10-Q 1 0001.txt FILING ON FORM 10-Q 1 =============================================================================== UNITED STATES 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 OCTOBER 1, 2000, 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: 0-24360 SPECTRIAN CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 77-0023003 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 350 West Java Drive Sunnyvale, California 94089 (Address of principal executive offices) (Zip Code) Telephone Number (408) 745-5400 (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 October 27, 2000 there were 11,007,632 shares of the Registrant's Common Stock outstanding. =============================================================================== 2 SPECTRIAN CORPORATION FORM 10-Q INDEX FOR QUARTER ENDED OCTOBER 1, 2000
Page ---- PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets - October 1, 2000 and September 26, 1999........................................ 3 Condensed Consolidated Statements Of Operations - Three Months and Six Months Ended October 1, 2000 and September 26, 1999... 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended October 1, 2000 and September 26, 1999.................. 5 Notes to Condensed Consolidated Financial Statements............ 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 12 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...... 25 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings............................................... 26 ITEM 4. Submission of Matters to a Vote of Security Holders............. 26 ITEM 6. Exhibits and Reports on Form 8-K................................ 27 Signatures...................................................... 28
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SPECTRIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)
October 1, March 31, 2000 2000 (1) ---- ------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 16,011 $ 11,553 Short-term investments 28,211 36,027 Accounts receivable, less allowance for doubtful accounts of $420 and $420, respectively 23,998 23,817 Inventories 28,059 34,542 Prepaid expenses and other current assets 8,154 4,400 -------- -------- Total current assets 104,433 110,339 Property and equipment, net 18,465 19,668 Other assets 1,268 1,268 -------- -------- Total assets $124,166 $131,275 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 17,222 $ 16,416 Accrued liabilities 11,373 13,793 Current portion of debt and capital lease Obligations 1,227 730 -------- -------- Total current liabilities 29,822 30,939 Debt and capital lease obligations, net of current portion 573 1,351 -------- -------- Total liabilities 30,395 32,290 -------- -------- Contingencies (Note 9) STOCKHOLDERS' EQUITY: Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued and outstanding, respectively -- -- Common stock, $0.001 par value, 20,000,000 shares authorized; 12,006,843 and 11,859,507 shares issued, respectively; 11,006,843 and 10,859,507 shares outstanding, respectively 12 12 Additional paid-in capital 161,379 160,117 Treasury stock, 1,000,000 shares of common stock held (14,789) (14,789) Deferred compensation expense (84) (937) Accumulated other comprehensive loss (281) (617) Accumulated deficit (52,466) (44,801) -------- -------- Total stockholders' equity 93,771 98,985 Total liabilities and stockholders' equity $124,166 $131,275 ======== ======== (1) Derived from the March 31, 2000 audited balance sheet included in the 2000 Annual Report on Form 10-K of Spectrian Corporation.
See accompanying notes to condensed consolidated financial statements. 3 4 SPECTRIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended ----------------------- ----------------------- October 1, September 26, October 1, September 26, 2000 1999 2000 1999 ---- ---- ---- ---- NET REVENUES $41,916 $42,967 $84,106 $74,451 ------- ------- ------- ------- COSTS AND EXPENSES: Cost of revenues 34,714 32,676 69,982 58,568 Research and development 5,341 5,529 10,942 10,406 Selling, general and Administrative 6,206 4,533 11,866 8,827 ------- ------- ------- ------- Total costs and expenses 46,261 42,738 92,790 77,801 ------- ------- ------- ------- OPERATING INCOME (LOSS) (4,345) 229 (8,684) (3,350) INTEREST INCOME 523 728 1,120 1,875 INTEREST EXPENSE (43) (143) (89) (301) ------- ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES (3,865) 814 (7,653) (1,776) INCOME TAXES -- 26 12 58 ------- ------- ------- ------- NET INCOME (LOSS) $(3,865) $ 788 $(7,665) $(1,834) ======= ======= ======= ======= NET INCOME (LOSS) PER SHARE: Basic $ (0.35) $ 0.08 $ (0.70) $ (0.18) ======= ======= ======= ======= Diluted $ (0.35) $ 0.07 $ (0.70) $ (0.18) ======= ======= ======= ======= SHARES USED IN COMPUTING PER SHARE AMOUNTS: Basic 10,974 10,249 10,945 10,223 ======= ======= ======= ======= Diluted 10,974 10,632 10,945 10,223 ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements. 4 5 SPECTRIAN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended -------------------------- October 1, September 26, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (7,665) $ (1,834) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 5,722 6,788 Loss on sale of property and equipment, net 23 95 Stock option compensation expense 146 239 Changes in operating assets and liabilities: Accounts receivable (181) (11,814) Inventories 6,483 (3,449) Prepaid expenses and other current assets (3,754) (570) Accounts payable 806 3,488 Accrued liabilities (2,420) (4,395) -------- -------- Net cash used in operating activities (840) (11,452) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments -- (22,689) Proceeds from sale and maturities of short-term investments 8,152 22,702 Purchase of property and equipment (4,637) (2,485) Proceeds from sale of property and equipment 95 46 -------- -------- Net cash provided by (used in) investing activities 3,610 (2,426) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt and capital lease obligations (281) (558) Proceeds from sales of common stock, net 1,969 1,929 -------- -------- Net cash provided by financing activities 1,688 1,371 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,458 (12,507) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,553 26,254 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,011 $ 13,747 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 89 $ 301 ======== ======== Cash paid for income taxes $ 12 $ 58 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 6 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION Principles of Consolidation The accompanying unaudited condensed consolidated financial statements of Spectrian Corporation and subsidiaries ("Spectrian" or the "Company") have been prepared in conformity with generally accepted accounting principles. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the financial information set forth therein. These financial statements should be read in conjunction with the Company's audited consolidated financial statements as set forth on pages F-1 through F-22 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending March 31, 2001, or any other future period. Reclassifications Certain items have been reclassified to be consistent with current presentation. The reclassifications have no effect on previously disclosed net income or stockholders' equity. 2. BALANCE SHEET COMPONENTS Balance sheet components are as follows (in thousands):
October 1, March 31, 2000 2000 ---- ---- Inventories: Raw materials $18,587 $16,763 Work in progress 4,670 10,353 Finished goods 4,802 7,426 ------- ------- $28,059 $34,542 ======= ======= Property and equipment: Machinery and equipment $60,557 $58,322 Software 5,147 4,248 Leasehold improvements 3,948 3,781 ------- ------- 69,652 66,351 Less accumulated depreciation and amortization 51,187 46,683 ------- ------- $18,465 $19,668 ======= ======= Accrued liabilities: Employee compensation and benefits $ 4,241 $ 4,310 Warranty 6,508 7,123 Restructuring 100 996 Other accrued liabilities 524 1,364 ------- ------- $11,373 $13,793 ======= =======
6 7 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 3. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established a new model for accounting for derivative and hedging activities. In July, 1999 the Financial Accounting Standards Board issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date of SFAS 133 until the first fiscal year beginning after June 15, 2000. SFAS 133 is not expected to have a material impact on the Company's consolidated financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," as amended by SAB 101A and 101B, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company is currently assessing the impact of this new Staff Accounting Bulletin on its consolidated financial position, liquidity and results of operations. 4. SHORT-TERM INVESTMENTS The Company considers all liquid investments with an original maturity of three months or less to be cash equivalents. The cash equivalents consisted of investment grade, interest-bearing commercial paper and money market funds as of October 1, 2000. The Company has classified its investments in certain debt securities as "available-for-sale," and records such investments at fair market value, with unrealized gains and losses reported as a separate component of stockholders' equity. Realized gains and losses are determined using the specific identification method. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to interest income. As of October 1, 2000 and March 31, 2000, short-term investments classified as available-for-sale securities were as follows (in thousands):
Amortized Unrealized Fair As of October 1, 2000 Cost Gain (Loss) Value --------------------- ---- ----------- ----- Government bonds & notes $10,104 $ (70) $10,034 Corporate bonds & notes 23,091 (211) 22,880 ------- ----- ------- 33,195 (281) 32,914 Less amounts classified as cash Equivalents 4,703 -- 4,703 ------- ----- ------- Short-term investments $28,492 $(281) $28,211 ======= ===== ======= Contractual maturity dates: 1 to 5 years $28,211 =======
7 8 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited)
Amortized Unrealized Fair As of March 31, 2000 Cost Gain (Loss) Value -------------------- ---- ----------- ----- Government bonds & notes $14,599 $(166) $14,433 Commercial paper 29,545 (451) 29,094 ------- ----- ------- 44,144 (617) 43,527 Less amounts classified as cash equivalents 7,500 -- 7,500 ------- ----- ------- Securities available for sale $36,644 $(617) $36,027 ======= ===== ======= Contractual maturity dates: Less than 1 year $ 3,500 1 to 5 years 32,527 ------- $36,027 =======
5. PER SHARE COMPUTATION Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share is computed using the weighted average number of common and potentially dilutive common shares outstanding during the period using the treasury stock method. Potentially dilutive common shares include the effect of stock options. For the three and six months ended October 1, 2000, 3,064,478 stock options were not included for the calculation of diluted net loss per share as they were considered antidilutive due to the net loss the Company experienced in these fiscal periods. For the six months ended September 26, 1999, 3,050,860 stock options were not included for the calculation of diluted net loss per share as they were considered antidilutive due to the net loss the Company experienced in the fiscal period. Reconciliation of weighted average shares used in computing net income per share is as follows (in thousands):
Three Months Ended Six Months Ended ------------------------ ------------------------ October 1, September 26, October 1, September 26, 2000 1999 2000 1999 ---- ---- ---- ---- Weighted average common shares outstanding 10,974 10,249 10,945 10,223 Dilutive effect of stock options outstanding, using the treasury stock method -- 383 -- -- ------ ------ ------ ------ Shares used in computing diluted net income per share 10,974 10,632 10,945 10,223 ====== ====== ====== ======
6. SEGMENT INFORMATION Under the management approach, the Company has broken down its business into two operating segments based upon product type: Amplifier Division and Semiconductor Division, which operates under the tradename of UltraRF. UltraRF derives substantially all of its revenues from sales to the Amplifier Division. The Company allocates operating expenses to these segments but does not allocate interest income and expense, other income, net, the provision for income taxes and certain corporate operating expenses. Corporate expenses that are allocated to the operating segments are allocated based on predetermined annual allocation methods. Appropriate intersegment eliminations are made in the consolidation of the Company's consolidated financial statements. Segment assets, which include inventories and property and equipment, are reported upon by operation. No other assets and liabilities are reported separately. 8 9 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) Consolidated Statement of Operations Data - Fiscal 2001:
Three Months Ended October 1, 2000 ------------------------------------------ Amplifier UltraRF Other* Total --------- ------- ------ ----- Net revenues, external $41,517 $ 399 $ -- $41,916 Net revenues, intersegment -- 7,441 (7,441) -- Amortization and depreciation 1,196 792 806 2,794 Income (loss) before income taxes $(1,133) $(1,651) $(1,081) $(3,865)
Six Months Ended October 1, 2000 ------------------------------------------ Amplifier UltraRF Other* Total --------- ------- ------ ----- Net revenues, external $83,454 $ 652 $ -- $84,106 Net revenues, intersegment -- 14,627 (14,627) -- Amortization and depreciation 2,636 1,482 1,604 5,722 Income (loss) before income taxes $(5,608) $(1,154) $ (891) $(7,653)
Consolidated Statement of Operations Data - Fiscal 2000:
Three Months Ended September 26, 1999 ------------------------------------------ Amplifier UltraRF Other* Total --------- ------- ------ ----- Net revenues, external $42,779 $ 55 $ 133 $42,967 Net revenues, intersegment -- 6,802 (6,802) -- Amortization and depreciation 1,406 656 1,353 3,415 Income (loss) before income taxes $ (864) $ 569 $ 1,141 $ 846
Six Months Ended September 26, 1999 ------------------------------------------ Amplifier UltraRF Other* Total --------- ------- ------ ----- Net revenues, external $74,116 $ 68 $ 267 $74,451 Net revenues, intersegment -- 10,890 (10,890) -- Amortization and depreciation 2,778 1,284 2,726 6,788 Income (loss) before income taxes $(4,898) $ 297 $ 2,825 $(1,776)
*Data in the "Other" column represents the elimination of intersegment revenues, interest income and expense, other income, net, the provision for income taxes, certain unallocated corporate expenses and corporate amortization and depreciation that is subsequently allocated to the operating segments. Consolidated Balance Sheet Data:
October 1, 2000 ------------------------------------------ Amplifier UltraRF Other* Total --------- ------- ------ ----- Segment assets $28,582 $12,835 $ 5,107 $46,524 Expenditures for additions to long-lived assets $ 967 $ 3,415 $ 255 $ 4,637
9 10 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited)
March 31, 2000 ------------------------------------------ Amplifier UltraRF Other* Total --------- ------- ------ ----- Segment assets $32,142 $13,605 $8,463 $54,210
Geographic Segment Data: Revenue from unaffiliated customers by geographic region as a percentage of revenues were as follows:
Three Months Ended Six Months Ended ------------------------ ------------------------ October 1, September 26, October 1, September 26, 2000 1999 2000 1999 ---- ---- ---- ---- Canada 46% 51% 40% 53% United States 28% 5% 31% 6% France 15% 28% 20% 26% South Korea 7% 16% 6% 15% Other countries 4% -- 3% --
The Company's long-lived assets are located in the following countries (in thousands):
October 1, March 31, 2000 2000 ---- ---- United States $16,442 $18,226 Thailand 1,051 1,218 South Korea 972 224 ------- ------- $18,465 $19,668 ======= =======
7. DISCONTINUED MANUFACTURING OPERATIONS AND RELATED RESTRUCTURING CHARGES During fiscal 1999, the Company transitioned the assembly and test of its higher volume single carrier power amplifier products to a contract manufacturer located in Thailand on a turnkey basis. During the fourth quarter of fiscal 2000, the Company decided to transfer the remaining power amplifier production in Sunnyvale, California, to the contract manufacturer. In connection with the decision, the Company recognized in fiscal 2000 an approximately $1.0 million restructuring charge for estimated severance costs related to organizational changes and a planned reduction in work force. Approximately 90 employees engaged in manufacturing and production related functions are anticipated to be terminated as a result of the restructuring. The Company anticipates that the restructuring will be substantially completed in the fourth quarter of fiscal 2001. The following table represents the restructuring activity that took place up to October 1, 2000 (in thousands):
Reduction in Workforce --------- Balance at March 31, 2000 $ 996 Cash payment of severance costs (896) ----- Balance at October 1, 2000 $ 100 =====
The balance of the restructuring accrual is included in current liabilities on the condensed consolidated balance sheets. 10 11 SPECTRIAN CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) 8. COMPREHENSIVE INCOME Statement of Financial Accounting Standard No. 130 ("SFAS 130") "Reporting Comprehensive Income" establishes rules for the reporting and display of comprehensive income and its components. The following are the components of comprehensive income (loss) (in thousands):
Three Months Ended Six Months Ended ------------------------ ------------------------ October 1, September 26, October 1, September 26, 2000 1999 2000 1999 ---- ---- ---- ---- Net income (loss) $(3,865) $788 $(7,665) $(1,834) Unrealized gain (loss) on marketable securities 221 74 336 (467) ------- ---- ------- ------- Comprehensive income (loss) $(3,644) $862 $(7,329) $(2,301) ======= ==== ======= =======
The components of accumulated other comprehensive loss are as follows (in thousands):
October 1, March 31, 2000 2000 ---- ---- Unrealized loss on marketable securities $(281) $(617) ===== =====
9. LITIGATION On December 23, 1997, a purported class action complaint, Russ Warye et al v. Spectrian Corporation et al, Case No. C97-04672, was filed in the United States District Court for the Northern District of California against Spectrian and certain of its officers and directors. The complaint alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by making false and misleading statements about Spectrian's business and prospects between July 17, 1997 through October 23, 1997. On February 5, 1998, a virtually identical complaint, Bernstein et al v. Spectrian Corp. et al, Case No. CV771849, was filed in the Superior Court for the State of California, County of Santa Clara. The state court complaint alleged that Spectrian and certain of its officers and directors violated California state securities and common law and was based on the same allegations as the complaint filed in federal court. A final settlement has been reached by the parties which encompasses both the federal and state actions. Pursuant to the Private Securities Litigation Reform Act, the federal court approved the settlement on October 20, 2000 and dismissed the federal action. The Company anticipates that the state action will be dismissed in the near future. The terms of the settlement will not have a material adverse effect on the Company's financial position or results from operations. 10. LINE OF CREDIT The Company has a revolving line of credit of $10.0 million with a bank collateralized by the majority of the Company's assets. The line of credit expires on June 30, 2001. Under the terms of the master agreement governing this credit instrument, as amended, the Company is required to maintain certain minimum working capital, net worth, profitability and other specific financial ratios. The master agreement also has certain restrictions on other indebtedness and the payment of dividends. The Company was in compliance with all debt covenants at October 1, 2000. The amount available to borrow at October 1, 2000 was $10.0 million. At October 1, 2000, the Company can borrow at either (i) a variable rate equal to the prime rate (9.5%) or (ii) a fixed rate equal to 200 basis points above the LIBOR rate (totaling 8.82%). The Company had no borrowings under the line of credit at October 1, 2000. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the ''Securities Act'') and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), including statements regarding Spectrian Corporation's ("the Company") expectations, hopes, intentions or strategies regarding the future. When used herein, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend" and similar expressions are intended to identify forward-looking statements within the meaning of the Securities Act and the Exchange Act. Forward-looking statements include: statements regarding events, conditions and financial trends that may affect the Company's future plans of operations, business strategy, results of operations and financial position. All forward- looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. Investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors. These forward-looking statements are made in reliance upon the safe harbor provision of The Private Securities Litigation Reform Act of 1995. Factors that could cause or contribute to such differences include, but are not limited to, those described below, under the heading "Factors Affecting Future Operating Results" and elsewhere in this Quarterly Report on Form 10-Q. Overview -------- Spectrian designs, manufacturers and markets high-power RF amplifiers and semiconductor devices, for the global wireless communications industry. The Company's power amplifiers support a broad range of transmission standards, including AMPS, TDMA, CDMA, PCS, GSM, WLL, IMT-2000, CDMA2000 and UMTS. Spectrian's power amplifiers are utilized as part of the infrastructure for both wireless voice and data networks. The Company's power amplifiers boost the power of a signal so that it can reach a wireless phone or other device within a designated geography. The Company's semiconductor devices are key components of a power amplifier. UltraRF, the tradename for the Company's semiconductor division, operates its own wafer fabrication facility that utilizes bipolar and LDMOS technologies. This facility is capable of processing MOS devices with gold metallization. Using this fabrication facility, UltraRF produces high-power, high-performance LDMOS RF power semiconductors, which are one critical enabling component in the design and manufacture of second and third generation wireless infrastructure equipment. In addition to its own unique designs, UltraRF produces functional equivalents to some devices provided by other manufacturers. For the six months ended October 1, 2000, Nortel Networks Corporation ("Nortel") and Verizon Communications ("Verizon"), formed by the merger of Bell Atlantic and GTE Corporation, accounted for approximately 63% and 24% of net revenues, respectively. For the six months ended September 26, 1999, Nortel accounted for approximately 80% of net revenues. The Company's business, financial condition and results of operations have been materially adversely affected in the past by anticipated orders failing to materialize and by deferrals or cancellations of orders as a result of changes in customer requirements. In the year ended March 31, 1999 ("fiscal 1999") and the first and fourth quarters of the year ended March 31, 2000 ("fiscal 2000"), product orders fell sharply resulting in substantial losses in those fiscal periods. There can be no assurance that the Company will not experience such fluctuations in the future. In September 1999, the Company announced that it expected that it would not be developing new products for Nortel but would continue to supply Nortel with existing products. If the Company is unable to find new customers to generate demand for its new products, the Company's revenues may be materially adversely affected. If the Company were to lose Nortel, Verizon or any other major customer, or if orders by Nortel, Verizon or any other major customer were to otherwise materially decrease either in unit quantity or in price, the Company's business, financial condition and results of operations would be materially adversely affected. During the six months ended October 1, 2000 and September 26, 1999, sales outside of the United States were 69% and 94%, respectively. The Company expects that international sales will continue to account for a significant percentage of the Company's net revenues for the foreseeable future. Financial market turmoil, economic downturn, consolidation or merger of customers, and other changes in business conditions in any of the Company's current or future markets, such as South Korea and France, may have a material adverse effect on the Company's sales of its products. Furthermore, because the Company's products are priced in U.S. dollars, currency fluctuations and instability in the financial markets that are served by the Company may have the effect of making the Company's products more 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) expensive than those of other manufacturers whose products are priced in the local currency of the customer and may result in reduced revenues for the Company. In Sunnyvale, California, the Company services all of its power amplifier products and operates a four-inch semiconductor wafer fabrication facility and semiconductor assembly and testing operation. As of September 2000, the Company has transferred its entire power amplifier production to a contract manufacturer located in Thailand on a turnkey basis. The Company utilizes contract manufacturing to decrease the Company's manufacturing overhead and costs of its products, to increase flexibility to respond to fluctuations in product demand and to leverage the strengths of the contract manufacturer's focus on high volume, high quality manufacturing. The cost of transitioning manufacturing activities to the contract manufacturer in fiscal 1999 were higher than the savings from costs of products, which adversely affected the Company's gross margin for fiscal 1999. The Company's gross margin has been adversely affected in fiscal 2001 during the transition of the remaining power amplifier production to the contract manufacturer. As a result of its wafer fabrication facility and other manufacturing and development infrastructure, the Company has a high level of fixed costs and is dependent upon substantial revenue to achieve and maintain profitability. The Company's semiconductor fabrication facilities entail a number of risks, including a high level of fixed and variable costs, the management of complex processes, dependence on a single source of supply for certain components and services, and a strict regulatory environment. During periods of low demand, high fixed wafer fabrication costs are likely to have a material adverse effect on the Company's operations. In addition, the Company's strategy of frequently introducing and rapidly expanding the manufacture of new products to meet evolving OEM customer and wireless service provider needs has caused the Company to experience high materials and manufacturing costs, including high scrap and material waste, low yields, significant material obsolescence, labor inefficiencies, high overtime hours, inefficient material procurement and an inability to realize economies of scale. The market for the Company's products is becoming increasingly competitive. The Company is selling its power amplifier products in South Korea, as well as directly to cellular service providers where its competitors are already established as suppliers. In addition, the Company competes with at least one merchant amplifier manufacturer for business from Nortel. This competition has resulted in, and will continue to result in reduced average selling prices for the Company's products, which accordingly will negatively impact gross margins. Results of Operations --------------------- The following table sets forth for the periods indicated certain statement of operations data of the Company expressed as a percentage of total revenues and gross margin on sales.
Three Months Ended Six Months Ended ------------------------ ------------------------ October 1, September 26, October 1, September 26, 2000 1999 2000 1999 ---- ---- ---- ---- NET REVENUES 100.0% 100.0% 100.0% 100.0% COSTS AND EXPENSES: Cost of revenues 82.8 76.0 83.2 78.7 Research and development 12.7 12.9 13.0 14.0 Selling, general and Administrative 14.8 10.6 14.1 11.8 ----- ----- ----- ----- Total costs and expenses 110.3 99.5 110.3 104.5 ----- ----- ----- ----- OPERATING INCOME (LOSS) (10.3) 0.5 (10.3) (4.5) INTEREST INCOME 1.2 1.7 1.3 2.5 INTEREST EXPENSE (0.1) (0.3) (0.1) (0.4) ----- ----- ----- ----- INCOME (LOSS) BEFORE INCOME TAXES (9.2) 1.9 (9.1) (2.4) INCOME TAXES -- 0.1 -- 0.1 ----- ----- ----- ----- NET INCOME (LOSS) (9.2)% 1.8% (9.1)% (2.5)% ===== ===== ===== ===== GROSS MARGIN ON SALES 17.2% 24.0% 16.8% 21.3% ===== ===== ===== =====
13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Net Revenues. The Company's net revenues decreased 2% to $41.9 million ------------ for the three months ended October 1, 2000 from $43.0 million for the three months ended September 26, 1999. The Company's net revenues increased 13% to $84.1 million for the six months ended October 1, 2000 from $74.5 million for the six months ended September 26, 1999. The decline in net revenues compared to the three months ended September 26, 1999 is due to lower average selling prices and volumes in the single carrier power amplifier ("SCPA") products which was partially offset by higher volumes in the Broadband, a SCPA product, and multi-channel power amplifier ("MCPA") products. The growth in net revenues compared to the six months ended September 26, 1999 is due to Broadband and MCPA products, which combined for net revenues of $7.7 million for the six months ended September 26, 1999 and for revenues of $27.7 million for the six months ended October 1, 2000. UltraRF revenues from external customers increased to $0.7 million from none for the six months ended October 1, 2000 and September 26, 1999, respectively. Cost of Revenues. Cost of revenues consists primarily of turnkey amplifier ---------------- costs for the Company's higher volume products, internal amplifier assembly and test costs for its lower volume and new products, radio frequency ("RF") semiconductor fabrication, assembly and test costs, raw materials, manufacturing overhead and warranty costs. The Company's cost of sales increased by 6% to $34.7 million for the three months ended October 1, 2000 from $32.7 million for the three months ended September 26, 1999. The Company's cost of sales increased by 20% to $70.0 million for the six months ended October 1, 2000 from $58.6 million for the six months ended September 26, 1999. The increases on a dollar and percentage basis for the three and six months ended October 1, 2000 were due to higher sales unit volumes and lower yields on semiconductor production. Gross margin on sales was 17% for the three months ended October 1, 2000 as compared to 24% for the three months ended September 26, 1999. Gross margin on sales was 17% for the six months ended October 1, 2000 as compared to 21% for the six months ended September 26, 2000. The decrease in gross margin was primarily a result of declining average sales prices in all products and lower yields on semiconductor production. Research and Development. Research and development ("R&D") expenses ------------------------ include the cost of designing, developing or reducing the manufacturing cost of amplifiers and RF semiconductors. The Company's R&D expenses decreased by 3% to $5.3 million in the three months ended October 1, 2000 from $5.5 million in the three months ended September 26, 1999. The Company's R&D expenses increased by 5% to $10.9 million for the six months ended October 1, 2000 from $10.4 million in the six months ended September 26, 1999. As a percentage of net revenues, R&D expenses represented 13% for each of the three-month periods ended October 1, 2000 and September 26, 1999. As a percentage of net revenues, R&D expenses represented 13% for the six months ended October 1, 2000 as compared to 14% of net revenues for the six months ended September 26, 1999. The increase in R&D expenses on a dollar basis for the six months ended October 1, 2000 reflects new product development initiatives which the Company believes are required to meet current and future market and customer requirements. Selling, General and Administrative. Selling, general and administrative ----------------------------------- ("SG&A") expenses include compensation and benefits for sales, marketing, senior management and administrative personnel, commissions paid to independent sales representatives, professional fees and other expenses. The Company's SG&A expenses increased by 37% to $6.2 million in the three months ended October 1, 2000 from $4.5 million in the three months ended September 26, 1999. The Company's SG&A expenses increased by 34% to $11.9 million for the six months ended October 1, 2000 from $8.8 million in the six months ended September 26, 1999. As a percentage of net revenues, SG&A expenses represented 15% for the three months ended October 1, 2000 as compared to 11% of net revenues for the three months ended September 26, 1999. As a percentage of net revenues, SG&A expenses represented 14% for the six months ended October 1, 2000 as compared to 12% of net revenues for the six months ended September 26, 1999. The increase in SG&A expenses on a dollar and percentage basis was principally due to increased commissions, marketing efforts to diversify the customer base, creation of the UltraRF sales force and network, increased sales and marketing activities in Korea, costs incurred to evaluate strategic alternatives for UltraRF, and added maintenance and support for the new enterprise resource planning ("ERP") system. Furthermore, the Company has incurred approximately $1.2 million in additional costs associated with the evaluation of strategic alternatives for UltraRF that are included in Prepaid Expenses and Other Current Assets on the Condensed Consolidated Balance Sheet as of October 1, 2000. If these efforts do not result in a completed transaction, these deferred costs will be immediately recognized as SG&A expenses. 14 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Interest Income. Interest income for the three months ended October 1, --------------- 2000 decreased to $0.5 million from $0.7 million for the three months ended October 1, 2000. Interest income for the six months ended October 1, 2000 decreased to $1.1 million from $1.9 million for the six months ended September 26, 1999. The decrease in interest income resulted from lower interest-bearing investment balances associated with reduced average cash and cash equivalent balances. Interest Expense. Interest expense, for the three months ended October 1, ---------------- 2000 decreased to $43,000 from $143,000 for the three months ended September 26, 1999. Interest expense for the six months ended October 1, 2000 decreased to $89,000 from $301,000 for the six months ended September 26, 1999. The decrease in interest expense resulted from substantially reduced average borrowings levels. Income Taxes. Due to the losses incurred by the Company in prior years ------------ and the related net operating loss carryforwards available to the Company, the Company did not record an income tax expense except for the minimum state income tax expense for the three and six months ended October 1, 2000. Recent Accounting Pronouncements -------------------------------- In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established a new model for accounting for derivative and hedging activities. In July, 1999 the Financial Accounting Standards Board issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date of SFAS 133 until the first fiscal year beginning after June 15, 2000. SFAS 133 is not expected to have any material impact on the Company's consolidated financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," as amended by SAB 101A and 101B, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company is currently assessing the impact of this new Staff Accounting Bulletin on its consolidated financial position, liquidity and results of operations. Liquidity and Capital Resources ------------------------------- The Company has financed its growth through sales of common stock, private sales of equity securities, capital equipment leases, bank lines of credit and cash flows from operations. Principal sources of liquidity at October 1, 2000 consisted of cash and short-term investments of $44.2 million and bank borrowing arrangements. The Company has a revolving line of credit of $10.0 million with a bank collateralized by the majority of the Company's assets. The line of credit expires on June 30, 2001. Under the terms of the master agreement governing this credit instrument, as amended, the Company is required to maintain certain minimum working capital, net worth, profitability and other specific financial ratios. The master agreement also has certain restrictions on other indebtedness and the payment of dividends. The Company was in compliance with all debt covenants as of October 1, 2000. The amount available to borrow at October 1, 2000 was $10.0 million. The Company can borrow at either (i) a variable rate equal to the prime rate or (ii) a fixed rate equal to 200 basis points above the LIBOR rate, which at October 1, 2000 was 9.5% and 8.82%, respectively. The Company had no borrowings under the line of credit at October 1, 2000. In January 1997, the Company borrowed $6.0 million under a term loan collaterized by certain capital equipment. Under the terms of the loan agreement, which expires in January 2002, the Company is required to make a series of uneven monthly principal payments ranging from $42,000 to $136,000, plus interest at a rate of 9.1%, and must maintain certain minimum working capital, net worth and other specific ratios with which the Company was in compliance as of October 1, 2000. 15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company's working capital decreased by $4.8 million to $74.6 million as of October 1, 2000 from $79.4 million as of March 31, 2000. The decrease was primarily attributable to a $6.5 million decrease in net inventories, a $3.4 million decrease in cash, cash equivalents and short-term investments, a $0.8 million increase in accounts payable, which were partially offset by a $3.8 million increase in prepaid expenses and other current assets and a $2.4 million decrease in accrued liabilities. The Company's short-term investments were principally invested in investment grade, interest-bearing securities. Cash used by operations was $0.8 million for the six months ended October 1, 2000 compared to cash used by operations for the six months ended September 26, 1999 of $11.5 million. Cash used by operations for the six months ended October 1, 2000 was principally the result of a $7.7 million net loss, a $3.8 million increase in prepaid expenses and other current assets and a $2.4 million reduction in accrued liabilities which were offset by a $6.2 million decrease in inventories, a $0.8 million increase in accounts payable, which increased proportionately with production levels, and depreciation and amortization of $5.7 million. The Company's investing activities during the six months ended October 1, 2000 provided cash of approximately $3.6 million as compared to cash used of $2.4 million during the comparable period in the prior year. Cash provided by investing activities during the six months ended October 1, 2000 resulted primarily from $8.2 million in proceeds from sale and maturities of short-term investments which were partially offset by $4.6 million in additions to property and equipment. Capital additions for the six months ended October 1, 2000 included manufacturing test and production equipment required to support new products and test equipment to support various research and development projects. The Company's financing activities during the six months ended October 1, 2000 provided cash of approximately $1.7 million as compared to providing $1.4 million of cash during the comparable period in the prior year. Cash provided by financing activities during the six months ended October 1, 2000 was the result of $2.0 million in proceeds from the issuance of common stock, through the exercise of employee stock options and employee stock purchase plan activity, which was partially offset by $0.3 million in repayments of debt and capital lease obligations. The Company anticipates spending approximately $17.0 million over the next twelve months for capital additions primarily to support manufacturing production and test requirements and development projects. Based on the Company's current working capital position, the cash flows the Company expects to generate from the remainder of fiscal 2001 operations, and the available line of credit, the Company believes that sufficient resources will be available to meet the Company's cash requirements for at least the next twelve months. Cash requirements for future periods will depend on the Company's profitability, timing and level of capital expenditures, working capital requirements and rate of growth. 16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Factors Affecting Future Operating Results ------------------------------------------ Customer Concentration; Dependence on Nortel and Verizon. The wireless -------------------------------------------------------- infrastructure equipment market is dominated by a small number of large OEMs and wireless service providers, including Ericsson, Lucent, Motorola, Nortel, Verizon and Siemens. The Company's revenues are derived primarily from sales to a limited number of these customers, in particular, Nortel and Verizon. Furthermore, a substantial portion of revenues from Nortel in the past has resulted from sales of a limited number of the Company's products. The Company's business, financial condition and results of operations have been materially adversely affected in the past by anticipated orders failing to materialize and by deferrals or cancellations of orders as a result of changes in customer requirements. The Company and Nortel have a supply agreement, renegotiated annually, pursuant to which Nortel commits to purchase a certain volume of its annual power amplifier requirements for specified prices from the Company. This agreement allows Nortel to change the product mix requirements, which can significantly affect the Company's gross margins, and to change requested delivery dates without significant financial consequences to Nortel, which affect the Company's ability to efficiently manage production schedules and inventory levels and to accurately forecast product sales. In September 1999, the Company announced that it expected that it would not be developing products for Nortel but that it will continue to supply Nortel with existing products. There can be no assurance that Nortel will purchase existing products from the Company in the future or otherwise agree to purchase the same or similar levels of its power amplifier requirements from the Company or purchase its power amplifier requirements at the same or similar pricing. Any reduction in the level of purchases of the Company's amplifiers by Nortel or Verizon, or any material reduction in pricing without significant offsets, would have a material adverse effect on the Company's business, financial condition and results of operations. If the Company's current or new customers do not generate sufficient demand for the Company's new products replacing prior demand from Nortel, the Company's business, financial condition and results of operations could be materially adversely affected. Further, if the Company were to lose Nortel or any other major customer, or if orders by Nortel or Verizon or any other major customer were to otherwise materially decrease, the Company's business, financial condition and results of operations would be materially adversely affected. In addition, wireless infrastructure equipment OEMs have come under increasing price pressure from wireless service providers, which in turn has resulted in downward pricing pressure on the Company's products. The Company expects to incur increasing pricing pressures from Nortel, Verizon and other major customers in future periods, which could result in declining average sales prices and gross margins for the Company's products. Fluctuations in Operating Results. The Company's quarterly and annual --------------------------------- results have in the past been, and will continue to be, subject to significant fluctuations due to a number of factors, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. In particular, the Company's results of operations are likely to vary due to: the timing, cancellation, delay or rescheduling of OEM customer orders and shipments; the timing of announcements or introductions of new products by the Company, its competitors or their respective OEM customers; the acceptance of such products by wireless equipment OEMs and their customers; relative variations in manufacturing efficiencies, yields and costs; competitive factors such as the pricing, availability, and demand for competing amplification products; changes in average sales prices and related gross margins which vary significantly based upon product mix; subcontractor performance; variations in operating expenses; changes in manufacturing capacity and variations in the utilization of this capacity; shortages of key supplies; the long sales cycles associated with the Company's customer specific products; the timing and level of product and process development costs; changes in inventory levels; and the relative strength or weakness of international financial markets. Anticipated orders from the Company's OEM customers have in the past failed to materialize and delivery schedules have been deferred or canceled as a result of changes in OEM customer requirements and the Company expects this pattern to continue as customer requirements continue to change and industry standards continue to evolve. Reduced demand for wireless infrastructure equipment in the past has caused significant fluctuations in the Company's product sales. There can be no assurance that the Company will not experience such fluctuations in the future. The Company does not believe that it will have the annual revenue growth it experienced in fiscal 2000, in the future. The Company establishes its expenditure levels for product development and other operating expenses based on its expected revenues, and expenses are relatively fixed in the short term. As a result, variations in timing of revenues can cause significant variations in quarterly results of operations. There can be no assurance that the Company will be profitable on a quarter to quarter basis in the future. The Company believes that period to period comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. Due to all the foregoing factors, it is likely that in some future quarter or quarters the Company's revenues or operating results will not meet the expectations of public stock market analysts or investors. In such event, the market price of the Company's Common Stock would be materially adversely affected. 17 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Declining Average Sales Prices. The Company has experienced, and expects ------------------------------ to continue to experience, declining average sales prices for its products. Wireless infrastructure equipment manufacturers have come under increasing price pressure from wireless service providers, which in turn has resulted in downward pricing pressure on the Company's products. In addition, competition has increased the downward pricing pressure on the Company's products. Since wireless infrastructure equipment manufacturers frequently negotiate supply arrangements far in advance of delivery dates, the Company often must commit to price reductions for its products before it is aware of how, or if, cost reductions can be obtained. To offset declining average sales prices, the Company believes that it must achieve manufacturing cost reductions. If the Company is unable to achieve such cost reductions, the Company's gross margins will decline, and such decline will have a material adverse effect on the Company's business, financial condition and results of operations. Product Quality, Performance and Reliability. The Company expects that -------------------------------------------- its customers will continue to establish demanding specifications for quality, performance and reliability that must be met by the Company's products. Power amplifiers as complex as those offered by the Company often encounter development delays and may contain undetected defects or failures. The Company has from time to time in the past experienced product quality, performance and reliability problems. In addition, multicarrier power amplifiers have a higher probability of malfunction than single carrier power amplifiers because of their greater complexity. There can be no assurance that defects or failures relating to the Company's product quality, performance and reliability will not occur in the future that may have a material adverse effect on the Company's business, financial condition and results of operations. Internal Amplifier Design and Production Capabilities of OEMs. The ------------------------------------------------------------- Company believes that a majority of the present worldwide production of power amplifiers is captive within the manufacturing operations of wireless equipment OEMs, many of which have chosen not to purchase amplifiers from outside suppliers. In addition, these manufacturers could decide to sell amplifiers to other wireless equipment OEMs. If this should occur, the competition for power amplifiers would significantly increase and could have a material adverse effect on the Company's business, financial condition and results of operations. The Company also believes that those OEMs that purchase from third party amplifier vendors are reluctant to switch once committed to a particular merchant vendor. Consequently, the Company has only limited opportunities to increase revenues by replacing internal OEM amplifier production or displacing other merchant amplifier suppliers. Moreover, given the limited opportunities for merchant power amplifier suppliers, any decision by an OEM to employ a second source merchant supplier for a product currently purchased from a merchant supplier may reduce the existing merchant supplier's ability to maintain a given level of product sales to such OEM or, possibly, to retain the OEM as a customer due to price competition from the second source merchant supplier. There can be no assurance that the Company's major OEM customers will continue to rely, or increase their reliance, on the Company as an external source of supply for their power amplifiers, or that other wireless equipment OEMs will become customers of the Company. If the major wireless infrastructure equipment suppliers do not purchase or continue to purchase their power amplifiers from merchant suppliers, the Company's business, results of operations and financial condition will be materially adversely affected. Rapid Technological Change; Evolving Industry Standards; Dependence on New -------------------------------------------------------------------------- Products. The markets in which the Company and its OEM customers compete are -------- characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. In particular, because the Company's strategy of rapidly bringing to market products customized for numerous and evolving modulation standards requires developing and achieving volume production of a large number of distinct products, the Company's ability to rapidly design and produce individual products for which there is significant OEM customer demand will be a critical determinant of the Company's future success. A softening of demand in the markets served by the Company or a failure of modulation standard in which the Company has invested substantial development resources may have a material adverse effect on the Company's business, financial condition and results of operations. No assurance can be given that the Company's product development efforts will be successful, that its new products will meet customer requirements and be accepted or that its OEM customers' product offerings will achieve customer acceptance. If a significant number of development projects, including the Company's new multicarrier products, do not result in substantial volume production or if technologies or standards supported by the Company's or its customers' products become obsolete or fail to gain widespread commercial acceptance, the Company's business may be materially adversely affected. 18 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Sole or Limited Sources of Products, Materials and Services. The Company ----------------------------------------------------------- currently procures from single sources power amplifier assemblies, certain specialized components and services for its products. The Company purchases these products, components and services on a purchase order basis, does not carry significant inventories of these components and does not have any long- term supply contracts with its sole source vendors. During calendar 2000, the Company completed the transfer of the production of power amplifiers to a contract manufacturer in Thailand. As a result of this transfer, the Company no longer has significant manufacturing capacity. The Company issues non- cancelable purchase orders to the contract manufacturer 60 days in advance of requested delivery which is greater than the committed delivery schedule of some of its customers, such as Nortel. The Company's reliance on sole sources for certain components and its migration to an outsourced, turnkey manufacturing strategy entail certain risks including reduced control over the price, timely delivery, reliability and quality of the components. If the Company were to change any of its sole source vendors or contract manufacturer, the Company would be required to requalify the components with each new vendor or contract manufacturer, respectively. Any inability of the Company to obtain timely deliveries of components or assembled amplifiers of acceptable quality in required quantities or a significant increase in the prices of components for which the Company does not have alternative sources could materially and adversely affect the Company's business, financial condition and results of operations. The Company has occasionally experienced difficulties in obtaining some components, and no assurance can be given that shortages will not occur in the future. Risks of International Sales. The Company operates in an international ---------------------------- market and expects that international sales will continue to account for a significant percentage of the Company's total revenues for the foreseeable future. These sales involve a number of inherent risks, including imposition of government controls, currency exchange fluctuations, potential insolvency of international distributors, representatives and customers, reduced protection of intellectual property rights in some countries, the impact of recessionary environments in economies outside the United States, political instability and generally longer receivables collection periods, as well as tariffs and other trade barriers. In addition, because substantially all of the Company's foreign sales are denominated in U.S. dollars, increases in the value of the dollar relative to the local currency would increase the price of the Company's products in foreign markets and make the Company's products relatively more expensive and less price competitive than competitors' products that are priced in local currencies. There can be no assurance that these factors will not have a material adverse effect on the Company's future international sales and, consequently, on the Company's business, financial condition and results of operations. The Company anticipates that turmoil in financial markets and the deterioration of the underlying economic conditions in certain countries where the Company has significant sales may have an impact on its sales to customers located in or whose projects are based in those countries due to the impact of currency fluctuations on the relative price of the Company's products and restrictions on government spending imposed by the International Monetary Fund (the "IMF") on those countries receiving the IMF's assistance. In addition, customers in those countries may face reduced access to working capital to fund component purchases, such as the Company's products, due to higher interest rates, reduced funding of wireless infrastructure by domestic governments, reduced bank lending due to contractions in the money supply or the deterioration in the customer's or its bank's financial condition or the inability to access equity financing. A substantial majority of the Company's products are sold to OEMs who incorporate the Company's products into systems sold and installed to end-user customers. These OEMs are not required by contract and do not typically provide the Company with information regarding the location and identity of their end-user customers, and, therefore, the Company is not able to determine what portion of its product sales have been or future orders will be incorporated into OEM sales to end-users in countries experiencing financial market turmoil and/or deterioration of economic conditions. Furthermore, a large portion of the Company's existing customers and potential new customers are servicing new markets in developing countries that the Company's customers expect will deploy wireless communication networks as an alternative to the construction of a wireline infrastructure. If such countries decline to construct wireless communication systems, or construction of such systems is delayed for any reason, including business and economic conditions and changes in economic stability due to factors such as increased inflation and political turmoil, such delays could have a material adverse effect on the Company's business, financial condition and results of operations. Reliance upon Growth of Wireless Services. Sales of power amplifiers to ----------------------------------------- wireless infrastructure equipment suppliers have in the past accounted, and are expected in the future to account, for substantially all of the Company's 19 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) product sales. Demand for wireless infrastructure equipment is driven by demand for wireless service. Although demand for power amplifiers has grown in recent years, if demand for wireless services fails to increase or increases more slowly than the Company or its OEM customers currently anticipate, the Company's business, financial condition and results of operations would be materially and adversely affected. Market for the Company's Products Is Highly Competitive. The wireless ------------------------------------------------------- communications equipment industry is extremely competitive and is characterized by rapid technological change, new product development and product obsolescence, evolving industry standards and significant price erosion over the life of a product. The ability of the Company to compete successfully and sustain profitability depends in part upon the rates at which wireless equipment OEMs incorporate the Company's products into their systems and the Company captures market share from other merchant suppliers. The Company's major OEM customers continuously evaluate whether to manufacture their own amplification products or purchase them from outside sources. There can be no assurance that these OEM customers will incorporate the Company's products into their systems or that in general they will continue to rely, or expand their reliance, on external sources of supply for their power amplifiers. These customers and other large manufacturers of wireless communications equipment could also elect to enter the merchant market and compete directly with the Company, and at least one OEM, NEC, has already done so. Such increased competition could materially adversely affect the Company's business, financial condition and results of operations. The Company's principal competitors in the market for wireless amplification products provided by merchant suppliers currently include AML Communications, Amplidyne, Fujitsu, Microwave Power Devices, NEC and Powerwave Technologies. No assurance can be given that the Company's competitors will not develop new technologies or enhancements to existing products or introduce new products that will offer superior price or performance features compared to the Company's products. Uncertain Protection of Intellectual Property. The Company's ability to --------------------------------------------- compete successfully and achieve future revenue growth will depend, in part, on its ability to protect its proprietary technology and operate without infringing the rights of others. The Company has a policy of seeking patents on inventions resulting from its ongoing research and development activities. There can be no assurance that the Company's pending patent applications will be allowed or that the issued or pending patents will not be challenged or circumvented by competitors. Notwithstanding the Company's active pursuit of patent protection, the Company believes that the success of its business depends more on the collective value of its patents, specifications, computer aided design and modeling tools, technical processes and employee expertise. The Company generally enters into confidentiality and nondisclosure agreements with its employees, suppliers, OEM customers, and potential customers and limits access to and distribution of its proprietary technology. However, there can be no assurance that such measures will provide adequate protection for the Company's trade secrets or other proprietary information, or that the Company's trade secrets or proprietary technology will not otherwise become known or be independently developed by competitors. The failure of the Company to protect its proprietary technology could have a material adverse effect on its business, financial condition and results of operations. Risk of Third Party Claims of Infringement. The communications equipment ------------------------------------------ industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which have resulted in significant and often protracted and expensive litigation. Although there is currently no pending intellectual property litigation against the Company, the Company or its suppliers may from time to time be notified of claims that the Company may be infringing patents or other intellectual property rights owned by third parties. If it is necessary or desirable, the Company may seek licenses under such patents or other intellectual property rights. However, there can be no assurance that licenses will be offered or that the terms of any offered licenses will be acceptable to the Company. The failure to obtain a license from a third party for technology used by the Company or otherwise secure rights to use such technology could cause the Company to incur substantial liabilities, to suspend the manufacture of products or expend significant resources to develop noninfringing technology. There can be no assurance that the Company would be successful in such development or that such licenses would be available on reasonable terms, if at all. In the event that any third party makes a successful claim against the Company or its customers and either a license is not made available to the Company on commercially reasonable terms or a "design around" is not practicable, the Company's business, financial condition and results of operations would be materially adversely affected. 20 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Furthermore, the Company may initiate claims or litigation against third parties for infringement of the Company's proprietary rights or to establish the validity of the Company's proprietary rights. Litigation by or against the Company could result in significant expense to the Company and divert the efforts of the Company's technical and management personnel, whether or not such litigation results in a favorable determination for the Company. In the event of an adverse result in any such litigation, the Company could be required to pay substantial damages, indemnify its customers, cease the manufacture, use and sale of infringing products, expend significant resources to develop noninfringing technology, discontinue the use of certain processes or obtain licenses to the infringing technology. Government Regulation of Communications Industry. Radio frequency ------------------------------------------------ transmissions and emissions, and certain equipment used in connection therewith are regulated in the United States, Canada and throughout the rest of the world. Regulatory approvals generally must be obtained by the Company in connection with the manufacture and sale of its products, and by wireless service providers to operate the Company's products. The United States Federal Communications Commission (the "FCC") and regulatory authorities abroad constantly review RF emission issues and promulgate standards based on such reviews. If more stringent RF emission regulations are adopted, the Company and its OEM customers may be required to alter the manner in which radio signals are transmitted or otherwise alter the equipment transmitting such signals, which could materially adversely affect the Company's products and markets. The enactment by federal, state, local or international governments of new laws or regulations or a change in the interpretation of existing regulations could also materially adversely affect the market for the Company's products. Although deregulation of international communications industries along with radio frequency spectrum allocations made by the FCC have increased the potential demand for the Company's products by providing users of those products with opportunities to establish new wireless personal communications services, there can be no assurance that the trend toward deregulation and current regulatory developments favorable to the promotion of new and expanded personal communications services will continue or that other future regulatory changes will have a positive impact on the Company. The increasing demand for wireless communications has exerted pressure on regulatory bodies worldwide to adopt new standards for such products, generally following extensive investigation of and deliberation over competing technologies. The delays inherent in this governmental approval process have in the past caused, and may in the future cause, the cancellation, postponement or rescheduling of the installation of communications systems by the Company's OEM customers. These delays have had in the past, and in the future may have, a material adverse effect on the sale of products by the Company to such OEM customers. Environmental Regulations. The Company is subject to a variety of local, ------------------------- state and federal governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture the Company's products. The Company believes that it is currently in compliance in all material respects with such regulations and that it has obtained all necessary environmental permits to conduct its business. Nevertheless, the failure to comply with current or future regulations could result in the imposition of substantial fines on the Company, suspension of production, alteration of its manufacturing processes or cessation of operations. Compliance with such regulations could require the Company to acquire expensive remediation equipment or to incur substantial expenses. Any failure by the Company to control the use, disposal, removal or storage of, or to adequately restrict the discharge of, or assist in the cleanup of, hazardous or toxic substances, could subject the Company to significant liabilities, including joint and several liabilities under certain statutes. The imposition of such liabilities could materially adversely affect the Company's business, financial condition and results of operations. Sole or Limited Sources of Products, Materials and Services. The Company ----------------------------------------------------------- currently procures from single sources power amplifier assemblies, certain specialized components and services for its products. The Company purchases these products, components and services on a purchase order basis, does not carry significant inventories of these components and does not have any long- term supply contracts with its sole source vendors. During calendar 2000, the Company completed the transfer of the production of power amplifiers to a contract manufacturer in Thailand. As a result of this transfer, the Company no longer has significant manufacturing capacity. The Company issues non- cancelable purchase orders to the contract manufacturer 60 days in advance of requested delivery which is greater than the committed delivery schedule of some of its customers, such as Nortel. The Company's reliance on sole sources for certain components and its migration to an outsourced, turnkey manufacturing strategy entail certain risks including reduced control over the price, timely delivery, reliability and quality of the components. If the Company were to change any of its sole source vendors or contract manufacturer, the Company would be required to requalify the components with each new vendor or contract manufacturer, respectively. Any inability of the Company to obtain timely deliveries of components or assembled amplifiers of acceptable quality in required quantities or a significant 21 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) increase in the prices of components for which the Company does not have alternative sources could materially and adversely affect the Company's business, financial condition and results of operations. The Company has occasionally experienced difficulties in obtaining some components, and no assurance can be given that shortages will not occur in the future. Management of Growth; Dependence on Key Personnel. The Company's business ------------------------------------------------- and growth has placed, and is expected to continue to place, a significant strain on the Company's personnel, management and other resources. The Company's ability to manage any future growth effectively will require it to attract, motivate, manage and retain new employees successfully, especially in the highly competitive northern California job market, to integrate new employees into its overall operations and to retain the continued service of its key technical, marketing and management personnel, and to continue to improve its operational, financial and management information systems. Although the Company has employment contracts with several of its executive officers, these agreements do not obligate such individuals to remain in the employment of the Company. The Company does not maintain key person life insurance on any of its key technical personnel. The competition for such personnel is intense. The Company has experienced loss of key employees in the past and could in the future. Such losses could have a material adverse effect on the Company. On March 31, 2000, the Company employed Mr. Thomas H. Waechter as its President and Chief Executive Officer. There can be no assurance that Mr. Waechter will operate effectively with existing management nor that he will be able to retain or attract additional executive officers as needed. As a result of the plan to discontinue manufacturing operations in Sunnyvale, California, and the other restructuring activities, several key executives have ceased to be employees of the Company. The Company's ability to manage its growth will require it to continue to invest in its operational, financial and management information systems, procedures and controls. The Company can give no assurance that it will be able to manage its growth effectively. Failure to manage growth effectively would have a material adverse effect on the Company's business, financial condition and results of operations. The Company may, from time to time, pursue the acquisition of other companies, assets or product lines that complement or expand its existing business. The Company may also, from time to time, pursue divestitures of existing operations. Acquisitions and divestitures involve a number of risks that could adversely affect the Company's operating results. These risks include the diversion of management's attention from day-to-day business, the fluctuation of operating results due to the timing of charges for costs associated with acquisitions or divestitures, the difficulty of combining and assimilating the operations and personnel of the acquired companies, charges to the Company's earnings as a result of the purchase of intangible assets, and the potential loss of key employees as a result of an acquisition. Should any acquisition take place, we can give no assurance that this acquisition will not materially and adversely affect the Company or that any such acquisition will enhance the Company's business. Volatility of Stock Price. The market price of the shares of Common Stock ------------------------- has been and is likely to continue to be highly volatile, and is affected significantly by factors such as fluctuations in the Company's quarterly and annual operating results, customer concentration, the timing difference between Nortel's requested delivery dates and its vendor purchase commitments to support the customer's delivery requirements, reliance on international markets, the absence of the economies of scale achieved by some of its competitors, announcements of technological innovations, new customer contracts or new products by the Company or its competitors, announcements by the Company's customers regarding their business or prospects, changes in analysts' expectations, estimates and recommendations, news reports regarding the Company, its competitors and its markets, governmental regulatory action, developments with respect to patents or proprietary rights, announcements of significant acquisitions or strategic partnerships by the Company or its competitors, announcements of significant divestitures of existing businesses or product lines, general market conditions and other factors. In addition, the stock market in general, and the market prices for power amplifier manufacturers in particular, have experienced extreme volatility that is often unrelated to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the price of the Company's common stock, regardless of actual operating performance. The market price of the Company's Common Stock has fluctuated significantly in the past. Legal Proceedings. On December 23, 1997, a purported class action ----------------- complaint, Russ Warye et al v. Spectrian Corporation et al, Case No. C97-04672, was filed in the United States District Court for the Northern District of California against Spectrian and certain of its officers and directors. The complaint alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated 22 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) thereunder, by making false and misleading statements about Spectrian's business and prospects between July 17, 1997 through October 23, 1997. On February 5, 1998, a virtually identical complaint, Bernstein et al v. Spectrian Corp. et al, Case No. CV771849, was filed in the Superior Court for the State of California, County of Santa Clara. The state court complaint alleged that Spectrian and certain of its officers and directors violated California state securities and common law and was based on the same allegations as the complaint filed in federal court. A final settlement has been reached by the parties which encompasses both the federal and state actions. Pursuant to the Private Securities Litigation Reform Act, the federal court approved the settlement on October 20, 2000 and dismissed the federal action. The Company anticipates that the state action will be dismissed in the near future. The terms of the settlement will not have a material adverse effect on the Company's financial position or results from operations. Shareholder Rights Plan; Issuance of Preferred Stock. The Board of ---------------------------------------------------- Directors of the Company adopted a Shareholder Rights Plan in October 1996 (the "Previous Agreement"). On August 9, 2000, pursuant to section 27 of the Previous Agreement, the Company's Board of Directors agreed to restate the dividend that it had declared under the Previous Agreement in a Second Amended and Restated Preferred Shares Rights Agreement dated August 14, 2000 (the "Rights Agreement"). Under the Rights Agreement, the Company's Board of Directors amended the Previous Agreement to amend the dividend of one right (a "Right," and collectively the "Rights") to purchase one one-thousandth share of the Company's Series A Preferred for each outstanding share of Common Stock, par value $0.001 per share ("Common Shares"), of the Company. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred at an exercise price of $126.00 (the "Purchase Price"), subject to adjustment. The Rights become exercisable upon the occurrence of certain events, including the announcement of a tender offer or exchange offer for the Company's Common Stock or the acquisition of a specified percentage of the Company's Common Stock by a third party. The exercise of the Rights could have the effect of delaying, deferring or preventing a change in control of the Company, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of the Company's Common Stock. These provisions could also limit the price that investors might be willing to pay in the future for shares of the Company's Common Stock. The Board of Directors has the authority to issue up to 5,000,000 shares of undesignated Preferred Stock and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated Preferred Stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by the Company's stockholders. For example, in connection with the Company's Shareholder Rights Plan, the Board of Directors designated 20,000 shares of Preferred Stock as Series A Participating Preferred Stock although none of such shares have been issued. The Preferred Stock could be issued with voting, liquidation, dividend and other rights superior to those of the holders of Common Stock. The issuance of Preferred Stock under certain circumstances could have the effect of delaying, deferring or preventing a change in control of the Company. Additional Factors Affecting Future Operating Results of UltraRF ---------------------------------------------------------------- Capacity Constraints. UltraRF's facilities have a level of capacity beyond -------------------- which it cannot cost effectively produce its products. Although UltraRF is not currently approaching those constraints, it may be unable to further expand its business if it fails to plan and build sufficient capacity. UltraRF may attempt to increase its capacity by converting its existing facility to accommodate equipment that processes six-inch wafers. UltraRF does not have any experience processing six-inch wafers in UltraRF's fabrication facilities. UltraRF may be required to modify its processes and procedures substantially to accommodate the larger wafers. As a result, implementing additional capacity for six-inch wafers may take longer than planned, which could harm UltraRF's results of operations. The process of converting to six-inch wafers must begin substantially prior to receiving actual customer demand for products. If the customer demand for products is not realized or implementation takes longer than planned, the results will have a material adverse effect on the Company's business, financial condition and results of operations. Risks Associated with UltraRF's Wafer and Device Fabrication. UltraRF's ------------------------------------------------------------ operation of its wafer and device fabrication facilities entails a number of risks, including a high level of fixed and variable costs, the management of complex processes, dependence on a single source of supply for certain components and services, and a strict 23 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) regulatory environment. During periods of low demand, high fixed wafer fabrication costs are likely to have a material adverse effect on UltraRF's business, financial condition and results of operations. The design and fabrication of RF semiconductors is a complex and precise process. Such manufacturing is sensitive to a wide variety of factors, including variations and impurities in the raw materials, quality control of the packages, difficulties in the fabrication process, performance of the manufacturing equipment, defects in the masks used to print circuits on a wafer and the level of contaminants in the manufacturing environment. As a result of these and other factors, semiconductor manufacturing yields from time to time in the past have suffered, and there can be no assurance that UltraRF will be able to achieve acceptable production yields in the future. In addition, UltraRF's wafer and device fabrication facility represents a single point of failure in its manufacturing process that would be costly and time consuming to replace if its operation were interrupted. The interruption of wafer fabrication operations, the loss of key employees dedicated to the wafer and device fabrication facilities, or any failure to maintain acceptable wafer and device production levels could have a material adverse effect on UltraRF's business, financial condition and results of operations. Risks Associated with Development of LDMOS RF. UltraRF's business could --------------------------------------------- be adversely affected by its failure to develop and market its LDMOS RF power transistors competitively. UltraRF sells its products in an industry characterized by rapid technological changes, frequent new product and service introductions and evolving industry standards. UltraRF can provide no assurance that its development efforts will result in commercially successful LDMOS products in a timely or cost-effective manner, if at all. UltraRF's competitors are also expected to develop and sell devices suitable for these markets and may produce devices with superior performance to UltraRF's planned developments. Failure by UltraRF to develop competitive devices could adversely affect its business. Risks Associated with Relationship with the Company. UltraRF's close --------------------------------------------------- relationship with the Company could limit UltraRF's potential to do business with the Company's competitors. The Company currently is UltraRF's largest customer, and UltraRF expects to have a variety of ongoing contractual relationships with the Company. UltraRF cannot predict whether existing or potential customers who are competitors of the Company will be deterred by the existence of such a relationship between the Company and UltraRF. If they are deterred, UltraRF's future growth could be hindered. Risks Associated with the Cyclical Nature of the Semiconductor Industry. ----------------------------------------------------------------------- From time to time, the semiconductor industry has experienced significant downturns and wide fluctuations in product supply and demand. This cyclicality has led to significant imbalances in demand and production capacity. It has also accelerated the decrease of average selling prices per unit. UltraRF may experience periodic fluctuations in its future financial results because of these or other industry-wide conditions. 24 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company develops products in the United States and markets its products in North America, Europe and the Asia-Pacific region. Thus, the financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. As all sales are currently made in U.S. dollars, a strengthening of the dollar could make the Company's products less competitive in foreign markets. The Company's exposure to market rate risk for changes in interest rates relate primarily to its investment portfolio. The Company does not hold derivative financial instruments in its investment portfolio. The Company places its investments with high quality institutions and limits the amount of credit exposure to any one issuer. The Company is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default, market and reinvestment risk. The Company classifies its short-term investments as "fixed-rate" if the rate of return on such instruments remains fixed over their term. These "fixed-rate" investments include fixed-rate U.S. government securities and corporate obligations with contractual maturity dates ranging from less than one year to greater than 10 years. The table below presents the amounts and related weighted interest rates of the Company's short-term investments at October 1 and March 31, 2000 (dollars in thousands).
October 1, March 31, 2000 2000 ---- ---- Average fixed interest rate 5.9% 6.0% ======= ======= Amortized cost $28,492 $36,644 ======= ======= Fair value $28,211 $36,027 ======= ======= Contractual maturity dates: Less than 1 year $ -- $ 3,500 1 to 5 years 28,211 32,527 ------- ------- $28,211 $36,027 ======= =======
25 26 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On December 23, 1997, a purported class action complaint, Russ Warye et al v. Spectrian Corporation et al, Case No. C97-04672, was filed in the United States District Court for the Northern District of California against Spectrian and certain of its officers and directors. The complaint alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by making false and misleading statements about Spectrian's business and prospects between July 17, 1997 through October 23, 1997. On February 5, 1998, a virtually identical complaint, Bernstein et al v. Spectrian Corp. et al, Case No. CV771849, was filed in the Superior Court for the State of California, County of Santa Clara. The state court complaint alleged that Spectrian and certain of its officers and directors violated California state securities and common law and was based on the same allegations as the complaint filed in federal court. A final settlement has been reached by the parties which encompasses both the federal and state actions. Pursuant to the Private Securities Litigation Reform Act, the federal court approved the settlement on October 20, 2000 and dismissed the federal action. The Company anticipates that the state action will be dismissed in the near future. The terms of the settlement will not have a material adverse effect on the Company's financial position or results from operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders (the "Annual Meeting") was held on August 30, 2000 at 10:00 a.m. local time, at 160 Gibraltar Court, Sunnyvale, California. The Annual Meeting was held for the purpose of (a) electing six directors to serve for the ensuing year and until their successors are duly elected and qualified, (b) approval of an amendment to the Company's 1992 Stock Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 400,000 shares, (c) ratifying and approving the appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for the fiscal year ending March 31, 2001 and (d) transacting such other business as may properly come before the Annual Meeting. Proposal No. 1 - Election of Six Members of the Board of Directors: ------------------------------------------------------------------ The following persons were duly elected to the Board by the shareholders for a one year term and until their successors are elected and qualified:
NOMINATION FOR ABSTAINED ---------- --- --------- Garrett A. Garrettson 9,366,920 585,032 Martin Cooper 9,373,876 578,076 Charles D. Kissner 9,381,151 570,801 Robert W. Shaner 9,380,137 571,815 Thomas H. Waechter 9,381,331 570,621 Robert C. Wilson 9,374,551 577,401
Proposal No. 2 - Approval of an Amendment to the Company's 1992 Stock Plan -------------------------------------------------------------------------- to increase the number of shares reserved for issuance thereunder by 400,000 ---------------------------------------------------------------------------- shares: ------
FOR AGAINST ABSTAINED --- ------- --------- 8,416,189 1,466,616 69,147
26 27 Proposal No. 3 - Ratification of the Appointment of PricewaterhouseCoopers -------------------------------------------------------------------------- LLP as the Company's Independent Accountants for the Fiscal Year Ending March ----------------------------------------------------------------------------- 31, 2001: --------
NOMINATION FOR AGAINST ABSTAINED ---------- --- ------- --------- PricewaterhouseCoopers LLP 9,916,479 26,671 8,802
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. --------
Exhibit Number Description ------ ----------- 4.1.3(1) Second Amended and Restated Preferred Shares Rights Agreement, dated as of August 14, 2000, by and between the Company and ChaseMellon Shareholder Services, including the Amended and Restated Certificate of Incorporation, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B, and C, respectively. 10.47 Loan Modification Agreement between the Company and Silicon Valley Bank dated August 15, 2000. 27.1 Financial Data Schedule. (1) Incorporated by reference to exhibits filed with the Registrant's Amended Registration Statement on Form 8-A12G/A (File No. 000-24360) as filed with the Securities and Exchange Commission on August 29, 2000.
(b) Reports on Form 8-K. The Company did not file any Reports on Form 8-K ------------------- during the quarter ended October 1, 2000. 27 28 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. SPECTRIAN CORPORATION --------------------- (Registrant) Dated: November 2, 2000 By: /s/ MICHAEL D. ANGEL ------------------------- Michael D. Angel Executive Vice President, Finance and Administration, Chief Financial Officer and Secretary (Authorized Officer and Principal Financial and Accounting Officer) 28 29 INDEX TO EXHIBITS
Sequentially Exhibits Description Numbered Page -------- ----------- ------------- 4.1.3(1) Second Amended and Restated Preferred Shares Rights Agreement, dated as of August 14, 2000, by and between the Company and ChaseMellon Shareholder Services, including the Amended and Restated Certificate of Incorporation, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B, and C, respectively. __ 10.47 Loan Modification Agreement between the Company and Silicon Valley Bank dated August 15, 2000. __ 27.1 Financial Data Schedule. __ (1) Incorporated by reference to exhibits filed with the Registrant's Amended Registration Statement on Form 8-A12G/A (File No. 000-24360) as filed with the Securities and Exchange Commission on August 29, 2000.
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