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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, 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.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0057484
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3236 SCOTT BLVD., SANTA CLARA, CA 95054
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(Address of principal executive offices) (Zip code)
(408) 986-5060
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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: 7,100,226 SHARES AS OF JULY 27, 1997
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CELERITEK, INC.
PART I: FINANCIAL INFORMATION PAGE
Item 1: Financial Statements (Unaudited) 1
Condensed Consolidated Balance
Sheets: June 30, 1997 and March 31, 1997
Condensed Consolidated Statements of Income: 2
Three months ended June 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows: 3
Three months ended June 30, 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 - 9
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, March 31,
1997 1997
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(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 5,970 $ 7,033
Short-term investments 7,680 8,200
Accounts receivable, net 11,463 10,111
Inventories 8,709 7,318
Prepaid expenses and other current assets 346 270
Deferred tax assets 2,144 2,144
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Total current assets 36,312 35,076
Property and equipment, net 6,866 6,038
Other assets 91 43
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Total assets $43,269 $41,157
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LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,922 $ 3,889
Accrued payroll 1,870 1,190
Accrued liabilities 3,008 3,594
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Total current liabilities 9,800 8,673
Shareholders' equity 33,469 32,484
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Total liabilities and shareholders' equity $43,269 $41,157
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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.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months Ended
June 30,
-------------------------
1997 1996
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Total net sales $12,595 $11,518
Cost of goods sold 8,223 7,252
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Gross profit 4,372 4,266
Operating expenses:
Research and development 1,208 1,081
Selling, general and administrative 1,795 1,869
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Total operating expenses 3,003 2,950
Income from operations 1,369 1,316
Interest income (expense) and other, net 148 144
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Income before income tax 1,517 1,460
Provision for income taxes 561 555
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Net income $ 956 $ 905
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Net income per share $ 0.13 $ 0.12
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Shares used in per share calculations 7,366 7,322
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See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
Three Months Ended
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June 30, June 30,
1997 1996
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OPERATING ACTIVITIES
Net income $ 956 $ 905
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other 562 479
Changes in operating assets and liabilities (1,692) 1,261
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Net cash provided by operating activities (174) 2,645
INVESTING ACTIVITIES
Purchase of property and equipment (1,390) (715)
Decrease (increase) in other assets (48) --
Purchase of short-term investments (4,330) (2,025)
Proceeds from maturities and sales of
short-term investments 4,850 2,000
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Net cash used in investing activities (918) (740)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 29 98
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Net cash provided by (used in) financing activities 29 98
Increase (decrease) in cash and cash equivalents (1,063) 2,003
Cash and cash equivalents at beginning of period 7,033 3,311
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Cash and cash equivalents at end of period $ 5,970 $ 5,314
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 1,048 $ 609
See accompanying notes.
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CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 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-month period ended June
30, 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:
June 30, March 31,
1997 1997
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(In Thousands)
Raw materials........................................ $3,482 $2,751
Work-in-process...................................... 5,227 4,567
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$8,709 $7,318
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3. NET INCOME PER SHARE
Net income per share is based upon the weighted average number of
outstanding shares of common stock and dilutive common equivalent
shares from stock options (using the treasury stock method). The
difference between primary and fully diluted net income per share is
not material for any periods presented. In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, "Earnings per
Share", which the Company is required to adopt on December 31, 1997. At
that time, the Company will be required to change the method currently
used to compute earnings per share and restate all prior periods. Under
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the new requirements for calculating basic net income per share, the
dilutive effect of stock options will be excluded. Basic net income per
share computed in accordance with the new statement would have been
unchanged for the quarter ended June 30, 1997 and $.01 greater for the
quarter ended June 30, 1996 than the net income per share as reported.
Diluted net income per share computed in accordance with the new
statement approximates net income per share as reported.
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 - FIRST QUARTER OF FISCAL 1997 COMPARED TO FIRST QUARTER OF
FISCAL 1998:
Total net sales were $11.5 million for the first quarter of fiscal 1997
as compared to $12.6 million for the first quarter of fiscal 1998. Total net
sales to commercial customers decreased 22% from $8.2 million for the first
quarter of fiscal 1997 to $6.4 million for the first quarter of fiscal 1998,
primarily as a result of the completion of an order for transceivers for a
mobile phone system in the second quarter of fiscal 1997, which accounted for
approximately $4.1 million of sales in the first quarter of fiscal 1997. Total
net sales to defense customers increased by 88% from $3.3 million in the first
quarter of fiscal 1997 to $6.2 million for the first quarter 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. However, the Company intends to
continue to selectively pursue sales to certain defense customers.
Gross margin decreased from 37% of net sales in the first quarter of
fiscal 1997 to 35% of net sales in the first quarter of fiscal 1998. The
decrease in gross margin was partially due to increased labor-related overhead
expenses associated with a change in product mix. In addition, the company
incurred start up costs related to the ramp up in production for its
semiconductor products.
In the first quarter of fiscal 1998, the Company leased approximately
25,000 square feet of additional manufacturing space and is currently in the
process of improving this space and purchasing manufacturing equipment to
increase overall capacity. There can be no assurance that the Company will be
successful in its efforts to increase overall capacity on a timely basis, or at
all. In addition, even if the Company increases production capacity, there can
be no assurance that the company will generate orders to utilize the
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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 9% from $1.1 million, or 9%
of net sales, in the first quarter of fiscal 1997 to $1.2 million, or 10% of net
sales, in the first 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 decreased from $1.9
million, or 16% of net sales, in the first quarter of fiscal 1997 to $1.8
million, or 14% of net sales, in the first quarter of fiscal 1998. The decrease
was due to lower administrative costs, primarily a decrease in bad debt expense.
Interest income and other, net increased from $144,000 in the first
quarter of fiscal 1997 to $148,000 in the first quarter of fiscal 1998.
FINANCIAL CONDITION
The Company has funded its operations to date primarily through cash
flows from operations and sales of equity securities including the initial
public offering of common stock completed in December 1995 and January 1996,
which generated net proceeds of approximately $12.1 million.
The Company used cash in the quarter ended June 30, 1997 for general
operating purposes and, to a lesser extent, for capital expenditures in
connection with activities directed at increasing capacity.
As of June 30, 1997, the Company had $6.0 million of cash and cash
equivalents, $7.7 million of short-term investments and $26.5 million of working
capital. The Company believes that the current capital resources combined with
cash generated from operations will be sufficient to meet its liquidity and
capital expenditure requirements at least through fiscal 1998.
RISKS, TRENDS, AND UNCERTAINTIES
The following risk factors should be carefully reviewed in addition to the other
information contained in this Quarterly Report in Form 10-Q.
Potential Fluctuations in Quarterly Results. The Company's quarterly
results have fluctuated in the past, and may continue to fluctuate in the
future, due to a number of factors, including: the timing, cancellation or delay
of customer orders; the mix of products sold; 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
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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. If the Company is unable to design,
manufacture and market new products for existing or emerging commercial markets
successfully, its business, operating results and financial condition will be
adversely affected. Furthermore, if the markets for the Company's products in
the commercial wireless communications area fail to grow, or grow more slowly
than anticipated, the Company's business, operating results and financial
condition could be materially adversely affected.
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.
The company is currently in the process of completing a new facility to
house its wireless subsystems manufacturing operations, and expects to begin
manufacturing operations in the new facility in the third quarter of fiscal
1998. There can be no assurance that this facility will be completed when
planned. In the event that the new facility is not completed on a timely basis,
the Company could be subject to production capacity constraints at its other
manufacturing facility. Such constraints could have a material adverse effect on
the Company's business, operating results or financial condition.
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 1997 and the three months ended June 30, 1997
sales to the Company's top ten customers accounted for approximately 66% and
75%, respectively, of total net sales. In the three months ended June 30, 1997,
P-Com, Hughes Network Systems, and Northrop-Grumman accounted for 15%, 15% and
12% 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
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quarter to quarter. Such fluctuations could have a material adverse effect on
the Company's business, operating results and financial condition.
No Assurance of Product Performance and Reliability. The Company's
customers establish demanding specifications for performance and reliability.
There can be no assurance that problems will not occur in the future with
respect to performance and reliability of the Company's products. If such
problems occur, the Company could experience increased costs, delays in or
reductions, cancellations or rescheduling of orders and shipments, product
returns and discounts, and product redesigns, any of which would have a material
adverse effect on the Company's business, operating results and financial
condition.
Rapid Technological Change. The markets in which the Company competes
are characterized by rapidly changing technologies, evolving industry standards
and continuous improvements in products and services. There can be no assurance
that the Company will be able to respond to technological advances, changes in
customer requirements or changes in regulatory requirements or industry
standards, and any significant delays in the development, introduction or
shipment of products could have a material adverse effect on the Company's
business, operating results and financial condition.
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.
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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.
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Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
Exhibit 11: Statement re: Computation of earnings per share
Exhibit 27: Financial Data Schedule
The Company did not file any reports on Form 8-K during the three months ended
June 30, 1997.
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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 14, 1997 /s/ MARGARET E. SMITH
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Margaret E. Smith, Vice President,
Chief Financial Officer and Assistant
Secretary
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INDEX TO EXHIBITS
Exhibit
Number Exhibits
11 Computation of earnings per share
27 Financial Data Schedule
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