<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, 1997
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
incorporation or organization) Identification No.)
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: 7,144,170 SHARES AS OF JANUARY 25, 1998
<PAGE> 2
CELERITEK, INC.
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1: Financial Statements (Unaudited) 1
Condensed Consolidated Balance
Sheets: December 31, 1997 and March 31, 1997
Condensed Consolidated Statements of Income: 2
Three and Nine months ended December 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows: 3
Nine months ended December 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 5 - 10
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE> 3
CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,031 $ 7,033
Short-term investments 8,250 8,200
Accounts receivable, net 15,713 10,111
Inventories 11,687 7,318
Prepaid expenses and other current assets 323 270
Deferred tax assets 2,144 2,144
------------ ------------
Total current assets 40,148 35,076
Property and equipment, net 7,383 6,038
Other assets 91 43
------------ ------------
Total assets $ 47,622 $ 41,157
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 278 $ --
Accounts payable 4,033 3,889
Accrued payroll 2,002 1,190
Accrued liabilities 4,663 3,594
------------ ------------
Total current liabilities 10,976 8,673
Long-term debt, less current portion 722 --
Shareholders' equity 35,924 32,484
------------ ------------
Total liabilities and shareholders' equity $ 47,622 $ 41,157
============ ============
</TABLE>
Note: The balance sheet at March 31, 1997 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.
Page 1
<PAGE> 4
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,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total net sales $ 14,412 $ 10,565 $ 40,536 $ 33,740
Cost of goods sold 8,635 7,013 25,449 21,620
-------- -------- -------- --------
Gross profit 5,777 3,552 15,087 12,120
Operating expenses:
Research and development 1,549 1,041 4,027 3,172
Selling, general and administrative 2,438 1,504 6,323 5,078
-------- -------- -------- --------
Total operating expenses 3,987 2,545 10,350 8,250
Income from operations 1,790 1,007 4,737 3,870
Interest income (expense) and other, net 97 142 366 395
-------- -------- -------- --------
Income before income tax 1,887 1,149 5,103 4,265
Provision for income taxes 717 437 1,924 1,622
-------- -------- -------- --------
Net income $ 1,170 $ 712 $ 3,179 $ 2,643
======== ======== ======== ========
Basic earnings per share $ 0.16 $ 0.10 $ 0.45 $ 0.38
======== ======== ======== ========
Diluted earnings per share $ 0.16 $ 0.10 $ 0.43 $ 0.36
======== ======== ======== ========
Weighted average common shares outstanding 7,129 7,034 7,114 6,999
Weighted average common shares outstanding,
assuming dilution 7,534 7,385 7,454 7,348
</TABLE>
See accompanying notes.
Page 2
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,179 $ 2,643
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other 1,682 1,547
Changes in operating assets and liabilities (7,999) 976
------------ ------------
Net cash provided by (used in) operating activities (3,138) 5,166
INVESTING ACTIVITIES
Purchase of property and equipment (3,027) (2,775)
Increase in other assets (48) --
Purchases of short-term investments (10,180) (10,925)
Sales of short-term investments 10,130 9,675
------------ ------------
Net cash used in investing activities (3,125) (4,025)
FINANCING ACTIVITIES
Borrowings on long-term debt 1,000 --
Proceeds from issuance of common stock 261 337
------------ ------------
Net cash provided by financing activities 1,261 337
Increase (decrease) in cash and cash equivalents (5,002) 1,478
Cash and cash equivalents at beginning of period 7,033 3,311
------------ ------------
Cash and cash equivalents at end of period $ 2,031 $ 4,789
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 1,575 $ 905
Interest $ 25 --
</TABLE>
See accompanying notes
Page 3
<PAGE> 6
CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1997
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 period ended
December 31, 1997 are not necessarily indicative of the results that may
be expected for the year ended March 31, 1998. 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, 1997.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
-------- --------
(In Thousands)
<S> <C> <C>
Raw materials ............................ $ 4,317 $ 2,751
Work-in-process .......................... 7,370 4,567
-------- --------
$ 11,687 $ 7,318
======== ========
</TABLE>
3. LINES OF CREDIT
On September 12, 1997, the Company extended and amended two revolving
lines of credit. The first line of credit for $4,000,000 will expire on
September 11, 1998 and will bear interest at the bank's reference rate
(8.5% at December 31, 1997). The second line of credit is for $1,000,000
and will also expire on September 11, 1998. On March 11, 1998 and
September 11, 1998, any outstanding balance on the second line of credit
will be converted to a term loan of thirty-six months. Borrowings under
the second line of credit and term loan will bear interest at the
Page 4
<PAGE> 7
bank's reference rate plus 0.5%. The loan agreement requires the company
to maintain certain financial ratios, profitability levels, a minimum
tangible net worth of $33,000,000, and limits the payment of dividends.
As of December 31, 1997, the Company had borrowings totaling $1,000,000
under the second line of credit and no borrowings under the first line
of credit.
4. NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share." Statement 128 replaced the
previously reported primary and fully diluted earnings per share with
basic and diluted earnings per common share. Basic earnings per common
are computed using the weighted average common shares outstanding during
the period. Diluted earnings per common share incorporates the
incremental shares issuable upon the assumed exercise of stock options.
Earnings per share amounts for all periods have been restated where
necessary to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BASIC
- -----
Net income ........................... $ 1,170 $ 712 $ 3,179 $ 2,643
========= ========= ========= =========
Weighted common shares outstanding.... 7,129 7,034 7,114 6,999
========= ========= ========= =========
Basic earnings per common share ...... $ 0.16 $ 0.10 $ 0.45 $ 0.38
========= ========= ========= =========
DILUTED
Net income ........................... $ 1,170 $ 712 $ 3,179 $ 2,643
========= ========= ========= =========
Weighted common shares outstanding.... 7,129 7,034 7,114 6,999
Dilutive effect of stock options ..... 405 351 340 349
--------- --------- --------- ---------
Weighted common shares outstanding,
assuming dilution .................. 7,534 7,385 7,454 7,348
========= ========= ========= =========
Diluted earnings per common share .... $ 0.16 $ 0.10 $ 0.43 $ 0.36
========= ========= ========= =========
</TABLE>
Page 5
<PAGE> 8
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 1997 COMPARED TO THIRD QUARTER OF
FISCAL 1998:
Total net sales were $10.6 million for the third quarter of fiscal 1997
as compared to $14.4 million for the third quarter of fiscal 1998. Total net
sales to commercial customers increased 65% from $5.5 million for the third
quarter of fiscal 1997 to $9.1 million for the third quarter of fiscal 1998,
primarily as a result of increased sales to the digital radio market which
accounted for approximately $4.6 million of sales in the third quarter of fiscal
1998. Total net sales to defense customers increased by 4% from $5.1 million in
the third quarter of fiscal 1997 to $5.3 million for the third quarter of fiscal
1998. Defense sales were, as expected, relatively consistent with the third
quarter of last year. The Company does not expect defense sales to increase
significantly in the future.
Gross margin increased from 34% of net sales in the third quarter of
fiscal 1997 to 40% of net sales in the third quarter of fiscal 1998. The
increase in gross margin was partially due to a change in product mix which
resulted in a higher percentage of sales to the satellite market. This market
generates a greater than average gross margin for the Company. The Company does
not expect this change in the product mix to continue in the future.
Research and development expenses increased 50% from $1.0 million, or
10% of net sales, in the third quarter of fiscal 1997 to $1.5 million, or 11% of
net sales, in the third quarter of fiscal 1998 reflecting the Company's
continuing investment in commercial product development. The Company expects
research and development expenses in dollars to continue to increase in future
periods. See "Risks, Trends, and Uncertainties - Dependence on Key Personnel."
Selling, general and administrative expenses increased from $1.5
million, or 14% of net sales, in the third quarter of fiscal 1997 to $2.4
million, or 17% of net sales, in the third quarter of fiscal 1998. The increase
was primarily due to costs associated with a potential acquisition that was
subsequently terminated.
Interest income and other, net decreased from $142,000 in the third
quarter of fiscal 1997 to $97,000 in the third quarter of fiscal 1998 due to
lower average cash balances as a result of cash being used for working capital
and, to a lesser extent, capital expenditures in connection with activities
directed at increasing capacity.
Page 6
<PAGE> 9
RESULT OF OPERATIONS - FIRST NINE MONTHS OF FISCAL 1997 COMPARED TO FIRST NINE
MONTHS OF FISCAL 1998:
Total net sales were $33.7 million for the first nine months of fiscal
1997 as compared to $40.6 million for the first nine months of fiscal 1998.
Total net sales to commercial customers increased 6% from $21.7 million for the
first nine months of fiscal 1997 to $23.0 million for the first nine months of
fiscal 1998, primarily as a result of increased sales to the digital radio
market. Total net sales to defense customers increased by 47% from $12.0 million
in the first nine months of fiscal 1997 to $17.6 million for the first nine
months of fiscal 1998. 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 significantly in the future.
Gross margin increased from 36% of net sales in the first nine months of
fiscal 1997 to 37% of net sales in the first nine months of fiscal 1998. The
increase in gross margin was partially due to a change in product mix with a
higher percentage of sales of subsystem products to the satellite market, which
offers a greater than average gross margin.
In the first quarter of fiscal 1998, the Company leased approximately
25,000 square feet of additional manufacturing space and has completed the
improvements to this space and purchased the manufacturing equipment to increase
overall capacity. As of the beginning of October, the Company occupied the
additional manufacturing space and began production. There can be no assurance
that the Company will be successful in its efforts to generate orders to utilize
the additional capacity, or that net sales and gross margin will increase. See
"Risks, Trends, and Uncertainties - The High Degree of Fixed Cost in the
Manufacturing Operation."
Research and development expenses increased 27 % from $3.2 million, or
9% of net sales, in the first nine months of fiscal 1997 to $4.0 million, or 10%
of net sales, in the first nine months of fiscal 1998 reflecting the Company's
continuing investment in commercial product development. The Company expects
research and development expenses in dollars to continue to increase in future
periods. See "Risks, Trends, and Uncertainties - Dependence on Key Personnel."
Selling, general and administrative expenses increased from $5.1
million, or 15% of net sales, in the first nine months of fiscal 1997 to $6.3
million, or 16% of net sales, in the first nine months of fiscal 1998. The
increase was due to costs associated with a potential acquisition that was
subsequently terminated and selling costs from the increased sales volume.
Interest income and other, net decreased from $395,000 in the first nine
months of fiscal 1997 to $366,000 in the first nine months of fiscal 1998 due to
lower average cash balances as a result of cash being used for working capital
and expenditures in connection with activities directed at increasing capacity.
Page 7
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
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.
The Company used cash in the quarter ended December 31, 1997 for working
capital and, to a lesser extent, capital expenditures in connection with
activities directed at increasing capacity.
As of December 31, 1997, the Company had $2.0 million of cash and cash
equivalents, $8.3 million of short-term investments and $29.2 million of working
capital. The Company believes that the current capital resources combined with
cash generated from operations and borrowings available from its lines of credit
will be sufficient to meet its liquidity and capital expenditure requirements at
least through 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; changes in manufacturing capacity
and variations in the utilization of this capacity; the timing of new product
introductions by the Company or its competitors; the long sales cycle 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
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 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. Although sales to the digital radio
market have increased in the third quarter of fiscal 1998, there can be no
assurance that such growth or any growth will continue. 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 materially adversely affected. Furthermore, if the markets for
Page 8
<PAGE> 11
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.
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 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
In addition, the Company has completed its new facility to house its
wireless subsystems manufacturing operations and has begun manufacturing
operations in the new facility during the third quarter of fiscal 1998. Even
though the Company has increased overall capacity, there can be no assurance
that the Company will be successful in its efforts to generate orders to utilize
the additional capacity, or that net sales and gross margin will increase.
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 both fiscal 1997 and the nine months ended December 31,
1997 sales to the Company's top ten customers accounted for approximately 66% of
total net sales. In the nine months ended December 31, 1997, P-Com and Hughes
Network Systems accounted for approximately 19% and 11% of total net sales,
respectively. 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 or a complete
loss of one or more of these customers, 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.
Page 9
<PAGE> 12
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.
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 engineers and
thin-film microwave technicians. Competition for these kinds of experienced
personnel 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.
Page 10
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
None
The Company did not file any reports on Form 8-K during the three months ended
December 31, 1997.
Page 11
<PAGE> 14
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 13, 1998 /s/ MARGARET E. SMITH
-------------------------------------
Margaret E. Smith, Vice President,
Chief Financial Officer and Assistant
Secretary
Page 12
<PAGE> 15
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,031
<SECURITIES> 8,250
<RECEIVABLES> 15,713
<ALLOWANCES> 420
<INVENTORY> 11,687
<CURRENT-ASSETS> 40,148
<PP&E> 24,423
<DEPRECIATION> 17,040
<TOTAL-ASSETS> 47,622
<CURRENT-LIABILITIES> 10,976
<BONDS> 0
0
0
<COMMON> 24,387
<OTHER-SE> 11,537
<TOTAL-LIABILITY-AND-EQUITY> 47,622
<SALES> 14,412
<TOTAL-REVENUES> 14,412
<CGS> 8,635
<TOTAL-COSTS> 8,635
<OTHER-EXPENSES> 3,987
<LOSS-PROVISION> 420
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 1,887
<INCOME-TAX> 717
<INCOME-CONTINUING> 1,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,170
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
