<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 JUNE 30, 1999
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: 7,381,211 SHARES AS OF JUNE 11, 1999
<PAGE> 2
CELERITEK, INC.
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
<S> <C>
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets: 1
June 30, 1998 and March 31, 1999
Condensed Consolidated Statements of Operations: 2
Three ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows: 3
Three ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-11
Item 3: Quantitative and Qualitative Disclosures about Market Risk 12
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
<PAGE> 3
CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
------- -------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,009 $ 1,729
Short-term investments 4,158 5,904
Accounts receivable, net 10,335 10,615
Inventories 11,505 11,376
Prepaid expenses, other current assets,
and Deferred tax assets 1,087 3,241
Total current assets 31,094 32,865
Property and equipment, net 6,589 7,201
Other assets 146 144
Total assets $37,829 $40,210
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt $ 778 $ 1,611
Current obligations under capital leases 162 162
Accounts payable 4,109 4,217
Accrued payroll 2,071 1,400
Accrued liabilities 2,304 2,215
Total current liabilities 9,424 9,605
Long-term debt, less current portion 667 --
Non-current obligations under capital leases 221 257
Shareholders' equity 27,517 30,348
Total liabilities and shareholders' equity $37,829 $40,210
======= =======
</TABLE>
Note: The balance sheet at March 31, 1999 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> 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Total net sales $ 10,188 $ 10,196
Cost of goods sold 9,395 11,466
Gross profit 793 (1,270)
Operating expenses:
Research and development 1,439 1,861
Selling, general and administrative 2,227 2,502
Total operating expenses 3,666 4,363
Income (loss) from operations (2,873) (5,633)
Interest income (expense) and other, net 40 (6)
Income (loss) before income tax (2,833) (5,639)
Provision (benefit) for income taxes 0 (2,143)
Net income (loss) $ (2,833) $ (3,496)
Basic earnings (loss) per share $ (0.38) $ (0.48)
Diluted earnings (loss) per share $ (0.38) $ (0.48)
Weighted average common shares outstanding 7,381 7,210
Common shares outstanding, assuming dilution 7,381 7,210
</TABLE>
See accompanying notes.
Page 2
<PAGE> 5
CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
June 30, June 30,
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(2,831) $(3,496)
Adjustment to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, amortization and other 735 767
Changes in operating assets and liabilities 2,957 2,544
------- -------
Net cash used in operating activities 861 (185)
INVESTING ACTIVITIES
Purchase of property and equipment (123) (932)
Decrease (increase) in other assets (2) (33)
Purchases of short-term investments -- --
Sales of short-term investments 1,746 500
------- -------
Net cash used in investing activities 1,621 (465)
FINANCING ACTIVITIES
Payments on long-term debt (166) (55)
Borrowings on long-term debt -- 1,000
Payments on obligations under capital leases (36) (19)
Proceeds from issuance of common stock 0 290
------- -------
Net cash provided by financing activities (202) 1,216
Increase (decrease) in cash and cash equivalents 2,280 566
Cash and cash equivalents at beginning of period 1,729 4,022
------- -------
Cash and cash equivalents at end of period $ 4,009 $ 4,588
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period
for:
Income taxes $ 0 $ 975
Interest 37 73
</TABLE>
See accompanying notes.
PAGE 3
<PAGE> 6
CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1999
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 months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the
fiscal year ended March 31, 2000. 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, 1999.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
------- -------
(In Thousands)
<S> <C> <C>
Raw materials.......... $ 3,299 $ 3,054
Work-in-process........ 8,206 8,322
------- -------
$11,505 $11,376
======= =======
</TABLE>
3. LINES OF CREDIT
The company has available Master Loan Agreement (the "Loan Agreement"),
as amended, which expires October 30, 1999. The under the agreement, the
first available line of credit is for $6,000,000. During the quarter,
this agreement was modified and is subject to a borrowing base test of
the Companies accounts receivable. If the line is used, it will bear
interest at the bank's reference rate (8.00% at July 1, 1999). At any
point in time the Company may not be able to borrow the entire
$6,000,000 maximum stated in the agreement.
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Under the agreement a second line of credit was converted to a term loan
of thirty-six months. Borrowings under the second line of credit and
term loan bear interest at the bank's reference rate plus 0.5%. As of
June 30, 1999, the Company had borrowings totaling $1,445,000 under the
second line of credit, outstanding as a term loan of thirty-six months,
and no borrowings under the first line of credit. During the quarter
modifications to covenants were established. The covenants continue to
pertain to maintaining certain financial ratios, profitability and
liquidity levels, a minimum tangible net worth and limits on the payment
of dividends. Such credit facilities are secured by the Company's
assets.
4. EARNINGS PER SHARE
In accordance with the Statement of Financial Accounting Standards No.
128, "Earnings per Share," basic earnings (loss) per common share is
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 when
dilutive.
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended
30-Jun 30-Jun
------- -------
BASIC AND DILUTED 1999 1998
------- -------
<S> <C> <C>
Net income (loss) ..................... $(2,833) $(3,496)
======= =======
Weighted common shares outstanding .... 7,381 7,210
======= =======
Basic earnings (loss)
per common share..................... $ (0.38) $ (0.48)
======= =======
</TABLE>
5. COMPREHENSIVE INCOME
The Company had no Comprehensive Income items for the quarters ended
June 30, 1999 and 1998.
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ITEM 2.
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. These forward-looking statements
represent the Company's expectations or beliefs concerning future events and
include statements, among others, regarding the length and timing of delays of
customer orders, achievement of designs, and the potential of the market sales
volume and sales to significant customers and the sufficiency of capital
resources. Actual results could differ materially from those projected in the
forward-looking statements as a result of a variety of factors, including those
set forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Risks, Trends, and Uncertainties," and elsewhere in
this report.
RESULT OF OPERATIONS - FIRST QUARTER OF FISCAL 2000 COMPARED TO THE FIRST
QUARTER OF FISCAL 1999:
Total net sales of $10.2 million were unchanged year over year for the
first quarter of fiscal 2000 when compared to $10.2 million for the first
quarter of fiscal 1999. Total net sales to commercial customers of $6.9 million
for the first quarter of fiscal 2000 represented a 30% increase due primarily to
a improvement in radio/satellite product line. Last year the subsystems market,
particularly the microwave radio/satellite product line, experienced slow
business conditions. Total net sales to defense customers decreased 32% from
$4.9 million in the first quarter of fiscal 1999 to $3.3 million for first
quarter of fiscal 2000. The Company has expected revenues in the defense
business to experience periods of limited growth. See "Risks, Trends, and
Uncertainties - Potential Fluctuations in Quarterly Results."
Gross margin improved from a negative 12% the first quarter of fiscal
1999 to a positive 8% of net sales in the first quarter of fiscal 2000. The
improvement in gross margin was in comparison to prior year was due to lower
manufacturing costs in resulting from actions taken to lower fixed costs
combined with lower inventory write-offs and reserves taken in the first quarter
of fiscal 1999 related to order cancellations in the Radio/Satellite
product-line. See "Risks, Trends, and Uncertainties - Yields and the High Degree
of Fixed Costs in the Manufacturing Operation."
Research and development expenses decreased 23% from $1.9 million, or
18% of net sales, in the first quarter of fiscal 1999 to $1.4 million, or 14% of
net sales, in the first quarter of fiscal 2000. The decrease, in part, reflects
cost reduction actions, however in the first quarter of 1999, the Company made
significant investments in its Northern Ireland design center. The Company
expects to continue to maintain a high level of research and development
expenditure. See "Risks, Trends, and Uncertainties - Dependence on Key
Personnel."
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Selling, general and administrative expenses decreased from $2.5
million, or 25% of net sales, in the first quarter of fiscal 1999 to $2.1
million, or 22% of net sales, in the first quarter of fiscal 2000. The dollar
decrease was primarily due to cost reduction activities of management.
Interest income (expense) and other, increased $46,000 due to conversion
of short-term financing of capital equipment to operating leases and higher
yielding short-term investments.
No benefit for income taxes was recorded in the first fiscal quarter of
fiscal 2000 because no additional amounts were recoverable from prior years. A
$2.1 million benefit for income taxes was recorded in the first quarter of
fiscal 1999 to reflect income taxes recoverable from prior years.
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 has renewed with modification its two revolving lines of
credit covered by a Master Loan Agreement (the "Loan Agreement"), as amended,
which expires October 30, 1999. The first available line of credit for
$6,000,000 and will bear interest at the bank's reference rate (8.0% at July 1,
1999). The second line of credit was converted to a term loan of thirty-six
months. Borrowings under the second line of credit and term loan bear interest
at the bank's reference rate plus 0.5%. As of June 30, 1999 the Company had
borrowings totaling $1,445,000 under the second line of credit, outstanding as a
term loan of thirty-six months, and no borrowings under the first line of
credit. The loan agreement contains certain covenants, including among others,
covenants to maintain certain financial ratios, profitability and liquidity
levels, a minimum tangible net worth level and limits the payment of dividends.
Such credit facilities are secured by the Company's assets. The Company's
business, operating results and financial condition would be materially
adversely affected if the loan agreement were to be terminated.
As of June 30, the Company had $4.0 million of cash and cash
equivalents, $4.2 million of short-term investments and $21.7 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 the next twelve months.
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IMPACT OF YEAR 2000
The following statements are a "Year 2000 readiness disclosure" within
the meaning of the Year 2000 Information and Readiness Disclosure Act.
Many currently installed computer systems and software products are
coded to accept only two-digit entries in date code fields. Beginning in the
year 2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips and have not been upgraded to comply with such "Year 2000" requirements
may recognize a date using "00" as the year 1900 rather that the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on a review of the Company's product lines, the Company has
determined that the products it has sold and will continue to sell do not
require remediation to be Year 2000 compliant. Accordingly, the Company does not
believe that the Year 2000 issue presents a material exposure as it relates to
the Company's products.
The Company has tested, modified and upgraded its software so that its
various computer systems will function properly and that the Year 2000 will not
pose significant operational problems for its computer systems.
The company initiated communications with all of its suppliers. Over 500
Companies have been surveyed, responses reviewed, and risk levels categorized.
Ongoing completion of the full assessment of supplier risk and recovery will
continue up to and through the Year 2000.
The cost of compliance monitoring and mitigation activities has not been
material to the Company, nor is it expected to adversely affect the operating
results.
To date, the Company has upgraded its major business systems to be Year
2000 compliant. The Company has tested the equipment and software used to
assemble and test its products to ensure their Year 2000 compliance. The Company
does not have any significant systems that interface directly with third
parties.
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RISKS, TRENDS, AND UNCERTAINTIES
The following risk factors should be carefully reviewed in addition to the other
information contained in this Quarterly Report on 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. For example, during fiscal 1999, a
number of contracts were either terminated or delayed by both commercial and
defense customers and revenues declined substantially. There can be no assurance
that additional contracts will not be cancelled or delayed or that customers
will ever reinstate orders under contracts which have been delayed. There can be
no assurance that the Company will be able to maintain quarterly profitability
in the future. See "Risks, Trends, and Uncertainties - Dependence on Limited
Number of OEM Customers."
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
materially 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.
Yields and the High Degree of Fixed Costs in the Manufacturing
Operation. 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
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manufacturing the product. To the extent that the Company does not maintain
acceptable yields, its business, operating results, and financial condition
could be materially adversely affected. In addition, the Company's fixed costs,
which 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, are high and during periods of
decreased demand, such as during fiscal 1999, the high fixed costs could have a
material adverse effect on the Company's business, operating results, and
financial condition.
Even though the Company has significant productional 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 fiscal 1998 and 1999 sales to the Company's top ten
customers accounted for approximately 63% and 56% of total net sales,
respectively. In the twelve months ended March 31, 1999, no one customer
accounted for more than 10% of total net sales. During the first quarter of
fiscal 2000, two customers accounted for 36% of 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 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.
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.
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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 would 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.
In addition, the Company contracts with a third party vendor in Asia to
assemble certain of its subsystem division components to reduce manufacturing
labor costs. Additionally, the Company contracts with several third party
vendors in Asia to assemble its GaAs chips into integrated circuit packages.
Although the Company strives to maintain more than one vendor for each assembly
process, it is not always possible due to volume and quality issues. To the
extent that any of the assembly vendors are not able to provide a sufficient
level of service with an acceptable quality level, the Company could have
difficulty meeting its delivery commitments which could materially adversely
impact the Company's financial, operating and financial results
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. The failure
to attract, assimilate or retain key personnel could have a material
adverse effect on the Company's business, operating results and
financial condition.
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ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK
Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosures about Market Risk, in the Registrant's Annual Report Form
10K for the year ended March 31, 1999.
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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: August 13, 1999 /s/ P. MICHAEL HOULIHAN
------------------------------------
P. Michael Houlihan, Vice President,
Chief Financial Officer and
Assistant Secretary
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-01-1999
<CASH> 4,009
<SECURITIES> 4,158
<RECEIVABLES> 10,852
<ALLOWANCES> 517
<INVENTORY> 10,505
<CURRENT-ASSETS> 31,094
<PP&E> 28,101
<DEPRECIATION> (21,511)
<TOTAL-ASSETS> 6,589
<CURRENT-LIABILITIES> 9,424
<BONDS> 0
0
0
<COMMON> 25,086
<OTHER-SE> 2,431
<TOTAL-LIABILITY-AND-EQUITY> 37,829
<SALES> 10,188
<TOTAL-REVENUES> 10,188
<CGS> 9,395
<TOTAL-COSTS> 9,395
<OTHER-EXPENSES> 3,666
<LOSS-PROVISION> 517
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> (2,831)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,831)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
