SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: May 31, 2003
_________________
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
__________ ____________
Commission File Number: 0-12182
Exact Name of Registrant as
Specified in Its Charter: CALIFORNIA AMPLIFIER, INC.
______________________________
DELAWARE 95-3647070
_______________________________ _______________
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization: Identification No.
Address of Principal Executive Offices: 460 Calle San Pablo
Camarillo, CA 93012
Registrant's Telephone Number: (805) 987-9000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The registrant had 14,745,812 shares of Common Stock outstanding as of
July 10, 2003.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except par value amounts)
May 31, February 28,
2003 2003
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 21,899 $ 21,947
Accounts receivable, less allowance for doubtful
accounts of $250 and $273, respectively 6,680 16,053
Inventories, net 14,103 12,862
Deferred income tax assets 1,454 1,130
Prepaid expenses and other current assets 1,330 1,100
-------- --------
Total current assets 45,466 53,092
Property and equipment, at cost, net of
accumulated depreciation and amortization 7,929 9,322
Deferred income tax assets, less current portion 5,400 5,400
Goodwill 20,938 20,938
Other assets 747 845
-------- --------
$ 80,480 $ 89,597
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 3,425 $ 3,005
Accounts payable 4,558 11,553
Accrued payroll and employee benefits 798 1,649
Other accrued liabilities 2,275 2,198
-------- --------
Total current liabilities 11,056 18,405
-------- --------
Long-term debt, less current portion 11,899 12,569
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 3,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 30,000 shares
authorized; 14,746 and 14,745 shares issued
and outstanding, respectively 147 147
Additional paid-in capital 43,444 43,441
Retained earnings 14,734 15,836
Accumulated other comprehensive loss (800) (801)
-------- --------
Total stockholders' equity 57,525 58,623
-------- --------
$ 80,480 $ 89,597
======== ========
See notes to unaudited consolidated financial statements.
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
Three Months
Ended May 31,
------------------
2003 2002
------- -------
Sales $18,566 $22,482
Cost of goods sold 17,260 16,638
------- -------
Gross profit 1,306 5,844
------- -------
Operating expenses:
Research and development 1,362 1,701
Selling 494 730
General and administrative 844 1,050
------- -------
Total operating expenses 2,700 3,481
------- -------
Operating income (loss) (1,394) 2,363
Non-operating expense (53) (1)
------- -------
Income (loss) before income
taxes (1,447) 2,362
Income tax benefit (provision) 345 (896)
------- -------
Net income (loss) $(1,102) $ 1,466
======= =======
Net income (loss) per share:
Basic $ (0.07) $ 0.10
Diluted $ (0.07) $ 0.10
Shares used in per share
calculations:
Basic 14,745 14,373
Diluted 14,745 14,756
See notes to unaudited consolidated financial statements.
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
May 31,
---------------------
2003 2002
------- -------
Cash flows from operating activities:
Net income (loss) $(1,102) $ 1,466
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 870 862
Equipment impairment writedowns 586 -
Gain on sale of equipment (80) (148)
Increase in equity associated with tax
benefit from exercise of stock options - 1,591
Deferred tax assets, net (324) (855)
Changes in operating assets and liabilities:
Accounts receivable 9,373 (2,036)
Inventories (1,241) 257
Prepaid expenses and other assets 162 (4)
Accounts payable (6,995) 844
Accrued payroll and other accrued liabilities (774) (947)
------- -------
Net cash provided by operating activities 475 1,030
------- -------
Cash flows from investing activities:
Capital expenditures (376) (135)
Proceeds from sale of property and equipment 100 281
Acquisition of Kaul-Tronics - (16,588)
------- -------
Net cash used in investing activities (276) (16,442)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt - 12,000
Repayments of long-term debt (250) (243)
Proceeds from exercise of stock options 3 103
------- -------
Net cash provided by (used in) financing activities (247) 11,860
------- -------
Net change in cash and cash equivalents (48) (3,552)
Cash and cash equivalents at beginning of period 21,947 23,156
------- -------
Cash and cash equivalents at end of period $21,899 $19,604
======= =======
Supplemental cash flow information:
Interest paid $ 145 $ 88
Income taxes paid $ 4 $ 3
Non-cash investing and financing activities:
Issuance of common stock as partial consideration
for acquisition of Kaul-Tronics $ - $ 6,054
See notes to unaudited consolidated financial statements.
CALIFORNIA AMPLIFIER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended May 31, 2003
Note 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
California Amplifier, Inc. (the "Company") designs, manufactures and
markets microwave equipment used in the reception of television programming
transmitted from satellites and wireless terrestrial transmission sites, and
two-way transceivers used for wireless high-speed Internet (broadband)
service. The Company's Satellite business unit designs and markets
reception products principally for the Direct Broadcast Satellite ("DBS")
subscription television market in the United States. The Wireless Access
business unit designs and markets integrated reception and two-way
transmission fixed wireless equipment for terrestrial broadband data and
video applications, the latter sometimes referred to as "Wireless Cable".
On April 5, 2002, the Company acquired substantially all of the assets,
properties and business of Kaul-Tronics, Inc., a Wisconsin corporation, and
two affiliated companies (collectively, "Kaul-Tronics"). The results of
Kaul-Tronics' operations have been included in the Company's consolidated
financial statements since that date. The operations acquired by the
Company involve primarily the design and manufacture of satellite antenna
dishes used in the DBS industry. The satellite antenna dishes of the type
produced by Kaul-Tronics, and the downconverter/amplifier devices ("LNBFs")
of the type produced by the Company, together comprise the outdoor portion
of customer premise equipment for DBS television reception.
All intercompany transactions and accounts have been
eliminated in consolidation. In the opinion of the Company's management,
the accompanying consolidated financial statements reflect all adjustments
necessary to present fairly the Company's financial position at May 31, 2003
and its results of operations for the three months ended May 31, 2003 and
2002. The results of operations for such periods are not necessarily
indicative of results to be expected for the full fiscal year.
The Company uses a 52-53 week fiscal year ending on the Saturday
closest to February 28, which for fiscal year 2003 fell on March 1, 2003.
The actual interim periods ended on May 31, 2003 and June 1, 2002. In the
accompanying consolidated financial statements, the 2003 fiscal year end is
shown as February 28 and the interim period end for both years is shown as
May 31 for clarity of presentation.
Certain notes and other information are condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-
Q. Therefore, these financial statements should be read in conjunction with
the Company's 2002 Annual Report on Form 10-K as filed with the Securities
and Exchange Commission on May 30, 2003.
Note 2 - INVENTORIES
Inventories include the cost of material, labor and manufacturing
overhead, are stated at the lower of cost (determined on the first-in,
first-out method) or market, and consist of the following (in thousands):
May 31, February 28,
2003 2003
------ ------
Raw materials and subassemblies $ 9,425 $ 9,627
Finished goods 4,678 3,235
------ ------
$14,103 $12,862
====== ======
Note 3 - GOODWILL AND OTHER INTANGIBLE ASSETS
As a result of adopting Statement of Financial Accounting Standards No.
142, "Accounting for Goodwill and Intangible Assets", at the beginning of
fiscal 2003, the Company no longer records amortization on goodwill. There
was no change in the carrying amount of goodwill during the three months
ended May 31, 2003.
All goodwill is associated with the Company's Satellite business
segment. The first annual goodwill impairment test was conducted as of
December 31, 2002. This test indicated that there was no impairment of
goodwill. Because of the write-down of certain assets in the Satellite
segment, the Company conducted an interim impairment test as of May 31,
2003. This test also indicated that there was no impairment of goodwill.
The Company used a discounted cash flow approach to estimate the fair value
of its Satellite reporting unit in these impairment tests.
At May 31, 2003, the gross carrying amount and accumulated amortization
of covenants not to compete acquired in conjunction with the Kaul-Tronics
acquisition (Note 1) was $400,000 and $122,000, respectively. The covenants
not to compete, which are included in Other Assets in the accompanying
consolidated balance sheet, are being amortized on a straight-line basis
over a weighted average life of approximately 4.1 years.
Note 4 - FINANCING ARRANGEMENTS
At February 28, 2003, the Company had a $13 million working capital
revolving line of credit with a commercial bank. Borrowings under this
line of credit bear interest at LIBOR plus 2.0% or the bank's prime rate,
and are secured by substantially all of the Company's assets. At May 31,
2003 and February 28, 2003, no amounts were outstanding under the line of
credit. At May 31, 2003, $1,582,000 of the line of credit amount was
reserved for two outstanding irrevocable stand-by letters of credit. The
Company also has two bank term loans which had an aggregate outstanding
principal balance of $15,324,000 at May 31, 2003.
The bank credit agreement which encompasses the Company's working
capital revolving line of credit and two bank term loans 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, with which
compliance is measured at the end of each fiscal quarter on an annualized
fiscal year-to-date basis. For the quarter ended May 31, 2003, the Company
was not in compliance with this covenant. In June 2003 the Company
obtained a waiver from the bank for this covenant violation. The bank also
agreed to amend the fixed charge coverage ratio requirement and the Company
expects to be in compliance in future quarters with this covenant as
amended. As a condition of obtaining the waiver and the changes to fixed
charge coverage ratio covenant, the Company agreed to a reduction of the
working capital revolver from $13 million to $10 million. The Company also
agreed to make a $1 million principal reduction in the primary bank term
loan by October 31, 2003, which amount is in addition to the scheduled
principal payments on this loan of $200,000 per month. The Company plans
to fund the $1 million term loan principal reduction by a drawdown on the
working capital revolver, which matures on August 3, 2005. Accordingly,
that portion of the primary term loan which will be repaid by the $1
million principal reduction is included in the non-current portion of long-
term debt at May 31, 2003. The Company also agreed to apply the net
proceeds from sales of certain real estate in Wisconsin to pay down the
principal of the primary bank term loan.
Note 5 - INCOME TAXES
Deferred income tax assets reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
A deferred income tax asset is recognized if realization of such asset is
more likely than not, based upon the weight of available evidence which
includes historical operating performance and the Company's forecast of
future operating performance. The Company evaluates the realizability of
its deferred income tax assets on a quarterly basis, and a valuation
allowance is provided, as necessary, in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". During this evaluation, the Company reviews its forecasts of future
operating performance 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.
At February 28, 2003, the deferred tax asset valuation allowance was
$3,335,000. Based on profitable operations in the three year period ended
February 28, 2003, and on management's internal forecast of future operating
results, management believes it is more likely than not that the Company
will generate sufficient taxable income in the future to utilize deferred
tax assets of $6,854,000. As a result of this analysis, the deferred tax
asset valuation allowance was reduced to $3,269,000 at May 31, 2003.
The effective income tax rate was 23.8% and 37.9% in the three months
ended May 31, 2003 and 2002, respectively. The decrease in effective tax
rate is attributable primarily to the fact that, beginning in fiscal 2004,
adjustments to the deferred tax asset valuation allowance have a
corresponding impact on the income tax provision or benefit reported in the
consolidated statement of operations. Prior to fiscal 2004, reductions of
the deferred tax asset valuation allowance were offset by increases in
additional paid-in capital, and accordingly the effective income tax rate in
fiscal 2003 was not impacted by adjustments to the valuation allowance.
Note 6 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the
potential dilution, using the treasury stock method, that could occur if
securities or other contracts to issue Common Stock were exercised or
converted into Common Stock or resulted in the issuance of Common Stock that
then shared in the earnings of the Company. In computing diluted earnings
per share, the treasury stock method assumes that outstanding options are
exercised and the proceeds are used to purchase common stock at the average
market price during the period. Options will have a dilutive effect under
the treasury stock method only when the Company reports income and the
average market price of the common stock during the period exceeds the
exercise price of the options.
The following is a summary of the calculation of weighted average
shares used in the computation of basic and diluted earnings per share (in
thousands):
Three months
ended May 31,
----------------
2003 2002
------ ------
Basic weighted average number
of common shares outstanding 14,745 14,373
Effect of dilutive securities:
Stock options - 383
------ ------
Diluted weighted average number
of common shares outstanding 14,745 14,756
====== ======
Options outstanding at May 31, 2002 to purchase approximately 774,000
shares of Common Stock at prices ranging from $6.53 to $50.56 were excluded
from the computation of diluted earnings per share for the three months then
ended.
Because the Company had a net loss for the three months ended May 31,
2003, outstanding stock options to purchase approximately 2,583,000 shares of
common stock at exercise prices ranging from $2.76 to $50.56 would be anti-
dilutive and were therefore not included in the computation of diluted
earnings per share.
Note 7 - COMPREHENSIVE INCOME
Comprehensive income is defined as the total of net income and all non-
owner changes in equity. The following table details the components of
comprehensive income for the three months ended May 31, 2003 and 2002 (in
thousands):
Three months
ended May 31,
----------------
2003 2002
------ ------
Net income (loss) $(1,102) $1,466
Unrealized holding gain (loss) on
available-for-sale investments 1 (174)
------ ------
Comprehensive income (loss) $(1,101) $1,292
====== ======
Note 8 - STOCK OPTIONS
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock Based Compensation - Transition
and Disclosure" ("FAS No. 148"). FAS No. 148 amends Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("FAS No. 123"), to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock
based employee compensation. In addition, FAS No. 148 amends the
disclosure requirements of FAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results.
As allowed by Statement of FAS 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").
Under APB No. 25, compensation expense is measured on the first date at
which both the number of shares and the exercise price are known. Under
the Company's stock option 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 compensation expense is recognized.
Because all of the options granted by the Company are 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
unaudited consolidated statements of operations.
The fair value of options at date of grant was estimated using the
Black-Scholes option pricing model with the following assumptions:
Options granted
during the three
months ended May 31, Options granted
------------------- before
2003 2002 March 1, 2002
------ ------ -----------
Expected life (years) 5 5 5 to 10
Dividend yield 0% 0% 0%
The range for interest rates is 2.58% to 6.82%, and the range for
volatility is 49% to 147%. The estimated stock-based compensation cost
calculated using the assumptions indicated totaled $1,078,000 and $973,000
in the three months ended May 31, 2003 and 2002, respectively. The
following table illustrates the effect on net income (loss) and earnings
(loss) per share if the Company had applied the fair value recognition
provisions of FAS 123 to stock-based employee compensation (in thousands
except per share amounts):
Three months
ended May 31,
----------------
2003 2002
------ ------
Net income (loss) as reported $(1,102) $1,466
Less total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (653) (600)
----- -----
Pro forma net income (loss) $(1,755) $ 866
===== =====
Earnings (loss) per share:
Basic -
As reported $(.07) $.10
Pro forma $(.12) $.06
Diluted -
As reported $(.07) $.10
Pro forma $(.12) $.06
Note 9 - CONCENTRATION OF RISK
Because the Company sells into markets dominated by a few large service
providers, a significant percentage of consolidated sales and consolidated
accounts receivable relate to a small number of customers. Sales to
customers which accounted for 10% or more of consolidated sales for the
three months ended May 31, 2003 or 2003, as a percent of consolidated sales,
are as follows:
Three months
ended May 31,
-----------------
Customer 2003 2002
-------- ------ ------
A 32.1% 50.6%
B 19.3% 5.4%
C 17.1% 2.0%
Accounts receivable from these customers as a percent of consolidated
net accounts receivable are as follows:
May 31, Feb. 28,
2003 2003
------ ------
A 19.6% 58.0%
B 23.1% 15.1%
C 20.9% 5.5%
Customers A, B and C are customers of the Satellite segment. No customer of
the Wireless Access segment accounted for 10% or more of consolidated sales
during the periods shown above.
Note 10 - PRODUCT WARRANTIES
The Company generally warrants its products against defects over
periods ranging from 3 to 24 months. An accrual for estimated future costs
relating to products returned under warranty is recorded as an expense when
products are shipped. At the end of each quarter, the Company adjusts its
liability for warranty claims based on its actual warranty claims
experience as a percentage of sales for the preceding three years. In
addition, during the fourth quarter of fiscal 2003, the Company accrued
warranty cost of $250,000 in connection with a product replacement program,
as further described in Note 12. Such amount is included in the warranty
liability at May 31, 2003. Increases in and reductions of the warranty
liability for the three months ended May 31, 2003 and 2002 is as follows
(in thousands):
Three months
ended May 31,
-----------------
2003 2002
------ ------
Balance at beginning of period $491 $376
Charged (credited) to costs
and expenses (4) 39
Deductions (22) (49)
---- ----
Balance at end of period $465 $366
==== ====
Note 11 - SEGMENT INFORMATION
The Company currently manages its business under two identifiable
business segments: Satellite products and Wireless Access products. Segment
information for the three months ended May 31, 2003 and 2002 is as follows
(in thousands):
Three months ended May 31, 2003:
Wireless General
Satellite Access Corporate Total
------- ------ ------- -----
Sales $16,621 $ 1,945 $18,566
Gross profit $ 860 $ 446 $ 1,306
Gross margin 5.2% 22.9% 7.0%
Income (loss) before
income taxes $ (8) $ (542) $ (897) $(1,447)
Three months ended May 31, 2002:
Wireless General
Satellite Access Corporate Total
------- ------ ------- -----
Sales $19,474 $ 3,008 $22,482
Gross profit $ 4,828 $ 1,016 $ 5,844
Gross margin 24.8% 33.8% 26.0%
Income (loss) before
income taxes $ 3,731 $ (318) $(1,051) $ 2,362
Included in cost of sales for Satellite products during the three
months ended May 31, 2003 was impairment writedowns of $586,000 on surface
mount equipment which had become underutilized due to increased outsourcing
of printed circuit board subassemblies to contract manufacturers and certain
other manufacturing equipment which was taken out of service and abandoned
as of May 31, 2003. Also included in Satellite product cost of sales was a
lower of cost or market inventory writedown of $242,000. The foregoing
items had an aggregate adverse impact of 5.1% on Satellite gross margin in
the latest quarter.
The Company considers income (loss) before income taxes to be the
primary measure of profit or loss of its business segments. The amount
shown for each period in the "Corporate" column above for income (loss)
before income taxes consists of general and administrative expenses not
allocated to the business segments, and non-operating income (expense).
General and administrative expense includes salaries and wages for the CEO,
the CFO, all finance and accounting personnel, human resource personnel,
information services personnel, and corporate expenses such as audit fees,
director and officer liability insurance, and director fees and expenses.
Non-operating income (expense) includes interest income, interest expense
and foreign currency gains and losses.
Note 12 - COMMITMENTS AND CONTINGENCIES
During the fourth quarter of fiscal 2003, the Company became aware
that one of its new multi-satellite television reception products that it
began selling in the fiscal 2003 third quarter exhibited a loss of signal
from one satellite under a particular combination of field-specific
conditions which include subfreezing temperatures. In January 2003, the
product performance issue was resolved by making a minor change in product
configuration. Approximately 33,000 units which were in the distribution
channels were replaced during the fourth quarter, while substantially all
of the remaining 38,000 units shipped prior to the discovery of the product
performance issue are still installed at the premises of satellite
television subscribers. In connection with this product replacement
program, one of the satellite television system operators made a written
demand on the Company in the amount of approximately $1.6 million for that
operator's expected service call costs to replace 23,000 installed units in
the future. The Company has requested data from the system operator to
support its estimate of the number of units that will ultimately need to be
replaced. Based on all information available to the Company up to the
present time, Company management estimates that to date less than 1% of the
installed units have required replacement as a result of this signal loss
condition. In the absence of objective evidence that the problem is more
extensive than the Company's estimate, the Company believes that the claim
of the system operator as to the number of units that may ultimately need
to be replaced is unreasonable. The Company is in discussions with the
system operator in an effort to resolve the matter. The Company accrued
$250,000 at February 28, 2003 as its best estimate of the costs to complete
the product replacement program and to resolve the claim of the system
operator. The total cost of the product replacement program, including
this $250,000 accrued cost, amounted to approximately $450,000, and was
included in cost of goods sold in the quarter ended February 28, 2003.
During the quarter ended May 31, 2003, there was no change in the $250,000
accrued liability amount, which is included in other accrued liabilities of
the accompanying consolidated balance sheet. The Company can give no
assurance that the actual costs to complete the product replacement program
and to resolve the claim of the system operator will not exceed the
$250,000 accrued liability at May 31, 2003.
The Company's existing leases on its facilities in Camarillo,
California, consisting of two manufacturing facilities, a warehouse and the
corporate offices, all expire on February 28, 2004, and will not be
renewed. To replace and consolidate these separate facilities, the Company
has entered into a new facility lease for a 98,000 square foot facility in
Oxnard, California. The new lease, entered into on June 10, 2003, has a
seven year term beginning July 1, 2004, and provides for initial monthly
base rent of approximately $53,000 beginning on that date. The lease also
provides for a seven month early occupancy period beginning December 1,
2003 during which time no base rent is payable. The lease includes a $1
million allowance for tenant improvements to be paid for by the lessor.
The Company believes this amount will be sufficient to cover the necessary
leasehold improvements to prepare the building for occupancy.
Note 13 - LEGAL MATTERS
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 restate
earnings for fiscal year 2000 and first three quarters of fiscal year 2001.
Subsequently, the Company learned that the SEC adopted an order directing a
formal investigation and designating certain officers to take testimony.
The Company has provided the SEC with documents and testimony, and
management believes that it has fully cooperated, and will continue to fully
cooperate, with the SEC in connection with its investigation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 9 to the accompanying unaudited consolidated financial statements, the
Company's customer base is quite concentrated, with three customers
accounting for approximately 64% of accounts receivable at May 31, 2003 and
approximately 68% of the Company's sales in the three months then ended.
Changes in either a key customer's financial position, or the economy as a
whole, could cause actual write-offs to be materially different from the
recorded allowance amount.
Inventories
The Company evaluates the carrying value of inventory on a quarterly
basis to determine if the carrying value is recoverable at estimated selling
prices. To the extent that estimated selling prices do not exceed the
associated carrying values, inventory carrying amounts are written down. In
addition, the Company generally treats inventory on hand or committed with
suppliers, which is not expected to be sold within the next 12 months, as
excess and thus appropriate write-downs of the inventory carrying amounts
are established through a charge to cost of sales. Estimated usage in the
next 12 months is based on firm demand represented by orders in backlog at
the end of the quarter and management's estimate of sales beyond existing
backlog, giving consideration to customers' forecasted demand, ordering
patterns and product life cycles. Significant reductions in product
pricing, or changes in technology and/or demand may necessitate additional
write-downs of inventory carrying value in the future.
Deferred Income Tax Asset Valuation Allowance
Deferred income tax assets reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and 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, and the valuation allowance is adjusted
accordingly. 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 May 31, 2003, the Company's net deferred income tax asset was $6,854,000,
which amount is net of a valuation allowance of $3,269,000. During fiscal
years 2003 and 2002, the valuation allowance was reduced by an aggregate
amount of $9,173,000, substantially all of which related to tax benefits
associated with exercises of non-qualified stock options in prior years and
was therefore recognized by increasing additional paid-in capital. That
portion of the valuation allowance that related to these tax benefits on
stock option deductions was fully eliminated as of the end of fiscal 2003.
Therefore, beginning in fiscal 2004, reductions of the deferred tax asset
valuation allowance have a corresponding impact on the income tax provision
or benefit reported in the consolidated statement of operations. During the
quarter ended May 31, 2003, the deferred tax asset valuation allowance was
reduced by $66,000, which had the effect of lowering the estimated effective
income tax rate for fiscal 2004.
Valuation of Long-lived Assets and Goodwill
The Company accounts for long-lived assets other than goodwill in
accordance with the provisions of Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment and Disposal of Long Lived
Assets" ("FAS 144"), which supersedes Statement of Financial Accounting
Standards No. 121 and certain sections of Accounting Principles Board
Opinion No. 30 specific to discontinued operations. FAS 144 classifies
long-lived assets as either: (1) to be held and used; (2) to be disposed of
by other than sale; or (3) to be disposed of by sale. This standard
introduces a probability-weighted cash flow estimation approach to deal with
situations in which alternative courses of action to recover the carrying
amount of a long-lived asset are under consideration or a range is estimated
for the amount of possible future cash flows. This statement, which the
Company adopted in fiscal 2003, did not have a material impact on the
Company's financial position or results of operations prior to fiscal 2004.
FAS 144 requires, among other things, that an entity review its long-lived
assets and certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. During the quarter ended May 31, 2003, the Company recorded an
impairment writedown of $492,000 on certain surface mount manufacturing
equipment used in the Satellite business unit which had become underutilized
due to increased outsourcing of printed circuit board subassemblies to
contract manufacturers. This equipment has been classified as held for
sale, and the estimated realizable value of $153,000, which amount gives
effect to the impairment writedown, is included in Prepaid Expenses and
Other Current Assets in the accompanying unaudited consolidated balance
sheet at May 31, 2003.
The Company also adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets", in fiscal 2003. As a
result, goodwill is no longer amortized, but is subject to annual
impairment testing, or more frequently as impairment indicators arise. The
test for impairment involves the use of estimates related to the fair
values of the business operations with which goodwill is associated and is
usually based on projected cash flows or a market value approach. The
first annual goodwill impairment test was conducted as of December 31,
2002. This test indicated that there was no impairment of goodwill, all of
which relates to the Company's Satellite business unit. Because of the
writedown of certain assets in the Satellite segment under FAS No. 144, the
Company conducted an interim impairment test as of May 31, 2003. This test
also indicated that there was no impairment of goodwill. The Company used
a discounted cash flow approach to estimate the fair value of its Satellite
business unit in these impairment tests.
The Company believes the estimate of its valuation of long-lived assets
and goodwill is a "critical accounting estimate" because if circumstances
arose that led to a decrease in the valuation it could have a material
impact on the Company's results of operations.
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.
RESULTS OF OPERATIONS
The Company's sales and gross profit by business segment for the last
three years are as follows:
SALES BY SEGMENT
Three months ended May 31,
------------------------------------
2003 2002
--------------- ---------------
% of % of
Segment $000s Total $000s Total
----------- ------- ----- ------- -----
Satellite $16,621 89.5% $19,474 86.6%
Wireless Access 1,945 10.5% 3,008 13.4%
------- ----- ------- -----
Total $18,566 100.0% $22,482 100.0%
======= ===== ======= =====
GROSS PROFIT BY SEGMENT
Three months ended May 31,
-----------------------------------
2003 2002
-------------- --------------
% of % of
Segment $000s Total $000s Total
----------- ------ ----- ------ -----
Satellite $ 860 65.8% $4,828 82.6%
Wireless Access 446 34.2% 1,016 17.4%
------ ----- ------ -----
Total $1,306 100.0% $5,844 100.0%
====== ===== ====== =====
Sales
Sales of Satellite products decreased $2,853,000, or 14.7% in the three
months ended May 31, 2003 from the same period in the previous fiscal year.
This decline resulted primarily from reduced customer orders in the latest
quarter due to customers' overstocked inventories of certain satellite
television reception products. The Satellite products impacted by this
order slowdown are predominantly the more technologically advanced products
that have higher selling prices. The Company believes that this decline in
orders from key Satellite customers is a temporary situation, and that sales
of Satellite products will return to more normal levels once these customers
work down their existing inventory quantities.
Sales of Wireless Access products in the three months ended May 31,
2003 declined by $1,063,000, or 35%, from the same period in the prior year.
This decline results primarily from the fact that the last year's amount
includes sales to two customers totaling approximately $1.1 million which
did not recur in the latest quarter. One of these two customers, Worldcom,
accounted for sales of approximately $500,000 in the three months ended May
31, 2002, but WorldCom recently agreed to divest the assets of its wireless
broadband business as part of its bankruptcy reorganization, and hence is
not expected to be a significant customer of the Company's Wireless Access
business unit in the foreseeable future. The other customer is a Wireless
Cable subscription television system operator in the Caribbean region which
accounted for sales of approximately $600,000 in the three months ended May
31, 2002 for a nonrecurring system upgrade. Sales in the latest three month
period to this customer were approximately $30,000.
Gross Profit and Gross Margins
Satellite gross profit decreased $3,968,000, or 82%, and gross margin
for Satellite products declined from 24.8% in the three months ended May 31,
2002 to 5.2% in the latest quarter.
Included in cost of sales for Satellite products during the latest
quarter were impairment writedowns of $586,000 on surface mount equipment
which had become underutilized due to increased outsourcing of printed
circuit board subassemblies to contract manufacturers, and on certain
manufacturing equipment taken out of service and abandoned as of May 31,
2003. Also included in Satellite product cost of sales was a lower of cost
or market inventory writedown of $242,000. The foregoing items had an
aggregate adverse impact of 5.1% on Satellite gross margin in the latest
quarter. The remainder of the decline in Satellite gross margin is
attributable to the lower sales volume in the latest quarter and the effect
of competitive pricing pressures on certain Satellite products.
Wireless Access gross profit decreased $570,000, or 56%, while gross
margin for Wireless Access products declined to 22.9% in the first quarter
of fiscal 2004 from 33.8% in the first quarter of fiscal 2003. These
declines are primarily attributable to the 35% decrease in Wireless sales
and lower absorption of fixed overhead costs.
See also Note 11 to the accompanying unaudited consolidated financial
statements for additional operating data by business segment.
Operating Expenses
Research and development expense decreased to $1,362,000 in the latest
quarter from $1,701,000 last year. This 20% decline was due primarily to
the cancellation, in the second quarter of last fiscal year, of a product
development contract for broadband wireless application specific integrated
circuits (ASICs) because the market timing for large scale deployment of
this technology was uncertain in the near-term future. Expense associated
with this contract was $200,000 in the first quarter of last fiscal year.
Also contributing to the decline in research and development expense were
lower salaries expense due to staffing reductions ($90,000) and lower
incentive compensation expense ($86,000), partially offset by higher
consulting expense ($55,000).
Selling expenses decreased by $236,000 from $730,000 in the first
quarter of last year to $494,000 in the three months ended May 31, 2003.
This decrease is primarily attributable to lower incentive compensation
expense ($114,000), lower bad debts expense ($28,000), reduced travel and
entertainment expenses ($30,000), and lower recruiting expense ($25,000).
General and administrative expense of $844,000 in the latest quarter
decreased 20% from $1,050,000 in the first quarter of last year. This
decrease was due primarily to lower incentive compensation expense
($189,000).
Non-operating Expense, Net
Net non-operating expense, which is comprised of interest expense,
interest income, and foreign currency gains and losses, increased from
$1,000 in the first quarter of last year to $53,000 in the first quarter of
this year. This increase is due primarily to the higher level of
outstanding debt during the latest quarter. The $12 million bank loan,
which was entered into last year to partially finance the acquisition of
Kaul-Tronics, was outstanding for a little less than two months in the first
quarter of last year. This loan was outstanding for all three months of the
latest quarter.
Income (loss) before income taxes
For the reasons outlined above, the Company had pretax income of
$2,362,000 in the first quarter of last year, compared to a pretax loss of
$1,447,000 in the latest quarter.
Income Tax Provision
The effective income tax rate was 23.8% and 37.9% in the three months
ended May 31, 2003 and 2002, respectively. The decline in effective tax
rate is attributable primarily to the fact that, beginning in fiscal 2004,
adjustments to the deferred tax asset valuation allowance have a
corresponding impact on the income tax provision or benefit reported in the
consolidated statement of operations. Prior to fiscal 2004, reductions of
the deferred tax asset valuation allowance were offset by increases in
additional paid-in capital, and accordingly the effective income tax rate in
fiscal 2003 was not impacted by adjustments to the valuation allowance. See
further discussion of the deferred tax asset valuation allowance in Note 5
to the accompanying unaudited financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are its cash and cash
equivalents, which amounted to $21,899,000 at May 31, 2003, and its working
capital line of credit with a bank. During the three months ended May 31,
2003, cash and cash equivalents decreased by $48,000. This decrease
consisted of cash used for capital expenditures of $376,000 and debt
repayments of $250,000, substantially offset by cash provided by operating
activities of $475,000 and proceeds from the sale of equipment of $100,000.
Components of operating working capital increased by $525,000 during
the three months ended May 31, 2003, comprised of a decrease of $9,373,000
in accounts receivable, a decrease of $162,000 in prepaid expenses and other
assets, an increase of $1,241,000 in inventory, a decrease of $6,995,000 in
accounts payable, and a decrease of $774,000 in accrued payroll and other
accrued liabilities.
The Company believes that inflation and foreign currency exchange rates
have not had a material effect on its operations. The Company believes that
fiscal year 2004 will not be impacted significantly by foreign exchange
since a significant portion of the Company's sales are to U.S. markets, or
to international markets where its sales are denominated in U.S. dollars.
At February 28, 2003, the Company had a $13 million working capital
revolving line of credit with a commercial bank. Borrowings under this
line of credit bear interest at LIBOR plus 2.0% or the bank's prime rate,
and are secured by substantially all of the Company's assets. At May 31,
2003 and February 28, 2003, no amounts were outstanding under the line of
credit. At May 31, 2003, $1,582,000 of the line of credit amount was
reserved for two outstanding irrevocable stand-by letters of credit. The
Company also has two bank term loans which had an aggregate outstanding
principal balance of $15,324,000 at May 31, 2003.
The bank credit agreement which encompasses the Company's working
capital revolving line of credit and two bank term loans 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, with which
compliance is measured at the end of each fiscal quarter on an annualized
fiscal year-to-date basis. For the quarter ended May 31, 2003, the Company
was not in compliance with this covenant. In June 2003 the Company
obtained a waiver from the bank for this covenant violation. The bank also
agreed to amend the fixed charge coverage ratio requirement and the Company
expects to be in compliance in future quarters with this covenant as
amended. As a condition of obtaining the waiver and the changes to fixed
charge coverage ratio covenant, the Company agreed to a reduction of the
working capital revolver from $13 million to $10 million. The Company also
agreed to make a $1 million principal reduction in the primary bank term
loan by October 31, 2003, which amount is in addition to the scheduled
principal payments on this loan of $200,000 per month. The Company plans
to fund the $1 million term loan principal reduction by a drawdown on the
working capital revolver, which matures on August 3, 2005. Accordingly,
that portion of the primary term loan which will be repaid by the $1
million principal reduction is included in the non-current portion of long-
term debt at May 31, 2003. The Company also agreed to apply the net
proceeds from sales of certain real estate in Wisconsin to pay down the
principal of the primary bank term loan.
Following is a summary of the Company's contractual cash obligations as
of May 31, 2003 (in thousands):
Future Cash Payments Due by Fiscal Year
---------------------------------------
Contractual 2004 There-
Obligations (Remainder) 2005 2006 2007 2008 after Total
- ------------- ------ ------ ------ ------ ------ ------ ------
Debt principal $2,755 $3,435 $4,423 $2,911 $1,800 $ - $15,324
Operating leases 589 433 681 699 699 2,328 5,429
------ ------ ------ ------ ------ ------ ------
Total contractual
cash obligations $3,344 $3,868 $5,104 $3,610 $2,499 $2,328 $20,753
====== ====== ====== ====== ====== ====== ======
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.
SAFE HARBOR STATEMENT
Forward looking statements in this 10-Q which include, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions, projections and other information
regarding future performance, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
words "believes," "anticipates," "expects," and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements reflect the Company's current views with respect to future events
and financial performance and are subject to certain risks and
uncertainties, including, without limitation, lack of product
diversification, dependence upon a small number of customers, highly
competitive markets, rapid technology changes affecting the Company's
wireless access business, and other risks and uncertainties that are
described under the heading "Risk Factors" in the Company's Annual Report on
Form 10-K as filed with the SEC on May 30, 2003, copies of which may be
obtained from the Company upon request, or directly from the SEC's website
at http://www.sec.gov/. Such risks and uncertainties could cause future
results to differ materially from historical results or from results
presently 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments include cash equivalents, accounts
receivable, accounts payable and bank term loans payable. At May 31, 2003,
the carrying values of cash equivalents, accounts receivable and accounts
payable approximate fair values given the short maturity of these
instruments.
The carrying value of bank term loans payable approximates fair value
since the interest rates on these loans approximate the interest rates which
are currently available to the Company for the issuance of debt with similar
provisions and maturities. Based on the amount of bank debt outstanding at
May 31, 2003, a change in interest rates of one percent would result in an
annual impact of approximately $100,000, net of tax, on the Company's
consolidated statement of income.
A portion of the Company's operations consists of investments in
foreign subsidiaries. As a result, the consolidated financial results have
been and could continue to be affected by changes in foreign currency
exchange rates. However, the Company believes that it does not have
material foreign currency exchange rate risk 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, and material purchases from
foreign suppliers are typically also denominated in U.S. dollars.
Additionally, the functional currency of the Company's foreign subsidiaries
is the U.S. dollar.
It is the Company's policy not to enter into derivative financial
instruments for speculative purposes. Furthermore, the Company generally
does not enter into foreign currency forward exchange contracts. There are
no foreign currency forward exchange contracts outstanding at May 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Rules 13a-14(c) and 15(d)-14(c) under the Securities Exchange Act of 1934
(the "Exchange Act"). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiary)
required to be included in the Company's periodic SEC filings.
(b) Changes in internal controls.
There have been no significant changes in the Company's internal
controls or in other factors which could significantly affect internal
controls subsequent to the date that the evaluation was conducted.
Additionally, no significant deficiencies or material weaknesses in such
internal controls requiring corrective actions were identified.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 13 to the accompanying consolidated financial statements for a
description of pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 10-1 - Building lease dated June 10, 2003 between the
Registrant and Sunbelt Enterprises for facility in
Oxnard, California
Exhibit 10-2 - Amendment No. 1 to the Loan and Security Agreement
by and between the Company and U.S. Bank National
Association dated as of April 3, 2003
Exhibit 10-3 - Amendment No. 2 to the Loan and Security Agreement
by and between the Company and U.S. Bank National
Association dated as of July 3, 2003
Exhibit 99-1 - Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
b. Reports on Form 8-K:
On April 25, 2003, the Company filed a report on Form 8-K
which furnished a copy of its press release which announced the
financial results for the Company's fourth quarter and fiscal year
ended February 28, 2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
July 10, 2003 /s/ Richard K. Vitelle
- --------------------------------- -----------------------------------
Date Richard K. Vitelle
Vice President Finance & CFO
(Principal Financial Officer
and Chief Accounting Officer)
CERTIFICATIONS
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Fred M. Sturm, Chief Executive Officer of California Amplifier, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of California
Amplifier, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
July 10, 2003 /s/ Fred M. Sturm
------------------------ -----------------------------
Date Fred M. Sturm
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Richard K. Vitelle, Chief Financial Officer of California Amplifier,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of California
Amplifier, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
July 10, 2003 /s/ Richard K. Vitelle
------------------------ -----------------------------
Date Richard K. Vitelle
Chief Financial Officer