these customers attempted to align inventories with revised demand
projections. Shipments to customers serving the computer market increased in
2000 compared to 1999 but did not exhibit typical seasonal increases in the
second half of 2000 compared to the first half of the year. Despite the
inventory corrections in the wireless handset and computer end markets, the
Company's revenues grew sequentially in every quarter of 2000 due to the high
demand from customers in the high speed communications and industrial markets.
However, in the fourth quarter of 2000, customers in the high speed
communications end market, and the contract manufacturing firms that serve
this market, began to adjust their inventories to lower demand projections,
resulting in cancellations and rescheduling of previously placed orders. This
activity, combined with the overall slowing of economic growth in the North
American economy, led to lower order rates in the fourth quarter of 2000
compared with the same period in 1999, and a reduction in order backlog from
the end of the third quarter.
For the year ended December 31, 1999, net revenues increased 38% to $200.0
million from $144.9 million in 1998 due to higher standard product revenues
and higher custom and foundry revenues. Standard product revenues increased to
$156.0 million, which represented 78% of net revenues for the year ended
December 31, 1999, compared to $104.3 million and 72% of net revenues for
1998. Sales of standard products were led by the increased sales of high
bandwidth communication products, switching regulators, low dropout regulators
and computer peripheral devices. Such products were sold to manufacturers of
communications, portable computing, computing peripherals and industrial
products. The rapid build out of the internet infrastructure was the primary
driver for the increased revenue for standard high bandwidth products. Custom
and foundry revenues increased to $44.0 million, which represented 22% of net
revenues for the year ended December 31, 1999, compared to $40.6 million and
28% of net revenues for 1998. This decline as a percent of total revenues
reflects a reduced emphasis on custom and foundry products as compared to the
same periods in 1998, in which the Company increased its emphasis on custom
and foundry products as an interim response to the Asian financial crisis.
International sales represented 42%, 48%, and 47% of net revenues for the
years ended December 31, 2000, 1999 and 1998, respectively. On a dollar basis,
international sales increased 52% to $145.9 million for the year ended
December 31, 2000 from $95.9 million for the comparable period in 1999. The
dollar increase in international sales resulted from increased unit shipments
to manufacturers of personal computers and communications products primarily
in Asia and Europe.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company's international sales are denominated in U.S. currency.
Consequently, changes in exchange rates that strengthen the U.S. dollar could
increase the price in local currencies of the Company's products in foreign
markets and make the Company's products relatively more expensive than
competitors' products that are denominated in local currencies, leading to a
reduction in sales or profitability in those foreign markets. The Company has
not taken any protective measures against exchange rate fluctuations, such as
purchasing hedging instruments with respect to such fluctuations.
The Company defers recognition of revenue derived from sales to domestic,
Canadian, and certain other international distributors until such distributors
resell the Company's products to their customers. Sales to stocking
representatives and O.E.M. customers are recognized upon shipment. The Company
estimates returns and warranty costs and provides an allowance as revenue is
recognized.
Gross Profit. Gross profit is affected by a variety of factors including
the volume of product sales, product mix, manufacturing utilization, product
yields and average selling prices. The Company's gross margin increased to 57%
for the year ended December 31, 2000 from 55% for the year ended December 31,
1999. The improvement in gross margin reflected higher average selling
prices, an increased mix of higher gross margin products and increases in
manufacturing efficiency due to greater capacity utilization.
For the year ended December 31, 1999, the Company's gross margin increased
to 55% from 50% for the year ended December 31, 1998. The gross margin
improved from the prior year level, which was depressed by the write-off, in
the fourth quarter of 1998 of approximately $7.0 million in excess inventory
in response to a reduced sales forecast of Synergy products. Excluding the
Synergy inventory write-off, gross margin for 1998 was 55%. In addition, the
improvement in gross margin reflected an increase in manufacturing efficiency
due to greater capacity utilization and reductions in contract assembly and
test unit costs, which were partially offset by declining average selling
prices.
Manufacturing yields, which affect gross margin, may from time to time
decline because the fabrication of integrated circuits is a highly complex and
precise process. Factors such as minute impurities and difficulties in the
fabrication process can cause a substantial percentage of wafers to be
rejected or numerous die on each wafer to be nonfunctional. There can be no
assurance that the Company in general will be able to maintain acceptable
manufacturing yields in the future.
Research and Development Expenses. Research and development expenses
include costs associated with the development of new processes and the
definition, design and development of new products. The Company also expenses
prototype wafers and new production mask sets related to new products as
research and development costs until products based on new designs are fully
characterized by the Company and are demonstrated to support published data
sheets and satisfy reliability tests.
As a percentage of net revenues, research and development expenses
represented 12% and 15% for the years ended December 31, 2000 and 1999. On a
dollar basis, research and development expenses increased $12.6 million or 43%
to $42.2 million for the year ended December 31, 2000 from $29.6 million in
1999. The dollar increases were primarily due to increased engineering
staffing costs and increased prototype material costs. The Company believes
that the development and introduction of new products is critical to its
future success and expects that research and development expenses will
increase on a dollar basis in the future.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
For each of the years ended December 31, 1999 and 1998, research and
development expenses represented 15% of net revenues. On a dollar basis,
research and development expenses increased $8.2 million or 38% to $29.6
million for the year ended December 31, 1999 from $21.4 million in 1998. The
increase in research and development expenses for the year ended December 31,
1999 was primarily due to increased engineering staffing costs associated with
the acquisition of Synergy and the development of new standard products.
Selling, General and Administrative Expenses. As a percentage of net
revenues, selling, general and administrative expenses represented 13% and 15%
for the years ended December 31, 2000 and 1999, respectively. On a dollar
basis, selling, general and administrative expenses increased $15.9 million or
54% to $45.3 million for the year ended December 31, 2000 from $29.4 million
for the comparable period in 1999. The dollar increases were principally
attributable to increased commissions and staffing costs associated with the
growth of the Company's revenues, increased legal costs, and increased profit
sharing accruals to promote personnel retention.
For each of the years ended December 31, 1999 and 1998, selling, general
andadministrative expenses represented 15% and 16% of net revenues,
respectively. On a dollar basis, selling, general and administrative expenses
increased $6.8 million or 30% to $29.4 million for the year ended December 31,
1999 from $22.6 million for the comparable period in 1998. The dollar
increase was principally attributable to higher wages and salaries,
commissions, advertising and other administrative expenses associated with the
growth of the Company's revenues.
Amortization of deferred stock compensation. The Company accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees". For the year ended December 31, 2000 total amortization
of deferred stock compensation was $8.3 million of which $2.2 million was
included in cost of revenues and $6.1 million was included in amortization of
deferred stock compensation. For the year ended December 31, 1999 total
amortization of deferred stock compensation was $3.0 million of which $926,000
was included in cost of revenues and $2.1 million was included in amortization
of deferred stock compensation. For the year ended December 31, 1998 total
amortization of deferred stock compensation was $1.0 million of which $275,000
was included in cost of revenues and $753,000 was included in amortization of
deferred stock compensation.
Purchased In-Process Technology. On December 15, 1999, the Company acquired
all the outstanding capital stock of Altos Semiconductor for a cash purchase
price of $1.8 million. The transaction was accounted for as a purchase.
Approximately $1.7 million of the total purchase cost was allocated to
intangible assets. Of that amount, $603,000 was allocated to purchased in-
process technology, which has not reached technological feasibility and has no
alternative future use, for which the Company recorded charges in the year
ended December 31, 1999.
On November 9, 1998, the Company acquired all the outstanding capital stock
of Synergy Semiconductor for a cash purchase price of $9.9 million,
transaction fees of $1.3 million, direct merger costs of approximately
$300,000, and the assumption of liabilities of approximately $20.1 million.
The transaction was accounted for as a purchase. Approximately $12.9 million
of the total purchase cost was allocated to intangible assets. Of that
amount, approximately $3.7 million was allocated to purchased in-process
technology, which has not reached technological feasibility and has no
alternative future use, for which the Company recorded charges in the year
ended December 31, 1998. The purchased in-process technology related to
approximately 50 individual development projects that had not reached
technological feasibility and, therefore, the successful completion of such
projects was uncertain. Those development projects correspond to three
existing product lines: supercom, clockworks and logic.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Other Income, Net. Other income, net reflects interest income from
investments in short-term investment grade securities offset by interest
expense incurred on term notes. Other income, net increased by $4.0 million to
$4.7 million in 2000 from $692,000 in 1999. This increase were primarily due
to an increase in average cash and investment balances combined with increased
rate of returns on such balances. The Company expects to continue to utilize
term financing as appropriate to finance its capital equipment needs.
For the year ended December 31, 1999, other income, net decreased by
$446,000 to $692,000 from $1.1 million in 1998. Such decrease was due to an
increase in average long-term debt associated with the Synergy acquisition.
Provision for Income Taxes. For the year ended December 31, 2000 the
provision for taxes on income was 32% of income before taxes. For the year
ended December 31, 1999 the provision for taxes on income was 32% of income
before taxes excluding the $603,000 charge for purchased in-process
technology, which is a non-deductible charge for federal income tax purposes.
The 2000 and 1999 income tax provisions differ from taxes computed at the
federal statutory rate due to the effect of state taxes and the non-deductible
charges for purchased in-process technology offset by the benefit from the
foreign sales corporation, federal and state research and development credits,
and state manufacturing credits.
Liquidity and Capital Resources
Since inception, the Company's principal sources of funding have been its
cash from operations, bank borrowings and sales of common stock. Principal
sources of liquidity at December 31, 2000 consisted of cash and short-term
investments of $123 million and bank borrowing arrangements. Borrowing
agreements consisted of (i) $5 million under a revolving line of credit, of
which all was unused and available at December 31, 2000, and (ii) $40 million
under a non-revolving line of credit, of which $38 million was unused and
available at December 31, 2000. The two lines of credit are covered by the
same loan and security agreement. The revolving line of credit portion of the
agreement expires on April 30, 2001 subject to automatic renewal on a month-
to-month basis thereafter unless terminated by either party upon 30 days
notice. The non-revolving line of credit portion of the agreement expires on
April 30, 2001. Borrowings under the revolving line of credit bear interest
rates of, at the Company's election, the prime rate (9.50% at December 31,
2000), or the bank's revolving offshore rate, which approximates LIBOR (6.40%
at December 31, 2000) plus 2.0%. Borrowings under the non-revolving line of
credit bear interest rates of, at the Company's election, the prime rate
(9.50% at December 31, 2000), the bank's non-revolving offshore rate, which
approximates LIBOR (6.40% at December 31, 2000) plus 2.13%, a fixed rate based
on the four-year U.S. Treasury Bill rate (5.10% at December 31, 2000) plus
2.75% or an annual adjustable rate based on the one-year U.S. Treasury Bill
rate (5.37% at December 31, 2000) plus 2.75%. The agreement contains certain
restrictive covenants that include a restriction on the declaration and
payment of dividends without the lender's consent. The Company was in
compliance with all such covenants at December 31, 2000.
The non-revolving bank line of credit that is covered by the loan agreement
described above, can be used to fund purchases of capital equipment whereby
the Company may borrow up to 100% of the acquisition cost. Amounts borrowed
under this credit line are automatically converted to four-year installment
notes. All equipment notes are collateralized by substantially all of the
Company's manufacturing equipment.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
As of December 31, 2000, the Company had $10.8 million outstanding under
term notes (see Note 6 of Notes to Consolidated Financial Statements contained
in Item 8).
The Company's working capital increased by $81.1 million to $172.8 million
as of December 31, 2000 from $91.6 million as of December 31, 1999. The
increase was primarily attributable to increases in cash, cash equivalents and
short-term investments of $66.4 million, accounts receivable of $22.7 million
and deferred income taxes of 9.4 million, which were partially offset by
increases in deferred income of $7.7 million and accrued compensation of $5.5
million. The Company's short-term investments were principally invested in
investment grade, interest-bearing securities.
The Company's cash flows provided by operating activities increased to
$115.4 million for the year ended December 31, 2000 from $50.0 million for the
year ended December 31, 1999 primarily as a result of increased net income,
income taxes payable and deferred income. For the year ended December 31, 2000
the Company's cash flows provided by operating activities were primarily
attributable to net income of $100.0 million after adding back non-cash
activities, an increase in income taxes payable of $19.9 million (excluding
$20.4 million non-cash tax benefits from employee stock transactions), an
increase in accounts payable of $8.6 million and an increase in deferred
income of $7.7 million which were partially offset by increases in accounts
receivable of $22.5 million which increased with higher revenues.
The Company's investing activities during the year ended December 31, 2000
used cash of $67.8 million as compared to $53.1 million of cash used for
investing activities during the year ended December 31, 1999. Cash used for
investing activities during the year ended December 31, 2000 resulted
primarily from net purchases of $67.5 million of equipment and leasehold
improvements that were primarily for wafer fab and testing equipment to
increase production capacity.
The Company's financing activities during the year ended December 31, 2000
provided cash of $18.5 million as compared to cash provided of $7.7 million
during the year ended December 31, 1999. Cash provided by financing activities
during the year ended December 31, 2000 was the result of $22.0 million in
proceeds from the issuance of common stock, and proceeds from long-term
borrowings of $2.0 million, which was partially offset by $5.5 million in
repayments of long-term debt.
The Company currently intends to reduce its capital equipment purchases
from the year 2000 levels by 30% to 40% to approximately $40 million to $50.0
million during the next twelve months primarily for the purchase of additional
wafer and test manufacturing equipment and leasehold improvements. The Company
expects that its cash requirements through 2001 will be met by its cash from
operations, existing cash balances and short-term investments, and its credit
facilities.
Factors That May Affect Operating Results
The statements contained in this Report on Form 10-K/A that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements
include: statements regarding future products or product development;
statements regarding future research and development spending and the
Company's product development strategy; statements regarding the levels of
international sales; statements regarding future expansion or utilization of
manufacturing capacity; statements regarding future expenditures; and
statements regarding current or future acquisitions. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
any such forward-looking statements. It is important to note that the
Company's actual results could differ materially from those in such forward-
looking statements. Some of the factors that could cause actual results to
differ materially are set forth in Item 1. "Business", Item 3. "Legal
Proceedings", Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in the additional factors set forth
below.
Our operating results may fluctuate because of a number of factors, many of
which are beyond our control.
If our operating results are below the expectations of public market
analysts or investors, then the market price of our common stock could
decline. Some of the factors that affect our quarterly and annual results, but
which are difficult to control or predict are:
- - the volume and timing of orders received
- - changes in the mix of products sold
- - market acceptance of our products and our customers' products
- - competitive pricing pressures
- - our ability to timely acquire and install capital equipment to expand
manufacturing capacity to meet increasing demand
- - availability of production capacity at assembly subcontractors
- - our ability to introduce new products on a timely basis
- - the timing of new product announcements and introductions by us or our
competitors
- - the timing and extent of research and development expenses
- - fluctuations in manufacturing yields
- - cyclical semiconductor industry conditions
- - our ability to hire and retain key technical and management personnel
- - our access to advanced process technologies
- - the timing and extent of process development costs
- - the current California energy crisis
Customer demand for our products is volatile and difficult to predict
Our customers continuously adjust their inventories resulting in frequent
changes in demand for our products. The volatility of customer demand limits
our ability to predict future levels of sales and profitability. The supply of
semiconductors can quickly and unexpectedly match or exceed demand because
customer end demand can change very quickly. Also, semiconductor suppliers can
rapidly increase production output. This can lead to a sudden oversupply
situation and a subsequent reduction in order rates and revenues as customers
adjust their inventories to true demand rates.
Sales of our products are highly dependent on certain select end markets.
We currently sell a significant portion of our products in the high speed
communications, computer and wireless handset markets. These markets are
characterized by short product life cycles, rapidly changing customer demand,
evolving and competing industry standards and seasonal demand trends.
Additionally, there can be no assurance that these markets will continue to
grow. If the markets for high speed communications, computers or wireless
handsets that we serve fail to grow, or grow more slowly than we currently
anticipate, or if we experience increased competition in these markets, our
business, results of operations and financial condition will be adversely
affected.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Our gross margin is dependent upon a number of factors, among them our level
of capacity utilization.
Semiconductor manufacturing is a capital intensive business resulting in
high fixed costs. If we are unable to utilize our installed wafer fabrication
or test capacity at a high level, the costs associated with these facilities
and equipment is not fully absorbed, resulting in higher average unit costs
and lower sales margins.
Our industry is highly competitive.
The semiconductor industry is highly competitive and subject to rapid
technological change, price-erosion and increased international competition.
Significant competitive factors include:
- - product features
- - performance
- - price
- - timing of product introductions
- - emergence of new computer and communications standards
- - quality and customer support
Because the standard products market for integrated circuits is diverse and
highly fragmented, we encounter different competitors in our various market
areas. Most of these competitors have substantially greater technical,
financial and marketing resources and greater name recognition than we do. Due
to the increasing demands for integrated circuits, we expect intensified
competition from existing integrated circuit suppliers and the entry of new
competition. Increased competition could adversely affect our financial
condition or results of operations. There can be no assurance that we will be
able to compete successfully in either the standard products or custom and
foundry products business in the future or that competitive pressures will not
adversely affect our financial condition, results of operations, or cash
flows.
Our customers are concentrated, so the loss of one or more key customers could
significantly reduce our revenues and profits.
Historically, a relatively small number of customers has accounted for a
significant portion of our revenues in any particular period. However, we
have no long-term volume purchase commitments from any of our major customers.
We anticipate that sales of products to relatively few customers will continue
to account for a significant portion of our revenues. If a significant
customer overstocks our products, additional orders for our products could be
harmed. A reduction, delay or cancellation of orders from one or more
significant customers or the loss of one or more key customers could
significantly reduce our order rates, revenues and profits. There can be no
assurance that our current customers will continue to place orders with us,
that orders by existing customers will continue at current or historical
levels or that we will be able to obtain orders from new customers.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Our current and prospective competitors include many large companies that have
substantially greater marketing, financial, technical and manufacturing
resources than we have.
Competition in the markets that we serve is primarily based on the price,
performance and quality of products and the ability to deliver products in a
timely fashion. Product qualification is typically a lengthy process and some
prospective customers may be unwilling to invest the time or expense necessary
to qualify suppliers like us. Further, customers may also be concerned about
relying on a relatively small company for a critical sole-sourced component.
To the extent we fail to overcome these challenges, there could be material
and adverse effects on our business and financial results.
Our product offering is concentrated and a reduction in demand for one of our
significant products could reduce our revenues and results of operations.
We currently derive the majority of our product revenues from sales of
standard analog and mixed-signal integrated circuits and we expect these
products to continue to account for the majority of our revenues for the
foreseeable future. As a result, factors adversely affecting the pricing of or
demand for standard analog integrated and mixed-signal circuits, such as
competition, product performance or technological change, could have a
material adverse effect on our business and consolidated results of operations
and financial condition.
An important part of our strategy is to continue our focus on the market for
high-speed communications integrated circuits, or ICs. If we are unable to
penetrate this market further, our revenues could stop growing and may
decline.
Our markets frequently undergo transitions in which products rapidly
incorporate new features and performance standards on an industry-wide basis.
If our products are unable to support the new features or performance levels
required by OEMs in these markets, we would likely lose business from existing
or potential customers and would not have the opportunity to compete for new
design wins until the next product transition. If we fail to develop products
with required features or performance standards, or if we experience even a
short delay in bringing a new product to market, or if our customers fail to
achieve market acceptance of their products, our revenues could be
significantly reduced for a substantial period of time.
A significant portion of our revenues in recent periods has been, and is
expected to continue to be, derived from sales of products based on SONET, SDH
and ATM transmission standards. If the communications market evolves to new
standards, we may not be able to successfully design and manufacture new
products that address the needs of our customers or gain substantial market
acceptance. Although we have developed products for the Gigabit Ethernet and
Fibre Channel communications standards, volume sales of these products are
modest, and we may not be successful in addressing other market opportunities
for products based on these standards.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
If we do not successfully expand our manufacturing capacity on time, we may
face serious capacity constraints.
We currently manufacture a majority of our integrated circuit products at
our wafer fabrication facilities located in San Jose and Santa Clara,
California, and we are currently expanding these facilities. We believe that
when the expansion is completed we will be able to satisfy our production
needs from these fabrication facilities through fiscal 2001, although this
date may vary depending on, among other things, the strength of customer
demand for our products. We will be required to hire, train and manage
additional production personnel in order to increase production capacity as
scheduled. In addition, to further expand our capacity to fabricate wafers
using various processes, including advanced CMOS, we have entered into foundry
agreements with third party wafer fabrication providers. We will have to
design our products utilizing the fabrication processes at these foundries,
qualify our products and then ramp our production volumes at these foundry
fabrication facilities. If we cannot expand our capacity on a timely basis or
successfully utilize our foundry arrangements, we could experience significant
capacity constraints that could render us unable to meet customer demand or
force us to spend more to meet demand. In addition, the depreciation and other
expenses that we will incur in connection with the expansion of our
manufacturing capacity may harm our gross margin in any future fiscal period.
We are exploring alternatives for the further expansion of our
manufacturing capacity which would likely occur after 2001, including entering
into strategic relationships to obtain additional capacity; building a new
wafer fabrication facility; or purchasing a wafer fabrication facility. Any
of these alternatives could require a significant investment by us. There can
be no assurance that any of the alternatives for expansion of our
manufacturing capacity will be available on a timely basis or that we will be
able to manage our growth and effectively integrate our expansion into our
current operations. Additionally, the cost of any investment we may have to
make to expand our manufacturing capacity is expected to be funded through a
combination of available cash, cash equivalents and short-term investments,
cash from operations and additional debt, and lease or equity financing. We
may not be able to obtain the additional financing necessary to fund the
construction and completion of any new manufacturing facility.
Expanding our current wafer fabrication facility, building a new wafer
fabrication facility or purchasing a wafer fabrication facility also entails
significant risks, including:
- - shortages of materials and skilled labor
- - unforeseen environmental or engineering problems
- - work stoppages
- - weather interference
- - unanticipated cost increases
Any one of these risks could have a material adverse effect on the
building, equipping and production start-up of a new facility or the expansion
of our existing facilities. In addition, unexpected changes or concessions
required by local, state or federal regulatory agencies with respect to
necessary licenses, land use permits, site approvals and building permits
could involve significant additional costs and delay the scheduled opening of
the expansion of our facilities or a new facility and could reduce our
anticipated revenues. Also, the timing of commencement of operation of our
expanded facilities or a new facility will depend upon the availability,
timely delivery, successful installation and testing of the necessary process
equipment. As a result of the foregoing and other factors, our expanded or new
facility may not be completed and in volume production within its current
budget or within the period currently scheduled. Furthermore, we may be unable
to achieve adequate manufacturing yields in our expanded facilities or a new
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
facility in a timely manner, and our revenues may not increase commensurate
with the anticipated increase in manufacturing capacity associated with these
facilities. In addition, in the future, we may be required for competitive
reasons to make additional capital investments in our existing wafer
fabrication facilities or to accelerate the timing of the construction of a
new wafer fabrication facility in order to expedite the manufacture of
products based on more advanced manufacturing processes.
We encounter risks associated with our international operations.
We have generated a substantial portion of our net revenues from export
sales. We believe that a substantial portion of our future net revenues will
depend on export sales to customers in international markets, including Asia.
International markets are subject to a variety of risks, including changes in
policy by foreign governments, social conditions such as civil unrest, and
economic conditions including high levels of inflation, fluctuation in the
value of foreign currencies and currency exchange rates and trade restrictions
or prohibitions. In addition, we sell to domestic customers that do business
worldwide and cannot predict how the businesses of these customers may be
affected by economic conditions in Asia or elsewhere. Such factors could
adversely affect our future revenues, financial condition, results of
operations or cash flows.
Historically, we have not experienced significant individual product gross
margin differences on export sales compared to domestic sales. However, as a
result of the international market risks discussed above or other factors,
there can be no assurance that we will not experience material gross margin
fluctuations in the future, which could materially and adversely affect our
business, financial condition, results of operations or cash flows.
Our international sales are primarily denominated in U.S. currency.
Consequently, changes in exchange rates that strengthen the U.S. dollar could
increase the price of our products in the local currencies of the foreign
markets we serve. This would result in making our products relatively more
expensive than our competitors' products that are denominated in local
currencies, leading to a reduction in sales or profitability in those foreign
markets. We have not taken any protective measures against exchange rate
fluctuations, such as purchasing hedging instruments.
Our operating results substantially depend on manufacturing output and yields,
which may not meet expectations.
We manufacture most of our semiconductors at our San Jose and Santa Clara,
California fabrication facilities. Manufacturing semiconductors requires
manufacturing tools which are unique to each product being produced. If one of
these unique manufacturing tools was damaged or destroyed, then our ability to
manufacture the related product would be impaired and our business would
suffer until the tool was repaired or replaced. Additionally, the fabrication
of integrated circuits is a highly complex and precise process. Small
impurities, contaminants in the manufacturing environment, difficulties in the
fabrication process, defects in the masks used to print circuits on a wafer,
manufacturing equipment failures, wafer breakage or other factors can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer
to be nonfunctional.
The ongoing expansion of the manufacturing capacity of our existing wafer
fabrication facilities could increase the risk of contaminants in the
facilities. In addition, many of these problems are difficult to diagnose, and
are time consuming and expensive to remedy and can result in lower output and
yields and shipment delays.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Because the majority of our costs of manufacturing are relatively fixed,
output and yield decreases can result in substantially higher unit costs and
may result in reduced gross profit and net income. In addition, output and
yield decreases could force us to allocate available product supply among
customers, which could potentially harm customer relationships.
Our dependence on third-party manufacturing and supply relationships increases
the risk that we will not have an adequate supply of products to meet demand
or that our cost of materials will be higher than expected.
We face many risks associated with our dependence upon third parties that
manufacture, assemble or package certain of our products. These risks include:
- - reduced control over our delivery schedules and quality
- - risks of inadequate manufacturing yields and excessive costs
- - the potential lack of adequate capacity during periods of excess demand
- - difficulties selecting and integrating new subcontractors
- - limited warranties on wafers or products supplied to us
- - potential increases in prices
- - potential misappropriation of our intellectual property
Any of these risks may lead to increased costs or delay delivery of our
products, which would harm our profitability and customer relationships. We
may encounter similar risks if we hire subcontractors to test our products in
the future.
Additionally, wafer and product requirements typically represent a very
small portion of the total production of the third-party foundries and outside
assembly, testing and packaging contractors. As a result, we are subject to
the risk that a foundry will cease production on an older or lower volume
process that it uses to produce our parts. We cannot be certain our outside
manufacturers will continue to devote resources to the production of our
products or continue to advance the process design technologies on which the
manufacturing of our products are based. Each of these events could increase
our costs and harm our ability to deliver our products on time.
Our future success depends in part on the continued service of our key design
engineering, sales, marketing and executive personnel and our ability to
identify, hire and retain additional personnel.
There is intense competition for qualified personnel in the semiconductor
industry, in particular design engineers, and we may not be able to continue
to attract and train engineers or other qualified personnel necessary for the
development of our business or to replace engineers or other qualified
personnel who may leave our employ in the future. Our anticipated growth is
expected to place increased demands on our resources and will likely require
the addition of new management personnel and the development of additional
expertise by existing management personnel. Loss of the services of, or
failure to recruit, key design engineers or other technical and management
personnel could be significantly detrimental to our product and process
development programs.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Because our markets are subject to rapid technological change, our success
depends heavily on our ability to develop and introduce new products.
The markets for our products are characterized by:
- - rapidly changing technologies
- - evolving and competing industry standards
- - short product life cycles
- - changing customer needs
- - emerging competition
- - frequent new product introductions and enhancements
- - increased integration with other functions
- - rapid product obsolescence
To develop new products for the computer and communications markets, we
must develop, gain access to and use leading technologies in a cost-effective
and timely manner and continue to develop technical and design expertise. We
must maintain close working relationships with key customers in order to
develop new products that meet customers' changing needs. We also must respond
to changing industry standards, trends towards increased integration and other
technological changes on a timely and cost-effective basis. Further, if we
fail to achieve design wins with our key customers or potential customers our
business will face significant harm because once a customer designs a
supplier's product into its system, the customer typically is reluctant to
change its supply source because of the high costs associated with qualifying
a new supplier.
Products for communications applications, as well as for computing
applications, are based on industry standards that are continually evolving.
Our ability to compete in the future will depend on our ability to identify
and ensure compliance with these evolving industry standards. The emergence of
new industry standards could render our products incompatible with products
developed by major systems manufacturers. As a result, we could be required to
invest significant time and effort and to incur significant expense to
redesign our products to ensure compliance with relevant standards. If our
products are not in compliance with prevailing industry standards for a
significant period of time, we could miss opportunities to achieve crucial
design wins. In addition, we may not be successful in developing or using new
technologies or in developing new products or product enhancements that
achieve market acceptance. Our pursuit of necessary technological advances may
require substantial time and expense.
We may not be able to protect our intellectual property adequately, or we
could be harmed by litigation involving our patents and proprietary rights.
Our future success depends in part upon our intellectual property,
including patents, trade secrets, know-how and continuing technology
innovation. There can be no assurance that the steps taken by us to protect
our intellectual property will be adequate to prevent misappropriation or that
others will not develop competitive technologies or products. There can be no
assurance that any patent owned by us will not be invalidated, circumvented or
challenged, that the rights granted thereunder will provide competitive
advantages to us or that any of our pending or future patent applications will
be issued with the scope of the claims sought by us, if at all. Furthermore,
there can be no assurance that others will not develop technologies that are
similar or superior to our technology, duplicate our technology or design
around the patents owned by us.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Additionally, the semiconductor industry is characterized by frequent
litigation regarding patent and other intellectual property rights. There can
be no assurance that existing claims or any other assertions or claims for
indemnity resulting from infringement claims will not adversely affect our
business, financial condition, results of operations, or cash flows.
We face risks associated with acquisitions we have completed and will face
risks associated with any future acquisitions.
We have made three strategic acquisitions in the past two years: Synergy
Semiconductor in November 1998, Altos Semiconductor Inc. in December 1999 and
Electronic Technology Corporation in April 2000. The risks involved with
acquisitions include:
- - diversion of management's attention
- - failure to retain key personnel
- - amortization of acquired intangible assets
- - customer dissatisfaction or performance problems with the acquired
company
- - the cost associated with acquisitions and the integration of acquired
operations
- - assumption of unknown liabilities
Any of these risks could materially harm our business, financial condition
and results of operations. Additionally, there can be no assurance that any of
the companies that we acquired or any business that we may acquire in the
future will achieve anticipated revenues and operating results.
In addition, acquisitions accounted for using the pooling of interests
methods of accounting are subject to rules established by the Financial
Accounting Standards Board and the Securities and Exchange Commission. These
rules are complex and the interpretation of them is subject to change.
Additionally, the availability of pooling of interests accounting treatment
for a business combination depends in part upon circumstances and events
occurring after the acquisition. The failure of a past business combination or
a future potential business combination that has been accounted for under the
pooling of interests accounting method to qualify for this accounting
treatment would materially harm our reported and future earnings and likely,
the price of our common stock.
Periods of rapid growth and expansion could continue to place a significant
strain on our limited personnel and other resources.
To manage expanded operations effectively, we will be required to continue
to improve our operational, financial and management systems and to
successfully hire, train, motivate and manage our employees. In addition, the
integration of past and future potential acquisitions and the expansion of our
manufacturing capacity will require significant additional management,
technical and administrative resources. We cannot be certain that we will be
able to manage our growth or effectively integrate the expansion of our
current wafer fabrication facilities, or a new manufacturing facility, into
our current operations.
Our business could be adversely effected by electrical power or natural gas
supply interruptions.
The majority or our administrative, technical and manufacturing facilities
are located in Northern California and these facilities may be subject to
electrical power or natural gas supply interruptions. In recent months,
electrical power suppliers have experienced shortages in electrical power
which has resulted in brief electrical power interruptions. The weak financial
condition of California's Public Utilities may aggravate the situation and
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
shortages may develop for natural gas. Semiconductor manufacturing depends
upon a controlled environment which requires high usage of electrical power
and natural gas. Frequent or extended electrical power interruptions could
have a negative impact on production output, manufacturing yields, and
manufacturing efficiencies. The Company intends to implement plans to reduce
the impact of temporary power outages. These plans include the installation of
emergency electrical power generation equipment. There can be no assurance
that these plans will be successful. Frequent or extended electrical power or
natural gas interruptions could have a material adverse impact on our
business, financial condition and operating results.
Our ability to manufacture sufficient wafers to meet demand could be severely
hampered by natural disasters.
Our existing wafer fabrication facilities are, and potential new wafer
fabrication facilities may be, located in Northern California and these
facilities may be subject to natural disasters such as earthquakes. A
significant natural disaster, such as an earthquake, could have a material
adverse impact on our business, financial condition and operating results.
We could incur substantial fines or litigation costs associated with our
storage, use and disposal of hazardous materials.
We are subject to a variety of federal, state and local governmental
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in our manufacturing process.
Any failure to comply with present or future regulations could result in the
imposition of fines, the suspension of production, alteration of our
manufacturing processes or a cessation of operations. In addition, these
regulations could restrict our ability to expand our facilities at their
present locations or construct or operate a new wafer fabrication facility or
could require us to acquire costly equipment or incur other significant
expenses to comply with environmental regulations or clean up prior
discharges. Our failure to control the use of, disposal or storage of, or
adequately restrict the discharge of, hazardous substances could subject us to
future liabilities and could have a material adverse effect on our business.
35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2000, the Company held $37.0 million in short-term
investments consisting of corporate debt securities (commercial paper) with
maturities of less than one year. These available-for-sale securities are
subject to interest rate risk and will fall in value if market interest rates
increase. If market interest rates were to increase immediately and uniformly
by 10 percent from levels at December 31, 2000, the fair value of the short-
term investments would decline by an immaterial amount. The Company generally
expects to have the ability to hold its fixed income investments until
maturity and therefore would not expect operating results or cash flows to be
affected to any significant degree by the effect of a sudden change in market
interest rates on short-term investments.
At December 31, 2000, the Company had fixed rate long-term debt of
approximately $5.9 million. A hypothetical 10 percent decrease in interest
rates would not have a material impact on the fair market value of this debt.
The Company does not hedge any interest rate exposures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements are set forth on pages 43 through 68,
which follow Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors of the Company is included in the
Company's Proxy Statement to be filed in connection with the Company's 2001
annual meeting of shareholders under the caption "Election of Directors" and
is incorporated herein by reference. The information concerning the executive
officers of the Company required by this item is as follows:
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of December 31,
2000, are as follows:
Name Age Position
------------------------ ---- ----------------------------------------
Raymond D. Zinn 63 President, Chief Executive Officer and
Chairman of the Board
Robert Whelton 61 Executive Vice President of Operations
George T. Anderl 61 Vice President, Sales and Marketing
Robert J. Barker 54 Vice President, Corporate Business
Development, and Secretary
Richard D. Crowley, Jr. 44 Vice President, Finance and Chief
Financial Officer
Carlos Laber 49 Vice President, Design Engineering
Carlos Mejia 50 Vice President, Human Resources
Barry Small 52 Vice President, Wafer Fabrication
Division
Scott Ward 46 Vice President, Test Engineering
Thomas Wong 45 Vice President, High Bandwidth Products
J. Vincent Tortolano 51 Vice President, General Counsel
Richard Zelenka 45 Vice President, Quality Assurance
Mr. Zinn is a co-founder of the Company and has been its President, Chief
Executive Officer and Chairman of its Board of Directors since its
incorporation in 1978. Prior to co-founding Micrel, Mr. Zinn held various
management and manufacturing executive positions in the semiconductor industry
at Electromask TRE, Electronic Arrays, Inc., Teledyne, Inc., Fairchild
Semiconductor Corporation and Nortek, Inc. He holds a B.S. in Industrial
Management from Brigham Young University and a M.S. in Business Administration
from San Jose State University.
37
Mr. Whelton joined the Company as Executive Vice President of Operations in
January 1998. From 1996 to 1997, Mr. Whelton was employed by Micro Linear
Corp., where he held the position of Executive Vice President in charge of
operations, design, sales and marketing. Prior to Micro Linear, Mr. Whelton
was employed by National Semiconductor Corp., from 1985 to 1996 where he held
the position of Vice President of the Analog Division. Mr. Whelton holds a
B.S.E.E. from U.C. Berkeley, and a M.S.E.E. from the University of Santa
Clara.
Mr. Anderl joined the Company in June 1996 as its Vice President, Sales and
Marketing. From 1991 until he joined Micrel, Mr. Anderl was employed by
Quality Semiconductor, where his last position was Vice President, Worldwide
Sales. His prior employers include Austek Microsystems, Advanced Micro
Devices, and Monolithic Memories. Mr. Anderl holds a B.S.E.E. degree from
Purdue University and a M.S.E.E. from Santa Clara University.
Mr. Barker has served as Vice President, Corporate Business Development
since October 1999. Mr. Barker has also served as the Company's Secretary
since May 2000. From April 1994 to September 1999 he held the position of Vice
President, Finance and Chief Financial Officer. From April 1984 until he
joined Micrel, Mr. Barker was employed by Waferscale Integration, Inc., where
his last position was Vice President of Finance and Secretary. Prior to 1984,
Mr. Barker held various accounting and financial positions at Monolithic
Memories and Lockheed Missiles and Space Co. He holds a B.S. in Electrical
Engineering and a M.B.A. from University of California at Los Angeles.
Mr. Crowley joined the Company as Vice President, Finance and Chief
Financial Officer in September 1999. From December 1998 until he joined
Micrel, Mr. Crowley was employed by Vantis Corporation as its Vice President,
Chief Financial Officer. From 1980 to 1998 Mr. Crowley was employed by
National Semiconductor Corporation, where his last position was Vice
President, Corporate Controller. He holds a B.B.A. in Finance from the
University of Notre Dame and a Masters in Management in Accounting and Finance
from Northwestern University.
Mr. Laber joined the Company in March 2000 as its Vice President, Design
Engineering. Prior to joining the Company, Mr. Laber was employed by Micro
Linear Corporation from 1984 to 2000 where he held the positions of Vice
President of Design Engineering, Director of Engineering, and Principal
Engineer. Prior to 1984 Mr. Laber was employed by National Semiconductor and
Intel Corporation in various design engineering positions. He holds a M.S.E.E.
from the University of Minnesota.
Mr. Mejia joined the Company in June 1999 as Vice President, Human
Resources. From 1976 until he joined Micrel, Mr. Mejia was employed by Analog
Devices, Inc. where his last position was Director, Human Resources. Prior to
Analog Devices, Inc., Mr. Mejia held various human resource positions at ROHR
Industries and California Computer Products. He holds a B.S. in Industrial
Technology and a M.A.H.R. from the University of Redlands.
Mr. Small joined the Company in April 1998 as its Vice President, Wafer
Fab. Prior to joining the Company, Mr. Small was employed by IC Works from
1996 to 1998, where he was Vice President of Operations. From 1971 to 1995,
Mr. Small was employed by National Semiconductor Corp. where he held the
position of Vice President of Linear Standard Products. Mr. Small holds a
B.A. in Physics from U.C. Berkeley and an M.A. in Physics and an M.B.A. from
University of California at Los Angeles.
38
Mr. Ward joined the Company in August 1999 as Vice President, Test
Division. From 1997 until he joined Micrel, Mr. Ward was employed by
QuickLogic Corporation as Vice President of Engineering. From 1980 to 1997,
Mr. Ward was employed by National Semiconductor Corporation where he held
various Product Line Director positions in the Analog Division. Mr. Ward holds
a B.S.E.T. degree from California Polytechnic University at San Luis Obispo.
Mr. Wong joined the Company in November 1998 as its Vice President,
HighBandwith Products. Prior to joining the Company, Mr. Wong was a co-founder
of Synergy Semiconductor and held various management positions including Chief
Technical Officer, Vice President Engineering, Vice President Standard Products
and Vice President Product Development for Synergy Semiconductor from 1987 to
November 1998 at which time Synergy was acquired by the Company. From 1978 to
1986, Mr. Wong was employed by Advanced Micro Devices where his last position
was Design Engineering Manager. He holds a B.S.E.E. from the University of
California at Berkeley and a M.S.E.E. from San Jose State University.
Mr. Tortolano joined the Company in August 2000 as its Vice President,
General Counsel. From 1999 until he joined the Company, Mr. Tortolano was
employed by Lattice Semiconductor Corporation, where he held the position of
Vice President, Co-General Counsel. From 1983 to 1999, Mr. Tortolano was
employed by Advanced Micro Devices, Inc., where his last position was Vice
President, General Counsel of AMD's Vantis subsidiary. Mr. Tortolano holds a
B.S.E.E. from Santa Clara University and a Juris Doctor degree from University
of California at Davis.
Mr. Zelenka has served as Vice President, Quality Assurance since August
2000. From January 1998 to July 2000 he held the position of Director of
Product Assurance. Prior to joining the Company, Mr. Zelenka was employed by
National Semiconductor from 1987 to 1998 as a Senior Quality Manager. From
1983 to 1987 Mr. Zelenka was employed by Fairchild Semiconductor where he held
the position of Wafer Fab Quality Manager. He holds a B.S. in Chemical
Engineering from the University of Wyoming.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
"Executive Compensation" and "Stock Option Grants and Exercise" in the
Company's Proxy Statement to be filed in connection with the Company's 2001
annual meeting of shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement to be filed in connection with the Company's 2001
annual meeting of shareholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption
"Certain Transactions" in the Company's Proxy Statement to be filed in
connection with the Company's 2001 Annual meeting of shareholders and is
incorporated herein by reference.
39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following financial statements of
the Company and the Report of Deloitte & Touche LLP, Independent
Auditors, are included in this Report on the pages indicated:
Page
----
Independent Auditors' Report 43
Consolidated Balance Sheets (Restated) as of
December 31, 2000 and 1999 44
Consolidated Statements of Income (Restated) for the Years
ended December 31, 2000, 1999 and 1998 45
Consolidated Statements of Shareholders' Equity and
Comprehensive Income (Restated) for the Years ended
December 31, 2000, 1999 and 1998 46
Consolidated Statements of Cash Flows (Restated) for the
Years ended December 31, 2000, 1999 and 1998 47
Notes to Consolidated Financial Statements 48
2. Financial Statement Schedules. The following financial
statement schedule of the Company for the years ended December 31,
2000, 1999 and 1998 is filed as part of this report on Form 10-K/A
and should be read in conjunction with the financial statements.
Schedule Title Page
-------- ----- ----
Independent Auditors' Report 67
II Valuation and Qualifying Accounts 68
Schedules not listed above have been omitted because they are not
applicable, not required, or the information required to be set
forth therein is included in the Consolidated Financial Statements
or notes thereto.
3. Exhibits. See Exhibit Index on page 41 hereof for a list of
exhibits filed or incorporated by reference as a part of this
report.
(b) Reports on Form 8-K. No report on Form 8-K was filed by the Company
in the quarter ended December 31, 2000.
40
Exhibits Pursuant to Item 601 of Regulation S-K
- -----------------------------------------------
Exhibit
Number Description
- ------- -----------
2.1 Merger Agreement dated October 21, 1998, by and between Micrel,
Incorporated, MISYN Acquisition Corp. and Synergy Semiconductor
Corporation. (1)
2.2 Letter agreement dated November 9, 1998, between Micrel,
Incorporated, MISYN Acquisition Corp. and Synergy Semiconductor
Corporation. (1)
2.3 Escrow Agreement dated November 9, 1998, between Micrel,
Incorporated, John F. Stockton, as representative of the former
Synergy shareholders, and Bank of the West. (1)
2.4 Agreement and Plan of Merger and Reorganization among Micrel,
Incorporated, Electronic Technology Corporation and ETC Acquisition
Sub, Inc., dated as of April 4, 2000 (10)
3.1 Amended and Restated Articles of Incorporation of the Registrant.
(2)
3.2 Certificate of Amendment of Articles of Incorporation of the
Registrant. (3)
3.3 Amended and Restated Bylaws of the Registrant. (3)
3.4 Certificate of Amendment of Articles of Incorporation of the
Registrant. (9)
4.1 Certificate for Shares of Registrant's Common Stock. (4)
10.1 Indemnification Agreement between the Registrant and each of its
officers and directors. (3)
10.2 1989 Stock Option Plan and form of Stock Option Agreement. (2) *
10.3 1994 Stock Option Plan and form of Stock Option Agreement. (2) *
10.4 1994 Stock Purchase Plan. (4)
10.6 Lease Agreement dated June 24, 1992 between the Registrant and GOCO
Realty Fund I, as amended August 6, 1992 and February 5, 1993. (2)
10.8 Form of Domestic Distribution Agreement. (3)
10.9 Form of International Distributor Agreement. (3)
10.10 Second Amendment dated February 20, 1995 between the Registrant and
TR Brell Cal Corporation to Lease Agreement dated June 24, 1992
between the Registrant and GOCO Realty Fund I, as amended August 6,
1992 and February 5, 1993. (4)
10.11 Amended and Restated 1994 Employee Stock Purchase Plan, as amended
January 1, 1996. (5)
10.12 Commercial Lease between Harris Corporation and Synergy
Semiconductor Corporation dated February 29, 1996. (6)
10.13 Standard Industrial/Commercial Single-Tenant Lease Agreement Dated
March 3, 2000 between the Registrant and Rose Ventures II (7)
10.14 Loan and Security Agreement Dated March 8, 2000 between the
Registrant and Bank of the West (8)
23.1 Independent Auditors' Consent.
24.1 Power of Attorney (11)
* Management contract or compensatory plan or agreement.
(1) Incorporated herein by reference to the Company's Current Report
on Form 8-K dated November 9, 1998 filed with the Commission
on November 23, 1998 in which this exhibit bears the same
number, unless otherwise indicated.
(2) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 ("Registration Statement"), File No. 33-85694,
in which this exhibit bears the same number, unless otherwise
indicated.
(3) Incorporated by reference to Amendment No. 1 to the Registration
Statement, in which this exhibit bears the same number, unless
otherwise indicated.
41
(4) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, in which this exhibit
bears the same number, unless otherwise indicated.
(5) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, in which this exhibit
bears the number 10.14.
(6) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, in which this
exhibit bears the number 10.14.
(7) Incorporated by reference to exhibit 10.1 filed with the
Company's quarterly report on Form 10-Q for the period ended
March 31, 2000.
(8) Incorporated by reference to exhibit 10.2 filed with the
Company's quarterly report on Form 10-Q for the period ended
March 31, 2000.
(9) Incorporated by reference to exhibit 3.1 filed with the
Company's quarterly report on Form 10-Q for the period ended
September 30, 2000.
(10) Incorporated by reference to exhibit 10.1 filed with the
Company's registration statement on Form S-3 filed with the
S.E.C. on May 25, 2000.
(11) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, in which this
exhibit bears the same number unless otherwise noted.
(d) Financial Statement Schedules. The financial statement schedule
required by this Item is listed under Item 14(a)(2) above.
42
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Micrel, Incorporated:
We have audited the accompanying consolidated balance sheets of Micrel,
Incorporated and its subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries
at December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000
in conformity with accounting principles generally accepted in the United
States of America.
The consolidated financial statements referred to above give retroactive
effect to the merger of Micrel, Incorporated and Kendin Communications, Inc.
which has been accounted for as a pooling of interests as described in Note 3
to the consolidated financial statements.
As discussed in Note 2, the accompanying consolidated financial statements
have been restated.
DELOITTE & TOUCHE LLP
San Jose, California
January 23, 2001
(July 27, 2001 as to the fifth paragraph of Note 12, September 27, 2001 as to
the first three paragraphs of Note 3 and January 28, 2002 as to effects of the
restatement discussed in Note 2)
43
MICREL, INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(In thousands, except share amounts)
_____________________________________________________________________________
2000 1999
--------- ---------
Restated(1) Restated(1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 86,137 $ 20,078
Short-term investments 36,953 36,644
Accounts receivable, less allowances: 2000, $4,517;
1999, $2,747 62,843 40,113
Inventories 28,983 24,278
Prepaid expenses and other 1,565 1,173
Deferred income taxes 24,989 15,608
--------- ---------
Total current assets 241,470 137,894
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 112,125 67,784
INTANGIBLE ASSETS, NET 5,775 7,933
OTHER ASSETS 378 560
--------- ---------
TOTAL $ 359,748 $ 214,171
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,342 $ 12,624
Accrued compensation 11,496 5,958
Accrued commissions 2,277 1,952
Income taxes payable 11,805 12,317
Other accrued liabilities 2,129 1,742
Deferred income on shipments to distributors 14,224 6,541
Current portion of long-term debt 5,429 5,131
--------- ---------
Total current liabilities 68,702 46,265
--------- ---------
LONG-TERM DEBT 5,327 8,854
DEFERRED RENT 943 624
DEFERRED INCOME TAXES 2,941 1,170
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - authorized:
5,000,000 shares; issued and outstanding: none - -
Common stock, no par value - authorized:
250,000,000 shares; issued and outstanding:
2000 - 90,641,922 shares; 1999 - 87,414,733 shares 164,713 86,051
Deferred stock compensation (46,020) (18,043)
Accumulated other comprehensive income (loss) (32) 15
Retained earnings 163,174 89,235
--------- ---------
Total shareholders' equity 281,835 157,258
--------- ---------
TOTAL $ 359,748 $ 214,171
========= =========
(1) See Note 2 of Notes to Consolidated Financial Statements regarding
the restatement of financial statements.
See Notes to Consolidated Financial Statements.
44
MICREL, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In thousands, except per share amounts)
_____________________________________________________________________________
2000 1999 1998
--------- --------- ---------
Restated(1) Restated(1) Restated(1)
NET REVENUES $ 346,335 $ 200,016 $ 144,935
COST OF REVENUES* 149,083 89,572 72,953
--------- --------- ---------
GROSS PROFIT 197,252 110,444 71,982
--------- --------- ---------
OPERATING EXPENSES:
Research and development 42,201 29,563 21,373
Selling, general and administrative 45,319 29,399 22,562
Amortization of deferred stock
compensation* 6,060 2,109 753
Purchased in-process technology - 603 3,737
--------- --------- ---------
Total operating expenses 93,580 61,674 48,425
--------- --------- ---------
INCOME FROM OPERATIONS 103,672 48,770 23,557
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 5,849 2,138 1,563
Interest expense (976) (1,468) (419)
Other income(loss), net (134) 22 (6)
--------- --------- ---------
Total other income, net 4,739 692 1,138
--------- --------- ---------
INCOME BEFORE INCOME TAXES 108,411 49,462 24,695
PROVISION FOR INCOME TAXES 35,104 16,019 9,304
--------- --------- ---------
NET INCOME $ 73,307 $ 33,443 $ 15,391
========= ========= =========
NET INCOME PER SHARE:
Basic $ 0.82 $ 0.39 $ 0.19
========= ========= =========
Diluted $ 0.75 $ 0.36 $ 0.18
========= ========= =========
SHARES USED IN COMPUTING PER
SHARE AMOUNTS:
Basic 89,242 85,762 82,258
========= ========= =========
Diluted 98,186 92,906 85,878
========= ========= =========
* Amortization of deferred stock
compensation related to:
Cost of revenues $ 2,202 $ 926 $ 275
========= ========= =========
Research and development $ 3,347 $ 1,444 $ 467
Selling, general and administrative 2,713 665 286
--------- --------- ---------
Total $ 6,060 $ 2,109 $ 753
========= ========= =========
(1) See Note 2 of Notes to Consolidated Financial Statements the
regarding restatement of financial statements.
See Notes to Consolidated Financial Statements.
45
MICREL, INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (RESTATED, SEE NOTE 2)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(In thousands, except share amounts)
_________________________________________________________________________________________________________________________________
Accumulated
Common Stock Other Deferred Total Compre-
--------------------- Comprehensive Stock Retained Shareholders' hensive
Shares Amount Income(Loss) Compensation Earnings Equity Income
----------- -------- ------------- ------------ --------- ------------- ---------
Balances, December 31, 1997, as
previously reported 77,933,276 $ 27,703 $ - $ - $ 42,865 $ 70,568
Restatement (Note 2) - 2,395 - (2,216) (205) (26)
Pooling adjustment (Note 3) 1,857,336 2,244 - - (2,259) (15)
---------- -------- -------- -------- -------- --------
Balances, December 31, 1997, restated(1) 79,760,612 32,342 - (2,216) 40,401 70,527
Net income - - - - 15,391 15,391 $ 15,391
Other comprehensive income,
net of tax - Change in net
unrealized gains from
short-term investments - - 10 - - 10 10
--------
Comprehensive income $ 15,401
========
Deferred stock compensation, net - 9,351 - (8,323) - 1,028
Issuance of common stock 2,224,702 6,191 - - - 6,191
Employee stock transactions 2,431,508 4,088 - - - 4,088
Tax benefit of employee stock
transactions - 3,458 - - - 3,458
---------- -------- -------- -------- -------- --------
Balances, December 31, 1998, restated(1) 84,416,822 $ 55,430 $ 10 $(10,539) $ 55,792 $100,693
Net income - - - - 33,443 33,443 $ 33,443
Other comprehensive income, net of tax -
Change in net unrealized gains from
short-term investments - - 5 - - 5 5
--------
Comprehensive income $ 33,448
========
Deferred stock compensation, net - 10,538 - (7,504) - 3,034
Issuance of common stock 524,346 4,974 - - - 4,974
Employee stock transactions 2,473,565 8,303 - - - 8,303
Tax benefit of employee stock
transactions - 6,806 - - - 6,806
---------- -------- -------- -------- -------- --------
Balances, December 31, 1999, restated(1) 87,414,733 86,051 15 (18,043) 89,235 157,258
Net income - - - - 73,307 73,307 $ 73,307
Other comprehensive income, net of tax -
Change in net unrealized gains
from short-term investments - - (47) - - (47) (47)
--------
Comprehensive income $ 73,260
========
Acquisition of ETC 152,234 32 - - 632 664
Deferred stock compensation, net - 36,035 - (27,977) - 8,058
Issuance of common stock 655,284 6,629 - - - 6,629
Employee stock transactions 2,419,671 15,556 - - - 15,556
Tax benefit of employee stock
transactions - 20,410 - - - 20,410
---------- -------- -------- -------- -------- --------
Balances, December 31, 2000, restated(1) 90,641,922 $164,713 $ (32) $(46,020) $163,174 $281,835
========== ======== ======== ======== ======== ========
(1) See Note 2 of Notes to Consolidated Financial Statements regarding the restatement
of financial statements.
See Notes to Consolidated Financial Statements.
46
MICREL, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In thousands)
_____________________________________________________________________________
2000 1999 1998
--------- --------- ---------
Restated(1) Restated(1) Restated(1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 73,307 $ 33,443 $ 15,391
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 25,785 19,587 12,672
Stock based compensation 8,262 3,035 1,028
Purchased in-process technology - 603 3,737
Gain or loss on disposal of assets (40) (24) 4
Deferred rent 319 (166) (126)
Deferred income taxes (7,610) (4,091) (4,701)
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable (22,453) (15,476) (5,306)
Inventories (4,390) (7,841) 4,600
Prepaid expenses and other assets (198) (365) (259)
Accounts payable 8,607 3,442 2,424
Accrued compensation 5,264 1,772 447
Accrued commissions 245 442 299
Income taxes payable 19,898 14,810 6,618
Other accrued liabilities 693 (1,341) 374
Deferred income on shipments to
distributors 7,663 2,127 997
--------- --------- ---------
Net cash provided by operating
activities 115,352 49,957 38,199
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold
improvements (67,483) (29,726) (31,106)
Purchases of short-term investments (158,010) (65,629) (38,754)
Proceeds from sales and maturities of
short-term investments 157,681 44,018 41,300
Purchase of company, net of cash acquired - (1,800) (10,271)
--------- --------- ---------
Net cash used in investing activities (67,812) (53,137) (38,831)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term borrowings - - (3,132)
Proceeds from long-term borrowings 2,000 2,100 12,000
Repayments of long-term debt (5,463) (7,701) (4,146)
Proceeds from the issuance of common stock 21,982 13,277 8,279
--------- --------- ---------
Net cash provided by financing
activities 18,519 7,676 13,001
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 66,059 4,496 12,369
CASH AND CASH EQUIVALENTS -
Beginning of year 20,078 15,582 3,213
--------- --------- ---------
CASH AND CASH EQUIVALENTS - End of year $ 86,137 $ 20,078 $ 15,582
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 976 $ 1,468 $ 420
========= ========= =========
Income taxes $ 22,709 $ 5,295 $ 7,384
========= ========= =========
Non-cash transactions:
Deferred stock compensation $ 36,035 $ 10,538 $ 9,351
========= ========= =========
Conversion of notes payable into
common stock $ - $ - $ 2,000
========= ========= =========
Issuance of stock for service $ 203 $ - $ -
========= ========= =========
(1) See Note 2 of Notes to Consolidated Financial Statements regarding the
restatement of financial statements.
See Notes to Consolidated Financial Statements.
47
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999 and 1998
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Micrel, Incorporated and its wholly-owned
subsidiaries (the "Company") develops, manufactures and markets analog and
mixed-signal semiconductor devices. The Company also provides custom and
foundry services which include silicon wafer fabrication, integrated
circuit assembly and testing. The Company's standard integrated circuits
are sold principally in North America, Asia, and Europe for use in a
variety of products, including those in the computer, communication, and
industrial markets. The Company's custom circuits and wafer foundry
services are provided to a wide range of customers that produce electronic
systems for communications, consumer, automotive and military
applications. The Company produces the majority of its wafers at the
Company's wafer fabrication facilities located in San Jose and Santa
Clara, California. After wafer fabrication, the completed wafers are then
separated into individual circuits and packaged at independent assembly
and final test contract facilities primarily located in Malaysia.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Micrel, Incorporated and its wholly-
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates - In accordance with accounting principles generally
accepted in the United States of America, management utilizes certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The primary
estimates underlying the Company's financial statements include allowance
for doubtful accounts receivable, reserves for product returns, reserves
for obsolete and slow moving inventory, income taxes and accrual for other
liabilities. Actual results could differ from those estimates.
Cash Equivalents - The Company considers all liquid debt instruments
purchased with remaining maturities of three months or less to be cash
equivalents.
Short-term Investments - Short-term investments consist primarily of
liquid debt instruments purchased with remaining maturity dates of greater
than three months. Short-term investments are classified as available-
for-sale securities and are stated at market value with unrealized gains
and losses included in shareholders' equity, net of income taxes. At
December 31, 2000 and 1999, short-term investments consisted of corporate
debt securities (commercial paper) with maturities of less than one year.
Short-term investments include the following available-for-sale securities
at December 31, 2000 and 1999 (in thousands):
Unrealized Unrealized
Amortized Market Holding Holding
Cost Value Gains Losses
--------- --------- --------- ---------
December 31, 2000 $ 36,985 $ 36,953 $ - $ 32
December 31, 1999 $ 36,629 $ 36,644 $ 15 $ -
48
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
Certain Significant Risks and Uncertainties - Financial instruments that
potentially subject the Company to concentrations of credit risk consist
of cash and cash equivalents, short-term investments, and accounts
receivable. Risks associated with cash are mitigated by banking with
creditworthy institutions. Cash equivalents and short-term investments
consist primarily of commercial paper and bank certificates of deposit and
are regularly monitored by management. Credit risk with respect to the
trade receivables is spread over geographically diverse customers. At
December 31, 2000, no customer accounted for 10% or more of total accounts
receivable. At December 31, 1999, two customers accounted for 10% or more
of total accounts receivable.
The Company participates in a dynamic high technology industry and
believes that changes in any of the following areas could have a material
adverse effect on the Company's future financial position, results of
operations, or cash flows: changes in the overall demand for products
offered by the Company; competitive pressures in the form of new products
or price reductions on current products; advances and trends in new
technologies and industry standards; changes in product mix; changes in
third-party manufacturers; changes in key suppliers; changes in certain
strategic relationships or customer relationships; litigation or claims
against the Company based on intellectual property, patents (Note 12),
product, regulatory or other factors; risk associated with the ability to
obtain necessary components; risks associated with the Company's ability
to attract and retain employees necessary to support its growth.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Equipment and Leasehold Improvements - Equipment and leasehold
improvements are stated at cost. Depreciation on equipment is computed
using the straight-line method over estimated useful lives of three to
five years. Leasehold improvements are amortized over the shorter of the
lease term or the useful lives of the improvements.
Intangible Assets - Intangible assets (net of accumulated amortization of
$4.4 million in 2000; $2.3 million in 1999) at December 31, consist of the
following (in thousands):
Amortization
2000 1999 Period(Years)(1)
-------- -------- ----------------
Developed and core technology $ 3,980 $ 5,323 5
Assembled workforce 271 576 3
Tradename and patents 774 1,031 5
Customer relationships 750 1,003 5
-------- --------
$ 5,775 $ 7,933
(1) Using straight-line basis amortization.
Impairment of Long-Lived Assets - Long-lived assets and certain
intangibles held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. An impairment loss would be
recognized when the sum of the undiscounted future net cash flows expected
to result from the use of the asset and its eventual disposition is less
than its carrying value.
49
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
Revenue Recognition - Revenue from products sold directly to customers is
recognized upon shipment. A portion of the Company's sales are made to
United States of America, Canadian and certain other international
distributors under agreements allowing certain rights of return and price
protection on merchandise unsold by these distributors. Accordingly, the
Company defers recognition of such revenues until the merchandise is sold
by the distributors to their customers. The Company records a provision
for estimated returns, allowances and warranty costs at the time revenue
is recognized. Warranty costs have not been material in any period
presented.
Research and Development Expenses - Research and development expenses
include costs associated with the development of new wafer fabrication
processes and the definition, design and development of standard products.
The Company also expenses prototype wafers and new production mask sets
related to new products as research and development costs until products
based on new designs are fully characterized by the Company and are
demonstrated to support published data sheets and satisfy reliability
tests.
Income Taxes - Income taxes are provided at current rates. Deferred
income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Stock-based Awards - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".
Stock Split - In June 2000, the Company declared a two-for-one stock split
of its common stock in the form of a 100% stock dividend payable June 27,
2000, on all shares of common stock outstanding as of June 6, 2000. All
share and per share information in the accompanying consolidated financial
statements has been adjusted to retroactively give effect to the stock
split for all periods presented.
Net Income per Share - Basic earnings per share ("EPS") is computed by
dividing net income by the number of weighted average common shares
outstanding. Diluted EPS reflects potential dilution from outstanding
stock options, using the treasury stock method.
Reconciliation of weighted average shares used in computing earnings per
share is as follows (in thousands):
Years Ended December 31,
-------------------------------
2000 1999 1998
------- ------- -------
Restated(1) Restated(1) Restated(1)
Weighted average common shares outstanding 89,242 85,762 82,258
Dilutive effect of stock options
outstanding, using the treasury
stock method 8,944 7,144 3,620
------- ------- -------
Shares used in computing diluted
earnings per share 98,186 92,906 85,878
======= ======= =======
(1) See Note 2 of Notes to Consolidated Financial Statements regarding the
restatement of financial statements.
50
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
Fair Value of Financial Instruments - Financial instruments included in
the Company's consolidated balance sheets at December 31, 2000 and 1999
consist of cash, cash equivalents, short-term investments and long-term
debt. For cash, the carrying amount is a reasonable estimate of the fair
value. The carrying amount for cash equivalents and short-term investments
approximates fair value because of the short maturity of those
investments. The fair value of long-term debt approximates the carrying
amount. The fair value of long-term debt is based on the discounted value
of the contractual cash flows. The discount rate is estimated using the
rates currently offered for debt with similar remaining maturities.
Comprehensive Income - Comprehensive income represents the change in net
assets during the period from nonowner sources. Consolidated statements
of comprehensive income for the years ended December 31, 2000, 1999, and
1998 have been included within the consolidated statements of
shareholders' equity and comprehensive income.
Segment Information - The Company reports segment data pursuant to SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes annual and interim reporting standards for
an enterprise's business segments and related disclosures about its
products, services, geographic areas and major customers. The Company
operates in two reportable segments, standard products and custom and
foundry products (Note 13).
New Accounting Standards - Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", is effective for all fiscal years beginning after June 15,
2000. SFAS 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under
SFAS 133, certain contracts that were not formerly considered derivatives
may now meet the definition of a derivative. The Company will adopt SFAS
133 effective January 1, 2001. Management has concluded that the adoption
of SFAS 133 will not have a material effect on the financial position,
results of operations, or cash flows of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements," which provides the SEC staff's views on selected
revenue recognition issues. Management has completed its evaluation of SAB
101 and has determined that the Company is in compliance with SAB 101 and
no adjustments are required.
2. RESTATEMENT OF FINANCIAL STATEMENTS
On January 28, 2002, the Company announced that it would restate its
consolidated financial statements for the years ended December 31, 1998,
1999, and 2000, and the quarters ended March 31, 2001, June 30, 2001, and
September 30, 2001. This restatement relates to the Company's past method
of setting the exercise price of certain employee stock options which
results in stock compensation expenses and related payroll and income tax
effects that had not been recorded in previously issued financial
statements. The effect of the restatement for the years prior to 1998 are
reported in the accompanying Consolidated Financial Statements as a
restatement adjustment of shareholders' equity as of December 31, 1997.
51
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
The following table sets forth the adjustments to the statements of income
data as well as the balance sheet data resulting from the restatement for
the years ended December 31, 1998, 1999 and 2000. For each year, the
table begins with the data under the "As Previously Reported" column which
sets forth the originally reported data on Form 10-K for the applicable
year. The second column of each year sets forth the data "As Restated"
which accounts for the adjustments in compensation expenses and related
tax effects referred to in the preceding paragraph. The restatement in the
second column has been reported here on a pre-pooled basis to indicate the
adjustments to the financial statements of Micrel only, prior to its
acquisition of Kendin Communications, Inc. ("Kendin"). The third column of
each year, labeled "As Restated After Pooling" updates the restated data for
the effect of the acquisition of Kendin which was accounted for as a
pooling of interests. Additional information about the Kendin acquisition
can be found in Note 3 to Notes to Consolidated Financial Statements.
(in thousands, except per share amounts)
Years ended December 31,
----------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ------------------------------ ------------------------------
As As As
As Restated As Restated As Restated
Previously As after Previously As after Previously As after
Statements of Income Data: Reported Restated Pooling Reported Restated Pooling Reported Restated Pooling
---------- -------- -------- ---------- -------- -------- ---------- -------- --------
Net revenues $322,475 $322,475 $346,335 $195,122 $195,122 $200,016 $140,508 $140,508 $144,935
Cost of revenues 133,129 135,891 149,083 85,629 86,778 89,572 69,324 69,629 72,953
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit 189,346 186,584 197,252 109,493 108,344 110,444 71,184 70,880 71,982
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating Expenses:
Research and development 35,789 36,852 42,201 26,328 26,431 29,563 18,931 18,962 21,373
Selling, general and
administrative 41,943 42,694 45,319 28,157 28,225 29,399 21,658 21,681 22,562
Amortization of deferred
stock compensation - 5,336 6,060 - 2,047 2,109 - 753 753
Purchased in-process technology - - - 603 603 603 3,737 3,737 3,737
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses 77,732 84,882 93,580 55,088 57,306 61,674 44,326 45,133 48,425
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations 111,614 101,702 103,672 54,405 51,038 48,770 26,858 25,747 23,557
Other income, net 4,318 4,318 4,739 610 610 692 1,092 1,092 1,138
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 115,932 106,020 108,411 55,015 51,648 49,462 27,950 26,839 24,695
Provision for income taxes 38,261 34,316 35,104 18,356 17,012 16,019 10,774 10,330 9,304
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income $ 77,671 $ 71,704 $ 73,307 $ 36,659 $ 34,636 $ 33,443 $ 17,176 $ 16,509 $ 15,391
======== ======== ======== ======== ======== ======== ======== ======== ========
Net income per share:
Basic $ 0.92 $ 0.85 $ 0.82 $ 0.45 $ 0.42 $ 0.39 $ 0.22 $ 0.21 $ 0.19
======== ======== ======== ======== ======== ======== ======== ======== ========
Diluted $ 0.82 $ 0.77 $ 0.75 $ 0.41 $ 0.39 $ 0.36 $ 0.20 $ 0.20 $ 0.18
======== ======== ======== ======== ======== ======== ======== ======== ========
Shares used in computing
per share amounts:
Basic 84,234 84,234 89,242 81,660 81,660 85,762 79,220 79,220 82,258
======== ======== ======== ======== ======== ======== ======== ======== ========
Diluted 94,687 92,946 98,186 89,792 88,803 92,906 84,812 84,211 85,878
======== ======== ======== ======== ======== ======== ======== ======== ========
52
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
(in thousands)
As of December 31,
--------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
As As
As Restated As Restated
Previously As after Previously As after
Balance Sheet Data: Reported Restated Pooling Reported Restated Pooling
---------- -------- -------- ---------- -------- --------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 81,902 $ 81,902 $ 86,137 $ 15,360 $ 15,360 $ 20,078
Short-term investments 32,858 32,858 36,953 36,337 36,337 36,644
Accounts receivable 58,751 58,751 62,843 39,472 39,472 40,113
Inventories 20,703 20,703 28,983 23,851 23,851 24,278
Prepaid expenses and other 1,494 1,494 1,565 1,108 1,108 1,173
Deferred income taxes 20,485 21,636 24,989 11,388 11,595 15,608
-------- -------- -------- -------- -------- --------
Total current assets 216,193 217,344 241,470 127,516 127,723 137,894
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 110,576 110,576 112,125 67,162 67,162 67,784
INTANGIBLE ASSETS, NET 5,775 5,775 5,775 7,933 7,933 7,933
OTHER ASSETS 350 350 378 483 483 560
-------- -------- -------- -------- -------- --------
TOTAL $332,894 $334,045 $359,748 $203,094 $203,301 $214,171
======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABLITIES:
Accounts payable $ 14,515 $ 14,515 $ 21,342 $ 11,241 $ 11,241 $ 12,624
Accrued compensation 8,171 11,106 11,496 5,272 5,796 5,958
Accrued commissions 2,219 2,219 2,277 1,952 1,952 1,952
Income taxes payable 11,720 11,720 11,805 12,230 12,230 12,317
Other accrued liabilities 1,623 1,623 2,129 1,442 1,442 1,742
Deferred income on shipments to distributors 14,224 14,224 14,224 6,541 6,541 6,541
Current portion of long-term debt 5,429 5,429 5,429 5,132 5,132 5,131
-------- -------- -------- -------- -------- --------
Total current liabilities 57,901 60,836 68,702 43,810 44,334 46,265
LONG-TERM DEBT 5,327 5,327 5,327 8,854 8,854 8,854
DEFERRED RENT 943 943 943 624 624 624
DEFERRED INCOME TAXES 2,898 2,898 2,941 1,137 1,137 1,170
SHAREHOLDERS' EQUITY:
Preferred stock - - - - - -
Common stock 90,854 139,428 164,713 51,954 72,342 86,051
Deferred stock compensation - (41,496) (46,020) - (17,810) (18,043)
Accumulated other comprehensive income (loss) (32) (32) (32) 15 15 15
Retained earnings 175,003 166,141 163,174 96,700 93,805 89,235
-------- -------- -------- -------- -------- --------
Total shareholders' equity 265,825 264,041 281,835 148,669 148,352 157,258
-------- -------- -------- -------- -------- --------
TOTAL $322,894 $334,045 $359,748 $203,094 $203,301 $214,171
======== ======== ======== ======== ======== ========
3. ACQUISITIONS
On May 30, 2001, the Company completed the acquisition of Kendin
Communications, Inc. ("Kendin"), a privately held fabless semiconductor
company that designs, develops and markets high performance integrated
circuits for the communications and networking markets. Under the terms of
the merger agreement, the Company issued 6,138,635 shares of common stock
and options to purchase 645,097 shares of common stock in exchange for all
outstanding Kendin securities and options to purchase Kendin securities.
53
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
The transaction has been accounted for as a pooling of interests, and
accordingly all financial statements presented have been restated to
include the Kendin results. Associated with the acquisition the Company
recorded $8.9 million in non-recurring acquisition expenses in the quarter
ended June 30, 2001. The non-recurring expenses consisted of $6.9 million
in transaction costs and $2.0 million in stock compensation charges.
The table below sets forth combined revenues and net income of Micrel and
Kendin for the years ended December 31, 2000, 1999, and 1998 (in thousands):
Years Ended December 31,
-------------------------------------
2000 1999 1998
--------- --------- ---------
Net revenues:
Micrel $ 322,475 $ 195,122 $ 140,508
Kendin 23,860 4,894 4,427
--------- --------- ---------
Total $ 346,335 $ 200,016 $ 144,935
========= ========= =========
Net income (loss):
Micrel (Restated, see Note 2) $ 71,704 $ 34,636 $ 16,509
Kendin 1,603 (1,193) (1,118)
--------- --------- ---------
Total $ 73,307 $ 33,443 $ 15,391
========= ========= =========
No Micrel or Kendin accounting policies were required to be conformed as a
result of the merger. Both Micrel and Kendin have the same fiscal years.
There were no intercompany transactions between the two companies.
On April 13, 2000, the Company completed the acquisition of Electronic
Technology Corporation ("ETC"), a privately held provider of power
management and mixed signal products for the portable computing,
communications and automotive markets. Under the terms of the merger
agreement, the Company issued 152,234 shares of common stock in exchange
for the outstanding shares of capital stock of ETC. The transaction is
accounted for as a pooling of interests. Prior period financial
statements presented have not been restated to include the ETC results as
the impact was not material.
On December 15, 1999, the Company acquired the outstanding capital stock
of Altos Semiconductor for a cash purchase price of $1.8 million. The
acquisition was accounted for as a purchase and, accordingly, the results
of operations of Altos from the date of acquisition forward have been
included in the Company's consolidated financial statements. Approximately
$1.7 million of the total purchase cost was allocated to intangible
assets. Of that amount, $603,000 was allocated to purchased in-process
technology, which has not reached technological feasibility and has no
alternative future use, for which the Company recorded charges in the year
ended December 31, 1999. The remaining intangible assets of $1.1 million,
consisting of existing technology, assembled workforce, and patents, are
included in intangible assets in the accompanying balance sheets and are
being amortized over their useful lives of five years.
On November 9, 1998, the Company acquired all outstanding shares of
Synergy Semiconductor ("Synergy") common stock for a cash purchase price
of $9.9 million plus $1.6 million of transaction fees and direct merger
costs.
54
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
The acquisition was accounted for as a purchase and, accordingly, the
results of operations of Synergy from the date of acquisition forward have
been included in the Company's consolidated financial statements. In
connection with the acquisition, intangible assets of $12.9 million were
acquired, of which $3.7 million was reflected as a one-time charge to
operations for the write-off of purchased in-process technology that had
not reached technological feasibility and, in management's opinion, had no
probable alternative future use. The $3.7 million one-time charge for
purchased in-process technology has been reflected in the Company's fiscal
1998 consolidated income statement within operating expenses. The
remaining intangible assets of $9.2 million, consisting of existing
technology, assembled workforce, tradename and patents, and customer
relationships, are included in intangible assets in the accompanying
balance sheets and are being amortized over their useful lives of three to
five years.
In connection with the Synergy acquisition, net assets acquired were as
follows (in thousands):
Current assets $ 13,564
Equipment and other, net 5,074
Intangible assets, including purchased in-process technology 12,945
Liabilities assumed (20,110)
---------
Net assets acquired $ 11,473
=========
The following unaudited pro forma information shows the results of
operations for the year ended December 31, 1998, as if the Synergy
acquisition had occurred at the beginning of 1998 (in thousands, except
per share amounts):
Net revenues $ 168,246
Net income (Restated, see Note 2) $ 9,510
Net income per share, basic (Restated, see Note 2) $ 0.12
Net income per share, diluted (Restated, see Note 2) $ 0.12
The pro forma results are not necessarily indicative of what would have
occurred had the acquisition actually been made at the beginning of 1998
or of future operations of the combined companies
4. INVENTORIES
Inventories at December 31 consist of the following (in thousands):
2000 1999
--------- ---------
Finished goods $ 9,929 $ 6,023
Work in process 17,040 16,487
Raw materials 2,014 1,768
--------- ---------
$ 28,983 $ 24,278
========= =========
55
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements at December 31 consist of the
following (in thousands):
2000 1999
--------- ---------
Manufacturing equipment $ 153,164 $ 105,370
Leasehold improvements 12,595 2,909
Office furniture and equipment 13,221 4,642
--------- ---------
178,980 112,921
Accumulated depreciation and amortization (66,855) (45,137)
--------- ---------
$ 112,125 $ 67,784
========= =========
6. BORROWING ARRANGEMENTS
Borrowing agreements consisted of (i) $5 million under a revolving line of
credit, of which all was unused and available at December 31, 2000, and
(ii) $40 million under a non-revolving line of credit, of which $38
million was unused and available at December 31, 2000. The two lines of
credit are covered by the same loan and security agreement. The revolving
line of credit portion of the agreement expires on April 30, 2001 subject
to automatic renewal on a month-to-month basis thereafter unless
terminated by either party upon 30 days notice. The non-revolving line of
credit portion of the agreement expires on April 30, 2001. Borrowings
under the revolving line of credit bear interest rates of, at the
Company's election, the prime rate (9.5% at December 31, 2000), or the
bank's revolving offshore rate, which approximates LIBOR (6.4% at December
31, 2000) plus 2.0%. Borrowings under the non-revolving line of credit
bear interest rates of, at the Company's election, the prime rate (9.50%
at December 31, 2000), the bank's non-revolving offshore rate, which
approximates LIBOR (6.40% at December 31, 2000) plus 2.13%, a fixed rate
based on the four-year U.S. Treasury Bill rate (5.10% at December 31,
2000) plus 2.75% or an annual adjustable rate based on the one-year U.S.
Treasury Bill rate (5.37% at December 31, 2000) plus 2.75%. The agreement
contains certain restrictive covenants that include a restriction on the
declaration and payment of dividends without the lender's consent. The
Company was in compliance with all such covenants at December 31, 2000.
The non-revolving bank line of credit that is covered by the loan
agreement described above, can be used to fund purchases of capital
equipment whereby the Company may borrow up to 100% of the acquisition
cost. Amounts borrowed under this credit line are automatically converted
to four-year term notes. All equipment notes are collateralized by
substantially all of the Company's manufacturing equipment.
As of December 31, 2000, the Company had $10.8 million outstanding under
term notes.
56
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
Long-term debt at December 31, collateralized by equipment, consists of
the following (in thousands):
2000 1999
--------- ---------
Notes payable bearing interest at prime, payable
in monthly installments through September 2002 $ 1,604 $ 2,639
Notes payable bearing a fixed interest rate of
7.5%, payable in monthly installments through
November 2002 3,805 5,833
Notes payable bearing interest at annual
adjustable rate based on the one-year U.S.
Treasury Bill rate plus 3.0%, payable in
monthly installments through June 2003 1,258 1,838
Notes payable bearing interest at quarterly
adjustable rate based on LIBOR plus 2.75%,
payable in monthly installments through
December 2004 2,000 -
Notes payable assumed from Synergy Semiconductor
bearing fixed rates ranging from 8.9% to 9.4%,
payable in monthly installments through January 2003 2,089 3,676
--------- ---------
Total debt 10,756 13,986
Current portion (5,429) (5,132)
--------- ---------
Long-term debt $ 5,327 $ 8,854
========= =========
Maturities of long-term debt subsequent to December 31, 2000 are as
follows (in thousands): $5,429 in 2001, $4,075 in 2002, $752 in 2003, and
$500 in 2004.
7. SHAREHOLDERS' EQUITY
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, no par
value, of which none were issued or outstanding at December 31, 2000. The
preferred stock may be issued from time to time in one or more series.
The Board of Directors is authorized to determine or alter the rights,
preferences, privileges and restrictions of such preferred stock.
Stock Option Plans
Under the Company's 2000 Non-Exempt Option Plan and 1994 and 1989 Stock
Option Plans (the "Option Plans"), 35,958,672 shares of common stock are
authorized for issuance to key employees. The Option Plans provide that
the option price will be determined by the Board of Directors at a price
not less than the fair value at the date of grant. Certain
shareholder/employees of the Company are granted options at 110% of the
current fair market value. Options granted under the 2000 Non-Exempt
Option Plan are exercisable in 20% increments with the initial 20% vesting
occurring on the date of grant and then in annual increments of 20% per
year from the date of grant. Under the 1994 and 1989 Stock Option Plans
options granted become exercisable in not less than cumulative annual
increments of 20% per year from the date of grant. At December 31, 2000,
19,594,523 total shares were reserved for future issuance, of which
4,535,643 shares were available for future grants under the Option Plans.
Option activity under the Option Plans is as follows:
57
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
Weighted
Average
Number Exercise
of Shares Price
---------- --------
Outstanding, December 31, 1997 (1,810,632 exercisable
at a weighted average price of $0.92 per share) 10,223,232 $ 3.11
Granted 5,774,348 8.20
Exercised (2,285,400) 1.37
Canceled (398,400) 3.33
---------- -------
Outstanding, December 31, 1998 (1,909,632 exercisable
at a weighted average price of $2.81 per share) 13,313,780 5.61
Granted 4,323,044 14.89
Exercised (2,372,065) 2.88
Canceled (847,231) 7.67
---------- -------
Outstanding, December 31, 1999 (2,750,457 exercisable
at a weighted average price of $5.00 per share) 14,417,528 8.77
Granted 3,607,160 33.99
Exercised (2,319,283) 5.54
Canceled (646,525) 12.34
---------- -------
Outstanding, December 31, 2000 15,058,880 $ 15.15
========== =======
Additional information regarding options outstanding as of December 31,
2000 is as follows:
Stock Options Outstanding Options Exercisable
------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (yrs) Price Exercisable Price
---------------- ----------- --------- -------- ----------- --------
$ 0.16 to $ 6.38 3,611,401 5.8 $ 3.58 1,654,225 $ 3.18
$ 6.39 to $ 12.76 5,451,918 7.4 $ 8.71 1,557,400 $ 8.49
$ 12.77 to $ 19.14 2,096,586 8.3 $ 15.58 365,986 $ 15.56
$ 19.15 to $ 25.53 1,058,600 8.8 $ 20.85 208,200 $ 20.86
$ 25.54 to $ 31.91 609,350 9.4 $ 29.93 12,920 $ 31.81
$ 31.92 to $ 38.29 684,400 9.2 $ 34.80 40 $ 33.44
$ 38.30 to $ 44.67 737,500 9.4 $ 42.53 - -
$ 44.68 to $ 51.05 780,625 9.6 $ 48.44 - -
$ 51.06 to $ 57.43 4,500 9.6 $ 56.18 - -
$ 57.44 to $ 63.81 24,000 9.7 $ 61.56 - -
---------- ---------
$ 0.16 to $ 63.81 15,058,880 7.6 $ 15.15 3,798,771 $ 7.62
========== =========
58
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
Employee Stock Purchase Plan
Under the 1994 Employee Stock Purchase Plan, (the "Purchase Plan"),
eligible employees are permitted to have salary withholdings to purchase
shares of common stock at a price equal to 85% of the lower of the market
value of the stock at the beginning or end of each six-month offer period,
subject to an annual limitation. Shares of common stock issued under the
Purchase Plan were 100,389, 101,500, and 146,108, in 2000, 1999, and
1998, respectively, at weighted average prices of $26.47 $14.75 and $6.63,
respectively. At December 31, 2000, there were 1,196,953 shares of common
stock issued under the Purchase Plan and 1,203,047 shares are reserved for
future issuance under the Purchase Plan.
Additional Stock - Based Award Information
As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and its
related interpretations.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income and earnings per share had the Company
adopted the fair value method as of the beginning of fiscal 1995. Under
SFAS 123, the fair value of stock-based awards to employees is calculated
through the use of option pricing models, even though such models were
developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock volatility and expected
time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions: expected life, 60
months; stock volatility, 80.1% in 2000, 70.7% in 1999 and 74.1% in 1998;
risk free interest rates, 5.33% in 2000, 5.46% in 1999, and 5.36% in 1998;
and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach and forfeitures are
recognized as they occur. The weighted average fair value of options
granted under the stock option plans during 2000, 1999, and 1998 was
$27.17, $11.01, and $5.58 per share. If the computed fair values of the
2000, 1999 and 1998 awards under both the Option Plans and the Purchase
Plan had been amortized to expense over the vesting period of the awards,
pro forma net income and net income per share would have been as follows
(in thousands, except per share amounts):
Years Ended December 31,
----------------------------------
2000 1999 1998
-------- -------- --------
Restated(1) Restated(1) Restated(1)
Pro forma net income $ 49,106 $ 20,452 $ 8,026
Pro forma net income per share:
Basic $ 0.55 $ 0.24 $ 0.10
Diluted $ 0.52 $ 0.22 $ 0.09
(1) See Note 2 of Notes to Consolidated Financial Statements regarding the
restatement of financial statements.
59
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
The amounts used above are based on calculated tax effected values for
option awards in 2000, 1999 and 1998 aggregating $44.6 million. The impact
of outstanding stock options granted prior to 1995 has been excluded from
the pro forma calculation; accordingly, the pro forma adjustments are not
indicative of future period pro forma adjustments, when the calculation
will apply to all applicable stock options.
8. INCOME TAXES
The provision for income taxes for the years ended December 31 consists of
the following (in thousands):
2000 1999 1998
-------- -------- --------
Restated(1) Restated(1) Restated(1)
Currently payable:
Federal $ 38,205 $ 19,017 $ 12,818
State 4,509 1,093 1,187
-------- -------- --------
Total currently payable 42,714 20,110 14,005
Deferred income taxes:
Federal (3,209) (453) (3,862)
State (4,401) (3,638) (839)
-------- -------- --------
Total deferred (7,610) (4,091) (4,701)
-------- -------- --------
Total provision $ 35,104 $ 16,019 $ 9,304
======== ======== ========
(1) See Note 2 of Notes to Consolidated Financial Statements regarding the
restatement of financial statements.
A reconciliation of the statutory federal income tax rate to the effective
tax rate for the years ended December 31 is as follows:
2000 1999 1998
-------- -------- --------
Restated(1) Restated(1) Restated(1)
Statutory federal income tax rate 35% 35% 35%
State income taxes (net of federal
income tax benefit) 1 2 1
Federal research and experimentation
tax credits (2) (2) (5)
Export sales tax credit (1) (1) (2)
Non-deductible purchased in-process
technology - - 5
Other (1) (2) 4
---- ---- ----
Effective tax rate 32% 32% 38%
(1) See Note 2 of Notes to Consolidated Financial Statements regarding the
restatement of financial statements.
60
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
Temporary differences that give rise to deferred tax assets and
liabilities at December 31 are as follows (in thousands):
2000 1999
-------- --------
Restated(1) Restated(1)
Deferred tax assets:
Accruals and reserves not currently deductible $ 12,650 $ 6,653
Deferred income 5,901 2,747
Tax net operating loss and credit carryforwards 11,685 10,425
Capitalized research and development 2,296 2,642
-------- --------
Total deferred tax asset 32,532 22,467
-------- --------
Deferred tax liabilities:
Depreciation (5,463) (3,279)
State income taxes (3,082) (1,459)
Intangible assets (1,939) (3,291)
-------- --------
Total deferred tax liability (10,484) (8,029)
-------- --------
Net deferred tax asset $ 22,048 $ 14,438
======== ========
(1) See Note 2 of Notes to Consolidated Financial Statements regarding the
restatement of financial statements.
Due to the Company's acquisition of Synergy, the Company has available
pre-ownership change federal and state net operating loss carryforwards of
approximately $6.0 million and $400,000, respectively, which expire
beginning in 2006 and 2000. These pre-ownership change net operating loss
carryforwards are subject under Section 382 of the Internal Revenue Code
to an annual limitation estimated to be approximately $500,000. Due to the
Company's acquisition of Kendin Communications, the Company has available
pre-ownership change federal and state net operating loss carryforwards of
approximately $2.6 million and $2.6 million, respectively, which expire
beginning in 2012 and 2005. These pre-ownership change net operating loss
carryforwards may be subject under Section 382 of the Internal Revenue
Code to an annual limitation. In addition, the Company has available
federal research and state credit carryforwards of approximately $1.5
million and $7.0 million, respectively. Regarding the state credit
carryforwards, approximately $2.7 million represents pre-ownership change
carryforwards subject to the Section 382 annual limitation.
9. OPERATING LEASES
The Company leases its facilities under operating lease agreements that
expire in 2003, 2005, 2006, and 2011. The lease agreements provide for
escalating rental payments over the lease periods. Rent expense is
recognized on a straight-line basis over the term of the lease. Deferred
rent represents the difference between rental payments and rent expense
recognized on a straight-line basis. Future minimum payments under these
agreements are as follows (in thousands):
61
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
Year Ending December 31,
- ------------------------
2001 $ 4,474
2002 4,565
2003 4,521
2004 4,551
2005 3,483
Thereafter 7,021
--------
$ 28,615
========
Rent expense under operating leases was (in thousands): $3,745, $2,855,
and $1,520 for the years ended December 31, 2000, 1999, and 1998,
respectively.
10. PROFIT-SHARING 401(k) PLAN
The Company has a profit-sharing plan and deferred compensation plan (the
"Plan"). All employees completing one month of service are eligible to
participate in the Plan. Participants may contribute 1% to 15% of their
annual compensation on a before tax basis, subject to Internal Revenue
Service limitations. Profit-sharing contributions by the Company are
determined at the discretion of the Board of Directors. The Company
accrued $1.8 million in 2000, $830,000 in 1999, and $870,000 in 1998.
Participants vest in Company contributions ratably over six years of
service.
11. SIGNIFICANT CUSTOMERS
In 2000 one customer, a distributor, accounted for $32.2 million (9.3%) of
net revenues. In 1999 and 1998, no single customer accounted for ten
percent or more of net revenues
12. LITIGATION
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. To the extent that
the Company becomes involved in such intellectual property litigation, it
could result in substantial costs and diversion of resources to the Company
and could have a material adverse effect on the Company's financial
condition or results of operations.
On July 2, 1999, National Semiconductor Corporation ("National"), a
competitor of the Company, filed a complaint against the Company, entitled
National Semiconductor Corporation v. Micrel Semiconductor, Inc. in the
United States District Court, Northern District of California, in San Jose,
California, alleging that the Company infringes five National Semiconductor
patents. The complaint in the lawsuit seeks unspecified compensatory
damages for infringement, and treble damages as well as permanent
injunctive relief against further infringement of the National patents at
issue. The Company intends to continue defending itself against these
claims. The litigation is currently in the discovery phase. A trial date
has not yet been set by the Court.
62
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
On February 26, 1999, the Lemelson Medical, Education & Research Foundation
(the "Lemelson Partnership") filed a complaint which was served on the
Company on June 15, 1999, entitled Lemelson Medical, Education & Research
Foundation, Limited Partnership v. Lucent Technologies Inc., et al. in the
United States District Court in Phoenix, Arizona, against eighty-eight
defendants, including the Company, alleging infringement of Lemelson
Foundation patents. The complaint in the lawsuit seeks unspecified
compensatory damages, treble damages and attorneys' fees, as well as
injunctive relief against further infringement of the Lemelson patents at
issue. The Company intends to defend itself against these claims. The case
is currently in the discovery phase and no trial date has been set.
On May 9, 1994, Linear Technology Corporation ("Linear" or "LTC"), a
competitor of the Company, filed a complaint against the Company, entitled
Linear Technology Corporation v. Micrel, Incorporated, in the United States
District Court in San Jose, California, alleging patent and copyright
infringement and unfair competition. All claims, except the patent
infringement claim, have been settled or dismissed. In this lawsuit, Linear
claimed that two of the Company's products infringed one of Linear's
patents. The complaint in the lawsuit sought unspecified compensatory
damages, treble damages and attorneys' fees as well as preliminary and
permanent injunctive relief against infringement of the Linear patent at
issue. On August 20, 1999, the United States District Court in San Jose
adjudicated in favor of the Company in this patent infringement suit
brought by the plaintiff. The plaintiff alleged in the suit that the
Company had infringed upon U.S. Patent No. 4,755,741, which covers design
techniques used to increase the efficiency of switching regulators. The
United States District Court in San Jose found the patent to be invalid
under the "on sale bar" defense as the plaintiff had placed integrated
circuits containing the alleged invention on sale more than a year before
filing its patent application. The United States District Court in San Jose
dismissed the plaintiff's complaint on the merits of the case and awarded
the Company its legal costs. A notice of appeal of the Judgment was filed
by Linear on September 17, 1999. Linear filed its appeal brief with the
United States Court of Appeal for the Federal Circuit ("CAFC") in October,
2000. The Company filed its responsive brief with the CAFC in January,
2001.
On June 16, 1999, Paul Boon ("Boon" or "plaintiff"), an ex-employee of the
Company, filed a complaint in the Superior Court of California entitled Paul
Boon v. Micrel Incorporated, dba Micrel Semiconductor, alleging breach of
employment contract, discrimination based upon age, and wrongful termination
in violation of public policy. On October 12, 2000, Boon filed an amended
complaint alleging breach of an implied covenant of good faith and fair
dealing, and breach of written agreement, in addition to the original causes
of action. On February 23, 2001, a jury decided that the Company had breached
an employment contract with plaintiff and awarded plaintiff $1.3 million. On
April 13, 2001, the Company filed a motion for judgement notwithstanding the
verdict or alternatively, a motion for new trial. On May 18, 2001, the Court
granted the Company's motion, issuing an order which vacated and set aside the
judgement in favor of Boon, and ordered a new trial on all issues. A new
trial date was set for July 16, 2001. Prior to the beginning of trial, the
parties settled the matter. On July 27, 2001, the case was dismissed by the
Court.
The Company believes that the ultimate outcome of the legal actions
discussed above will not result in a material adverse effect on the
Company's financial condition, results of operation or cash flows. However,
litigation is subject to inherent uncertainties, and no assurance can be
given that the Company will prevail in these lawsuits. Accordingly, the
pending lawsuits as well as potential future litigation with other
companies, could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
63
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
Certain additional claims and lawsuits have arisen against the Company in
its normal course of business. The Company believes that these claims and
lawsuits will not have a material adverse effect on the Company's financial
condition, results of operation or cash flows.
In the event of an adverse ruling in any intellectual property litigation
that now exists or might arise in the future, the Company might be required
to discontinue the use of certain processes, cease the manufacture, use and
sale of infringing products, expend significant resources to develop non-
infringing technology or obtain licenses to the infringing technology.
There can be no assurance, however, that under such circumstances, a
license would be available under reasonable terms or at all. In the event
of a successful claim against the Company and the Company's failure to
develop or license substitute technology on commercially reasonable terms,
the Company's financial condition, results of operations, or cash flows
could be adversely affected.
13. SEGMENT REPORTING
SFAS No.131 requires disclosures regarding products and services,
geographic areas, and major customers. The Company operates in two
reportable segments: standard products and custom and foundry products.
For the year ended December 31, 2000, the Company recorded revenue from
customers throughout the United States; France, the U.K., Finland,
Germany, Italy, Switzerland, Israel, Spain, Ireland, Sweden, and The
Netherlands (collectively referred to as "Europe"); Korea; Japan; Taiwan;
Singapore, Hong Kong, China, and Malaysia (collectively referred to as
"Other Asian Countries"); and Canada.
Net Revenues by Segment
(Dollars in thousands)
Years Ended December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Standard Products $ 275,306 $ 155,979 $ 104,329
Custom and Foundry Products 71,029 44,037 40,606
---------- ---------- ----------
Total net revenues $ 346,335 $ 200,016 $ 144,935
========== ========== ==========
Geographic Information (in thousands):
2000 1999 1998
------------------ ------------------ --------
Long- Long-
Total Lived Total Lived Total
Revenues Assets Revenues Assets Revenues*
-------- -------- -------- -------- --------
United States of America $155,542 $110,789 $ 81,948 $ 70,904 $ 76,777
Korea 30,305 34 30,037 13 15,441
Japan 20,659 83 15,557 - 15,127
Taiwan 45,109 30 20,640 19 14,407
Other Asian Countries 15,551 6,100 8,296 5,295 7,286
Europe 34,263 1,242 21,364 46 15,550
Canada 44,906 - 22,174 - 347
-------- -------- -------- -------- --------
Total $346,335 $118,278 $200,016 $ 76,277 $144,935
======== ======== ======== ======== ========
* Total revenues are attributed to countries based on "ship to" location
of customer.
64
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
14. QUARTERLY RESULTS - UNAUDITED
(in thousands, except per share amounts)
As Previously Reported
Three Months Ended
-----------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
2000 2000 2000 2000
-------- -------- -------- --------
Net revenues $ 67,313 $ 75,845 $ 86,549 $ 92,768
Gross profit $ 38,168 $ 43,857 $ 51,676 $ 55,645
Net income $ 14,234 $ 17,649 $ 21,959 $ 23,829
Net income per share:
Basic $ 0.17 $ 0.21 $ 0.26 $ 0.28
Diluted $ 0.15 $ 0.19 $ 0.23 $ 0.25
Shares used in computing
per share amounts:
Basic 83,206 83,953 84,564 85,211
Diluted 94,264 94,281 95,779 94,422
(in thousands, except per share amounts)
As Restated, See Note 2
Three Months Ended
-----------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
2000 2000 2000 2000
-------- -------- -------- --------
Net revenues $ 67,313 $ 75,845 $ 86,549 $ 92,768
Gross profit $ 37,648 $ 43,297 $ 50,811 $ 54,828
Net income $ 13,071 $ 16,442 $ 20,038 $ 22,152
Net income per share:
Basic $ 0.16 $ 0.20 $ 0.24 $ 0.26
Diluted $ 0.14 $ 0.18 $ 0.21 $ 0.24
Shares used in computing per
share amounts:
Basic 83,206 83,953 84,564 85,211
Diluted 92,710 92,389 93,890 93,073
(in thousands, except per share amounts)
As Restated After Pooling, See Note 2
Three Months Ended
-----------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
2000 2000 2000 2000
-------- -------- -------- --------
Net revenues $ 69,018 $ 80,239 $ 94,682 $102,396
Gross profit $ 38,300 $ 45,240 $ 54,696 $ 59,016
Net income $ 12,310 $ 16,664 $ 21,251 $ 23,082
Net income per share:
Basic $ 0.14 $ 0.19 $ 0.24 $ 0.26
Diluted $ 0.13 $ 0.17 $ 0.21 $ 0.23
Shares used in computing per
share amounts:
Basic 87,788 88,888 89,811 90,479
Diluted 97,292 97,501 99,394 98,690
65
MICREL, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31, 2000, 1999 and 1998
As Previously Reported
Three Months Ended
Mar. 31, June 30, Sep. 30, Dec. 31,
1999 1999 1999 1999
-------- -------- -------- --------
Net revenues $ 40,571 $ 44,178 $ 50,091 $ 60,282
Gross profit $ 22,626 $ 24,739 $ 28,128 $ 34,000
Net income $ 7,359 $ 8,139 $ 9,368 $ 11,793 (1)
Net income per share:
Basic $ 0.09 $ 0.10 $ 0.11 $ 0.14 (1)
Diluted $ 0.08 $ 0.09 $ 0.10 $ 0.13 (1)
Shares used in computing
per share amounts:
Basic 80,580 81,352 82,128 82,576
Diluted 87,660 88,904 90,704 91,898As
Note (1): Consolidated financial results for the fourth quarter ended
December 31, 1999 reflect a charge of $603,000 related to purchased in-
process technology associated with the acquisition of Altos Semiconductor.
As Restated, See Note 2
Three Months Ended
Mar. 31, June 30, Sep. 30, Dec. 31,
1999 1999 1999 1999
-------- -------- -------- --------
Net revenues $ 40,571 $ 44,178 $ 50,091 $ 60,282
Gross profit $ 22,442 $ 24,528 $ 27,843 $ 33,531
Net income $ 7,021 $ 7,735 $ 8,827 $ 11,053 (1)
Net income per share:
Basic $ 0.09 $ 0.10 $ 0.11 $ 0.13 (1)
Diluted $ 0.08 $ 0.09 $ 0.10 $ 0.12 (1)
Shares used in computing per
share amounts:
Basic 80,580 81,352 82,128 82,576
Diluted 86,630 87,802 89,591 90,649
Note (1): Consolidated financial results for the fourth quarter ended
December 31, 1999 reflect a charge of $603,000 related to purchased in-
process technology associated with the acquisition of Altos Semiconductor.
As Restated After Pooling, See Note 2
Three Months Ended
Mar. 31, June 30, Sep. 30, Dec. 31,
1999 1999 1999 1999
-------- -------- -------- --------
Net revenues $ 41,667 $ 45,298 $ 51,377 $ 61,674
Gross profit $ 22,860 $ 25,069 $ 28,419 $ 34,096
Net income $ 6,739 $ 7,553 $ 8,552 $ 10,599 (1)
Net income per share:
Basic $ 0.08 $ 0.09 $ 0.10 $ 0.12 (1)
Diluted $ 0.07 $ 0.08 $ 0.09 $ 0.11 (1)
Shares used in computing per
share amounts:
Basic 84,632 85,406 86,194 86,817
Diluted 90,682 91,856 93,657 94,890
Note (1): Consolidated financial results for the fourth quarter ended
December 31, 1999 reflect a charge of $603,000 related to purchased in-
process technology associated with the acquisition of Altos Semiconductor.
66
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Micrel, Incorporated:
We have audited the consolidated financial statements of Micrel, Incorporated
and its subsidiaries as of December 31, 2000 and 1999, and for each of the
three years in the period ended December 31, 2000, and have issued our report
thereon dated January 23, 2001 (July 27, 2001 as to the fifth paragraph of
Note 12, September 27, 2001 as to the first three paragraphs of Note 3 and
January 28, 2002 as to Note 2), which report expresses an unqualified opinion
and includes explanatory paragraphs relating to the merger of Micrel,
Incorporated and Kendin Communications Inc. described in Note 3 and the
restatement described in Note 2. Our audits also included the financial
statement schedule of Micrel, Incorporated, listed in Item 14 (a) (2). This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
January 23, 2001(July 27, 2001 as to the fifth paragraph of Note 12, September
27, 2001 as to the first three paragraphs of Note 3 and January 28, 2002 as to
effects of the restatement discussed in Note 2)
67
SCHEDULE II
MICREL, INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2000, 1999, and 1998
(Amounts in thousands)
Balance at Additions
Beginning and Charges Bad Debt Balance at
Description of Year to Expenses Write-offs End of Year
- ---------------------------- ---------- ----------- ---------- -----------
Year Ended December 31, 2000
- ----------------------------
Accounts receivable allowance $ 2,747 $ 1,803 $( 33) $ 4,517
Year Ended December 31, 1999
- ----------------------------
Accounts receivable allowance $ 1,613 $ 1,141 $( 7) $ 2,747
Year Ended December 31, 1998
- ----------------------------
Accounts receivable allowance $ 2,015 $ - $( 402) $ 1,613
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in San Jose,
California on the 1st day of April, 2002.
MICREL, INCORPORATED
By /S/ RAYMOND D. ZINN
----------------------------------
Raymond D. Zinn
President and Chief Executive Officer
69
Micrel, Incorporated
Exhibits Pursuant to Item 601 of Regulation S-K
Exhibit
Number Description
- ------- -----------
2.1 Merger Agreement dated October 21, 1998, by and between Micrel,
Incorporated, MISYN Acquisition Corp. and Synergy Semiconductor
Corporation. (1)
2.2 Letter agreement dated November 9, 1998, between Micrel,
Incorporated, MISYN Acquisition Corp. and Synergy Semiconductor
Corporation. (1)
2.3 Escrow Agreement dated November 9, 1998, between Micrel,
Incorporated, John F. Stockton, as representative of the former
Synergy shareholders, and Bank of the West. (1)
2.4 Agreement and Plan of Merger and Reorganization among Micrel,
Incorporated, Electronic Technology Corporation and ETC Acquisition
Sub, Inc., dated as of April 4, 2000 (10)
3.1 Amended and Restated Articles of Incorporation of the Registrant.
(2)
3.2 Certificate of Amendment of Articles of Incorporation of the
Registrant. (3)
3.3 Amended and Restated Bylaws of the Registrant. (3)
3.4 Certificate of Amendment of Articles of Incorporation of the
Registrant. (9)
4.1 Certificate for Shares of Registrant's Common Stock. (4)
10.1 Indemnification Agreement between the Registrant and each of its
officers and directors. (3)
10.2 1989 Stock Option Plan and form of Stock Option Agreement. (2) *
10.3 1994 Stock Option Plan and form of Stock Option Agreement. (2) *
10.4 1994 Stock Purchase Plan. (4)
10.6 Lease Agreement dated June 24, 1992 between the Registrant and GOCO
Realty Fund I, as amended August 6, 1992 and February 5, 1993. (2)
10.8 Form of Domestic Distribution Agreement. (3)
10.9 Form of International Distributor Agreement. (3)
10.10 Second Amendment dated February 20, 1995 between the Registrant and
TR Brell Cal Corporation to Lease Agreement dated June 24, 1992
between the Registrant and GOCO Realty Fund I, as amended August 6,
1992 and February 5, 1993. (4)
10.11 Amended and Restated 1994 Employee Stock Purchase Plan, as amended
January 1, 1996. (5)
10.12 Commercial Lease between Harris Corporation and Synergy
Semiconductor Corporation dated February 29, 1996. (6)
10.13 Standard Industrial/Commercial Single-Tenant Lease Agreement Dated
March 3, 2000 between the Registrant and Rose Ventures II (7)
10.14 Loan and Security Agreement Dated March 8, 2000 between the
Registrant and Bank of the West (8)
23.1 Independent Auditors' Consent.
24.1 Power of Attorney (11)
* Management contract or compensatory plan or agreement.
(1) Incorporated herein by reference to the Company's Current Report
on Form 8-K dated November 9, 1998 filed with the Commission
on November 23, 1998 in which this exhibit bears the same
number, unless otherwise indicated.
(2) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 ("Registration Statement"), File No. 33-85694,
in which this exhibit bears the same number, unless otherwise
indicated.
(3) Incorporated by reference to Amendment No. 1 to the Registration
Statement, in which this exhibit bears the same number, unless
otherwise indicated.
(4) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, in which this exhibit
bears the same number, unless otherwise indicated.
(5) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, in which this exhibit
bears the number 10.14.
(6) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, in which this
exhibit bears the number 10.14.
(7) Incorporated by reference to exhibit 10.1 filed with the
Company's quarterly report on Form 10-Q for the period ended
March 31, 2000.
(8) Incorporated by reference to exhibit 10.2 filed with the
Company's quarterly report on Form 10-Q for the period ended
March 31, 2000.
(9) Incorporated by reference to exhibit 3.1 filed with the
Company's quarterly report on Form 10-Q for the period ended
September 30, 2000.
(10) Incorporated by reference to exhibit 10.1 filed with the
Company's registration statement on Form S-3 filed with the
S.E.C. on May 25, 2000.
(11) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, in which this
exhibit bears the same number unless otherwise noted.
INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1
We consent to the incorporation by reference in Registration Statement No.
333-70876, 333-63620 and 333-37808 of Micrel, Incorporated on Form S-3 and in
Registration Statements Nos. 333-63618, 33-87222, 33-90396, 333-10167,
333-89223, 333-52136 and 333-37832 of Micrel, Incorporated on Form S-8 of our
reports dated January 23, 2001 (July 27, 2001 as to the fifth paragraph of
Note 12, September 27, 2001 as to the first three paragraphs of Note 3 and
January 28, 2002 as to Note 2) (which report on the consolidated financial
statements expresses an unqualified opinion and includes explanatory
paragraphs relating to the merger of Micrel, Incorporated and Kendin
Communications Inc. described in Note 3 and the restatement described in Note
2), appearing in this Annual Report on Form 10-K/A of Micrel, Incorporated for
the year ended December 31, 2000.
DELOITTE & TOUCHE LLP
San Jose, California
March 29, 2002