UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
-------------------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended June 30, 1998
OR
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-28276
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 X No ______
-------
As of July 15, 1998, there were 21,331,597 shares of the Registrant's
Common Stock outstanding, par value $.0005.
<PAGE>
Sawtek Inc.
TABLE OF CONTENTS
Part I. Financial Information Page Number
--------------------- -----------
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 1998
and September 30, 1997 ................................. 3
Consolidated Statements of Income for the three months
and nine months ended June 30, 1998 and 1997............ 4
Consolidated Statements of Cash Flows for the nine
months ended June 30, 1998 and 1997..................... 5
Notes to Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 8
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. Other Information ......................................15
Item 6. Exhibits and Reports on Form 8-K .......................15
Signatures................................................................15
Exhibit Index ............................................................15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SAWTEK INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, September 30,
1998 1997
----------- -------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 77,176 $ 58,073
Accounts receivable net of allowance for doubtful accounts and returns of
$1,547 at June 30, 1998 and $1,227 at September 30, 1997 12,700 12,327
Inventories 10,540 7,120
Deferred income taxes 1,467 1,552
Other current assets 1,400 671
-------- --------
Total current assets 103,283 79,743
Other assets 107 150
Property, plant and equipment, net 42,936 40,890
-------- --------
Total assets $146,326 $120,783
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 1,369 $ 2,887
Accrued wages and benefits 3,438 3,391
Other accrued liabilities 2,588 2,672
Current maturities of long-term debt 662 1,790
Income taxes payable 1,116 68
-------- --------
Total current liabilities 9,173 10,808
Long-term debt, less current maturities 2,287 2,868
Deferred income taxes 13,859 8,612
Shareholders' equity:
Common stock; $.0005 par value; 120,000,000 authorized shares; issued and
outstanding shares 21,316,597 at June 30, 1998 and 20,931,616 at September
30, 1997 11 11
Capital surplus 71,324 68,937
Unearned ESOP compensation (1,171) (1,171)
Retained earnings 50,843 30,718
-------- --------
Total shareholders' equity 121,007 98,495
--------- --------
Total liabilities and shareholders' equity $146,326 $120,783
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
SAWTEK INC.
Consolidated Statements of Income
(unaudited)
<CAPTION>
Quarter Ended Nine Months Ended
June 30, June 30,
----------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 26,301 $ 21,771 $ 76,178 $ 61,418
Cost of sales 12,585 9,643 35,146 27,494
-------- -------- -------- --------
Gross profit 13,716 12,128 41,032 33,924
Operating expenses:
Selling expenses 1,436 1,232 4,713 3,788
General & administrative expenses 1,178 1,352 4,016 4,392
ESOP compensation expense 48 195 150 587
Research & development expenses 923 1,088 2,741 2,681
-------- -------- -------- --------
Total operating expenses 3,585 3,867 11,620 11,448
-------- -------- -------- --------
Operating income 10,131 8,261 29,412 22,476
Interest expense 30 51 182 182
Other income (951) (556) (2,715) (1,362)
-------- -------- -------- --------
Income before taxes 11,052 8,766 31,945 23,656
Income taxes 4,089 3,330 11,820 8,995
-------- -------- -------- --------
Net income $ 6,963 $ 5,436 $ 20,125 $ 14,661
======== ======== ======== ========
Net income per share - basic $ 0.33 $ 0.26 $ 0.95 $ 0.72
Net income per share - diluted $ 0.32 $ 0.26 $ 0.93 $ 0.69
Shares used in computing net income
per share - basic 21,271 20,569 21,157 20,425
Shares used in computing net income
per share - diluted 21,762 21,268 21,715 21,238
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
SAWTEK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<CAPTION>
Nine Months Ended
June 30,
-------------------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Operating activities:
Net income $ 20,125 $ 14,661
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,645 2,873
Deferred income taxes 5,332 4,719
Compensatory stock options - 269
ESOP allocation - 196
Loss on sale of fixed assets - 553
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (373) 8
Inventories (3,420) (486)
Other current assets (729) (166)
Increase (decrease) in liabilities:
Accounts payable (1,518) (164)
Accrued liabilities (37) 985
Income taxes payable 2,276 3,441
--------- --------
Net cash provided by operating activities 26,301 26,889
Investing activities:
Purchase of property, plant and equipment, net (6,648) (12,648)
Short-term investments (5,008)
Proceeds from sale of fixed assets 55
Net cash used in investing activities (11,656) (12,593)
Financing activities:
Proceeds from long-term debt 309
Principal payments on long-term debt (1,709) (771)
Net proceeds from sale of common stock 1,159 849
--------- --------
Net cash provided by (used in) financing activities (550) 387
--------- --------
Increase in cash and cash equivalents 14,095 14,683
Cash and cash equivalents at beginning of period 42,316 27,731
Short-term investments 20,765
--------- --------
Cash, cash equivalents and short-term investment at
end of period $ 77,176 $ 42,414
========= ========
Interest paid $ 237 $ 241
Income taxes paid $ 4,387 $ 895
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SAWTEK INC.
Notes to Consolidated Financial Statements - June 30, 1998 (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, 1998, and the results of its
operations and its cash flows for the three and nine-month periods ended June
30, 1998 and 1997. These financial statements should be read in conjunction with
the Company's audited financial statements as of September 30, 1997, including
the notes thereto, and the other information set forth therein included in the
Company's most recent annual report on Form 10-K for the year ended September
30, 1997 (File No. 000-28276), which was filed with the Securities and Exchange
Commission (the "SEC") on November 12, 1997. The following discussion may
contain forward looking statements which are subject to the risk factors set
forth in "Risks and Uncertainties" as stated in Item 2 of this Form 10-Q.
The Company maintains its records on a fiscal year ending on September 30 of
each year and all references to a year refer to the year ending on that date.
The Company's first, second and third quarters normally end on the Sunday
closest to the last day of the last month of such quarter, which was July 5,
1998, for the third quarter of 1998. However, for convenience, the financial
statements are dated as of June 30, 1998. The quarter began on April 6, 1998.
On February 25, 1998, the Company acquired Microsensor Systems, Inc. ("MSI")
which was accounted for as a merger under the pooling-of-interests method of
accounting. Accordingly, the Company's consolidated financial statements for the
periods prior to this acquisition have been restated to include MSI's financial
position, results of operations and cash flows. Prior to the merger, MSI's
accounting year ended on June 30. In accordance with applicable SEC regulations,
the MSI results from the period June 30, 1997 to September 30, 1997, have been
added directly to the retained earnings of the combined entity and excluded from
the combined entity's reported results of operations for the period ending June
30, 1998. In all instances, the accounts and transactions of MSI are considered
immaterial to the consolidated financial statements of the combined entity for
all periods reported.
Operating results for the three and nine-month periods ended June 30, 1998 are
not necessarily indicative of the operating results that may be expected for the
year ending September 30, 1998.
6
<PAGE>
2. Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements.
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Net income available to common stockholders $ 6,963 $ 5,436 $20,125 $14,661
======= ======= ======= =======
Denominator:
Denominator for basic earnings per share:
Weighted average shares 21,271 20,569 21,157 20,425
Effect of dilutive securities:
Employee stock options 491 699 558 813
------- ------- ------- -------
Denominator for diluted earnings per share:
Adjusted weighted average shares and
assumed conversions 21,762 21,268 21,715 21,238
======= ======= ======= =======
Basic earnings per share $ 0.33 $ 0.26 $ 0.95 $ 0.72
======= ======= ======= =======
Diluted earnings per share $ 0.32 $ 0.26 $ 0.93 $ 0.69
======= ======= ======= =======
</TABLE>
Options to purchase 245,500 shares at prices ranging from $24.75 to $35.00 per
share were outstanding during the quarter but were not included in the
computation of diluted earnings per share because the option exercise price was
greater than the average market price of the common shares and, therefore, the
effect would be antidilutive.
3. Inventories - Inventories are composed of the following:
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
------------- ------------------
(in thousands)
<S> <C> <C>
Raw Material........................................ $ 5,095 $3,154
Work in Process..................................... 1,727 2,246
Finished Goods...................................... 3,720 1,720
------- -------
Total...................................... $10,540 $7,120
======= ======
</TABLE>
7
<PAGE>
4. Property, Plant and Equipment - Property, plant and equipment are composed
of the following:
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
------------- ------------------
(in thousands)
<S> <C> <C>
Land and Improvements $ 830 $ 671
Buildings 16,728 14,215
Production and Test Equipment 36,005 29,604
Computer Equipment 3,233 3,102
Furniture and Fixtures 2,660 1,932
Construction in Progress 1,955 5,507
------- -------
61,411 55,031
Less Accumulated Depreciation 18,475 14,141
------- -------
Total $42,936 $40,890
======= =======
</TABLE>
5. Shareholders' Equity
The consolidated changes in shareholders' equity for the nine months ended
June 30, 1998 are as follows:
<TABLE>
(in thousands)
<CAPTION>
Unearned
Common Stock Capital ESOP Retained
Shares Amount Surplus Compensation Earnings
------ ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1997 20,932 $11 $68,937 $(1,171) $30,718
Net income 20,125
Compensatory stock option tax benefit 1,228
Sale of common stock 385 1,159
------ --- ------- ------- -------
Balance at June 30, 1998 21,317 $11 $71,324 $(1,171) $50,843
====== === ======= ======= =======
</TABLE>
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 10-Q. Except for the historical information contained herein, the
discussion in this Form 10-Q contains certain forward-looking statements such as
statements of the Company's plans, objectives, expectations and intentions that
involve risks and uncertainties. The cautionary statements made herein 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.
8
<PAGE>
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 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
sub-systems. Initially, the Company's products were concentrated in the military
and space systems market. The Company has since shifted its attention to
commercial markets which accounted for approximately 92% of net sales in the
first nine months of 1998. The Company has also experienced significant growth
in its international markets over the last five years, with international sales
accounting for approximately 39% of net sales for the first nine months of 1998.
Sales to South Korean customers were approximately 16% of net sales for the
first nine months of 1998 (similar to the results for all of fiscal year 1997),
while European customers accounted for 17% of net sales (compared to 23% for all
of fiscal year 1997).
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 custom devices 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
(if any), have been shipped.
Net sales increased 24% from the first nine months of 1997 to the first nine
months of 1998. 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 base stations and 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 $3 to $300 for
high performance wireless applications.
For the nine months ended June 30, 1998, net sales to the Company's top ten
customers accounted for approximately 77% of net sales with the top four
customers accounting for 56%. For the nine months ended June 30, 1997, the top
ten customers represented 75% of net sales with the top four customers
accounting for 47%. 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.
Management does not believe that inflation has had a material impact on
operating costs and earnings of the Company.
9
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 47.8 44.3 46.1 44.8
----- ----- ----- -----
Gross profit 52.2 55.7 53.9 55.2
Operating expenses:
Selling expenses 5.5 5.7 6.2 6.2
General & administrative expenses 4.5 6.2 5.3 7.2
ESOP compensation expense .2 .9 .2 .9
Research & development expenses 3.5 5.0 3.6 4.3
----- ----- ----- -----
Total operating expenses 13.7 17.8 15.3 18.6
----- ----- ----- -----
Operating Income 38.5 37.9 38.6 36.6
Interest expense .1 .2 .2 .3
Other income (3.6) (2.6) (3.5) (2.2)
----- ----- ----- -----
Income before taxes 42.0 40.3 41.9 38.5
Income taxes 15.5 15.3 15.5 14.6
----- ----- ----- -----
Net income 26.5% 25.0% 26.4% 23.9%
===== ===== ===== =====
</TABLE>
Net Sales. Net sales increased 21% from $21.8 million in the quarter ended June
30, 1997 to $26.3 million in the quarter ended June 30, 1998 and increased 24%
from $61.4 million in the nine months ended June 30, 1997 to $76.2 million in
the nine months ended June 30, 1998. 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 base station
applications and telephone handsets based on Code Division Multiple Access
("CDMA") technology for the telecommunications industry. International sales
decreased from approximately 54% and 47% of net sales in the three and
nine-month periods ended June 30, 1997 to 35% and 39% of net sales for the three
and nine-month periods ended June 30, 1998, respectively. The decrease in
international sales was due to the continued roll-out of CDMA infrastructure and
handsets in the U.S., as well as a decline in revenue from South Korean
customers and a decline in revenue to European customers. Revenue from South
10
<PAGE>
Korean customers declined from 24% of total revenue in the quarter ended June
30, 1997 to 18% in the quarter ended June 30, 1998, reflecting the slow down in
demand from these customers due to the economic turmoil in South Korea. The
decline in European sales is a result of a shift to lower priced filters for
Global System for Mobile Communication ("GSM") base station applications.
For the quarter, revenue from telecommunication was 75% of total revenue
compared to 73% a year ago. Filters for base station applications accounted for
49% of total revenue for the current quarter compared to 62% a year ago and
revenue from handset filters accounted for 26% of total revenue compared to 10%
a year ago. Revenue from CDMA applications accounted for 63% of total revenue
for the current quarter compared to 46% a year ago and revenue from GSM
applications accounted for 10% of total revenue compared to 25% a year ago.
Gross Margin. Gross margin decreased from 55.7% and 55.2% in the three and
nine-month periods ended June 30, 1997 to 52.2% and 53.9% in the three and
nine-month periods ended June 30, 1998. The decrease in gross profit margins is
a result of reduced production in the current quarter resulting in less overhead
absorbed into inventory, shipment of more handset filters in the current year
and quarter, lower margins on recently introduced GSM base station filters
compared to the previous year and quarter and start-up costs associated with the
consolidation of the chemical sensor manufacturing operation in Orlando. Handset
filters typically have a lower gross profit margin than the Company's other
products. As the Company continues to shift its product mix to high volume
production and as revenue is projected to decline in the quarter ended September
30, 1998, the Company believes that gross margins will decline as handset
filters are more susceptible to downward pricing pressure and the Company's
fixed cost will continue to be a larger percent of cost of sales with a lower
revenue base.
Selling Expenses. Selling expenses increased in the third quarter and the first
nine months of 1998 compared to the same periods in 1997, but remained
essentially constant as a percentage of net sales for the corresponding periods.
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.
General and Administrative Expenses. General and administrative expenses
decreased from $1.4 million for the quarter ended June 30, 1997 to $1.2 million
for the quarter ended June 30, 1998. These expenses also decreased from $4.4
million for the nine months ended June 30, 1997 to $4.0 million for the nine
months ended June 30, 1998. The decrease is primarily due to compensatory stock
option expense incurred in fiscal 1997 which did not recur in fiscal 1998, lower
total compensation for fiscal 1998 and less administrative personnel in fiscal
1998 compared to fiscal 1997.
ESOP Compensation Expense. For the first nine months of 1998, the Company
recorded a charge of $150,000 for ESOP compensation compared to $587,000 for the
same period in fiscal 1997. The lower charge for the nine months ended June 30,
1998 is due to the Company restructuring its ESOP loan in the fourth quarter of
fiscal 1997 resulting in a longer amortization period and a lower per quarter
charge.
11
<PAGE>
Research and Development Expenses. Research and development expenses decreased
slightly in the quarter ended June 30, 1998 compared to the quarter ended June
30, 1997, but increased slightly in the nine months ended June 30, 1998 compared
to the first nine months of 1997. The Company anticipates that research and
development expenses will increase in total dollars as personnel and programs
are added in the future.
Other Income. Other income primarily represents interest income which increased
for the three and nine-month periods as the Company recorded increased interest
income on its investment of cash, cash equivalents and short-term investments.
Income Tax Expense. The provision for income taxes as a percentage of income
before income taxes was 37% for the current quarter and for the nine-month
period ended June 30, 1998, compared to 38% for the corresponding periods of
1997. The slightly lower effective tax rate relates to profits earned in the
Costa Rican subsidiary that are permanently exempt from Florida state taxes, tax
benefit received from the Company's foreign sales corporation, tax exempt
interest income and other factors. The Company expects that its effective tax
rate will remain at approximately 36% to 38% during 1998.
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,
its May 1, 1996 initial public offering, and the July 1, 1997 follow-on public
offering. The Company requires capital principally for equipment, financing of
accounts receivable and inventory, investment in product development activities
and new technologies, expansion of its operation in Costa Rica, and potential
acquisitions of new technologies or compatible companies. For the nine months
ended June 30, 1998, the Company generated net cash from operating activities of
$26.3 million, consisting primarily of net income of $20.1 million, $4.6 million
of depreciation and amortization, and $5.3 million in deferred taxes, offset by
the net increase in accounts receivable and inventories of $3.8 million.
The Company has a revolving credit agreement totaling $20.0 million from
SunTrust Bank, Central Florida, N.A. available through March 31, 2000. There
were no balances outstanding on this credit line at June 30, 1998.
The Company made capital expenditures of approximately $900,000 during the
quarter ended June 30, 1998 and $6.7 million for the nine months ended March 31,
2000. The Company intends to spend approximately $8 million to $12 million in
fiscal 1998 on capital equipment and facilities.
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.
12
<PAGE>
Known Trends and Outlook
- ------------------------
The Company believes that external factors outside the control of the Company
indicate that it will be difficult to post sequential growth in revenue and
profits for the quarter ending September 30, 1998. The factors that are
affecting the Company's outlook for the quarter ending September 30, 1998
include the continued financial turmoil in South Korea and other Asian markets;
currency fluctuations that have resulted in a strong dollar compared to the
Japanese Yen, which may affect the Company's ability to compete with Japanese
suppliers of surface acoustic wave devices; reduced prices on GSM base station
filters due to the conversion to next generation products which are smaller,
less expensive, surface mount filters; and a lowered forecast for CDMA filters
for both base station and handset filters. As a result, the Company has taken a
number of steps to match production capacity to anticipated customer demand
including: i) elimination of its weekend work shifts in June 1998, which were
primarily staffed with temporary employees, ii) reduction of certain general and
administrative costs and iii) other cost saving measures. While the Company
believes these measures will reduce costs, the projected lower revenue will
result in lower profits for the quarter ending September 30, 1998.
Risks and Uncertainties
- -----------------------
Forward-looking statements in this Form 10-Q are made pursuant to the Safe
Harbor provisions of the Private Securities Litigation Act of 1995. Investors
are cautioned that forward-looking statements such as statements of the
Company's plans, objectives, expectations and intentions involve risks and
uncertainties. The cautionary statements made in this Form 10-Q should be read
as being applicable to all related forward-looking statements wherever they
appear. Statements containing terms such as "believes," "does not believe," "no
reason to believe," "expect," "plans," "projected," "intends," "estimates" or
"anticipates" are considered to contain uncertainty and are forward-looking
statements. The Company's actual results could differ materially from those
discussed. Factors that could cause or contribute to such differences include
the following: the Company's dependence on continuing demand for wireless
communications services and CDMA technology, particularly CDMA handset units;
economic turmoil in South Korea and other Asia-Pacific countries (as experienced
during the past several quarters) or other geographic areas of the world;
fluctuations in the value of foreign currency; pressure on gross profit margins
due to competition, change in product mix and other factors; dependence on a
limited number of customers, which are expected to continue to account for a
high percentage of the Company's future net sales; fluctuations in the Company's
quarterly results and backlog which may be caused by such factors as product mix
changes, price competition, availability of manufacturing capacity, and customer
order cancellation or rescheduling; the Company's dependence on its timely
development of new or improved SAW products (such as SAW chemical sensors) to
meet changing market needs; the risk of competing technologies which could
replace or reduce the use of SAW technology for certain applications; as well as
other risks discussed in Sawtek's SEC reports, including Form 10-K filed for
fiscal year 1997, Form S-3 filed on April 3, 1998, and previously filed Form
10-Q's.
13
<PAGE>
A reader of this Form 10-Q should understand that it is not possible to predict
or identify all such risk factors. Consequently, the reader should not consider
this list to be a complete statement of all potential risks or uncertainties.
The Company does not assume the obligation to update any forward-looking
statement.
The Company already has installed Year 2000 compliant software in many of its
major systems. A task force is engaged in the ongoing effort to complete this
activity for the balance of the Company's systems. The cost of these efforts is
not expected to be material. The Company believes that the Year 2000 issue will
not pose significant operational problems. However, Year 2000 issues could have
a significant impact on the Company's operations and its financial results if
modifications cannot be completed on a timely basis; unforeseen needs or
problems arise; or, the systems operated by its customers, vendors or
subcontractors are not Year 2000 compliant.
14
<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. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule.
(b) Exhibit 10.39 - Letter from SunTrust Bank, Central Florida, N.A.
for renewal and increase to the Company's unsecured line of credit
to $20,000,000, dated July 9, 1998.
(c) Reports on Form 8-K.
On June 12, 1998, the Company filed a Current Report on Form
8-K concerning a Company press released dated June 10, 1998,
in which the Company commented on its outlook for the
remainder of fiscal year 1998.
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 20, 1998
SAWTEK INC.
(Registrant)
/S/ Raymond A. Link
Raymond A. Link
Vice President Finance, Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
EXHIBIT 10.39
SunTrust Bank, Central FLorida, N.A.
Post Office Box 3833
Orlando, FL 32802
Tel (407) 237-4303
SUNTRUST
July 9, 1998
Mr. Raymond A. Link
Vice President and CFO
Sawtek, Inc.
Post Office Box 609501
Orlando, Florida 32860-9501
Dear Ray:
Per our conversation, it is my pleasure to advise you that SunTrust Bank,
Central Florida, N.A. has approved a $5,000,000 increase to our existing
unsecured line of credit to Sawtek, Inc. Therefore, we now have a committed,
unsecured line of credit in the amount of $20,000,000 approved with an
expiration date of 3/31/00. The unused fee of 10 basis points shall only apply
to the $11.5 million currently evidenced by the note dated December 9, 1996.
At present, we will leave the existing loan documentation in place in order to
avoid the expenses associated with modifying our paperwork. Therefore, should
you need to draw more than $11,500,000 on line, we will need some lead time in
order to prepare a note and loan agreement amendment. Until such time, the
original terms and conditions outlined in that certain First Amendment to the
Amended and Restated Loan and Security Agreement, dated December 9, 1996 by and
between SunTrust Bank, Central Florida, N.A. and Sawtek, Inc., shall remain in
full force and effect in all respects except for the expiration date as per the
above referenced approval.
Please execute the enclosed copy of this letter in order to document the
increased loan amount and extended maturity date. We certainly appreciate all of
the business that you do with SunTrust and look forward to serving Sawtek's
needs well into the future. Please let me know of any opportunity to be of
assistance.
Sincerely,
/s/Douglas A. Woodman
Douglas A. Woodman
Vice President
Acknowledged and Accepted:
/s/Raymond A. Link 07/20/98
Raymond A. Link Date
Vice President of Finance and CFO
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 001009675
<NAME> Sawtek Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 77,176
<SECURITIES> 0
<RECEIVABLES> 14,247
<ALLOWANCES> 1,547
<INVENTORY> 10,540
<CURRENT-ASSETS> 103,283
<PP&E> 61,411
<DEPRECIATION> 18,475
<TOTAL-ASSETS> 146,326
<CURRENT-LIABILITIES> 9,173
<BONDS> 2,287
0
0
<COMMON> 11
<OTHER-SE> 120,996
<TOTAL-LIABILITY-AND-EQUITY> 146,326
<SALES> 76,178
<TOTAL-REVENUES> 76,178
<CGS> 35,146
<TOTAL-COSTS> 35,146
<OTHER-EXPENSES> 11,620
<LOSS-PROVISION> 395
<INTEREST-EXPENSE> 182
<INCOME-PRETAX> 31,945
<INCOME-TAX> 11,820
<INCOME-CONTINUING> 20,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,125
<EPS-PRIMARY> .95
<EPS-DILUTED> .93
</TABLE>
