<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________________to___________________
Commission File Number 0-7428
CALIFORNIA MICROWAVE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-1668412
- ---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
1143 BORREGAS AVENUE, SUNNYVALE, CALIFORNIA 94089
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 732-4000
--------------
555 TWIN DOLPHIN DRIVE, REDWOOD CITY, CALIFORNIA 94065
- --------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report.
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Classes Outstanding at January 31, 1998
- --------------------------- -------------------------------
Common Stock $.10 Par Value 16,620,395
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<PAGE> 2
Part I. Financial Information
Item 1. Financial Statements
CALIFORNIA MICROWAVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
-------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 66,554 $ 62,754 $ 130,981 $ 124,531
Cost of products sold 43,088 50,383 87,012 93,883
--------- --------- --------- ---------
Gross margin 23,466 12,371 43,969 30,648
--------- --------- --------- ---------
Expenses:
Research and development 5,132 4,586 9,762 9,272
Marketing and administration 14,171 12,954 24,975 23,521
Amortization of intangible assets 344 345 688 690
--------- --------- --------- ---------
Total expenses 19,647 17,885 35,425 33,483
--------- --------- --------- ---------
Operating income (loss) 3,819 (5,514) 8,544 (2,835)
Interest expense (954) (1,349) (2,161) (2,733)
Interest income 61 27 155 79
Gain on sale of subsidiary -- 2,744 -- 2,744
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes 2,926 (4,092) 6,538 (2,745)
Provision for (benefit from) income taxes 1,054 (1,264) 2,354 (907)
--------- --------- --------- ---------
Income (loss) from continuing operations 1,872 (2,828) 4,184 (1,838)
Loss from discontinued operations -- (22,567) -- (25,430)
--------- --------- --------- ---------
Net income (loss) $ 1,872 $ (25,395) $ 4,184 $ (27,268)
========= ========= ========= =========
Per share (basic):
Income (loss) from continuing operations $ 0.11 $ (0.18) $ 0.25 $ (0.11)
Loss from discontinued operations -- (1.40) -- (1.58)
--------- --------- --------- ---------
Net income (loss) $ 0.11 $ (1.57) $ 0.25 $ (1.69)
========= ========= ========= =========
Average shares 16,526 16,145 16,511 16,139
Per share (diluted):
Income (loss) from continuing operations $ 0.11 $ (0.18) $ 0.25 $ (0.11)
Loss from discontinued operations -- (1.40) -- (1.58)
--------- --------- --------- ---------
Net income (loss) $ 0.11 $ (1.57) $ 0.25 $ (1.69)
========= ========= ========= =========
Average shares and equivalents 16,825 16,145 16,739 16,139
</TABLE>
See accompanying notes.
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<PAGE> 3
CALIFORNIA MICROWAVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited, See Note A)
<TABLE>
<CAPTION>
December 31 June 30
1997 1997
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,408 $ 4,974
Short-term investments 2,755 2,097
Refundable income taxes -- 10,085
Accounts receivable 47,505 35,701
Inventories 44,390 50,353
Deferred tax assets 15,941 18,359
Prepaid expenses 2,112 1,391
Net current assets of discontinued operations 60,421 60,604
--------- ---------
Total current assets 176,532 183,564
--------- ---------
Net property, plant and equipment 24,070 22,812
Deferred tax assets 7,411 7,411
Intangible and other assets 32,159 33,534
Net long-term assets of discontinued operations 17,170 19,052
--------- ---------
$ 257,342 $ 266,373
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 6,038 $ 333
Accounts payable 21,163 26,681
Accrued income taxes 3,343 3,211
Other accrued liabilities 36,361 41,833
--------- ---------
Total current liabilities 66,905 72,058
--------- ---------
Long-term liabilities
Long-term debt 5,395 9,101
Convertible subordinated notes 57,500 63,200
Other long-term liabilities 3,990 3,990
--------- ---------
Total long-term liabilities 66,885 76,291
========= =========
Stockholders' equity:
Common stock 1,653 1,641
Capital in excess of par value 94,504 93,249
Retained earnings 27,761 23,577
Unamortized restricted stock plan expense (366) (443)
--------- ---------
Total stockholders' equity 123,552 118,024
--------- ---------
$ 257,342 $ 266,373
========= =========
</TABLE>
A- The balance sheet at June 30, 1997, has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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<PAGE> 4
CALIFORNIA MICROWAVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For The Six Months Ended
December 31
------------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 4,184 $ (1,838)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) operating activities
Gain from sale of subsidiary -- (2,744)
Depreciation and amortization 4,040 4,419
Amortization of intangible assets 688 690
Deferred taxes 2,418 (12,924)
Amortization of debt issuance costs 146 105
Other adjustments 37 --
Net effect of changes in:
Accounts receivable (11,804) (678)
Refundable income taxes 10,085 --
Inventories 5,963 8,858
Prepaid expenses (721) 41
Accounts payable (5,518) (877)
Accrued income taxes 236 (1,128)
Other accrued liabilities and long-term liabilities 2,081 2,449
-------- --------
Net cash provided by (used in) continuing operations 11,835 (3,627)
Net cash provided by (used in) discontinued operations (3,745) 874
-------- --------
Net cash provided by (used in) operating activities 8,090 (2,753)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (5,295) (4,951)
Proceeds from sale of subsidiary -- 3,501
Other (500) (975)
-------- --------
Net cash (used in) continuing operations investing activities (5,795) (2,425)
Net cash provided by (used in) discontinued operations investing activities (1,223) 105
-------- --------
Net cash (used in) investing activities (7,018) (2,320)
-------- --------
FINANCING ACTIVITIES:
Payments on long-term debt (71) (65)
Net borrowings (repayments) under bank credit facilities (3,630) 5,000
Issuance of common stock 1,163 1,473
-------- --------
Net cash provided by (used in) continuing operations financing activities (2,538) 6,408
Net cash (used in) discontinued operations financing activities (100) (200)
-------- --------
Net cash provided by ( used in) financing activities (2,638) 6,208
-------- --------
Net increase (decrease) in cash and cash equivalents (1,566) 1,135
Cash and cash equivalents at beginning of year 4,974 4,560
-------- --------
Cash and cash equivalents at end of year $ 3,408 $ 5,695
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,296 $ 1,981
Income taxes (196) 592
</TABLE>
See accompanying notes.
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<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Basis of Presentation
The financial information at December 31, 1997, and for the
three and six-month periods ended December 31, 1997 and 1996,
is unaudited, but includes all adjustments (consisting only of
normal recurring adjustments) which the management of
California Microwave, Inc. believes are necessary for a fair
presentation of the results for the periods presented. Interim
results are not necessarily indicative of results for a full
year. The financial statements for fiscal 1997 have been
restated to reflect the accounts of Microwave Networks (MN)
and Satellite Transmission Systems (STS) as discontinued
operations. Discontinued operations accounting has been
continued into fiscal 1998. The consolidated interim financial
statements should be read in conjunction with the audited
consolidated financial statements for the year ended June 30,
1997, included in the California Microwave, Inc. 1997 Annual
Report to Stockholders.
Note 2. - Earnings Per Share
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings
Per Share. Statement 128 replaced the previously reported
primary and fully diluted earnings per share with basic and
diluted earnings per shares. Unlike primary earnings per
share, basic earnings per share exclude any dilutive effects
of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where
necessary, restated to conform to the Statement 128
requirements.
Note 3- Discontinued Operations
As a result of continued disappointing operating performance
by the Microwave Network (MN) division and the Satellite
Transmission Systems (STS) division, during December 1996 and
January 1997, the Company performed a comprehensive review of
these and certain other of the Company's operations, including
a review of inventory levels, product development and
migration plans, and facility and personnel needs. This review
resulted in the write-off of certain inventories, the
restructuring of MN's and STS' operations, and the taking of
charges relating to warranty and contract issues that arose at
MN and STS during the second quarter. Inventory, warranty and
contract, and other charges of approximately $32 million were
reflected in the discontinued operations for the second
quarter. Restructuring charges of approximately $8 million
were reflected in the results of operations in the third
quarter of fiscal 1997.
In June 1997, the Company's Board of Directors adopted a
formal plan to sell its Microwave Networks and Satellite
Transmission Systems business units.
During the three months and six months ended December 31, 1997
and 1996, the discontinued operations of the Company incurred
losses as shown below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
In thousands December 31 December 31
------------------------ ------------------------
1997* 1996 1997* 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loss from operation before tax benefit $ (3,839) $(33,682) $ (7,133) $(37,995)
Income tax benefit (1,267) (11,115) (2,354) (12,525)
-------- -------- -------- --------
Net loss $ (2,572) $(22,567) $ (4,779) $(25,470)
======== ======== ======== ========
</TABLE>
*The net loss for the periods ended December 31, 1997, was
provided for by the ($8,371,000) accrual established at June
30, 1997, for the net loss on disposal. Losses until the date
of disposition of STS and MN will be charged to this accrual.
On December 22, 1997, the Company entered into an agreement
with L-3 Communications Corporation to sell its Satellite
Transmission Systems (STS) division to L-3 for $27 million in
cash. It is expected that no gain or loss will be reported on
this divestiture. The closing of the transaction, which is
expected to occur in February 1998, is subject to certain
conditions.
-5-
<PAGE> 6
Note 4- Litigation Settlement
The Company announced in November 1995, that a shareholders'
class action lawsuit had been filed in the United States
District Court for the Northern District of California against
it and certain of its former officers on behalf of persons who
purchased shares of the company's common stock between
September 6, 1994, and June 29, 1995. The complaint filed in
the lawsuit alleged certain violations of the federal
securities laws by the company and certain of its former
officers and sought damages in an unspecified amount. Although
California Microwave does not believe that it or its former
officers committed any securities law violations and considers
the allegations made in the class action suit to be without
merit, in order to avoid the expense and distraction of
protracted litigation, the Company has reached an agreement to
settle the lawsuit. The net expense of the settlement
(including defense costs) to the Company, recorded as an
expense in California Microwave's fiscal 1998 second quarter,
is $1.9 million, before taxes, or approximately $.07 per
share. The settlement of the lawsuit, the total amount of
which is $14 million, a substantial portion of which will be
borne by the Company's insurance carriers, has been
preliminarily approved by the Court. Notice of the proposed
settlement has been given to members of the class and the
final approval hearing is scheduled for March 13, 1998.
Note 5 - Inventories
<TABLE>
<CAPTION>
(in thousands)
---------------------
December 31 June 30
1997 1997
------- -------
<S> <C> <C>
Projects in process $13,800 $ 7,795
Less progress billings 2,550 1,938
------- -------
11,250 5,857
Work-in-process and finished goods 10,001 21,915
Raw materials and parts 23,139 22,581
------- -------
$44,390 $50,353
======= =======
</TABLE>
Note 6 - Stockholders' Equity
The change in capital in excess of par value for the six
months ended December 31, 1997, consists principally of common
stock issuances and tax benefit of options exercised.
Note 7 - Income Taxes
At December 31, 1997, the Company has a cumulative net deferred
tax asset of $23.4 million that will be available to reduce
payments on future tax liabilities. Management of the Company
believes it is more likely than not that the asset will be
realized through future profitable operations, and tax planning
strategies.
-6-
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements made below and elsewhere in this Form 10-Q that are not historical
facts, including any statements about expectations for fiscal year 1998 and
beyond, involve certain risks and uncertainties. Factors that could cause the
Company's actual results to differ materially from management's projections,
estimates and expectations include, but are not limited to, delays in the
receipt of orders or in the shipment of products, delays in the disposal of
discontinued operations and the amount of net proceeds received, delays in
transitioning from older to new products, and other factors referred to under
"Information Regarding Forward Looking Statements" in the Company's Form 10-K
Annual Report for its fiscal year ended June 30, 1997, and in the Company's
Consolidated Financial Statements and Notes to Financial Statements contained in
its 1997 Annual Report to Stockholders. The Condensed Consolidated Financial
Statements and Notes to Condensed Consolidated Financial Statements should be
read in conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
In June 1997, the Company decided to divest its Satellite Transmission Systems
(STS) and Microwave Networks (MN) business units. The STS and MN businesses have
been accounted for as discontinued operations in the accompanying financial
statements. Accordingly, the discussion that follows concerns only the results
of continuing operations. The fiscal year 1997 accounts have been reclassified
to conform to this presentation.
The following table sets forth for the periods indicated (i) certain income and
expense items expressed as a percentage of the Company's total sales and (ii)
the percentage change of such items for the three and six months ended December
31, 1997, compared to the three and six months ended December 31, 1996. See
Condensed Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Period to Period
Percent of Sales Increase (Decrease)
----------------------------------------------- ----------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
December 31 December 31 December 31 December 31
------------------- ------------------- ---- ----
1997 1996 1997 1996 1997 vs 1996 1997 vs 1996
----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 6.1% 5.2%
Gross margin 35.3 19.7 33.6 24.6 89.7 43.5
Research and development expenses 7.7 7.3 7.5 7.4 11.9 5.3
Marketing and administration expenses 21.3 20.6 19.1 18.9 9.4 6.2
Amortization of intangible assets 0.5 0.6 0.5 0.6 -- --
Operating income (loss) 5.7 (8.8) 6.5 (2.3) NM NM
Interest (expense) net (1.3) (2.1) (1.5) (2.1) (32.4) (24.4)
Income (loss) from continuing operations
before income taxes 4.4 (6.5) 5.0 (2.2) NM NM
Income (loss) from continuing operations 2.8 (4.5) 3.2 (1.5) NM NM
</TABLE>
NM-Not meaningful
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<PAGE> 8
The following table sets forth sales by product class and by market sector for
the three and six months ended December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Sales
-----------------------------------------------------------
Three Months Six Months
Ended Ended
December 31 December 31
------------------------ ---------------------------
1997 1996 1997 1996
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Satellite Communications $ 24,976 $ 20,820 $ 49,362 $ 40,327
Radio Products 22,696 18,827 41,439 37,464
Information collection and
communications 18,882 23,107 40,180 46,740
--------- ---------- ---------- ----------
$ 66,554 $ 62,754 $130,981 $124,531
========= ========= ======== ========
International $ 22,913 $ 18,020 $ 42,908 $33,651
U.S. Commercial 21,629 19,413 40,558 37,569
U.S. Government 22,012 25,321 47,515 53,311
--------- ---------- ---------- ----------
$ 66,554 $ 62,754 $130,981 $124,531
========= ========= ======== ========
</TABLE>
RESULTS OF OPERATIONS
Sales Sales were $66.6 million and $62.8 million for the three months
ended December 31, 1997 and 1996, respectively, representing an increase of 6%.
Satellite communications sales increased by 20%, as new modem and transceiver
products were successfully introduced and sold. Radio product sales increased by
21% due to a substantial increase in sales of multipoint data radios into Latin
America. Information collection and communication sales declined by 18%, as
certain U.S. government projects matured, resulting in lower sales.
U.S. commercial sales and international sales increased 11% and 27%,
respectively, while sales to the U.S. government decreased 13% in the second
quarter. The increase in international sales is consistent with the increase in
satellite communications product sales and radio product sales mentioned above.
Sales to the U.S. government declined by 13% in the three months ended December
31, 1997, as sales were unusually strong in the first half of fiscal 1997 due to
a large project to add sensors to existing Airborne Reconnaissance Low program
platforms. This project was completed in early fiscal 1998.
Sales were $131.0 million and $124.5 million for the six months ended
December 31, 1997 and 1996, respectively, representing an increase of 5%.
Satellite communications and radio product sales increased 22% and 11%,
respectively, substantially offsetting a 14% decrease in information and
communications sales. International and U.S. commercial sales increased 28% and
8%, respectively, while U.S. government sales decreased 11%.
Gross Margin Gross margin was $23.5 million and $12.4 million for the
three months ended December 31, 1997 and 1996, respectively, representing an
increase of 90%. Gross margin as a percentage of total sales was 35.3% and 19.7%
for such periods, respectively. The increase in gross margin in dollars and as a
percentage of sales was due in part to higher sales of satellite communications
and radio products, which have higher gross margins, and to lower sales to the
U.S. government, which have lower gross margins. In addition, in fiscal 1997
charges to cost of sales for continuing operations of approximately $6.0 million
(9.6% of total sales) were recorded for the three months ended December 31,
1996. The charges were the result of a comprehensive review of all of the
Company's operations in fiscal 1997.
Gross margin was $44.0 million and $30.6 million for the six months ended
December 31, 1997 and 1996, respectively, representing an increase of 43%. Gross
margin as a percentage of sales was 33.6% and 29.4% (excluding the $6.0 million
of charges) for such periods, respectively. The increase in gross margin in
dollars and as a percentage of sales was consistent with the reasons given above
for the three months ended December 31, 1997 and 1996.
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<PAGE> 9
Research and Development Research and development expenses were $5.1
million and $4.6 million for the three months ended December 31, 1997 and 1996,
respectively, representing an increase of 12%. Research and development expenses
as a percentage of sales were 7.7% and 7.3% for such periods, respectively. The
Company continues to focus its research and development efforts primarily on the
development of new satellite networking products and software and radio
products.
Research and development expenses were $9.8 million and $9.3 million for
the six months ended December 31, 1997 and 1996, respectively, representing an
increase of 5%. Research and development expenses as a percentage of sales were
7.5% and 7.4% for such periods, respectively.
Marketing and Administration Marketing and administration expenses were
$14.2 million and $13.0 million for the three months ended December 31, 1997 and
1996, respectively, representing an increase of 9%. Marketing and administration
expenses as a percentage of total sales were 21.3% and 20.6% for such periods,
respectively. Included in the three months ended December 31, 1997, was a charge
for $1.9 million ($0.07 per share) for the settlement of a lawsuit (including
defense costs) and included in the three months ended December 31, 1996, was a
charge for $1.3 million for severance charges for the Company's former chief
executive officer. The Company has experienced some increase in costs in this
area as a result of hiring and relocation of several key members of the new
management team, which should be complete in the third quarter of fiscal 1998.
Marketing and administration expenses were $25.0 million and $23.5
million for the six months ended December 31, 1997 and 1996, respectively,
representing an increase of 6%. Marketing and administration expenses as a
percentage of sales were 19.1 and 18.9% for such periods, respectively.
Amortization of Intangible Assets Amortization expenses associated with
intangible assets remained constant at approximately $345,000 per three months
for the three months and six months ended December 31, 1997.
Interest Expense, Net Net interest expense was $0.9 million and $1.3
million for the three months ended December 31, 1997 and 1996, respectively,
representing a 32% decrease. Net interest expense was $2.0 million and $2.7
million for the six months ended December 31, 1997 and 1996, respectively,
representing a 24% decrease. The decrease in net interest expense for the three
months and six months ended December 31, 1997 and 1996 reflects principally the
collection of refundable income taxes and the subsequent reduction in borrowings
on credit lines.
Provision for Income Taxes For the three months ended December 31, 1997,
the Company provided for $1.1 million of taxes on income from continuing
operations compared to a tax benefit of $1.3 million for the three months ended
December 31, 1996. The effective tax rate for fiscal 1998 is 36%. The tax
benefit rate of 33%, which was established in the second quarter of fiscal 1997,
is less than the effective tax rate due primarily to the loss in certain states
of benefits from loss carry forwards.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had working capital of $109.6 million,
including $3.4 million of cash and cash equivalents, compared with working
capital of $111.5 million, including cash and cash equivalents of $5.0 million,
at June 30, 1997.
Net cash provided by (used in ) continuing operations was $11.8 million
and ($3.6) million for the six months ended December 31, 1997 and 1996,
respectively. During the first six months of fiscal 1998, the Company obtained
$10.1 million from income tax refunds, which was offset by an increase in
accounts receivables of $11.8 million. Days receivable increased to 65 days at
December 31, 1997, from 46 days at June 30, 1997, due principally to the fact
that U.S. government collections were extraordinarily large in June 1997 and
returned to normal levels in the first half of fiscal 1998 and the increase in
international sales and related receivables, which have extended terms in
certain cases. The Company has established a new bank discount facility and has
resumed selling certain export receivables, which are covered by trade credit
insurance. Receivables sold to a bank at December 31, 1997, were $6.7 million
compared to $7.0 million at June 30, 1997. Operating income adjusted for non
cash items provided (used) cash of $11.5 million and ($12.3) million in fiscal
1998 and 1997, respectively. Cash provided (used in) discontinued operations was
($3.7) million and $0.9 million during the six months ended December 31, 1997
and 1996, respectively.
-9-
<PAGE> 10
The Company's investing activities during the first six months of fiscal
1998 included capital expenditures of $5.3 million. Total cash used for
investing activities was $7.0 million. Net cash used for investing activities
during the first six months of fiscal 1997 was $2.3 million, which included $4.9
million of capital expenditures and cash proceeds of $3.5 million from the sale
of a subsidiary.
During the first six months of fiscal 1998, cash and cash equivalents of
$2.5 million were used in financing activities, including net repayments of $3.7
million under the Company's credit lines, offset by sales of $1.2 million of
common stock to employees under on-going stock option and purchase plans. During
the first six months of fiscal 1997, the Company borrowed $5.0 million under its
credit lines and sold $1.5 million of common stock to its employees.
The above activity resulted in a net increase (decrease) in cash and cash
equivalents of ($1.6) million and $1.1 million for the first six months of
fiscal 1998 and 1997, respectively.
The Company has a $40 million committed asset-based bank credit facility,
which expires in June 2000. As of December 31, 1997, there were $2.4 million of
borrowings and $13.6 million of standby letters of credit and guarantees
outstanding under this credit facility. At December 31, 1997, the Company was
not in compliance with certain covenants required by its industrial development
bond agreements. The lenders have waived such non-compliance.
The Company believes that its current cash position, funds generated from
operations and funds it believes will be available from its credit facilities
will be adequate to meet the Company's requirements for working capital, capital
expenditures and debt service (including payment of the $5.7 million note due
Motorola, Inc. in October, 1998) for at least the next 12 months.
OTHER FINANCIAL INFORMATION
Bookings Orders booked were $86.6 million and $71.7 million for the three
months ended December 31, 1997 and 1996, respectively, representing an increase
of 21%. Bookings for information collection and communication systems during the
second quarter of fiscal 1998 increased 20% to $35.5 million, and accounted for
41% of total bookings. Radio products and satellite communications product
bookings increased by 35% and 10% respectively. The receipt of new orders in the
information collection and communication systems area tend to be uneven, as they
are program or project based.
For the six months ended December 31, 1997, bookings increased in
commercial product areas and decreased slightly in U.S. government segments,
compared to the same period of the prior fiscal year. Radio products bookings
increased by 19% and represented 31% of total bookings of $141.8 for the six
months ended December 31, 1997. Similarly, satellite communication products
bookings increased by 10% and represent 38% of total bookings. Information
collection and communication system bookings decreased by 1% for the six months
ended December 31, 1997.
Backlog Backlog was $101.9 million and $103.1 million at December 31,
1997 and 1996, respectively, representing a decrease of 1%. Substantially all of
the December 31, 1997, backlog is expected to be delivered within twelve months.
Changes in announced Sales and Bookings by Market Sector Subsequent to
the Company's press release of January 14, 1998, corrections of the bookings and
sales of Satellite Communications and Information Collection and Communications
resulted in a reduction of Q2 FY1997 Satellite Communications bookings and sales
by $3.3 million and $1.7 million, respectively, and an increase in Information
Collection and Communications bookings and sales by the same amounts. The press
release should have indicated for Q2 FY1998 increases of 10% in bookings and 20%
in sales for Satellite Communications, and increases of 20% in bookings and
decreases of 18% in sales for Information Collection and Communications. These
corrections had no effect on the Company's total bookings and sales.
-10-
<PAGE> 11
Part II - Other Information
Item 1. Legal Proceedings
On November 9, 1995, and December 12, 1995, putative class-action
lawsuits entitled Rick Fairchild v. California Microwave, Inc. et
al. and Mark E. McKinney v. California Microwave, Inc., et al.
were filed in the United States District Court for the Northern
District of California. The Plaintiffs in these two cases, which
have been consolidated, alleged that the Company and certain of
its former executive officers violated various Federal securities
laws through material misrepresentations and omissions during the
period between September 6, 1994 and June 29, 1995. Although the
Company does not believe that it or its former officers committed
any securities law violations, and considers the allegations made
in the class-action suit to be without merit, in order to avoid
the expense and distraction of protracted litigation, the Company
reached an agreement to settle the lawsuit with the Plaintiffs.
The net expense of the settlement (including defense costs) to the
Company, recorded as an expense in California Microwave's fiscal
1998 second quarter is $1.9 million, before taxes, or
approximately $0.7 cents per share. The United States District
Court for the Northern District of California has preliminarily
approved the settlement, notice of the settlement has been given
to the members of the class covered by the proposed settlement and
the final approval hearing before the Court has been scheduled for
March 13, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Statement re computation of per share
earnings (losses). Exhibit 27 - Financial Data
Schedule.
(b) Reports on Form 8-K. December 19, 1997, reporting
under Item 5 - Other events Announcement of agreement
to settle Securities Law Litigation. Announcing of
agreement to sell STS division.
-11-
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CALIFORNIA MICROWAVE, INC.
February 4, 1998 BY /s/ Frederick D. Lawrence
- ------------------------- --------------------
Date Frederick D. Lawrence
Chairman of the Board
President and Chief Executive Officer
February 4, 1998 BY /s/ Donna S. Birks
- ------------------------- --------------------
Date Donna S. Birks
Executive Vice President
Chief Financial Officer
-12-
<PAGE> 1
California Microwave, Inc.
Computation of Per Share Earnings (Losses)
Exhibit 11
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31 December 31
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC - EPS:
Income (loss) from continuing operations $ 1,872 $ (2,828) $ 4,184 $ (1,838)
Loss from discontinuing operations -- (22,567) -- (25,430)
-------- -------- -------- --------
Net income (loss) $ 1,872 $(25,395) $ 4,184 $(27,268)
======== ======== ======== ========
Average shares outstanding 16,526 16,145 16,511 16,139
======== ======== ======== ========
Income (loss) per share:
Continuing operations $ 0.11 $ (0.18) $ 0.25 $ (0.11)
Discontinued operations -- (1.40) -- (1.58)
-------- -------- -------- --------
Net income (loss) $ 0.11 $ (1.57) $ 0.25 $ (1.69)
======== ======== ======== ========
DILUTED - EPS:
Income (loss) from continuing operations $ 1,872 $ (2,828) $ 4,184 $ (1,838)
Add back interest, net of taxes (a) (a) (a) (a)
-------- -------- -------- --------
Income (loss) from continuing operations 1,872 (2,828) 4,184 (1,838)
Loss from discontinued operations -- (22,567) -- (25,430)
-------- -------- -------- --------
Net income (loss) $ 1,872 $(25,395) $ 4,184 $(27,268)
======== ======== ======== ========
Average shares and equivalents - basic 16,526 16,145 16,511 16,139
Add- additional common stock equivalents of
the Company's stock options 299 (a) 228 (a)
Add - shares to be issued at conversion of
Convertible Debentures (a) (a) (a) (a)
-------- -------- -------- --------
Average shares and equivalents 16,825 16,145 16,739 16,139
======== ======== ======== ========
Income (loss) per share
Continuing operations $ 0.11 $ (0.18) $ 0.25 $ (0.11)
Discontinued operations -- (1.40) -- (1.58)
-------- -------- -------- --------
Net income (loss) $ 0.11 $ (1.57) $ 0.25 $ (1.69)
======== ======== ======== ========
</TABLE>
(a) Anti-dilutive as to convertible subordinated debentures in fiscal 1998 and
1997 and to common stock option equivalents in fiscal 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,408
<SECURITIES> 2,755
<RECEIVABLES> 48,330
<ALLOWANCES> 825
<INVENTORY> 44,390
<CURRENT-ASSETS> 176,532
<PP&E> 58,357
<DEPRECIATION> 34,287
<TOTAL-ASSETS> 257,342
<CURRENT-LIABILITIES> 66,905
<BONDS> 62,895
0
0
<COMMON> 1,653
<OTHER-SE> 121,899
<TOTAL-LIABILITY-AND-EQUITY> 257,342
<SALES> 130,981
<TOTAL-REVENUES> 130,981
<CGS> 87,012
<TOTAL-COSTS> 87,012
<OTHER-EXPENSES> 35,425<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,161
<INCOME-PRETAX> 6,538
<INCOME-TAX> 2,354
<INCOME-CONTINUING> 4,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,184
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<FN>
<F1>OTHER EXPENSES- Includes $1,900 for the settlement of a lawsuit which
approximates $0.07 per share.
</FN>
</TABLE>
