UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q/A
--------------------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934
For the quarterly period ended December 29, 1996
OR
____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number:
SAWTEK INC.
(Exact name of registrant as specified in its charter)
Florida 59-1864440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1818 South Highway 441
Apopka, Florida 32703
(Address of principal executive offices)
Telephone Number (407) 886-8860
(Registrant's telephone number, including area code)
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 ______
-----
As of January 15, 1997, there were 20,241,856 shares of the
Registrant's Common Stock outstanding, par value $.0005.
Sawtek Inc.
TABLE OF CONTENTS
Part I. Financial Information Page Number
- ------- --------------------- -----------
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of December 31, 1996
and September 30, 1996 ....................................... 3
Consolidated Statements of Income (Loss) for the three
months ended December 31, 1996 and 1995....................... 4
Consolidated Statements of Cash Flows for the three months
ended December 31, 1996 and 1995 ............................. 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 7
Part II. Other Information
- -------- ------------------
Item 1. Legal Proceedings ................................... 12
Item 2. Changes in Securities ............................... 12
Item 3. Defaults Upon Senior Securities ..................... 12
Item 4. Submission of Matters to a Vote of Security Holders . 12
Item 5. Other Information ................................... 12
Item 6. Exhibits and Reports on Form 8-K .................... 12
Signatures ............................................................ 13
Exhibit Index ......................................................... 13
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (unaudited)
SAWTEK INC.
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1996 1996
---- ----
(unaudited)
(dollars in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents $31,436 $ 27,743
Accounts receivable net of allowance for doubtful accounts and returns of
$883 at December 31, 1996 and $654 at September 30, 1996 7,738 7,938
Inventories 5,947 6,509
Deferred income taxes 1,255 1,266
Other current assets 533 528
------ -------
Total current assets 46,909 43,984
Other assets 165 186
Property, plant and equipment, net 34,381 30,424
------ ------
Total assets $81,455 $74,594
====== ======
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 3,151 $ 1,801
Accrued wages and benefits 1,506 3,109
Other accrued liabilities 1,693 1,068
Current maturities of long-term debt 1,376 1,363
Income taxes payable 1,867 844
------ ------
Total current liabilities 9,593 8,185
Long-term debt, less current maturities 3,668 3,786
Deferred income taxes 2,108 998
Shareholders' equity:
Common stock; $.0005 par value; 40,000,000 authorized shares; issued and
outstanding shares 20,197,872 at December 31, 1996 and 19,854,102 at
September 30, 1996 10 10
Capital surplus 53,198 53,000
Unearned ESOP compensation (1,367) (1,367)
Retained earnings 14,245 9,982
------ ------
Total shareholders' equity 66,086 61,625
------ ------
Total liabilities and shareholders' equity $81,455 $74,594
====== ======
See accompanying notes to consolidated financial statements.
3
SAWTEK INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) - unaudited
Three Months Ended December 31,
1996 1995
---- ----
(in thousands, except per share data)
Net sales $18,502 $10,809
Cost of sales 8,678 5,092
------ ------
Gross profit 9,824 5,717
Operating expenses:
Selling expenses 1,246 774
General & administrative expenses 1,134 1,068
ESOP compensation expense 196 5,540
Research & development expenses 681 418
------ ------
Total operating expenses 3,257 7,800
------ ------
Operating income (loss) 6,567 (2,083)
Interest expense 41 138
Other (income) expense (355) 6
------ ------
Income (loss) before taxes 6,881 (2,227)
Income taxes 2,618 954
------ ------
Net income (loss) $ 4,263 $(3,181)
====== ======
Net income (loss) per share $ 0.20 $ (.18)
====== ======
Shares used in computing net income (loss) per share 21,358 17,272
====== ======
See accompanying notes to consolidated financial statements.
4
SAWTEK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended December 31,
1996 1995
---- ----
(in thousands)
Operating activities:
Net income (loss) $ 4,263 $ (3,181)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 819 312
Deferred income taxes 1,120 108
ESOP allocation -0- 5,540
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 200 354
Inventories 562 (873)
Other current assets (5) (74)
Increase (decrease) in liabilities:
Accounts payable 1,350 1,849
Accrued liabilities (978) (525)
Income taxes payable 1,023 96
------ ------
Net cash provided by operating activities 8,354 3,606
Investing activities:
Purchase of property, plant and equipment, net (4,754) (6,424)
Increase in Industrial Revenue Bond assets -0- 1,257
------ ------
Net cash used in investing activities (4,754) (5,167)
Financing activities:
Proceeds from long-term debt -0- 3,000
Principal payments on long-term debt (105) (1,760)
Net proceeds from sale of common stock 198 55
Purchase of common stock -0- (158)
------ ------
Net cash provided by financing activities 93 1,137
------ ------
Increase (decrease) in cash and cash equivalents 3,693 (424)
Cash and cash equivalents at beginning of period 27,743 2,819
------ ------
Cash and cash equivalents at end of period $31,436 $ 2,395
====== ======
Interest paid $ 56 $ 67
Income taxes paid $ 475 $ 750
See accompanying notes to consolidated financial statements.
5
SAWTEK INC.
Notes to Consolidated Financial Statements - December 31, 1996 (unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information in response to the requirements of Article 10 of
Regulation S-X. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation of
the Company's financial condition as of December 31, 1996, and the results of
its operations, and its cash flows for the three months ended December 31, 1996
and 1995. These financial statements should be read in conjunction with the
Company's audited financial statements as of September 30, 1996, including the
notes thereto, and the other information set forth therein included in the
Company's most recent annual report on Form 10-K for the year ended September
30, 1996 (File No. 000-28276), which was filed with the Securities and Exchange
Commission (the "SEC") on November 8, 1996. The following discussion may contain
forward looking statements which are subject to the risk factors set forth in
"Risks and Uncertainties" in Item 2 of this Form 10-Q.
The Company maintains its records on a fiscal year ending on September 30 of
each year and all references to a year refer to the fiscal year ending on that
date.
The Company's first, second and third quarters end on the Sunday closest to the
last day of the last month of such quarter, which was December 29, 1996, for the
first quarter of 1997. However, for convenience, the financial statements are
dated as of December 31, 1996.
Operating results for the three months ended December 31, 1996 are not
necessarily indicative of the operating results that may be expected for the
year ending September 30, 1997.
2. Earnings (loss) Per Share
-------------------------
Earnings (loss) per share ("EPS") is computed based on the weighted average
number of common shares, common stock options (using the treasury stock method)
and all ESOP shares outstanding. In accordance with Securities and Exchange
Commission staff accounting bulletins, common and common equivalent shares
issued by the Company at prices below the public offering price during the
period beginning one year prior to the filing date of the initial public
offering on April 29, 1996, have been included in the calculation as if they
were outstanding for all periods prior to the offering (using the treasury stock
method and the initial public offering price).
3. Inventories - Inventories are composed of the following:
-----------
December 31, 1996 September 30, 1996
----------------- ------------------
(in thousands)
Raw Material..................... $ 2,034 $ 1,976
Work in Process.................. 1,951 2,341
Finished Goods................... 1,962 2,192
------ ------
Total......................... $ 5,947 $ 6,509
====== ======
6
4. Property, Plant and Equipment - Property, plant and equipment are composed
-----------------------------
of the following:
December 31, 1996 September 30, 1996
----------------- ------------------
(in thousands)
Land and Improvements............... $ 671 $ 671
Buildings........................... 9,829 9,829
Production and Test Equipment....... 21,943 21,459
Computer Equipment.................. 2,793 2,734
Furniture and Fixtures.............. 1,556 1,533
Construction in Progress............ 8,542 4,774
------ ------
45,334 41,000
Less Accumulated Depreciation.. 10,953 10,576
------ ------
Total................. $34,381 $30,424
====== ======
5. Shareholders' Equity
--------------------
The consolidated changes in shareholders' equity for the three months ended
December 31, 1996 are as follows:
(in thousands)
Common Stock Unearned
------------- Capital ESOP Retained
Shares Amount Surplus Compensation Earnings
------ ------ ------- ------------ --------
Balance at September 30, 1996 19,854 $ 10 $53,000 $(1,367) $ 9,982
Net income 4,263
Sale of common stock 344 198
------- --- ------ ------ ------
Balance at December 31, 1996 20,198 $ 10 $53,198 $(1,367) $14,245
====== === ====== ====== ======
Item 2. Management's discussion and analysis of financial condition and results
of operations
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
in this Form 10-Q. Except for the historical information contained herein, the
discussion in this Form 10-Q contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made herein
should be read as being applicable to all related forward-looking statements
wherever they appear. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such differences
include those discussed in "Risks and Uncertainties," as well as those discussed
elsewhere herein.
7
Overview
- --------
The Company was incorporated in 1979 to design, develop, manufacture and market
a broad range of electronic components based on surface acoustic wave ("SAW")
technology used in telecommunications, data communications, video transmission,
military and space systems and other markets. The Company's focus has been on
the high-end performance spectrum of the market, and its primary products are
SAW bandpass filters, resonators, delay lines, oscillators and SAW-based
sub-systems. Initially, the Company's products were concentrated in the military
and space systems market. The Company has since shifted its attention to
commercial markets which account for 86% of net sales in the first quarter of
1997. The Company has also experienced significant growth in its international
markets over the last five years, with international sales having more than
doubled to approximately 45% of net sales.
The Company derives revenue from high-volume commercial production components,
military/industrial production components and engineering services and products.
Non-recurring engineering ("NRE") revenue is included in net sales and relates
to the design and development of custom devices and delivery of prototype parts.
In all cases, revenue is recognized when the parts or services have been
completed and units, including prototypes, have been shipped.
Net sales increased 71% from the first three months of 1996 to the first three
months of 1997. The growth in net sales is mainly attributable to growth in the
wireless communications market to which the Company supplies SAW bandpass
filters for cellular telephone basestations and, to a lesser extent, for
handheld subscriber telephones. The Company has a broad product line of SAW
filters and other components with average selling prices generally in the range
of $5 to $300 for many high performance wireless applications.
For the three months ended December 31, 1996, net sales to the Company's top ten
customers accounted for approximately 76% of net sales with the top three
customers accounting for 44%. The Company expects that sales of its products to
a limited number of customers will account for a high percentage of its net
sales in the foreseeable future.
In 1991, the Company established an Employee Stock Ownership Plan ("ESOP"). At
that time, the Company borrowed $4.0 million from its commercial bank and loaned
it to the ESOP to finance the purchase of 8,888,880 shares of the Company's
common stock. The unpaid balance of this loan, $1.367 million as of December 31,
1996, matures in 1998 and is payable in quarterly installments of approximately
$195,000. These ESOP shares are accounted for in accordance with the American
Institute of Certified Public Accountants (AICPA) Statement of Position ("SOP")
76-3, which uses cost as the basis for valuing shares as they are released and
allocated to participants' accounts. In 1994, the Company borrowed an additional
$1.7 million and loaned it to the ESOP to finance the purchase of an additional
1,610,600 shares of common stock. In 1996, the Company repaid the 1994 loan and
allocated all of the related shares to participants' accounts. These shares were
accounted for in accordance with the AICPA's SOP 93-6, which uses fair market
value as the basis of valuing shares. The impact of this was a charge to ESOP
compensation expense of $12.9 million reflected in the financial results for
1996. Of the $12.9 million, $11.3 million was a one-time, non-cash charge
amounting to $0.59 per share for the full year of 1996 and $4.8 million or $0.28
per share for three months ending December 31, 1995.
Management does not believe that inflation has had a material impact on
operating costs and earnings of the Company.
8
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statement of operations to
total net sales:
Three Months Ended
December 31,
------------------
1996 1995
---- ----
Net sales 100.0% 100.0%
Cost of sales 46.9 47.1
----- -----
Gross profit 53.1 52.9
Operating expenses:
Selling expenses 6.7 7.2
General & administrative expenses 6.1 9.9
ESOP compensation expense 1.1 51.2
Research & development expenses 3.7 3.9
----- -----
Total operating expenses 17.6 72.2
----- -----
Operating income (loss) 35.5 (19.3)
Interest expense .2 1.3
Other (income) expense (1.9) 0.0
----- -----
Income (loss) before income taxes 37.2 (20.6)
Income taxes 14.2 8.8
----- -----
Net income (loss) 23.0% (29.4)%
===== =====
Comparison of Three Months Ended December 31, 1995 and 1996
- -----------------------------------------------------------
Net Sales. Net sales increased 71% from $10.8 million in the quarter ended
December 31, 1995 to $18.5 million in the quarter ended December 31, 1996. The
increase for the period was a result of increased product shipments to the
wireless communication market, specifically sales of high volume filters for
basestation applications and for PCS-CDMA subscriber handsets. International
sales decreased from approximately 48% of net sales in the three-month period
ended December 31, 1995 to 45% of net sales for the three months ended December
31, 1996. The percentage decrease in international sales was due to increasing
domestic sales, specifically sales of bandpass filters for subscriber handsets.
Sales for military and space systems were approximately 11% of net sales in the
three months ended December 31, 1995 compared to approximately 14% of net sales
for the three months ended December 31, 1996.
Gross Margin. Gross margin increased slightly from 52.9% in the three months
ended December 31, 1995 to 53.1% in the three months ended December 31, 1996.
The Company continued to shift production to high-volume components which have
somewhat lower gross margins. However, the new Costa Rica facility is operating
at favorable gross margins, which offset the slightly lower margins from the
high-volume components. The Company anticipates that its gross profit margins
may decline in the future due to increased production of lower margin subscriber
filters and competitive price pressure.
9
Selling Expenses. Selling expenses increased in the first quarter of 1997
compared to the same period in 1996, but decreased as a percentage of net sales
from the corresponding period. The decrease as a percentage of net sales was a
result of the Company's expanding net sales with substantially the same number
of sales and marketing personnel in 1997 as in 1996. As a result, selling
expenses remained relatively constant with advertising and commission expenses
paid to outside sales representatives as the only components that increased
significantly with the higher sales level. The Company anticipates that selling
expenses will increase as new employees are added to support its sales and
marketing effort in 1997 and as commissions are incurred.
General and Administrative Expenses. General and administrative expenses
remained essentially flat at approximately $1.1 million for the quarter ended
December 31, 1996 from the year-ago quarter. However, these costs decreased as a
percentage of sales from 10% for the first quarter of 1996 to 6% in 1997 as the
Company was able to increase its sales without incurring significant additional
administrative expenses.
ESOP Compensation Expense. For the first quarter of 1997, the Company recorded a
charge of $196,000 for ESOP compensation compared to $5.4 million for the same
period in fiscal 1996. The expense for the first quarter of 1996 included a $4.8
million non-recurring, non-cash charge related to the release and allocation of
all shares accounted for on a market-value basis. The Company will incur ESOP
compensation expense of approximately $782,000 for 1997 and approximately
$585,000 in 1998.
Research and Development Expenses. Research and development expenses increased
$263,000 in the quarter ended December 31, 1996 compared to the quarter ended
December 31, 1995. These expenses increased due to additional personnel and
expanded research and development efforts, but increased at a slower rate than
the sales increase. The Company anticipates that research and development
expenses will continue to increase in total dollars as personnel and programs
are added. A significant portion of the Company's development activities is
conducted in connection with the design and development of custom devices, which
is paid for by customers and classified as NRE items. The revenue generated from
these items is included in net sales and the cost is reflected in cost of sales
rather than in research and development expenses.
Interest Expense. Interest expense decreased from $138,000 in the first three
months of 1996 to $41,000 in the first three months of 1997, as the Company
repaid its credit line with a portion of the proceeds from the IPO in May, 1996.
Other Income and Expense. Other income and expense primarily represents interest
income and non-operating expenses. Other income increased due to interest earned
on the remaining proceeds of the Company's IPO and positive cash flow for the
quarter.
Income Tax Expense. The provision for income taxes as a percentage of income
before income taxes was 38% for the first three months of 1997. For the quarter
ended December 31, 1995, the Company incurred a non-deductible, non-cash charge
for ESOP compensation expense. Had it not been for this charge, the tax
provision would have been approximately 37% for the quarter. The Company expects
that its effective tax rate will remain at approximately 36% to 39% during 1997.
10
Risks and Uncertainties
- -----------------------
General Risks and Uncertainties. Except for historical information contained
herein, this Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that are subject to
risks and uncertainties, including fluctuations in quarterly results, backlog,
capacity limitations, order rescheduling or cancellation, limited sources of
supply, dependence on continuing demand for wireless communication services,
dependence on a limited number of customers, technological change, competition,
risks associated with international operations, variation in production yield,
change in economic conditions of the various markets the Company serves, as well
as the other risks detailed in the Company's Form 10-K filed with the Securities
and Exchange Commission on November 8, 1996.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its operations to date through cash generated from
operations, bank borrowings, lease financing, the private sale of securities,
and its May 1, 1996 initial public offering. The Company requires capital
principally for equipment, expansion of its primary facility, financing of
accounts receivable and inventory, investment in product development activities
and new technologies and for its operations in Costa Rica. For the three months
ended December 31, 1996, the Company generated net cash from operating
activities of $8.4 million, consisting primarily of net income of $4.3 million,
$.8 million of depreciation and amortization, $1.1 million in deferred taxes and
$1.4 million of increases in other current liabilities.
The Company has a revolving credit agreement totaling $15.0 million from
SunTrust Bank, Central Florida, N.A. available through January 1998. There were
no balances outstanding on this credit line at December 31, 1996.
The Company made capital expenditures of approximately $4.8 million during the
quarter ended December 31, 1996. The Company intends to spend approximately $23
million in 1997 on capital equipment and facilities.
The Company believes that its present cash position, together with its credit
facility and funds expected to be generated from operations, will be sufficient
to meet its projected working capital and other cash requirements through the
next 12 months. Thereafter, the Company may require additional equity or debt
financing to address its working capital needs or to provide funding for capital
expenditures. There can be no assurance that events in the future will not
require the Company to seek additional capital sooner or, if so required, that
it will be available on terms acceptable to the Company, if at all.
11
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings. The Company is not subject to any legal
proceedings that, if adversely determined, would cause a material
adverse effect on the Company's financial condition, business or
results of operations.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.1 - First Amendment to Amended and Restated Loan and
Security Agreement dated December 9th, 1996 between the Company
and SunTrust Bank, Central Florida, N.A. ("Suntrust").
(b) Exhibit 11.1 - Statement regarding computations of earnings per
share.
(c) Exhibit 27 - Financial Data Schedule.
(d) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three
months ended December 31, 1996.
12
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.
Dated: January 21, 1997
SAWTEK INC.
(Registrant)
/S/ Steven P. Miller
Steven P. Miller
Chairman, President & Chief Executive Officer
/S/ Raymond A. Link
Raymond A. Link
Vice President Finance, Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
- -------------
10.1 First amendment to Amended and Restated Loan and Security Agreement
dated December 9, 1996 between the Company and SunTrust Bank, Central
Florida, N.A. ("Suntrust").
11.1 Statement regarding computations of earnings per share.
27 Financial Data Schedule.
13