UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
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(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities -----
Exchange Act of 1934 For the quarterly period ended June 30, 1996
OR
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-28272
SAWTEK INC.
(Exact name of registrant as specified in its charter)
Florida 59-1864440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1818 South Highway 441
Apopka, Florida 32703
(Address of principal executive offices)
Telephone Number (407) 886-8860
(Registrant's telephone number, including area code)
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 ____ No X (1)
------
As of July 22, 1996, there were 19,854,092 shares of the Registrant's
Common Stock outstanding, par value $.0005.
(1) We have filed all required reports but have not been subject to such filing
requirements for the past 90 days since the Company's registration statement for
its initial public offering became effective on April 29, 1996.
<PAGE>
Sawtek Inc.
TABLE OF CONTENTS
Part I. Financial Information Page Number
- ----------------------------- -----------
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 1996
and September 30, 1995......................................... 3
Consolidated Statements of Income (Loss) for the
three-month and the nine-month periods ended
June 30, 1996 and 1995 .......................................... 4
Consolidated Statements of Cash Flows for the
nine-month periods ended June 30, 1996 and 1995 ................. 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 9
Part II. Other Information
- --------------------------
Item 1. Legal Proceedings ........................................15
Item 2. Changes in Securities ....................................15
Item 3. Defaults Upon Senior Securities ..........................15
Item 4. Submission of Matters to a Vote of Security Holders ......15
Item 5. Exhibits and Reports on Form 8-K .........................15
Signatures .............................................................16
Exhibit Index ..........................................................17
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (unaudited)
SAWTEK INC.
CONSOLIDATED BALANCE SHEETS
Assets
September 30, June 30,
------------- --------
1995 1996
---- ----
unaudited)
(dollars in thousands, except per share data)
Current assets:
Cash and cash equivalents $ 2,819 $25,477
Accounts receivable net of allowance for doubtful
accounts and returns of $277 at September 30, 1995
and $467 at June 30, 1996 5,253 5,628
Inventories 3,242 6,810
Deferred income taxes 460 562
Other current assets 129 392
------ ------
Total current assets 11,903 38,869
Other assets 273 208
Deferred income taxes 210
Property, plant and equipment, net 10,738 28,561
------ ------
Total assets $23,124 $67,638
====== ======
Liabilities and non-redeemable shareholders' equity
Current liabilities:
Accounts payable $ 778 $ 1,986
Accrued liabilities 2,768 3,813
Current maturities of long-term debt 543 959
Income taxes payable 714 15
------- ------
Total current liabilities 4,803 6,773
Long-term debt, less current maturities 6,805 4,325
Deferred income taxes 283
Redeemable ESOP common stock 35,144
Unearned ESOP compensation (3,023)
------
Total redeemable ESOP common stock 32,121
Non-redeemable shareholders' equity:
6% cumulative preferred stock, $2 stated value;
150,000 shares authorized, issued and outstanding 300
Common stock; $.0005 par value; 40,000,000 authorized
shares; issued and outstanding shares 5,245,000 at
September 30, 1995 and 19,854,092 at June 30, 1996 3 10
Capital surplus 1,885 51,550
Unearned ESOP compensation (1,367)
Retained earnings (deficit) (22,793) 6,064
------ -------
Total non-redeemable shareholders' equity (20,605) 56,257
------ ------
Total liabilities and non-redeemable shareholders'
equity $23,124 $67,638
====== ======
See accompanying notes to consolidated financial statements.
<PAGE>
SAWTEK INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) - unaudited
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, June 30,
-------- --------
1995 1996 1995 1996
---- ---- ---- ----
(in thousands, except per share data)
Net sales $ 7,698 $14,926 $19,767 $39,664
Cost of sales 3,014 6,986 8,155 18,590
------- ------- ------- -------
Gross profit 4,684 7,940 11,612 21,074
Operating expenses:
Selling expenses 823 1,174 2,287 2,746
General & administrative expenses 551 1,509 1,603 4,157
ESOP compensation expense 196 1,846 588 12,925
Research & development expenses 559 467 1,260 1,371
------- ------- ------- -------
Total operating expenses 2,129 4,996 5,738 21,199
------- ------- ------- -------
Operating income (loss) 2,555 2,944 5,874 (125)
Interest expense 145 114 327 339
Other income (90) (240) (169) (260)
------- ------- ------- -------
Income (loss) before taxes 2,500 3,070 5,716 (204)
Income taxes 975 1,699 2,230 4,054
------- ------- ------- -------
Net income (loss) $ 1,525 $ 1,371 $ 3,486 ($ 4,258)
======= ======= ======= =======
Net income (loss) per share $ 0.10 $ 0.07 $ 0.21 ($ 0.23)
======= ======= ======= =======
Shares used in computing net income
(loss) per share 16,034 20,286 16,373 18,566
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
SAWTEK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended
-----------------
June 30,
--------
1995 1996
---- ----
(in thousands)
Operating activities:
Net income (loss) $ 3,486 ($4,258)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 536 1,352
Deferred income taxes 471 390
ESOP allocation 588 12,925
Changes in operating assets and liabilities:
Increase in assets:
Accounts receivable (1,028) (375)
Inventories (1,406) (3,568)
Other current assets (141) (263)
Increase in liabilities:
Accounts payable 559 1,208
Accrued liabilities 898 1,045
Income taxes payable 364 31
----- -------
Net cash provided by operating activities 4,327 8,487
Investing activities:
Purchase of property, plant and equipment (2,939) (21,716)
Increase in Industrial Revenue Bond assets (3,474)
Reduction in Industrial Revenue Bond assets 2,606
Industrial Revenue Bond acquisition costs (87)
------- --------
Net cash used in investing activities (6,500) (19,110)
Financing activities:
Proceeds from long-term debt 3,500 8,200
Principal payments on long-term debt (1,077) (10,263)
Net proceeds from sale of common stock in the initial
public offering 35,254
Net proceeds from sale of common stock other than in
the initial public offering 52 338
Purchase of common stock (470) (121)
Redemption of preferred stock (100)
Preferred stock dividends paid (18) (27)
------- --------
Net cash provided by financing activities 1,987 33,281
------- --------
Increase (decrease) in cash and cash equivalents (186) 22,658
Cash and cash equivalents at beginning of period 2,675 2,819
------- --------
Cash and cash equivalents at end of period $ 2,489 $25,477
====== =======
Interest paid $ 317 $ 404
====== =======
Income taxes paid $ 1,658 $ 3,634
====== =======
See accompanying notes to consolidated financial statements.
<PAGE>
SAWTEK INC.
Notes to Consolidated Financial Statements - June 30, 1996 (unaudited)
1. Basis of Presentation
- -------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information in response to the requirements of Article 10 of
Regulation S-X. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation of
the Company's financial condition as of June 30, 1996, and the results of its
operations, and its cash flows for the three and nine month periods ended June
30, 1996 and 1995. These financial statements should be read in conjunction with
the Company's audited financial statements as of September 30, 1995, including
the notes thereto, and the other information set forth therein included in the
Company's Registration Statement on Form S-1 (File No. 333-1860), which was
filed with the Securities and Exchange Commission (the "SEC") on April 29, 1996.
The following discussion may contain forward looking statements which are
subject to the risk factors set forth in "Risks and Uncertainties" in Item 2 of
this Form 10-Q.
Operating results for the three and nine month periods ended June 30, 1996 are
not necessarily indicative of the operating results that may be expected for the
year ending September 30, 1996.
2. Earnings (loss) Per Share
- -----------------------------
Earnings (loss) per share ("EPS") is computed based on the weighted average
number of common shares, common stock options (using the treasury stock method)
and all ESOP shares outstanding. In accordance with Securities and Exchange
Commission staff accounting bulletins, common and common equivalent shares
issued by the Company at prices below the public offering price during the
period beginning one year prior to the filing date of the initial public
offering on April 29, 1996, have been included in the calculation as if they
were outstanding for all periods prior to the offering (using the treasury stock
method and the initial public offering price).
3. Accounting Change
- --------------------
Effective October 1, 1994, the Company adopted, as required, Statement of
Position 93-6 of the Accounting Standards division of the American Institute of
Certified Public Accountants in accounting for ESOP shares acquired after
December 31, 1992. This change requires that compensation expense be measured
using the fair market value rather than the cost of the shares when the shares
are committed to be released to the employees. The Company elected to continue
accounting for ESOP shares acquired prior to January 1, 1993, in accordance with
Statement of Position 76-3. Since no shares accounted for under SOP 93-6 were
committed to be released during fiscal 1995, there was no effect on net income
for the year for this accounting change. The effect of the adoption was to
reduce net income by $11.3 million ($0.61 per share) for the nine months ended
June 30, 1996 and by $1.6 million ($0.08 per share) for the three months ended
June 30, 1996.
4. Stock-Based Compensation
- ----------------------------
The Company accounts for compensation cost related to employee stock options and
other forms of employee stock-based compensation plans other than ESOP in
accordance with the requirements of Accounting Principles Board Opinion 25 ("APB
25"). APB 25 requires compensation cost for stock-based compensation plans to be
recognized based on the difference, if any, between the fair market value of the
stock on the date of grant and the option exercise price. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS
123 established a fair value-based method of accounting for compensation cost
related to stock options and other forms of stock-based compensation plans.
However, SFAS 123 allows an entity to continue to measure compensation costs
using the principles of APB 25 if certain pro forma disclosures are made. SFAS
123 is effective for fiscal years beginning after December 15, 1995. The Company
intends to adopt the provisions for pro forma disclosure requirements of SFAS
123 in fiscal 1997. The adoption of SFAS 123 on a pro forma basis will not have
a material impact in the financial condition or the operating results of the
Company.
<PAGE>
5. Inventories
- ---------------
Inventories are composed of the following:
September 30, 1995 June 30, 1996
------------------ -------------
(in thousands)
Raw Material.............................. $ 1,454 $ 2,598
Work in Process........................... 1,359 2,268
Finished Goods............................ 429 1,944
------ ------
Total............................ $ 3,242 $ 6,810
====== ======
6. Property, Plant and Equipment
- ---------------------------------
Property, plant and equipment are composed of the following:
September 30, 1995 June 30, 1996
------------------ -------------
(in thousands)
Land and Improvements.................... $ 523 $ 737
Buildings................................ 1,959 5,714
Production and Test Equipment............ 9,291 19,612
Computer Equipment....................... 2,140 2,671
Furniture and Fixtures................... 877 1,499
Construction in Progress................. 1,879 8,135
------ ------
16,669 38,368
Less Accumulated Depreciation............ 8,537 9,807
------ ------
8,132 28,561
Unexpended Funds from Industrial Revenue
Bond.................................... 2,606
------ ------
Total................................ $10,738 $28,561
====== ======
<PAGE>
7. Shareholders' Equity
- ------------------------
The consolidated changes in non-redeemable shareholders' equity for the nine
months ended June 30, 1996 are as follows:
(in thousands)
6% Cumulative
Preferred Common
Stock Stock Unearned Retained
------------- -------------- Capital ESOP Earnings
Shares Amount Shares Amount Surplus Compensation (Deficit)
------ ------ ------ ------ ------- ------------ ---------
Balance at
October 1, 1995 150 $ 300 5,245 $ 3 $ 1,885 $ $(22,793)
Net loss (4,258)
Reclassification
of redeemable
ESOP common stock
in connection with
initial public
offering 9,843 5 1,851 (3,023) 33,287
ESOP allocation 11,269 1,656
Sale of common stock
other than in the
initial public
offering 1,809 375
Sale of common stock
in the initial public
offering 3,000 2 35,252
Purchase of common
stock (54) (12) (145)
Compensatory stock
option tax benefit 730
Preferred stock
dividends (27)
Redemption of
preferred stock (150) (300) 11 200
--- --- ------ --- ------ ------- -----
Balance at June
30, 1996 - $- 19,854 $10 $51,550 $ (1,367) $6,064
=== === ====== === ====== ======== ======
<PAGE>
At September 30, 1995 there were 150,000 shares of 6% preferred stock
outstanding. The Company redeemed these shares in March 1996. The Company is
authorized to issue up to 1,000,000 shares of preferred stock. The Board of
Directors has authority to issue the preferred stock in one or more series and
to fix the number of shares constituting any such series, and the voting powers,
designations, preferences, and relative participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including the
dividend rights, dividend rate, terms of redemption, redemption prices,
conversion and voting rights, and liquidation preferences, without further vote
or action by the holders of common stock.
Item 2. Management's discussion and analysis of financial condition and
results of operations
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
in this Form 10Q. Except for the historical information contained herein, the
discussion in this Form 10Q contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made should
be read as being applicable to all related forward-looking statements wherever
they appear. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed in "Risks and Uncertainties," as well as those discussed
elsewhere herein.
Overview
- --------
The Company was incorporated in 1979 to design, develop, manufacture and market
a broad range of electronic components based on surface acoustic wave ("SAW")
technology and used in telecommunications, data communications, video
transmission, military and space systems and other markets. The Company's focus
has been on the high-end performance spectrum of the market, and its primary
products are SAW bandpass filters, resonators, delay lines, oscillators and
SAW-based subsystems. The Company's products were initially concentrated in the
military and space systems market, with approximately 61% of net sales in fiscal
1991 attributable to this market segment. Since then, the Company has shifted
its attention to commercial markets, which accounted for 87% of its net sales in
the first nine months of fiscal 1996. The Company has also witnessed significant
growth in its international markets over the last five years. While
international sales represented approximately 20% of net sales in fiscal 1991,
they represented approximately 58% of net sales in the first nine months of
fiscal 1996.
The Company derives revenue from high-volume commercial production components,
military/industrial production components and engineering services and products.
Non-recurring engineering ("NRE") revenue is included in engineering services
and products and relates to the design and development of a custom device and
delivery of one or more prototype parts. In all cases, revenue is recognized
when the parts or services have been completed and units, including prototypes,
have been shipped.
Net sales increased 101% from the first nine months of fiscal 1995 to the first
nine months of fiscal 1996. The growth in net sales is mainly attributable to
growth in the wireless communications market to which the Company supplies SAW
bandpass filters for cellular telephone basestations and, to a lesser extent,
for handheld subscriber telephones. The Company has a broad product line of SAW
filters and other components with average selling prices generally in the range
of $5 to $300 for many high performance wireless applications. Gross profit has
also grown over the past as a result of higher sales. The Company is committed
to substantially increasing its ability to service the wireless communications
market and is presently undergoing an expansion of its Orlando, Florida facility
and has recently opened a leased production facility in San Jose, Costa Rica.
The manufacturing building expansion in Orlando is complete and equipment is
being installed with production in the new facility anticipated to begin in the
quarter ended September 30, 1996. On June 28, 1996, the Company purchased a
31,690 square foot facility in San Jose, Costa Rica for approximately $1.3
million which will be used to increase the Company's production capabilities in
Costa Rica.
For the nine months ended June 30, 1996, net sales to the Company's top ten
customers accounted for approximately 73% of total net sales with the top three
customers accounting for 51%. The Company expects that sales of its products to
a limited number of customers will account for a high percentage of its net
sales in the foreseeable future.
During the quarter ended June 30, 1996, the Company recorded its first
significant order for SAW filters for CDMA (Code Division Multiple Access)
handsets to be used in Personal Communication System (PCS) applications. At the
same time, the Company is experiencing some order push-outs in GSM (Global
System for Mobile Communication) basestation filters due to inventory build-ups
by certain of its European customers. The extent to which these factors may have
a positive or negative impact on future operations is not determinable at this
time.
In fiscal 1991, the Company established an Employee Stock Ownership Plan
("ESOP"). At that time, the Company borrowed $4.0 million from its commercial
bank and loaned it to the ESOP to finance the purchase of 8,888,880 shares of
the Company's common stock. The balance of the loan, which was approximately
$1.4 million as of June 30, 1996, matures in 1998 and is payable in quarterly
installments beginning in December 1996. These ESOP shares are accounted for in
accordance with the American Institute of Certified Public Accountants (AICPA)
SOP 76-3, which uses cost as the basis for valuing shares as they are released
and allocated to participants' accounts. In fiscal 1994, the company borrowed an
additional $1.7 million and loaned it to the ESOP to enable it to purchase 1.6
million shares of common stock. In fiscal 1996, the Company repaid the 1994 loan
and allocated all of the related shares to participants' accounts for services
rendered. These shares are accounted for in accordance with the AICPA's SOP
93-6, which uses market value as the basis of valuing shares. The impact of this
one-time action was a charge to ESOP compensation expense of $12.9 million and a
reduction of $12.3 million in net income (amounting to $.66 per share),
reflected in the financial results for the nine months ended June 30, 1996. The
Company recorded a charge for ESOP compensation expense of approximately $1.8
million (amounting to $.09 per share) in the third fiscal quarter ending June
30, 1996, for that portion of the expense related to employees' service
rendered in the third quarter. Beginning with the December 1996 quarter and
continuing for six more quarters, the Company will record an ESOP compensation
expense of approximately $195,000 per quarter which represents the remaining
payments on the original loan, which is accounted for on the cost basis for
valuing shares.
Management does not believe that inflation has had a material impact on
operating costs and earnings of the Company.
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statement of operations to
total net sales:
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, June 30,
------------------ -----------------
1995 1996 1995 1996
------------------ -----------------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 39.2 46.8 41.3 46.9
----- ----- ----- -----
Gross profit 60.8 53.2 58.7 53.1
Operating expenses:
Selling expenses 10.7 7.9 11.6 6.9
General & administrative expenses 7.2 10.1 8.1 10.5
ESOP compensation expense 2.5 12.4 3.0 32.6
Research & development expenses 7.3 3.1 6.3 3.5
----- ----- ----- -----
Total operating expenses 27.7 33.5 29.0 53.5
----- ----- ----- -----
Operating income (loss) 33.1 19.7 29.7 ( .4)
Interest expense 1.9 .7 1.7 .8
Other income (1.3) (1.6) (0.9) ( .7)
----- ----- ----- -----
Income (loss) before income taxes 32.5 20.6 28.9 ( .5)
Income taxes 12.7 11.4 11.3 10.2
----- ----- ----- -----
Net income (loss) 19.8% 9.2% 17.6% ( 10.7%)
===== ===== ===== =====
Comparison of Three and Nine Month Periods Ended June 30, 1995 and 1996
- -----------------------------------------------------------------------
Net Sales. Net sales increased 94% from $7.7 million in the quarter ended June
30, 1995 to $14.9 million in the quarter ended June 30, 1996 and increased 101%
from $19.8 million in the nine months ended June 30, 1995 to $39.7 million in
the nine months ended June 30, 1996. The increase for both the three and nine
month periods was a result of increased product shipments to the wireless
communication market, specifically sales of high volume filters for basestation
applications for the telecommunication industry. Sales of high volume commercial
production components were up over 112% and 223% for the three and nine month
periods ended June 30, 1996 compared to the same periods in 1995. International
sales increased from approximately 52% and 51% of net sales in the three and
nine month periods ended June 30, 1995 to 65% and 58% of net sales for the three
and nine month periods ended June 30, 1996, respectively. Sales for military and
space systems of approximately 13% and 18% of net sales in the three and nine
month periods ended June 30, 1995 compare to approximately 13% and 12% of net
sales for the three and nine month periods ended June 30, 1996, respectively.
The percentage change in military and space systems was due to the increase in
overall net sales, however, the actual dollar volume of these sales actually
increased in both the three and nine month periods ended June 30, 1996 compared
to the same periods ended June 30, 1995.
Gross Margin. Gross margin declined from 60.8% and 58.7% in the three and nine
month periods ended June 30, 1995 to 53.2% and 53.1% in the three and nine month
periods ended June 30, 1996 primarily due to a shift in the product mix to high
volume production components, which typically have lower unit prices and
somewhat lower gross margins. Throughout the first nine months of fiscal 1996,
the Company added additional equipment and increased indirect labor, supplies,
depreciation and other fixed overhead expenses in anticipation of higher sales
volume. This additional fixed overhead cost was not fully absorbed by the sales
level in the first nine months of fiscal 1996, which further reduced gross
margins.
Selling Expenses. Selling expenses increased in the third fiscal quarter and the
first nine months of fiscal 1996 compared to the same periods in fiscal 1995,
but decreased as a percentage of net sales from the corresponding periods. The
decrease as a percentage of net sales was a result of the Company's expanding
net sales with substantially the same level of sales and marketing personnel in
fiscal 1996 as in fiscal 1995. As a result, most of the selling expenses
remained relatively constant with commission expenses paid to outside sales
representatives as the only component that increased significantly with the
higher sales level. The Company anticipates that selling expenses will continue
to increase as new employees are added to support its sales and marketing effort
in fiscal 1996 and as commissions are incurred.
General and Administrative Expenses. General and administrative expenses
increased from $551,000 for the quarter ended June 30, 1995 to $1.5 million for
the quarter ended June 30, 1996. These expenses also increased from $1.6 million
for the nine months ended June 30, 1995 to $4.2 million for the nine months
ended June 30, 1996. These expenses increased due to start-up costs for the
new Costa Rica operations and executive bonuses granted in 1996.
ESOP Compensation Expense. ESOP compensation expense increased from $588,000 in
the first nine months of fiscal 1995 to $12.9 million in the first nine months
of fiscal 1996. This increase of $12.3 million is a result of the Company
committing to release and allocating all ESOP shares acquired in 1994 to
employees' accounts for services rendered in the first seven months of fiscal
1996. For the quarter ended June 30, 1996, the Company recorded a charge of $1.8
million for ESOP compensation compared to $195,000 for the same period in 1995.
These shares are accounted for in accordance with SOP 93-6 which uses market
value as the basis of valuing shares as they are allocated. The shares were
acquired at a cost of $1.03 per share compared to an average market value of
$8.03 for the first seven months of fiscal 1996. The charge for ESOP shares
allocated in fiscal 1995 is based on SOP 76-3 which uses the cost of the shares.
All remaining ESOP shares are accounted for in accordance with SOP 76-3. The
Company will incur ESOP compensation expense of approximately $780,000 in fiscal
year 1997 and approximately $585,000 in fiscal year 1998.
Research and Development Expenses. Research and development expenses decreased
$92,000 in the quarter ended June 30, 1996 compared to the quarter ended June
30, 1995 due to receipt of $172,000 for grant funding under the Federal
Technology Reinvestment Program ("TRP") relating to work in the chemical sensor
area. R&D increased 8.8% from $1.3 million in the nine months ended June 30,
1995, to $1.4 million in the first nine months of fiscal 1996, but decreased as
a percentage of net sales from 6.3% to 3.5% for the same periods. These expenses
increased due to additional personnel and expanded research and development
efforts, but increased at a slower rate than the sales increase. The Company
anticipates that research and development expenses will continue to increase in
total dollars as personnel and programs are added. A significant portion of the
Company's development activities is conducted in connection with the design and
development of custom devices, which is paid for by customers and classified as
NRE items. The revenue generated from these items is included in net sales and
the cost is reflected in cost of sales rather than in research and development
expenses.
Interest Expense. Interest expense increased from $327,000 in the first nine
months of fiscal 1995 to $339,000 in the first nine months of fiscal 1996, due
to additional debt associated with the Industrial Revenue Bond financing
acquired for the expansion of the Company's primary manufacturing plant and due
to credit line borrowings to fund the Company's capital expansion program for
its Florida and Costa Rica facilities. The credit line borrowings were repaid
with a portion of the proceeds from the IPO in May 1996.
Other Income. Other income primarily represents interest income and
non-operating expenses. Other income increased due to interest earned on the
remaining proceeds of the Company's IPO.
Income Tax Expense. The provision for income taxes as a percentage of income
(loss) before income taxes was 39% for the first nine months of fiscal 1995 and
for the quarter ended June 30, 1995. In the three and nine month periods ended
June 30, 1996, the Company incurred a non-deductible charge for ESOP
compensation expense of approximately $1.6 million and $11.2 million,
respectively. Had it not been for this charge, the tax provision would have been
approximately 37% for both periods. The Company expects that its effective tax
rate will remain at approximately 36% to 38% beginning in fiscal 1997.
Risks and Uncertainties
- -----------------------
General Risks and Uncertainties. Except for historical information contained
herein, this Management's Discussion and Analysis of Financial Condition and
Results of Operation contains forward-looking statements that are subject to
risks and uncertainties, including fluctuations in quarterly results, backlog,
capacity limitations, order rescheduling or cancellation, limited sources of
supply, dependence on continuous demand for wireless communication services,
dependence on a limited number of customers, technological change, competition,
risks associated with international operations, variation in production yield,
change in economic conditions of the various markets the Company serves, as well
as the other risks detailed in the Company's Form S-1 filed with the Securities
and Exchange Commission on April 29, 1996.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its operations to date through cash generated from
operations, bank borrowings, lease financing, the private sale of securities,
and its May 1, 1996 initial public offering. The Company requires capital
principally for equipment, expansion of its primary facility, financing of
accounts receivable and inventory, investment in product development activities
and new technologies and for its new operation in Costa Rica. For the nine
months ended June 30, 1996, the Company generated net cash from operating
activities of $8.5 million consisting primarily of net income adjusted for ESOP
compensation expense of $12.9 million, $1.4 million of depreciation and
amortization, $2.3 million of increases in accounts payable and accrued
liabilities partially offset by increases in accounts receivable and inventory
of $3.9 million.
The Company has a revolving credit and term loan facility totaling $11.5 million
from SunTrust Bank, Central Florida, N.A. available through 2002. During the
quarter ended June 30, 1996, the Company repaid $7.0 million on the credit line
with a portion of the proceeds from its May 1, 1996 initial public offering.
There are no balances outstanding on this credit line at June 30, 1996.
The Company made capital expenditures of $6.4 million during the fiscal quarter
ended June 30, 1996 and $21.7 million for the nine months ended June 30, 1996.
The Company is in the process of expanding its Orlando, Florida facilities for
additional manufacturing, engineering and sales and administrative space, is
committed to numerous capital expenditures for production and test equipment and
furniture and fixtures, and is committed to various capital expenditures for its
San Jose, Costa Rica operation. The Company intends to spend approximately $27
million in fiscal 1996 on capital equipment, buildings and leasehold
improvements.
The Company believes that its present cash position, together with its credit
facility and funds expected to be generated from operations, will be sufficient
to meet its projected working capital and other cash requirements through the
next 12 months. Thereafter, the Company may require additional equity or debt
financing to address its working capital needs or to provide funding for capital
expenditures. There can be no assurance that events in the future will not
require the Company to seek additional capital sooner or, if so required, that
it will be available on terms acceptable to the Company, if at all.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings. The Company is not subject to any legal proceedings
that, if adversely determined, would cause a material adverse effect on the
Company's financial condition, business or results of operations.
Item 2. Changes in Securities: None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. By way of
written consents, shareholders took action as of April 5, 1996 as follows:
Votes For Votes Against
--------- -------------
1. Approval of amendment to the Articles
of Incorporation to increase the number
of authorized common shares to 40,000,000
and to create a new class of preferred
stock of 1,000,000 shares and to redeem
the current shares of preferred stock 9,933,093 23,329
2. Adopt and approve a stock split of 20 for 1
and change the par value of common shares
from $.01 to $.0005 per share 9,917,062 39,361
3. Adopt and approve the Sawtek Inc. Second
Incentive Stock Plan 9,847,217 109,205
4. Adopt and approve the Sawtek Inc.
Employee Stock Purchase Plan 9,956,422 -0-
5. Consent to the approval of the Board of
Directors nominee, Mr. Bruce S. White,
as director of the Company 9,922,683 33,739
6. Other information - none.
Item 5. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibit 11.1 - Statement regarding computations of earnings per share.
(b) Reports of Form 8-K. The Company did not file any reports on Form 8-K
during the three-month period ended June 30, 1996.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July 23, 1996
SAWTEK INC.
(Registrant)
/s/ Steven P. Miller
--------------------
Steven P. Miller
Chairman, President &
Chief Executive Officer
/s/ Raymond A. Link
--------------------
Raymond A. Link
Vice President Finance,
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
SAWTEK INC. EXHIBIT 11.1
STATEMENTS REGARDING COMPUTATIONS OF EARNINGS PER SHARE - as reported on
Form 10Q
Three months ended Nine months ended
------------------ -----------------
June 30 June 30
1995 1996 1995 1996
---- ---- ---- ----
(in thousands, except per share data)
PRIMARY EARNINGS PER SHARE
Weighted average number of shares of
Common Stock outstanding ............ 13,531 18,756 13,822 16,311
Net effect of dilutive stock options
based on the Treasury stock method
using the average fair market value
in effect for the period ............ 2,199 1,480 2,309 2,254
Total shares outstanding for
Primary EPS ..................... 15,730 20,236 16,131 18,565
FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares of
Common Stock outstanding ............ 13,531 18,756 13,822 16,311
Net effect of dilutive stock options
based on the Treasury stock method
using the fair market value at the
end of the period ................... 2,503 1,530 2,551 2,255
Total shares outstanding for fully
Diluted EPS ...................... 16,034 20,286 16,373 18,566
Net income (loss) applicable to common
shareholders ......................... $ 1,525 $ 1,371 $ 3,486 ($ 4,258)
Earnings (loss) per share:
Primary $ 0.10 $ 0.07 $ 0.22 ($ 0.23)
Fully Diluted $ 0.10 $ 0.07 $ 0.21 ($ 0.23)
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<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
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0
0
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