UNITED STATES
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 April 4, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-21507
POWERWAVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 11-2723423 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1801 E. St. Andrew Place, Santa Ana, CA 92705
(Address of principal executive offices, zip code)
Registrant’s telephone number, including area code: (714) 466-1000
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 ¨
Indicate by check mark whether the Registrant is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes x No ¨
As of April 28, 2004 the number of outstanding shares of Common Stock, par value $0.0001 per share, of the Registrant was 63,487,910.
INDEX
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CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to revenue, revenue composition, demand and pricing trends, future expense levels, competition in our industry, trends in average selling prices and gross margins, the transfer of certain manufacturing operations to contract manufacturers, product and infrastructure development, market demand and acceptance, the timing of and demand for 3G products, customer relationships, employee relations, plans and predictions for pending acquisitions, acquired companies and assets, future acquisition plans, restructuring charges and the level of expected capital and research and development expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to Powerwave Technologies, Inc.’s (“Powerwave” or the “Company”) management and are subject to certain risks, uncertainties and assumptions. Any other statements contained herein (including without limitation statements to the effect that Powerwave or management “estimates,” “expects,” “anticipates,” “plans,” “believes,” “projects,” “continues,” “may,” “will,” “could,” or “would” or statements concerning “potential” or “opportunity” or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact are also forward-looking statements. The actual results of Powerwave may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors, including those discussed in “Additional Factors That May Affect Our Future Results” under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” at pages 16-37. Because of these and other factors that may affect Powerwave’s operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that Powerwave files from time to time with the Securities and Exchange Commission, including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.
HOW TO OBTAIN POWERWAVE SEC FILINGS
All reports filed by Powerwave with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by the Company with the SEC at the SEC’s public reference room located at 450 Fifth St., N.W., Washington, D.C. 20549. Powerwave also provides copies of its Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at no charge to investors upon request and makes electronic copies of its most recently filed reports available through its website at www.powerwave.com as soon as reasonably practicable after filing such material with the SEC.
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| April 4, 2004 |
December 28, 2003 |
|||||||
| (Unaudited) | (See Note) | |||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 250,354 | $ | 260,528 | ||||
| Accounts receivable, net of allowance for sales returns and doubtful accounts of $2,251 and $2,332 at April 4, 2004 and December 28, 2003, respectively |
51,204 | 56,278 | ||||||
| Inventories |
17,326 | 15,187 | ||||||
| Prepaid expenses and other current assets |
5,419 | 6,413 | ||||||
| Deferred tax assets |
5,137 | 6,940 | ||||||
| Total current assets |
329,440 | 345,346 | ||||||
| Property, plant and equipment, net |
65,436 | 67,975 | ||||||
| Goodwill |
3,439 | 3,439 | ||||||
| Deferred tax assets |
40,151 | 35,990 | ||||||
| Other non-current assets |
14,078 | 13,507 | ||||||
| TOTAL ASSETS |
$ | 452,544 | $ | 466,257 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 37,212 | $ | 48,942 | ||||
| Accrued expenses and other current liabilities |
15,821 | 16,159 | ||||||
| Total current liabilities |
53,033 | 65,101 | ||||||
| Long-term debt |
130,000 | 130,000 | ||||||
| Other non-current liabilities |
119 | 119 | ||||||
| Total liabilities |
183,152 | 195,220 | ||||||
| Commitments and contingencies (Note 11) |
— | — | ||||||
| Shareholders’ equity: |
||||||||
| Preferred stock, $0.0001 par value, 5,000 shares authorized and no shares issued or outstanding |
— | — | ||||||
| Common stock, $0.0001 par value, 135,000 shares authorized, 63,487 shares issued and outstanding at April 4, 2004 and 63,257 shares issued and outstanding at December 28, 2003 |
227,286 | 225,651 | ||||||
| Accumulated other comprehensive loss |
(17 | ) | (1 | ) | ||||
| Retained earnings |
42,123 | 45,387 | ||||||
| Total shareholders’ equity |
269,392 | 271,037 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 452,544 | $ | 466,257 | ||||
Note: December 28, 2003 balances were derived from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
| Three Months Ended |
||||||||
| April 4, 2004 |
March 30, 2003 |
|||||||
| Net sales |
$ | 63,224 | $ | 52,154 | ||||
| Cost of sales |
52,450 | 48,369 | ||||||
| Gross profit |
10,774 | 3,785 | ||||||
| Operating expenses: |
||||||||
| Sales and marketing |
3,547 | 2,901 | ||||||
| Research and development |
9,281 | 9,950 | ||||||
| General and administrative |
3,603 | 3,347 | ||||||
| Goodwill impairment charge |
— | 4,852 | ||||||
| Total operating expenses |
16,431 | 21,050 | ||||||
| Operating loss |
(5,657 | ) | (17,265 | ) | ||||
| Other income, net |
351 | 752 | ||||||
| Loss before income taxes |
(5,306 | ) | (16,513 | ) | ||||
| Benefit from income taxes |
(2,043 | ) | (5,945 | ) | ||||
| Net loss |
$ | (3,263 | ) | $ | (10,568 | ) | ||
| Basic loss per share |
$ | (0.05 | ) | $ | (0.16 | ) | ||
| Diluted loss per share |
$ | (0.05 | ) | $ | (0.16 | ) | ||
| Basic weighted average common shares |
63,393 | 65,877 | ||||||
| Diluted weighted average common shares |
63,393 | 65,877 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)
| Three Months Ended |
||||||||
| April 4, 2004 |
March 30, 2003 |
|||||||
| Net loss |
$ | (3,263 | ) | $ | (10,568 | ) | ||
| Other comprehensive loss, net of tax: |
||||||||
| Foreign currency translation adjustments |
(16 | ) | (1 | ) | ||||
| Comprehensive loss |
$ | (3,279 | ) | $ | (10,569 | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Three Months Ended |
||||||||
| April 4, 2004 |
March 30, 2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (3,263 | ) | $ | (10,568 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
3,846 | 4,948 | ||||||
| Goodwill impairment charge |
— | 4,852 | ||||||
| Provision for sales returns and doubtful accounts |
178 | 9 | ||||||
| Provision for excess and obsolete inventories |
6 | 1,221 | ||||||
| Deferred income taxes |
(2,076 | ) | (5,997 | ) | ||||
| Compensation costs related to stock options |
— | 15 | ||||||
| Loss (gain) on disposal of property, plant and equipment |
(37 | ) | 12 | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
4,896 | 10,795 | ||||||
| Inventories |
(2,146 | ) | (4,125 | ) | ||||
| Prepaid expenses and other current assets |
995 | (52 | ) | |||||
| Accounts payable |
(11,730 | ) | 1,706 | |||||
| Accrued expenses and other current liabilities |
(355 | ) | (1,317 | ) | ||||
| Other non-current assets |
(825 | ) | (216 | ) | ||||
| Other non-current liabilities |
— | 1 | ||||||
| Net cash provided by (used in) operating activities |
(10,511 | ) | 1,284 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of property, plant and equipment |
(1,248 | ) | (735 | ) | ||||
| Proceeds from the sale of property, plant and equipment |
233 | 172 | ||||||
| Net cash used in investing activities |
(1,015 | ) | (563 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from the sale of stock under Employee Stock Purchase Plan |
902 | 892 | ||||||
| Proceeds from exercise of stock options |
450 | 23 | ||||||
| Net cash provided by financing activities |
1,352 | 915 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(10,174 | ) | 1,636 | |||||
| CASH AND CASH EQUIVALENTS, beginning of period |
260,528 | 162,529 | ||||||
| CASH AND CASH EQUIVALENTS, end of period |
$ | 250,354 | $ | 164,165 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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POWERWAVE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
(In thousands)
| Three Months Ended | |||||||
| April 4, 2004 |
March 30, 2003 | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: |
|||||||
| Cash paid (received) for: |
|||||||
| Interest expense |
$ | 812 | $ | 13 | |||
| Income taxes |
$ | (64 | ) | $ | 9 | ||
| NON-CASH ITEMS: |
|||||||
| Tax benefit related to stock options exercised |
$ | 181 | $ | 49 | |||
| Tax benefit related to the issuance of Common Stock under the Employee Stock Purchase Plan |
$ | 103 | $ | 30 | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands, except per share data)
Note 1. Nature of Operations
Powerwave Technologies, Inc. (“Powerwave” or the “Company”) is a Delaware corporation engaged in the design, manufacture and sale of radio frequency power amplifiers and related equipment for use in the wireless communications market. The Company sells both single and multi-carrier radio frequency power amplifiers for a variety of frequency ranges and a wide range of digital and analog transmission protocols. The Company’s products are currently being utilized in cellular, PCS and 3G base stations throughout the world.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of Powerwave have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States of America for complete financial reporting. The interim financial information is unaudited, but reflects all normal adjustments and accruals, which are, in the opinion of management, considered necessary to provide a fair presentation for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003.
The results of operations for the quarter ended April 4, 2004 are not necessarily indicative of the results to be expected for the entire fiscal year ending January 2, 2005 (“fiscal 2004.”)
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of the condensed consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Stock-Based Compensation
Pursuant to Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (“SFAS 123”), the Company has elected to continue using the intrinsic value method of accounting for stock based awards granted to employees and directors in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretations to account for its stock option and purchase plans. Powerwave only records compensation expense for stock based awards granted with an exercise price below the market value of the Company’s stock at the grant date.
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