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: August 31, 2001
---------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 012182
Exact Name of Registrant as
Specified in Its Charter: CALIFORNIA AMPLIFIER, INC.
--------------------------
DELAWARE 95-3647070
------------------------------ ------------------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization: Identification No.
Address of Principal Executive Offices: 460 Calle San Pablo
Camarillo, CA 93012
Registrant's Telephone Number: (805) 987-9000
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 [ ]
The registrant had 13,601,901 shares of Common Stock outstanding as of
September 24, 2001.
<page>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except par value amounts)
August 31, February 28,
2001 2001
-------- --------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 18,021 $ 9,778
Accounts receivable, less allowance
of $1,519 and $380, respectively 11,712 11,382
Inventories 9,407 9,676
Deferred income taxes 2,134 2,222
Prepaid expenses and other current assets 667 1,163
-------- --------
Total current assets 41,941 34,221
Property and equipment, at cost, net of
accumulated depreciation and amortization 9,018 9,885
Goodwill, net of accumulated amortization 3,411 3,557
Deposits and other assets 499 458
-------- --------
$ 54,869 $ 48,121
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 940 $ 644
Accounts payable 9,222 5,103
Accrued payroll and employee benefits 1,335 1,467
Other accrued liabilities 6,538 6,783
-------- --------
Total current liabilities 18,035 13,997
-------- --------
Long-term debt, net of current portion 4,118 4,500
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value; 3,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 30,000 shares
authorized; 13,602 and 13,601 shares issued
and outstanding, respectively 136 136
Additional paid-in capital 25,050 23,975
Retained earnings 8,358 6,212
Accumulated other comprehensive loss (828) (699)
-------- --------
Total stockholders' equity 32,716 29,624
-------- --------
$ 54,869 $ 48,121
======== ========
See accompanying notes to unaudited consolidated financial statements.
<page>
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands except per share amounts)
Three Months Ended Six Months Ended
August 31, August 31,
------------------- -------------------
2001 2000 2001 2000
------- ------- ------- -------
Sales $24,654 $31,738 $45,456 $61,604
Cost of goods sold 18,502 25,638 34,525 49,658
------- ------- ------- -------
Gross profit 6,152 6,100 10,931 11,946
------- ------- ------- -------
Operating expenses:
Research and development 2,059 1,601 3,720 3,055
Selling 592 988 1,226 1,824
General and administrative 2,775 1,356 5,118 2,578
------- ------- ------- -------
Total operating expenses 5,426 3,945 10,064 7,457
------- ------- ------- -------
Operating income 726 2,155 867 4,489
Other income (expense), net 11 (32) 1 (92)
------- ------- ------- -------
Income from continuing operations
before income taxes 737 2,123 868 4,397
Income tax provision (272) (774) (312) (1,598)
------- ------- ------- -------
Income from continuing operations 465 1,349 556 2,799
Discontinued operation:
Income (loss) from discontinued
operation, net of tax (5) 70 (25) 160
Gain on sale of discontinued
operation, net of tax 1,615 - 1,615 -
------- ------- ------- -------
Total discontinued operation 1,610 70 1,590 160
------- ------- ------- -------
Net income $ 2,075 $ 1,419 $ 2,146 $ 2,959
======= ======= ======= =======
Basic earnings per share:
Continuing operations $ 0.03 $ 0.10 $ 0.04 $ 0.21
Discontinued operation 0.12 0.01 0.12 0.01
------- ------- ------- -------
$ 0.15 $ 0.11 $ 0.16 $ 0.22
======= ======= ======= =======
Diluted earnings per share:
Continuing operations $ 0.03 $ 0.09 $ 0.04 $ 0.20
Discontinued operation 0.12 0.01 0.11 0.01
------- ------- ------- -------
$ 0.15 $ 0.10 $ 0.15 $ 0.21
======= ======= ======= =======
Shares used in per share
calculations:
Basic 13,601 13,382 13,601 13,168
Diluted 14,000 14,354 13,979 14,250
See accompanying notes to unaudited consolidated financial statements.
<page>
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended
August 31,
---------------------
2001 2000
------- -------
Cash flows from operating activities:
Net income $ 2,146 $ 2,959
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 1,300 (44)
Depreciation and amortization 1,873 1,724
Deferred income taxes 251 1,435
Gain on sale of discontinued operation (1,615) -
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,630) 666
(Increase) decrease in inventories 269 (2,314)
(Increase) decrease in prepaid expenses
and other current assets (211) 111
Increase (decrease) in accounts payable 4,119 (1,818)
Decrease in accrued payroll and employee
benefits and other accrued liabilities (377) (759)
Other, net (35) 315
------- -------
Net cash provided by operating activities 6,090 2,275
------- -------
Cash flows from investing activities:
Capital expenditures (880) (1,799)
Net proceeds from sale of discontinued operation 3,231 -
Proceeds from sale of property and equipment 14 -
------- -------
Net cash provided by (used in) investing activities 2,365 (1,799)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt - 5,000
Repayments of long-term debt (86) (2,628)
Proceeds from exercise of stock options 3 1,818
------- -------
Net cash provided by (used in) financing activities (83) 4,190
------- -------
Effect of exchange rate changes on cash (129) 3
------- -------
Increase in cash and cash equivalents 8,243 4,669
Cash and cash equivalents at beginning of period 9,778 2,451
------- -------
Cash and cash equivalents at end of period $18,021 $ 7,120
======= =======
Supplemental cash flow information:
Interest paid $ 179 $ 190
Income taxes paid $ 142 $ 105
Non-cash activities:
Conversion of debt to common stock - $ 2,231
Reduction of deferred tax asset valuation
allowance and increase in additional paid-in
capital for tax benefits arising from exercise
of non-qualified stock options in prior years $ 1,072 -
See accompanying notes to unaudited consolidated financial statements.
<page>
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended August 31, 2001
Note 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
California Amplifier, Inc. (the "Company") designs, manufactures and
markets microwave equipment used in the reception of video transmitted from
satellites and wireless terrestrial transmission sites, and two-way wireless
transceivers used in emerging broadband wireless access markets for voice
(telephony) and data (internet) applications.
As further described in Note 2, in July 2001 the Company sold its 51%
interest in Micro Pulse, Inc. ("Micro Pulse"). The results of operations of
Micro Pulse, which represented a separate segment of the Company's business,
are shown as a discontinued operation in the accompanying unaudited
consolidated statements of income.
All significant intercompany transactions and accounts have been
eliminated in consolidation. In the opinion of the Company's management, the
accompanying consolidated financial statements reflect all adjustments
necessary to present fairly the Company's financial position at August 31,
2001 and its results of operations and cash flows for the three and six
months ended August 31, 2001 and 2000. The results of operations and cash
flows for such periods are not necessarily indicative of results to be
expected for the full fiscal year.
The Company uses a 52-53 week fiscal year ending on the Saturday closest
to February 28, which for fiscal year 2001 fell on March 3, 2001. The actual
interim periods ended on September 1, 2001 and August 26, 2000. In the
accompanying consolidated financial statements, the 2001 fiscal year end is
shown as February 28 and the interim period end for both years is shown as
August 31 for clarity of presentation.
Certain notes and other information are condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form
10-Q. Therefore, these financial statements should be read in conjunction
with the Company's 2001 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on June 1, 2001.
Certain reclassifications have been made to the interim fiscal 2001
financial statements to conform with the interim fiscal 2002 financial
statement presentation. Such reclassifications had no effect on the
Company's results of operations or stockholders' equity.
Note 2 - DISCONTINUED OPERATION
On July 31, 2001, the Company sold its 51% ownership interest in Micro
Pulse. The sale generated net cash proceeds of $3,231,000 and an after-tax
gain of $1,615,000.
Micro Pulse was the sole operating unit comprising the Company's Antenna
segment. Accordingly, operating results for Micro Pulse have been presented
in the accompanying consolidated statements of income as a discontinued
operation, and are summarized as follows (in thousands):
Three months ended Six months ended
August 31, August 31,
---------------- ----------------
2001 2000 2001 2000
------ ------ ------ ------
Sales $1,226 $2,074 $2,556 $4,161
====== ====== ====== ======
Operating income (loss) $ (51) $ 195 $ (105) $ 489
====== ====== ====== ======
Income (loss) from discontinued
operation, net of tax $ (5) $ 70 $ (25) $ 160
====== ====== ====== =====
The net assets of Micro Pulse, and the Company's basis in its investment
in Micro Pulse, consisted of the following on July 31, 2001, the date of sale
(in thousands):
Current assets $ 1,845
Property, equipment and improvements, net 269
Other assets 142
Current liabilities (983)
-------
Net assets of Micro Pulse 1,273
Less: Minority interest in Micro Pulse (566)
-------
Basis in Micro Pulse investment $ 707
=======
The gain on sale of the Company's 51% interest Micro Pulse, shown in the
accompanying consolidated statements of income as "Gain on sale of
discontinued operation, net of tax", is comprised as follows (in thousands):
Gross sales proceeds $ 3,408
Less disposal costs (177)
-------
Net sales proceeds 3,231
Less: Basis in Micro Pulse investment (707)
-------
Pre-tax gain on sale 2,524
Income tax provision (909)
-------
Gain on sale of discontinued
operation, net of tax $ 1,615
=======
Note 3 - INVENTORIES
Inventories include the cost of material, labor and manufacturing
overhead, stated at the lower of cost (first-in, first-out) or market, and
consist of the following (in thousands):
August 31, February 28,
2001 2001
------ ------
Raw materials and subassemblies $7,552 $6,824
Finished goods 1,855 2,852
----- ------
$9,407 $9,676
===== =====
Note 4 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the
potential dilution, using the treasury stock method, that could occur if
securities or other contracts to issue Common Stock were exercised or
converted into Common Stock or resulted in the issuance of Common Stock that
then shared in the earnings of the Company.
Common stock equivalents used in the determination of diluted earnings
per share include the effect, when such effect is not antidilutive, of the
Company's outstanding employee stock options. The following is a summary of
the calculation of basic and diluted earnings per share (in thousands):
Three months ended Six months ended
August 31, August 31,
---------------- ----------------
2001 2000 2001 2000
------ ------ ------ ------
Weighted average shares:
Weighted average number of
common shares outstanding (Basic) 13,601 13,382 13,601 13,168
Effect of dilutive securities:
Stock options 277 784 256 774
Shares issuable for legal
settlement 122 188 122 156
Convertible debt - - - 152
------ ------ ------ ------
Diluted weighted average number
of common shares outstanding 14,000 14,354 13,979 14,250
====== ====== ====== ======
Options to purchase approximately 934,000 shares of Common Stock at
prices ranging from $5.69 to $50.56 were outstanding at August 31, 2001 but
were not included in the computation of diluted earnings per share for the
three and six months then ended because the exercise price of these options
was greater than the average market price of the Common Stock and accordingly
the effect of inclusion would be antidilutive.
Note 5 - COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as the total of net income and
all non-owner changes in equity. The following table details the components
of comprehensive income for the three and six months ended August 31, 2001
and 2000 (in thousands):
Three months ended Six months ended
August 31, August 31,
---------------- ----------------
2001 2000 2001 2000
------ ------ ------ ------
Net income $2,075 $1,419 $2,146 $2,959
Foreign currency translation
adjustments (45) 30 (129) 3
------ ------ ------ ------
Comprehensive income (loss) $2,030 $1,449 $2,017 $2,962
====== ====== ====== ======
Note 6 - CONCENTRATION OF RISK
A significant percentage of consolidated sales and consolidated accounts
receivable relate to a small number of customers, as summarized below.
Sales to significant customers as a percent of consolidated sales are
as follows:
Three months ended Six months ended
August 31, August 31,
---------------- ----------------
Customer 2001 2000 2001 2000
-------- ------ ------ ------ ------
A 33.9% 26.2% 34.5% 28.7%
B 14.3% 5.0% 15.5% 4.4%
C 13.5% 7.3% 17.2% 6.3%
D 19.6% 27.9% 15.2% 23.5%
Accounts receivable from significant customers as a percent of
consolidated net accounts receivable are as follows:
August 31, February 28,
2001 2001
------ ------
A 26.6% 19.5%
B 16.1% 20.9%
C 13.0% 22.4%
D 26.2% 10.1%
E 9.9% 10.2%
Customers A, B and D are Satellite customers, while C and E are
Wireless Access customers.
Note 7 - SEGMENT INFORMATION
The Company currently manages its business under two identifiable
business segments: Satellite products and Wireless Access products. Segment
information for the three and six months ended August 31, 2001 and 2000 is as
follows (in thousands):
Three months ended August 31, 2001:
Wireless General
Satellite Access Corporate Total
-------- -------- -------- -------
Sales $18,730 $ 5,924 $24,654
Gross profit $ 3,902 $ 2,250 $ 6,152
Gross margin 20.8% 38.0% 25.0%
Pretax income (loss) from
continuing operations $ 2,962 $ (624) $(1,601) $ 737
Three months ended August 31, 2000:
Wireless General
Satellite Access Corporate Total
-------- -------- -------- -------
Sales $24,363 $ 7,375 $31,738
Gross profit $ 3,640 $ 2,460 $ 6,100
Gross margin 14.9% 33.4% 19.2%
Pretax income (loss) from
continuing operations $ 2,482 $ 1,028 $(1,387) $ 2,123
Six months ended August 31, 2001:
Wireless General
Satellite Access Corporate Total
-------- -------- -------- -------
Sales $33,015 $12,441 $45,456
Gross profit $ 6,242 $ 4,689 $10,931
Gross margin 18.9% 37.7% 24.0%
Pretax income (loss) from
continuing operations $ 4,436 $ 387 $(3,955) $ 868
Six months ended August 31, 2000:
Wireless General
Satellite Access Corporate Total
-------- -------- -------- -------
Sales $48,818 $12,786 $61,604
Gross profit $ 7,596 $ 4,350 $11,946
Gross margin 15.6% 34.0% 19.4%
Pretax income (loss) from
continuing operations $ 5,401 $ 1,665 $(2,669) $ 4,397
Pretax income (loss) from continuing operations for the Wireless Access
segment for the three and six months ended August 31, 2001 reflects a
$1,162,000 provision for doubtful account receivables from a Wireless Access
customer.
Note 8 - LEGAL MATTERS
The Company is currently involved in various litigation, including an
insurance reimbursement action, certain securities class actions, and a
shareholder derivative lawsuit. At this time it is not possible to determine
the outcome of such actions. See also Item 1 of Part II captioned "Legal
Proceedings", included elsewhere herein.
Note 9 - NEW AUTHORITATIVE PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. In
addition, SFAS No. 141 specifies the criteria for intangible assets acquired
in a purchase method business combination to be recognized and reported
apart from goodwill.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead
tested for impairment, at least annually, in accordance with the provisions
of SFAS No. 142. SFAS No. 142 will also require that intangible assets with
definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 142 must be
adopted by the Company in its fiscal year beginning March 1, 2002. Upon
adoption of SFAS No. 142 the Company will discontinue amortizing its
goodwill, which is currently being amortized at the rate of $270,000 per
year. The Company has not yet assessed any additional impact of SFAS No.
142 on its consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales
Total sales for the three months ended August 31, 2001 were
$24,654,000, compared to $31,738,000 for the same period in the previous
fiscal year. Sales of Satellite products decreased $5,633,000, or 23%, from
$24,363,000 to $18,730,000. Sales of Wireless Access products decreased
$1,451,000, or 20%, from $7,375,000 to $5,924,000.
Total sales for the six months ended August 31, 2001 decreased by
$16,148,000 from $61,604,000 to $45,456,000. Sales of Satellite products
decreased $15,803,000, or 32%, from $48,818,000 to $33,015,000. Sales of
Wireless Access products decreased $345,000, or 3%, from $12,786,000 to
$12,441,000.
The decrease in sales of Satellite products in the latest three and six
month periods resulted from a slowdown in subscriber additions as compared
to the prior year period, and continued efforts by system operators to
control inventory levels. In addition, in the prior year system operators
maintained higher ordering patterns in an effort to avoid product shortages
in the event electronic components supply disruptions affected
manufacturers' production.
The decline in sales of Wireless Access products is attributable to a
combination of the general slowdown in capital spending in the
telecommunications industry and the anticipation of second generation non-
line of sight products. The Company does not anticipate further growth in
sales of two-way transceiver products until the development of second
generation non-line of sight products is completed. The Company expects to
conduct field trials of second generation non-line of sight transceiver
products before the end of this calendar year.
Gross Profit and Gross Margins
Gross profit for the three months ended August 31, 2001 was $6,152,000,
up slightly from $6,100,000 for the comparable period of the prior year.
Consolidated gross margin increased from 19.2% to 25.0%.
Gross profit for the six months ended August 31, 2001 declined
$1,015,000, or 8%, to $10,931,000 from $11,946,000 in the first six months
of last year. Consolidated gross margin improved from 19.4% last year to
24.0% in the first six months of this year. The increase in consolidated
gross margin is attributable to higher gross margins for both Satellite and
Wireless Access products.
Gross margins for Satellite products improved to 20.8% and 18.9%,
respectively, in the three and six months ended August 31, 2001, from 14.9%
and 15.6%, respectively, in the second quarter and first half of last fiscal
year. Satellite gross margins improved primarily because the Company
completed the consolidation of its manufacturing operations in February
2001, resulting in reduced manufacturing costs, and because last year was
adversely impacted by electronic component shortages that caused production
inefficiencies.
Gross margins for Wireless Access products improved to 38.0% and 37.7%,
respectively, in the three and six months ended August 31, 2001, from 33.4%
and 34.0%, respectively, in the second quarter and first half of last fiscal
year. Wireless Access gross margins improved principally due to a change in
business mix, with more sales of first generation two-way transceiver
products that have higher gross margins and lower shipments of wireless
cable video products.
See also Note 7 to the accompanying unaudited consolidated financial
statements for additional operating data by business segment.
Operating Expenses
Research and development expenses increased by $458,000 from $1,601,000
in the second quarter of last year to $2,059,000 in the latest quarter. For
the six month year-to-date periods, research and development expenses
increased 22% from $3,055,000 last year to $3,720,000 this year. Investment
in R&D has been increased in an effort to improve the Company's market
position in both of its business segments. Increased R&D spending is
primarily in the form of additional engineering and design personnel, higher
salaries to remain competitive with industry compensation trends, and higher
material costs relating to new product design.
Selling expenses decreased by 40% from $988,000 in the three months
ended August 31, 2000 to $592,000 in the three months ended August 31, 2001.
For the six month periods, selling expenses decreased 33% from $1,824,000
last year to $1,226,000 this year. These declines are attributable
primarily to decreases in discretionary marketing spending.
General and administrative expenses increased by $1,419,000 from
$1,356,000 in last year's second quarter to $2,775,000 in the latest
quarter. This increase is due primarily to a provision of $1,162,000 for
doubtful accounts receivable from a Wireless Access customer. For the six
month periods, general and administrative expenses increased by $2,540,000
to $5,118,000 in 2001 from $2,578,000 in 2000. This increase was due
primarily to the aforementioned $1,162,000 provision for doubtful accounts
receivable and to expenses of $950,000 incurred in the first quarter of the
current fiscal year in connection with the restatement of the Company's
fiscal year 2000 and fiscal year 2001 interim financial statements.
Income from Continuing Operations Before Income Taxes
Income from continuing operations before income taxes in the three months
ended August 31, 2001 was $737,000 compared to $2,123,000 in the second
quarter of fiscal 2001. This decrease is primarily attributable to the
$1,419,000 increase in general and administrative expenses. For the six month
periods, income from continuing operations before income taxes decreased from
$4,397,000 last year to $868,000 this year due primarily to the $2,540,000
increase in general and administrative expenses and to the $1,015,000 decline
in gross profit.
Income Tax Provision
The provision for taxes for the second quarter and first six months of
fiscal year 2002 is based upon an annualized tax rate of 36%, the same tax
rate as fiscal year 2001.
During the second quarter of fiscal year 2002, the Company recognized
income tax benefits of $1,072,000 associated with tax deductions on non-
qualified employee stock options which were exercised prior to fiscal 2002.
These tax benefits were recognized by reducing the deferred tax asset
valuation allowance in the amount of $1,072,000, with a corresponding
increase in additional paid-in capital. The deferred tax asset valuation
allowance was established in prior fiscal years because management believed
at the time that it did not have the basis to conclude that it was more
likely than not that the deferred tax assets would be realized in the
future. Income from continuing operations in the first six months of fiscal
2002 and the gain generated on the sale of the Company's ownership interest
in Micro Pulse during the fiscal 2002 second quarter indicated that it was
likely that the Company would generate sufficient taxable income for the
year as a whole to utilize the $1,072,000, and accordingly the deferred tax
asset valuation allowance was reduced.
Discontinued Operation
As described further in Note 2 to the accompanying unaudited
consolidated financial statements, the Company sold its 51% ownership
interest in Micro Pulse during the second quarter of fiscal 2002. A gain of
$1,615,000 net of tax was recognized on this transaction.
Net Income
Net income, for reasons outlined above, increased by $656,000 to
$2,075,000 in the fiscal 2002 second quarter from $1,419,000 in the
comparable prior year period. For the first six months of fiscal 2002, net
income decreased $813,000 to $2,146,000 from $2,959,000 in the first half of
fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are its cash and cash
equivalents, which amounted to $18,021,000 at August 31, 2001, and its $8
million working capital line of credit with a bank. During the six months
ended August 31, 2001, cash and cash equivalents increased by $8,243,000.
This increase consisted of cash provided by operating activities of
$6,090,000 and net proceeds from the sale of discontinued operations of
$3,231,000, partially offset by capital expenditures of $880,000, debt
repayments of $86,000, and other activity with a net cash outflow impact of
$112,000.
Components of operating working capital increased by $2,170,000 during
the first six months of fiscal 2002, comprised of a $269,000 decrease in
inventories and a $4,119,000 increase in accounts payable, partially offset
by a $1,630,000 increase in accounts receivable, a $211,000 increase in
prepaid expenses and other current assets, and a $377,000 decrease in
accrued payroll and employee benefits and other accrued liabilities.
The Company believes that inflation and foreign currency exchange rates
have not had a material effect on its operations. The Company believes that
fiscal year 2002 will not be impacted significantly by foreign exchange
since a significant portion of the Company's fiscal year 2002 projected
sales are to U.S. markets, or to international markets where its sales are
negotiated in U.S. dollars. Import tariffs in countries such as Brazil and
China make it more difficult to compete with in-country manufacturers.
NEW AUTHORITATIVE PRONOUNCEMENTS
Reference is made to Note 9 of the accompanying unaudited consolidated
financial statements for a description of new authoritative accounting
pronouncements which have not yet been adopted by the Company.
SAFE HARBOR STATEMENT
Forward looking statements in this 10-Q which include, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions, projections and other information
regarding future performance, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
words "believes," "anticipates," "expects," and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements reflect the Company's current views with respect to future events
and financial performance and are subject to certain risks and
uncertainties, including, without limitation, product demand, market growth,
new competition, competitive pricing and continued pricing declines in the
DBS market, supplier constraints, manufacturing yields, timing and market
acceptance of new product introductions, new technologies, litigation and
related matters and other risks and uncertainties that are detailed from
time to time in the Company's periodic reports filed with the Securities and
Exchange Commission, copies of which may be obtained from the Company upon
request. Such risks and uncertainties could cause actual results to differ
materially from historical results or those anticipated. Although the
Company believes the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance
that its expectations will be attained. The Company undertakes no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Yourish Class Action and RLI Insurance Company Litigation:
On March 29, 2000 the Company and the individual defendants (present and
former officers and directors of the Company) reached a settlement in the
matter entitled Yourish v. California Amplifier, Inc., et al., Case
No. CIV 173569 shortly after trial commenced in the Superior Court for the
State of California, County of Ventura. The terms of the settlement called
for the issuance by the Company of 187,500 shares of stock along with a cash
payment of $3.5 million, funded in part by insurance proceeds, for a total
settlement of approximately $11.0 million. Of the total settlement,
$9.5 million was accrued in the consolidated financial statements for the
year ended February 28, 2000. By Order dated September 14, 2000, the court
approved the terms of the settlement and dismissed the action with prejudice.
As of February 28, 2001, the Company had issued 65,625 of the 187,500 shares
and paid $2.5 million of the $3.5 million with one of its insurance carriers
paying the remaining $1.0 million. As of August 31, 2001, $4.8 million was
accrued in the consolidated financial statements primarily related to the
remaining 121,875 shares still to be issued under the settlement agreement.
Pursuant to the terms of the settlement, the Company must wait for
instructions from plaintiffs' counsel before issuing the remaining stock
under the settlement.
In connection with the settlement of the Yourish action, the Company and
certain of its former and current officers and directors have filed a lawsuit
(California Amplifier, Inc., et al. v. RLI Insurance Company, et al., Ventura
County Superior Court Case No. CIV196258), against one of its insurance
carriers to recover $2.0 million of coverage the insurance carrier has stated
was not covered under its policy of insurance. The insurance carrier filed a
Motion for Judgment on the Pleadings seeking judgment on the basis, inter
alia, that the claims in the Yourish action for alleged violations of
Sections 25400 and 25500 of the California Corporation Code were not
insurable as a matter of law pursuant to Insurance Code Section 533. The
Plaintiffs opposed the motion and a hearing was held on September 22, 2000.
On October 18, 2000, the Court entered an Order on granting the motion for
judgment on the pleadings. Judgment was entered on November 9, 2000, and
Notice of Entry of Judgment given on November 15, 2000. California Amplifier
filed a Notice of Appeal on November 21, 2000. The matter was fully briefed
and argued before the Court of Appeals on September 12, 2001. The Court has
calendared December 5, 2001 for the release of its ruling, and a decision is
expected near that date.
Andrew Corporation Litigation:
On March 7, 2000, the Company announced that it had received a complaint
of patent infringement from Andrew Corporation (Andrew). The complaint,
filed against California Amplifier in U.S. District Court for the Eastern
District of Texas, alleges that certain California Amplifier products
infringe Andrew's patent rights. During the pendency of the action, the
Company secured an exclusive license, with enforcement rights, to a certain
patent that the Company believed both invalidated Andrew's '052 patent and
applied to Andrew's competing products and commenced patent litigation
against Andrew in the United States District Court for the Central District
of California under this patent. A mutually acceptable resolutions of both
cases was announced on August 1, 2001 and both cases have been dismissed.
The specific terms of the settlement are confidential.
2001 Securities Litigation:
Following the announcement by the Company on March 29, 2001 of the
resignation of its controller and the possible overstatement of net income
for the fiscal year ended February 28, 2000 and the subsequent restatement of
the Company's financial statements for fiscal year 2000 and the interim
periods of fiscal years 2000 and 2001, the Company and certain officers were
named as defendants in twenty putative actions in Federal Court. Caption
information for each of the lawsuits is set forth in Item 3 of the Company's
Form 10-K for the fiscal year ended February 28, 2001.
Sixteen of the class actions seek to represent a class of purchasers of
the Company's common stock for the period between April 6 or 7, 2000 to March
28, 2001. Four of the class actions seek to represent a class of purchasers
of the Company's common stock for the period between June 10 or 11, 1999 to
March 28 or 29, 2001. All of the complaints cite the Company's March 29,
2001 announcement regarding the resignation of the Company's corporate
controller and statement that net income for the fiscal year ended February
28, 2000 may have been overstated by as much as $2.2 million. The complaints
generally allege that the defendants artificially inflated the price of the
Company's stock during the class period by allegedly making false
representations about the Company's financial results or failing to disclose
adverse facts about its financial results. The complaints also allege
without specific facts that the individual defendants knew or were reckless
in making the alleged false statements about the Company's financial results.
The twenty actions have been consolidated into a single action pursuant
to stipulation of the parties, and lead plaintiffs' counsel has been
appointed, subject to final Court approval. An amended complaint will be
filed 60 days after Court approval of lead plaintiff's counsel. The Company
expects to move to dismiss the complaints after a consolidated amended
complaint is filed and intends to defend the actions vigorously. At this
time it is not possible to determine the outcome of these actions.
Charles Medalie v. Ira Coron, Fred Sturm, Richard B. Gold, Arthur Hausman,
Frank Perna, Jr., Thomas Ringer, California Amplifier, Inc. (nominal
defendant):
On July 13, 2001, all of the current directors of the Company were named
as defendants in the above-entitled shareholder derivative lawsuit filed in
Los Angeles Superior Court, assigned case number BC254123. The Company was
named as a nominal defendant. The complaint is brought by some of the same
counsel who have sued the Company for violation of the Federal Securities
laws. The Complaint alleges claims against the directors for breach of
fiduciary duty, abuse of control and gross mismanagement, arising out of the
Company's recent restatement of earnings for fiscal year 2000 and portions of
fiscal year 2001. The complaint alleges that the directors failed to
implement an adequate accounting control system, and thereby allegedly caused
the Company to violate Generally Accepted Accounting Principles and reporting
standards. The Complaint further alleges that these alleged breaches of duty
have resulted in the lawsuits brought against the Company under the Federal
Securities laws, as well as investigative and other costs. No pre-lawsuit
demand was made on the Board of Directors of the Company. The complaint
seeks compensatory and punitive damages, as well as attorney's fees.
Defendants' date to respond is set for November 27, 2001, and Defendants'
expect to file a demurrer, challenging the legal sufficiency of the
allegations.
Insurance company rescission lawsuit:
On October 5, 2001, the insurance company that provides the
Company's primary director and officer liability coverage applicable to the
above matters (the 2001 securities litigation and the shareholder derivative
lawsuit brought by Charles Medalie) filed a lawsuit in the United States
District Court, Central District of California, Western Division (Case No. 01-
08657CAS), seeking to rescind the policy on the grounds that there was a
misstatement in the policy application that incorporated by reference the
Company's financial statements prior to their restatement. The lawsuit has
not yet been served on the Company. The Company intends to vigorously defend
the lawsuit.
Investigation by the Securities and Exchange Commission:
In May 2001, the Company announced that it had received notice from the
Securities and Exchange Commission (SEC) that the SEC was conducting an
informal inquiry into the circumstances that caused the Company to announce
that it would be restating earnings for fiscal year 2000 and certain interim
quarters of fiscal year 2001. Subsequently, the Company learned that the SEC
adopted an order directing a private investigation and designating officers to
take testimony. The Company has been and expects to continue cooperating with
the SEC in connection with its investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 2001 Annual Meeting of Stockholders held on July 20, 2001, the six
incumbent directors stood for reelection to a one year term expiring at the
fiscal 2002 Annual Meeting. All six of the director nominees were reelected.
Following is a summary of the results of voting:
Votes
Against or
Votes For Withheld Unvoted
-------- ------- -------
Ira Coron 12,076,080 122,258 1,402,363
Arthur Hausman 12,063,115 135,223 1,402,363
Richard Gold 12,117,685 80,653 1,402,363
Frank Perna 12,070,415 127,923 1,402,363
Thomas Ringer 12,068,653 129,685 1,402,363
Fred Sturm 10,596,219 1,602,119 1,402,363
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
None.
b. Reports on Form 8-K:
On June 8, 2001, a Form 8-K was filed which disclosed that Nasdaq's
Listing Qualifications Panel had determined to continue the listing of
the Company's Common Stock, with a resumption of trading on June 7, 2001.
On June 12, 2001, a Form 8-K was filed which disclosed that Michael
Ferron had advised the Company of his intention to resign as Vice
President of Finance, Chief Financial Officer and Corporate Secretary.
SIGNATURE
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.
October 12, 2001 /s/ Richard K. Vitelle
--------------------------------- -----------------------------------
Date Richard K. Vitelle
Vice President Finance & CFO
(Principal Financial Officer)