EXHIBIT 13
2003 ANNUAL REPORT TO STOCKHOLDERS
DESCRIPTION OF BUSINESS
California Amplifier designs, manufactures and markets a broad line of
integrated microwave reception and transmission products used primarily in
conjunction with Direct Broadcast Satellite ("DBS") television service,
terrestrial wireless television service (also known as Wireless Cable), and
terrestrial wireless high-speed Internet service. The Company was founded
in 1981 and is publicly traded under the ticker symbol CAMP on the Nasdaq
National Market. California Amplifier is an ISO 9001 certified company with
headquarters in Ventura County, California.
LETTER TO STOCKHOLDERS
To Our Stockholders:
I am pleased to report that despite challenging market conditions,
California Amplifier achieved a third consecutive year of profitability.
This accomplishment stems from our ability to adapt to an ever-changing
market environment. Leveraging our strong technology foundation, we
reshaped and restructured California Amplifier in response to developments
in our industry segments in order to better position our Company for
continued success. Our demonstrated strengths over the past several years
include:
* Proven ability to enter a new growth market and establish
a leadership position;
* High-volume manufacturing expertise with a reputation for excellent
product performance and reliability; and
* A management team that is focused on fiscal discipline and
profitability, while making sound product and market
investments for the future.
These strengths have served our Company well during a period of rapid change
and intense competition in the technology sector. Today, California
Amplifier is once again experiencing a period of transformation as we
endeavor to enter new markets and adjust to the changing demands of our
customers. Our strategy is reflected in the theme of this year's annual
report--"Coming in loud and clear"--not only with outstanding satellite and
wireless products but also with solid financial results during today's
difficult economy.
Fiscal Year 2003 Overview
Total sales were $100.0 million in fiscal 2003, essentially unchanged from
fiscal 2002. Sales of our Satellite business unit increased 12% to $88.4
million as the Company benefited from the April 2002 acquisition of Kaul-
Tronics, a leading manufacturer of dish antennas used for Direct Broadcast
Satellite ("DBS") television reception. However, sales of our Wireless
Access business unit decreased nearly 50% to $11.6 million as fixed wireless
broadband deployments slowed significantly while service providers continued
to evaluate next generation technology solutions.
Gross profit decreased 8% to $20.5 million as Satellite products grew to
represent a greater portion of total sales and price competition escalated.
We continue to see intense pricing pressures, in part because the market for
satellite television reception equipment remains one of the few high-volume
segments in the communications industry.
In achieving a third consecutive year of profitability, we generated net
income of $5.2 million in fiscal 2003, up from $4.5 million in fiscal 2002.
We increased operating margin to 8.2% in fiscal 2003 from 5.2% in fiscal
2002. By carefully managing our resources, we concluded fiscal 2003 with
$21.9 million in cash. We also continued our history of responsible working
capital management with "days supply" of inventory at 50 days and "days
outstanding" for accounts receivable at 52 days at the end of fiscal 2003.
Also, stockholders' equity amounted to $58.6 million at the end of fiscal
2003. Our management team is experienced at taking decisive action to
preserve and strengthen California Amplifier's financial position and to
make the most effective use of resources.
Proven Track Record of Innovation
At the core of California Amplifier's success is a commitment to customer
driven innovation. This is the ability to develop cost-effective, reliable
solutions that constantly push the envelope of current technology to enhance
the end-user experience. Our wireless and satellite connectivity products
expand the range of choices available to consumers, while supporting growing
business segments for our customers. This combination of engineering
excellence and rapid adaptation to market realities makes California
Amplifier a strong technology partner for satellite and wireless service
providers.
In fiscal 2003, the market required more advanced satellite products. In
response, we introduced sophisticated, integrated features, such as support
for multiple satellite reception and multi-room distribution. As a result,
we are able to deliver increased value to our customers, and our Satellite
business unit continues to hold a leading position in the U.S. DBS market.
In addition, we successfully extended our Satellite product offerings and
customer base with the purchase of Kaul-Tronics' antenna dish business.
This acquisition positioned the Company as a comprehensive source for
satellite television outdoor reception equipment. We further expanded our
DBS market presence through our joint development agreement with Zinwell
Corp. of Taiwan. The agreement to jointly engineer and develop certain
satellite reception components assists in accelerating product development
and is expected to facilitate product cost reductions which may be necessary
to maintain the Company's position in its competitive markets.
California Amplifier continues to develop and test next generation two-way
MMDS transceiver products for use in providing wireless high-speed Internet
service. In fiscal 2003, this represented only a small portion of the
Company's overall revenue due to limited funding on the part of spectrum
owners for wireless broadband infrastructure deployments. We continue to
design and build next generation customer premise equipment ("CPE") for use
in non-line-of-sight ("NLOS") wireless broadband systems, and we are
encouraged by the response of prospective customers. We recently introduced
a portable CPE transceiver which is interoperable with Navini Networks' NLOS
wireless broadband system, and we believe this product effectively addresses
issues which have impeded previous NLOS technologies.
Our most recent efforts have been focused on diversifying our Wireless
Access business unit beyond our existing MMDS video and broadband data
markets by identifying new markets that leverage our radio frequency ("RF")
design expertise and manufacturing capability. For example, the Company has
developed an adaptive digital beam-forming smart antenna technology for use
in enhanced access points for high-speed Internet access over wireless
networks which use the 802.11 standard, commonly referred to as "Wi-Fi". We
believe that this access point technology, named RASTER[TM], addresses
issues such as range, data throughput and tolerance to interference that
have hindered the widespread deployment of 802.11 networks. We continue the
development of this technology and are evaluating the best means to
capitalize on our investment.
Outlook
As we look to fiscal 2004, we expect to face many of the challenges already
described, in particular continued capital spending constraints in the
communications industry and fierce competition in our markets. However, we
believe that California Amplifier is well positioned for these difficult
economic times.
Our ability to restructure the Company based on market requirements has
enabled California Amplifier to achieve profitable results despite difficult
market conditions. We maintain those same elements--sound management
practices, strong technology foundation, market leadership, innovation and
the determination to succeed--that have enabled us to operate profitably and
generate positive cash flows over the past three years.
In fiscal 2004, we are working to strengthen our leadership position in the
satellite television market, as well as to apply our experience and
capabilities to new markets. The Company has a history of identifying
growth opportunities where we can apply our RF design and high volume
manufacturing expertise. We also continue to explore complementary
acquisitions that will support our strategy of capitalizing on emerging
market opportunities. Yet, we remain focused on controlling expenses and
aligning our cost-structure with near-term revenue.
As worldwide communications markets head toward recovery, I expect that
California Amplifier will be well positioned to be a leading supplier to
tomorrow's satellite and wireless markets. On behalf of the Board of
Directors, I would like to thank you, our shareholders, for your confidence
and dedication. I would also like to thank our customers for their
continued support, and our valued employees for their discipline, drive and
creativity. Together, we will build upon California Amplifier's strong
foundation of products, technology and operations.
We look to the future with optimism and confidence. We hope you'll "stay
tuned" as we seek out and capitalize on the market opportunities ahead.
Fred Sturm
President and Chief Executive Officer
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
FIVE-YEAR FINANCIAL SUMMARY
(In thousands except per share amounts)
The selected consolidated financial data for the years ended February
28, 1999 through 2003 set forth below are derived from the audited
consolidated financial statements and notes thereto. The consolidated
balance sheets as of February 28, 2003 and 2002 and the related consolidated
statements of operations, stockholders' equity and comprehensive income
(loss) and cash flows for each of the years in the three-year period ended
February 28, 2003, appear elsewhere in this Report. The Selected
Consolidated Financial Data are qualified in their entirety by reference to,
and should be read in conjunction with, the consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Report.
Year ended February 28,
----------------------------------------------
OPERATING DATA 2003 2002 2001 2000 1999
-------- -------- -------- ------- -------
Sales $100,044 $100,715 $117,129 $79,429 $33,248
Cost of goods sold 79,511 78,342 94,128 64,426 24,186
-------- -------- ------- ------- -------
Gross profit 20,533 22,373 23,001 15,003 9,062
-------- -------- ------- ------- -------
Operating expenses:
Research and development 5,982 7,337 6,066 4,526 3,928
Selling 2,560 3,456 3,460 4,127 3,972
General and administrative 3,781 6,321 5,366 5,006 3,184
-------- -------- ------- ------- -------
Total operating expenses 12,323 17,114 14,892 13,659 11,084
-------- -------- ------- ------- -------
Operating income (loss) 8,210 5,259 8,109 1,344 (2,022)
-------- -------- ------- ------- -------
Non-operating income (expense):
Settlement of litigation - (1,125) - (9,500) -
Other income (expense), net (215) 47 (359) (60) 106
-------- -------- ------- ------- -------
Total non-operating expense (215) (1,078) (359) (9,560) 106
-------- -------- ------- ------- -------
Income (loss) from continuing
operations before income taxes 7,995 4,181 7,750 (8,216) (1,916)
Income tax (provision) benefit (2,835) (1,307) (2,810) 2,950 603
-------- -------- ------- ------- -------
Income (loss) from
continuing operations 5,160 2,874 4,940 (5,266) (1,313)
Income (loss) from discontinued
operations, net of tax - (25) 269 202 (123)
Gain on sale of discontinued
operations, net of tax - 1,615 - - -
-------- -------- ------- ------- -------
Net income (loss) $ 5,160 $ 4,464 $ 5,209 $(5,064) $(1,436)
======== ======== ======= ======= =======
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
FIVE-YEAR FINANCIAL SUMMARY
(In thousands except per share amounts)
(Continued)
Year ended February 28,
-------------------------------------------
OPERATING DATA (Continued) 2003 2002 2001 2000 1999
------- ------- ------- ------- -------
Basic earnings (loss)
per share:
Income (loss) from
continuing operations $ 0.35 $ 0.21 $ 0.37 $ (0.44) $ (0.11)
Income (loss) from
discontinued operations - - 0.02 0.02 (0.01)
Gain on sale of
discontinued operations - 0.12 - - -
------- ------- ------- ------- -------
Basic earnings (loss)
per share $ 0.35 $ 0.33 $ 0.39 $ (0.42) $ (0.12)
======= ======= ======= ======= =======
Diluted earnings (loss)
per share:
Income (loss) from
continuing operations $ 0.35 $ 0.21 $ 0.35 $ (0.44) $ (0.11)
Income from discontinued
operations - - 0.02 0.02 (0.01)
Gain on sale of
discontinued operations - 0.11 - - -
------- ------- ------- ------- -------
Diluted earnings (loss)
per share $ 0.35 $ 0.32 $ 0.37 $ (0.42) $ (0.12)
======= ======= ======= ======= =======
February 28,
-------------------------------------------
BALANCE SHEET DATA 2003 2002 2001 2000 1999
------- ------- ------- ------- -------
Current assets $53,092 $45,739 $35,523 $37,201 $20,331
Current liabilities $18,405 $15,480 $15,032 $32,729 $ 4,853
Working capital $34,687 $30,259 $20,491 $ 4,472 $15,478
Current ratio 2.9 3.0 2.4 1.1 4.2
Total assets $89,597 $56,688 $49,812 $51,497 $25,549
Long-term debt $12,569 $ 3,628 $ 4,500 $ 145 $ 516
Stockholders' equity $58,623 $37,580 $29,624 $18,281 $20,065
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation
The Company uses a 52-53 week fiscal year ending on the Saturday
closest to February 28, which for fiscal years 2003, 2002 and 2001 fell on
March 1, 2003, March 2, 2002 and March 3, 2001, respectively. In these
consolidated financial statements, the fiscal year end for all years is
shown as February 28 for clarity of presentation. Fiscal year 2001
consisted of 53 weeks, compared to 52 weeks for the fiscal years 2003 and
2002.
As further described in Note 2 to the accompanying consolidated
financial statements, on April 5, 2002 the Company acquired substantially
all of the assets, properties and business of Kaul-Tronics, Inc., a
Wisconsin company, and two affiliated companies (collectively, "Kaul-
Tronics"). The results of Kaul-Tronics' operations have been included in
the Company's consolidated financial statements since that date. The
operations acquired by the Company involve primarily the design and
manufacture of satellite antenna dishes used in the DBS industry.
As described further in Note 14 to the accompanying consolidated
financial statements, in July 2001 the Company sold its 51% interest in
Micro Pulse, a company engaged in the design, manufacture and marketing of
antennas and amplifiers used principally in GPS applications. Accordingly,
the results of operations of Micro Pulse, which represented a separate
business segment of the Company, have been presented as a discontinued
operation in the accompanying consolidated statements of operations for
fiscal years 2002 and 2001.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of sales and expenses
during the reporting periods. Areas where significant judgments are made
include, but are not limited to: allowance for doubtful accounts, inventory
valuation, product warranties, the deferred tax asset valuation allowance,
and the valuation of long-lived assets and goodwill. Actual results could
differ materially from these estimates.
Allowance for Doubtful Accounts
The Company establishes an allowance for estimated bad debts based upon
a review and evaluation of specific customer accounts identified as known
and expected collection problems, based on historical experience, due to
insolvency, disputes or other collection issues. As further described in
Note 1 to the accompanying consolidated financial statements, the Company's
customer base is quite concentrated, with four customers accounting for
approximately 71% of the Company's fiscal 2003 sales. Changes in either a
key customer's financial position, or the economy as a whole, could cause
actual write-offs to be materially different from the recorded allowance
amount.
Inventories
The Company evaluates the carrying value of inventory on a quarterly
basis to determine if the carrying value is recoverable at estimated selling
prices. To the extent that estimated selling prices do not exceed the
associated carrying values, inventory carrying amounts are written down. In
addition, the Company generally treats inventory on hand or committed with
suppliers, which is not expected to be sold within the next 12 months, as
excess and thus appropriate write-downs of the inventory carrying amounts are
established through a charge to cost of sales. Estimated usage in the next
12 months is based on firm demand represented by orders in backlog at the end
of the quarter and management's estimate of sales beyond existing backlog,
giving consideration to customers' forecasted demand, ordering patterns and
product life cycles. Significant reductions in product pricing, or changes
in technology and/or demand may necessitate additional write-downs of
inventory carrying value in the future.
Product Warranties
The Company provides for the estimated cost of product warranties at the
time revenue is recognized. While it engages in extensive product quality
programs and processes, including actively monitoring and evaluating the
quality of its component suppliers, the Company's warranty obligation is
affected by product failure rates and material usage and service delivery
costs incurred in correcting a product failure. Should actual product
failure rates, material usage or service delivery costs differ from
management's estimates, revisions to the estimated warranty liability would
be required.
Deferred Income Tax Asset Valuation Allowance
The deferred income tax asset reflects the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and for income tax purposes. A deferred income
tax asset is recognized if realization of such asset is more likely than not,
based upon the weight of available evidence which includes historical
operating performance and the Company's forecast of future operating
performance. The Company evaluates the realizability of its deferred income
tax asset on a quarterly basis, and a valuation allowance is provided, as
necessary. During this evaluation, the Company reviews its forecasts of
income in conjunction with the positive and negative evidence surrounding the
realizability of its deferred income tax asset to determine if a valuation
allowance is needed. If in the future a portion or all of a valuation
allowance is no longer deemed to be necessary, reductions of the valuation
allowance will either increase additional paid-in capital or decrease the
income tax provision, depending on the nature of the underlying deferred tax
asset. Alternatively, if in the future the Company were unable to support
the recovery of its net deferred income tax asset, it would be required to
provide an additional valuation allowance for all or a portion of the net
deferred income tax asset, which would increase the income tax provision. At
February 28, 2003, the Company's net deferred income tax asset was
$6,530,000, which amount is net of a valuation allowance of $3,335,000.
During fiscal years 2003 and 2002, the valuation allowance was reduced by an
aggregate amount of $9,173,000, substantially all of which related to tax
benefits associated with exercises of non-qualified stock options in prior
years and was therefore recognized by increasing additional paid-in capital.
Further reductions of the valuation allowance, if any, in future years would
be recognized as a reduction of the income tax provision.
Valuation of Long-lived Assets and Goodwill
The Company accounts for long-lived assets other than goodwill in
accordance with the provisions of Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment and Disposal of Long Lived Assets"
("SFAS 144"), which supersedes Statement of Financial Accounting Standards
No. 121 and certain sections of Accounting Principles Board Opinion No. 30
specific to discontinued operations. SFAS 144 classifies long-lived assets
as either: (1) to be held and used; (2) to be disposed of by other than sale;
or (3) to be disposed of by sale. This standard introduces a probability-
weighted cash flow estimation approach to deal with situations in which
alternative courses of action to recover the carrying amount of a long-lived
asset are under consideration or a range is estimated for the amount of
possible future cash flows. The Company has adopted this statement, which
has not had a material impact on our financial position or results of
operations. SFAS 144 requires, among other things, that an entity review its
long-lived assets and certain related intangibles for impairment whenever
changes in circumstances indicate that the carrying amount of an asset may
not be fully recoverable. The Company does not believe that any such changes
have taken place.
The Company also adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets", on March 3, 2002 (the first day
of fiscal 2003). As a result, goodwill is no longer amortized, but is
subject to a transitional impairment analysis and is tested for impairment on
an annual basis, or more frequently as impairment indicators arise. The test
for impairment involves the use of estimates related to the fair values of
the business operations with which goodwill is associated and is usually
based on projected cash flows or a market value approach.
The Company believes the estimate of its valuation of long-lived assets
and goodwill is a "critical accounting estimate" because if circumstances
arose that led to a decrease in the valuation it could have a material impact
on the Company's results of operations.
Recent Developments
Subsequent to February 28, 2003, the Company experienced a substantial
reduction in orders from the primary customers of its Satellite business
unit. These key customers advised the Company that the principal reason for
their order reductions is due to accumulated excess inventory levels. The
Company believes this situation will adversely affect sales and results of
operations for at least the first two quarters of fiscal 2004. In response
to this downturn in its Satellite business, during the first quarter of
fiscal 2004 the Company reduced its workforce by approximately 50%, which
included approximately 225 contract workers. In addition, the Company is in
the process of consolidating its satellite dish antenna manufacturing
operations in Wisconsin. The Company believes that this significant decline
in Satellite product orders is a temporary condition. However, the Company
is currently evaluating other restructuring actions that it may undertake in
the event the downturn in its Satellite business persists longer than is
currently expected.
Results of Operations, Fiscal Years 2001 Through 2003
The following table sets forth, for the periods indicated, the
percentage of sales represented by items included in the Company's
Consolidated Statements of Operations:
Year Ended February 28,
----------------------------
2003 2002 2001
------ ------ ------
Sales 100.0% 100.0% 100.0%
Cost of goods sold 79.5 77.8 80.4
----- ----- -----
Gross profit 20.5 22.2 19.6
Operating expenses:
Research and development 6.0 7.3 5.2
Selling 2.6 3.4 3.0
General and administrative 3.8 6.3 4.6
----- ----- -----
Operating income 8.1 5.2 6.8
Settlement of litigation - (1.1) -
Other expense, net (0.2) - (0.3)
----- ----- -----
Income from continuing operations
before income taxes 7.9 4.1 6.5
Income tax provision (2.8) (1.3) (2.4)
----- ----- -----
Income from continuing operations 5.1 2.8 4.1
Income from discontinued operations - - 0.2
Gain on sale of discontinued
Operations - 1.6 -
----- ----- -----
Net income 5.1% 4.4% 4.3%
===== ===== =====
The Company's sales and gross profit by business segment for the last
three years are as follows:
SALES BY SEGMENT
Year Ended February 28,
--------------------------------------------------------
2003 2002 2001
--------------- --------------- ---------------
% of % of % of
Segment $000s Total $000s Total $000s Total
----------- ------- ----- ------- ----- ------- -----
Satellite $ 88,437 88.4% $ 78,899 78.3% $ 85,107 72.7%
Wireless Access 11,607 11.6% 21,816 21.7% 32,022 27.3%
------- ----- ------- ----- ------- -----
Total $100,044 100.0% $100,715 100.0% $117,129 100.0%
======= ===== ======= ===== ======= =====
GROSS PROFIT BY SEGMENT
Year Ended February 28,
--------------------------------------------------------
2003 2002 2001
--------------- --------------- ---------------
% of % of % of
Segment $000s Total $000s Total $000s Total
----------- ------- ----- ------- ----- ------- -----
Satellite $ 17,251 84.0% $ 15,469 69.1% $12,752 55.4%
Wireless Access 3,282 16.0% 6,904 30.9% 10,249 44.6%
------- ----- ------- ----- ------ -----
Total $ 20,533 100.0% $ 22,373 100.0% $23,001 100.0%
======= ===== ======= ===== ====== =====
The Satellite business unit generates its revenue almost entirely from
the sale of outdoor reception equipment for use with subscription satellite
television programming services. Such products accounted for approximately
99%, 98% and 93% of Satellite segment revenues in fiscal years 2003, 2002 and
2001, respectively. The remaining revenue of the Satellite segment in these
fiscal years was generated from the sale of commercial satellite products for
video and data reception.
Revenue of the Wireless Access business segment revenue by product type
for the last three years is as follows (in $000s):
Fiscal year ended February 28,
-----------------------------
2003 2002 2001
---- ---- ----
Wireless television products $10,004 $ 4,867 $12,788
Broadband wireless access antenna
transceivers 1,603 16,949 19,234
------- ------- -------
Total Wireless Access segment revenue $11,607 $21,816 $32,022
======= ======= =======
Fiscal Years 2003 and 2002
Sales
Sales of Satellite products increased $9,538,000, or 12.1% in fiscal
2003 from fiscal 2002. This increase resulted from the acquisition of the
Kaul-Tronics satellite antenna dish business on April 5, 2002, as further
described in Note 2 to the accompanying consolidated financial statements.
The acquired Kaul-Tronics business accounted for approximately $16 million of
Satellite segment sales during fiscal 2003, substantially all of which
consisted of antenna dishes and associated mounting hardware. Partially
offsetting the fiscal 2003 revenue contribution of the Kaul-Tronics business
was a decline in revenue from the sale of integrated amplifier/downconverter
devices (referred to in the industry as Low Noise Block Feeds or "LNBFs") due
to a decline of approximately 8% in units sold. The average selling price of
LNBFs in fiscal 2003 was relatively unchanged from fiscal 2002.
Sales of Wireless Access products in fiscal 2003 decreased $10,209,000,
or 47%, from fiscal 2002. This is the net result of a $15,346,000 decline in
sales of broadband wireless access antenna transceivers and a $5,137,000
increase in sales of Wireless Cable television products. The decline in
broadband wireless transceivers is attributable to a combination of the
general slowdown in capital spending in the telecommunications industry and
the anticipation of next generation non-line of sight broadband wireless
products. The Company does not anticipate that its Wireless Access sales
will increase appreciably until the broadband wireless service providers
resume the expansion of their subscriber bases. Management believes that the
future success of the Company's Wireless Access business segment is dependent
to a large degree on the market acceptance and market penetration of
broadband wireless access technology developed by Navini Networks, Inc.
("Navini"). The Company has licensed this technology from Navini, and is
developing customer premise equipment products that are compatible with
Navini's broadband wireless system technology. In response to the
substantial decline in its broadband wireless product line, the Company's
Wireless Access unit concentrated its sales efforts on foreign Wireless Cable
television system operators, and was able to grow this portion of its
Wireless business in fiscal 2003 despite the fact that the overall Wireless
Cable television market is declining.
Gross Profit and Gross Margins
Satellite gross profit increased $1,782,000, or 11.5%, while gross
margin for Satellite products was stable year over year (19.5% and 19.6% in
fiscal 2003 and fiscal 2002, respectively). Benefiting fiscal 2003 gross
profit and gross margin were cost reductions on existing Satellite products
arising from product design changes and negotiated price reductions on raw
material components. However, the positive impact of these cost reductions
were largely offset by several negative factors, specifically: production
inefficiencies caused by delays in receiving materials during and after the
West Coast dockworkers lockout; lower average selling prices for mature LNBF
products; costs associated with production ramp-up of new Satellite products;
raw steel price increases during fiscal 2003; and costs associated with a
Satellite product replacement program in the fourth quarter of fiscal 2003.
The Satellite product replacement program, which is discussed further in Note
11 to the accompanying consolidated financial statements, resulted in
warranty-related costs of approximately $450,000 in fiscal 2003.
Wireless Access gross profit decreased $3,622,000, or 52%, while gross
margin for Wireless Access products declined to 28.3% in fiscal 2003 from
31.6% in fiscal 2002. These declines are primarily attributable to the 47%
decrease in Wireless sales and lower absorption of fixed overhead costs.
Operating Expenses
Research and development expenses decreased by $1,355,000, or 18%, from
$7,337,000 in fiscal year 2002 to $5,982,000 in fiscal year 2003. This
decline is primarily due to headcount reductions and a reduced level of
subcontracted product development expenses of the Wireless Access business
segment in fiscal 2003. In the second quarter of fiscal 2003, the Company
cancelled a product development contract for broadband wireless application
specific integrated circuits (ASICs) because the market timing for large
scale deployment of this technology was uncertain in the near-term future.
As a result of this cancellation, expense associated with this product
development contract was $384,000 less in fiscal 2003 compared to fiscal
2002.
Selling expenses decreased by $896,000 from $3,456,000 in fiscal year
2002 to $2,560,000 in fiscal year 2003. The decrease occurred primarily
because fiscal 2002 selling expense included the write-off of a receivable
from a customer of the Company's Wireless Access business unit in the amount
of $817,000.
General and administrative expense decreased by $2,540,000 to $3,781,000
in fiscal 2003 from $6,321,000 in fiscal 2002. This decrease was due
primarily to lower accounting and legal expenses of $1,365,000, lower
consulting expense of $182,000, lower employee recruiting and relocation
expenses of $239,000, lower goodwill amortization expense of $270,000
(because beginning in fiscal 2003 goodwill is no longer amortized, as
discussed further in Note 5 to the accompanying consolidated financial
statements), and lower incentive compensation expense of $104,000. Another
factor contributing $215,000 to this year-to-year change is that G&A expense
for fiscal 2002 includes a loss on sale of equipment of $58,000, while G&A
expense for fiscal 2003 includes a gain on sale of equipment of $157,000.
Contributing to the year-to-year declines for accounting, legal and
consulting expenses discussed above were the fact that these professional
service expenses for fiscal 2002 included approximately $950,000 associated
with the restatement of the Company's fiscal 2000 and interim fiscal 2001
financial statements. Remaining reductions in professional service fees in
fiscal 2003 compared to fiscal 2002 are primarily because fiscal 2002 amounts
included legal fees in connection with several litigation matters (as further
described in Note 12 to the accompanying financial statements), and because
fiscal 2002 accounting expense includes audit fees for redundant services due
to the Company's decision to terminate Arthur Andersen and to engage KPMG to
audit the fiscal 2002 financial statements after Arthur Andersen had already
begun its work on that audit.
Operating income increased by $2,951,000 from $5,259,000 in fiscal year
2002 to $8,210,000 in fiscal year 2003. The principal reasons for the
improvement are as described above: a $1.8 million decrease in gross profit,
offset by a $4.8 million decrease in operating expenses.
Litigation Settlement
The "settlement of litigation" expense in the amount of $1,125,000 for
fiscal 2002 represents an accrued settlement of $925,000 for litigation
brought against the Company as a result of the fiscal 2000 and 2001 financial
misstatements caused by the Company's former controller, and an accrual of
$200,000 for a contingent refund payable to an insurance company involving a
legal settlement reached in March 2000, all as further described in Note 12
to the accompanying financial statements. The Company had no litigation
settlement expense in fiscal 2003.
Income Tax Provision and Deferred Income Tax Asset
The effective tax rates for fiscal 2003 and 2002 were 35.5% and 31.3%,
respectively. The increase in the effective tax rate in fiscal 2003 compared
to fiscal 2002 was attributable primarily to state income tax rate changes.
The deferred income tax asset valuation allowance was established in
years prior to fiscal 2002 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 income tax asset would be fully realized in the future. Based on
profitable operations in the most recent three year period, and on
management's internal forecast of future operating results, management
believes it is more likely than not that the Company will generate sufficient
taxable income in the future to utilize deferred tax assets of $6,530,000,
and accordingly the deferred tax asset valuation allowance was reduced by
$5,389,000 during fiscal 2003. Because that portion of the valuation
allowance that was reduced during fiscal 2003 was associated with tax
deductions on non-qualified employee stock options which were exercised in
earlier years, the valuation allowance was reduced with a corresponding
increase in additional paid-in capital. Further reductions of the valuation
allowance, if any, in future years would be recognized as a reduction of the
income tax provision.
Income from continuing operations
For the reasons discussed above, income from continuing operations
increased from $2.9 million in fiscal year 2002 to $5.2 million in fiscal
year 2003.
Fiscal Years 2002 and 2001
Sales
Sales of Satellite products in fiscal 2002 decreased $6,208,000, or
7.3%, from fiscal 2001, primarily because the satellite television system
operators reduced their orders beginning in the second half of fiscal 2001
to reduce their excess inventory levels. These order cutbacks persisted
through the first half of fiscal 2002. As a result, fiscal 2002 sales of the
Satellite segment fell short of the fiscal 2001 sales level.
Sales of Wireless Access products decreased $10,206,000, or 31.9%, due
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. These factors resulted in a steady decline in
sequential quarter sales of the Wireless business segment during the fiscal
2002. Wireless Access sales in the fiscal 2002 fourth quarter were only $2.7
million.
Gross Profit and Gross Margins
Satellite gross profit increased $2,717,000, or 21.3%, while gross
margin improved to 19.6% in fiscal 2002 from 15.0% in fiscal 2001. This
improvement occurred primarily because the Company completed the
consolidation of its Texas plant into its California manufacturing operations
at the end of fiscal 2001, resulting in reduced manufacturing costs starting
in the first quarter of fiscal 2002. Also, Satellite gross margin in fiscal
2001 had been adversely impacted by electronic component shortages that
caused production inefficiencies.
Wireless Access gross profit decreased $3,345,000, or 32.6%, while gross
margin declined to 31.6% in fiscal 2002 from 32.0% in the previous year.
These declines were principally due to the 32% decline in Wireless sales as
discussed above.
Operating Expenses
Research and development ("R&D") expenses increased by $1,271,000 from
$6,066,000 in fiscal 2001 to $7,337,000 in fiscal 2002. Investment in R&D
had been increased in an effort to improve the Company's market position in
both of its business segments. Increased R&D spending was 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 primarily related to the next generation
of broadband wireless products for the Company's Wireless Access business
segment.
Selling expense was $3,460,000 in fiscal 2001 and $3,456,000 in fiscal
2002. Selling expense for fiscal 2002 includes bad debts expense of
$988,000, which was primarily related to the write-off of a receivable from a
customer of the Company's Wireless Access business unit in the amount of
$817,000. Selling expense for fiscal 2001 includes bad debt expense of only
$174,000. Offsetting the increase in bad debt expense were decreases in
discretionary marketing spending in fiscal 2002 compared to fiscal 2001.
General and administrative expense increased by $955,000 to $6,321,000
in fiscal 2002 from $5,366,000 in fiscal 2001. This increase was due
primarily to expenses of $950,000, primarily for accounting, legal and
consulting services, incurred in the first quarter of fiscal 2002 in
connection with the restatement of the Company's fiscal 2000 and interim
fiscal 2001 financial statements.
Operating income
Operating income decreased from $8,109,000 in fiscal 2001 to $5,259,000
in fiscal 2002 due to the decline in gross profit of $628,000 and the
increase in operating expenses of $2,222,000, as discussed above.
Litigation Settlement
The "settlement of litigation" expense in the amount of $1,125,000 for
fiscal 2002 represents an accrued settlement of $925,000 for litigation
brought against the Company as a result of the fiscal 2000 and 2001 financial
misstatements caused by the Company's former controller, and an accrual of
$200,000 for a contingent refund payable to an insurance company involving a
legal settlement reached in March 2000, all as further described in Note 12
to the accompanying consolidated financial statements.
Income Tax Provision and Deferred Income Tax Asset
The effective tax rates for fiscal 2002 and 2001 were 31.3% and 36.3%,
respectively. The decline in the effective tax rate is attributable
primarily to research and development tax credits and the tax benefit
associated with the new Extraterritorial Income Exclusion ("EIE") beginning
in fiscal 2002. Under the EIE rules, taxable income associated with
qualifying sales made to foreign customers is excludable from taxable income.
During fiscal 2002, the Company recognized income tax benefits of
$3,525,000 associated with tax deductions on non-qualified employee stock
options that were exercised prior to fiscal 2002. These tax benefits were
recognized by reducing the deferred income tax asset valuation allowance in
the aggregate amount of $3,525,000, with a corresponding increase in
additional paid-in capital. Reduction of the deferred income tax asset
valuation allowance during fiscal 2002 resulted in a net deferred income tax
asset of $3,580,000 at the end of fiscal 2002.
Discontinued Operations
As described further in Note 14 to the accompanying 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 described above, decreased to $4,464,000 in
fiscal 2002 from $5,209,000 in fiscal 2001.
Liquidity and Capital Resources
The Company's primary sources of liquidity are its cash and cash
equivalents, which amounted to $21,947,000 at February 28, 2003, and its $13
million working capital line of credit with a bank. During fiscal year 2003,
cash and cash equivalents decreased by $1,209,000. This net decrease
consisted of cash used for the acquisition of Kaul-Tronics of $16,534,000,
cash used for equipment purchases of $1,670,000, and debt repayments of
$971,000, partially offset by proceeds from new bank borrowings of
$12,000,000, cash provided by operating activities of $5,479,000, and other
cash inflows totaling $487,000.
Cash was used by an increase in operating working capital during fiscal
2003 in the aggregate amount of $5,882,000, comprised of a $7,834,000
increase in accounts receivable, a $2,360,000 increase in inventories, a
$61,000 increase in prepaid expenses and other assets and a decrease of
$1,467,000 in accrued liabilities, partially offset by an increase of
$5,840,000 in accounts payable.
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 2004 will not be impacted significantly by foreign exchange since
a significant portion of the Company's sales are to U.S. markets, or to
international markets where its sales are denominated in U.S. dollars.
As further described in Note 2 to the accompanying consolidated
financial statements, on May 2, 2002, the Company entered into a new $12
million term loan with its bank to partially finance the acquisition of the
assets and business of Kaul-Tronics, Inc. and two affiliated companies (the
"Kaul-Tronics Acquisition"), which was consummated on April 5, 2002. The new
term loan bears interest at LIBOR plus 2.0% or the bank's prime rate.
On April 3, 2002, the Company's working capital line of credit was
increased from $8 million to $13 million, and on April 5, 2002, the Company
borrowed $12 million on the working capital line of credit to partially fund
the Kaul-Tronics Acquisition. In addition to the $12 million proceeds of the
line of credit borrowing, the Company used approximately $4.5 million of its
existing cash and cash equivalents and issued approximately 929,000 shares of
its common stock to pay for the Kaul-Tronics Acquisition. On May 2, 2002,
the $12 million outstanding balance on the working capital line of credit was
converted into a new $12 million bank term loan referred to in the preceding
paragraph. Also on May 2, 2002, the maturity date of the $13 million working
capital line was extended from August 2, 2002 to August 2, 2005. At February
28, 2003, there are no outstanding borrowings under the working capital line
of credit, and $1,582,000 of the line is reserved for outstanding standby
letters of credit.
The bank credit agreement which encompasses the working capital
revolving line of credit and the bank term loan described above contains
certain financial covenants and ratios that the Company is required to
maintain, including a fixed charge coverage ratio of not less than 1.25 to
1.0, a current ratio of not less than 2.0 to 1.0, a leverage ratio of not
more than 2.25 to 1.0, tangible net worth of at least $19,050,000 (such
minimum amount increasing by $1 million annually beginning on March 1, 2003),
cash and cash equivalents not less than $8 million, and net income of at
least $1.00 in each fiscal year. At February 28, 2003, the Company was in
compliance with all such covenants. However, for its fiscal year ending
February 28, 2004, the Company anticipates that it will not be in compliance
with the fixed charge coverage ratio requirement beginning with the first
quarter of fiscal 2004, due to the downturn in the Company's Satellite
segment as further discussed under the heading "Recent Developments" above.
The Company plans to seek a waiver or amendment of the bank credit agreement
in the event it is not able to maintain compliance during fiscal 2004 with
this covenant or any other financial covenant contained in the bank credit
agreement.
Following is a summary of the Company's contractual cash obligations as
of February 28, 2003 (in thousands):
Future Cash Payments Due by Fiscal Year
----------------------------------------------
Contractual
Obligations 2004 2005 2006 2007 2008 2009 Total
- --------------- ------ ------ ------ ------ ------ ------ ------
Debt $3,005 $3,435 $3,423 $2,911 $2,400 $ 400 $15,574
Operating leases 803 6 3 - - - 812
------ ------ ------ ------ ------ ------ ------
Total contractual
cash obligations $3,808 $3,441 $3,426 $2,911 $2,400 $ 400 $16,386
====== ====== ====== ====== ====== ====== ======
The Company believes that cash flow from operations, together with
amounts available under its working capital line of credit, are sufficient to
support operations, fund capital equipment requirements and discharge
contractual cash obligations over the next twelve months.
New Authoritative Pronouncements
See Note 1 of the accompanying consolidated financial statements for a
description of new authoritative accounting pronouncements either recently
adopted or which had not yet been adopted by the Company as of the end of
fiscal 2003.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. As of
February 28, 2003, the Company's term debt and credit facility with its bank
are subject to variable interest rates. The Company monitors its debt and
interest bearing cash equivalents levels to mitigate the risk of interest
rate fluctuations. A fluctuation of one percent in interest rates would have
an annual impact of approximately $100,000 net of tax on the Company's
Statement of Operations.
FORWARD LOOKING STATEMENTS
Forward looking statements in this Form 10-K 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 "may"
"could", "plans", "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, meeting demand
with multiple facilities, timing and market acceptance of new product
introductions, new technologies, the outcome of the pending Securities and
Exchange Commission investigation, 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.
RISK FACTORS
The Company's business operations and implementation of its long-term
business strategy are subject to significant risks inherent in its business,
including, without limitation, the risks and uncertainties described below.
The occurrence of any one or more of the risks or uncertainties described
below could have a material adverse effect on the Company's financial
condition, results of operations and cash flows.
OUR BUSINESS IS SUBJECT TO MANY FACTORS THAT COULD CAUSE OUR QUARTERLY
OR ANNUAL OPERATING RESULTS TO FLUCTUATE AND OUR STOCK PRICE TO BE
VOLATILE
Our quarterly and annual operating results have fluctuated in the past
and may fluctuate significantly in the future due to a variety of factors,
many of which are outside of our control. If our quarterly or annual
operating results do not meet the expectations of securities analysts and
investors, the trading price of our common stock could significantly decline.
Some of the factors that could affect our quarterly or annual operating
results include:
- - the timing and amount of, or cancellation or rescheduling of, orders
for our products;
- - our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions; announcements,
new product introductions and reductions in price of products offered
by our competitors;
- - our ability to achieve cost reductions;
- - our ability to obtain sufficient supplies of sole or limited source
components for our products;
- - our ability to achieve and maintain production volumes and quality
levels for our products;
- - the volume of products sold and the mix of distribution channels
through which they are sold;
- - the loss of any one of our major customers or a significant reduction
in orders from those customers;
- - increased competition, particularly from larger, better capitalized
competitors;
- - fluctuations in demand for our products and services; and
- - telecommunications and wireless market conditions specifically and
economic conditions generally.
Due in part to factors such as the timing of product release dates,
purchase orders and product availability, significant volume shipments of
products could occur at the end of our fiscal quarter. Failure to ship
products by the end of a quarter may adversely affect our operating results.
In the future, our customers may delay delivery schedules or cancel their
orders without notice. Due to these and other factors, quarterly revenue,
expenses and results of operations could vary significantly in the future,
and period-to-period comparisons should not be relied upon as indications of
future performance.
BECAUSE SOME OF OUR KEY COMPONENTS ARE FROM SOLE SOURCE SUPPLIERS OR
REQUIRE LONG LEAD TIMES, OUR BUSINESS IS SUBJECT TO UNEXPECTED
INTERRUPTIONS, WHICH COULD CAUSE OUR OPERATING RESULTS TO SUFFER.
Some of our key components are complex to manufacture and have long lead
times. Also, some of our components are purchased from sole source vendors
for which alternative sources are not readily available. In the event of a
reduction or interruption of supply, or a degradation in quality, as many as
six months could be required before we would begin receiving adequate
supplies from alternative suppliers, if any. As a result, product shipments
could be delayed and our revenues and results of operations would suffer. If
we receive a smaller allocation of component parts than is necessary to
manufacture products in quantities sufficient to meet customer demand,
customers could choose to purchase competing products and we could lose
market share.
OUR LACK OF PRODUCT DIVERSIFICATION MEANS THAT ANY DECLINE IN PRICE OR
DEMAND FOR OUR PRODUCTS WOULD ADVERSELY AFFECT OUR BUSINESS.
Our Satellite and Wireless Access products have accounted for
substantially all of our historical revenue and are expected to do so for the
foreseeable future. Consequently, a decline in the price of, or demand for,
our Satellite or Wireless Access products, or their failure to achieve or
maintain broad market acceptance, would adversely affect our business.
IF WE DO NOT MEET PRODUCT INTRODUCTION DEADLINES, OUR BUSINESS COULD BE
ADVERSELY AFFECTED.
Our inability to develop new products or product features on a timely
basis, or the failure of new products or product features to achieve market
acceptance, could adversely affect our business. In the past, we have
experienced design and manufacturing difficulties that have delayed our
development, introduction or marketing of new products and enhancements which
have caused us to incur unexpected expenses. In addition, some of our
customers have conditioned their future purchases of our products on the
addition of product features. In the past we have experienced delays in
introducing new features. Furthermore, in order to compete in some markets,
we will have to develop different versions of our existing products that
operate at different frequencies and comply with diverse, new or varying
governmental regulations in each market.
DEMAND FOR OUR PRODUCTS FLUCTUATES RAPIDLY AND UNPREDICTABLY, WHICH MAKES
IT DIFFICULT TO MANAGE OUR BUSINESS EFFICIENTLY AND CAN REDUCE OUR GROSS
MARGINS AND PROFITABILITY.
Our cost structure is based in part on our expectations for future
demand. Many costs, particularly those relating to capital equipment and
manufacturing overhead, are relatively fixed. The rapid and unpredictable
shifts in demand for our products make it difficult to plan manufacturing
capacity and business operations efficiently. If demand is significantly
below expectations, we may be unable to rapidly reduce these fixed costs,
which can diminish gross margins and cause losses. A sudden downturn may
also leave us with excess inventory, which may be rendered obsolete as
products evolve during the downturn and demand shifts to newer products.
Our ability to reduce costs and expenses is further constrained because we
must continue to invest in research and development to maintain our
competitive position and to maintain service and support for our existing
global customer base. Conversely, in sudden upturns, we sometimes incur
significant costs to rapidly expedite delivery of components, procure scarce
components and outsource additional manufacturing processes. These costs
could reduce our gross margins and overall profitability. Any of these
results could adversely affect our business.
BECAUSE WE SELL SOME OF OUR PRODUCTS IN COUNTRIES OTHER THAN THE UNITED
STATES, SUBJECTING US TO DIFFERENT REGULATORY SCHEMES, AND WE HAVE A
SIGNIFICANT FOREIGN SUPPLY BASE, WE MAY NOT BE ABLE TO DEVELOP PRODUCTS
THAT WORK WITH THE DIFFERENT STANDARDS RESULTING IN OUR INABILITY TO SELL
OUR PRODUCTS, AND, FURTHER, WE MAY BE SUBJECT TO POLITICAL, ECONOMIC, AND
OTHER CONDITIONS AFFECTING SUCH COUNTRIES THAT COULD RESULT IN REDUCED
SALES OF OUR PRODUCTS AND WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
If our sales are to grow in the longer term, we must continue to sell
our products in many different countries. Many countries require
communications equipment used in their country to comply with unique
regulations, including safety regulations, radio frequency allocation schemes
and standards. If we cannot develop products that work with different
standards, we will be unable to sell our products. If compliance proves to
be more expensive or time consuming than we anticipate, our business would be
adversely affected. Some countries have not completed their radio frequency
allocation process and therefore we do not know the standards with which we
would be forced to comply. Furthermore, standards and regulatory
requirements are subject to change. If we fail to anticipate or comply with
these new standards, our business and results of operations will be adversely
affected.
Sales to customers outside the U.S. accounted for 9.5%, 17.6% and 24.6%
of our total sales for the fiscal years ended February 28, 2003, 2002 and
2001, respectively. Accordingly, we are subject to the political, economic
and other conditions affecting countries or jurisdictions other than the
U.S., including Africa, the Middle East, Europe and Asia. Any interruption
or curtailment of trade between the countries in which we operate and their
present trading partners, change in exchange rates, significant shift in U.S.
trade policy toward these countries, or significant downturn in the
political, economic or financial condition of these countries, could cause
demand for and sales of our products to decrease, or subject us to increased
regulation including future import and export restrictions, any of which
could adversely affect our business.
Additionally, a substantial portion of our components and subassemblies
are procured from foreign suppliers located primarily in Hong Kong, mainland
China, Taiwan, and other Pacific Rim countries. Any significant shift in
U.S. trade policy toward these countries, a significant downturn in the
political, economic or financial condition of these countries, or further
spread of Severe Acute Respiratory Syndrome (SARS) in these geographic areas,
could cause disruption of our supply chain or otherwise disrupt our
operations, which could adversely affect our business.
WE RELY ON A RELATIVELY LIMITED NUMBER OF CUSTOMERS FOR A LARGE PORTION OF
OUR SALES AND BUSINESS.
We generate a significant portion of our sales from a relatively small
number of customers. Sales to our four largest customers accounted for
approximately 71%, 82% and 65% of total sales in the fiscal years ended
February 28, 2003, 2002 and 2001, respectively. The loss of, or a decrease
in orders by, one or more of our major customers could adversely affect our
sales, business and reputation.
In addition, Sprint, currently the largest MMDS license holder in the
U.S., accounted for 62% and 37% of the sales of our Wireless Access business
unit in fiscal years ended February 28, 2002 and 2001, respectively. In
October 2001, Sprint announced that it had suspended any new deployments of
broadband wireless equipment, as well as ceased the acquisition of any new
customers, until substantial progress is made on next generation MMDS non-
line-of-sight technologies. As a result, we had no revenue from Sprint in
our fiscal year ended February 28, 2003. Our Wireless Access business unit
has only a small number of other customers.
WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS AND OUR CUSTOMERS
MAY CEASE PURCHASING OUR PRODUCTS AT ANY TIME.
We generally do not have long-term contracts with our customers. As a
result, our agreements with our customers do not provide any assurance of
future sales. Accordingly, our customers can cease purchasing our products
at any time without penalty, our customers are free to purchase products from
our competitors, we are exposed to competitive price pressure on each order,
and our customers are not required to make minimum purchases.
OUR WIRELESS ACCESS BUSINESS IS SUBJECT TO RAPID TECHNOLOGY CHANGES,
EVOLVING STANDARDS AND GOVERNMENT REGULATION.
The market for broadband wireless Internet access served by our Wireless
Access business is subject to rapid technological change, frequent new
service introductions and evolving industry standards. In the near term
future, we believe that the success of our Wireless Access business is
dependent to a large degree on the market acceptance and market penetration
of broadband wireless access technology developed by Navini. The Company has
licensed this technology from Navini, and is developing customer premise
equipment products that are compatible with Navini's broadband wireless
system technology. Longer term, we believe that our future success will
depend largely on our ability to anticipate or adapt to technological changes
and to offer, on a timely basis, products that meet evolving standards. We
cannot predict the extent to which competitors using existing or future
methods of delivery of Internet access services will compete with our
services. We cannot assure you that:
- Navini's technology will achieve significant market acceptance and
market penetration
- existing, proposed or undeveloped technologies will not render our
broadband wireless systems less profitable or less viable,
- we will have the resources to acquire new technologies or to introduce
new services that could compete with future technologies, or
- we will be successful in responding to technological changes in a
timely and cost effective manner.
Additionally, regulatory changes by the U.S. Federal Communications
Commission or by regulatory agencies outside the United States, including
changes in the allocation of available frequency spectrum, could
significantly affect our operations by restricting our development efforts,
rendering current products obsolete, or increasing the opportunity for
additional competition. There can be no assurance that new regulations will
not be promulgated that could materially and adversely affect our business
and operating results.
BECAUSE THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE AND MANY OF
OUR COMPETITORS HAVE GREATER RESOURCES THAN WE HAVE, WE CANNOT BE CERTAIN
THAT OUR PRODUCTS WILL CONTINUE TO BE ACCEPTED IN THE MARKETPLACE OR
CAPTURE INCREASED MARKET SHARE.
The market for integrated microwave fixed point reception and
transmission products is intensely competitive and characterized by rapid
technological change, evolving standards, short product life cycles, and
price erosion. We expect competition to intensify as current competitors
expand their product offerings and new competitors enter the market. Given
the highly competitive environment in which we operate, we cannot be sure
that any competitive advantages enjoyed by our products would be sufficient
to establish and sustain our products in the market. Any increase in price
or other competition could result in erosion of our market share, to the
extent we have obtained market share, and would have a negative impact on our
financial condition and results of operations. We cannot provide assurance
that we will have the financial resources, technical expertise or marketing
and support capabilities to continue to compete successfully.
We face competition from a variety of companies, which generally vary in
size and in the scope and breadth of products and services offered. We also
face competition from customers' or prospective customers' own internal
development efforts. Many of the companies that compete, or may compete in
the future, against us have longer operating histories, greater name
recognition, larger installed customer bases and significantly greater
financial, technical and marketing resources. These competitors may also
have pre-existing relationships with our customers or potential customers.
As a result, they may be able to introduce new technologies, respond more
quickly to changing customer requirements or devote greater resources to the
development, promotion and sale of their products than we can. Our
competitors may successfully integrate the functionality of our reception and
transmission products into their products and thereby render our products
obsolete. Further, in the event of a manufacturing capacity shortage, these
competitors may be able to manufacture products when we are unable to do so.
We believe our principal competitors for our Satellite Products business
include Sharp, Channelmaster, Wistron NeWeb Corporation, Alps, Winegard and
MTI, and the principal competitors for our Wireless Access business include
or will include IP Wireless, Motorola, WaveCom Electronics Inc., NextNet and
Proxim Corporation. In addition, there have been a number of announcements
by other companies, including smaller emerging companies, that they intend
to enter the market segments adjacent to or addressed by our products.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, AND
OUR COMPETITORS MAY BE ABLE TO OFFER SIMILAR PRODUCTS AND SERVICES THAT
WOULD HARM OUR COMPETITIVE POSITION.
Our ability to succeed in our Wireless Access business may depend, in
large part, upon our intellectual property. We rely primarily on patents,
trademark and trade secret laws, confidentiality procedures and contractual
provisions to establish and protect our intellectual property. These
mechanisms provide us with only limited protection. We currently hold 21
patents and have 12 patent applications pending. As part of our
confidentiality procedures, we enter into non-disclosure agreements with all
of our executive officers, managers and supervisory employees. Despite these
precautions, third parties could copy or otherwise obtain and use our
technology without authorization, or develop similar technology
independently. Furthermore, effective protection of intellectual property
rights is unavailable or limited in some foreign countries. Our protection
of our intellectual property rights may not provide us with any legal remedy
should our competitors independently develop similar technology, duplicate
our products and services, or design around any intellectual property rights
we hold.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT HAVE ADVERSE CONSEQUENCES FOR
OUR BUSINESS.
In April 2002, we completed the acquisition of the assets and business
of Kaul-Tronics, Inc. As part of our business strategy, from time to time,
we expect to review opportunities to acquire and may acquire other businesses
or products that will complement our existing product offerings, augment our
market coverage or enhance our technological capabilities. Although we have
no current agreements or negotiations underway with respect to any material
acquisitions, we may make acquisitions of businesses, products or
technologies in the future. However, we cannot be sure that we will be able
to locate suitable acquisition opportunities. The acquisitions that we have
completed and that we may complete in the future could result in the
following, any of which could seriously harm our results of operations or the
price of our stock: (i) issuances of equity securities that would dilute the
percentage ownership of our current stockholders; (ii) large one-time write-
offs; (iii) the incurrence of debt and contingent liabilities; (iv)
difficulties in the assimilation and integration of the acquired companies;
(v) diversion of management's attention from other business concerns; (vi)
contractual disputes; (vii) risks of entering geographic and business markets
in which we have no or only limited prior experience; and (viii) potential
loss of key employees of acquired organizations.
OUR PRIMARY OPERATIONS ARE LOCATED NEAR KNOWN EARTHQUAKE FAULTS.
The occurrence of an earthquake or other natural disaster in the
vicinity of our primary operations located in Camarillo, California could
cause significant damage to our facility that may require us to cease or
suspend operations. Although we currently have insurance for earthquake
risks, we can provide no assurance that such insurance coverage would be
adequate in the event of a catastrophic loss, or that earthquake insurance
will continue to be available, or that if available that earthquake coverage
will continue to be carried by us in the future.
WE DEPEND ON OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL. IF WE LOSE
ANY OF MEMBERS OF OUR SENIOR MANAGEMENT TEAM, OUR ABILITY TO CARRY OUT OUR
LONG-TERM BUSINESS STRATEGY COULD BE ADVERSELY AFFECTED.
We believe our future success largely depends on the expertise of our
senior management team. The loss of one or more members of senior management
could disrupt our operations or the execution of our business strategy. We
do not maintain key person life insurance on any officer or manager.
WE FACE RISKS ASSOCIATED WITH A PENDING SEC INVESTIGATION.
As a result of the financial misstatements caused by our former
controller, as discussed in Note 12 to the accompanying consolidated
financial statements, the Securities and Exchange Commission opened an
investigation into the matter. The Company has been, and expects to
continue, cooperating with the SEC in connection with its investigation. We
can provide no assurance that we will be able to avoid the imposition of
penalties or other sanctions by the SEC as a result of this investigation.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
California Amplifier, Inc.:
We have audited the accompanying consolidated balance sheets of California
Amplifier, Inc. and subsidiaries as of March 1, 2003 and March 2, 2002 and
the related consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The 2001 consolidated
financial statements of California Amplifier, Inc. were audited by other
auditors who have ceased operations. Those auditors expressed an unqualified
opinion on those consolidated financial statements in their report dated May
30, 2001.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
California Amplifier, Inc. and subsidiaries as of March 1, 2003 and March 2,
2002, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company
implemented Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, on March 3, 2002.
/s/KPMG LLP
Los Angeles, California
April 8, 2003
NOTE:
- ----
The report of independent public accountants presented below is a copy of a
report previously issued by Arthur Andersen LLP ("Andersen"), and has not
been reissued by Andersen. Certain financial statements referred to in the
Andersen report below are not physically included in this fiscal 2003 Annual
Report to Stockholders.
* * * * * * * * * *
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheet of
California Amplifier, Inc. (a Delaware corporation) and subsidiaries as of
March 3, 2001, and the related consolidated statements of operations,
stockholders' equity and comprehensive income (loss), and cash flows for the
two years in the period ended March 3, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of California
Amplifier, Inc. and subsidiaries as of March 3, 2001, and the results of
their operations and their cash flows for the two years in the period ended
March 3, 2001 in conformity with accounting principles generally accepted in
the United States.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
May 30, 2001
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
February 28,
---------------------
2003 2002
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 21,947 $ 23,156
Accounts receivable, less allowance for
doubtful accounts of $273 and $417 in 2003
and 2002, respectively 16,053 8,219
Inventories, net 12,862 9,472
Deferred income tax assets 1,130 3,580
Prepaid expenses and other current assets 1,100 1,312
-------- --------
Total current assets 53,092 45,739
-------- --------
Property, equipment and improvements, net of
accumulated depreciation and amortization 9,322 7,375
Deferred income tax assets, less current portion 5,400 -
Goodwill 20,938 3,287
Other assets 845 287
-------- --------
$ 89,597 $ 56,688
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 3,005 $ 917
Accounts payable 11,553 5,713
Accrued payroll and employee benefits 1,649 1,870
Other accrued liabilities 2,198 6,980
-------- --------
Total current liabilities 18,405 15,480
-------- --------
Long-term debt, less current portion 12,569 3,628
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 3,000 shares
authorized; no shares issued or outstanding - -
Common Stock, $.01 par value; 30,000 shares
authorized; 14,745 and 13,630 shares issued
and outstanding in 2003 and 2002, respectively 147 136
Additional paid-in capital 43,441 27,569
Retained earnings 15,836 10,676
Accumulated other comprehensive loss (801) (801)
-------- --------
Total stockholders' equity 58,623 37,580
-------- --------
$ 89,597 $ 56,688
======== ========
See accompanying notes to consolidated financial statements.
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year ended February 28,
-----------------------------
2003 2002 2001
-------- -------- -------
Sales $100,044 $100,715 $117,129
Cost of goods sold 79,511 78,342 94,128
-------- -------- -------
Gross profit 20,533 22,373 23,001
-------- -------- -------
Operating expenses:
Research and development 5,982 7,337 6,066
Selling 2,560 3,456 3,460
General and administrative 3,781 6,321 5,366
-------- -------- -------
Total operating expenses 12,323 17,114 14,892
-------- -------- -------
Operating income 8,210 5,259 8,109
-------- -------- -------
Non-operating income (expense):
Settlement of litigation - (1,125) -
Other income (expense), net (215) 47 (359)
-------- -------- -------
Total non-operating expense (215) (1,078) (359)
-------- -------- -------
Income from continuing operations
before income taxes 7,995 4,181 7,750
Income tax provision (2,835) (1,307) (2,810)
-------- -------- -------
Income from continuing operations 5,160 2,874 4,940
Income (loss) from discontinued operations,
net of tax - (25) 269
Gain on sale of discontinued operations,
net of tax - 1,615 -
-------- -------- -------
Net income $ 5,160 $ 4,464 $ 5,209
======== ======== =======
Basic earnings per share:
Income from continuing operations $ 0.35 $ 0.21 $ 0.37
Income from discontinued operations - - 0.02
Gain on sale of discontinued operations - 0.12 -
-------- -------- -------
Net income $ 0.35 $ 0.33 $ 0.39
======== ======== =======
Diluted earnings per share:
Income from continuing operations $ 0.35 $ 0.21 $ 0.35
Income from discontinued operations - - 0.02
Gain on sale of discontinued operations - 0.11 -
-------- -------- -------
Net income $ 0.35 $ 0.32 $ 0.37
======== ======== =======
Shares used in computing basic and
diluted earnings per share:
Basic 14,639 13,727 13,507
======== ======== =======
Diluted 14,870 13,979 14,217
======== ======== =======
See accompanying notes to consolidated financial statements.
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
Accum-
ulated
Other
Common Stock Additional Compre-
-------------- Paid-in Retained hensive
Shares Amount Capital Earnings Loss Total
------ ------ ------ ------ ------ ------
Balances at
February 28, 2000 12,658 127 17,377 1,003 (226) 18,281
Exercise of stock
options 353 3 2,207 - - 2,210
Issuances of
common stock 590 6 4,391 - - 4,397
Net income - - - 5,209 - 5,209
Foreign currency
translation
adjustment - - - - (473) (473)
------
Comprehensive income 4,736
------ ------ ------- ------- ------ ------
Balances at
February 28, 2001 13,601 136 23,975 6,212 (699) 29,624
Exercise of stock
options 29 - 69 - - 69
Tax benefits from
exercise of non-
qualified stock
options - - 3,525 - - 3,525
Net income - - - 4,464 - 4,464
Foreign currency
translation
adjustment - - - - (102) (102)
------
Comprehensive income 4,362
------ ------ ------- ------- ------ ------
Balances at
February 28, 2002 13,630 136 27,569 10,676 (801) 37,580
Exercise of stock
options 64 1 159 - - 160
Issuances of
common stock 1,051 10 10,074 - - 10,084
Tax benefits from
exercise of non-
qualified stock
options - - 5,639 - - 5,639
Net income and compre-
hensive income - - - 5,160 - 5,160
------ ------ ------- ------- ------ ------
Balances at
February 28, 2003 14,745 $ 147 $43,441 $15,836 $(801) $58,623
====== ====== ======= ======= ===== ======
See accompanying notes to consolidated financial statements.
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year ended February 28,
------------------------------
2003 2002 2001
-------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,160 $ 4,464 $ 5,209
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,669 4,317 4,250
Non-cash litigation charge - 700 -
(Gain) loss on sale and disposal of equipment (157) 58 (41)
Increase in equity associated with tax
benefit from exercise of stock options 5,639 3,525 -
Deferred tax assets, net (2,950) (2,233) 2,608
Minority interest in net income (loss)
of discontinued operation, net of tax - (24) 314
Gain on sale of discontinued operation - (1,615) -
Changes in operating assets and liabilities:
Accounts receivable (7,834) 3,260 3,668
Inventories (2,360) 283 2,520
Prepaid expenses and other assets (61) (880) 184
Accounts payable 5,840 424 (8,981)
Accrued liabilities (1,467) 34 (2,222)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,479 12,313 7,509
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and improvements (1,670) (1,534) (4,337)
Proceeds from sale of equipment 327 44 51
Acquisition of Kaul-Tronics (16,534) - -
Net proceeds from sale of discontinued
operations - 2,956 -
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (17,877) 1,466 (4,286)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 12,000 - 5,000
Debt repayments (971) (599) (2,742)
Proceeds from exercise of stock options 160 69 2,210
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 11,189 (530) 4,468
-------- -------- --------
EFFECT OF FOREIGN EXCHANGE RATES - (102) (473)
-------- -------- --------
Net change in cash and cash equivalents (1,209) 13,147 7,218
Cash and cash equivalents at beginning of year 23,156 10,009 2,791
-------- -------- --------
Cash and cash equivalents at end of year $21,947 $23,156 $10,009
======== ======== ========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
California Amplifier, Inc. (the "Company") designs, manufactures and
markets microwave equipment used in the reception of television programming
transmitted from satellites and wireless terrestrial transmission sites, and
two-way transceivers used for wireless high-speed Internet (broadband)
service. The Company's Satellite business unit designs and markets
reception products principally for the Direct Broadcast Satellite ("DBS")
subscription television market in the United States, as well as a full line
of consumer and commercial products for video and data reception. The
Wireless Access business unit designs and markets integrated reception and
two-way transmission fixed wireless equipment for broadband data and video
applications.
As described further in Note 14, in July 2001 the Company sold its 51%
interest in Micro Pulse, a company engaged in the design, manufacture and
marketing of antennas and amplifiers used principally in global positioning
satellite (GPS) applications. Accordingly, the results of operations of
Micro Pulse, which represented a separate business segment of the Company,
have been presented as a discontinued operation in the accompanying
consolidated statements of operations for fiscal years 2002 and 2001.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company (a Delaware corporation) and its wholly-owned subsidiaries,
California Amplifier SARL, the Company's subsidiary in France, and Cal Amp
Limited, the Company's Hong Kong subsidiary. Operations of the Hong Kong
subsidiary were wound down beginning in November 2001, and this subsidiary
was subsequently dissolved. All significant intercompany transactions have
been eliminated in consolidation.
Fiscal Year
The Company uses a 52-53 week fiscal year ending on the Saturday
closest to February 28, which for fiscal years 2003, 2002 and 2001 fell on
March 1, 2003, March 2, 2002 and March 3, 2001, respectively. In these
consolidated financial statements, the fiscal year end for all years is
shown as February 28 for clarity of presentation. Fiscal year 2001
consisted of 53 weeks, compared to 52 weeks for fiscal years 2003 and 2002.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed and
determinable and collection is probable. Generally, these criteria are met
at the time product is shipped, except for shipments made on the basis of
"FOB Destination" terms, in which case title transfers to the customer and
the revenue is recorded by the Company when the shipment reaches the
customer. Customers do not have rights of return except for defective
products returned during the warranty period.
In fiscal 2001, the Company adopted Emerging Issues Task Force (EITF)
Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs. In
accordance with the requirements of this pronouncement, the Company includes
shipping and handling fees billed to customers as sales. Shipping and
handling fees included in sales for fiscal years 2003, 2002 and 2001 were
$574,000, $224,000 and $446,000, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of less than three months to be cash equivalents.
Concentrations of Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of money market
instruments and trade receivables. The Company currently invests its excess
cash in money market mutual funds managed by or affiliated with its U.S.
commercial bank. The Company had cash and cash equivalents in one U.S. bank
in excess of federally insured amounts. Cash and cash equivalents in U.S.
and foreign banks is as follows (in thousands):
February 28,
2003 2002
------ ------
U.S. banks $20,095 $22,582
Foreign banks 1,852 574
------- -------
$21,947 $23,156
======= =======
Because the Company sells into markets dominated by a few large service
providers, a significant percentage of consolidated sales and consolidated
accounts receivable relate to a small number of customers. Sales to
customers which accounted for 10% or more of consolidated annual sales for
the last three years, as a percent of consolidated sales, are as follows:
Year ended February 28,
------------------------------
Customer 2003 2002 2001
-------- ------ ------ ------
A 43.8% 25.8% 22.0%
B 9.5% 30.6% 23.9%
C - 13.5% 10.0%
D 0.1% 11.7% 9.2%
The Company's four largest customers in fiscal 2003, including two
customers which do not appear in the table above, accounted for
approximately 71% of total fiscal 2003 sales.
Accounts receivable amounts at fiscal year-end from the customers
referred to in the table above, expressed as a percent of consolidated net
accounts receivable, are as follows:
February 28,
2003 2002
------ ------
A 58.0% 39.6%
B 15.1% 30.0%
C - -
D - 8.5%
Customers A, B and D are customers of the Satellite segment, while C is
a customer of the Wireless Access segment.
Allowance for Doubtful Accounts
The Company establishes an allowance for estimated bad debts based upon
a review and evaluation of specific customer accounts identified as known
and expected collection problems, based on historical experience, due to
insolvency, disputes or other collection issues. During fiscal 2002, the
Company reserved for and wrote off accounts receivable in the net amount of
$817,000 due from a Wireless Access customer. During fiscal 2003, the
Company reduced its allowance for doubtful accounts by $96,000 by crediting
bad debt expense as a result of its review and evaluation of the
collectibility of outstanding receivables.
Inventories
Inventories include costs of materials, labor and manufacturing
overhead. Inventories are stated at the lower of cost or net realizable
value, with cost determined principally by the use of the first-in, first-
out method.
Investments
The Company classifies investments in one of three categories: trading,
available-for-sale or held-to-maturity. Trading securities are bought and
held principally for the purpose of selling them in the near term. Held-to-
maturity securities are those securities that the Company has the ability
and intent to hold until maturity. All other securities not included in
trading or held-to-maturity are classified as available-for-sale.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as
a component of accumulated other comprehensive income until realized, or
until holding losses are deemed to be permanent, at which time an impairment
charge is recorded.
At February 28, 2003 and 2002, the Company had no trading or held-to-
maturity investments. Its sole available-for-sale investment, acquired in
connection with the settlement during fiscal year 2002 of a former
customer's outstanding accounts receivable balance, had a carrying value of
$87,000 and $345,000 at February 28, 2003 and 2002, respectively, and is
included in prepaid expenses and other current assets in the accompanying
balance sheet at those dates. The Company recorded an impairment charge of
$258,000 on this investment during the fourth quarter of fiscal 2003, which
is included in selling expenses in the accompanying consolidated statement
of operations because the investment asset had been initially recorded in
fiscal 2002 with an offsetting reduction of bad debts expense, which is also
classified as a selling expense.
Property, equipment and improvements
Property, equipment and improvements are stated at cost. The Company
follows the policy of capitalizing expenditures that increase asset lives,
and charging ordinary maintenance and repairs to operations, as incurred.
When assets are sold or disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in operating income.
Depreciation and amortization are based upon the estimated useful lives
of the related assets using the straight-line method. Buildings, which were
acquired in the Kaul-Tronics acquisition (see Note 2), are being depreciated
over 20 years. Plant equipment and office equipment are depreciated over
useful lives ranging from two to five years, while tooling is depreciated
over 18 months. Leasehold improvements are amortized over the shorter of
the lease term or the useful life of the improvements.
Goodwill
Goodwill represents the excess of purchase price and related costs over
the value assigned to the net tangible assets and identifiable intangible
assets of businesses acquired. Through the end of fiscal 2002, goodwill was
amortized on a straight-line basis over 15 years. As a result of adopting
Statement of Financial Accounting Standards No. 142, "Accounting for
Goodwill and Intangible Assets" effective March 3, 2002 (the first day of
fiscal 2003), beginning in fiscal year 2003 goodwill is no longer being
amortized. Instead, goodwill is evaluated periodically for impairment
pursuant to the provisions of this new pronouncement, as described in more
detail under "New Authoritative Pronouncements" below.
Accounting for Long-Lived Assets Other Than Goodwill
The Company reviews property and equipment and other long-lived assets
other than goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amounts of an asset may not be
recoverable. Recoverability is measured by comparison of the asset's
carrying amount to the undiscounted future net cash flows an asset is
expected to generate. If an asset is considered to be impaired, the
impairment to be recognized is measured by the amount at which the carrying
amount of the asset exceeds the projected discounted future cash flows
arising from the asset.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate:
Cash and cash equivalents, accounts receivable and accounts payable -
The carrying amount is a reasonable estimate of fair value given the short
maturity of these instruments.
Long-term debt - The carrying value approximates fair value since the
interest rate on the long-term debt approximates the interest rate which is
currently available to the Company for the issuance of debt with similar
terms and maturities.
Warranty
The Company warrants its products against defects over periods ranging
from 3 to 24 months. An accrual for estimated future costs relating to
products returned under warranty is recorded as an expense when products are
shipped. At the end of each quarter, the Company adjusts its liability for
warranty claims based on its actual warranty claims experience as a
percentage of sales for the preceding three years. In addition, during the
fourth quarter of fiscal 2003, the Company accrued warranty cost of $250,000
in connection with a product replacement program, as further described in
Note 11. Such amount is included in the warranty liability at February 28,
2003. See Note 10 for a table of annual increases in and reductions of the
warranty liability for the last three years.
Deferred Income Tax Assets
Deferred income tax assets reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
A deferred income tax asset is recognized if realization of such asset is
more likely than not, based upon the weight of available evidence which
includes historical operating performance and the Company's forecast of
future operating performance. The Company evaluates the realizability of
its deferred income tax assets on a quarterly basis, and a valuation
allowance is provided, as necessary, in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes". During this evaluation, the
Company reviews its forecasts of income in conjunction with the positive and
negative evidence surrounding the realizability of its deferred income tax
assets to determine if a valuation allowance is needed.
Foreign Currency Translation and Comprehensive Income (Loss)
Historically, the Company's French subsidiary used the local currency
as its functional currency. The local currency was the French franc until
January 1, 2002 and the Euro beginning on that date. The financial
statements of the French subsidiary were translated into U.S. dollars using
current or historical exchange rates, as appropriate, with translation gains
or losses included in the accumulated other comprehensive loss account in
the stockholders' equity section of the consolidated balance sheet.
In connection with the conversion of the French subsidiary's local
currency from the franc to the Euro, the Company evaluated which currency,
the Euro or the U.S. dollar, is best suited to be used as the functional
currency. On the basis of this evaluation, management determined that the
functional currency should be changed from the Euro to the U.S. dollar, and
this change was made effective February 1, 2002. As a result of this
change, the foreign currency translation account balance of $801,000
included in accumulated other comprehensive loss will remain unchanged until
such time as the French subsidiary ceases to be part of the Company's
consolidated financial statements. No income tax expense or benefit has
been allocated to this component of accumulated other comprehensive loss
because the Company expects that undistributed earnings of this foreign
subsidiary will be reinvested indefinitely.
The aggregate foreign exchange gains included in determining income
from continuing operations were $97,000, $11,000 and $24,000 in fiscal 2003,
fiscal 2002 and fiscal 2001, respectively.
Earnings (Loss) 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. In computing diluted earnings
per share, the treasury stock method assumes that outstanding options are
exercised and the proceeds are used to purchase common stock at the average
market price during the period. Options will have a dilutive effect under
the treasury stock method only when the average market price of the common
stock during the period exceeds the exercise price of the options.
Accounting for Stock Options
As allowed by Statement of Financial Accounting Standards No. 123
("SFAS 123"), the Company has elected to continue to measure compensation
cost under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25") and comply with the pro forma disclosure
requirements of SFAS 123, as set forth in Note 8.
Recent Authoritative Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Accounting for
Business Combinations" ("SFAS 141"). SFAS 141 establishes accounting and
reporting standards for business combinations initiated after June 30, 2001.
It requires that all business combinations use the Purchase Method of
Accounting. Goodwill will continue to be initially recognized as an asset
in the financial statements and goodwill will be measured as the excess of
the cost of an acquired entity over the net amounts assigned to assets
acquired and liabilities assumed. An intangible asset acquired in a
business combination is recognized as an asset apart from goodwill if that
asset arises from contractual or other legal rights. The Company adopted
SFAS 141 on March 3, 2002 (the first day of fiscal 2003). The adoption of
SFAS 141 did not have a material effect on the Company's results of
operations, financial position or liquidity.
In July 2001, the FASB also issued Statement of Financial Accounting
Standards No. 142, "Accounting for Goodwill and Intangible Assets" ("SFAS
142"). Under SFAS 142, goodwill is no longer amortized but rather is tested
for impairment at least annually at the reporting unit level. A recognized
intangible asset is amortized over its useful life and reviewed for
impairment in accordance with SFAS 144 (see below). A recognized intangible
asset with an indefinite useful life is not amortized until its life is
determined to be finite. The Company adopted SFAS 142 on March 3, 2002. As
a result of adopting SFAS 142, beginning in fiscal 2003 the Company no
longer records amortization on goodwill. See Note 5 for a discussion of the
results of the Company's transitional goodwill impairment test conducted as
of March 3, 2002, and the first annual goodwill impairment test conducted as
of December 31, 2002.
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS
143"). SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs and applies to all entities. It
applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and / or
the normal operation of a long-lived asset, except for certain obligations
of lessees. SFAS 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS 143 is effective for financial statements issued for
fiscal years beginning after June 15, 2002. The Company adopted SFAS 143 in
March 2003 (the beginning of its fiscal year 2004). The Company believes
that the adoption of SFAS 143 will not have a material effect on the
Company's results of operations, financial position or liquidity.
In August 2001, the FASB also issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. The Company adopted
SFAS 144 on March 3, 2002. The adoption of SFAS 144 did not have a material
effect on the Company's results of operations, financial position or
liquidity.
In April 2002, the FASB issued Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections", which among other things
provides guidance in reporting gains and losses from extinguishments of debt
and accounting for leases. The Company adopted certain provisions of this
statement in fiscal 2003, and the remaining provisions will be adopted in
fiscal 2004. The statement provisions adopted in fiscal 2003 had no impact
on the Company's financial position or its results of operations, and the
Company does not expect the adoption of the remaining provisions in fiscal
2004 to have a material impact on its financial position or its results of
operations.
In July 2002, the FASB issued Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
146"). SFAS No. 146 nullifies EITF Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". It
requires that a liability be recognized for those costs only when the
liability is incurred, that is, when it meets the definition of a liability
in the FASB's conceptual framework. SFAS No. 146 also establishes fair
value as the objective for initial measurement of liabilities related to
exit or disposal activities. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company adopted
this statement in the fourth quarter of fiscal 2003. The adoption of SFAS
146 did not have a material effect on the Company's financial position or
results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"), which
clarifies disclosure and recognition / measurement requirements related to
certain guarantees. The disclosure requirements are effective for financial
statements issued after December 15, 2002 and the recognition / measurement
requirements are effective on a prospective basis for guarantees issued or
modified after December 31, 2002. The Company adopted this statement in the
fourth quarter of fiscal 2003. The adoption of FIN 45 did not have a
material effect on the Company's financial position or results of
operations.
In December 2002, the FASB issued Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation--Transition and
Disclosure--an Amendment of FASB Statement No. 123" ("SFAS 148"). SFAS 148
amends SFAS 123 to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based compensation.
In addition, amendments are made to the disclosure requirements of SFAS 123
to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based compensation and
the effect of the method used on reported results. Certain of the
disclosure modifications are required for fiscal years ending after
December 15, 2002. The Company adopted the disclosure requirements of
SFAS 148 in the fourth quarter of fiscal 2003, but has made no decision on
whether or when it will adopt the fair value based method of accounting for
stock-based employee compensation provided for in SFAS 123 as amended by
SFAS 148.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies
the application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," to certain entities in which equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The
recognition and measurement provisions of FIN 46 are effective for newly
created variable interest entities formed after January 31, 2003, and for
existing variable interest entities, on the first interim or annual
reporting period beginning after June 15, 2003. FIN 46, which the Company
adopted in the fourth quarter of fiscal 2003, had no impact on the
consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Areas where significant judgments are made include, but
are not limited to: allowance for doubtful accounts, inventory valuation,
product warranties, deferred income tax asset valuation allowances, and
valuation of long-lived assets and goodwill. Actual results could differ
materially from these estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Note 2 - KAUL-TRONICS ACQUISITION
On April 5, 2002, the Company acquired substantially all of the assets,
properties and business of Kaul-Tronics, Inc., a Wisconsin corporation, and
two affiliated companies (collectively, "Kaul-Tronics"). The results of
Kaul-Tronics' operations have been included in the Company's consolidated
financial statements since that date. The operations acquired by the
Company involve primarily the design and manufacture of satellite antenna
dishes used in the DBS industry. The satellite antenna dishes of the type
produced by Kaul-Tronics, and the downconverter/amplifier devices ("LNBFs")
of the type produced by the Company, together comprise the outdoor portion
of customer premise equipment for DBS television reception. In calendar
year 2001, Kaul-Tronics had revenues of approximately $36 million and pretax
income of $4.8 million. Kaul-Tronics' 2001 revenues included approximately
$12 million of LNBFs of the type produced by the Company.
The acquisition of Kaul-Tronics was motivated principally by the
Company's desire to vertically integrate into the production and sale of DBS
dish antennas, so that the Company can provide the entire outdoor portion of
the customer premise equipment and solidify its relationship with the
satellite television system operators. Another reason for the acquisition
is that it provided the Company with new customers, specifically
distributors of satellite television reception products.
The total acquisition cost was $22,588,000, consisting of a cash
payment to the sellers of $16,063,000, issuance to the sellers of 929,086
shares of the Company's common stock valued at $6,054,000, and $471,000 for
direct costs of the acquisition including legal, accounting and financial
advisory fees. The acquisition gave rise to goodwill of $17,651,000, which
was assigned to the Company's Satellite business segment. The value of the
common shares issued was determined based on the average closing price of
the Company's common stock during the six trading day period beginning two
trading days before the acquisition was agreed to and ending two trading
days after the terms of the acquisition were announced.
Factors that contributed to a purchase price that resulted in the
recognition of goodwill include the following: (i) Kaul-Tronics has been
engaged in designing, manufacturing and selling satellite television
reception equipment for approximately 20 years, during which time it became
one of the largest suppliers of dish antennas to the U.S. market; (ii) it
had a reputation in the industry for high quality, reliable products, and it
developed strong customer relationships; (iii) Kaul-Tronics had a history of
profitable operations -- in 1999, 2000 and 2001, Kaul-Tronics, an S
Corporation, had pretax income of $6,157,000, $3,236,000 and $4,798,000,
respectively; and (iv) the agreed-upon purchase price was supported by a
fairness opinion issued by an independent financial advisor.
The source of funds for the cash payment was the Company's cash on hand
and the proceeds of a $12 million drawdown on the Company's existing bank
revolving line of credit which had been increased from $8 million to $13
million effective April 3, 2002. On May 2, 2002, the $12 million
outstanding principal balance on the revolver was converted into a new $12
million term loan. The new term loan bears interest at LIBOR plus 2.0% or
the bank's prime rate. The $12 million term loan provides for interest only
payments until April 1, 2003, and thereafter provides for monthly principal
reductions of $200,000 plus accrued interest.
Following is a computation of the goodwill arising from this
acquisition (in thousands):
Total acquisition costs $22,588
Fair value of net assets acquired:
Inventory $1,030
Prepaid expenses 4
Land 675
Buildings and equipment 3,323
Non-compete agreements 400
Accrued liabilities assumed (495)
-------
Total fair value of net assets acquired 4,937
-------
Goodwill $17,651
=======
The following pro forma information is presented as if the acquisition
had occurred at the beginning of each of the respective periods in the table
below (in thousands):
Year ended February 28,
--------------------------------------------
2003 2002
------------------- -------------------
As Pro As Pro
reported forma reported forma
-------- -------- -------- --------
Sales $100,044 $102,671 $100,715 $138,106
Income from continuing
operations $ 5,160 $ 5,307 $ 2,874 $ 5,514
Income from continuing
operations per share:
Basic $ .35 $ .36 $ .21 $ .38
Diluted $ .35 $ .35 $ .21 $ .37
The "as reported" amounts for the year ended February 28, 2003 include the
operating results of Kaul-Tronics for the 11 month period beginning on the
April 5, 2002 acquisition date. Pro forma adjustments for the year ended
February 28, 2003 consist mainly of adding Kaul-Tronics' results for the
month of March 2002. Because Kaul-Tronics had a different fiscal year-end
than the Company, pro forma adjustments for the year ended February 28, 2002
include Kaul-Tronics' results for the 12 months ended December 30, 2001.
Pursuant to the provisions of SFAS 142, which the Company adopted
effective at the beginning of fiscal 2003, goodwill which arose from this
transaction will not be amortized. Instead, goodwill is evaluated on an
annual basis for impairment, as further discussed in Note 5. The goodwill
arising from this acquisition is expected to be deductible for income taxes.
NOTE 3 - INVENTORIES
Inventories consist of the following (in thousands):
February 28,
-----------------------
2003 2002
------- ------
Raw materials $ 9,627 $ 6,163
Finished goods 3,235 3,309
------- -------
$12,862 $ 9,472
======= =======
NOTE 4 - PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following (in
thousands):
February 28,
-----------------------
2003 2002
------- ------
Land $ 675 $ -
Buildings and improvements 3,414 1,283
Plant equipment and tooling 22,276 21,497
Office equipment, computers
and furniture 4,083 4,220
------- -------
30,448 27,000
Less accumulated depreciation
and amortization (21,126) (19,625)
------- -------
$ 9,322 $ 7,375
======= =======
Note 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
As a result of adopting SFAS 142 at the beginning of fiscal 2003, the
Company no longer records amortization on goodwill. Goodwill acquired in
fiscal 2000 was, prior to fiscal 2003, being amortized at the rate of
$270,000 per year. For the years ended February 28, 2002 and 2001, income
from continuing operations and income from continuing operations per share
adjusted to exclude goodwill amortization expense is as follows (in
thousands except per share amounts):
Year ended
February 28,
-----------------------
2002 2001
------ ------
Income from continuing
operations as reported $2,874 $4,940
Add back goodwill amortization 270 270
----- -----
Income from continuing
operations as adjusted $3,144 $5,210
===== =====
Income from continuing
operations per share:
Basic -
As reported $.21 $.37
As adjusted $.23 $.39
Diluted -
As reported $.21 $.35
As adjusted $.22 $.37
The change in the carrying amount of goodwill in fiscal year 2003 is as
follows (in thousands):
Balance as of February 28, 2002 $ 3,287
Goodwill acquired in April 2002 (Note 2) 17,651
-------
Balance as of February 28, 2003 $ 20,938
=======
All goodwill is associated with the Company's Satellite business
segment. The Company's transitional goodwill impairment test was conducted
as of March 3, 2002 (the first day of fiscal 2003). This test indicated
that there was no impairment of goodwill. The Company used a discounted
cash flow approach to estimate the fair value of its Satellite reporting
unit.
The first annual goodwill impairment test was conducted as of December
31, 2002. This test indicated that there was no impairment of goodwill. The
Company used a discounted cash flow approach to estimate the fair value of
its Satellite reporting unit.
At February 28, 2003, the gross carrying amount and accumulated
amortization of covenants not to compete acquired in conjunction with the
Kaul-Tronics purchase (Note 2) was $400,000 and $96,000, respectively. The
covenants not to compete, which are included in Other Assets in the
accompanying consolidated balance sheet at February 28, 2003, are being
amortized on a straight-line basis over a weighted average life of
approximately 4.1 years.
NOTE 6 - FINANCING ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
Short-term Borrowings and Credit Facilities
At February 28, 2003, the Company had a $13 million working capital
revolving line of credit with a commercial bank which matures on August 3,
2005. Borrowings under this line of credit bear interest at LIBOR plus 2.0%
or the bank's prime rate, and are secured by substantially all of the
Company's assets. At February 28, 2003 and 2002, no amounts were
outstanding under the line of credit. At February 28, 2003, $1,582,000 of
the line of credit amount was reserved for two outstanding irrevocable
stand-by letters of credit.
Long-term Debt
Long-term debt consists of the following (in thousands):
February 28,
----------------------
2003 2002
------ ------
Bank term loan payable, interest fixed at 4.75%
until April 2, 2004 and thereafter floating at
bank prime rate or fixed at 1 or 3 month LIBOR
plus 2%, principal due in monthly installments
ranging from $83 to $87 through August 2, 2006 $ 3,574 $ 4,545
Bank term loan payable, interest fixed at 3.34%
until May 28, 2003 and thereafter floating at
LIBOR plus 2% or bank prime rate, principal
due in monthly installments of $200 beginning
May 2003 and continuing through April 2008 12,000 -
------- -------
15,574 4,545
Less portion due within one year (3,005) (917)
------- -------
$12,569 $ 3,628
======= =======
The bank credit agreement which encompasses the working capital
revolving line of credit and the two bank term loans described above
contains certain financial covenants and ratios that the Company is required
to maintain, including a fixed charge coverage ratio of not less than 1.25
to 1.0, a current ratio of not less than 2.0 to 1.0, a leverage ratio of not
more than 2.25 to 1.0, tangible net worth of at least $19,050,000 (such
minimum amount increasing by $1 million annually beginning on March 1,
2003), cash and cash equivalents not less than $8 million, and net income of
at least $1.00 in each fiscal year. At February 28, 2003, the Company was
in compliance with all such covenants. However, for its fiscal year ending
February 28, 2004 the Company anticipates that it will not be in compliance
with the fixed charge coverage ratio requirement beginning with the first
quarter of fiscal 2004. The Company plans to seek a waiver or amendment of
the bank credit agreement in the event it is not able to maintain compliance
during fiscal 2004 with this covenant or any other financial covenant
contained in the bank credit agreement.
Contractual Cash Obligations
Following is a summary of the Company's contractual cash obligations as
of February 28, 2003 (in thousands):
Future Cash Payments Due by Fiscal Year
----------------------------------------------
Contractual
Obligations 2004 2005 2006 2007 2008 2009 Total
- --------------- ------ ------ ------ ------ ------ ------ ------
Debt $3,005 $3,435 $3,423 $2,911 $2,400 $ 400 $15,574
Operating leases 803 6 3 - - - 812
------ ------ ------ ------ ------ ------ ------
Total contractual
cash obligations $3,808 $3,441 $3,426 $2,911 $2,400 $ 400 $16,386
====== ====== ====== ====== ====== ====== ======
Rent expense under operating leases was $760,000, $1,062,000 and
$842,000 for fiscal years 2003, 2002 and 2001, respectively.
NOTE 7 - INCOME TAXES
The Company's income from continuing operations before income taxes
consists of the following (in thousands):
Year ended February 28,
--------------------------------
2003 2002 2001
------ ------ ------
Domestic $ 7,642 $ 3,930 $ 6,550
Foreign 353 251 1,200
------- ------- -------
$ 7,995 $ 4,181 $ 7,750
======= ======= =======
The tax provision for income from continuing operations consists of the
following (in thousands):
Year ended February 28,
--------------------------------
2003 2002 2001
------ ------ ------
Current:
Federal $ 59 $ (132) $ -
State 79 (271) 14
Foreign (57) 9 290
------ ------ ------
Total current 81 (394) 304
------ ------ ------
Deferred:
Federal (2,395) (725) 2,251
State (490) (1,099) 294
Foreign - - (39)
------- ------- -------
Total deferred (2,885) (1,824) 2,506
------- ------- -------
Charge in lieu of taxes
attributable to tax benefit
from employee stock options 5,639 3,525 -
------- ------- -------
$ 2,835 $ 1,307 $ 2,810
======= ======= =======
Differences between the income tax provision and income taxes computed
using the statutory federal income tax rate are as follows (in thousands):
Year ended February 28,
--------------------------------
2003 2002 2001
------ ------ ------
Income tax at statutory federal
rate (34%) $ 2,718 $ 1,421 $ 2,635
State income taxes, net of
federal income tax effect 106 (194) 201
Foreign taxes (176) 38 -
Valuation allowance 505 230 157
Research and development credits (264) (154) -
Extraterritorial income exclusion (68) (102) -
Other, net 14 68 (183)
------- ------- -------
$ 2,835 $ 1,307 $ 2,810
======= ======= =======
The components of the net deferred income tax asset at February 28,
2003 and 2002 are as follows (in thousands):
February 28,
----------------------
2003 2002
------ ------
Inventory reserve $ 273 $ 749
Allowance for doubtful accounts 80 136
Warranty reserve 196 146
Compensation and vacation accruals 139 357
Depreciation 120 185
Legal settlement accrual 400 389
Goodwill amortization (499) (7)
Capitalized R&D cost amortization 495 503
Net operating loss carryforward 4,697 6,609
Research and development credits 2,701 2,093
Other tax credits 1,220 1,118
Other, net 43 26
------ ------
9,865 12,304
Valuation allowance (3,335) (8,724)
------ ------
6,530 3,580
Less current portion (1,130) (3,580)
------ ------
Non-current portion $5,400 $ -
====== ======
At February 28, 2002, the deferred tax asset valuation allowance was
$8,724,000. Of this amount, approximately $5.6 million represented reserved
tax benefits associated with the exercise of non-qualified stock options in
years prior to fiscal 2002 and, in general, those are the tax benefits which
are being recognized first.
Based on profitable operations in the most recent three year period,
and on management's internal forecast of future operating results,
management believes it is more likely than not that the Company will
generate sufficient taxable income in the future to utilize deferred tax
assets of $6,530,000, and accordingly the deferred tax asset valuation
allowance was reduced by $5,389,000 during fiscal 2003 with a corresponding
increase in additional paid-in capital.
At February 28, 2003, the Company has net operating loss carryforwards
("NOLs") of approximately $12.5 million and $750,000 for federal and state
purposes, respectively. The federal NOLs expire at various dates through
2022, and the state NOLs expire at various dates through 2007.
As of February 28, 2003, the Company had foreign tax credit
carryforwards of $87,000 expiring at various dates through 2007, research
and development tax credit carryforwards of $2,069,000 and $959,000 for
federal and state income tax purposes, respectively, expiring at various
dates through 2013, and manufacturing investment credit carryforwards of
$968,000 for state income tax purposes expiring at various dates through
2013.
The Company has not provided withholdings and U.S. federal income taxes
on approximately $480,000 of undistributed earnings of its foreign
subsidiaries because such earnings are or will be reinvested indefinitely in
such subsidiaries or will be approximately offset by credits for foreign
taxes paid. It is not practical to determine the U.S. federal income tax
liability, if any, that would be payable if such earnings were not
reinvested indefinitely.
NOTE 8 - STOCKHOLDERS' EQUITY
Stock Options
The Company has two stock option plans for its employees, the 1989 Key
Employee Stock Option Plan ("1989 Plan"), and the 1999 Stock Option Plan
("1999 Plan"). Under the 1999 Plan, stock options can be granted at prices
not less than 100% of the fair market value at the date of grant. Option
grants become exercisable on a vesting schedule established by the
Compensation Committee of the Board of Directors at the time of grant,
usually over a four-year period.
The following table summarizes the option activity for fiscal years
2003, 2002 and 2001 (in thousands except dollar amounts):
Weighted
Number Average
Shares Option Price
-------- --------
Outstanding at February 28, 2000 1,685 10.36
Granted 564 28.78
Exercised (353) 6.27
Canceled (102) 29.84
----- ------
Outstanding at February 28, 2001 1,794 $15.85
Granted 754 4.68
Exercised (29) 2.34
Canceled (315) 23.06
----- ------
Outstanding at February 28, 2002 2,204 $11.17
Granted 341 5.22
Exercised (64) 2.53
Canceled (169) 11.44
----- ------
Outstanding at February 28, 2003 2,312 $10.51
===== ======
Options outstanding at February 28, 2003 and related weighted average
price and life information is as follows:
Weighted Total
Average Weighted Weighted
Range of Total Remaining Average Average
Exercise Options Life Exercise Options Exercise
Prices Outstanding (Years) Price Exercisable Price
-------- -------- -------- -------- -------- --------
$1.69-$1.88 161,750 5.8 $ 1.79 161,750 $ 1.79
2.06- 2.76 243,500 4.8 2.25 243,500 2.25
3.50- 4.99 821,000 7.4 4.39 443,250 4.23
5.00- 7.22 545,838 7.4 5.68 229,838 6.33
8.00-12.25 74,750 6.1 8.91 66,750 8.96
15.75-19.88 102,500 7.3 19.49 55,875 19.22
20.19-28.00 82,000 6.6 25.71 70,000 25.78
39.38-40.00 129,000 7.0 39.98 95,500 39.98
43.50-50.56 152,000 7.1 44.99 92,000 45.96
----------- --------- ---- ------ --------- ------
$1.69-$50.56 2,312,338 6.9 $10.51 1,458,463 $10.76
=========== ========= ==== ====== ========= ======
The weighted average fair value for stock options granted in fiscal
years 2003, 2002 and 2001 was $4.48, $4.58 and $26.28, respectively.
The number of stock options available for grant under the 1999 Stock
Option Plan at the end of each fiscal year was 308,000, 19,899 and 22,834
for 2003, 2002 and 2001, respectively. Pursuant to the Company's 1999 Stock
Option Plan, the number of options available to grant is replenished to
500,000 on the first day of each fiscal year. The 1989 Plan expired in May
1999 and no additional options may be granted under this plan.
As permitted by SFAS 123, the Company continues to apply the accounting
rules of APB No. 25 governing the recognition of compensation expense for
options granted under its stock option plans. Such accounting rules measure
compensation expense on the first date at which both the number of shares
and the exercise price are known. Under the Company's plans, this would
typically be the grant date. To the extent that the exercise price equals
or exceeds the market value of the stock on the grant date, no expense is
recognized. As options are generally granted at exercise prices not less
than the market value on the date of grant, no compensation expense is
recognized under this accounting treatment in the accompanying consolidated
statements of operations.
The fair value of options at date of grant was estimated using the
Black-Scholes option pricing model with the following assumptions:
Year ended February 28,
--------------------------------
2003 2002 2001
------ ------ ------
Expected life (years) 5 10 5 to 10
Dividend yield 0% 0% 0%
The range for interest rates is 3.25% to 6.82%, and the range for
volatility is 49% to 147%. The estimated stock-based compensation cost
calculated using the assumptions indicated totaled $4,155,000, $6,713,000
and $6,369,000 in fiscal years 2003, 2002, and 2001, respectively. The
following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS 123
to stock-based employee compensation (in thousands except per share
amounts):
Year ended February 28,
--------------------------------
2003 2002 2001
------ ------ ------
Net income as reported $5,160 $4,464 $5,209
Less total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (2,681) (4,494) (4,096)
----- ----- -----
Pro forma net income (loss) $2,479 $ (30) $1,113
===== ===== =====
Earnings per share:
Basic -
As reported $.35 $.33 $.39
Pro forma $.17 $.00 $.08
Diluted -
As reported $.35 $.32 $.37
Pro forma $.17 $.00 $.08
At February 28, 2003, 14,744,562 preferred stock purchase rights are
outstanding. Each right may be exercised to purchase one-hundredth of a
share of Series A Participating Junior Preferred Stock at a purchase price
of $50 per right, subject to adjustment. The rights may be exercised only
after commencement or public announcement that a person (other than a person
receiving prior approval from the Company) has acquired or obtained the
right to acquire 20% or more of the Company's outstanding common stock. The
rights, which do not have voting rights, may be redeemed by the Company at a
price of $.01 per right within ten days after the announcement that a person
has acquired 20% or more of the outstanding common stock of the Company. In
the event that the Company is acquired in a merger or other business
combination transaction, provision shall be made so that each holder of a
right shall have the right to receive that number of shares of common stock
of the surviving company which at the time of the transaction would have a
market value of two times the exercise price of the right. 750,000 shares
of Series A Junior Participating Cumulative Preferred Stock, $.01 par value,
are authorized.
Note 9 - EARNINGS PER SHARE
Following is a summary of the calculation of basic and diluted weighted
average shares outstanding for fiscal 2003, 2002 and 2001 (in thousands):
Year ended February 28,
--------------------------------
2003 2002 2001
------ ------ ------
Weighted average shares:
Weighted average number of
common shares outstanding 14,591 13,605 13,365
Weighted average number of shares
issuable for legal settlement 48 122 142
------ ------ ------
Basic weighted average number
of common shares outstanding 14,639 13,727 13,507
Effect of dilutive securities:
Stock options 231 252 631
Convertible debt - - 79
------ ------ ------
Diluted weighted average number
of common shares outstanding 14,870 13,979 14,217
====== ====== ======
Outstanding stock options in the amount of 1,128,000 and 828,000 at
February 28, 2003 and 2002, respectively, which had exercise prices ranging
from $4.95 to $50.56 and $5.69 to $50.56, respectively, were not included in
the computation of diluted earnings per share for the years 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. For the year ended February 28, 2001 there were
488,000 stock options not considered in the calculation of diluted weighted
average shares since their inclusion would be anti-dilutive.
NOTE 10 - OTHER FINANCIAL INFORMATION
"Other accrued liabilities" in the consolidated balance sheets consist
of the following (in thousands):
February 28,
-----------------------
2003 2002
------ ------
Accrued legal settlement $ - $ 4,534
Amount payable to insurance company 1,000 1,000
Other 1,198 1,446
------- -------
$ 2,198 $ 6,980
======= =======
"Net cash provided by operating activities" in the consolidated
statements of cash flows includes cash payments for interest and income as
follows (in thousands):
Year ended February 28,
--------------------------------
2003 2002 2001
------ ------ ------
Interest paid $588 $323 $479
Income taxes paid $262 $497 $133
Following is the supplemental schedule of non-cash investing and
financing activities (in thousands):
Year ended February 28,
--------------------------------
2003 2002 2001
------ ------ ------
Issuance of common stock as
partial consideration for
acquisition of Kaul-Tronics $ 6,054 $ - $ -
Issuance of common stock to
reduce accrued liability $ 4,030 $ - $ 2,166
Conversion of debt to equity $ - $ - $ 2,231
Valuation and Qualifying Accounts and Reserves
Following is the Company's schedule of valuation and qualifying
accounts and reserves for the last three years (in thousands):
Charged
Balance at (credited) Balance
beginning to costs and at end
of period expenses Deductions of period
--------- -------- --------- ---------
Allowance for doubtful accounts:
- -------------------------------
Fiscal 2001 $473 $144 $ (150) $467
Fiscal 2002 467 991 (1,041) 417
Fiscal 2003 417 (96) (48) 273
Warranty reserve:
- ----------------
Fiscal 2001 $462 $333 $ (348) $447
Fiscal 2002 447 144 (215) 376
Fiscal 2003 376 396 (281) 491
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases its corporate and manufacturing facilities in
Camarillo, California under operating leases that expire in February 2004.
The lease agreements for the Camarillo facilities require the Company to pay
all property taxes and insurance premiums associated with the coverage of
the facilities. In addition, the Company leases small facilities in
Minnesota and France. The Company also leases certain equipment used in the
manufacturing operation under operating lease arrangements. A summary of
future operating lease commitments is included in the contractual cash
obligations table in Note 6.
During the fourth quarter of fiscal 2003, the Company became aware that
one of its new multi-satellite television reception products that it began
selling in the fiscal 2003 third quarter exhibited a loss of signal from one
satellite under a particular combination of field-specific conditions which
include subfreezing temperatures. In January 2003, the product performance
issue was resolved by making a minor change in product configuration.
Approximately 33,000 units which were in the distribution channels were
replaced during the fourth quarter, while substantially all of the remaining
38,000 units shipped prior to the discovery of the product performance issue
are still installed at the premises of satellite television subscribers. In
connection with this product replacement program, one of the satellite
television system operators made a written demand on the Company in the
amount of approximately $1.6 million for that operator's expected service
call costs to replace 23,000 installed units in the future. The Company has
requested data from the system operator to support its estimate of the
number of units that will ultimately need to be replaced. Based on all
information available to the Company up to the present time, Company
management estimates that to date less than 1% of the installed units have
required replacement as a result of this signal loss condition. In the
absence of objective evidence that the problem is more extensive than the
Company's estimate, the Company believes that the claim of the system
operator as to the number of units that may ultimately need to be replaced
is unreasonable. The Company is in discussions with the system operator in
an effort to resolve the matter on an amicable basis. The Company accrued
$250,000 at February 28, 2003 as its best estimate of the costs to complete
the product replacement program and to resolve the claim of the system
operator. The total cost of the product replacement program, including this
$250,000 accrued cost, amounted to approximately $450,000, and is included
in cost of goods sold in the accompanying consolidated statement of
operations for fiscal 2003. The Company can give no assurance, however,
that the actual costs to complete the product replacement program and to
resolve the claim of the system operator will not exceed the $250,000
accrued liability at February 28, 2003.
NOTE 12 - LEGAL PROCEEDINGS
Yourish class action litigation:
On March 29, 2000 the Company and the individual defendants (certain
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 valued at 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, and the remaining $1.5
million was to be funded by the Company's director and officer liability
insurance carriers. The common stock portion of the settlement was
originally accrued at $7.5 million, or $40 per share, which share price was
based on the trading range of the Company's common stock at the time the
settlement agreement was reached. By Order dated September 14, 2000, the
Court approved the terms of the settlement and dismissed the action with
prejudice.
Upon approval of the settlement agreement by the Court, in September
2000 the Company issued 65,625 of the 187,500 shares of common stock and
paid $2.5 million of the $3.5 million cash portion of the settlement.
T.I.G. Insurance Company ("T.I.G."), one of the Company's liability
insurance carriers, paid the remaining $1 million under a reservation of
rights.
The fair value of the Company's common stock on September 14, 2000, the
date the settlement agreement was approved by the court, was $33.063 per
share. Accordingly, at that time the Company reduced its litigation accrual
by $1.3 million to revalue the common stock portion of the settlement at
$33.063 per share instead of $40 per share. Also in September 2000, the
Company accrued $500,000 for additional legal expenses associated with this
litigation which had not been previously accrued, and accrued $800,000 for a
refund contingently payable to T.I.G., which had contributed $1 million to
the settlement under a reservation of rights.
In March 2002, T.I.G. notified the Company that it intended to seek a
refund of its $1 million settlement contribution made under a reservation of
rights. As discussed above, the Company had previously accrued a reserve of
$800,000 for the refund contingently payable to T.I.G. Consequently, at
February 28, 2002 the Company accrued an additional $200,000 for the
contingent refund payable to T.I.G.
The remaining 121,875 shares of common stock, previously accrued as
part of the Yourish legal settlement at $33.063 per share, were issued on
July 24, 2002, upon receipt of instructions from plaintiffs' counsel.
The Company's consolidated balance sheet at February 28, 2003 includes
an accrued liability of $1 million for the amount payable to T.I.G.
2001 securities litigation and shareholder derivative lawsuit:
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 year 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. On June 18, 2001, the twenty
actions were consolidated into a single action pursuant to stipulation of
the parties, and lead plaintiffs' counsel was appointed. In July 2001, all
of the Company's directors were named as defendants in the above-entitled
shareholder derivative lawsuit filed in Los Angeles Superior Court.
In December 2001, the parties reached an agreement to settle both the
class action litigation and the shareholder derivative lawsuit for the
aggregate sum of $1.5 million, subject to final Court approval. Of this
amount, the Company's primary directors and officers liability insurance
carrier agreed to contribute $575,000 toward the settlement, which amount
was paid in December 2001. The Company accrued its $925,000 share of the
settlement in the fiscal year ended February 28, 2002. Of this amount,
$425,000 was paid by the Company in December 2001, and the remaining
$500,000 was paid in October 2002 upon the Court's final approval of the
settlement agreement.
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 interim
quarters of fiscal year 2001. Subsequently, the Company learned that the
SEC adopted an order directing a formal investigation and designating
certain officers to take testimony. The Company has provided the SEC with
documents and testimony, and management believes that it has fully
cooperated, and will continue to fully cooperate, with the SEC in connection
with its investigation.
NOTE 13 - SEGMENT AND GEOGRAPHIC DATA
Information by business segment is as follows:
Fiscal Year 2003:
WIRELESS
SATELLITE ACCESS CORPORATE TOTAL
------- ------ ------- -----
Sales $ 88,437 $ 11,607 - $100,044
Gross profit 17,251 3,282 - 20,533
Gross margin 19.5% 28.3% - 20.5%
Income (loss) from continuing
operations before income taxes 13,217 (1,226) (3,781) 8,210
Identifiable assets 71,420 10,309 7,868 89,597
Fiscal Year 2002:
WIRELESS
SATELLITE ACCESS CORPORATE TOTAL
------- ------ ------- -----
Sales $ 78,899 $ 21,816 - $100,715
Gross profit 15,469 6,904 - 22,373
Gross margin 19.6% 31.6% - 22.2%
Income (loss) from continuing
operations before income taxes 11,490 89 (7,398) 4,181
Identifiable assets 37,092 12,172 7,424 56,688
Fiscal Year 2001:
WIRELESS
SATELLITE ACCESS CORPORATE TOTAL
------- ------ ------- -----
Sales $ 85,107 $ 32,022 - $117,129
Gross profit 12,752 10,249 - 23,001
Gross margin 15.0% 32.0% - 19.6%
Income (loss) from continuing
operations before income taxes 8,592 4,883 (5,725) 7,750
Identifiable assets 27,595 13,286 8,931 49,812
The Company considers income (loss) from continuing operations before
income taxes to be the primary measure of profit or loss of its business
segments. The amount shown for each year in the "Corporate" column above
for income (loss) from continuing operations consists of general and
administrative expenses not allocated to the business segments, and non-
operating income/expense. General and administrative expense includes
salaries and wages for the CEO, the CFO, all finance and accounting
personnel, human resource personnel,
information services personnel, and corporate expenses such as audit fees,
director and officer liability insurance, director fees and expenses, and
costs of producing and distributing the annual report to stockholders. Non-
operating income/expense includes interest income, interest expense, foreign
currency gains and losses, and, in fiscal years 2002 and 2001, litigation
settlement expense.
The Company does not have significant long-lived assets outside the
United States.
Sales information by geographical area for each of the three years in
the period ended February 28, 2003 is as follows (000s):
Year ended February 28,
--------------------------------
2003 2002 2001
------ ------ ------
United States $ 90,543 $ 82,936 $ 88,322
Africa 4,088 1,309 2,915
Latin America 2,428 1,738 2,712
Europe 2,255 2,258 3,892
Canada 290 11,816 15,769
All other 440 658 3,519
------- ------- -------
$100,044 $100,715 $117,129
======= ======= =======
See also "Concentrations of Risk" in Note 1 for sales by major customer.
NOTE 14 - DISCONTINUED OPERATIONS
On July 31, 2001, the Company sold its 51% ownership interest in Micro
Pulse. After giving consideration to disposition costs and cash of $275,000
which remained with the divested operation, the net cash proceeds of this
transaction amounted to $2,956,000. The sale generated 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 operations for
fiscal years 2002 and 2001 as a discontinued operation, and are summarized
as follows (in thousands):
Year ended
February 28,
-------------------
2002 2001
------ ------
Sales $ 2,556 $ 7,850
======= =======
Operating income (loss) $ (105) $ 766
======= =======
Income (loss) from discontinued
operations, net of tax $ (25) $ 269
======= =======
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 operations 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
operations, net of tax $ 1,615
=======
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (unaudited)
The following summarizes certain quarterly statement of operations data
for each of the quarters in fiscal years 2003 and 2002 (in thousands, except
percentages and per share data):
Fiscal 2003
----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
Sales $22,482 $27,526 $23,965 $26,071 $100,044
Gross profit 5,844 6,355 4,378 3,956 20,533
Gross margin 26.0% 23.1% 18.3% 15.2% 20.5%
Income from
continuing
operations 1,466 1,818 905 971 5,160
Net income 1,466 1,818 905 971 5,160
Net income per
diluted share 0.10 0.12 0.06 0.06 0.35
Fiscal 2002
----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
Sales $20,802 $24,654 $32,756 $22,503 $100,715
Gross profit 4,662 6,047 7,274 4,390 22,373
Gross margin 22.4% 24.5% 22.2% 19.5% 22.2%
Income from
continuing
operations 91 465 1,352 966 2,874
Loss from
discontinued
operation (20) (5) - - (25)
Gain on sale of
discontinued
operation - 1,615 - - 1,615
Net income 71 2,075 1,352 966 4,464
Net income per
diluted share 0.01 0.15 0.10 0.07 0.32
Market and Dividend Information
The Company's Common Stock trades on The Nasdaq Stock Market under the
ticker symbol CAMP. The following table sets forth for the last two years
the quarterly high and low sale prices for the Company's Common Stock, as
reported by Nasdaq:
LOW HIGH
----- ------
Fiscal Year Ended February 28, 2003:
1st Quarter $ 4.96 $ 7.24
2nd Quarter 3.46 6.40
3rd Quarter 3.11 5.90
4th Quarter 3.76 6.49
Fiscal Year Ended February 28, 2002:
1st Quarter $ 5.03 $ 7.25
2nd Quarter 3.50 8.50
3rd Quarter 3.55 5.72
4th Quarter 4.30 7.49
At May 23, 2003 the Company had approximately 1,700 stockholders of
record. The number of stockholders of record does not include the number of
persons having beneficial ownership held in "street name" which are
estimated to approximate 10,000.
The Company has never paid a cash dividend and has no current plans to
pay cash dividends on its Common Stock.
Form 10-K Annual Report
A copy of the Annual Report on Form 10-K may be obtained free of charge
upon written request to California Amplifier, Inc., 460 Calle San Pablo,
Camarillo, California 93012, attention Corporate Secretary.
CALIFORNIA AMPLIFIER, INC.
DIRECTORS, EXECUTIVE OFFICERS,
AND OTHER CORPORATE INFORMATION
BOARD OF DIRECTORS
Ira Coron
Chairman of the Board
California Amplifier, Inc.
Fred Sturm
President and Chief Executive Officer
California Amplifier, Inc.
Richard Gold
President and Chief Executive Officer
Nova Crystals, Inc.
Arthur Hausman
Private investor and
Chairman Emeritus of the Board
Ampex Corporation
Frank Perna, Jr.
Chairman and Chief Executive Officer
MSC Software Corporation
Thomas Ringer
Chairman of the Board
Wedbush Morgan Securities, Inc.
EXECUTIVE OFFICERS
Fred Sturm
President and Chief Executive Officer
Philip Cox
Vice President, Wireless Products
Robert Hannah
Vice President, Satellite Products
Patrick Hutchins
Vice President, Operations
Kris Kelkar
Senior Vice President, Wireless Access Products
Richard Vitelle
Vice President Finance, Chief Financial Officer
and Corporate Secretary
INDEPENDENT ACCOUNTANTS
KPMG LLP
Los Angeles, California
LEGAL COUNSEL
Gibson, Dunn & Crutcher LLP
Los Angeles, California
TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
CONTACT INFORMATION
California Amplifier, Inc.
460 Calle San Pablo
Camarillo, CA 93012
Telephone (805) 987-9000
Fax (805) 987-8359
www.calamp.com