<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended DECEMBER 31, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from_________ to__________ .
Commission file number 0-25560.
CELERITEK, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0057484
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3236 SCOTT BLVD., SANTA CLARA, CA 95054
(Address of principal executive offices) (Zip code)
(408) 986-5060
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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: [ X ] Yes [ ] No
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE: 7,047,521 SHARES AS OF JANUARY 26, 1997
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CELERITEK, INC.
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1: Financial Statements (Unaudited) 1
Condensed Consolidated Balance
Sheets: December 31, 1996 and March 31, 1996
Condensed Consolidated Statements of Income: 2
Three and Nine months ended December 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows: 3
Nine months ended December 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 5 - 9
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
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CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ---------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,789 $ 3,311
Short-term investments 8,750 7,500
Accounts receivable, net 11,282 9,675
Inventories 6,592 6,398
Prepaid expenses and other current assets 336 126
Deferred tax assets 1,703 1,703
------- -------
Total current assets 33,452 28,713
Property and equipment, net 6,349 5,121
Other assets 43 43
------- -------
Total assets $39,844 $33,877
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,057 $ 2,145
Accrued payroll 1,513 1,156
Accrued liabilities 4,135 2,657
------- -------
Total current liabilities 8,705 5,958
Shareholders' equity 31,139 27,919
------- -------
Total liabilities and shareholders' equity $39,844 $33,877
======= =======
</TABLE>
Note: The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total Net Sales $10,565 $10,150 $33,740 $26,884
Cost of Goods Sold 7,013 6,480 21,620 17,219
------- ------- ------- -------
Gross Profit 3,552 3,670 12,120 9,665
Operating expenses:
Research and development 1,041 808 3,172 2,671
Selling, general and administrative 1,504 1,710 5,078 4,633
------- ------- ------- -------
Total operating expenses 2,545 2,518 8,250 7,304
Income from operations 1,007 1,152 3,870 2,361
Interest income (expense) and other 142 (97) 395 (308)
------- ------- ------- -------
Income before income tax 1,149 1,055 4,265 2,053
Provision for income taxes 437 422 1,622 821
------- ------- ------- -------
Net income $ 712 $ 633 $ 2,643 $ 1,232
====== ======= ======= =======
Net income per share $0.10 $0.11 $0.36 $0.23
====== ======= ======= =======
Shares used in per share calculations 7,385 5,583 7,348 5,466
====== ======= ======= =======
</TABLE>
See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
December 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITES
Net income 2,643 1,232
Adjustment to reconcile net income to net cash
provided by operating activites:
Depreciation, amortization and other 1,547 1,416
Changes in operating assets and liabilities 976 (449)
------- -------
Net cash provided by operating activities 5,166 2,199
INVESTING ACTIVITIES
Purchase of property and equipment (2,775) (482)
Purchase of short-term investments (10,925) (6,000)
Proceeds from maturities and sales of
short-term investments 9,675 --
------- -------
Net cash used in investing activities (4,025) (6,482)
FINANCING ACTIVITIES
Payments on lines of credit -- (3,750)
Borrowings under lines of credit -- 2,250
Payments on long-term debt -- (2,293)
Borrowings on long-term debt -- 285
Payments on obligations under capital leases -- (276)
Proceeds from issuance of common stock 337 10,478
------- -------
Net cash provided by (used in) financing activities 337 6,694
Increase (decrease) in cash and cash equivalents 1,478 2,411
Cash and cash equivalents at beginning of period 3,311 2,194
------- -------
Cash and cash equivalents at end of period 4,789 4,605
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest -- 375
Income taxes 905 595
Supplemental disclosure of non-cash investing
and financing activities:
Capital lease obligations incurred to
acquire equipment -- 252
</TABLE>
See accompanying notes.
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CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month periods
ended December 31, 1996 are not necessarily indicative of the results
that may be expected for the year ended March 31, 1997. This financial
information should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1996.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
----------- --------
(In Thousands)
<S> <C> <C>
Raw materials ................ $2,631 $2,107
Work-in-process .............. 3,961 4,291
------ ------
$6,592 $6,398
====== ======
</TABLE>
3. NET INCOME PER SHARE
Net income per share is based upon the weighted average number of
outstanding shares of common stock, dilutive common equivalent shares
from convertible preferred stock (using the if-converted method), and
dilutive common equivalent shares from stock options (using the
treasury stock method). Pursuant to Securities and Exchange
Commission's Staff Accounting Bulletins, common and common equivalent
shares issued during the twelve-month period prior to the initial
public offering are included in the calculation as if they were
outstanding for all periods through December 31, 1995 (using the
treasury stock method at the initial public offering price). The
difference between primary and fully diluted net income per share is
not material for any periods presented.
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4. ACCRUALS
During the quarter ended September 30, 1996, the Company recorded a
provision of $800,000 for potential vendor cancellation claims related
to a delayed commercial contract.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains 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. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below under "Risks, Trends, and Uncertainties."
RESULT OF OPERATIONS - THIRD QUARTER OF FISCAL 1996 COMPARED TO THIRD QUARTER OF
FISCAL 1997:
Total net sales were $10.1 million for the third quarter of fiscal 1996
as compared to $10.6 million for the third quarter of fiscal 1997. Total net
sales to commercial customers decreased 35% from $8.4 million for the third
quarter of fiscal 1996 to $5.5 million for the third quarter of fiscal 1997,
primarily as a result of the completion of an order for transceivers for a
mobile phone system in the second quarter of fiscal 1997, which accounted for
approximately $3.9 million of sales in the third quarter of fiscal 1996. Total
net sales to defense customers increased by 200% from $1.7 million in the third
quarter of fiscal 1996 to $5.1 million for the third quarter of fiscal 1997. The
Company believes the increased sales to the defense market are the result of the
Company's achieving greater market share due to a decrease in the number of
competitors, as opposed to market growth. The Company does not expect defense
sales to increase or remain at a significant level in the future. However, the
Company intends to continue to selectively pursue sales to certain defense
customers.
Gross margin decreased from 36% of net sales in the third quarter of
fiscal 1996 to 34% of net sales in the third quarter of fiscal 1997. The
decrease in gross margin was primarily the result of higher overhead expenses as
a percent of sales.
During the three and nine month periods ended December 31, 1996, the
Company experienced a shift in the composition of orders received for commercial
products to more thin-film products. During the three months ended December 31,
1996, it did not have a sufficient number of experienced thin-film microwave
technicians necessary to produce the quantity of thin-film products required to
fill its orders for such products which negatively effected total net sales and
gross margin. The Company is currently aggressively hiring and training
additional thin-film microwave technicians to meet its needs. In addition, the
Company is in the process of evaluating additional lease space and purchasing
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manufacturing equipment to increase overall capacity. There can be no assurance
that the Company will be successful in its hiring and training programs, or that
the additional lease space and equipment will be available on a cost-effective
basis or at all. In addition, even if the Company increases production capacity,
there can be no assurance that net sales and gross margin will increase. See
"Risks, Trends, and Uncertainties - The High Degree of Fixed Cost in the
Manufacturing Operation" and "- Dependence on Key Personnel."
Research and development expenses increased from $0.8 million, or 8% of
net sales, in the third quarter of fiscal 1996 to $1.0 million, or 10% of net
sales, in the third quarter of fiscal 1997 reflecting the Company's continuing
investment in commercial product development. The Company had more design
engineers in fiscal 1997 than fiscal 1996 for commercial products and expects
the dollar amount of research and development expenses to continue to increase
in future periods. See "Risks, Trends, and Uncertainties - Dependence on Key
Personnel."
Selling, general and administrative expenses decreased from $1.7
million, or 17% of net sales, in the third quarter of fiscal 1996 to $1.5
million, or 14% of net sales, in the third quarter of fiscal 1997. The decrease
was due to lower administrative and selling costs, primarily due to lower
personnel costs.
Interest expense and other, net was $97,000 of expense in the third
quarter of fiscal 1996 as compared to $142,000 of income in the third quarter of
fiscal 1997. The change is due to increased interest income on increased cash
and investment balances as a result of proceeds from the initial public offering
and the elimination of interest expense as a result of no outstanding borrowings
in the third quarter of fiscal 1997.
RESULT OF OPERATIONS - FIRST NINE MONTHS OF FISCAL 1996 COMPARED TO FIRST NINE
MONTHS FISCAL 1997:
Total net sales were $26.9 million for the first nine months of fiscal
1996 as compared to $33.7 million for the first nine months of fiscal 1997.
Total net sales to commercial customers increased 7% from $20.3 million for the
first nine months of fiscal 1996 to $21.7 million for the first nine months of
fiscal 1997, as a result of increased sales to the terrestrial-based
communications markets. Sales to the satellite-based communications market
included the completion of an order for transceivers for a mobile phone system
for which no additional business is forecast. Total net sales to defense
customers also increased by 82% from $6.6 million in the first nine months of
fiscal 1996 to $12.0 million for the first nine months of fiscal 1997. The
Company believes the increased sales to the defense market are the result of the
Company achieving greater market share due to a decrease in the number of
competitors, as opposed to market growth. The Company does not expect defense
sales to increase or remain at a significant level in the future. However, the
Company intends to continue to selectively pursue sales to certain defense
customers.
Gross margin was consistent at 36% of net sales for the first nine
months of both fiscal 1996 and 1997.
Research and development expenses increased from $2.7 million, or 10%
of net sales, in the first nine months of fiscal 1996 to $3.2 million, or 9% of
net sales, in the first
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nine months of fiscal 1997 reflecting the Company's continuing investment in
commercial product development. The Company had more design engineers in fiscal
1997 than fiscal 1996 for commercial products and expects the dollar amount of
research and development expenses to continue to increase in future periods. See
"Risks, Trends, and Uncertainties - Dependence on Key Personnel."
Selling, general and administrative expenses increased from $4.6
million, or 17% of net sales, in the first nine months of fiscal 1996 to $5.1
million, or 15% of net sales, in the first nine months of fiscal 1997. The
dollar increase was due to personnel costs, a provision for bad debts and
increased administrative and selling costs.
Interest expense and other, net was $308,000 of expense in the first
nine months of fiscal 1996 as compared to $395,000 of income in the first nine
months of fiscal 1997. The change is due to increased interest income on
increased cash and investment balances as a result of proceeds from the initial
public offering and the elimination of interest expense as a result of no
outstanding borrowings in the first nine months of fiscal 1997.
FINANCIAL CONDITION
The Company has funded its operations to date primarily through cash
flows from operations and sales of equity securities including the initial
public offering of common stock completed in December 1995 and January 1996,
which generated net proceeds of approximately $12.1 million.
As of December 31, 1996, the Company had $4.8 million of cash and cash
equivalents, $8.8 million of short-term investments and $24.7 million of working
capital. The Company believes that the current capital resources combined with
cash generated from operations will be sufficient to meet its liquidity and
capital expenditure requirements at least through fiscal 1998.
RISKS, TRENDS, AND UNCERTAINTIES
The following risk factors should be carefully reviewed in addition to the other
information contained in this Quarterly Report in Form 10-Q.
Potential Fluctuations in Quarterly Results. The Company's quarterly
results have fluctuated in the past, and may continue to fluctuate in the
future, due to a number of factors, including: the timing, cancellation or delay
of customer orders; the mix of products sold; the timing of new product
introductions by the Company or its competitors; the long sales cycles
associated with the Company or its competitors; the long sales cycles associated
with the Company's application-specific products; market acceptance of the
Company's and its customers' products; variations in average selling prices of
semiconductors; variations in manufacturing yields; changes in inventory levels;
changes in manufacturing capacity and variations in the utilization of this
capacity; and other competitive factors. Any unfavorable changes in the factors
listed above or others could have a material adverse effect on the Company's
business, operating results and financial
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condition. There can be no assurance that the Company will be able to maintain
quarterly profitability in the future.
Continued Penetration of Commercial Markets; New Product Introductions.
The Company's ability to grow will depend substantially on its ability to
continue to apply its radio frequency ("RF") and microwave signal processing
expertise and GaAs semiconductor technologies to existing and emerging
commercial wireless communications markets. If the Company is unable to design,
manufacture and market new products for existing or emerging commercial markets
successfully, its business, operating results and financial condition will be
adversely affected. Furthermore, if the markets for the Company's products in
the commercial wireless communications area fail to grow, or grow more slowly
than anticipated, the Company's business, operating results and financial
condition could be materially adversely affected.
Dependence on a Limited Number of OEM Customers. A relatively limited
number of OEM customers historically have accounted for a substantial portion of
the Company's sales. In fiscal 1996 and the nine months ended December 31, 1996
sales to the Company's top ten customers accounted for approximately 74% and
68%, respectively, of total net sales. In the nine months ended December 31,
1996, three of the Company's customers accounted for 19%, 15% and 10% of total
net sales. The Company expects that sales of its products to a limited number of
OEM customers will continue to account for a high percentage of its sales for
the foreseeable future, although sales to any single customer are subject to
significant variability from quarter to quarter. Such fluctuations could have a
material adverse effect on the Company's business, operating results and
financial condition.
No Assurance of Product Performance and Reliability. The Company's
customers establish demanding specifications for performance and reliability.
There can be no assurance that problems will not occur in the future with
respect to performance and reliability of the Company's products. If such
problems occur, the Company could experience increased costs, delays in or
reductions, cancellations or rescheduling of orders and shipments, product
returns and discounts, and product redesigns, any of which would have a material
adverse effect on the Company's business, operating results and financial
condition.
Rapid Technological Change. The markets in which the Company competes
are characterized by rapidly changing technologies, evolving industry standards
and continuous improvements in products and services. There can be no assurance
that the Company will be able to respond to technological advances, changes in
customer requirements or changes in regulatory requirements or industry
standards, and any significant delays in the development, introduction or
shipment of products could have a material adverse effect on the Company's
business, operating results and financial condition.
The High Degree of Fixed Costs in the Manufacturing Operation. The
Company's fixed costs consist primarily of investments in manufacturing
equipment, repair, maintenance and depreciation costs of such equipment and
fixed labor costs related to manufacturing and process engineering. The Company
has in the past and may in the future experience significant delays in product
shipments due to lower than expected production yields, and there can be no
assurance that the Company will not experience
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problems in maintaining acceptable yields in the future. The Company's
manufacturing yields vary significantly among products, depending on a given
product's complexity and the Company's experience in manufacturing the product.
To the extent that the Company does not maintain acceptable yields, its
operating results could be adversely affected. In addition, during periods of
decreased demand, high fixed wafer fabrication costs could have a material
adverse effect on the Company's operating results.
Competition. The markets in which the Company competes are intensely
competitive and the Company expects competition to increase. Most of the
Company's current and potential competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company and
have achieved market acceptance of their existing technologies. The ability of
the Company to compete successfully depends upon a number of factors, including
the rate at which customers incorporate the Company's products into their
systems, product quality and performance, price, experienced sales and marketing
personnel, rapid development of new products and features, evolving industry
standards and the number and nature of the Company's competitors. There can be
no assurance that the Company will be able to compete successfully in the
future, which could have a material adverse effect on the Company's business,
operating results and financial condition.
Dependence on Key Suppliers. Certain components used by the Company in
its existing products are only available from single sources, and certain other
components are presently available or acquired only from a limited number of
suppliers. In the event that its single source suppliers are unable to fulfill
the Company's requirements in a timely manner, the Company may experience an
interruption in production until alternative sources of supply can be obtained,
which could damage customer relationships or have a material adverse effect on
the Company's business, operating results and financial condition.
Dependence on Key Personnel. The Company's future success depends in
significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. In particular, the Company in the
past has experienced difficulty attracting and retaining qualified thin-film
microwave technicians. Competition for experienced technicians is intense, and
there can be no assurance that the Company can retain its key technical and
managerial employees or that it can attract, assimilate or retain other highly
qualified technical and managerial personnel in the future which could have a
material adverse effect on the Company's business, operating results and
financial condition.
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Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
Exhibit 11: Statement re: Computation of earnings per share
Exhibit 27.1: Financial Data Schedule
The Company did not file any reports on Form 8-K during the three months ended
December 31, 1996.
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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.
Celeritek, Inc.
(Registrant)
Date: February 14, 1997 /s/ MARGARET E. SMITH
-------------------------------
Margaret E. Smith, Vice President,
Chief Financial Officer and Assistant
Secretary
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Exhibit Index
Ex-11 Computation of Earnings Per Share
Ex-27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
CELERITEK, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------------------------------------
PRIMARY 1996 1995 1996 1995
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income ....................................... $ 712 $ 633 $2,643 $1,232
====== ====== ====== ======
Common and common equivalent shares outstanding:
Common Stock ................................. 7,034 5,196 6,999 5,053
Options ...................................... 351 387 349 215
Common and common stock equivalent shares related
to stock and option issuances in accordance with
SAB No. 55, 64, and 83 ......................... -- -- -- 198
------ ------ ------ ------
Common and common equivalent shares used in
computing per share amounts .................... 7,385 5,583 7,348 5,466
====== ====== ====== ======
Net income per share ............................. $ 0.10 $ 0.11 $ 0.36 $ 0.23
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------------------------------------
FULLY DILUTED 1996 1995 1996 1995
- ------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income ....................................... $ 712 $ 633 $2,643 $1,232
====== ====== ====== ======
Common and common equivalent shares outstanding:
Common Stock ................................. 7,034 5,196 6,999 5,053
Options ...................................... 351 439 350 304
Common and common stock equivalent shares related
to stock and option issuances in accordance with
SAB No. 55, 64, and 83 ......................... -- -- -- 198
------ ------ ------ ------
Common and common equivalent shares used in
computing per share amounts .................... 7,385 5,635 7,349 5,555
====== ====== ====== ======
Net income per share ............................. $ 0.10 $ 0.11 $ 0.36 $ 0.22
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,789
<SECURITIES> 8,750
<RECEIVABLES> 11,831
<ALLOWANCES> 549
<INVENTORY> 6,592
<CURRENT-ASSETS> 33,452
<PP&E> 21,128
<DEPRECIATION> 14,779
<TOTAL-ASSETS> 39,844
<CURRENT-LIABILITIES> 8,705
<BONDS> 0
0
0
<COMMON> 23,344
<OTHER-SE> 7,795
<TOTAL-LIABILITY-AND-EQUITY> 39,844
<SALES> 10,565
<TOTAL-REVENUES> 10,565
<CGS> 7,013
<TOTAL-COSTS> 7,013
<OTHER-EXPENSES> 2,545
<LOSS-PROVISION> 549
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,149
<INCOME-TAX> 437
<INCOME-CONTINUING> 712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 712
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
