SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2002
COMMISSION FILE NUMBER: 0-12182
___________
CALIFORNIA AMPLIFIER, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 95-3647070
______________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 CALLE SAN PABLO, CAMARILLO, CALIFORNIA 93012
_________________________________________ __________________
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-9000
________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
___________________ __________________
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
$.01 PAR VALUE COMMON STOCK
___________________________
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the Company held by
non-affiliates of the Company as of May 22, 2002 was approximately
$98,481,000.
There were 14,597,437 shares of the Company's Common Stock outstanding
as of May 22, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on July 18, 2002 are incorporated by
reference into Part III, Items 11, 12 and 13 of this Form 10-K. This Proxy
Statement will be filed within 120 days after the end of the fiscal year
covered by this report.
PART I
ITEM 1. BUSINESS
THE COMPANY
California Amplifier, Inc. (the "Company") is engaged in the design,
manufacture and marketing of a broad line of integrated microwave fixed point
reception and transmission products used primarily in satellite television
and terrestrial broadband applications. The Company's Satellite Products
business unit designs and markets reception components for the worldwide
Direct Broadcast Satellite ("DBS") television market 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 solutions for video, voice, data,
telephony and networking applications. California Amplifier is an ISO 9001
certified company.
In July 2001, the Company sold its 51% interest in Micro Pulse, Inc.
("Micro Pulse"). Micro Pulse designs, manufactures and markets 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 for all periods
presented in the accompanying consolidated statements of operations.
The Company was incorporated in California in 1981 and was
reincorporated in Delaware in 1987.
SATELLITE PRODUCTS
Satellite dishes are used for the reception of video, audio and data
transmitted from orbiting satellites. The Company's products, which are
components of the dish assembly, are used in both commercial satellite dish
applications and home satellite dishes. The Company's Satellite product sales
to date have been primarily generated from sales of integrated
downconverters, amplifiers and feedhorns used in home satellite dish and
cable headend dish applications.
The satellite dish is a parabolic reflector antenna. Microwave signals
transmitted primarily in Ku-band or C-band for video and data transmission
are transmitted from orbiting satellites toward the earth's surface. The dish
reflects the microwaves back to a focal point where a feedhorn collects the
microwaves transferring the signals into an amplifier/downconverter. The
microwave amplifier amplifies the microwave signal millions of times for
further processing. The downconverter changes the frequency into an
intermediate frequency so that the receiver and television can process the
signal and create a picture.
Since the early 1980s the Company has been a leading supplier of C-band
downconverters and amplifiers to the "large backyard dish" markets worldwide,
primarily the United States in the 1980s and 1990s, and Brazil and the Middle
East in the mid 1990s. In April 1999, the Company purchased substantially all
of the satellite television products business from Gardiner Communications
Corp. This acquisition allowed the Company immediate entry into the U.S. Ku-
band DBS mainstream consumer market, and provided the Company with the
opportunity to service certain satellite markets in Europe, and Asia, both of
which position the Company to be a more significant supplier to key markets
around the world.
In fiscal year 2002, substantially all of the Company's satellite
product sales were Ku-DBS products, while sales of C-band satellite products
were negligible. The Company believes Ku-band DBS products will continue to
dominate its satellite product sales as the Company focuses on the DBS market
opportunities in the United States, Europe, Latin America and Asia.
WIRELESS ACCESS PRODUCTS
The Company's legacy Wireless Access products relate primarily to
microwave downconverter/amplifier reception products and broadband scrambling
products for wireless cable video reception. The downconverter/amplifier
products are similar in function to the Company's satellite products, except
that the microwave programming is transmitted from a terrestrial tower
instead of a satellite. Two years ago, the Company's product focus shifted to
transceiver products, and more recently to the development of integrated
modem-transceiver products located at customer premises, for use in "last-
mile" wireless access to homes and businesses. The market and product
background is outlined below.
Wireless Cable Video
Wireless Cable television operates similarly to coaxial cable television
transmission. The key difference is that Wireless Cable uses a microwave
frequency band (Multichannel Multipoint Distribution System, or MMDS) to
transmit programming from a headend site to homes within a local service
area. The signal can generally be received by subscribers within a 25 to 40
mile omni-directional radius of the transmission tower; however, the
subscriber must have a direct line-of-sight or "view" between the
transmission tower and the receive antenna at the home. Typically, 55% to 80%
of the homes within a service area are able to receive these wireless
signals, with the remainder shadowed from the transmitter. The percentage of
line-of-sight homes is affected by the tower elevation, local topology and
the height of the subscriber's antenna.
In 1995, the Wireless Cable industry in the United States generated a
great deal of interest in Tele-TV, a consortium comprised of Bell Atlantic,
NYNEX and Pacific Telesis, which announced its intention to deliver digitally
compressed video to customers using Wireless Cable technology. In late 1996,
the Tele-TV consortium announced that certain members had changed their
strategic emphasis and were not going forward with their Wireless Cable
plans. That same year, BellSouth announced its plan to use digital Wireless
Cable technology to deliver video services in the southeastern region of the
United States, and launched video programming services in Atlanta, New
Orleans, Orlando, Daytona Beach, and Jacksonville. In 2000, BellSouth re-
evaluated its video programming delivery service, and converted a portion of
its subscriber base to wired cable service. The remainder of its wireless
cable television subscriber base was sold to a DBS satellite operator to
deliver video services, allowing BellSouth to utilize its MMDS spectrum for
other applications. Smaller service providers such as Nucentrix have also
followed this model by selling their subscriber base to DBS satellite
operators, in order to free up their spectrum for alternate uses. Currently,
the domestic Wireless Cable video market is small and shrinking.
Internationally, the Wireless Cable industry has also been declining.
Increasing worldwide demand for multichannel television programming has been
offset by constraints on capital available to the Wireless Cable service
providers and increased competition from alternate distribution means, such
as satellite and cable. It is expected that an increasing number of
operators/MMDS spectrum owners may re-assess their video strategy and focus
on broadband Internet and telephony services, as described below.
Broadband Wireless Products
Terrestrial Wireless Cable operators own significant wireless spectrum in
the 2.5 to 2.7 gigahertz range. Additionally, a number of countries have
recently licensed spectrum in the 3.4 to 3.6 GHz range for wireless
communications. As worldwide markets move toward wireless communications,
these spectrum holders have considered using a portion or all of this
spectrum for broadband data applications, such as high speed Internet access.
By deploying two-way wireless technology, operators can offer a high-
speed data service alternative to bridge the critical "last mile" between
networks and customers. There are key distinctions between broadband wireless
access and the two most prevalent traditional high-speed pipelines, cable and
digital subscriber line (DSL), typically provided by local cable or telephone
companies. Wireless allows rapid deployment of broadband services with
relatively low build-out costs and it extends high-speed access to rural and
suburban markets that are not served or are underserved by cable or DSL.
Essentially, operators will establish two-way transmissions to and from base
stations and homes, and businesses, operating in many instances like cellular
and PCS systems. The Company currently provides outdoor transceivers, which
the system operator installs on the subscriber's home or business rooftop.
These transceivers interface to an indoor modem which is connected to PCs or
local area networks, and send and receive data to/from the base stations to
provide access to the Internet. The network management system manages and
controls the traffic transmitted over the broadband wireless system, allowing
many users to share the available bandwidth.
Beginning in March 1999, MCI WorldCom and Sprint began making debt and
equity investments in many of the U.S. MMDS multi-system operators,
essentially acquiring over 60% of the MMDS spectrum in major cities
throughout the United States. In conjunction with these acquisitions, the
companies announced their intention to initiate a broad-based roll-out of
fixed wireless broadband services to consumers in approximately 100 U.S.
cities by the end of 2001 using technology that required line-of-sight
between the base station tower and subscriber antenna. As of September 2001,
Sprint was operating in 13 cities, and as of May 2002 MCI WorldCom was
operating in 14 cities. In late 2001, Sprint announced that it had suspended
its previous roll-out strategies using line-of-sight technology, and was
awaiting the availability of next generation broadband non-line-of-sight
technologies before finalizing its deployment strategies. MCI WorldCom has
continued its service roll-out to small and medium sized businesses in
already launched markets, but plans to launch additional markets only when
suitable next generation technology is available.
Following MCI WorldCom's lead, a number of international spectrum
holders launched two way services to small and medium sized businesses using
line-of-sight technologies. These spectrum holders continue to roll out
service to businesses.
In December 2001, the Company announced a licensing agreement that
provides access to non-line-of-sight broadband modem technology and allows
the Company to develop integrated customer premise equipment that
interoperates with base stations from Navini Networks ("Navini"). Sprint and
Navini have announced technology trials that Company management believes are
initially yielding promising results. In addition to Sprint, a number of
other wireless spectrum holders are running field trials of Navini technology
in anticipation of launching broadband wireless data networks. However,
there can be no assurances that the Company's development efforts or these
trials will be successful.
For additional information regarding the Company's sales by segment and
geographical area, see Note 13 of Notes to Consolidated Financial Statements.
MANUFACTURING
The Company currently manufactures and assembles its products in
Camarillo, California and under a subcontract arrangement in China. In fiscal
years 2000 and 2001, the Company also manufactured and assembled satellite
DBS products in Garland, Texas. At the end of fiscal 2001, the Company's
domestic manufacturing operations were consolidated in Camarillo, California.
Manufacturing operations consist of assembly of printed circuit boards
and components utilizing surface mount technology automated assembly
equipment. All printed circuit assemblies are then hand assembled into
various aluminum and plastic housings, in-line tested, and subjected to
additional tests on a sampled basis to ensure functional reliability.
Electronic devices, components and made-to-order assemblies used in the
Company's products are generally obtained from a number of suppliers,
although certain components are obtained from sole source suppliers. Some
devices or components are standard items while others are manufactured to the
Company's specifications by its suppliers. The Company attempts to operate
without substantial levels of raw materials by depending on certain key
suppliers to provide material on a "just-in-time" basis. The Company believes
that most raw materials are available from alternative suppliers. However,
any significant interruption in the delivery of such items could have an
adverse effect on the Company's operations.
ISO 9001 INTERNATIONAL CERTIFICATION
In August 1995, the Company became registered to ISO 9001, the
international standard for conformance to quality excellence in meeting
market needs in all areas including product design, manufacturing, quality
assurance and marketing. The registration assessment was performed by
Underwriter's Laboratory, Inc., according to the ISO 9001:1994 International
Standard. Continuous assessments to maintain certification are performed
semi-annually, and the Company has maintained its certification through each
audit evaluation, most recently in March 2002.
RESEARCH AND DEVELOPMENT
Each of the markets the Company competes in are characterized by
technological change, evolving industry standards, and new product
requirements to meet market growth. During the last three years, the Company
has focused its research and development resources primarily on: Satellite
DBS products, two-way MMDS transceivers, two-way MMDS integrated
transceiver/modems. In addition, development resources were allocated to
broaden existing product lines, reduce product costs and improve performance
by product redesign efforts.
Research and development expenses in fiscal years 2002, 2001 and 2000
were $7,583,000, $6,120,000 and $4,685,000, respectively. Given the rapid
pace of technological change involving its products, management anticipates
that the Company's research and development expenses will continue to
increase in the future in order to maintain the Company's a competitive
position in the markets that it serves.
SALES AND MARKETING
The Company sells its Satellite products primarily to DBS operators and
to manufacturers for incorporation into complete satellite dish systems. A
small portion of Satellite product sales are made to satellite equipment
distributors. The Company sells its Wireless Access products directly to
system operators as well as through distributors and system integrators.
The Company's sales and marketing functions for both business units are
centralized at its corporate headquarters in Camarillo, California. In
addition, the Company has sales offices and personnel in Paris, France and
Sao Paulo, Brazil. The Company may add additional sales offices and employees
as market conditions warrant, in market areas that require additional sales
and customer support not adequately served by a major distributor or
reseller.
See also Note 13 of Notes to Consolidated Financial Statements for
segment and geographical sales information.
COMPETITION
The markets in which the Company competes are highly competitive. In
addition, if the markets for the Company's products continue to grow, the
Company anticipates increased competition from new companies entering such
markets, some of whom may have financial and technical resources
substantially greater than those of the Company. Furthermore, because some of
the Company's products may not be proprietary, they may be duplicated by low-
cost producers, resulting in price and margin pressures.
The Company believes that competition in its markets is based primarily
on price, performance, reputation, product reliability and technical support.
In the terrestrial Wireless Access market, the Company has supplier
relationships with major operators in various regions of the world, and
believes that its pricing, accompanied by product performance, reliability,
low field failure rate, and its ongoing technical support, are currently
competitive advantages to the Company. In the Satellite television market,
its reputation for performance and quality allows the Company a competitive
advantage if pricing of its products is comparable to its competitors. Its
acquisition of rights to U.S. DBS products in 1999 allowed the Company
immediate entry into the U.S. DBS market where it believes it now maintains a
leadership position.
The Company's continued success in these markets, however, will depend
upon its ability to continue to design and manufacture quality products at
competitive prices.
BACKLOG
The Company's products are sold to customers that do not usually enter
into long-term purchase agreements, and as a result, the Company's backlog at
any date is not significant to the annualized sales trends. In addition,
because of customer order modifications, cancellations, or orders requiring
wire transfers or letters of credit from international customers, the
Company's backlog as of any particular date, may not be indicative of sales
for any future period.
INTELLECTUAL PROPERTY
The Company's timely application of its technology and its design,
development and marketing capabilities have been of substantially greater
importance to its business than patents or licenses.
The Company currently has 19 patents ranging from design features for
downconverter and antenna products, to its MultiCipher broadband scrambling
system. Those that relate to its downconverter products do not give the
Company any significant advantage since other manufacturers using different
design approaches can offer similar microwave products in the marketplace.
In addition to its awarded patents, the Company currently has 10 patent
applications pending.
California Amplifier(R) and MultiCipher(R) are federally registered
trademarks of the Company.
EMPLOYEES
At February 28, 2002, the Company had 276 employees. None of the
Company's employees are represented by a labor union. In addition, the
Company contracts with an independent temporary agency to provide certain of
its production personnel at its manufacturing facilities in Camarillo,
California; the Company employs none of the personnel provided through the
agency. At February 28, 2002, the number of contracted production personnel
was approximately 160.
ITEM 2. PROPERTIES
The Company's corporate headquarters and its primary manufacturing
operations are located in two adjacent facilities in Camarillo, California
(approximately 60 miles north of Los Angeles) totaling approximately 90,000
square feet. The leases on both facilities expire in February 2004. Neither
of these leases contain renewal options. The Company is currently evaluating
its facility alternatives and has not yet reached a decision on whether to
seek an extension of one or both of the existing leases, or to pursue a new
lease on different facilities. The Company also has sales offices France and
Brazil, and product design centers in Dallas, Texas and Chanhassen,
Minnesota.
Subsequent to fiscal 2002, as part of the acquisition of the assets and
business of Kaul-Tronics, Inc. and two affiliated companies, the Company
acquired three facilities in Wisconsin. See Note 15 to the accompanying
consolidated financial statements.
ITEM 3. LEGAL PROCEEDINGS
Yourish class action and RLI Insurance Company litigation:
On March 29, 2000 the Company and the individual defendants (present
and former officers and directors of the Company) reached a settlement in
the matter entitled Yourish v. California Amplifier, Inc., et al., Case
No. CIV 173569 shortly after trial commenced in the Superior Court for the
State of California, County of Ventura. The terms of the settlement called
for the issuance by the Company of 187,500 shares of stock along with a cash
payment of $3.5 million, funded in part by insurance proceeds, for a total
settlement 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 expected 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.
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 connection with the settlement of the Yourish action, the Company
and certain of its former and current officers and directors filed a lawsuit
(California Amplifier, Inc., et al. v. RLI Insurance Company, et al.,
Ventura County Superior Court Case No. CIV196258), against one of its
insurance carriers to recover $2.0 million of coverage the insurance carrier
has stated was not covered under its policy of insurance. The insurance
carrier filed a Motion for Judgment on the Pleadings seeking judgment on the
basis, inter alia, that the claims in the Yourish action for alleged
violations of Sections 25400 and 25500 of the California Corporation Code
were not insurable as a matter of law pursuant to Insurance Code Section
533. The Plaintiffs opposed the motion and a hearing was held on
September 22, 2000. On October 18, 2000, the Court entered an Order
granting the motion for judgment on the pleadings. Judgment was entered on
November 9, 2000, and Notice of Entry of Judgment given on November 15,
2000. California Amplifier filed a Notice of Appeal on November 21, 2000.
The matter was fully briefed and argued before the Court of Appeals on
September 12, 2001. On December 4, 2001, the Court of Appeals upheld the
decision of the lower court in favor of the insurance carrier. The Company
filed a petition for review with the California Supreme Court in January
2002, but the petition for review was denied by the State Supreme Court.
In March 2002, T.I.G. notified the Company that it intends to seek a
refund of its $1 million settlement contribution made under a reservation of
rights, based on the adverse outcome of the Company's action against RLI
Insurance Company. 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 Company's consolidated balance sheet at February 28, 2002 includes
an accrued liability of $5.0 million related to the Yourish settlement,
which amount represents the remaining 121,875 shares still to be issued,
valued at $33.063 per share, and the $1 million reserved for the contingent
refund payable to T.I.G. Pursuant to the terms of the court-approved
settlement, the Company must wait for instructions from plaintiffs' counsel
before issuing the remaining shares of common stock under the settlement.
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 years 2000 and 2001, the Company and certain officers were
named as defendants in twenty putative actions in Federal Court. Caption
information for each of the lawsuits is set forth in Item 3 of the Company's
Form 10-K for the fiscal year ended February 28, 2001. 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 current directors of the Company were named as
defendants in the above-entitled shareholder derivative lawsuit filed in Los
Angeles Superior Court. The Company was named as a nominal defendant. The
complaint alleged claims against the directors for breach of fiduciary duty,
abuse of control and gross mismanagement, arising out of the Company's
restatement of earnings for fiscal year 2000 and portions of fiscal year
2001.
In October 2001, the insurance company that provides the Company's
primary director and officer liability coverage applicable to the above
matters filed a lawsuit seeking to rescind the policy on the grounds that
there was a misstatement in the policy application that incorporated by
reference the Company's financial statements prior to their restatement.
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, and agreed to withdraw its policy rescission
lawsuit. The Company has accrued its $925,000 share of the settlement in
the accompanying consolidated financial statements for the year ended
February 28, 2002. Of this amount, $425,000 was paid by the Company in
December 2001, and the remaining $500,000 is to be paid once the court
approves the settlement. At the Company's option, this final settlement
installment of $500,000 may be paid in the form of cash or Common Stock.
The Stipulation of Settlement seeking preliminary Court approval of the
settlement by the Court was filed in May 2002. Once preliminary approval is
obtained, plaintiff's counsel will send notice to the class and obtain a
hearing date for final approval of the settlement agreement. The Company
expects this process to be completed over the next several months.
Investigation by the Securities and Exchange Commission:
In May 2001, the Company announced that it had received notice from the
Securities and Exchange Commission (SEC) that the SEC was conducting an
informal inquiry into the circumstances that caused the Company to announce
that it would be restating earnings for fiscal year 2000 and certain interim
quarters of fiscal year 2001. Subsequently, the Company learned that the
SEC adopted an order directing a private investigation and designating
officers to take testimony. The Company has been and expects to continue
cooperating with the SEC in connection with its investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three months ended February 28, 2002, no matters were
submitted to a vote of the Company's security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol "CAMP". The following table sets forth for each fiscal period
indicating the high and low sale prices for the Company's Common Stock, as
reported by Nasdaq:
LOW HIGH
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
Fiscal Year Ended February 28, 2001:
1st Quarter $14.50 $49.75
2nd Quarter 19.25 63.00
3rd Quarter 15.50 45.88
4th Quarter 5.44 19.44
At May 22, 2002 the number of stockholders of record of the Company's
Common Stock was 254. 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 11,000.
The Company has never paid a cash dividend and has no current plans to
pay cash dividends on its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the years ended February
28, 1998 through 2002 set forth below are derived from the audited
consolidated financial statements and notes thereto. The consolidated
balance sheets as of February 28, 2002 and 2001 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, 2002, 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.
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
FIVE-YEAR FINANCIAL SUMMARY
(In thousands except per share amounts)
Year ended February 28,
---------------------------------------------
OPERATING DATA 2002 2001 2000 1999 1998
-------- -------- ------- ------- -------
Sales $100,715 $117,129 $79,429 $33,248 $41,229
Cost of goods sold 77,834 93,776 64,296 24,034 33,087
-------- -------- ------- ------- -------
Gross profit 22,881 23,353 15,133 9,214 8,142
-------- -------- ------- ------- -------
Operating expenses:
Research and development 7,583 6,120 4,685 3,949 3,946
Selling 2,299 3,255 4,254 3,858 4,601
General and administrative 7,740 5,869 4,850 3,429 4,033
-------- -------- ------- ------- -------
Total operating expenses 17,622 15,244 13,789 11,236 12,580
-------- -------- ------- ------- -------
Operating income (loss) 5,259 8,109 1,344 (2,022) (4,438)
-------- -------- ------- ------- -------
Non-operating income (expense):
Settlement of litigation (1,125) - (9,500) - -
Other income (expense), net 47 (359) (60) 106 -
-------- -------- ------- ------- -------
Total non-operating expense (1,078) (359) (9,560) 106 -
-------- -------- ------- ------- -------
Income (loss) from continuing
operations before income taxes 4,181 7,750 (8,216) (1,916) (4,438)
Income tax (provision) benefit (1,307) (2,810) 2,950 603 1,663
-------- -------- ------- ------- -------
Income (loss) from
continuing operations 2,874 4,940 (5,266) (1,313) (2,775)
Income (loss) from discontinued
operations, net of tax (25) 269 202 (123) 110
Gain on sale of discontinued
operations, net of tax 1,615 - - - -
-------- -------- ------- ------- -------
Net income (loss) $ 4,464 $ 5,209 $(5,064) $(1,436) $(2,665)
======== ======== ======= ======= =======
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
FIVE-YEAR FINANCIAL SUMMARY
(In thousands except per share amounts)
(Continued)
Year ended February 28,
-------------------------------------------
OPERATING DATA (Continued) 2002 2001 2000 1999 1998
------- ------- ------- ------- -------
Basic earnings (loss)
per share:
Income (loss) from
continuing operations $ 0.21 $ 0.37 $ (0.44) $ (0.11) $ (0.24)
Income (loss) from
discontinued operations - 0.02 0.02 (0.01) 0.01
Gain on sale of
discontinued operations 0.12 - - - -
------- ------- ------- ------- -------
Basic earnings (loss)
per share $ 0.33 $ 0.39 $ (0.42) $ (0.12) $ (0.23)
======= ======= ======= ======= =======
Diluted earnings (loss)
per share:
Income (loss) from
continuing operations $ 0.21 $ 0.35 $ (0.44) $ (0.11) $ (0.24)
Income from discontinued
operations - 0.02 0.02 (0.01) 0.01
Gain on sale of
discontinued operations 0.11 - - - -
------- ------- ------- ------- -------
Diluted earnings (loss)
per share $ 0.32 $ 0.37 $ (0.42) $ (0.12) $ (0.23)
======= ======= ======= ======= =======
February 28,
-------------------------------------------
BALANCE SHEET DATA 2002 2001 2000 1999 1998
------- ------- ------- ------- -------
Current assets $45,739 $35,523 $37,201 $20,331 $19,887
Current liabilities $15,480 $15,032 $32,729 $ 4,853 $ 5,001
Working capital $30,259 $20,491 $ 4,472 $15,478 $14,886
Current ratio 3.0 2.4 1.1 4.2 4.0
Total assets $56,688 $49,812 $51,497 $25,549 $27,831
Long-term debt $ 3,628 $ 4,500 $ 145 $ 516 $ 1,112
Stockholders' equity $37,580 $29,624 $18,281 $20,065 $21,397
Equity per share $ 2.76 $ 2.18 $ 1.44 $ 1.70 $ 1.82
Shares outstanding (000s) 13,630 13,601 12,658 11,785 11,771
ITEM 7. 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 2002, 2001 and 2000 fell on
March 2, 2002, March 3, 2001 and February 26, 2000, respectively. In these
consolidated financial statements, the fiscal year end for all years,
including leap 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 2002 and 2000.
As more fully described in Note 2 to the accompanying consolidated
financial statements, in July 2001 the Company sold its 51% interest in
Micro Pulse. Micro Pulse designs, manufactures and markets 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 for all
periods presented.
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 and the deferred tax asset valuation
allowance. 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 only four customers accounting for
approximately 82% of the Company's fiscal 2002 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 considers that 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
is 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 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 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 the 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, 2002,
the Company's net deferred income tax asset was $3,580,000, which amount
includes a valuation allowance of $8,724,000. Approximately $5.6 million
of the valuation allowance at February 28, 2002 is related to a tax asset
generated upon the exercise of non-qualified stock options and, in general,
these are the tax benefits which are being recognized first. Any future
reduction of this portion of the valuation allowance will result in the tax
benefit being recorded as an increase in additional paid-in capital. If and
when this portion of the valuation allowance is completely eliminated,
further reductions of the remaining valuation allowance will be recognized
as an income tax benefit.
Results of Operations
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,
----------------------------
2002 2001 2000
------ ------ ------
Sales 100.0% 100.0% 100.0%
Cost of goods sold 77.3 80.1 80.9
----- ----- -----
Gross profit 22.7 19.9 19.1
Operating expenses:
Research and development 7.5 5.2 5.9
Selling 2.3 2.8 5.4
General and administrative 7.7 5.0 6.1
----- ----- -----
Operating income 5.2 6.9 1.7
Settlement of litigation (1.1) - (12.0)
Other expense, net - (0.3) (0.1)
----- ----- -----
Income (loss) from continuing operations
before income taxes 4.1 6.6 (10.4)
Income tax (provision) benefit (1.3) (2.4) 3.7
----- ----- -----
Income (loss) from continuing operations 2.8 4.2 (6.7)
Income from discontinued operations - 0.2 0.3
Gain on sale of discontinued operations 1.6 - -
----- ----- -----
Net income (loss) 4.4% 4.4% (6.4)%
===== ===== =====
Fiscal Years 2002 and 2001
Sales
Total sales for fiscal 2002 were $100,715,000, a decline of 14% from
fiscal 2001 sales of $117,129,000. Sales of Satellite products decreased
$6,208,000, or 7%, from $85,107,000 to $78,899,000. Sales of Wireless
Access products decreased $10,206,000, or 32%, from $32,022,000 to
$21,816,000.
Sales of the Satellite segment in fiscal 2002 declined from the prior
year in part because system operators maintained higher ordering patterns in
the first half of fiscal 2001 in an effort to avoid product shortages in the
event electronic components supply disruptions affected manufacturers'
production. This led to order cutbacks by the system operators beginning in
the third quarter of fiscal 2001 in order to work down their high inventory
levels. These order cutbacks persisted through the first half of fiscal
2002, during which Satellite product sales amounted to $33.0 million.
Although sales increased to $45.9 million in the second half of fiscal 2002,
sales for the year as a whole still fell short of the fiscal 2001 level.
The downturn in Wireless Access product sales is attributable to a
combination of the general slowdown in capital spending in the
telecommunications industry and the anticipation of second generation non-
line of sight products. These factors resulted in a steady decline in
sequential quarter sales of the Wireless business segment during the past
year. Fiscal 2002 fourth quarter Wireless Access sales were only $2.7
million. The Company expects its Wireless Access sales to remain low in
fiscal 2003. The Company does not anticipate that Wireless Access sales
will rebound until the development of second generation non-line of sight
two-way transceiver products is completed, and until wireless access 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 wireless broadband access technology developed by Navini.
The Company has licensed this technology from Navini, and is developing
customer premise equipment products which are compatible with Navini's
technology.
Gross Profit and Gross Margins
Gross profit for fiscal 2002 declined slightly to $22,881,000 from
$23,353,000 in fiscal 2001. Consolidated gross margin improved from 19.9%
last year to 22.7% in fiscal 2002. The increase in consolidated gross
margin is attributable to higher gross margins for Satellite products.
Gross margins for Satellite products improved to 19.9% in fiscal 2002
from 15.2% in fiscal 2001. Satellite gross margins improved 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 beginning in fiscal 2002. Also, Satellite gross
margin in fiscal 2001 had been adversely impacted by electronic component
shortages that caused production inefficiencies.
Gross margins for Wireless Access products declined to 32.8% in fiscal
2002 from 32.6% last fiscal year. Wireless Access gross margins have
declined principally due to the decline in sales as discussed above.
See also Note 13 to the accompanying consolidated financial statements
for additional operating data by business segment.
Operating Expenses
Research and development expense ("R&D")increased by $1,463,000 from
$6,120,000 in fiscal 2001 to $7,583,000 in fiscal 2002. Investment in R&D
has been increased in an effort to improve the Company's market position in
both of its business segments. Increased R&D spending is primarily in the
form of additional engineering and design personnel, higher salaries to
remain competitive with industry compensation trends, and higher material
costs relating to new product design primarily related to the next
generation of products for the Company's Wireless Access business segment.
Selling expense decreased by 29% from $3,255,000 last year to
$2,299,000 in fiscal 2002. These declines are attributable primarily to
decreases in discretionary marketing spending.
General and administrative expense increased by $1,871,000 to
$7,740,000 in fiscal 2002 from $5,869,000 in fiscal 2001. This increase was
due primarily to expenses of $950,000, primarily accounting and legal,
incurred in the first quarter of fiscal 2002 in connection with the
restatement of the Company's fiscal 2000 and fiscal 2001 financial
statements, and to a bad debt write-off of $817,000 during fiscal 2002 for
uncollectible receivable balances due from a Wireless Access customer.
Litigation Settlement
The non-operating expense captioned "Settlement of Litigation" 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 from Continuing Operations Before Income Taxes
Income from continuing operations before income taxes decreased from
$7,750,000 in fiscal 2001 to $4,181,000 in fiscal 2002 due primarily to the
increase in operating expenses of $2,378,000 and to the non-operating
expense of $1,125,000 for litigation settlement.
Income Tax Provision and Deferred Income Tax Asset
The effective tax rates for fiscal 2002 and 2001 were 31.2% and 36.3%,
respectively. The decline in the tax rate is attributable primarily to the
estimated 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 which 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. 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. In view of the Company's profitable
operations in fiscal 2001 and fiscal 2002, during which time the Company
generated aggregate income from continuing operations before income taxes of
$11.9 million, management believes that it is more likely than not that the
Company will generate sufficient taxable income in the future to utilize the
net deferred income tax asset of $3,580,000.
Discontinued Operations
As described further in Note 2 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.
Fiscal Years 2001 and 2000
Sales increased $37,700,000, or 47.5%, from $79,429,000 in fiscal year
2000 to $117,129,000 in fiscal year 2001. The fiscal year 2001 sales
increase resulted primarily from increases in each of both of the Company's
business segments.
Sales of Satellite products increased $24,696,000, or 40.9%, from
$60,411,000 to $85,107,000. The increase in Satellite product sales
resulted primarily from increased sales of DBS products to domestic
customers. The Company experienced significant year-to-year sales growth
($28.7 million increase) in the first half of fiscal year 2001 as compared
to the first half of fiscal year 2000, offset by a negative comparison ($4.0
million decrease) for the second half year-to-year comparisons. The
reductions of shipments of satellite DBS products in the second half of
fiscal year 2000 reflects a slowing of subscriber additions, reduction in
inventory levels by operators, in addition to the elimination of single
output downconverters from their product offering. A delay by the Company of
a new product introduction contributed $3.4 million of the fourth quarter
sales decrease. This product began shipments of small volume in the
Company's first quarter of fiscal year 2002.
Sales of Wireless Access products increased $13,004,000, or 68.4%, from
$19,018,000 to $32,022,000. The increase in Wireless Access product sales
results from increased sales of two-way wireless transceivers, partially
offset by reductions in the Company's legacy wireless cable video products.
Gross profits increased $8,220,000, or 54.3%, from $15,133,000 in
fiscal year 2000 to $23,353,000 in fiscal year 2001. The increase in gross
profits occurred primarily because of the increase in sales, and slightly
higher product gross margins.
Gross margins increased from 19.1% in fiscal year 2000 to 19.9% in
fiscal year 2001. The increase in gross margins relates to increased sales
of Wireless Access products at higher gross margins of 32.6% while Satellite
product gross margins remained relatively consistent with the prior year at
15.2%. See also Note 13 to notes to the consolidated financial statements
included elsewhere herein.
Research and development expenses increased by $1,435,000, from
$4,685,000 in fiscal year 2000 to $6,120,000 in fiscal year 2001. The
increase results primarily to additional design personnel in the Wireless
Access business unit to focus on the development of wireless two-way MMDS
transceivers, and salary increases to ensure engineers' compensation is
competitive with current market conditions.
Selling expenses decreased by $999,000 from $4,254,000 in fiscal year
2000 to $3,255,000 in fiscal year 2001. The decrease relates primarily to
reductions in discretionary marketing expense, offset by additions in
personnel and salary increases.
General and administrative expenses increased by $1,019,000 from
$4,850,000 in fiscal year 2000 to $5,869,000 in fiscal year 2001. The
increase results primarily from increases in legal and other professional
fees.
Operating income increased by $6,765,000 from $1,344,000 in fiscal year
2000 to $8,109,000 in fiscal year 2001. The principal reasons for the
improvement are as described above: a $37.7 million increase in sales, a
$8.2 million increase in gross profits, offset by a $1.5 million increase in
operating expenses.
The $9.5 million settlement of litigation in fiscal year 2000 relates
to the settlement of the class action lawsuit filed in June 1997. See Note
12 to the consolidated financial statements included elsewhere herein.
The (provision for) benefit from income taxes for fiscal years 2001 and
2000 was approximately 36% of income (loss) before taxes.
For the reasons outlined above, income from continuing operations for
fiscal year 2001 increased $10.2 million from a loss of $5.3 million in
fiscal year 2000 to income of $4.9 million in fiscal year 2001.
Liquidity and Capital Resources
The Company's primary sources of liquidity are its cash and cash
equivalents, which amounted to $23,156,000 at February 28, 2002, and its $8
million working capital line of credit with a bank. During fiscal year
2002, cash and cash equivalents increased by $13,147,000. This increase
consisted of cash provided by operating activities of $12,313,000, net
proceeds from the sale of discontinued operations of $2,956,000, and other
activity with a net cash inflow impact of $11,000, partially offset by
capital expenditures of $1,534,000 and debt repayments of $599,000.
Components of operating working capital decreased by $2,130,000 during
fiscal 2002, comprised of a $2,269,000 decrease in accounts receivable, a
$283,000 decrease in inventories, and an increase of $458,000 in accounts
payable and accrued liabilities, partially offset by a $880,000 increase in
prepaid expenses and other assets.
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 2003 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.
At February 28, 2002, the Company had contractual cash obligations,
consisting of future maturities of debt and operating lease commitments,
ranging from $542,000 to $1.7 million annually in fiscal 2003 through fiscal
2007, for a total of $6.1 million. As further described in Note 15 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 "KTI Acquisition"), which was consummated on April
5, 2002. Future maturities of this $12 million term loan are $200,000 per
month, or $2.4 million annually, beginning April 1, 2003. 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 KTI Acquisition. In addition to the $12 million proceeds of the line of
credit borrowing, the Company used approximately $4.3 million of its
existing cash and cash equivalents and issued approximately 929,000 shares
of its common stock to pay for the KTI Acquisition. On May 2, 2002, the $12
million outstanding balance on the working capital line of credit was repaid
in full from the proceeds of the new $12 million bank term loan referred to
in the preceding paragraph. Also on May 2, 2002, the maturity date of the
working capital line was extended from August 2, 2002 to August 2, 2005. At
February 28, 2002 and at the present time, there are no outstanding
borrowings under the working capital line of credit, and $1 million of the
line is reserved for a standby letter of credit.
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 which had not yet
been adopted by the Company as of the end of fiscal 2002.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. As of
February 28, 2002, 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 less than $50,000 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
pending litigation, 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 has 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 CALIFORNIA AMPLIFIER'S PRODUCTS FLUCTUATES RAPIDLY AND
UNPREDICTABLY, WHICH MAKES IT DIFFICULT TO MANAGE ITS BUSINESS EFFICIENTLY
AND CAN REDUCE ITS 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 16.5% and 19.9% of
our total sales for the fiscal years ended February 28, 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. 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 interruption or curtailment of trade
between the countries in which we operate and their present trading
partners, change in exchange rates, a significant shift in U.S. trade policy
toward these countries or a significant downturn in the political, economic
or financial condition of these countries could cause demand for and sales
of our products to decrease, cause disruption of our supply channels or
otherwise disrupt our operations, cause our costs of doing business to
increase, or subject us to increased regulation including future import and
export restrictions, any of 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 82% and 56% of total sales in the fiscal years ended February
28, 2002 and 2001, respectively. Furthermore, if the pending merger between
Echostar Communications Corporation and DirectTv is consummated, our
customer base could become even more concentrated because we sell, directly
or indirectly, to both of these DBS system operators. 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, 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 has suspended any new deployments of
broadband wireless equipment, as well as ceasing the acquisition of any new
customers, until a second-generation system could be evaluated. Our
Wireless Access business unit has only a small number of other customers.
We expect little or no revenue from Sprint in our fiscal year ending
February 28, 2003.
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 wireless Internet access served by our Wireless Access
business is subject to rapid technological change, frequent new service
introductions and evolving industry standards. We believe that our future
success will depend largely on our ability to anticipate or adapt to these
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:
- 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 include or will include REMEC,
Sharp, Channelmaster, Andrew corp., Signal Technology, IP Wireless and
NextNet. 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 success depends, 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 19 patents and have 10 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.
IF WE ARE UNABLE TO INTEGRATE SUCCESSFULLY INTO OUR COMPANY THE EMPLOYEES,
TECHNOLOGIES AND OTHER ASSETS WE RECENTLY ACQUIRED FROM KAUL-TRONICS,
INC., WE MAY NOT ACHIEVE THE ANTICIPATED BENEFITS OF THE ACQUISITION.
We are in the initial stages of integrating the new employees,
technologies and other assets related to the DBS antenna dish business that
we acquired from Kaul-Tronics, Inc. and two affiliated companies in April
2002. Because the new employees and facilities will remain in Wisconsin, and
our headquarters are in Camarillo, California, we face the additional
challenge of integrating employees in geographically disparate locations.
The integration effort will take time and could distract management from
other aspects of our business. We cannot assure you that we will be
successful in integrating the acquired business and if we are unable to do
so, we may incur increased expenses and may not achieve the benefits of the
acquisition.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT HAVE ADVERSE CONSEQUENCES FOR
OUR BUSINESS.
Recently, we completed the acquisition of the assets and business of
Kaul-Tronics, Inc., as described above. 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, agreed to complete and which 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 SHAREHOLDER LITIGATION.
We and certain members of our board of directors have been sued by
alleged shareholders in two class action lawsuits during the past several
years. The most recent litigation was initiated in April 2001 as a result
of financial misstatements affecting our fiscal 2000 and fiscal 2001
financial statements caused by the our former controller, which we became
aware of and disclosed in March 2001. An out-of-court settlement of this
class action litigation was reached in December 2001, but this settlement
agreement has not yet been filed with the court for approval. We can
provide no assurance that the court will approve it on the terms and
conditions which we agreed to with the plaintiffs. If the court does not
approve the settlement agreement as currently structured, it could adversely
affect our financial position, results of operations, cash flows and
liquidity.
WE FACE RISKS ASSOCIATED WITH A PENDING SEC INVESTIGATION.
As a result of the financial misstatements caused by our former
controller, as discussed above, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information required to
be filed hereunder are indexed on page 33 of this report and are
incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- -------------------------- --- -----------------------
Ira Coron (1) 73 Chairman of the Board
of Directors
Fred M. Sturm 44 Chief Executive Officer,
President and Director
Philip Cox 62 Vice President, Wireless
Access Products
Robert Hannah 41 Vice President,
Satellite Products
Patrick Hutchins 39 Vice President, Operations
Kris Kelkar 38 Senior Vice President,
Wireless Access Products
Richard K. Vitelle 48 Vice President, Finance,
Chief Financial Officer
and Corporate Secretary
Richard B. Gold (1) 47 Director
Arthur H. Hausman (1)(2) 78 Director
Frank Perna, Jr. (2) 64 Director
Thomas L. Ringer (2) 70 Director
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
IRA CORON has been Chairman of the Board for California Amplifier, Inc.
since March of 1994, and in addition was the Chief Executive Officer until
1997 and remained an officer of the Company until February 1999. From 1989 to
1994 he was an independent management consultant to several companies and
venture capital firms. He retired from TRW, Inc., after serving in numerous
senior management positions from June 1967 to July 1989 among which was Vice
President and General Manager of TRW's Electronic Components Group. He also
served as a member of the Executive Committee of the Wireless Communications
Association.
FRED M. STURM was appointed Chief Executive Officer, President and
Director in August 1997. Prior to joining the Company from 1990 to 1997, Mr.
Sturm was President of Chloride Power Systems (USA), and Managing Director of
Chloride Safety, Security, and Power Conversion (UK), both of which are part
of Chloride Group, PLC (LSE: CHLD). From 1979 to 1990, he held a variety of
general management positions with M/A-Com and TRW Electronics, which served
RF and microwave markets.
PHILIP COX joined the Company in July 1996. In January 1998, in
conjunction with the reorganization previously mentioned, Mr. Cox was
appointed Vice President, Wireless Products and most recently Vice President
Sales, Wireless Access Products. Prior to July 1996, he held various sales
and marketing positions with Signal Technology and M/A-Com.
ROBERT HANNAH joined the Company as Vice President of Engineering in
April 1995. In January 1998, in conjunction with the reorganization
previously mentioned, Mr. Hannah was appointed Vice President, Satellite
Products. Prior to April 1995, Mr. Hannah held various positions with Hughes,
most recently the position of Technical Manager at Hughes Network Systems.
PATRICK HUTCHINS joined the Company as Vice President, Operations in
August 2001. From March 1997 until joining the Company, Mr. Hutchins served
in general management capacities with several units of Chloride Group PLC and
Genlyte Thomas LLC, most recently serving as the President and General
Manager of Chloride Systems, a division of Genlyte Thomas.
KRIS KELKAR was appointed Senior Vice President of Sales and Marketing
in April 1995 and Vice President, Marketing in April 1997. In January 1998,
in conjunction with the reorganization previously mentioned, Mr. Kelkar was
appointed Vice President, Voice and Data Products, and, most recently, Vice
President, Wireless Access Products. Prior to April 1995, he held various
positions with General Instrument Corporation, the most recent Vice President
of International Marketing for General Instrument's Communications Division.
RICHARD K. VITELLE joined the Company as Vice President, Finance, Chief
Financial Officer and Corporate Secretary in July 2001. Prior to joining the
Company, he served as Vice President of Finance and CFO of SMTEK
International, Inc., a publicly held electronics manufacturing services
provider, where he was employed for a total of 11 years. Earlier in his
career Mr. Vitelle served as a senior manager with Price Waterhouse.
RICHARD B. GOLD became a director of California Amplifier, Inc. in
December 2000. Mr. Gold has been the Chairman, President and Chief Executive
Officer of Genoa Corporation, a privately-held optical communications
equipment company, since January 1999. From November 1991 through December
1998, Mr. Gold held various senior-level executive positions with Pacific
Monolithics, Inc., a supplier of wireless communications equipment, including
Vice President -- Engineering, Chief Operating Officer and, from January 1997
through December 1998, President and Chief Executive Officer. In October
1998, Pacific Monolithics filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Mr. Gold is a director of Nucentrix
Broadband Networks, Inc., a publicly held company.
ARTHUR H. HAUSMAN has been a director of the Company since 1987. Mr.
Hausman is Chairman Emeritus of the Board of Ampex Corporation. He served as
Chairman of the Board of Directors and Chief Executive Officer of Ampex,
having been with Ampex for 27 years until his retirement in 1988. He
currently serves as a director of Vista Research Corporation, a privately
held company, and Drexler Technology Corporation, a publicly held company.
He was appointed by President Reagan to the President's Export Council, to
the Council's Executive Committee and to the Chairmanship of the Export
Administration Subordinate Committee of the Council for the period 1985 to
1989.
FRANK PERNA, JR. has been a director since May 2000. From 1990 to 1993,
Mr. Perna was Chief Executive Officer of MagneTek. From 1994 to 1998 Mr.
Perna was Chairman and Chief Executive Officer of EOS Corporation, and from
1998 to the present as Chairman and Chief Executive Officer of MSC Software.
Mr. Perna also serves as Chairman of the Board of Software.com and on the
Board of Trustees of Kettering University.
THOMAS L. RINGER has been a director of the Company since August 1996.
Since 1990, Mr. Ringer has been actively involved as a member of the boards
of directors for various public and private companies. Mr. Ringer is
currently Chairman of Wedbush Morgan Securities, Inc., Chairman of Wedbush
Capital Corporation, Chairman of M.S. Aerospace, Inc., Chairman of Document
Sciences Corporation, a publicly held company, Chairman of the Center for
Innovation and Entrepreneurship, Chairman of Camping Business Systems, Inc.,
and a director of VoiceViewer Technologies, Inc. Prior to 1990, Mr. Ringer
served as Chairman, President and Chief Executive Officer of Recognition
Equipment, Inc., President and Chief Executive Officer of Fujitsu Systems of
America, Inc., and President and Chief Executive Officer of Computer
Machinery Corporation.
The Company has a Compensation Committee which reviews and makes
recommendations to the Board of Directors with respect to the compensation of
the Company's executive officers and to administer the Company's Stock Option
Plans.
The Company also has an Audit Committee which reviews the scope of audit
procedures employed by the Company's independent auditors, approves the audit
fee charged by the independent auditors, and reviews the audit reports
rendered by the Company's independent auditors. The Audit Committee reports
to the Board of Directors with respect to such matters and recommends the
selection of independent auditors.
Officers are appointed by and serve at the discretion of the Board of
Directors.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the caption
"Executive Compensation" in the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held on July 18, 2002
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the caption "Stock
Ownership" in the Company's definitive proxy statement for the Annual Meeting
of Stockholders to be held on July 18, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information contained under the
caption "Certain Relationships and Related Transactions" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be held
on July 18, 2002.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS. Reference is made to the Index to Consolidated
Financial Statements on page 33 of this report.
(b) FORM 8-K. The Company made no filings on Form 8-K during the three
months ended February 28, 2002.
(c) EXHIBITS. Reference is made to the Index to Exhibits on pages 63-64 of
this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on May 31, 2002.
CALIFORNIA AMPLIFIER, INC.
By: /s/ Fred M. Sturm
__________________________
Fred M. Sturm
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Ira Coron Chairman of the Board of May 25, 2002
______________________ Directors ___________________
Ira Coron
/s/ Richard B. Gold Director May 28, 2002
______________________ ___________________
Richard B. Gold
/s/ Arthur H. Hausman Director May 27, 2002
______________________ ___________________
Arthur H. Hausman
/s/ Frank Perna, Jr. Director May 23, 2002
______________________ ___________________
Frank Perna, Jr.
/s/ Thomas L. Ringer Director May 24, 2002
______________________ ___________________
Thomas L. Ringer
/s/ Fred M. Sturm President, Chief Executive May 31, 2002
______________________ Officer and Director ___________________
Fred M. Sturm (principal executive officer)
/s/ Richard K. Vitelle VP Finance, Chief Financial May 31, 2002
______________________ Officer and Treasurer ___________________
Richard K. Vitelle (principal accounting officer)
CALIFORNIA AMPLIFIER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORTS OF INDEPENDENT AUDITORS 34
FINANCIAL STATEMENTS:
Consolidated Balance Sheets 36
Consolidated Statements of Operations 37
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) 38
Consolidated Statements of Cash Flows 39
Notes to Consolidated Financial Statements 40
INDEPENDENT AUDITORS' REPORT
The Board of Directors
California Amplifier, Inc.:
We have audited the accompanying consolidated balance sheet of California
Amplifier, Inc. and subsidiaries as of March 2, 2002 and the related
consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and cash flows for the year 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 audit.
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 2, 2002 and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United
States of America.
/s/KPMG LLP
Los Angeles, California
May 13, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To California Amplifier, Inc.:
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,
---------------------
2002 2001
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 23,156 $ 10,009
Accounts receivable, less allowance for
doubtful accounts of $417 and $467 in 2002
and 2001, respectively 8,219 12,370
Inventories, net 9,472 10,373
Deferred income tax asset, net 3,580 2,256
Prepaid expenses and other current assets 1,312 515
-------- --------
Total current assets 45,739 35,523
-------- --------
Equipment and improvements, net of
accumulated depreciation and amortization 7,375 10,231
Goodwill, net of accumulated amortization of
$765 and $495 in 2002 and 2001, respectively 3,287 3,557
Other assets 287 501
-------- --------
$ 56,688 $ 49,812
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 917 $ 644
Accounts payable 5,713 5,677
Accrued payroll and employee benefits 1,870 1,594
Other accrued liabilities 6,980 7,117
-------- --------
Total current liabilities 15,480 15,032
-------- --------
Long-term debt, less current portion 3,628 4,500
-------- --------
Minority interest in Micro Pulse, Inc. - 656
-------- --------
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; 13,630 and 13,601 shares issued
and outstanding in 2002 and 2001, respectively 136 136
Additional paid-in capital 27,569 23,975
Retained earnings 10,676 6,212
Accumulated other comprehensive loss (801) (699)
-------- --------
Total stockholders' equity 37,580 29,624
-------- --------
$ 56,688 $ 49,812
======== ========
See accompanying notes to consolidated financial statements.
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year ended February 28,
-----------------------------
2002 2001 2000
-------- -------- -------
Sales $100,715 $117,129 $79,429
Cost of goods sold 77,834 93,776 64,296
-------- -------- -------
Gross profit 22,881 23,353 15,133
-------- -------- -------
Operating expenses:
Research and development 7,583 6,120 4,685
Selling 2,299 3,255 4,254
General and administrative 7,740 5,869 4,850
-------- -------- -------
Total operating expenses 17,622 15,244 13,789
-------- -------- -------
Operating income 5,259 8,109 1,344
-------- -------- -------
Non-operating income (expense):
Settlement of litigation (1,125) - (9,500)
Other income (expense), net 47 (359) 60
-------- -------- -------
Total non-operating expense (1,078) (359) (9,560)
-------- -------- -------
Income (loss) from continuing
operations before income taxes 4,181 7,750 (8,216)
Income tax (provision) benefit (1,307) (2,810) 2,950
-------- -------- -------
Income (loss) from continuing operations 2,874 4,940 (5,266)
Income (loss) from discontinued operations,
net of tax (25) 269 202
Gain on sale of discontinued operations,
net of tax 1,615 - -
-------- -------- -------
Net income (loss) $ 4,464 $ 5,209 $(5,064)
======== ======== =======
Basic earnings (loss) per share:
Income (loss) from continuing operations $ 0.21 $ 0.37 $ (0.44)
Income from discontinued operations - 0.02 0.02
Gain on sale of discontinued operations 0.12 - -
-------- -------- -------
Net income (loss) $ 0.33 $ 0.39 $ (0.42)
======== ======== =======
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ 0.21 $ 0.35 $ (0.44)
Income from discontinued operations - 0.02 0.02
Gain on sale of discontinued operations 0.11 - -
-------- -------- -------
Net income (loss) $ 0.32 $ 0.37 $ (0.42)
======== ======== =======
Shares used in computing basic and
diluted earnings (loss) per share:
Basic 13,727 13,507 12,072
======== ======== =======
Diluted 13,979 14,217 12,072
======== ======== =======
See accompanying notes to consolidated financial statements.
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
Accum-
ulated
Other
Compre-
Common Stock Additional hensive
-------------- Paid-in Retained Income
Shares Amount Capital Earnings (Loss) Total
------ ------ ------ ------ ------ ------
Balances at
February 28, 1999 11,785 $ 118 $14,050 $ 6,067 $ (170) $20,065
Exercise of stock
options 873 9 3,327 - - 3,336
Net loss - - - (5,064) - (5,064)
Foreign currency
translation
adjustment - - - - (56) (56)
------
Comprehensive loss (5,120)
------ ------ ------- ------- ------ ------
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
====== ====== ======= ======= ===== ======
See accompanying notes to consolidated financial statements.
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year ended February 28,
------------------------------
2002 2001 2000
-------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,464 $ 5,209 $(5,064)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for doubtful accounts 991 144 37
Depreciation and amortization 4,317 4,250 2,990
Non-cash litigation charge 700 - 9,500
(Gain) loss on sale and disposal of
equipment and improvements 58 (41) 3
Increase in equity associated with tax
benefit from exercise of stock options 3,525 - -
Deferred tax assets, net (2,233) 2,608 (4,252)
Minority interest in net income (loss)
of Micro Pulse, Inc., net of tax (24) 314 228
Gain on sale of discontinued operation (1,615) - -
Changes in operating assets and liabilities:
Accounts receivable 2,269 3,524 (11,252)
Inventories 283 2,520 (6,267)
Prepaid expenses and other assets (880) 184 263
Accounts payable 424 (8,981) 10,014
Accrued liabilities 34 (2,222) 4,615
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,313 7,509 815
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and improvements (1,534) (4,337) (5,357)
Proceeds from sale of equipment 44 51 7
Net proceeds from sale of discontinued
operations 2,956 - -
Acquisition of net assets from Gardiner - - (6,170)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,466 (4,286) (11,520)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 5,000 1,500
Debt repayments (599) (2,742) (596)
Proceeds from exercise of stock options 69 2,210 3,336
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (530) 4,468 4,240
-------- -------- --------
EFFECT OF FOREIGN EXCHANGE RATES (102) (473) (56)
-------- -------- --------
Net change in cash and cash equivalents 13,147 7,218 (6,521)
Cash and cash equivalents at beginning of year 10,009 2,791 9,312
-------- -------- --------
Cash and cash equivalents at end of year $23,156 $10,009 $ 2,791
======== ======== ========
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 video transmitted from
satellites and wireless terrestrial transmission sites, and two-way wireless
transceivers used for fixed point wireless voice (telephony) and broadband
data (Internet) applications. The Company's Satellite business unit designs
and markets reception components for the worldwide direct broadcast
satellite (DBS) television market 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 video, voice, data, telephony and
networking applications.
As described further in Note 2, in July 2001 the Company sold its 51%
interest in Micro Pulse. Micro Pulse designs, manufactures and markets
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 for all periods presented in the accompanying consolidated
statements of operations.
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. 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 2002, 2001 and 2000 fell on
March 2, 2002, March 3, 2001 and February 26, 2000, respectively. In these
consolidated financial statements, the fiscal year end for all years,
including leap 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 2002 and 2000.
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. 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 2002, 2001 and 2000 were
$224,000, $446,000 and $567,000, 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,
--------------------
2002 2001
------ ------
U.S. banks $22,582 $ 8,983
Foreign banks 574 1,026
------- -------
$23,156 $10,009
======= =======
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
significant customers as a percent of consolidated sales are as follows:
Year ended February 28,
------------------------------
Customer 2002 2001 2000
-------- ------ ------ ------
A 30.6% 23.9% 20.9%
B 25.8% 22.0% 10.7%
C 13.5% 10.0% *
D 11.7% * *
E * * 18.8%
Accounts receivable from significant customers as a percent of
consolidated net accounts receivable are as follows:
February 28,
--------------------
2002 2001
------ ------
A 30.0% 17.9%
B 39.6% *
C * 20.6%
D * 19.2%
Customers A, B, D and E are Satellite customers, while C is a Wireless
Access customer.
* Customer represents less than 10% of consolidated sales or year-end
accounts receivable, as applicable, for period indicated.
Allowance for Doubtful Accounts
During the second quarter of fiscal 2002, the Company provided a
reserve of $1,162,000 for a receivable balance due from a customer of the
Wireless Access business unit. In the fourth quarter of fiscal 2002, the
Company received approximately 1% of the customer's common stock in full
settlement of this receivable balance. The Company recorded a reduction of
bad debts expense of $345,000 in the fiscal 2002 fourth quarter as a result
of receiving this common stock. The value assigned to the common stock was
equal to the quoted price of the shares on the Canadian stock exchange on
which the stock is traded. This available-for-sale investment valued at
$345,000 is included in prepaid expenses and other current assets in the
accompanying balance sheet at February 28, 2002.
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.
At February 28, 2002, the Company had no trading or held-to-maturity
investments. Its available-for-sale investment had a carrying value of
$345,000 at February 28, 2002 (see "Allowance for Doubtful Accounts" above).
Equipment and improvements
Equipment and improvements are stated at cost. The Company follows the
policy of capitalizing expenditures which 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
income (loss) from operations.
Depreciation and amortization are based upon the estimated useful lives
of the related assets using the straight-line method. Useful lives range
from two to five years, and in the case of leasehold improvements 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, beginning in fiscal
year 2003 goodwill will no longer be amortized. Instead, goodwill will be
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
The Company reviews property and equipment and other long-lived assets
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 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 assets 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.
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 income (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 debit balance of $801,000
included in accumulated other comprehensive income (loss) will remain
unchanged until such time as the French subsidiary ceases to be part of the
Company's consolidated financial statements.
The functional currency of the Company's Hong Kong subsidiary is the
U.S. dollar.
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.
Accounting for Stock Options
As allowed by Statement of Financial Accounting Standards (SFAS) No.
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 (see Note 8).
New 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 provisions of SFAS 141 are
required to be applied starting with fiscal years beginning after December
15, 2001. The Company adopted SFAS 141 on March 3, 2002 (i.e., the first day
of fiscal 2003). The adoption of SFAS 141 will 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 Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121") or, upon its adoption, 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 provisions of SFAS
142 are required to be applied starting with fiscal years beginning after
December 15, 2001. The Company adopted SFAS 142 on March 3, 2002. As a
result of adopting SFAS 142, beginning in fiscal 2003 the Company will no
longer record amortization on goodwill of $270,000 per year. The Company has
not yet made a determination of how much, if any, of the Company's existing
goodwill is impaired under SFAS No. 142 or what charges would have to be
recorded upon the Company's adoption of SFAS No. 142. However, management
believes that the initial effects of adopting SFAS 142 will not be material
to the Company's consolidated financial statements.
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 plans on adopting
SFAS 143 in March 2003. 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. SFAS 144 establishes a
single accounting model, based on the framework established in SFAS 121, for
long-lived assets to be disposed of by sale. SFAS 121 did not address the
accounting for a segment of a business accounted for as a discontinued
operation under APB Opinion No. 30, "Reporting the Results of Operations-
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
("APB 30") so two accounting models existed for the disposal of long-lived
assets. SFAS 144 replaces both SFAS 121 and APB 30, so that only one
accounting model exists for the disposal of long-lived assets. SFAS 144 also
resolves implementation issues related to SFAS 121. The provisions of SFAS
144 are effective for financial statements issued for fiscal years beginning
after December 15, 2001. The provisions of SFAS 144 are to be applied
prospectively. The Company adopted SFAS 144 on March 3, 2002. The Company
believes that the adoption of SFAS 144 will not have a material effect on the
Company's results of operations, financial position or liquidity.
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 and deferred income tax asset valuation allowances. 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 - 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 as a
discontinued operation, and are summarized as follows (in thousands):
Year ended February 28,
--------------------------------
2002 2001 2000
------ ------ ------
Sales $ 2,556 $ 7,850 $ 6,988
======= ======= =======
Operating income (loss) $ (105) $ 766 $ 681
======= ======= =======
Income (loss) from discontinued
operations, net of tax $ (25) $ 269 $ 202
======= ======= =======
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 net assets of Micro Pulse at February 28, 2001, which are included
in the accompanying consolidated balance sheet at that date, amounted to
$1,325,000.
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 3 - ACQUISITION
On April 19, 1999, the Company acquired the technology and product
rights to substantially all of Gardiner Communications Corp.'s (Gardiner)
products, inventory, and manufacturing and development related equipment.
The total purchase price, including assumption of certain liabilities and
certain costs incurred in connection with the acquisition was approximately
$9.3 million. The Company paid $6.2 million in cash, and Gardiner received a
$3.1 million, 8% one year convertible promissory note due April 19, 2000. In
April 2000, a portion of the debt was converted into 525,000 shares of the
Company's common stock at $4.25 per share, which approximated the market
value at the date of the acquisition, and the remaining balance was paid in
cash. As part of the purchase, the Company recorded Goodwill of $4.1 million
which was being amortized over 15 years.
NOTE 4 - INVENTORIES
Inventories consist of the following (in thousands):
February 28,
-----------------------
2002 2001
------ ------
Raw materials $ 6,163 $ 7,174
Work in process - 251
Finished goods 3,309 2,948
------- -------
$ 9,472 $10,373
======= =======
NOTE 5 - EQUIPMENT AND IMPROVEMENTS
Equipment and improvements consist of the following (in thousands):
February 28,
-----------------------
2002 2001
------ ------
Plant equipment $19,792 $19,790
Office equipment, computers
and furniture 4,231 4,564
Tooling 1,694 3,844
Leasehold improvements 1,283 1,401
------- -------
27,000 29,599
Less accumulated depreciation
and amortization (19,625) (19,368)
------- -------
$ 7,375 $10,231
======= =======
NOTE 6 - FINANCING ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
Short-term Borrowings and Credit Facilities
At February 28, 2002, the Company had a $8 million working capital
revolving line of credit with a commercial bank. Borrowings under this
line of credit bear interest at LIBOR plus 2.2% or the bank's prime rate
(4.75% at February 28, 2002), and are secured by substantially all of the
Company's assets. At February 28, 2002 and 2001, no amounts were
outstanding under this credit facility. At February 28, 2002, $1 million of
the line of credit amount was reserved for an irrevocable stand-by letter of
credit issued in February 2002 for the benefit of a foreign supplier. The
credit facility 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, 2002, the
Company was in compliance with all such covenants. On April 3, 2002, the
working capital line of credit was increased from $8 million to $13 million,
and on May 2, 2002 the maturity date of this line was extended to from
August 2, 2002 to August 3, 2005.
In April 1999, in conjunction with the Gardiner acquisition (see Note
3), the Company issued a $3.1 million one-year convertible promissory note
bearing interest at 8% due on April 19, 2000. In April 2000, $2,231,250 of
the note principal was converted into 525,000 shares of common stock at
$4.25 per share and the remaining balance was paid in cash.
Long-term Debt
Long-term debt consists of the following (in thousands):
February 28,
-----------------------
2002 2001
------ ------
Bank term loan payable, interest
at LIBOR plus 2.2%, principal
due in sixty monthly payments
beginning September 2001 $ 4,545 $ 5,000
Note payable to bank, secured
by equipment, bearing interest at
LIBOR plus 2.55% (7.80% at February
28, 2001) payable monthly through
January 2002 - 144
------- -------
4,545 5,144
Less portion due within one year (917) (644)
------- -------
$ 3,628 $ 4,500
======= =======
The effective rate on the bank term loan was 4.03% and 7.45% at
February 28, 2002 and 2001, respectively. On April 2, 2002, the rate on
this term loan was fixed for two years at 4.75%. Thereafter, the interest
rate will revert to a variable rate of prime plus 0% or LIBOR plus 2.0%.
Contractual Cash Obligations
Following is a summary of the Company's contractual cash obligations as
of February 28, 2002 (in thousands):
Future Cash Payments Due by Fiscal Year
Contractual -----------------------------------------------
Obligations 2003 2004 2005 2006 2007 Total
- --------------- ------ ------ ------ ------ ------ -----
Debt $ 917 $ 967 $1,027 $1,092 $ 542 $4,545
Operating leases 761 756 42 28 - 1,587
------ ------ ------ ------ ------ ------
Total contractual
cash obligations $1,678 $1,723 $1,069 $1,120 $ 542 $6,132
====== ====== ====== ====== ====== ======
Rent expense under operating leases was $1,062,000, $842,000 and
$732,000 for fiscal years 2002, 2001 and 2000, respectively.
NOTE 7 - INCOME TAXES
The Company's income (loss) from continuing operations before income
taxes consists of the following (in thousands):
Year ended February 28,
--------------------------------
2002 2001 2000
------ ------ ------
Domestic $ 3,930 $ 6,550 $(8,617)
Foreign 251 1,200 401
------- ------- -------
$ 4,181 $ 7,750 $(8,216)
======= ======= =======
The income tax (provision) benefit consists of the following (in
thousands):
Year ended February 28,
--------------------------------
2002 2001 2000
------ ------ ------
Current:
Federal $ - $ - $ (419)
State (6) (14) (83)
Foreign (9) (290) (161)
------ ------ ------
Total current (15) (304) (663)
------ ------ ------
Deferred:
Federal (1,899) (2,251) 3,050
State 607 (294) 563
Foreign - 39 -
------- ------- -------
Total deferred (1,292) (2,506) 3,613
------- ------- -------
$(1,307) $(2,810) $ 2,950
======= ======= =======
Differences between the income tax (provision) benefit and income taxes
computed using the statutory federal income tax rate are as follows (in
thousands):
Year ended February 28,
--------------------------------
2002 2001 2000
------ ------ ------
Income tax at statutory federal
rate (34%) $ (1,421) $(2,635) $ 2,793
State income taxes, net of
federal income tax effect 194 (201) 150
Foreign taxes (38) - (161)
Valuation allowance (230) (157) -
Research and development credit 154 - -
Extraterritorial income exclusion 102 - -
Other, net (68) 183 168
------- ------- -------
$(1,307) $(2,810) $ 2,950
======= ======= =======
The components of the net deferred income tax asset for fiscal years
2002 and 2001 are as follows (in thousands):
February 28,
----------------------
2002 2001
------ ------
Depreciation $ 185 $ 204
Capitalized R&D cost amortization 503 337
Warranties 146 129
Compensation accrual 240 304
Inventory reserve 749 357
Allowance for doubtful accounts 136 145
Litigation settlement accrual 389 1,063
Net operating loss carryforward 6,609 8,692
Research and development credits 2,093 2,284
Other tax credits 1,118 966
Other, net 136 283
------- -------
12,304 14,764
Valuation allowance (8,724) (12,508)
------- -------
$ 3,580 $ 2,256
======= =======
The Company establishes a valuation allowance in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." The Company
continually reviews the adequacy of the valuation allowance and recognizes
the benefits from its deferred tax assets only when an analysis of both
positive and negative factors indicate that it is more likely than not that
the benefits will be realized. Based on the Company's analysis of its
operating performance and the estimated realizability of its deferred tax
assets, the Company has recorded valuation allowances of $8,724,000 and
$12,508,000 at February 28, 2002 and 2001, respectively. Approximately $5.6
million of the valuation allowance at February 28, 2002 is related to tax
assets generated upon the exercise of non-qualified stock options. As such,
any future benefit from the recognition of this deferred tax asset will be
an adjustment to the valuation allowance and additional paid-in capital.
At February 28, 2002, the Company has net operating loss carryforwards
of approximately $19.0 million and $3.9 million for federal and state
purposes expiring at various dates through 2022 and 2007, respectively.
As of February 28, 2002 and 2001, the Company had foreign tax credit
carryforwards of $113,000 and $87,000, respectively, expiring at various
dates through 2006, research and development tax credit carryforwards for
federal and state income tax purposes of $1,423,000 and $1,015,000,
respectively, expiring at various dates through 2012, and manufacturing
investment credit carryforwards of $940,000 for state income tax purposes
expiring in 2012.
Consolidated U.S. income before income taxes was $3,930,000 and
$6,898,000 for the years ended February 28, 2002 and 2001, respectively.
The corresponding income before taxes for non-U.S. based operations was
$251,000 and $852,000 for the years ended February 28, 2002 and 2001,
respectively. The Company has not provided withholdings and U.S. federal
income taxes on approximately $650,000 of undistributed earnings of its
foreign subsidiaries because such earnings are or will be reinvested
indefinitely in such subsidiaries or will be offset by approximate 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 are exercisable at the discretion of the Compensation Committee, but
usually vest over a four-year period.
The following table summarizes the option activity for fiscal years
2002, 2001, and 2000 (in thousands except dollar amounts):
Weighted
Number Average
Shares Option Price
-------- --------
Outstanding at February 28, 1999 2,017 $ 3.88
Granted 706 19.25
Exercised (873) 3.82
Canceled (165) 3.74
----- ------
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
===== ======
Options outstanding at February 28, 2002 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
-------- -------- -------- -------- -------- --------
$1.50-$1.88 193,000 6.6 $ 1.79 145,500 $ 1.79
2.06- 2.76 267,250 5.9 2.27 247,250 2.24
3.50- 4.72 835,500 8.3 4.35 244,000 3.97
5.00- 7.22 311,088 6.9 6.24 148,088 6.97
8.00-12.25 84,250 7.1 9.15 63,125 9.18
13.69-19.88 129,500 8.4 19.57 39,000 19.00
20.19-27.44 90,000 7.7 25.86 70,998 26.00
28.00-40.00 141,500 8.0 39.77 68,875 39.88
43.50-50.56 152,000 8.1 44.99 62,000 47.15
----------- --------- ---- ------ --------- ------
$1.50-$50.56 2,204,088 7.5 $11.17 1,088,836 $10.70
=========== ========= ==== ====== ========= ======
The weighted average fair value for stock options was $4.58, $26.28,
and $9.43 for fiscal years 2002, 2001, and 2000, respectively.
The number of stock options available for grant under the 1999 Stock
Option Plan at the end of each fiscal year was 19,899, 22,834, and 3,852 for
2002, 2001 and 2000, 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 No. 123, the Company continues to apply the
accounting rules of APB No. 25 governing the recognition of compensation
expense from 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 options pricing model with the following assumptions:
Year ended February 28,
--------------------------------
2002 2001 2000
------ ------ ------
Expected life (years) 10 5 to 10 10
Dividend yield 0% 0% 0%
The range for interest rates is 4.06% to 6.82%, and the range for
volatility is 49% to 147%. The estimated stock-based compensation cost
calculated using the assumptions indicated totaled $6,713,000, $6,369,000,
and $846,000 in fiscal years 2002, 2001, and 2000, respectively. This would
result in pro forma net income (loss) and net income (loss) per share,
resulting from the increased compensation cost, of ($30,000) or ($.00) per
share, $1,113,000 or $.08 per share, and ($5,605,000) or ($.46) per share in
fiscal years 2002, 2001, and 2000, respectively.
Preferred Stock Purchase Rights
At February 28, 2002, 13,630,351 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
Because the Company reported a net loss for the year ended February 28,
2000, the shares used in computing diluted earnings (loss) per share for
that year is equal to the weighted average number of common shares
outstanding for the period and excludes the dilutive effect of stock options
and convertible debt.
Following is a summary of the calculation of basic and diluted weighted
average shares outstanding for fiscal 2002 and 2001 (in thousands):
Year ended
February 28,
-------------------
2002 2001
------ ------
Weighted average shares:
Weighted average number of
common shares outstanding 13,605 13,365
Shares issuable for legal
settlement 122 142
------ ------
Basic weighted average number
of common shares outstanding 13,727 13,507
Effect of dilutive securities:
Stock options 252 631
Convertible debt - 79
------ ------
Diluted weighted average number
of common shares outstanding 13,979 14,217
====== ======
Options to purchase approximately 828,000 shares of Common Stock at
prices ranging from $5.69 to $50.56 were outstanding at February 28, 2002,
but were not included in the computation of diluted earnings per share for
the year 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 fiscal year 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,
-----------------------
2002 2001
------ ------
Accrued litigation settlements $ 5,534 $ 4,834
Customer prepayments 92 1,117
Other 1,354 1,166
------- -------
$ 6,980 $ 7,117
======= =======
"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,
--------------------------------
2002 2001 2000
------ ------ ------
Interest paid $323 $479 $382
Income taxes paid $497 $133 $ 21
Following is the supplemental schedule of non-cash investing and
financing activities (in thousands):
Year ended February 28,
--------------------------------
2002 2001 2000
------ ------ ------
Conversion of debt to equity $ - $ 2,231 $ -
Issuance of common stock to reduce
accrued liability $ - $ 2,166 $ -
Note payable issued for acquisition
of net assets of Gardiner
Communications Corp. $ - $ - $ 3,100
Non-cash income tax benefit
associated with non-cash litigation
settlement charge of $9,500 $ - $ - $ 3,606
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):
Balance at Charged to Balance
beginning costs and at end
of period expenses Deductions of period
--------- -------- --------- ---------
Allowance for doubtful accounts:
- -------------------------------
Fiscal 2000 $535 $ 37 $ (99) $473
Fiscal 2001 473 144 (150) 467
Fiscal 2002 467 991 (1,041) 417
Warranty reserve:
- ----------------
Fiscal 2000 $545 $201 $ (284) $462
Fiscal 2001 462 333 (348) 447
Fiscal 2002 447 144 (215) 376
NOTE 11 - COMMITMENTS
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 requires the Company to
pay all property taxes and insurance premiums associated with the coverage
of the facilities.
In addition, the Company leases small offices and/or warehouse space in
Dallas, Texas; Chanhassen, Minnesota; Paris, France; Sao Paulo, Brazil; and
Hong Kong, China. 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.
NOTE 12 - LEGAL PROCEEDINGS
Yourish class action and RLI Insurance Company litigation:
On March 29, 2000 the Company and the individual defendants (present and
former officers and directors of the Company) reached a settlement in the
matter entitled Yourish v. California Amplifier, Inc., et al., Case
No. CIV 173569 shortly after trial commenced in the Superior Court for the
State of California, County of Ventura. The terms of the settlement called
for the issuance by the Company of 187,500 shares of stock along with a cash
payment of $3.5 million, funded in part by insurance proceeds, for a total
settlement 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 expected 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.
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 connection with the settlement of the Yourish action, the Company
and certain of its former and current officers and directors filed a lawsuit
(California Amplifier, Inc., et al. v. RLI Insurance Company, et al.,
Ventura County Superior Court Case No. CIV196258), against one of its
insurance carriers to recover $2.0 million of coverage the insurance carrier
has stated was not covered under its policy of insurance. The insurance
carrier filed a Motion for Judgment on the Pleadings seeking judgment on the
basis, inter alia, that the claims in the Yourish action for alleged
violations of Sections 25400 and 25500 of the California Corporation Code
were not insurable as a matter of law pursuant to Insurance Code Section
533. The Plaintiffs opposed the motion and a hearing was held on
September 22, 2000. On October 18, 2000, the Court entered an Order
granting the motion for judgment on the pleadings. Judgment was entered on
November 9, 2000, and Notice of Entry of Judgment given on November 15,
2000. California Amplifier filed a Notice of Appeal on November 21, 2000.
The matter was fully briefed and argued before the Court of Appeals on
September 12, 2001. On December 4, 2001, the Court of Appeals upheld the
decision of the lower court in favor of the insurance carrier. The Company
filed a petition for review with the California Supreme Court in January
2002, but the petition for review was denied by the State Supreme Court.
In March 2002, T.I.G. notified the Company that it intends to seek a
refund of its $1 million settlement contribution made under a reservation of
rights, based on the adverse outcome of the Company's action against RLI
Insurance Company. 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 Company's consolidated balance sheet at February 28, 2002 includes
an accrued liability of $5.0 million related to the Yourish settlement,
which amount represents the remaining 121,875 shares still to be issued,
valued at $33.063 per share, and the $1 million reserved for the contingent
refund payable to T.I.G. Pursuant to the terms of the court-approved
settlement, the Company must wait for instructions from plaintiffs' counsel
before issuing the remaining shares of common stock under the settlement.
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 years 2000 and 2001, the Company and certain officers were
named as defendants in twenty putative actions in Federal Court. Caption
information for each of the lawsuits is set forth in Item 3 of the Company's
Form 10-K for the fiscal year ended February 28, 2001. 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 current directors of the Company were named as
defendants in the above-entitled shareholder derivative lawsuit filed in Los
Angeles Superior Court. The Company was named as a nominal defendant. The
complaint alleged claims against the directors for breach of fiduciary duty,
abuse of control and gross mismanagement, arising out of the Company's
restatement of earnings for fiscal year 2000 and portions of fiscal year
2001.
In October 2001, the insurance company that provides the Company's
primary director and officer liability coverage applicable to the above
matters filed a lawsuit seeking to rescind the policy on the grounds that
there was a misstatement in the policy application that incorporated by
reference the Company's financial statements prior to their restatement.
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, and agreed to withdraw its policy rescission
lawsuit. The Company has accrued its $925,000 share of the settlement in
the accompanying consolidated financial statements for the year ended
February 28, 2002. Of this amount, $425,000 was paid by the Company in
December 2001, and the remaining $500,000 is to be paid once the court
approves the settlement. At the Company's option, this final settlement
installment of $500,000 may be paid in the form of cash or Common Stock.
The Stipulation of Settlement seeking preliminary Court approval of the
settlement by the Court was filed in May 2002. Once preliminary approval is
obtained, plaintiff's counsel will send notice to the class and obtain a
hearing date for final approval of the settlement agreement. The Company
expects this process to be completed over the next several months.
Investigation by the Securities and Exchange Commission:
In May 2001, the Company announced that it had received notice from the
Securities and Exchange Commission (SEC) that the SEC was conducting an
informal inquiry into the circumstances that caused the Company to announce
that it would be restating earnings for fiscal year 2000 and certain interim
quarters of fiscal year 2001. Subsequently, the Company learned that the
SEC adopted an order directing a private investigation and designating
officers to take testimony.
NOTE 13 - SEGMENT AND GEOGRAPHIC DATA
Information by business segment is as follows:
Fiscal Year 2002:
WIRELESS
SATELLITE ACCESS CORPORATE TOTAL
------- ------ ------- -----
Sales $ 78,899 $ 21,816 - $100,715
Gross profit 15,723 7,158 - 22,881
Gross margin 19.9% 32.8% - 22.7%
Income (loss) from continuing
operations before income taxes 11,847 333 (7,999) 4,181
Identifiable assets 23,565 4,783 28,340 56,688
Fiscal Year 2001:
WIRELESS
SATELLITE ACCESS CORPORATE TOTAL
------- ------ ------- -----
Sales $ 85,107 $ 32,022 - $117,129
Gross profit 12,920 10,433 - 23,353
Gross margin 15.2% 32.6% - 19.9%
Income (loss) from continuing
operations before income taxes 8,719 5,259 (6,228) 7,750
Identifiable assets 22,146 8,262 19,404 49,812
Fiscal Year 2000:
WIRELESS
SATELLITE ACCESS CORPORATE TOTAL
------- ------ ------- -----
Sales $ 60,411 $ 19,018 - $ 79,429
Gross profit 9,146 5,987 - 15,133
Gross margin 15.1% 31.5% - 19.1%
Income (loss) from continuing
operations before income taxes 5,440 752 (14,408) (8,216)
Identifiable assets 21,773 8,349 21,375 51,497
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, 2002 is as follows (000s):
Year ended February 28,
--------------------------------
2002 2001 2000
------ ------ ------
United States $ 84,098 $ 93,764 $60,305
Canada 10,653 11,220 5,419
Europe 2,258 2,895 4,394
Latin America 1,738 2,661 1,240
Middle East 249 1,447 847
Africa 1,309 2,895 1,832
Asia 410 2,247 4,368
Australia - - 1,024
------- ------- -------
$100,715 $117,129 $79,429
======= ======= =======
See also "Concentrations of Risk" in Note 1 for sales by major customer.
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (unaudited)
The following summarizes certain quarterly statement of operations data
for each of the quarters in fiscal years 2002 and 2001 (in thousands, except
percentages and per share data):
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter 2002
------- ------- ------- ------- ------
Sales $20,802 $24,654 $32,756 $22,503 $100,715
Gross profits 4,779 6,152 7,546 4,404 22,881
Gross margins 23.0% 25.0% 23.0% 19.6% 22.7%
Income from
continuing
operations 91 465 1,352 966 2,874
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
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter 2001
------- ------- ------- ------- ------
Sales $29,866 $31,738 $30,902 $24,623 $117,129
Gross profits 5,846 6,100 6,679 4,728 23,353
Gross margins 19.6% 19.2% 21.6% 19.2% 19.9%
Income from
continuing
operations 1,450 1,349 1,816 325 4,940
Net income 1,540 1,419 1,850 400 5,209
Net income per
diluted share 0.11 0.10 0.13 0.03 0.37
NOTE 15 - SUBSEQUENT EVENTS
On April 5, 2002, the Company acquired substantially all of the assets,
properties and rights of Kaul-Tronics, Inc., a Wisconsin corporation, and
two affiliated companies (collectively, "KTI"). 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 KTI, and the downconverter/amplifier devices of the
type produced by the Company, together comprise the outdoor portion of
customer premise equipment for DBS television reception. In calendar year
2001, KTI had revenues of approximately $36 million and pretax income of
$4.8 million. KTI's 2001 revenues included approximately $12 million of
satellite downconverter/amplifier devices of the type produced by the
Company.
The aggregate purchase price was approximately $22.7 million,
consisting of a cash payment of approximately $16.1 million, issuance of
929,086 shares of the Company's common stock valued at approximately $6.1
million, and transaction costs of approximately $530,000. The acquisition
gave rise to goodwill of approximately $17.7 million.
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 repaid in full from the
proceeds of 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.
Also on May 2, 2002, the $13 million revolving line of credit was amended to
extend the maturity date to August 3, 2005.
INDEX TO EXHIBITS
2.1 Asset Purchase Agreement dated April 5, 2002 between and among the
Company, Kaul-Tronics, Inc., NGP, Inc., and Interactive Technologies
International, LLC (incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K dated April 5, 2002).
3.1 Certificate of Incorporation of the Company, as amended, filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-1
(33-59702) and by this reference is incorporated herein and made a
part hereof.
3.1.1 Amendment to Certificate of Incorporation of the Company, as
filed with the Delaware Secretary of State on September 19, 1996,
filed as Exhibit 3.1.1 to the Company's Interim Report on Form
10-Q for the period ended August 31, 1996.
3.2 Bylaws of the Company, as amended, filed as Exhibit 3.2 to the
Company's Form 8-K dated February 28, 1992 and by this reference
is incorporated herein and made a part hereof.
4.1 Amended and Restated Rights Agreement, amended and restated as of
September 5, 2001, by and between California Amplifier, Inc. and
Mellon Investor Services LLC, as Rights Agent (incorporated by
reference to Exhibit 4.1 of the Company's Form 8-K filed on
September 6, 2001).
10.1 1989 Key Employee Stock Option Plan filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-8 (33-31427) and by
this reference is incorporated herein and made a part hereof.
10.1.1 Amendment No. 1 to the 1989 Key Employee Stock Option Plan filed as
Exhibit 4.7 to the Company's Registration Statement on Form S-8
(33-36944) and by this reference is incorporated herein and made a
part hereof.
10.1.2 Amendment No. 2 to the 1989 Key Employee Stock Option Plan filed as
Exhibit 4.8 to the Company's Registration Statement on Form S-8
(33-72704) and by this reference is incorporated herein and made a
part hereof.
10.1.3 Amendment No. 3 to the 1989 Key Employee Stock Option Plan filed as
Exhibit 4.10 to the Company's Registration Statement on Form S-8
(33-60879) and by this reference is incorporated herein and made a
part hereof.
10.2 The 1999 Stock Option Plan filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (333-93097) and by this
reference is incorporated herein and made a part hereof.
10.3 Building Lease and Rider on building between the Company and
Calle San Pablo Property Co. dated January 31, 1989, filed as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1989 and by this reference is
incorporated herein and made a part hereof.
10.3.1 Amendment of Lease on building between the Company and Calle San
Pablo Property Co. dated February 9, 1995, filed as an exhibit to
this Annual Report on Form 10-K for the fiscal year ended February
28, 1995.
10.4 Building Lease on building between the Company and The Jennings
Bypass Trust, dated September 11, 1996, filed as an exhibit to this
Annual Report on Form 10-K for the fiscal year ended February 28,
1997.
10.5 Form of Indemnity Agreement filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1988 and by this reference is incorporated herein and made a part
hereof.
10.6 Loan and Security Agreement by and between the Company and U.S.
Bank National Association dated as of May 2, 2002.
11 Statement re Computation of Per Share Earnings (incorporated by
reference to Note 9 of the Company's consolidated financial
statements for the year ended February 28, 2002).
13 Annual Report to security holders.
21 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
23.2 Consent of Arthur Andersen, LLP.
99 Undertaking for Form S-8 Registration Statement.
EXHIBIT 21
CALIFORNIA AMPLIFIER, INC.
SUBSIDIARIES OF THE REGISTRANT
All subsidiaries are 100% owned by California Amplifier, Inc., and are
included in the consolidated financial statements. Each subsidiary was
organized in the jurisdiction specified under its name in the following
list.
1. California Amplifier SARL
France
2. Cal Amp Limited
Hong Kong
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements
(Nos. 33-31427, 33-36944, 33-72704, 33-60879, 333-33925 and 333-93097) on
Form S-8 of California Amplifier, Inc. and subsidiaries of our report dated
May 13, 2002, relating to the consolidated balance sheet of California
Amplifier, Inc. and subsidiaries as of March 2, 2002, and the related
consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and cash flows for the year then ended, which
report appears in the fiscal year 2002 annual report on Form 10-K of
California Amplifier, Inc.
/s/ KPMG LLP
Los Angeles, California
May 29, 2002
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-31427, 33-36944, 33-72704, 33-60879,
333-33925 and 333-93097.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
May 29, 2002
EXHIBIT 99
UNDERTAKING FOR FORM S-8 REGISTRATION STATEMENT
With respect to the Registration Statements previously filed by California
Amplifier, Inc. (the "Company") on Form S-8, the Company hereby undertakes
as follows:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding), is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.