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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 September 30, 2001
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: 0-23576
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 NUMBER)
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.
Yes [X] 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: 12,093,648 SHARES AS OF OCTOBER 31, 2001
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CELERITEK, INC.
TABLE OF CONTENTS
Page No.
--------
PART I: FINANCIAL INFORMATION .............................................................. 1
Item 1. Financial Statements (Unaudited) ............................................ 1
Condensed Consolidated Balance Sheets: September 30, 2001 and March 31, 2001 1
Condensed Consolidated Statements of Operations: Three and six months ended
September 30, 2001 and 2000 ............................................. 2
Condensed Consolidated Statements of Cash Flows: Six months ended
September 30, 2001 and 2000 ............................................. 3
Notes to Condensed Consolidated Financial Statements ........................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 6
Item 3. Quantitative and Qualitative Market Risk .................................... 18
PART II: OTHER INFORMATION ................................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders ......................... 19
Item 6. Exhibits and Reports on Form 8-K ............................................ 19
SIGNATURES ................................................................................. 20
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
SEPTEMBER 30, MARCH 31,
2001 2001
-------- --------
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents .................... $ 31,316 $ 3,515
Short-term investments ....................... 70,723 103,998
Accounts receivable, net ..................... 8,998 16,495
Inventories .................................. 13,650 15,361
Prepaid expenses and other current assets .... 3,180 3,446
-------- --------
Total current assets ...................... 127,867 142,815
Property and equipment, net ..................... 24,804 23,998
Other assets .................................... 4,386 3,712
-------- --------
Total assets .................................... $157,057 $170,525
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 5,390 $ 13,413
Accrued payroll .............................. 2,053 2,679
Accrued liabilities .......................... 3,479 3,912
Current portion of long-term debt ............ 2,100 1,380
Current obligations under capital leases ..... 787 754
-------- --------
Total current liabilities ................. 13,809 22,138
Long-term debt, less current portion ............ 5,942 3,686
Non-current obligations under capital leases .... 1,571 1,892
Shareholders' equity ............................ 135,735 142,809
-------- --------
Total liabilities and shareholders' equity ...... $157,057 $170,525
======== ========
Note: The balance sheet at March 31, 2001 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.
CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net sales ................................. $ 15,131 $ 23,109 $ 29,143 $ 42,798
Cost of goods sold ........................ 14,269 16,462 29,495 30,690
-------- -------- -------- --------
Gross profit (loss) ....................... 862 6,647 (352) 12,108
Operating expenses:
Research and development ............... 2,160 2,452 4,574 4,709
Selling, general and administrative .... 2,379 2,848 5,123 5,489
-------- -------- -------- --------
Total operating expenses .................. 4,539 5,300 9,697 10,198
Income (loss) from operations ............. (3,677) 1,347 (10,049) 1,910
Interest income (expense) and other, net .. 945 1,735 2,198 1,997
-------- -------- -------- --------
Income (loss) before income tax ........... (2,732) 3,082 (7,851) 3,907
Provision for income taxes ................ 0 462 0 586
-------- -------- -------- --------
Net income (loss) ......................... $ (2,732) $ 2,620 $ (7,851) $ 3,321
======== ======== ======== ========
Basic earnings (loss) per share ........... $ (0.23) $ 0.22 $ (0.65) $ 0.31
======== ======== ======== ========
Diluted earnings (loss) per share ......... $ (0.23) $ 0.21 $ (0.65) $ 0.29
======== ======== ======== ========
Weighted average common shares outstanding 12,071 11,708 12,016 10,671
Weighted average common shares outstanding,
assuming dilution ...................... 12,071 12,555 12,016 11,541
See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
SIX MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
------------ -------------
OPERATING ACTIVITIES
Net income (loss) ................................................................. $ (7,851) $ 3,321
Adjustment to reconcile net income (loss) to net cash used in operating activities:
Depreciation, amortization and other ........................................... 2,802 1,746
Changes in operating assets and liabilities .................................... (303) (6,265)
--------- ---------
Net cash used in operating activities ............................................. (5,352) (1,198)
INVESTING ACTIVITIES
Purchase of property and equipment ................................................ (3,326) (5,810)
Sale of property and equipment .................................................... 4 --
Purchases of short-term investments ............................................... (85,889) (122,922)
Maturities and sale of short-term investments ..................................... 118,716 37,756
--------- ---------
Net cash provided (used) by investing activities .................................. 29,505 (90,976)
FINANCING ACTIVITIES
Payments on long-term debt ........................................................ (732) (410)
Borrowings on long-term debt ...................................................... 3,708 1,895
Payments on obligations under capital leases ...................................... (360) (423)
Proceeds from issuance of common stock ............................................ 1,032 101,231
--------- ---------
Net cash provided by financing activities ......................................... 3,648 102,293
Increase (decrease) in cash and cash equivalents .................................. 27,801 10,119
Cash and cash equivalents at beginning of period .................................. 3,515 8,707
--------- ---------
Cash and cash equivalents at end of period ........................................ $ 31,316 $ 18,826
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes ................................................................ -- $ 1
Interest .................................................................... $ 312 173
Capital lease obligations incurred to acquire equipment ..................... 72 714
See accompanying notes.
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CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2001
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.
The Company's reporting period consisted of a thirteen-week period ending
on the Sunday closest to the calendar month end. The second quarters of
fiscal 2002 and fiscal 2001 ended September 30, 2001 and October 1, 2000,
respectively. For convenience, the accompanying financial statements have
been shown as ending on the last day of the calendar month.
Operating results for the three and six months ended September 30, 2001
are not necessarily indicative of the results that may be expected for
the fiscal year ending March 31, 2002. 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, 2001.
2. INVENTORIES
The components of inventory consist of the following:
SEPTEMBER 30, MARCH 31,
2001 2001
------- -------
(IN THOUSANDS)
Raw materials ........... $ 3,154 $ 4,903
Work-in-process ......... 10,496 10,458
------- -------
$13,650 $15,361
======= =======
3. 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.
-4-
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2001 2000 2001 2000
-------- ------- -------- -------
BASIC
Net income (loss) ........................... $ (2,732) $ 2,620 $ (7,851) $ 3,321
======== ======= ======== =======
Weighted common shares outstanding .......... 12,071 11,708 12,016 10,671
======== ======= ======== =======
Basic earnings (loss) per common share ...... $ (0.23) $ 0.22 $ (0.65) $ 0.31
======== ======= ======== =======
DILUTED
Net income (loss) ........................... $ (2,732) $ 2,620 $ (7,851) $ 3,321
======== ======= ======== =======
Weighted common shares outstanding .......... 12,071 11,708 12,016 10,671
Dilutive effect of stock options ............ -- 847 -- 870
-------- ------- -------- -------
Weighted common shares outstanding,
assuming dilution ........................ 12,071 12,555 12,016 11,541
======== ======= ======== =======
Diluted earnings (loss) per common share .... $ (0.23) $ 0.21 $ (0.65) $ 0.29
======== ======= ======== =======
4. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) for the three and six month
periods ended September 30, 2001 and 2000 are as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2001 2000 2001 2000
------- ------- ------- -------
Net income (loss) ........................... $(2,732) $ 2,620 $(7,851) $ 3,321
Other comprehensive income (loss)
Unrealized gains (losses) on
marketable securities ................. 20 153 (256) 153
------- ------- ------- -------
Other comprehensive income (loss) ........... 20 153 (256) 153
------- ------- ------- -------
Comprehensive income (loss) ................. $(2,712) $ 2,773 $(8,107) $ 3,474
======= ======= ======= =======
-5-
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" (SFAS 141). This statement addresses
financial accounting and reporting for business combinations. SFAS 141
supersedes APB Opinion No. 16, Business Combinations, and amends or
supersedes a number of interpretations of that Opinion. SFAS 141 also
applies to all business combinations accounted for using the purchase
method for which the date of acquisition is July 1, 2001 or later. The
Company will adopt the provisions of SFAS 141 for any business
combinations initiated after June 30, 2001.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangibles" (SFAS 142). Under SFAS 142,
goodwill and indefinite lived intangible assets are no longer amortized
but are reviewed annually (or more frequently if impairment indicators
arise) for impairment. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their
estimated useful lives. The Company has not recorded any goodwill or
indefinite lived intangible assets prior to September 30, 2001.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS 144). This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and provides a single accounting model for
long-lived assets to be disposed of. SFAS 144 is effective for fiscal
years beginning after December 15, 2001, and interim periods within those
fiscal years, with early application encouraged. This statement becomes
effective for the Company's 2003 fiscal year beginning April 1, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis Of Financial Condition and
Results of Operations of Celeritek, Inc. ("Celeritek," the "Company," "we," "us"
or "our") contains forward-looking statements within the meaning of the
Private-Securities Litigation Reform Act of 1995. These forward-looking
statements include, without limitation, discussion relative to markets for our
products and trends in revenue, gross margins and anticipated expense levels, as
well as other statements including words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend" and other similar expressions. All
statements regarding our expected financial position and operating results,
business strategy, financing plans and forecast trends relating to our industry
are forward-looking statements. These forward-looking statements are subject to
business and economic risks and uncertainties, and our actual results of
operations may differ materially from those contained in the forward-looking
statements. Unless required by law, we undertake no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events, or otherwise. However, readers should carefully review the risk
factors set forth in other reports or documents we file from time to time with
the Securities and Exchange Commission.
RESULT OF OPERATIONS --SECOND QUARTER OF FISCAL 2001 COMPARED TO SECOND QUARTER
OF FISCAL 2002:
Total net sales decreased 35% from $23.1 million for the second quarter
of fiscal 2001 to $15.1 million for the second quarter of fiscal 2002. GaAs
semiconductor component sales decreased 22%
-6-
from $11.6 million in the second quarter of fiscal 2001 to $9.0 million in the
second quarter of fiscal 2002. The decrease in semiconductor component sales was
the result of a decrease in sales of semiconductor components for wireless
infrastructure applications, partially offset by an increase in the sales of
InGaP HBT power amplifier modules for use in mobile handsets.
Net sales of GaAs-based subsystems decreased 86% from $7.7 million in the
second quarter of fiscal 2001 to $1.1 million in the second quarter of fiscal
2002, primarily due to the continuing weakness in demand in the broadband
wireless infrastructure market. Total net sales to defense customers increased
32% from $3.8 million in the second quarter of fiscal 2001 to $5.0 million for
second quarter of fiscal 2002, primarily as a result of increased government
spending in defense programs that utilize our products.
In the fourth quarter of fiscal 2001, many of our customers in the
broadband wireless market delayed, then cancelled, long-standing contracts in
response to declining market demand. The build out of wireless infrastructure is
capital intensive. As the capital markets rapidly softened in late 2000, a
number of the providers of broadband voice and data services were unable to
secure necessary capital and in some cases, filed for Chapter 11 bankruptcy
protection. Our customers, the equipment suppliers to these service providers,
responded by first delaying and then canceling orders associated with this
market. As a result of the cancellations and delays, we evaluated the impact on
our business and determined additional reserves and write-downs were required
for our accounts receivable, inventory and fixed assets. In the event we are
able to secure any cancellation charges, cost of goods sold for these revenues
will be zero because of the write-downs we have already taken in the fourth
quarter of fiscal 2001. In the second quarter of fiscal 2002 we took additional
inventory reserves due to the continued weakness in the broadband wireless
infrastructure market. In addition, during the first quarter of fiscal 2002, we
reduced our number of employees by approximately 30% to adjust for our current
business condition.
Gross margin decreased from 29% of net sales in the second quarter of
fiscal 2001 to 6% of net sales in the second quarter of fiscal 2002. The
decrease in gross margin was primarily due to decreased market demand for
products for wireless infrastructure applications and the consequent reduction
in our sales. Despite a reduction in headcount and other cost control measures,
we have been unable to reduce our expenses to the same extent that sales have
been reduced because of fixed expenses for property, plant and equipment. We
also determined additional inventory reserves were needed.
Research and development expenses decreased 12% from $2.5 million, or 11%
of net sales, in the second quarter of fiscal 2001 to $2.2 million, or 15% of
net sales, in the second quarter of fiscal 2002. The decrease in research and
development expenses was primarily due to decreased headcount in the subsystem
engineering area as well as other cost control measures. We expect the dollar
level of research and development spending to increase in the future because we
are developing a broad range of new semiconductor products to position ourselves
for market recovery.
Selling, general and administrative expenses decreased 14% from $2.8
million, or 12% of net sales, in the second quarter of fiscal 2001 to $2.4
million, or 16% of net sales, in the second quarter of fiscal 2002. The decrease
was primarily due to lower commissions, payroll and bonus expenses due to our
reduced business level in the second quarter.
Interest income (expense) and other, net decreased from $1.7 million in
the second quarter of fiscal 2001 to $945,000 in the second quarter of fiscal
2002. The decrease in interest income (expense) and other, net, was primarily
due to lower interest rates.
-7-
RESULT OF OPERATIONS --FIRST SIX MONTHS OF FISCAL 2001 COMPARED TO FIRST SIX
MONTHS OF FISCAL 2002:
Total net sales decreased 32% from $42.8 million for the first six months
of fiscal 2001 to $29.1 million for the first six months of fiscal 2002. GaAs
semiconductor component sales decreased 15% from $20.3 million in the first six
months of fiscal 2001 to $17.2 million in the first six months of fiscal 2002.
The decrease in semiconductor component sales was the result of a decrease in
sales of semiconductor components for wireless infrastructure applications,
partially offset by an increase in the sales of InGaP HBT power amplifier
modules for use in mobile handsets.
Net sales of GaAs-based subsystems decreased 80% from $15.8 million in
the first six months of fiscal 2001 to $3.1 million in the first six months of
fiscal 2002, primarily due to the continuing weakness in demand in the broadband
wireless infrastructure market. Total net sales to defense customers increased
31% from $6.7 million in the first six months of fiscal 2001 to $8.8 million for
first six months of fiscal 2002, primarily as a result of increased government
spending in defense programs that use our products.
Gross margin decreased from a positive 28% of net sales in the first six
months of fiscal 2001 to a negative 1% of net sales in the first six months of
fiscal 2002. The decrease in gross margin was primarily due to decreased market
demand for products for wireless infrastructure applications and the consequent
reduction in our sales. Despite a reduction in headcount and other cost control
measures, we have been unable to reduce our expenses to the same extent that
sales have been reduced because of fixed expenses for property, plant and
equipment. We also determined additional inventory reserves were needed.
Additionally, in the first quarter of fiscal 2002, we incurred termination
expenses when we reduced the number of employees by approximately 30%, primarily
in our manufacturing areas.
Research and development expenses decreased 2% from $4.7 million, or 11%
of net sales, in the first six months of fiscal 2001 to $4.6 million, or 16% of
net sales, in the first six months of fiscal 2002. The decrease in research and
development expenses was primarily due to decreased headcount in the subsystem
engineering area as well as other cost control measures. We expect the dollar
level of research and development spending to increase in the future because we
are developing a broad range of new semiconductor products to position ourselves
for market recovery.
Selling, general and administrative expenses decreased 7% from $5.5
million, or 13% of net sales, in the first six months of fiscal 2001 to $5.1
million, or 18% of net sales, in the first six months of fiscal 2002. The
decrease was primarily due to lower commissions, payroll and bonus expenses due
to our reduced business level in the first half of the fiscal year.
Interest income (expense) and other, net increased from $2.0 million in
the first six months of fiscal 2001 to $2.2 million in the first six months of
fiscal 2002. The increase in interest income (expense) and other, net, was
primarily due to higher average cash, cash equivalents, and short-term
investment balances as a result of our follow-on public offering in calendar
year June 2000 in which we raised $100.3 million.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date primarily through cash flows from
operations and sales of equity securities. As of September 30, 2001, we had
$31.3 million in cash and cash equivalents, $70.7 million in short-term
investments and $114.1 million in working capital.
As of September 30, 2001, we had $500,000 in outstanding letters of
credit, which are secured by certificates of deposits.
-8-
We have various equipment notes outstanding, which are secured by the
equipment. These notes have various covenants attached pertaining to the
maintenance of financial ratios, liquidity levels and minimum tangible net worth
and prohibit the payment of dividends. As of September 30, 2001 we were in
compliance with all covenants.
We believe that our current cash resources and borrowings available from
our equipment financing sources should be sufficient to meet our liquidity
requirements through at least the next twelve months.
RISKS, TRENDS AND UNCERTAINTIES
OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST AND WE EXPECT
THESE FLUCTUATIONS TO CONTINUE. IF OUR RESULTS ARE WORSE THAN EXPECTED, OUR
STOCK PRICE COULD FALL.
Our operating results have fluctuated in the past, and may continue to
fluctuate in the future. These fluctuations may cause our stock price to
decline. Some of the factors that may cause our operating results to fluctuate
include:
- the timing, cancellation or delay of customer orders or
shipments;
- the mix of products that we sell;
- our ability to secure manufacturing capacity and effectively
utilize the capacity;
- the availability and cost of components;
- GaAs semiconductor component and GaAs-based subsystem failures
and associated support costs;
- variations in our manufacturing yields related to our GaAs
semiconductor components;
- the timing of our introduction of new products and the
introduction of new products by our competitors;
- market acceptance of our products;
- variations in average selling prices of our products; and
- changes in our inventory levels.
Any unfavorable changes in the factors listed above or general industry
and global economic conditions could significantly harm our business, operating
results and financial condition. For example, during the fourth quarter of
fiscal 2001, a number of our GaAs-based subsystems contracts were either
terminated or delayed and our net sales declined substantially from the prior
quarter. We cannot assure you that additional customers will not terminate
contracts, that customer orders will not be delayed, or that customers will ever
reinstate orders under contracts that have been delayed. We cannot assure you
that we will be able to achieve or maintain quarterly profitability in the
future.
Due to fluctuations in our net sales and operating expenses, we believe
that period to period comparisons of our results of operations is not a good
indication of our future performance. It is possible that in some future quarter
or quarters, our operating results will be below the expectations of securities
analysts or investors. In that case, our stock price could decline.
WE DEPEND ON A SMALL NUMBER OF ORIGINAL EQUIPMENT MANUFACTURERS AS CUSTOMERS. IF
WE LOSE ONE OR MORE OF OUR SIGNIFICANT CUSTOMERS, OR IF PURCHASES BY ONE OF OUR
KEY CUSTOMERS DECREASES, OUR NET SALES WILL DECLINE AND OUR BUSINESS WILL BE
HARMED.
A substantial portion of our sales are derived from sales to a small
number of original equipment manufacturers. For example, in the fiscal year
ended March 31, 2001, sales to our top ten customers
-9-
accounted for approximately 72% of our net sales. Motorola accounted for
approximately 21% of our net sales and DMC Stratex Networks accounted for
approximately 10% of our net sales during fiscal 2001. For the first six months
of fiscal 2002, sales to our top ten customers accounted for approximately 82%
of our net sales, with Motorola making up approximately 51% of those net sales.
We expect that sales to a limited number of customers will continue to account
for a large percentage of our net sales in the future. Motorola accounted for
approximately 34% of our backlog at September 30, 2001. If we lose a major
customer or if anticipated sales to a major customer do not materialize, our
operating results and business would be harmed. For example, in the fourth
quarter of fiscal 2001, our net sales were adversely affected when a number of
customers cancelled orders as a result of a decline in demand for wireless
communications equipment.
WE DEPEND ON SINGLE AND LIMITED SOURCES FOR KEY COMPONENTS. IF WE LOSE ONE OR
MORE OF THESE SOURCES, DELIVERY OF OUR PRODUCTS COULD BE DELAYED OR PREVENTED
AND OUR BUSINESS COULD SUFFER.
We acquire some of the components for our existing products from single
sources, and some of the other components for our products are presently
available or acquired only from a limited number of suppliers. Our
single-sourced components include substrates, millimeter wave components and
semiconductor packages. Some of these components are critical to the products
we sell to our major customers. In the event that any of these suppliers are
unable to fulfill our requirements in a timely manner, we may experience an
interruption in production until we locate alternative sources of supply. If we
encounter shortages in component supply, we may be forced to adjust our product
designs and production schedules. The failure of one or more of our key
suppliers or vendors to fulfill our orders in a timely manner and with
acceptable quality and yields could cause us to not meet our contractual
obligations, could damage our customer relationships and could harm our
business. For example, a single-sourced supplier of substrates recently ceased
operations, and we are currently attempting to find a replacement supplier. If
we are unable to find and qualify another supplier, the delivery of our products
to our customers, including our major customers, will be delayed, our
relationship with such customers might be harmed, and our business would suffer.
Even if we are able to find and qualify another supplier in the near future, the
delivery of our products may still be delayed and our business may still suffer.
WE ARE EXPOSED TO GENERAL ECONOMIC AND MARKET CONDITIONS.
Our business is subject to the effects of general economic conditions in
the United States and globally, and, in particular, market conditions in the
telecommunications industry. In recent quarters, our operating results have been
adversely affected as a result of unfavorable economic conditions and reduced
capital spending in the United States, Europe and Asia. In particular, sales to
customers who supply equipment to service providers of broadband voice and data
services have been adversely affected due to significant decline in demand in
the telecommunications infrastructure markets. If the economic conditions in the
United States and globally do not improve, if we experience a worsening in the
global economic slowdown or if the telecommunications infrastructure markets do
not recover, we may continue to experience material adverse impacts on our
business, operating results and financial condition.
BECAUSE MANY OF OUR EXPENSES ARE FIXED, OUR EARNINGS WILL DECLINE IF WE DO NOT
MEET OUR PROJECTED SALES.
Our business requires us to invest heavily in manufacturing equipment and
related support infrastructure that we must pay for regardless of our level of
sales. To support our manufacturing capacity we also incur costs for maintenance
and repairs and employ personnel for manufacturing and process engineering
functions. These expenses, along with depreciation costs, do not vary greatly,
if at all, as our net sales decrease. In addition, the lead time for developing
and manufacturing our products often requires us to invest in manufacturing
capacity in anticipation of future demand. We committed to significant
expenditures in capital equipment and facilities in fiscal 2001 based on
customer demand. The recent decline in market demand has resulted in
infrastructure costs in excess of current needs and has resulted in lower
earnings. In the fourth quarter of fiscal 2001, we wrote-down fixed assets in
response to the decline in the broadband wireless infrastructure market. If
future demand does not increase or if our net sales decline further, our results
will continue to suffer. If our net sales projections are inaccurate or we
experience declines in demand for our products, we may not be able to reduce
many of our costs rapidly, if at all, and our business, operating results and
financial condition may be harmed.
OUR BACKLOG MAY NOT RESULT IN SALES.
Our backlog primarily represents signed purchase orders for products due
to ship within the next year. As of September 30, 2001, our backlog was
approximately $37 million. Backlog is not necessarily indicative of future sales
as our customers may cancel or defer orders without penalty. Nevertheless, we
make a number of management decisions based on our backlog, including our
purchase of materials, hiring of personnel and other matters that may increase
our production capabilities and costs. Cancellation of pending purchase orders
or termination or reduction of purchase orders in progress could significantly
harm our business. We do not believe that our backlog as of any particular date
is representative of actual sales for any succeeding period, and we do not know
whether our current order backlog will necessarily lead to sales in any future
period.
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In the fourth quarter of fiscal 2001, some of our customers in the
broadband wireless market delayed and cancelled long-standing contracts in
response to declining market demand. The build out of wireless infrastructure is
capital intensive. As the capital markets rapidly softened in late 2000, a
number of the providers of broadband voice and data services were unable to
secure necessary capital and in some cases, filed for Chapter 11 bankruptcy
protection. Our customers, the equipment suppliers to these service providers,
responded by first delaying and then canceling orders associated with this
market.
Of our current backlog, approximately 34% is attributable to orders
received from Motorola. If we lose this customer or any other major customer, or
if orders by a major customer were to otherwise decrease or be delayed,
including reductions due to market or competitive conditions in the wireless
communications markets or further decreases in government defense spending, our
business, operating results and financial condition would be harmed.
THE VARIABILITY OF OUR MANUFACTURING YIELDS MAY AFFECT OUR GROSS MARGINS.
The success of our business depends largely on our ability to make our
products efficiently through a manufacturing process that results in a large
number of usable products, or yields, from any particular production run. In the
past we have experienced significant delays in our product shipments due to
lower than expected production yields. Due to the rigid technical requirements
for our products and manufacturing processes, our production yields can be
negatively affected for a variety of reasons, some of which are beyond our
control. For instance, yields may be reduced by:
- defects in masks that are used to transfer circuit patterns onto
wafers;
- impurities in materials used;
- contamination of the manufacturing environment; and
- equipment failures.
Our manufacturing yields also vary significantly among our products due
to product complexity and the depth of our experience in manufacturing a
particular product. For example, in the fourth quarter of fiscal 2001, we began
volume production of a new product, HBT modules. We experienced lower than
expected yields and start-up quality issues with the subcontractor who is
assembling the modules. These issues resulted in lower gross margins than
expected. We cannot assure you that we will not experience problems with our
production yields in the future. Decreases in our yields can result in
substantially higher costs for our products. If we cannot maintain acceptable
yields in the future, our business, operating results and financial condition
will suffer.
DECREASES IN OUR CUSTOMERS' SALES VOLUMES COULD RESULT IN DECREASES IN OUR SALES
VOLUMES.
A significant number of our products are designed to address the specific
needs of individual original equipment manufacturer customers. Where our
products are designed into an original equipment manufacturer's product, our
sales volumes depend upon the commercial success of the original equipment
manufacturer's product. Sales of our major customers' products can vary
significantly from quarter to quarter. Accordingly, our sales could be adversely
affected by a reduction in demand for mobile handsets and for wireless subsystem
infrastructure equipment. Our operating results have been significantly harmed
in the past by the failure of anticipated orders to be realized and by deferrals
or cancellations of orders as a result of changes in demand for our customers'
products. For example, in 2001, our operating results were adversely affected
when major customers experienced a reduction in anticipated demand for broadband
wireless communications networks.
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WE EXPECT OUR PRODUCTS TO EXPERIENCE RAPIDLY DECLINING AVERAGE SALES PRICES, AND
IF WE DO NOT DECREASE COSTS OR DEVELOP NEW OR ENHANCED PRODUCTS, OUR MARGINS
WILL SUFFER.
In each of the markets where we compete, average sales prices of
established products have been significantly declining, and we anticipate that
prices will continue to decline and negatively impact our gross profit margins.
Accordingly, to remain competitive, we believe that we must continue to develop
product enhancements and new technologies that will either slow the price
declines of our products or reduce the cost of producing and delivering our
products. If we fail to do so, our results of operations would be seriously
harmed.
INTENSE COMPETITION IN OUR INDUSTRY COULD RESULT IN THE LOSS OF CUSTOMERS OR AN
INABILITY TO ATTRACT NEW CUSTOMERS.
We compete in an intensely competitive industry and we expect our
competition to increase. A number of companies produce products that compete
with ours or could enter into competition with us. These competitors, or
potential future competitors, include ANADIGICS, Conexant Systems, CTT, EndWave,
Litton Industries, MTI (Taiwan), New Japan Radio Corporation, REMEC, RF Micro
Devices, SPC America, Telaxis and TriQuint Semiconductor. In addition, a number
of smaller companies may introduce competing products. Many of our current and
potential competitors have significantly greater financial, technical,
manufacturing and marketing resources than we have and have achieved market
acceptance of their existing technologies. Our ability to compete successfully
depends upon a number of factors, including:
- the willingness of our customers to incorporate our products into
their products;
- product quality, performance and price;
- the effectiveness of our sales and marketing personnel;
- the ability to rapidly develop new products with desirable
features;
- the ability to produce and deliver products that meet our
customers' requested shipment dates;
- the capability to evolve as industry standards change; and
- the number and nature of our competitors.
We cannot assure you that we will be able to compete successfully with
our existing or new competitors. If we are unable to compete successfully in the
future, our business, operating results and financial condition will be harmed.
WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.
California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for the State of California fall below 1.5%,
California has on some occasions implemented, and may in the future continue to
implement, rolling blackouts throughout California. We currently do not have
backup generators or alternate sources of power in the event of a blackout, and
our current insurance does not provide coverage for any damages we or our
customers may suffer as a result of any interruption in our power supply. If
blackouts interrupt our power supply, we would be temporarily unable to continue
operations at our facilities. Any such interruption in our ability to continue
operations at our facilities could damage our reputation, harm our ability to
retain existing customers and to obtain new customers, and could result in lost
revenue, any of which could substantially harm our business and results of
operations.
Furthermore, the deregulation of the energy industry instituted in 1996
by the California government has caused power prices to increase. Under
deregulation, utilities were encouraged to sell their plants, which
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traditionally had produced most of California's power, to independent energy
companies that were expected to compete aggressively on price. Instead, due in
part to a shortage of supply, wholesale prices have skyrocketed over the past
year. If wholesale prices continue to increase, our operating expenses will
likely increase, because all of our facilities are located in California.
OUR BUSINESS WILL BE HARMED IF POTENTIAL CUSTOMERS DO NOT USE GALLIUM ARSENIDE
COMPONENTS.
Silicon semiconductor technologies are the dominant process technologies
for integrated circuits and the performance of silicon integrated circuits
continues to improve. Our prospective customers may be systems designers and
manufacturers who are evaluating these silicon technologies and, in particular,
silicon germanium versus gallium arsenide integrated circuits for use in their
next generation high performance systems. Customers may be reluctant to adopt
our gallium arsenide products because of:
- unfamiliarity with designing systems with gallium arsenide
products;
- concerns related to relatively higher manufacturing costs and
lower yields; and
- uncertainties about the relative cost effectiveness of our
products compared to high performance silicon components.
In addition, potential customers may be reluctant to rely on a smaller
company like us for critical components. We cannot be certain that prospective
customers will design our products into their systems, that current customers
will continue to integrate our components into their systems or that gallium
arsenide technology will continue to achieve widespread market acceptance.
WE NEED TO KEEP PACE WITH RAPID PRODUCT AND PROCESS DEVELOPMENT AND
TECHNOLOGICAL CHANGES TO BE COMPETITIVE.
We compete in markets with rapidly changing technologies, evolving
industry standards and continuous improvements in products. To be competitive we
will need to continually improve our products and keep abreast of new
technology. For example, our ability to grow will depend substantially on our
ability to continue to apply our GaAs semiconductor components and GaAs-based
subsystems processing expertise to existing and emerging wireless communications
markets. New process technologies could be developed that have characteristics
that are superior to our current processes. If we are unable to develop
competitive processes or design products using new technologies, our business
and operating results will suffer. We cannot assure you that we will be able to
respond to technological advances, changes in customer requirements or changes
in regulatory requirements or industry standards. Any significant delays in our
development, introduction or shipment of products could seriously harm our
business, operating results and financial condition.
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OUR PRODUCTS MAY NOT PERFORM AS DESIGNED AND MAY HAVE ERRORS OR DEFECTS THAT
COULD RESULT IN A DECREASE IN NET SALES OR LIABILITY CLAIMS AGAINST US.
Our customers establish demanding specifications for product performance
and reliability. Our standard product warranty period is one year. Problems may
occur in the future with respect to the performance and reliability of our
products in conforming to customer specifications. If these problems do occur,
we 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 negative impact on our business, operating
results and financial condition. In addition, errors or defects in our products
may result in legal claims that could damage our reputation and our business,
increase our expenses and impair our operating results.
THE SALES CYCLE OF OUR PRODUCTS IS LENGTHY AND THE LIFE CYCLE OF OUR PRODUCTS IS
SHORT, MAKING IT DIFFICULT TO MANAGE OUR INVENTORY EFFICIENTLY.
Most of our products are components in mobile handsets or wireless
subsystem infrastructure equipment. The sales cycle associated with our products
is typically lengthy, and can be as long as two years, due to the fact that our
customers conduct significant technical evaluations of our products before
making purchase commitments. This qualification process involves a significant
investment of time and resources from us and our customers to ensure that our
product designs are fully qualified to perform with the customers' equipment.
The qualification process may result in the cancellation or delay of anticipated
product shipments, thereby harming our operating results.
In addition, our inventory can rapidly become out of date due to the
short life cycle of the end products that incorporate our products. For example,
the life cycle of mobile handsets has been and is expected to continue to be
relatively short with models, features and functionality evolving rapidly. In
fiscal 1999, we wrote off out of date inventory when one of our customers
stopped producing the mobile handset that incorporated our power amplifier. Our
business, operating results and financial condition could be harmed by excess or
out of date inventory levels if our customers' products evolve more rapidly than
anticipated or if demand for a product does not materialize.
WE ARE SUBJECT TO STRINGENT ENVIRONMENTAL REGULATION THAT COULD NEGATIVELY
IMPACT OUR BUSINESS.
We are subject to a variety of federal, state and local laws, rules and
regulations related to the discharge and disposal of toxic, volatile and other
hazardous chemicals used in our manufacturing process. Our failure to comply
with present or future regulations could result in fines being imposed on us,
suspension of our production or a cessation of our operations. The regulations
could require us to acquire significant equipment or to incur substantial other
expenses in order to comply with environmental regulations. Any past or future
failure by us to control the use of or to restrict adequately the discharge of
hazardous substances could subject us to future liabilities and could cause our
business, operating results and financial condition to suffer. In addition,
under some environmental laws and regulations we could be held financially
responsible for remedial measures if our properties are contaminated, even if we
did not cause the contamination.
A DISASTER COULD SEVERELY DAMAGE OUR OPERATIONS.
A disaster could severely damage our ability to deliver our products to
our customers. Our products depend on our ability to maintain and protect our
computer systems, which are primarily located in or near our principal
headquarters in Santa Clara, California. Santa Clara exists on or near a known
earthquake fault zone. Although the facilities in which we host our computer
systems are designed to be fault tolerant, the systems are susceptible to damage
from fire, floods, earthquakes, power loss, telecommunications failures,
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and similar events. Although we maintain general business insurance against
fires, floods and some general business interruptions, there can be no assurance
that the amount of coverage will be adequate in any particular case.
IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, OR IF IT WERE
DETERMINED THAT WE INFRINGED THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR
ABILITY TO COMPETE IN THE MARKET MAY BE IMPAIRED.
Our success depends in part on our ability to obtain patents, trademarks
and copyrights, maintain trade secret protection and operate our business
without infringing the intellectual property rights of other parties. Although
there are no pending lawsuits against us, from time to time we have been
notified in the past and may be notified in the future that we are infringing
another party's intellectual property rights.
In the event of any adverse determination of litigation alleging that our
products infringe the intellectual property rights of others, we may be unable
to obtain licenses on commercially reasonable terms, if at all. If we were
unable to obtain necessary licenses, we could incur substantial liabilities and
be forced to suspend manufacture of our products. Litigation arising out of
infringement claims could be costly and divert the effort of our management and
technical personnel.
In addition to patent and copyright protection, we also rely on trade
secrets, technical know-how and other unpatented proprietary information
relating to our product development and manufacturing activities. We try to
protect this information with confidentiality agreements with our employees and
other parties. We cannot be sure that these agreements will not be breached,
that we would have adequate remedies for any breach or that our trade secrets
and proprietary know-how will not otherwise become known or independently
discovered by others.
In addition, to retain our intellectual property rights we may be
required to seek legal action against infringing parties. This legal action may
be costly and may result in a negative outcome. An adverse outcome in litigation
could subject us to significant liability to third parties, could put our
patents at risk of being invalidated or narrowly interpreted and could put our
patent applications at risk of not issuing. The steps taken by us may be
inadequate to deter misappropriation or impede third party development of our
technology. In addition, the laws of some foreign countries in which our
products are or may be sold do not protect our intellectual property rights to
the same extent, as do the laws on the United States. If we are not successful
in protecting our intellectual property our business will suffer.
OUR MANUFACTURING CAPACITY AND OUR ABILITY TO MAINTAIN SALES VOLUME IS DEPENDENT
ON THE SUCCESSFUL RETENTION OF QUALIFIED DESIGN, ASSEMBLY AND TEST PERSONNEL AND
OUR ABILITY TO INSTALL CRITICAL ASSEMBLY AND TEST EQUIPMENT ON A TIMELY BASIS.
Our ability to satisfy our current backlog and any additional orders we
may receive in the future will depend on our ability to successfully retain
qualified design engineers, assembly and test personnel. Our design engineers
reside at our headquarters in Santa Clara, California and at our two design
centers in the United Kingdom. We contract with third parties located primarily
in Asia for many of our assembly and test requirements. Our need to successfully
manage and retain these personnel will intensify if in the future our production
volumes are required to increase significantly from expected levels. Demand for
people with these skills is intense and we cannot assure you that we will be
successful in retaining sufficient personnel with these critical skills. Our
business has been harmed in the past by our inability to hire and retain people
with these critical skills, and we cannot assure you that similar problems will
not reoccur. For example, in 1997 we experienced manufacturing capacity
constraints that resulted from our inability to hire a sufficient
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number of test personnel. We also lost an order from a major customer in fiscal
2000 due to a shortage we experienced in design engineers.
Our ability to maintain manufacturing capacity also depends on our
ability to install additional assembly and test equipment at our Santa Clara
facility and at our Asian subcontractors' facilities on a timely basis. We rely
on third party providers of this equipment to deliver and install it on a timely
basis. If there is a delay in the delivery and installation of this equipment,
our planned increased production capacity will be reduced or delayed. This could
result in delayed or lost sales to customers, adversely affect our customer
relationships and harm our business.
PAST IN-HOUSE FOUNDRY CAPACITY LIMITATIONS FORCED US INTO RELATIONSHIPS WITH
OTHER FOUNDRIES. WE MAY INCUR EXTRA COSTS AS A RESULT OF THESE THIRD PARTY
FOUNDRY RELATIONSHIPS, WHICH COULD NEGATIVELY IMPACT OUR FINANCIAL CONDITION.
We currently operate our own foundry located in Santa Clara, California
to produce GaAs semiconductor components for sale as well as for use in our
GaAs-based subsystems products. In the past, our in-house capacity was not
sufficient by itself to satisfy the demand and our growth objectives.
Accordingly, in order to meet increasing customer demand, we entered into an
arrangement in February 2000 with a third party foundry located in Los Angeles,
California. Our agreement with this foundry required us to commit to a certain
volume of production based on a rolling forecast. Our requirements have fallen
below this level, however, we are still contractually obligated to pay for the
forecast level of service.
In addition, in December 2000, we invested approximately $2.4 million in
Suntek Compound Semiconductor Co. LTD, a GaAs foundry under construction in
Taiwan. This foundry is scheduled to be in production at the end of calendar
2002. We believe this investment will assist in securing a portion of Suntek's
capacity for our use although we have not yet entered into a written agreement
for the purchase of product. We have accounted for this investment on a cost
basis.
Reliance on third party foundries means we have less control over
delivery schedules, manufacturing yields and costs. Our relationship with
outside foundries will also require us to successfully manage and coordinate our
production through third parties over which we have limited or no control. If we
are not successful in effectively managing and coordinating our in-house
manufacturing capabilities with the independent foundries, our integrated
component production could be disrupted and fail to meet our requirements which
could severely harm our business.
WE DEPEND HEAVILY ON OUR KEY MANAGERIAL AND TECHNICAL PERSONNEL. IF WE CANNOT
ATTRACT AND RETAIN PERSONS FOR OUR CRITICAL MANAGEMENT AND TECHNICAL FUNCTIONS
WE MAY BE UNABLE TO COMPETE EFFECTIVELY.
Our success depends in significant part upon the continued service of our
key technical, marketing, sales and senior management personnel and our
continuing ability to attract and retain highly qualified technical, marketing,
sales and managerial personnel. In particular, we have experienced and continue
to experience difficulty attracting and retaining qualified engineers, which has
harmed our ability to meet some GaAs-based subsystem orders in a timely manner.
Competition for these kinds of experienced personnel is intense, and we cannot
assure you that we can retain our key technical and managerial employees or that
we can attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. Our failure to attract, assimilate or retain
key personnel could significantly harm our business, operating results and
financial condition.
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OUR CUSTOMERS' FAILURE TO ADHERE TO GOVERNMENTAL REGULATIONS COULD HARM OUR
BUSINESS.
A significant portion of our products is integrated into the wireless
communications subsystems of our clients. These subsystems are regulated
domestically by the Federal Communications Commission and internationally by
other government agencies. With regard to equipment in which our products are
integrated, it is typically our customers' responsibility, and not ours, to
ensure compliance with governmental regulations. Our net sales will be harmed if
our customers' products fail to comply with all applicable domestic and
international regulations.
OUR SALES TO INTERNATIONAL CUSTOMERS EXPOSE US TO RISKS THAT MAY HARM OUR
BUSINESS.
During the first six months of fiscal 2002, sales to international
customers accounted for 42% of our net sales. In fiscal 2001, sales to
international customers accounted for 41% of our net sales. We expect that
international sales will continue to account for a significant portion of our
net sales in the future. In addition, many of our domestic customers sell their
products outside of the United States. These sales expose us to a number of
inherent risks, including:
- the need for export licenses;
- unexpected changes in regulatory requirements;
- tariffs and other potential trade barriers and restrictions;
- reduced protection for intellectual property rights in some
countries;
- fluctuations in foreign currency exchange rates;
- the burdens of complying with a variety of foreign laws;
- the impact of recessionary or inflationary environments in
economies outside the United States; and
- generally longer accounts receivable collection periods.
We are also subject to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade relationships, in
connection with our international operations. Potential markets for our products
exist in developing countries that may deploy wireless communications networks.
These countries may decline to construct wireless communications networks,
experience delays in the construction of these networks or use the products of
one of our competitors to construct their networks. As a result, any demand for
our products in these countries will be similarly limited or delayed. If we
experience significant disruptions to our international sales, our business,
operating results and financial condition could be harmed.
ANTITAKEOVER PROVISIONS COULD AFFECT THE PRICE OF OUR COMMON STOCK.
The ability of our board of directors to issue preferred stock at any
time with rights preferential to those of our common stock and the presence of
our shareholder rights plan may deter or prevent a takeover attempt, including a
takeover attempt in which the potential purchaser offers to pay a per share
price greater than the current market price for our common stock. The practical
effect of these provisions is to require a party seeking control of us to
negotiate with our board, which could delay or prevent a change in control.
These provisions could limit the price that investors might be willing to pay in
the future for our common stock.
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ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK
INTEREST RATE RISK
Our exposure to market risk is principally confined to our cash, cash
equivalents and investments which have maturities of less than two years. We
maintain a non-trading investment portfolio of investment grade, liquid, debt
securities that limits the amount of credit exposure to any one issue, issuer or
type of instrument. At September 30, 2001, our investment portfolio comprised
approximately $30.1 million in money market funds and certificate of deposits
and $70.2 million of preferred stocks, corporate debt securities and municipal
bonds. The securities in our investment portfolio are not leveraged, are
classified as available for sale and are therefore subject to interest rate
risk. We currently do not hedge interest rate exposure. If market interest rates
were to increase by 100 basis points, or 1%, from September 30, 2001 levels, the
fair value of our portfolio would decline by approximately $312,000. The
modeling technique used measures the change in fair values arising from an
immediate hypothetical shift in market interest rates and assumes ending fair
values include principal plus accrued interest.
FOREIGN CURRENCY EXCHANGE RISK
The current foreign exchange exposure in all international operations is
deemed to be immaterial since all of our net sales and the majority of
liabilities are receivable and payable in U.S. dollars. A 10% change in exchange
rates would not be material to our financial condition and results from
operations. Accordingly, we do not use derivative financial instruments to hedge
against foreign exchange exposure.
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PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on July 27, 2001.
The results of the voting were as follows:
Proposal 1: Election of the Board of Directors of the Company.
Nominee Votes For Votes Withheld
------------------- ---------- ----------
Tamer Husseini 9,370,731 1,301,759
Robert J. Gallagher 10,648,532 23,958
Thomas W. Hubbs 10,649,082 23,408
William D. Rasdal 10,648,365 24,125
Charles P. Waite 10,648,715 23,775
Proposal 2: Amendment to the Employee Qualified Stock Purchase Plan.
Votes For: 10,243,369
Votes Against: 396,794
Votes Abstaining: 32,327
Proposal 3: Ratification of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending March 31, 2002.
Votes For: 10,658,777
Votes Against: 7,194
Votes Abstaining: 6,519
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended September
30, 2001.
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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.
Date: November 14, 2001 /s/ MARGARET E. SMITH
-----------------------------------------
Margaret E. Smith, Vice President,
Chief Financial Officer and Assistant
Secretary
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