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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to ________________
Commission file number 0-13136
CINCINNATI MICROWAVE, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-0903863
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Microwave Plaza, Cincinnati, Ohio 45249-8236
(Address of principal executive offices) (Zip Code)
(513) 489-5400
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, WITHOUT PAR VALUE, AND WARRANTS
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant at February 29, 1996 was approximately $46,203,931. The aggregate
market value of warrants held by non-affiliates of the registrant at February
29, 1996 was approximately $1,778,728.
The only class of the registrant's common stock is its common shares, without
par value. As of February 29, 1996, there were 15,746,125 common shares
outstanding and 1,073,613 warrants outstanding.
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TABLE OF CONTENTS
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PAGE
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PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 14
ITEM 3. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS 17
ITEM 6. SELECTED FINANCIAL DATA 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 27
ITEM 11. EXECUTIVE COMPENSATION 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 38
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PART I
ITEM 1. BUSINESS
GENERAL
The Company designs, manufactures and markets ultrahigh frequency and microwave
wireless communications products. The Company's principal product line since
its inception has been radar warning detectors. The Company has become a
leader in the radar warning detector market by combining its experience in
ultrahigh frequency and microwave wireless technology, including digital signal
processing, with its high volume manufacturing capabilities. In 1993, the
Company introduced its first digital spread spectrum cordless telephone and its
first wireless data modem. These product lines leverage the Company's wireless
and digital signal processing expertise and high volume manufacturing
capabilities.
The Company markets its products both under the ESCORT(R) brand name through
direct advertising and as an Original Equipment Manufacturer (OEM) supplier.
The Company's strategy for entering new markets is to align with companies that
have established sales leadership and market positions. This strategy is
designed to provide broader access to the end user. The Company produces
digital spread spectrum telephones for several leading marketers of consumer
telephones.
Cincinnati Microwave was incorporated in October 1976 under the laws of the
State of Ohio. The Company's executive offices are located at One Microwave
Plaza, Cincinnati, Ohio 45249-8236. Its telephone number is 513-489-5400. The
Company can be reached by electronic mail on the Internet at [email protected]
and information about CNMW (including this document) can be accessed on the
World Wide Web at http://www.cnmw.com/welcome.htm. The Company's common shares
trade on the Nasdaq National Market System under the symbol CNMW and its
warrants trade on the Nasdaq National Market System under the symbol CNMWW.
COMPANY HISTORY
Cincinnati Microwave was founded in 1976. The Company brought exceptional
performance to the consumer radar detector industry utilizing super heterodyne
technology then used primarily in military applications. The Company
experienced significant growth due to the vastly superior performance of its
product coupled with the oil embargo, which resulted in the national 55 mph
speed limit. The Company went public in 1983.
In the late 1980's the Company experienced a period of contracting radar
warning receiver market share, revenues and profits, which the Board of
Directors believed threatened its long-term survival. In April 1991, in an
effort to prevent further deterioration of the Company's financial and
operating condition, the Board hired Jacques A. Robinson, formerly of General
Electric Company, as President and Chief Executive Officer to engineer a
turnaround of the Company. Mr. Robinson was chosen by the Board based upon his
industry experience and his proposed turnaround strategy. After careful
strategic review, Mr. Robinson proposed that the most effective way to
accomplish a turnaround was to capitalize on the Company's expertise of
designing and manufacturing ultrahigh frequency electronic devices and apply it
to wireless communication products.
Since Mr. Robinson joined Cincinnati Microwave, Inc., the Company's business
strategy has been to use its core technology in ultrahigh frequency and
microwave circuit design, digital signal processing, digital spread spectrum
capability and digital communication techniques, together with its experience
in short product development cycles and mass production, to introduce leading
edge products early in new market life cycles. Using the early introduction as
a platform to gain a leading market share, the Company's goal is to introduce
aggressively subsequent versions of the product at lower prices made possible
by greater production volume and manufacturing efficiencies.
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BUSINESS STRATEGY
The Company's business strategy includes the following elements:
- - Leverage core technology
The Company has considerable experience in the design, development and
manufacture of portable electronic wireless communication devices that operate
in the ultrahigh frequency radio and microwave spectrum, having utilized this
technology in its radar detection products since 1978. The Company is
committed to capitalizing upon its core technology base, as shown by its
development of new products and the expansion and enhancement of its technology
base through significant and ongoing research and development expenditures.
- - Emphasize short product development cycles
The Company believes that short product development cycles are essential to its
success. Such cycles enable the Company to capitalize upon the higher margins
that are associated with the introduction of new products and positions the
Company to establish itself as a leader in new markets. Since 1991, the
Company has developed and introduced more than 16 radar warning detector
products, five generations of digital spread spectrum cordless telephones and a
series of wireless data modems.
- - Increase manufacturing efficiencies, improve quality and lower product cost
The Company uses surface mount technology ("SMT") extensively to manufacture
its products. The Company was among the first to utilize SMT to manufacture
consumer radar detection products. SMT is the automated manufacturing process
used to place micro electronic components on printed circuit boards with a high
level of accuracy at a high speed. The use of SMT enables the Company to
design and manufacture products that are compact, portable and reliable and
allows it to achieve manufacturing efficiencies that result in lower costs.
The Company has also developed high speed automated testing capabilities in
order to ensure quality and improve manufacturing efficiency. Testing
procedures have become an integral part of the Company's manufacturing process
encompassing all aspects of the manufacture of its products, from component to
subassembly and finished product testing.
- - Develop strategic alliances
The Company's strategy for entering new markets is to align with companies that
have established sales leadership and market positions. This strategy is
designed to provide broader access to retailers and end users. The Company
developed its digital spread spectrum cordless telephones and wireless data
modems utilizing this teaming approach. With respect to the Company's digital
spread spectrum cordless telephones, this strategy involves selling to major
cordless telephone vendors. With respect to the Company's wireless modems,
this strategy involves working with cellular service providers as well as
vendors of services utilizing the Cellular Digital Packet Data (CDPD) networks.
PRODUCTS AND MARKETS
The Company's products are ultrahigh frequency wireless communication products
that operate in the UHF radio and microwave spectrum. At the present time, the
Company has developed and introduced radar warning detectors, digital spread
spectrum cordless telephones and wireless data modems that utilize the CDPD
networks. These three products are described in more detail below.
CORDLESS TELEPHONES
The market for cordless telephones has grown over the past few years and,
according to industry sources, sales of all cordless telephones exceeded 18
million units in 1995, with approximately 900,000 units in the 900 megahertz
(MHz) segment. Conventional cordless telephones, which operate in the 46-49
MHz segment, may be nearing the mature phase of their product life cycle. The
Company believes that the growth area is in high
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performance telephones, which operate in the 900 MHz segment. These high
performance telephones can deliver to a consumer the superior range and clarity
required for cordless telephones to become a true substitute for the
traditional corded telephone.
In May 1993, the Company introduced its first digital spread spectrum high
performance cordless telephone. These telephones are sold both under the
ESCORT(R) brand name (the ESCORT(R) Courier series) and to OEM customers. The
Company's digital spread spectrum cordless telephones offer superior
performance over traditional cordless telephones, specifically in the areas of
improved voice clarity, range and communication security. The term "spread
spectrum," for which the Company has established a technology brand label,
SureLink(TM), refers to a communications technique that encodes signals to be
transceived over multiple frequencies. Spread spectrum transceivers cause
substantially less interference and are less susceptible to interference than
conventional transceivers such as those used in traditional cordless
telephones. Due to the substantially lower interference, the Federal
Communications Commission has specified operating parameters for the 902-928
MHz band that are highly advantageous to spread spectrum products. The lower
susceptibility to interference together with the advantageous Federal
Communications Commission operating parameters have enabled the Company to
design products that can achieve significantly greater range than traditional
cordless telephones. Cincinnati Microwave has combined spread spectrum
technology with digital signal processing technology, thereby digitizing the
speech and transmitting it as a high speed data transmission. By using a high
speed data transmission, no voice compression is required, resulting in a voice
clarity that is comparable to a traditional corded telephone. Finally, spread
spectrum encoding by its nature scrambles voice and data resulting in very
secure communications.
The Company introduced a new generation of digital spread spectrum cordless
telephone models in 1995, both for the Company's retail and OEM channels.
These digital spread spectrum cordless telephones are less expensive to
manufacture and can be sold by the Company at a lower price than its previous
digital spread spectrum cordless telephone products.
WIRELESS DATA MODEMS
In July 1993, Cincinnati Microwave announced that it had developed a series of
wireless data modems to be used in conjunction with the CDPD networks being
deployed by a consortium of cellular telephone carriers. CDPD, one of the
recognized leading technologies in wide area wireless data communications, is a
digital system that overlays the cellular voice network and uses the idle times
between cellular voice calls to transmit data. The Company's MC-DART (Mobile
Cellular Data Access Radio Transceiver) wireless data modems enable data to be
sent and received using the CDPD networks without the burden of wires or the
costs of circuit switched connections (the traditional method used for a voice
call). CDPD has uses in three broad applications of data networking: mobile
applications--exchanging data with data sources in motion, such as truck
fleets, portable point of sale devices and credit card verification units;
fixed wireless applications--exchanging data with data sources which are
difficult or prohibitively expensive to reach, such as utility meters, vending
machines and pipeline pumps; and portable applications--such as portable
computers.
The wireless data market, which includes CDPD, has been slow to develop for
several reasons including, but not limited to, the multitude of competing
technologies, none of which has emerged as the market leader, that can provide
transmission of wireless data. Cincinnati Microwave continues to believe that
CDPD can offer significant advantages over alternative means of wireless data
transmission, in part because it is supported by the cellular carriers. The
Telecommunications Act of 1996 includes provisions that should provide the
cellular carriers with additional incentives to complete the CDPD
infrastructure and actively market CDPD-based products and services.
RADAR WARNING DETECTORS
The Company's principal product since its formation has been radar warning
detectors, which use microwave and other technologies to detect and amplify
police radar transmissions. During 1992, the Company also began manufacturing
and selling a laser detection product. The Company's super heterodyne radar
warning detectors
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use digital signal processing and high gain laser detectors to detect police
radar and laser signals and reject unwanted signals so that early
identification is enhanced.
Beginning in 1995, the Company's radar warning detectors are also being used in
conjunction with the Safety Alert(TM) system. The Safety Alert(TM) system
utilizes small transmitters that emit low power K-band microwave signals and
can be physically mounted to traffic hazards, such as, speeding emergency
vehicles, road construction sites or locomotives. The Safety Alert(TM) signal is
encoded and when detected and decoded by an appropriately equipped radar
warning detector, the signal can provide the driver with more specific
information as to the nature of the traffic hazard, thereby enhancing driver
safety. The Company was the first to offer products specifically designed to
decode Safety Alert(TM) signals for drivers and commenced shipping such radar
warning detectors in August 1994 (the PASSPORT(R) 5000) in anticipation of the
system's implementation. The Company has added this capability to its entire
radar warning detector product line. Presently, the Company believes that the
Safety Alert(TM) systems are in limited use.
On November 28, 1995, a federal law was enacted that eliminated the existing
federal requirement that states comply with national maximum speed limit
provisions before receiving certain federal funds. This law has resulted in
higher speed limits in some states and may reduce the perceived need for radar
detectors among drivers in states that raise speed limits.
MARKETING AND SALES
The Company's marketing and sales efforts are differentiated into two distinct
categories: Consumer Products and Commercial Products.
CONSUMER PRODUCTS
The Company's radar warning detector products have traditionally been marketed
under the ESCORT(R) brand name by direct advertising. Through advertisements
placed in national publications, such as "Car and Driver" and "Road & Track,"
consumers can reach a dedicated telemarketing staff (via a toll-free phone
number) to obtain additional information or place orders for the Company's
products. The successful introduction of the evolving series of ESCORT(R) radar
warning detectors has provided the Company with a loyal customer base that can
be reached by direct mail efforts for new radar warning detector products as
they become available.
To augment this direct sales channel, the Company has developed a strategic
alliance with Home Shopping Network ("HSN"). The Company's radar warning
detector products are marketed to subscribers of HSN's cable shopping networks.
HSN purchased a substantial part of the Company's radar warning detector output
in 1994 and accounted for 14% of the Company's total net sales. For 1995, HSN
purchases accounted for 8% of the Company's total net sales. The Company also
sells radar warning detectors as an OEM supplier to COBRA Electronics
Corporation.
The Company sells its digital spread spectrum cordless telephone primarily as
an OEM as well as under its ESCORT(R) brand. As an OEM, the Company designs,
develops and manufactures digital spread spectrum cordless telephones for
specific customers on a private label basis based upon their specifications.
Based on industry statistics regarding market share, in 1995 three of the
largest eight name brand telephone companies were customers of Cincinnati
Microwave.
For 1995, purchases of digital spread spectrum cordless telephones by AT&T (now
Lucent Technologies) accounted for 18% of the Company's total net sales.
Lucent Technologies is currently undergoing a major reorganization that may
impact its ability to compete in, or influence its decision to pursue, the
cordless telephone market in the future.
In early 1996, a new major OEM customer for the Company's digital spread
spectrum cordless telephones was added. The new customer has indicated that it
intends to pursue a long-term relationship with Cincinnati
- -------------------------------------------------------------------------------
(1) "Safety Alert" is a trademark of Cobra Electronics Corporation.
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Microwave as the supplier of leading-edge cordless telephone products although
there are no guarantees regarding the volume of cordless telephones this new
customer will purchase in the future. The first shipments to this customer are
scheduled to occur in the second quarter of 1996.
COMMERCIAL PRODUCTS
The Company's commercial product marketing and sales efforts have evolved out
of its OEM approach to consumer products. At present, the Company's only
commercial product line is its wireless data modems. The Company was an early,
active participant with the CDPD consortium, with its engineers being consulted
in the formation of the CDPD standards. The Company took advantage of this
early start by aligning itself with certain cellular carriers for the marketing
of its wireless data modem. The Company has established marketing arrangements
with five leading cellular service providers: Ameritech Mobile Services, Bell
Atlantic Mobile Services, GTE Mobile Communications, McCaw Cellular
Communications, Inc. and Sprint Cellular Communications. However, the CDPD
market has been slow to develop and sales of the Company's modems, to date,
have been limited although production of the Company's wireless data modem
products commenced in June 1994.
In June 1995, Bell Atlantic Mobile Services, Firstnet Corporation and the
Company announced that the Company's wireless data modems will provide the
wireless communication link for AireTrans, the nation's first large-scale
deployment of wireless credit card verification using CDPD.
RESEARCH AND DEVELOPMENT
The Company believes that continued strong investment in research and
development is critical to its long term growth and success. Utilizing its
expertise in ultrahigh frequency and microwave wireless communications and
digital signal processing, the Company intends to continue to develop new
products that strengthen its position in its current markets as well as to
enter new markets. The research and development activities of the Company are
directed toward product development, product improvement, new product
screening, technology development and manufacturing process development. All
of the costs of such research and development activities are expensed as
incurred.
As of year-end 1995, the Company employed 70 people in research and development
functions. The Company's research and development expenditures (in dollars and
as a percentage of net sales) were $8.1 million (13.9%) for fiscal year 1993;
$8.4 million (13.1%) for fiscal year 1994; and $7.4 million (9.4%) for fiscal
year 1995.
MANUFACTURING
Cincinnati Microwave designs, manufactures, tests and packages its products at
its plant near Cincinnati, Ohio. All of the Company's products are designed
around the Company's manufacturing processes, which particularly emphasize
surface mount technology (SMT). SMT is the automated manufacturing process
used to place micro electronic components on printed circuit boards with a high
level of accuracy and at high speed. The use of SMT enables the Company to
design and manufacture products that are compact, portable and reliable and to
achieve manufacturing efficiencies that can result in lower costs. The Company
believes that it is important to maintain competitive manufacturing facilities
by investing in advanced manufacturing equipment (particularly SMT and
automated test equipment) and by improving existing and developing new
manufacturing processes.
The Company's products include a number of high-technology components that are
available from only a few suppliers and, in several cases, a single supplier.
The Company frequently requires large volumes of such components and, if the
Company's suppliers are unable to fulfill the Company's needs for such
components, the Company may be unable to fill customer orders and its business,
financial condition, including working capital, and results of operations may
be materially and adversely affected. In 1993, and again in 1994, certain of
the Company's suppliers were unable to deliver sufficient quantities of
critical components to allow the Company to manufacture its products at
previously anticipated volumes. These shortages adversely affected the
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Company's ability to manufacture and deliver products and, as a result, had a
significant adverse effect on the Company's business, financial condition,
including working capital, and results of operations. Since part of the
Company's strategy is to shorten product development and introduction cycles,
occasions may arise in the future where the Company's ability to produce
products outpaces its suppliers' ability to supply components. There can be no
assurance that the Company can continue to obtain adequate supplies or obtain
such supplies at their historical cost levels. The Company has no guaranteed
supply arrangements with any of its sole or limited source suppliers and
customarily purchases sole or limited source components pursuant to purchase
orders placed from time to time in the ordinary course of business. Moreover,
the Company's suppliers may, from time to time, experience production
shortfalls or interruptions which impair the supply of components to the
Company. There can be no assurance that such shortages will not occur in the
future and adversely affect the Company's business, financial condition,
including working capital, and results of operations.
TRADEMARKS AND PATENTS
Cincinnati Microwave has a variety of patents, patent applications, registered
and unregistered trademarks and registered trade names. The Company does not
believe that its ability to compete in any of its product markets is currently
dependent on its patents or patent applications, but does believe that its
rights to, and the goodwill associated with, its ESCORT(R), PASSPORT(R) and
SOLO(R) registered trademarks and Courier(TM) and SureLink(TM) trademarks
provide it with a marketing advantage coupled with its knowledge and
accumulated experience in the design and mass production of ultrahigh
frequency wireless transmitters and receivers incorporating digital signal
processing provide it with a competitive advantage.
Although the Company has protected its technologies and products by patent,
copyright, trademark and trade secret laws to the extent that it believes
necessary, the Company's intellectual property rights may be subject to
infringement. There can be no assurance that the Company's measures to protect
its proprietary rights will deter or prevent unauthorized use of the Company's
technology. Furthermore, the laws of certain countries may not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. In addition, the Company may, from time to time, become subject to
legal claims asserting that the Company has violated intellectual property
rights of third parties. In the event a third party were to sustain a valid
claim against the Company and in the event any required license was not
available on commercially reasonable terms, the Company's business, financial
condition, including working capital, and results of operations could be
materially and adversely affected. Litigation, which could result in
substantial costs to and diversion of resources of the Company, may also be
necessary to enforce intellectual property rights of the Company or to defend
the Company against claimed infringement of the rights of others.
COMPETITION
All markets in which the Company participates are highly competitive. The
market for conventional cordless telephones has been largely driven by Lucent
Technologies (formerly AT&T), followed by four major brands (Bell South, GE,
Panasonic and Sony), several other Regional Bell brands and a host of minor
brands. The market for high performance cordless telephones, such as those
manufactured by the Company, is relatively new. The Company's major
competitors in the high performance cordless telephone market segment are
Panasonic, Uniden and Vtech. Competition in this segment is currently based
primarily on product performance, features and price. Many current or
prospective competitors serving this market are substantially larger than the
Company and possess significantly greater financial, marketing and technical
resources than the Company. There can be no assurance that the Company will be
successful against its competition in this market. The cordless telephone
market may undergo additional disruption in 1996 as market leader Lucent
Technologies (formerly AT&T) completes its reorganization. The reorganization
may have an impact on its ability, or interest, in competing in this area.
Lucent Technologies (formerly AT&T) accounted for 18% of Cincinnati Microwave's
sales in 1995.
The Company's wireless data modems have been proven fully operational on
commercial CDPD networks. The market for wireless data modems is still
developing, and there are current or prospective competitors, such as Motorola
and PCSI, a subsidiary of Cirrus Logic, who are substantially larger than the
Company and possess
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significantly greater financial and technical resources. There can be no
assurance that the Company will compete successfully in this market.
The market for radar warning detectors is highly competitive, mature and
declining. As the market has moved toward lower priced products offering fewer
features, competition has been based primarily on price and, to a lesser
degree, product quality, availability and performance. Lower than expected
demand for the Company's radar warning detectors, coupled with intense price
competition in the radar warning detector market, has adversely affected the
Company's quarterly results at various times in the past several years. A
recurrence of these conditions could have a material adverse effect on the
Company.
GOVERNMENT REGULATION
Existing, pending or future legislation prohibiting the use, possession or sale
of radar warning detectors or future legislation by states increasing speed
limits could have a material adverse effect on the Company's business.
Currently, there are two jurisdictions in the United States which have specific
prohibitions against the use, possession or sale of radar warning detectors in
automobiles. In addition, two other jurisdictions prohibit the use of radar
warning detectors in large commercial vehicles only and, in January 1994, the
Federal Highway Administration enacted a regulation banning radar warning
detectors from commercial vehicles weighing over 18,000 pounds, from buses
carrying 16 or more passengers and from trucks transporting hazardous materials
on highways funded by the Federal Government. This is, in effect, a ban on use
of such radar warning detectors in all large trucks and buses. On November 28,
1995, a federal law was enacted that eliminated the existing federal
requirement that states comply with national maximum speed limit provisions
before receiving certain federal funds. This law has resulted in higher speed
limits in some states. Industry analysts have speculated that the higher speed
limits may have an impact on the perceived need for radar detectors and
accelerate the decline in this market, which has contracted steadily since
1989.
In addition, radio communications are subject to regulation by United States
and foreign laws and international treaties. The Company's digital spread
spectrum cordless telephones and wireless data modems must conform to domestic
and international requirements established to avoid interference among users of
radio frequencies. Therefore, the Company's opportunities to introduce new
products may be limited to the extent that suitable radio frequencies are not
available.
OUTLOOK
Cincinnati Microwave is pursuing a number of initiatives to improve liquidity
and generate positive operating results; however, there can be no guarantees of
improvement. A significant component of the Company's strategy will be to
continue to exploit its skills in the development, design and mass production
of miniature, high frequency communication devices.
The Company considers improvement in liquidity to be the most significant goal
for 1996 following events in the second half of 1995, including excess
purchasing that resulted in higher than required inventories (see Management's
Discussion and Analysis), which had a substantial impact on the Company's
financial position and results of operation.
The principal elements of the Company's efforts to improve liquidity include:
reducing inventories by curtailing inflows during the first half of 1996 so
that existing raw materials and work in process can be built-out; improving the
cost structure of the Company; stepping up selling efforts to generate
increased cash flow; and, using cash flow to reduce trade debt as quickly as
possible. Concurrently, the Company is seeking to replace its existing credit
facility.
- -- Reducing inventories by curtailing inflows.
Materials management has been earmarked for substantive changes. Late in the
fourth quarter of 1995, the purchasing department was restructured under a new
manager and significant progress has been made in streamlining the materials
acquisition activities, including management of the inflow of materials as
well as a
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complete review of component pricing to identify the lowest cost solution. As
a result of the restructuring, there has been a 45% reduction in the dollar
value of outstanding purchase orders since year-end 1995 and raw material and
work in process inventories have been reduced to $9.9 million at March 25, 1996
from $12.3 million at year-end. Improving the materials management process is
expected to reduce material and component costs, which, if accomplished, would
benefit the gross margin and could contribute to improved operating results.
- -- Improve the cost structure of the Company.
Since year-end, the organizational structure has been cut back including a
reconfiguration of the factory to streamline the production process and reduce
manufacturing cycle times. Manufacturing staffing levels have been reduced
approximately 45% since year-end 1995 while factory yield performance has shown
continuous improvement.
In parallel, the Company has reduced infrastructure costs, cutting the salaried
work force by about 15% since December 1, 1995. Management believes it has
accomplished this reduction without reducing the Company's ability to serve the
market or eliminating any of the projects that are key to the Company's
long-term success.
- -- Step up selling efforts.
Sales for the first quarter of 1996 are expected to rise more than 40% over the
comparable prior period reflecting continued market acceptance of the Company's
cordless telephones and radar detectors.
The Company has also initiated a program to increase interest in the CDPD
market. In March 1996, the Company announced that certain modems would be
available at lower prices for a limited time. This announcement already has
generated increased interest in the Company's modems.
- -- Pay down trade debt and refinance bank debt.
Due to the reduced levels of available cash as a result of the increase in
inventories and accounts receivable, as well as the reduced credit facility,
accounts payable at year-end were $15.7 million vs. $8.6 million at year-end
1994. The Company is currently in communication with its key suppliers and
vendors to maintain good relationships as it seeks additional financing and
uses cash flow to make payments on the accounts payable balances. Since
year-end, the accounts payable balance has been reduced to $13.5 million at
March 25, 1996. At present, the Company estimates that suppliers and creditors
can be brought closer to normal payment terms, although there can be no
assurance that such objectives will be accomplished. Although the Company's
suppliers and creditors have generally been very supportive, the Company is
currently purchasing approximately 10% on a cash basis, which has periodically
created scheduling and downtime problems.
In addition, the Company is presently seeking to refinance its existing bank
debt to obtain, in particular, a higher credit limit, a longer term, less
restrictive covenants and lower interest rates and costs. Although there can be
no assurances that the new financing can be obtained, in March 1996, the
Company received proposals from three financial institutions at interest rates
below those currently being charged by the Bank and for amounts exceeding twice
the current facility. The Company selected The CIT Group/Credit Finance, Inc.
(CIT) to proceed with their diligence review and believes that it will be able
to complete negotiations with CIT, of an alternative comparable lender, and
receive funding in the next 30-60 days. Funding is subject to successful
completion of the due diligence process and execution of a definitive Borrowing
Agreement.
CAUTIONARY STATEMENTS
Cincinnati Microwave wishes to take advantage of the new Safe Harbor provisions
included in the Private Securities Litigation Reform Act of 1995. To that end,
except for certain historical information, the Outlook Section and the
Management's Discussion and Analysis (Item 7) contain forward looking
statements, including statements concerning the development, pricing and
introduction of new products and services, the development of customer
relationships and internal strategies to improve the Company's financial
position and results of operation. These statements involve a number of risks
and uncertainties. The Company cautions readers that any forward looking
statements made by the Company, herein and in future reports and statements are
not
8
<PAGE> 11
guarantees of future performance and that actual results may differ materially
from those in forward looking statements as a result of various factors
including, but not limited to, the following:
HISTORICAL LOSSES, VARIABILITY OF OPERATING RESULTS AND SEASONALITY
The Company has not been profitable since 1988. In 1995, the Company had a
significant loss due to a number of factors including: (a) higher than
anticipated component costs; (b) manufacturing inefficiencies in the
production of the high volume of units produced; (c) sales lost or delayed due
to delays by purchasing and engineering; (d) a weakening of the overall
consumer electronics market, which impacted fourth quarter radar detector
sales; (e) a significant increase in the provision for excess and obsolete
inventory and (f) certain other factors (see Management's Discussion and
Analysis). Specifically, during the third and fourth quarters of 1995, the
Company experienced both poor purchasing performance and engineering
design errors which were the primary origin of the poor financial performance.
In purchasing, component prices were not adequately controlled, leading to
increased product cost and reduced gross margin. Additionally, the failure to
contain the quantities ordered, based on production demand, led to a
significant buildup of component inventory, which both exerted pressure on the
Company's cash flows and, ultimately, contributed to the increase in the
provision for excess and obsolete inventory. Reacting to engineering design
errors created manufacturing inefficiencies as product was reworked to correct
the problems, which increased product cost and reduced gross margin. Further,
these design issues caused delays in meeting production schedules which
ultimately resulted in missed or delayed sales opportunities. During 1994, the
Company experienced a severe supply shortage of inductors (a critical component
of its digital spread spectrum cordless telephone) and, as a result, the
Company's factory production schedule and cost to fill customer orders were
materially and adversely affected.
The Company's future operating results may vary significantly from period to
period as a result of a number of factors, including the volume and timing of
orders received during the period, the timing of new product introductions by
the Company and its competitors, decline in demand for the Company's products,
the impact of price competition on the Company's average selling prices, the
availability and pricing of components for the Company's products, changes in
product or distribution channel mix and product returns. Many of these factors
are beyond the Company's control. The Company's failure to introduce new,
competitive products consistently and in a timely manner could adversely affect
operating results for one or more product cycles. In addition, from time to
time, a significant portion of the Company's sales are derived from a limited
number of customers, the loss of one or more of which could adversely impact
operating results.
The Company must plan production, order components and undertake its
development, sales and marketing activities and other commitments months in
advance. Accordingly, any shortfall in net sales in a given quarter may have a
disproportionately adverse impact on the Company's operating results due to an
inability to adjust expenses or inventory during the quarter to match the level
of net sales for the quarter. Excess inventory could also result in cash flow
difficulties as well as expenses associated with inventory write-offs.
The Company's business is highly seasonal with a large portion of sales
occurring during the third and, particularly, the fourth quarters. The
Company's inability to supply its products to its customers during the second
half of the year would adversely affect the Company's business and financial
condition, including working capital and results of operations. In addition,
the results of the Company's operations are subject to changes in consumer
demand associated with general economic conditions and to changes in consumer
preferences.
As a result of the foregoing, there can be no assurance that the Company will
be able to achieve profitability or that difficulties will not occur in the
future and adversely affect the Company's business and financial condition,
including working capital and results of operations. The Company's financial
statements have been prepared on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The operations of the Company in recent years have not generated
sufficient funds to meet working capital and capital expenditure needs. The
Company has funded these operating shortfalls through bank borrowings under its
credit facility, through extending vendor terms and through equity offerings.
The Company is currently working with a lending institution to refinance the
amounts under its current credit facility and to provide additional credit
availability. Management is reviewing all facets of the Company's operations
with the intent to improve its operating results and generate additional cash
flow for payment of vendor obligations through such actions as acceleration of
accounts receivable receipts and inventory reductions. The Company's ability
to continue as a going concern is dependent upon its ability to achieve a
satisfactory level of profitable operations and renew or replace its existing
credit facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMPONENT SHORTAGES AND RELIANCE ON SOLE OR LIMITED SOURCE SUPPLIERS
The Company's products include a number of high-technology components that are
available from only a few suppliers and, in several cases, a single supplier.
The Company frequently requires large volumes of such components. If the
Company's suppliers are unable to fulfill the Company's needs for such
components, the Company may be unable to fill customer orders and its business,
financial condition, including working capital, and results of operations may
be materially and adversely affected. In 1993, and again in 1994, certain of
the
9
<PAGE> 12
Company's suppliers were unable to deliver sufficient quantities of critical
components to allow the Company to manufacture its products at previously
anticipated volumes. These shortages adversely affected the Company's ability
to manufacture and deliver products and, as a result, had a significantly
adverse effect on the Company's business and financial condition, including
working capital and results of operations. Since part of the Company's
strategy is to shorten product development and introduction cycles, occasions
may arise in the future where the Company's ability to produce products
outpaces its suppliers' ability to supply components. There can be no
assurance that the Company will be able to obtain adequate supplies or obtain
such supplies at their historical cost levels. The Company has no guaranteed
supply arrangements with any of its sole or limited source suppliers, does not
maintain an extensive inventory of components, and customarily purchases sole
or limited source components pursuant to purchase orders placed from time to
time in the ordinary course of business. Moreover, the Company's suppliers
may, from time to time, experience production shortfalls or interruptions which
impair the supply of components to the Company. There can be no assurance that
such shortages will not occur in the future and adversely affect the Company's
business, financial condition, including working capital, and results of
operations.
DEPENDENCE ON RADAR WARNING DETECTORS AND RELIANCE ON NEW PRODUCTS
Historically, the Company has derived substantially all of its net sales and
all of its operating profits from radar warning detectors. Radar warning
detectors accounted for 86%, 72% and 65% of the Company's total net sales for
1993, 1994 and 1995, respectively. The radar warning detector market has
matured and is declining, and competition in this market is intense. The
Company's strategy is to reduce its dependence on radar warning detectors by
developing new products, entering new markets and utilizing its capabilities in
the design and mass production of ultrahigh frequency and microwave wireless
communications products. However, there can be no assurance that the Company's
strategy will be successful.
The Company has developed and introduced two additional product lines: digital
spread spectrum cordless telephones with enhanced range, clarity and security
compared to traditional cordless telephones and a line of wireless data modems
to transmit data over CDPD networks. The Company believes that its digital
spread spectrum cordless telephones are vital to its future success. To date,
the Company' s digital spread spectrum cordless telephone product line has not
been profitable, and the Company believes that future profits, if any, will
depend on its ability to reduce component pricing to a level substantially
below the level obtained in 1995. The commercial success of the Company's
digital spread spectrum cordless telephone products is dependent upon strategic
relationships with key OEM customers. Certain of these customers currently
possess, or may acquire, the capability to develop, design and manufacture
their own digital spread spectrum cordless telephone products.
Moreover, the success of the wireless data modems is dependent upon the
development, deployment and commercial success of CDPD networks. A consortium
of cellular service providers is presently building CDPD networks to provide
wireless data transfer service, but there can be no assurance that the networks
will be deployed nationally and, if so deployed, that they will be successful.
To date, the Company has sold only a limited number of its wireless data modem
units. There can be no assurance that the Company will be successful in
identifying, developing, manufacturing and marketing new products, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products, or that
its new products and product enhancements will adequately meet the requirements
of the marketplace and achieve market acceptance.
CUSTOMER CONCENTRATION
As the Company's sales mix continues to shift from direct retail business to
OEM and reseller business, the Company expects that sales to certain of its OEM
and reseller customers will account for a material percentage of its net sales
in the foreseeable future and believes that its financial results will depend
in significant part upon the success of these customers, as well as the
Company's business with these customers. Although the composition of the group
comprising the Company's important customers may vary from period to period,
the loss of a significant customer or any reduction in orders by any
significant customer may have a material adverse affect on the Company's
business and financial condition, including working capital and results of
operations. The Company's ability to increase its sales in the future will
depend in part upon its ability to obtain
10
<PAGE> 13
orders from new customers as well as the financial condition and success of its
customers and the general economy, of which there can be no assurance.
SHORT PRODUCT LIFE CYCLES
The market for the Company's products is characterized by frequent new product
introductions and rapid product obsolescence. These factors typically result
in short product life cycles. The Company must continually monitor industry
trends and choose new technologies and features to incorporate into its
products. Each new product cycle presents opportunities for current or
prospective competitors of the Company to gain market share. Life cycles of
individual products are typically characterized by steep declines in sales,
pricing and margins toward the end of a product's life, the precise timing of
which may be difficult to predict. As new products are planned and introduced,
the Company attempts to monitor closely the inventory of older products and to
phase out their production in a controlled manner. However, poor purchasing
planning and engineering redesign practices have given rise to charges for
obsolete or excess inventory (see Management's Discussion and Analysis). To
the extent that the Company is unsuccessful in managing product transitions,
its business and financial condition, including working capital and results of
operations, could be materially and adversely affected.
GOVERNMENT REGULATION
Existing, pending or future legislation prohibiting the use, possession or sale
of radar warning detectors or future legislation by states increasing speed
limits could have a material adverse effect on the Company's business.
Currently, there are two jurisdictions in the United States which have specific
prohibitions against the use, possession or sale of radar warning detectors in
automobiles. In addition, two other jurisdictions prohibit the use of radar
warning detectors in large commercial vehicles only and, in January 1994, the
Federal Highway Administration enacted a regulation banning radar warning
detectors from commercial vehicles weighing over 18,000 pounds, from buses
carrying 16 or more passengers and from trucks transporting hazardous materials
on highways funded by the Federal Government. This is, in effect, a ban on use
of such radar warning detectors in all large trucks and buses. Additionally,
on November 28, 1995, a federal law was enacted that eliminated the existing
federal requirement that states comply with national maximum speed limit
provisions before receiving certain federal funds. This law has resulted in
higher speed limits in some states, and therefore, a reduction in the perceived
need for radar warning detectors.
COMPETITION
All markets in which the Company participates are highly competitive, and many
current or prospective competitors, including several of the Company's
significant OEM customers, are substantially larger and possess significantly
greater financial, marketing and technical resources than the Company. The
market for high performance cordless telephones, such as those manufactured by
the Company, is relatively new. Competition in this segment currently is based
primarily on product performance, features and price. The market for wireless
data modems is still developing, and there are current or prospective
competitors who are substantially larger than the Company and possess
significantly greater financial, marketing and technical resources. There can
be no assurance that the Company will be able to compete successfully in either
of these markets.
The market for radar warning detectors is highly competitive, mature and is
declining. As the market has moved toward lower priced products, competition
has been based primarily on price and, to a lesser degree, product quality,
availability and performance. Lower than expected demand for the Company's
radar warning detectors, coupled with intense price competition in the radar
warning detector market, periodically has an adverse affect on the Company's
results. Frequent recurrence of these conditions would have a material adverse
effect on the business, financial condition, including working capital, and
results of operations of the Company.
INTELLECTUAL PROPERTY
Although the Company has protected its technologies and products by patent,
copyright, trademark and trade secret laws to the extent that it believes
necessary, the Company's intellectual property rights may be subject to
infringement. There can be no assurance that the Company's measures to protect
its proprietary rights will deter or prevent unauthorized use of the Company's
technology. Furthermore, the laws of certain countries
11
<PAGE> 14
may not protect the Company's proprietary rights to the same extent as do the
laws of the United States. In addition, the Company may, from time to time,
become subject to legal claims asserting that the Company has violated
intellectual property rights of third parties. In the event a third party were
to sustain a valid claim against the Company and in the event any required
license was not available on commercially reasonable terms, the Company's
business and financial condition, including working capital and results of
operations, could be materially and adversely affected. Litigation, which
could result in substantial costs to and diversion of resources of the Company,
may also be necessary to enforce intellectual property rights of the Company or
to defend the Company against claimed infringement of the rights of others.
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Shares is subject to wide
fluctuations in response to the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
general conditions in the market, changes in earnings estimates by analysts,
failure to meet the revenues or earnings estimates of analysts or other events
or factors. The public stock markets have experienced price and trading volume
volatility in recent months. This volatility has significantly affected the
market prices of securities of many high technology companies for reasons
frequently unrelated to the operating performance of the specific companies.
The market price for the Company's Common Shares has been highly volatile.
Future announcements concerning the Company or its competition, including the
results of technological innovations, new commercial products, government
regulations, developments concerning proprietary rights, component shortages,
litigation or public concern with respect to the Company or its products and
other factors including those described above, may have a significant impact on
the market price of the Common Shares. See "Price Range of Common Shares."
LEGAL PROCEEDINGS
Four shareholder lawsuits were filed against the Company in October and
November 1995. On January 9, 1996, these lawsuits were consolidated, and, on
February 23, 1996, the plaintiffs filed an Amended Complaint asserting claims,
allegedly on behalf of all purchasers of the Company's common shares on the
open market between July 12, 1995 and October 13, 1995, and who suffered
damages, and on behalf of all persons who purchased the Company's common shares
from the defendants pursuant or traceable to an August 24, 1995 public offering
of 4,600,000 common shares between August 24, 1995 and October 13, 1995, and
who suffered damage as a result. Plaintiffs purport to assert claims against
the Company and other defendants for violations of various provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and for
violations of the common law of negligent misrepresentation and fraud. The
Company is presently evaluating the allegations contained in this lawsuit and
intends to vigorously defend itself. The failure to achieve a favorable
resolution of this lawsuit could materially adversely affect the Company's
business and financial condition, including working capital, and results of
operations.
CREDIT FACILITY
At year-end 1995, the Company had borrowed $6.9 million (term loan balance of
$2.4 million and $4.5 million on the revolving credit facility) against its
credit facility due June 30, 1996. The $7.5 million credit facility consisted
of (i) the term loan, (ii) a $5.0 million revolving credit facility and (iii) a
standby letter of credit facility not to exceed $1.0 million; however, the sum
of the outstanding principal balance of the revolving credit and the aggregate
amount of the Company's outstanding letters of credit shall not exceed $5.0
million at any time. The credit facility is secured by a first lien on the
Company's inventory, receivables, equipment and a mortgage on the real estate
of the Company.
At year-end, the Company was in violation of certain covenants of the borrowing
agreement triggered by the net loss incurred for the fourth quarter and total
year 1995, which resulted in financial statement ratios falling below the
requirements of the borrowing agreement. The Company remained current on all
required payments to the lender throughout 1995 and has remained current in
1996. The lending institution waived similar violations for the third quarter;
however, as a result of the anticipated net loss for the fourth quarter and
therefore full year 1995, the Bank notified the Company on January 2, 1996 of a
default on the covenants and further reduced the
12
<PAGE> 15
revolving credit facility to $3.0 million.
On February 28, 1996, the Bank notified the Company that it had elected to
further reduce the revolving credit facility to $2.5 million effective March
31, 1996 and increase the interest rate charged to the default rate of
interest, as stipulated in the borrowing agreement, retroactively from February
1, 1996 to prime plus 5.0% from prime plus 2.0%.
Since year end, the Bank has elected to continue to make advances to the
Company under the reduced credit facility, notwithstanding the "Event of
Default" under the borrowing agreement. The reduction in the revolving credit
facility, however, caused the Company to have less cash than previously
anticipated and heightened the Company's need to manage cash balances very
carefully, particularly in light of the higher than normal inventory levels and
slowdown in year-end sales. There can be no assurances that the Bank's
election will continue because the Bank has not waived the default and has
reserved all of its rights and remedies under the borrowing agreement, related
loan documents and applicable law which include, but are not limited to
demanding immediate payment of all outstanding balances owed to the Bank.
The Company continues to work with the Bank and has informed the Bank of its
efforts and progress in pursuing an alternative financing institution to
replace the Bank.
The Company is presently seeking to replace the existing Credit Facility and is
currently in negotiations with the CIT Group/Credit Finance, Inc. (CIT)
regarding a replacement facility (see Management's Discussion and Analysis).
There can be no assurances, however, that the Company will be able to obtain
replacement financing from CIT or any other lender under terms acceptable to
the Company or that such financing will be sufficient to meet the Company's
short or long-term financing needs.
EMPLOYEES
As of December 31, 1995, the Company had approximately 527 employees: 70
employees in research and development, 320 employees in manufacturing, 91
employees in sales and marketing and 46 employees in administration.
13
<PAGE> 16
ITEM 2. PROPERTIES
Cincinnati Microwave's manufacturing and research facilities and executive
offices are located on 13 acres of land near the intersection of Fields-Ertel
Road and I-71, approximately twenty miles north of Cincinnati, Ohio. The
building at One Microwave Plaza, built in 1982 and expanded in 1986, is a
modern 172,000 square foot, one-story building. The structure houses the
executive offices, general operations and the manufacturing facilities of the
Company.
During 1993, the Company sold 4.3 acres of land adjacent to its facilities.
Proceeds of $900,000 were received and a gain of $741,000 was recorded in the
fourth quarter. During 1994, the Company sold an additional 7.7 acres of land
adjacent to its facilities that was held for sale. Proceeds of $820,000 were
received and a gain of $657,000 was recorded in the first quarter of 1994.
The Company owns substantially all of the equipment associated with its
manufacturing, research and testing operations. The Company has acquired
certain equipment through leasing arrangements. All equipment is modern, in
good operating condition and well-maintained and is currently used as
collateral for the line of credit with the current lender.
14
<PAGE> 17
ITEM 3. LEGAL PROCEEDINGS
Four shareholder lawsuits were filed against the Company in October and
November 1995. On January 9, 1996, these lawsuits were consolidated, and, on
February 23, 1996, the plaintiffs filed an Amended Complaint asserting claims,
allegedly on behalf of all purchasers of the Company's common shares on the
open market between July 12, 1995 and October 13, 1995, and who suffered
damages, and on behalf of all persons who purchased the Company's common shares
from the defendants pursuant or traceable to an August 24, 1995 public offering
of 4,600,000 common shares between August 24, 1995 and October 13, 1995, and
who suffered damage as a result. Plaintiffs purport to assert claims against
the Company and other defendants for violations of various provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and for
violations of the common law of negligent misrepresentation and fraud. The
Company is presently evaluating the allegations contained in this lawsuit and
intends to vigorously defend itself. The failure to achieve a favorable
resolution of this lawsuit could materially adversely affect the Company's
business and financial condition, including working capital, and results of
operations.
15
<PAGE> 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters which are required to be disclosed under this Item 4 were submitted
to a vote of the Company's security holders during the three months ended
December 31, 1995.
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<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
The information relating to the market and market prices of the Company's
common shares required by this item is contained on page S-16.
As of February 29, 1996, there were approximately 1,143 holders of record of
15,746,125 outstanding common shares of the Company.
17
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
The following selected Balance Sheet data at December 31, 1995, December 25,
1994, December 26, 1993, December 27, 1992 and December 29, 1991 and Statement
of Operations data for the years then ended have been derived from the
Financial Statements of the Company. The financial data set forth below should
be read in conjunction with the Company's Financial Statements and notes
thereto and Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations:
<TABLE>
<CAPTION>
============================================================================================================================
Dec. 31, Dec. 25, Dec. 26, Dec. 27, Dec. 29,
(Amounts in thousands except per share data) 1995 1994 1993 1992 1991(1)
============================================================================================================================
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $79,199 $64,708 $58,461 $51,339 $48,292
Cost of sales 67,061 50,359 39,778 37,819 33,163
--------------------------------------------------------
Gross profit 12,138 14,349 18,683 13,520 15,129
Research & development, selling, administrative and other, net 26,610 24,609 19,967 22,278 21,761
--------------------------------------------------------
Loss from continuing operations before income taxes (14,472) (10,260) (1,284) (8,758) (6,632)
Income tax benefit (1,438) 0 0 0 (725)
--------------------------------------------------------
Loss from continuing operations (13,034) (10,260) (1,284) (8,758) (5,907)
Discontinued operations 0 0 0 1,449 (2,914)
--------------------------------------------------------
Loss before extraordinary item (13,034) (10,260) (1,284) (7,309) (8,821)
Realization of net operating loss carry forward 0 0 0 869 0
--------------------------------------------------------
Net loss $(13,034) $(10,260) $(1,284) $(6,440) $(8,821)
========================================================
Earnings (net loss) per share:
Continuing operations $(0.90) $(0.94) $(0.12) $(0.80) $(0.57)
Discontinued operations 0.00 0.00 0.00 0.13 (0.28)
Realization of net operating loss carry forward 0.00 0.00 0.00 0.08 0.00
--------------------------------------------------------
Net loss $(0.90) $(0.94) $(0.12) $(0.59) $(0.85)
========================================================
Weighted average number of shares outstanding 14,539 10,880 10,691 10,919 10,355
BALANCE SHEET DATA:
Working capital $8,368 $(1,701) $(254) $(2,483) $1,957
Total assets 54,196 32,839 32,418 42,512 38,247
Long-term obligations 753 8,841 418 0 0
Shareholders' equity 24,378 6,902 16,830 17,641 23,368
<FN>
1. In 1991, the Company changed its reporting period to a fiscal year ending
the last Sunday in the calendar year. In addition, pretax restructuring
and impairment charges of approximately $6,900 were recorded in March
1991.
</TABLE>
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<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Cincinnati Microwave designs, manufactures and markets ultrahigh frequency and
microwave wireless communications products. The Company's product lines
includes radar warning devices, digital spread spectrum cordless telephones and
wireless data modems for use on the Cellular Digital Packet Data (CDPD)
network. The Company's products combine its experience in ultrahigh frequency
and microwave wireless technology, including digital signal processing, with
its high volume manufacturing capabilities.
The Company markets its products both under the ESCORT(R) brand name through
direct advertising and as an Original Equipment Manufacturer (OEM) supplier.
The Company's strategy for entering new markets is to align with companies that
have established sales leadership and market positions. This strategy is
designed to provide broader access to the end user. The Company produces
digital spread spectrum telephones for several leading marketers of consumer
telephones.
The following is a discussion and analysis of the financial condition and
results of operation of Cincinnati Microwave. The discussion and analysis
should be read in connection with the financial statements and the related
notes thereto of Cincinnati Microwave as of December 31, 1995 and December 25,
1994 and for each of the years in the three year period ended December 31, 1995
(the "Financial Statements").
RESULTS OF OPERATIONS
The following table sets forth certain operational data of the Company
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
For The Year Ended: Dec. 31, Dec. 25, Dec. 26,
1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.00% 100.00% 100.00%
Cost of sales 84.7% 77.8% 68.0%
-----------------------------------
Gross Profit 15.3% 22.2% 32.0%
Research & development 9.4% 13.1% 13.9%
Selling 16.4% 19.6% 17.8%
Administrative 6.3% 5.0% 5.6%
-----------------------------------
Total operating expenses 32.1% 37.7% 37.3%
-----------------------------------
Operating loss (16.8%) (15.5%) (5.3%)
- --------------------------------------------------------------------
</TABLE>
The following table shows net sales by product line for the Company, for the
periods indicated (in thousands and as a percentage of total net sales):
<TABLE>
<CAPTION>
1995 1994 1993
======================================================================
<S> <C> <C> <C> <C> <C> <C>
PRODUCT LINE $$ % $$ % $$ %
Radar Detectors $51,484 65 $46,602 72 $50,125 86
Cordless Telephones 26,602 34 14,060 22 2,705 4
Other 1,113 1 4,046 6 5,631 10
-------------------------------------------
Total $79,199 100 $64,708 100 $58,461 100
======================================================================
</TABLE>
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<PAGE> 22
1995 AS COMPARED WITH 1994
The Company has not been profitable since 1988. In 1995, the Company had a
significant loss due to a number of factors including: (a) higher than
anticipated component costs; (b) manufacturing inefficiencies in the production
of the high volume of units produced; (c) sales lost or delayed due to delays by
purchasing and engineering; (d) a weakening of the overall consumer electronics
market, which impacted fourth quarter radar detector sales; (e) a significant
increase in the provision for excess and obsolete inventory and (f) certain
other factors. Specifically, during the third and fourth quarters of 1995, the
Company experienced both poor purchasing performace and engineering design
errors which were the primary origin of the poor financial performance. In
purchasing, component prices were not adequately controlled, leading to
increased product cost and reduced gross margin. Additionally, the failure to
contain the quantities ordered, based on production demand, led to a significant
buildup of component inventory, which both exerted pressure on the Company's
cash flows and, ultimately, contributed to the increase in the provision for
excess and obsolete inventory. Reacting to engineering design errors created
manufacturing inefficiencies as product was reworked to correct the problems,
which increased product cost and reduced gross margin. Further, these design
issues caused delays in meeting production schedules which ultimately resulted
in missed or delayed sales opportunities.
NET SALES
Cincinnati Microwave's net sales for 1995 were up 22% over 1994. Sales of the
Company's products to OEMs and resellers rose to 57% of net sales from 46% in
1994, reflecting a planned shift in the business to reduce dependence on direct
retail sales. Eight OEM and reseller customers accounted for $40 million, or
88%, of the sales through these channels, including Lucent Technologies
(formerly AT&T), which represented 18% of net net sales for the year.
For the year, net sales for the Company's radar detectors rose 10% on a 27%
rise in unit volume over 1994, reflecting continued strong market acceptance of
the Company's products and the growth of the OEM and reseller channels. The 13%
decline in the average unit price reflected the growing significance of major
customers, who generally receive volume discounts. The Company's fourth
quarter detector net sales were lower than the third quarter of this year as
well as the comparable prior period for several reasons. First, OEM and
reseller customers tend to make the majority of their purchases earlier in the
fall/holiday selling season than do retail customers. Additionally, the timing
of 1995 radar detector sales was impacted by the relatively earlier
introduction of new products when compared with 1994. Finally, weakness in the
overall consumer electronics market as well as the radar detector market
impacted sales of the Company's Escort brand detectors.
Net sales for the Company's cordless telephones with SureLink(TM) technology
rose 89% in 1995 compared with 1994. Unit volume jumped 141%, partially
offsetting the 22% decline in the average unit price due to the significantly
greater percentage of OEM/reseller sales and the Company's strategy to reduce
the selling prices of its cordless telephones to enhance market penetration.
Sales of cordless telephones, while strong, were slightly below the levels
anticipated by management primarily because of factors that impacted sales late
in the fourth quarter. Fourth quarter sales grew only 52%, the smallest gain of
the year. Factors that impacted results late in the fourth quarter included the
delay of a large order which has since been shipped. This delay was due to the
Company's inability to complete production of a specific cordless telephone
model due to delays in purchasing and engineering. Additionally, an OEM
customer postponed a large order, scheduled for the second half of December.
Other sales for 1995, which includes sales of the Company's cellular digital
packet data (CDPD) modems, were down significantly versus 1994 due to the
discontinuation of contract sales to BI, Inc. of the Company's home arrest
product line in the first quarter of 1995. Modem sales were insignificant in
both years.
GROSS MARGIN
The Company's gross profit margin was 15.3% in 1995 vs. 22.2% in 1994,
reflecting a rise in cost of goods sold and the adverse impact of the
continued, planned shift in the sales mix from higher margin direct retail
business to OEM and reseller business.
20
<PAGE> 23
Factors that contributed to the rise in the cost of goods sold included poor
purchasing and material management practices that kept the Company from
achieving the cost reductions necessary to reach specific margin targets.
These targets were established in conjunction with the planned reduction in
selling prices of the Company's consumer electronic products to maintain their
competitive position.
The decline also was due to unanticipated material and manufacturing costs
incurred by the Company in the third quarter and continuing into the fourth
quarter, in order to maintain product quality and timely production and to meet
commitments to customers. To correct a design difficulty with a key component
(battery charge contacts) in certain of its new cordless telephone models, the
Company was required to spend more than expected to customize replacement
parts, to obtain additional parts and to run the production lines at less than
optimum capacity. In addition, as a result of a vendor's production error and,
separately, a product design error relating to preprogrammed integrated
circuits, the Company incurred additional costs to obtain one-time programmable
integrated circuits to use in place of the preprogrammed integrated circuits
and to redesign its cordless telephone and radar detector models to use these
programmable circuits.
In the fourth quarter, the Company undertook a review of all inventory and
purchasing functions. Generally, it was determined that the Company was
overpaying for components and frequently ordering quantities in excess of the
sales plan, which contributed to the rise in cost of goods sold. As a result
of this review, the Company appointed a new manager of purchasing to oversee a
complete restructuring of the department and increased the fourth quarter
provision for excess and obsolete inventory by $3.2 million over the prior
year, which increased cost of goods sold. Included in the provision was a $1.7
million write-down of previously purchased and/or noncancelable orders of
components for earlier-generation CDPD modems and a write-down totalling $1.3
million of the remaining inventory of earlier-generation cordless telephones.
The modems to be built with the components on-hand and the earlier-generation
cordless telephones will be marketable in the U.S. or internationally at the
new cost levels.
In addition to its efforts to improve its purchasing function and inventory
management, since year-end, the Company has restructured manufacturing,
including a reconfiguration of the factory to streamline the production process
and reduce manufacturing cycle times. Manufacturing staffing levels have been
reduced approximately 45% since year-end 1995 while factory yield performance
has shown continuous improvement.
OPERATING EXPENSES
Although operating expenses for 1995 decreased to 32.1% of net sales from 37.7%
in the comparable prior period, the total increased by $1.0 million (4%)
reflecting a $1.7 million rise in administrative expense and a $0.3 million
increase in selling expenses offset by a $1.0 million decline in research and
development expense. The 12% decrease in research and development expense
reflected the lower development requirements, which permitted staff reductions,
for the radar detector, cordless telephone and CDPD modem models introduced in
1995.
Selling expenses were up only 3% for the full year, reflecting a benefit of the
Company's shift to OEM/reseller business, which requires proportionately less
selling effort. To support the retail sales effort, however, the Company
initiated substantial advertising in the fourth quarter to stimulate Escort
sales. In comparison to a very low level of advertising in 1994's fourth
quarter, selling expenses in the fourth quarter of 1995 rose 33%.
Administrative expenses for the year were up $1.7 million, or 53%,
predominantly due to a rise in legal and professional expenses, a change in the
method of allocating certain benefit-related expenses between cost of sales,
administrative, selling, and research and development expenses and higher
staffing levels. In light of results for the second half of 1995, the Company
reevaluated the required staffing levels and has reduced head count of salaried
employees by approximately 15% since December 1, 1995.
Net interest expense for the year rose to $1.2 million vs. $.7 million due to
higher average outstanding balances on the Company's revolving credit facility
caused primarily by the build up of inventory during 1995. During the year,
the Company recorded a nonoperating gain of $1.4 million reflecting the release
of certain tax reserves to income as a result of the closure of the Company's
1991 Federal tax return. The 1994 results included a nonoperating gain of
$657,000 from the sale of land.
21
<PAGE> 24
1994 AS COMPARED WITH 1993
Cincinnati Microwave's net sales of $64.7 million for 1994 were 10.7% higher
than 1993 sales. This increase was due entirely to sales of the spread
spectrum cordless telephone product line, offsetting the 7% decline in the
detector product line. The telephone was introduced during the second quarter
of 1993 and had modest sales in 1993. The decline in the radar detector net
sales was due to the market contraction for these products and lower pricing.
The Company's CDPD modem sales for 1994 were insignificant. Testing of the
CDPD system continued with end-users testing the system for its compatibility
with their business applications. The Company's modem has been tested for
various industrial and commercial CDPD applications.
The Company's gross profit decreased to 22.2% in 1994 from 32.0% in 1993. This
decline was caused by two significant factors. During 1994, the Company
experienced significant component delivery problems relating to the spread
spectrum telephone product line. This impacted the factory production schedule
and increased the cost to fill customer orders. For much of the fourth
quarter, the Company operated its telephone production line in a stop and start
mode as and when parts became available in order to expedite deliveries to its
customers. Secondly, the market size and demand for detectors declined causing
several competing radar detector manufacturers to initiate price reductions
during 1994. In an attempt to maintain its market position, the Company
reacted to these developments by introducing a major sales promotional program
for its retail customers for the month of December. The reduced volume
resulting from the market decline and the pricing action contributed to the
gross profit decline.
Research and development expenses increased $332,000 from 1993. The Company
continued to focus its efforts on new product development and product
improvements. Selling expenses increased $2.3 million from 1993 primarily in
the area of advertising. This increase resulted from the Company's program of
introducing spread spectrum telephone information to potential consumers in an
effort to expand its potential customer base. Administrative expenses did not
fluctuate significantly from the prior year.
QUARTERLY RESULTS OF OPERATIONS
The following table shows quarterly results for 1995 and 1994 (in thousands
except for per share data):
<TABLE>
<CAPTION>
==============================================================================
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
==============================================================================
<S> <C> <C> <C> <C> <C>
1995
Net sales $13,648 $19,017 $22,117 $24,417 $79,199
Gross profit 4,091 5,148 3,726 (827) 12,138
Net loss (582) (783) (2,637) (9,032) (13,034)
Net loss per share (0.04) (0.06) (0.18) (0.58) (0.90)
1994
Net sales $12,350 $13,692 $15,299 $23,367 $64,708
Gross profit 4,025 4,509 2,987 2,828 14,349
Net loss (567) (1,757) (3,995) (3,941) (10,260)
Net loss per share (0.05) (0.16) (0.37) (0.36) (0.94)
==============================================================================
<FN>
Quarterly earnings per share calculations are based on the weighted average
number of shares outstanding for the three month period then ended. Annual
earnings per share calculations are based on weighted average number of shares
outstanding for the twelve month period then ended. Due to fluctuations in the
weighted average number of shares outstanding, the sum of the earnings per
share calculations for each quarter will not necessarily equal the calculated
earnings per share for the twelve month period. First quarter 1995 includes 14
weeks as compared to 13 weeks for the comparable period in 1994. Total year
1995 includes 53 weeks as compared to 52 weeks for the comparable period in
1994.
</TABLE>
22
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 1995, the Company completed a rights offering of
1,482,435 units for $7 per unit; each unit consisted of two Common Shares and
one warrant entitling the holder to purchase one additional Common Share for
$4. The rights offering generated net proceeds of $9.3 million. During 1995,
408,822 warrants were exercised. At December 31, 1995, the Company had
1,073,613 outstanding warrants which expire on December 31, 1998. The proceeds
from the rights offering were used to reduce debt and to increase working
capital.
During the third quarter of 1995, the Company completed an equity offering that
generated $19.1 million in net proceeds. The funds were used to pay off the
then existing revolving credit line and to fund the growth in working capital
that occurred during the third and fourth quarters of 1995, including expenses
associated with a planned increase in production to support higher sales for
the third and fourth quarters. In addition, during 1995 the Company incurred
$483,000 of capital lease obligations and utilized $4.0 million of cash flow
for capital expenditures for additional production equipment.
The primary contributors to the $10.0 million increase in working capital
between year-end 1994 and year-end 1995 were a $5.8 million (113%) rise in
accounts receivable, a $16.2 million (177%) increase in inventories offset by a
$7.1 (82%) million increase in accounts payable and a shift to current
liabilities of the entire $6.9 million outstanding balance on the Company's
credit facility at December 31, 1995.
The increase in accounts receivable to $10.9 million at the end of 1995
reflected the upward sales trend of cordless telephones during 1995, with 74%
of total year unit volume of cordless telephones shipped in the last four
months of the year. OEMs and resellers, for which typical credit terms (e.g.,
payment within 30 to 45 days after delivery) are made available on their large
volume orders, represented a significantly larger proportion of sales in 1995
versus 1994. Retail customers generally have paid for their purchase at the
time it was shipped or delivered.
The $16.2 million increase in inventories between year end 1994 and year-end
1995 was driven by a $4.0 million rise in raw materials and work in process and
a $14.9 million increase in finished goods inventory, offset in part by a $2.7
million increase in the inventory valuation reserve. Poor purchasing practices
were the primary reason for the excess inventory and the previously mentioned
delay in certain sales.
Reflecting the emphasis being placed on improving the purchasing function, raw
material and work in process inventory has been reduced since year-end to
approximately $9.9 million at March 25, 1996 from $12.3 million at year-end.
The $17.4 million in finished goods inventory at year-end, which has since been
reduced to $15.0 million at March 25, 1996, was impacted by the lower than
anticipated sales in December.
At year-end 1995, the Company had borrowed $6.9 million (term loan balance of
$2.4 million and $4.5 million on the revolving credit facility) against its
credit facility due June 30, 1996. The $7.5 million credit facility consisted
of (i) the term loan, (ii) a $5.0 million revolving credit facility and (iii) a
standby letter of credit facility not to exceed $1.0 million; however, the sum
of the outstanding principal balance of the revolving credit and the aggregate
amount of the Company's outstanding letters of credit shall not exceed $5.0
million at any time. The credit facility is secured by a first lien on the
Company's inventory, receivables, equipment and a mortgage on the real estate
of the Company.
At year-end, the Company was in violation of certain covenants of the borrowing
agreement triggered by the net loss incurred for the fourth quarter and total
year 1995, which resulted in financial statement ratios falling below the
requirements of the borrowing agreement. The Company remained current on all
required payments to the lender throughout 1995 and has remained current in
1996. The lending institution waived similar violations for the third quarter;
however, as a result of the anticipated net loss for the fourth quarter and
therefore for the full year 1995, the Bank notified the Company on January 2,
1996 of a default on the covenants and further reduced the revolving credit
facility to $3.0 million.
23
<PAGE> 26
On February 28, 1996, the Bank notified the Company on that it had elected to
further reduce the revolving credit facility to $2.5 million effective March
31, 1996 and increase the interest rate charged to the default rate of
interest, as stipulated in the borrowing agreement, retroactively from February
1, 1996 to prime plus 5.0% from prime plus 2% for the revolving credit facility
and to prime plus 5.25% from prime plus 2 1/4% on the term loan.
Since year end, the Bank has elected to continue to make advances to the
Company under the reduced credit facility, notwithstanding the "Event of
Default" under the Borrowing Agreement. The reductions in the revolving credit
facility, however, caused the Company to have less cash than previously
anticipated and heightened the Company's need to manage cash balances very
carefully, particularly in light of the higher than normal inventory levels and
slowdown in year-end sales. There can be no assurances that the Bank's
election will continue because the Bank has not waived the default and has
reserved all of its rights and remedies under the Borrowing Agreement, related
loan documents and applicable law which include, but are not limited, to
demanding immediate payment of all outstanding balances owed to the Bank.
The Company continues to work with the Bank and has informed the Bank of its
efforts and progress in pursuing an alternative financing institution to
replace the Bank.
Due to the reduced levels of available cash as a result of the increase in
inventories and accounts receivable, as well as the reduced credit facility,
accounts payable at year-end were $15.7 million vs. $8.6 million at year-end
1994. The Company is currently in communication with its key suppliers and
vendors to maintain good relationships as it seeks additional financing and
uses cash flow to make payments on the accounts payable balances. Since
year-end, the accounts payable balance has been reduced to $13.5 million at
March 25, 1996. At present, the Company estimates that suppliers and creditors
can be brought closer to normal payment terms, although there can be no
assurance that such objectives will be accomplished. Although the Company's
suppliers and creditors have generally been very supportive, the Company is
currently purchasing approximately 10% of its material requirements on a cash
basis, which has periodically created scheduling and downtime problems.
The Company is presently seeking to refinance its existing bank debt to obtain,
in particular, a higher credit limit, a longer term, less restrictive covenants
and lower interest rates and costs. Although there can be no assurances that the
new financing can be obtained, in March 1996, the Company received proposals
from three financial institutions at interest rates below those currently being
charged by the Bank and for amounts exceeding twice the current facility. The
Company selected The CIT Group/Credit Finance, Inc. (CIT) to proceed with their
due diligence review and believes that it will be able to complete
negotiations with CIT, or an alternative comparable lender, and receive funding
in the next 30-60 days. Funding is subject to successful completion of the due
diligence process and execution of a definitive Borrowing Agreement.
The credit facility is not expected to be subject to financial covenants.
Proceeds from the new credit facility will be used to pay off the existing
credit facility with the Bank and will be used going forward to fund working
capital requirements, including the reduction of accounts payable. The agreement
will be secured by substantially all of the Company's assets.
At year-end, shareholders' equity was $24.4 million and the ratio of
debt-to-equity was 1.33 versus equity of $6.9 million and a debt-to-equity
ratio of 6.41 at December 25, 1994. The Company believes that its working
capital and refinanced credit facilities, along with cash generated from
operations, will be sufficient to fund its operations for the foreseeable
future.
24
<PAGE> 27
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of," which is required
to be adopted by 1996. The implementation of this Statement is not anticipated
to have a material impact on the Company's financial statements.
The provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," will
be effective for the Company in 1996. This standard requires that stock-based
compensation either continue to be determined under Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," or in
accordance with the provisions of SFAS No. 123 whereby compensation expense is
recognized based on the fair value of stock-based awards on the grant date.
The Company currently expects to continue to account for such awards under the
provisions of APB No. 25. Although SFAS No. 123 will require additional
disclosures beginning in 1996, management believes the impact of SFAS No. 123
will not be material to the Company's financial statements.
25
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
----
- -----------------------------------------------------------------
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Accountants S-1
Balance Sheet at December 31, 1995 and
December 25, 1994 S-2
Statement of Operations for each of the three years
ended December 31, 1995 S-3
Statement of Cash Flows for each of the three years
ended December 31, 1995 S-4
Statement of Shareholders' Equity for each of the
three years ended December 31, 1995 S-5
Notes to Financial Statements S-6 - S-15
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Account for the
three years ended December 31, 1995 S-17
All other supplemental schedules are omitted because they are not applicable
or the required information is shown in the Company's Financial Statements or
Notes thereunto.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
26
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the directors and executive officers of the
Company as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James L. Jaeger 48 Chairman of the Board
Jacques A. Robinson 48 President, Chief Executive Officer, Chief
Operating Officer and Director
Charles M. Fullgraf 77 Director
Joseph M. O'Donnell 49 Director
Gilbert L. Wachsman 48 Director
Erika Williams 48 Director
R. Gregory Blair 49 Vice President/Product Management
Robert J. Brockman* 50 Vice President/Commercial Products
Marketing and Sales
Anita L. Hromish 41 Vice President/Chief Information Officer
Walter P. Masavage 60 Vice President/Controller, Treasurer and
Corporate Secretary
Thomas H. Perszyk 48 Vice President/Engineering
Craig V. Wolf 47 Vice President/Chief Financial Officer
</TABLE>
The Board of Directors are elected annually by the shareholders at the
Company's annual meeting. Officers are elected annually by the Board of
Directors and are removable at the discretion of the Board of Directors.
James L. Jaeger is a founder of the Company. In May 1985, he was elected
Chairman of the Board. He also served as Chief Executive Officer of the
Company from June 1983 until June 1988 and from January 1990 through April 22,
1991. He has been a Director of the Company since 1976. Mr. Jaeger spends
substantially all of his time in activities outside of the Company.
Jacques A. Robinson has been President and Chief Executive Officer of the
Company since April 23, 1991, Chief Operating Officer of the Company since
December 1, 1995, and President of The Scotcrest Group since its incorporation
in 1989. From July 1987 through February 1991, Mr. Robinson served as
President of Carillon Technology, Inc. (a California company that manufactured
consumer audio technology products). From 1979 through June 1987, Mr. Robinson
held various positions with the General Electric Company, his most recent
position was Vice President and General Manager of the Consumer Electronics
Business Operations. He has been a Director of the Company since 1991.
27
<PAGE> 30
Charles M. Fullgraf retired from The Procter & Gamble Company ("P&G") (a
diversified manufacturer of household and industrial products headquartered in
Cincinnati, Ohio) in 1982 after a 42-year career serving P&G in various
management positions. From 1978 to 1982, Mr. Fullgraf was a Group Vice
President of P&G and served on its Board of Directors. He also served as
trustee of the P&G Profit Sharing Trust. He has been a Director of the Company
since 1985.
Joseph M. O'Donnell has served as President, Chief Executive Officer and
Director of Computer Products, Inc. (a manufacturer of electronic products and
subsystems) since July 1994. Mr. O'Donnell served as Managing Director of
O'Donnell Associates (a consulting firm) from March 1994 to June 1994 and from
October 1992 to September 1993; as Chief Executive Officer of Savin
Corporation (an office products distributor) from October 1993 to February
1994; and as President and Chief Executive Officer of GO/DAN Industries (a
manufacturer of automotive parts) from June 1990 to September 1992. He is a
Director of V-Band Corporation (a manufacturer of computer systems). He has
been a Director of the Company since 1991.
Gilbert L. Wachsman is currently Senior Vice President of Hard Lines of Kmart
Corporation. Formerly, until August of 1995, Mr. Wachsman was President of
Wachsman Management Consulting, Inc., which provides consulting services to
retailers and consumer oriented manufacturers. Pursuant to his consulting
practice, Mr. Wachsman served as Vice Chairman of Universal International, Inc.
(a wholesaler/retailer of close-out merchandise) from October 1992 to February
1995. From December 1988 to July 1990, Mr. Wachsman was President of Lieberman
Enterprises (a distributor of pre-recorded music, video and personal computer
software); from January 1986 to December 1988, he was President of Child World,
Inc. (one of the largest U.S. toy chains). He has been a Director of the
Company since 1991.
Erika Williams is currently interim Chief Executive Officer of System
Integrators, Inc. (a company that designs, manufactures and markets services
publishing systems to the newspaper publishing industry). She is also
President of the Erika Williams Group (a consulting firm catering to high
technology companies). From 1993 to March 1995, Ms. Williams was Senior Vice
President and General Manager of Enterprise Storage Systems, a division of
Amdahl Corporation (a developer and manufacturer of mainframe computers) of
Sunnyvale, California. Since 1978, Ms. Williams held various positions with
Amdahl Corporation including the Corporate Officer responsible for product
management of the mainframe business, Vice President of Processor Technology
and Development and Director of Product Software and Diagnostics. Ms.
Williams has been a Director since 1994.
R. Gregory Blair is Vice President/Product Management. Mr. Blair joined the
Company in December 1984 as its Director of Manufacturing and in October 1985
was appointed Vice President-Operations. He also served as President and Chief
Operating Officer of Guardian Technologies, Inc., a wholly owned subsidiary of
the Company, from March 1987 to November 1988, and President and Chief
Operating Officer of CMI Technologies, Inc., a wholly owned subsidiary of the
Company, from November 1988 until September 1991.
Robert J. Brockman was Vice President/Commercial Products Marketing and Sales.
After ten years with the Power Generation Division of Babcock & Wilcox (a
manufacturer of steam generating equipment for utility and industrial power
generation), as R&D Program Manager, Mr. Brockman joined Bailey Controls
Company (a manufacturer of electronic process control equipment) as Manager,
Product Planning and Marketing. Mr. Brockman then served as Manager, Marketing
and Sales for the General Electric Company's Display Product Operations from
1985 to 1993. Mr. Brockman joined the Company and was appointed vice President
in June 1994. *Mr. Brockman left the Company in January 1996.
Anita L. Hromish is Vice President/Chief Information Officer of the Company.
Ms. Hromish joined the Company in March 1986 and has assumed positions of
increasing responsibility during this time. From 1979 to 1984, Ms. Hromish
was employed by The Procter & Gamble Company ("P&G") (a diversified
manufacturer of household and industrial products headquartered in Cincinnati,
Ohio) in the Management Systems Division. Ms. Hromish was appointed Vice
President in July 1993.
Walter P. Masavage is Vice President/Controller worked for the General Electric
Company for 31 years and Thomson Consumer Electronics, Inc. (a world wide
consumer electronics products manufacturing and marketing company), for 6 years
in financial management positions of increasing responsibility. Before joining
28
<PAGE> 31
Cincinnati Microwave, Mr. Masavage was Chief Financial Officer of Thomson
Consumer Electronics' Canadian affiliate. Mr. Masavage joined the Company in
May 1994 and was appointed Vice President in May 1994 and Treasurer and
Corporate Secretary in January 1995.
Thomas H. Persyzk is Vice President/Engineering. Prior to joining the Company
in December, 1994, Mr. Perszyk was Senior Resource Manager-Engineering for
Motorola and has 24 years of experience with Motorola in the electrical/
electronics engineering field. Recent product responsibilities included
Cellular Subscriber Products and Cordless Telephones. Mr. Persyzk's prior
responsibilities included a wide range of portable communication equipment and
involved worldwide assignments in engineering and manufacturing.
Craig V. Wolf is Vice President/Chief Financial Officer. Prior to joining the
Company on December 11, 1995, Mr. Wolf was General Manager of Armco Financial
Group and President of Armco Financial Services Corporation, two units of
Pittsburgh-based Armco, Inc. Between 1977 and 1989, Mr. Wolf served in a
number of domestic and international financial capacities for FMC Corporation,
a diversified manufacturer of machinery and chemicals headquartered in Chicago.
SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 ("Section 16(a)") requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers. Directors,
executive officers and greater-than-ten-percent shareholders are required by
the Commission's regulations to furnish the Company with copies of all forms
which they file under Section 16(a). Based solely on its review of the copies
of such forms received by it, the Company believes that all such filing
requirements applicable to its directors and executive officers during 1995
were complied with, except for Form 4's related the sale of Common shares by
Mr. Jaeger that has been subsequently filed.
29
<PAGE> 32
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY
The following table is a summary of certain information concerning the
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer and each of the Company's other four most highly compensated executive
officers (the "named executives") during each of the last three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
========================================================================================================================
Long-Term Compensation
------------------------------------
Annual Compensation Awards Payouts
------------------------------- ---------------------- ------------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Salary Bonus sation Awards SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jacques A. Robinson (1) 1995 443,800 0 0 0 150,000 0 0
President and Chief 1994 390,000 0 0 0 0 0 0
Executive Officer 1993 313,500 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
John W. Noland (2) 1995 202,692 0 0 0 75,000 0 1,152
Former Executive Vice 1994 200,000 0 0 0 0 0 11,152
President and Chief 1993 200,000 0 0 0 25,000 0 7,500
Operating Officer
- ------------------------------------------------------------------------------------------------------------------------
Thomas H. Perszyk (3) 1995 150,000 0 0 0 30,000 0 99,001
Vice President 1994 8,654 0 0 0 50,000 0 32,600
1993 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
R. Gregory Blair (4) 1995 143,000 0 0 0 30,000 0 11,421
Vice President 1994 142,875 0 0 0 5,000 0 11,412
1993 136,500 0 0 0 10,000 0 10,933
- ------------------------------------------------------------------------------------------------------------------------
James L. Jaeger (5) 1995 125,000 0 0 0 0 0 10,071
Chairman of the Board 1994 125,000 0 0 0 0 0 10,071
1993 125,000 0 0 0 0 0 10,071
- ------------------------------------------------------------------------------------------------------------------------
Robert J. Brockman (6) 1995 95,000 0 0 0 30,000 0 6,743
Vice President 1994 49,327 0 0 0 20,000 0 47,103
1993 0 0 0 0 0 0 0
========================================================================================================================
<FN>
(1) Compensation was paid to The Scotcrest Group, Inc., a company beneficially
owned by Mr. Robinson. Mr. Robinson does not participate in any of the
Company's stock option or other employee benefit plans. Mr. Robinson received
$78,000 of his compensation in the form of common shares in 1993.
(2) All Other Compensation includes: (a) non-cash compensation pertaining to
life insurance premiums in the amounts of $1,152, $1,152 and $2,016 for the
years 1995, 1994 and 1993, respectively; and (b) $10,000 and $5,484
representing matching contributions made pursuant to the Company's retirement
savings plan for the years 1994 and 1993, respectively. In December 1995, Mr.
Noland left the Company.
(3) All Other Compensation includes: (a) non-cash compensation pertaining to
life insurance premiums in the amount of $870 for the year 1995; (b) $3,777
representing 1995 contributions made pursuant to the Company's profit sharing
plan; and (c) $94,354 and $32,600 in relocation expenses in 1995 and 1994,
respectively.
</TABLE>
30
<PAGE> 33
(4) All Other Compensation includes: (a) non-cash compensation pertaining to
life insurance premiums in the amounts of $696, $696 and $696 for the years
1995, 1994 and 1993, respectively; (b) $3,575, $3,572 and $3,412 representing
matching contributions made pursuant to the Company's retirement savings plan
for the years 1995, 1994 and 1993, respectively; and (c) $7,150, $7,144 and
$6,825 representing 1995, 1994 and 1993 contributions made pursuant to the
Company's profit sharing plan, respectively.
(5) All Other Compensation includes: (a) non-cash compensation pertaining to
life insurance premiums in the amounts of $696, $696, and $408 for the years
1995, 1994 and 1993, respectively; (b) $3,125, $3,125 and $3,125 representing
matching contributions made pursuant to the Company's retirement savings plan
for the years 1995, 1994 and 1993, respectively; and (c) $6,250, $6,250 and
$6,250 representing 1995, 1994 and 1993 contributions made pursuant to the
Company's profit sharing plan, respectively. Mr. Jaeger received $27,000 of
his compensation in the form of common shares in 1993.
(6) All Other Compensation includes: (a) non-cash compensation pertaining to
life insurance premiums in the amounts of $806 and $243 for the years 1995 and
1994, respectively; (b) $1,187 representing matching contributions made
pursuant to the Company's retirement savings plan for the year 1995; (c)
$4,750 representing 1995 contributions made pursuant to the Company's profit
sharing plan; and (d) $46,860 in relocation expenses in 1994. In January 1996,
Mr. Brockman left the Company.
STOCK OPTIONS
The following table sets forth information concerning individual grants of
options to purchase the Company's common shares made to the named executives in
1995.
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN THE LAST FISCAL YEAR
========================================================================================================================
Number % of Total Potential Realizable
of Securities Options Value at Assumed
underlying Granted To Exercise Annual Rates of Stock
Options Employees Or Base Price Appreciation for
Granted In Fiscal Price Expiration Option Term
Name (# Shs)(1) Year ($/Share) Date 5% 10%
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Jacques A. Robinson 150,000 31.0% 12.25 5/15/05 $1,155,594 $2,928,502
John W. Noland 75,000 15.5% 9.25 5/5/05 $ 436,296 $1,105,659
Thomas H. Parszyk 30,000 6.2% 9.25 5/5/05 $ 174,518 $ 442,264
R. Gregory Blair 30,000 6.2% 9.25 5/5/05 $ 174,518 $ 442,264
James L. Jaeger 0 - - - - -
Robert J. Brockman 30,000 6.2% 9.25 5/5/05 $ 174,518 $ 442,264
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(1) All options are granted at 100% of fair market value on the date of grant.
The options are exercisable during a period commencing 6 months and one day
after the date of grant and ending on the date specified in the option
agreement which, in no event, is later than ten years after the date of grant.
</TABLE>
31
<PAGE> 34
The following table sets forth certain information regarding individual
exercises of stock options during 1995 by each of the named executives.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
==============================================================================
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options Options
Shares at Year-End At Year-End
Acquired Value Exercisable/ Exercisable/
On Exercise Realized Unexercisable Unexercisable
Name (#) ($) (#) ($)
==============================================================================
<S> <C> <C> <C> <C>
Jacques A. Robinson 0 - 500,000/ $1,625,000/
150,000 $ 0
- ------------------------------------------------------------------------------
John W. Noland 0 - 162,500/ $ 168,750/
87,500 $ 56,250
- ------------------------------------------------------------------------------
Thomas H. Perszyk 0 - 27,500/ $ 4,688/
52,500 $ 14,063
- ------------------------------------------------------------------------------
R. Gregory Blair 0 - 84,750/ $ 151,250/
26,250 $ 3,750
- ------------------------------------------------------------------------------
James L. Jaeger 0 - 0/ $ 0/
0 $ 0
- ------------------------------------------------------------------------------
Robert J. Brockman 0 - 20,000/ $ 0/
30,000 $ 0
- ------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 35
COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee to assist it in the discharge of its responsibilities. There is no
Nominating Committee or Executive Committee. The Committees meet separately
from the regular Board meetings whenever required. A brief statement of the
principal responsibilities of the Committees of the Board and the
identification of their members are given below.
AUDIT COMMITTEE - The Audit Committee of the Board presently consists of Mr.
O'Donnell (Chairman), Mr. Fullgraf, Mr. Wachsman and Ms. Williams. The
Committee is charged with responsibility for recommending the independent
public accountants to be retained by the Company to audit its financial
statements, overseeing the audits of the Company and reviewing the Company's
accounting controls and reporting practices. The Audit Committee held two
meetings during 1995.
COMPENSATION COMMITTEE - The Compensation Committee of the Board is responsible
for reviewing and making recommendations to the full Board with regard to the
salary and other compensation arrangements for the senior management of the
Company. The Committee is also responsible for administering the Company's 1991
Stock Option Plan for Employees and granting options under such plan to
eligible employees of the Company or its subsidiaries. The Committee presently
consists of Mr. Wachsman (Chairman), Mr. O'Donnell, Mr. Fullgraf and Ms.
Williams. Members of the Committee are not eligible to receive stock options
under the plan. The Compensation Committee held five meetings during 1995.
33
<PAGE> 36
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
Of the persons named in the Executive Compensation table, Mr. Blair has an
employment agreement with the Company. Mr. Blair's agreement provides that if
his employment is terminated by the Company without cause, he shall continue to
be paid his monthly base salary for a period of twelve months after termination
less any compensation he receives from any subsequent employment held during
such period. The agreement also provides that, if such termination occurs
after a change in control of the Company (as defined in the agreements), he
will continue to be paid his monthly base salary for a period of twenty-four
months after termination less any compensation he receives from any subsequent
employment held during such period. Monthly base salary for Mr. Blair is
currently $11,906. The employment agreement of Mr. Blair can be terminated
only by mutual agreement with the Company or by termination of employment.
The Company retained The Scotcrest Group in February 1991 on a consulting basis
to assist it in reviewing and examining its operations. On April 23, 1991, the
Board of Directors approved a contract with Scotcrest, wherein Scotcrest would
assist the Company in implementing its operating plan by providing general
management services to the Company, appointing Jacques A. Robinson, President
of Scotcrest, as President of the Company. The contract was amended in May
1995. The terms of renewal were as follows: (i) Scotcrest shall be paid at a
per diem rate of $1,800 for the services of Mr. Robinson; (ii) Scotcresthas
been granted an option to purchase 150,000 Common Shares at $12.25 per share
vesting at a rate of 37,500 per year on each of May 15, 1996, 1997, 1998 and
1999; (iii) Scotcrest shall receive a cash bonus of $100,000 for achievement of
a 1995 net income goal determined by the Compensation Committee of the Board of
Directors and an amount equal to 4% of net income in excess of such goal; and
(iv) either the Company or Scotcrest could terminate the contract at any time
without cause.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a monthly fee of $1,000
and receive $1,000 for each Board meeting attended and for each Committee
meeting attended which is held on a separate day, plus expenses. Directors who
are employees of the Company receive no compensation for serving as Directors
but are reimbursed for their expenses. Pursuant to the Directors' Restricted
Share Plan, a portion (70%) of the Directors' fees is deferred and paid in
Company restricted shares and 30% is paid in cash. In addition, pursuant to
the 1992 Stock Option Plan for Non-Employee Directors, each non-employee
director receives an option to purchase 5,000 Common Shares on the date of each
annual meeting of shareholders provided that such non-employee director
continues in office subsequent to such annual meeting
34
<PAGE> 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of February 29, 1996, James L. Jaeger and Kopp Investment Advisors, Inc., a
Minnesota corporation, were the only persons known by the Company to be
beneficial owners of more than 5% of its outstanding common shares. The
following table provides information as to ownership of common shares by Mr.
Jaeger and Kopp Investment Advisors, Inc.
<TABLE>
<CAPTION>
================================================================================
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
================================================================================
<S> <C> <C> <C>
Common Shares James L. Jaeger 2,707,179 (1) 17.3%
One Microwave Plaza
Cincinnati, Ohio 45249
- --------------------------------------------------------------------------------
Common Shares Kopp Investment 3,221,015 (2) 20.6%
Advisors, Inc.
6600 France Avenue South
Edina, MN 55435
- --------------------------------------------------------------------------------
<FN>
See footnotes (1) and (2) on this page.
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the named
executives' and directors' beneficial ownership of the common shares of the
Company as of February 29, 1996.
<TABLE>
<CAPTION>
================================================================================
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
================================================================================
<S> <C> <C> <C>
Common Shares James L. Jaeger 2,707,179 (1) 17.3%
- --------------------------------------------------------------------------------
Common Shares Jacques A. Robinson 726,992 (3) 4.5%
- --------------------------------------------------------------------------------
Common Shares Thomas H. Perszyk 38,000 (4) 0.2%
- --------------------------------------------------------------------------------
Common Shares R. Gregory Blair 129,147 (5) 0.8%
- --------------------------------------------------------------------------------
Common Shares Charles M. Fullgraf 47,655 (6) 0.3%
- --------------------------------------------------------------------------------
Common Shares Joseph M. O'Donnell 31,609 (7) 0.2%
- --------------------------------------------------------------------------------
Common Shares Gilbert L. Wachsman 40,177 (8) 0.3%
- --------------------------------------------------------------------------------
Common Shares Erika Williams 12,174 (9) 0.1%
- --------------------------------------------------------------------------------
Common Shares All directors and
officers as a
group (12 persons) 4,020,767 (10) 24.2%
- --------------------------------------------------------------------------------
<FN>
(1) Mr. Jaeger shares voting and investment power with regard to 23,629 of the
common shares shown opposite his name and exercises sole voting and
investment power over the remainder of such shares. All but 23,629 of such
common shares are owned of record by Mr. Jaeger; and none of the common
shares listed represent shares with respect to which Mr. Jaeger has the
right to acquire beneficial ownership. Mr. Jaeger's beneficial shares
include 30,000 outstanding warrants to purchase 30,000 common shares.
(2) Kopp Investment Advisors, Inc. ("KIA") serves as a financial advisor for
its clients. As such, KIA holds no voting power for the shares owned by
its clients. KIA does, however, exercise limited investment power over the
common shares owned by its clients. As of February 29, 1996, numerous KIA
clients own 2,009,515 common shares, which Includes 49,355 outstanding
warrants to purchase 49,355 common shares. The remaining 1,211,500 common
shares, which includes 400,000 outstanding warrants to purchase 400,000
common shares are controlled by LeRoy C. Kopp, President and 100% owner of
Kopp Investment Advisors, Inc.
(3) Scotcrest owns 216,992 common shares and has an option exercisable at any
time to acquire an additional 500,000 common shares and 10,000 warrants
exercisable at any time to acquire an additional 10,000 common shares. Mr.
Robinson has voting and investment power over all common shares held by
Scotcrest. Mr. Robinson's beneficial shares include 10,000 outstanding
warrants to purchase 10,000 common shares.
(4) Includes 27,500 shares related to outstanding options.
</TABLE>
35
<PAGE> 38
(5) Includes 84,750 shares related to outstanding options.
(6) Includes 20,000 shares related to outstanding options and 697 warrants
exercisable at any time to acquire an additional 697 common shares.
(7) Includes 20,000 shares related to outstanding options.
(8) Includes 20,000 shares related to outstanding options.
(9) Includes 10,000 shares related to outstanding options.
(10) Includes 923,750 shares related to outstanding options and 57,197 shares
related to outstanding warrants to purchase 57,197 common shares.
36
<PAGE> 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
37
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
<TABLE>
<CAPTION>
Page
<S> <C>
(a) FINANCIAL STATEMENTS AND EXHIBITS FILED
(1) Financial Statements 26
Appear as part of Item 8 of this Form 10-K
(2) Financial Statement Schedule
Appears as part of Item 8 of this Form 10-K 26
(3) Exhibits Filed Pursuant to Item 601 of Regulation S-K.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE OF EXHIBIT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
(3)(i) Articles of Incorporation of Cincinnati Microwave, Inc., as amended
(incorporated by reference to Exhibit 4(i) of Registration Statement No. 33-61775).
(3)(ii) Regulations of Cincinnati Microwave, Inc., as amended (incorporated by
reference to Exhibit 4(ii) of Registration Statement No. 33-61775).
(4) Provisions of Articles of Incorporation and Regulations of Cincinnati Microwave,
Inc. which define the rights of holders of Common Shares (incorporated herein
by reference to such Articles of Incorporation filed as Exhibit (3)(1) and (3)(2)
hereto and such Regulations filed as Exhibit (3)(3) and (3)(4) hereto).
(10)(i) Copy of Loan and Security Agreement dated as of May 27, 1994 between The Huntington
National Bank and Cincinnati Microwave, Inc., as amended (incorporated by reference
to Exhibit (10)(ii) of Registration Statement No. 33-61775).
(10)(iii)(A)(1)* Copy of the Cincinnati Microwave, Inc. 1991 Stock Option Plan for Employees
(incorporated by reference to Exhibit 10.1 to Form 10-K for 1991, File No. 0-13136).
(10)(iii)(A)(2)* Form of stock option agreement used previously in connection with the options
granted under the Cincinnati Microwave, Inc. 1991 Stock Option Plan for Employees
(incorporated by reference to Exhibit 10.2 to Form 10-K for 1991, File No. 0-13136).
(10)(iii)(A)(3)* Copy of resolutions pertaining to Directors' fees (incorporated by reference to
Exhibit 10(k) of Registration Statement No. 2-86869).
(10)(iii)(A)(4)* Copy of Employment Agreement dated as of December 22, 1988 by and between R. Gregory
Blair and Cincinnati Microwave, Inc. (incorporated by reference to Exhibit 10.10 to
Form 10-K for 1988, File No. 0-13136).
</TABLE>
38
<PAGE> 41
<TABLE>
<S> <C>
(10)(iii)(A)(6)* Copy of the Cincinnati Microwave Deferred Compensation Plan (incorporated
by reference to Exhibit (10)(26) to Form 10-K for 1987, File No. 0-13136).
(10)(iii)(A)(7)* Copy of the Cincinnati Microwave, Inc. Retirement Savings Plan (incorporated by
reference to Exhibit (10)(19) to Form 10-K for 1991, File No. 0-13136).
(10)(iii)(A)(8)* Copy of the Cincinnati Microwave, Inc. Employees Stock Ownership Trust
(incorporated by reference to Exhibit (10)(21) to Form 10-K for 1988, File No. 0-13136).
(10)(iii)(A)(9)* Copy of the Cincinnati Microwave, Inc. Profit Sharing Plan (incorporated by
reference to Exhibit (10)(21) to Form 10-K for 1991, File No. 0-13136).
(10)(iii)(A)(10)(i)* Copy of the Services Agreement with the Scotcrest Group, Inc. effective
March 25, 1991 (incorporated by reference to Exhibit (10)(22) to Form 10-K for
1991, File No. 0-13136).
(10)(iii)(A)(10)(ii)* Copy of Amended Service Agreement with the Scotcrest Group, Inc. effective
March 27, 1992 (incorporated by reference to Exhibit 1 to Form 10-Q for the
quarter ended March 27, 1992, File No. 0-13136).
(10)(iii)(A)(10)(iii)* Copy of Amended Service Agreement with the Scotcrest Group, Inc. effective
May 16, 1995 (incorporated by reference to Exhibit 10(i) of Registration
Statement No. 33-61775).
(10)(iii)(A)(11)* Copy of Cincinnati Microwave, Inc. 1992 Stock Option Plan for Non-Employee
Directors effective May 19, 1992 (incorporated by reference to Exhibit 1 to
Form 10-Q for the quarter ended September 27, 1992, File No. 0-13136).
(10)(iii)(A)(12)* Copy of stock option agreement used in connection with Cincinnati Microwave,
Inc. 1992 Stock Option Plan for Non-Employee Directors (incorporated by
reference to Exhibit 2 to Form 10-Q for the quarter ended September 27, 1992,
File No. 0-13136).
(10)(iii)(A)(13)* Copy of stock option agreement with the Scotcrest Group, Inc. effective May 16, 1995.
(24) Consent of Price Waterhouse LLP.
(25) Powers of Attorney executed by James L. Jaeger, Jacques A. Robinson,
Charles M. Fullgraf, Joseph M. O'Donnell, Gilbert L. Wachsman, and Erika Williams.
(27) Financial Data Schedule
<FN>
* Management contract on compensatory plan or arrangement.
</TABLE>
39
<PAGE> 42
(b) REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(b)(1) A Current Report on Form 8-K, dated December 1, 1995, was filed
announcing the resignation of John W. Noland, the Company's
vice president chief operating officer, and director.
(b)(2) A Current Report on Form 8-K, dated December 12, 1995, was filed
announcing the Company's anticipated loss for the fourth
quarter and full year 1995, and the addition of Craig V. Wolf
as chief financial officer.
</TABLE>
40
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CINCINNATI MICROWAVE, INC.
By: /s/ Walter P. Masavage
-----------------------------------
Walter P. Masavage
Vice President/Controller,
Treasurer and Corporate Secretary
Date: April 1, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 1st day of April, 1996.
<TABLE>
<CAPTION>
NAME CAPACITY
---- --------
<S> <C>
/s/ James L. Jaeger * Chairman of the Board
- ---------------------------- and Director
James L. Jaeger
/s/Jacques A. Robinson * Principal Executive Officer:
- ---------------------------- Chief Executive Officer,
Jacques A. Robinson President and Director
/s/Charles M. Fullgraf * Director
- ----------------------------
Charles M. Fullgraf
/s/Joseph M. O'Donnell * Director
- ----------------------------
Joseph M. O'Donnell
/s/Gilbert L. Wachsman * Director
- ----------------------------
Gilbert L. Wachsman
/s/Erika Williams * Director
- ----------------------------
Erika Wiliams
<FN>
*The undersigned does hereby sign this document on behalf of the above
indicated persons pursuant to powers of attorney duly executed and filed with
the Securities and Exchange Commission, all in the capacities and on the date
indicated.
</TABLE>
/s/ Craig V. Wolf
--------------------------------------
Craig V. Wolf
Attorney-in-Fact and Principal
Accounting and Financial Officer, Vice
President and Chief Financial Officer
42
<PAGE> 44
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CINCINNATI MICROWAVE, INC.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Cincinnati
Microwave, Inc. as of December 31, 1995 and December 25, 1994, and the results
of its operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Cincinnati Microwave, Inc.
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has reported recurring losses from operations
and has substantial obligations due in 1996 that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Cincinnati, Ohio
March 15, 1996
S-1
<PAGE> 45
CINCINNATI MICROWAVE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
============================================================================================================
December 31, December 25,
(amounts in thousands) 1995 1994
============================================================================================================
<S> <C> <C>
ASSETS
Cash and cash equivalents $11 $40
Accounts receivable (less allowances of $523 - 1995 and $43 - 1994) 10,923 5,137
Inventories, net (Note 5) 25,370 9,159
Other 779 602
-----------------------------
TOTAL CURRENT ASSETS 37,083 14,938
-----------------------------
Restricted cash 429 505
Property, plant and equipment, less accumulated depreciation (Note 6) 14,649 14,543
Patents, trade names and other identifiable intangible assets, net of
accumulated amortization of $4,059 - 1995 and $3,759 - 1994 745 1,045
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $6,491 - 1995 and $5,973 - 1994 1,290 1,808
-----------------------------
TOTAL ASSETS $54,196 $32,839
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $15,729 $8,627
Current portion of long-term debt (Note 9) 6,934 600
Accrued taxes 81 1,468
Unearned revenue 684 709
Current lease obligations (Note 7) 1,075 1,164
Other 4,212 4,071
-----------------------------
TOTAL CURRENT LIABILITIES 28,715 16,639
-----------------------------
Long-term debt (Note 9) 0 7,419
Lease obligations (Note 7) 753 1,422
Unearned revenue - noncurrent 350 457
Contingencies (Note 14)
Common shares, without par value ($.20 stated value); 20,000,000
shares authorized; 18,203,120 shares issued in 1995; 17,053,120
shares issued in 1994 3,641 3,411
Paid-in capital 24,182 17,578
Retained earnings 13,887 26,921
Treasury stock at cost, 2,582,326 shares - 1995; 6,110,264 shares - 1994 (17,332) (41,008)
-----------------------------
TOTAL SHAREHOLDERS' EQUITY 24,378 6,902
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $54,196 $32,839
=============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-2
<PAGE> 46
CINCINNATI MICROWAVE, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
======================================================================================================
For the Year Ended: December 31, December 25, December 26,
(amounts in thousands except per share data) 1995 1994 1993
======================================================================================================
<S> <C> <C> <C>
Net sales $79,199 $64,708 $58,461
Cost of sales 67,061 50,359 39,778
------------------------------------------
Gross profit 12,138 14,349 18,683
------------------------------------------
Operating expenses:
Research & development 7,442 8,449 8,117
Selling 12,990 12,671 10,391
Administrative 4,978 3,253 3,259
------------------------------------------
25,410 24,373 21,767
Operating loss (13,272) (10,024) (3,084)
Gain on sale of marketable equity securities 0 0 1,435
Interest expense (1,207) (738) (521)
Other income, net (Note 13) 7 502 886
------------------------------------------
Loss from continuing operations before income taxes (14,472) (10,260) (1,284)
Income taxes (Note 8) (1,438) 0 0
------------------------------------------
Net loss $(13,034) $(10,260) $(1,284)
==========================================
Net loss per share (Note 2): ($0.90) ($0.94) ($0.12)
==========================================
Weighted average number of shares outstanding 14,539 10,880 10,691
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-3
<PAGE> 47
CINCINNATI MICROWAVE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
======================================================================================================
For the Year Ended: December 31, December 25, December 26,
(amounts in thousands) 1995 1994 1993
======================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(13,034) $(10,260) $(1,284)
------------------------------------------
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation 3,965 3,697 3,346
Amortization 818 819 819
Gain on disposition of property, plant and equipment (2) (658) (738)
Gain on sale of marketable equity securities 0 0 (1,435)
Net assets of discontinued operations 0 (61) (175)
Issuance of shares as compensation 72 68 183
Other non-cash charges (credits), net (97) 118 (142)
Changes in operating assets and liabilities excluding
discontinued operations:
Accounts receivable (5,786) (1,501) 262
Inventories (16,211) (1,860) 2,515
Other current assets (177) (58) (401)
Accounts payable 7,102 4,743 (9,103)
Accrued taxes (1,387) 7 (353)
Unearned revenue (132) 384 13
Other current liabilities 183 1,436 (535)
Other non-current operating assets and liabilities 0 (7) 227
------------------------------------------
Total adjustments/changes (11,652) 7,127 (5,517)
------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (24,686) (3,133) (6,801)
------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (4,016) (4,222) (1,766)
Proceeds from sale of assets 2 820 976
Proceeds from sale of marketable equity securities 0 0 7,315
Decrease (increase) in restricted cash 76 (371) (134)
------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (3,938) (3,773) 6,391
------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from notes payable 15,731 12,125 1,500
Payments on notes payable (16,816) (10,107) (1,499)
Proceeds from lease obligations 483 2,526 1,213
Payments on lease obligations (1,241) (704) (297)
Proceeds from exercise of stock options 425 264 290
Proceeds from exercise of warrants 1,574 0 0
Proceeds from rights and stock offerings 28,439 0 0
------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 28,595 4,104 1,207
------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (29) (2,802) 797
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 40 2,842 2,045
------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $11 $40 $2,842
==========================================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $1,207 $738 $521
==========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-4
<PAGE> 48
CINCINNATI MICROWAVE, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
===========================================================================================================================
Common Shares Treasury Stock
------------------- Paid-in Retained ----------------------
(Amounts in thousands except share data) Shares Value Capital Earnings Shares Value Total
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 27, 1992 17,053,120 $3,411 $18,973 $38,465 (6,434,691) $(43,208) $17,641
Net loss (1,284) (1,284)
Shares issued under stock option plan (643) 151,850 933 290
Issuance of shares as compensation (167) 57,183 350 183
----------------------------------------------------------------------------
BALANCE DECEMBER 26, 1993 17,053,120 3,411 18,163 37,181 (6,225,658) (41,925) 16,830
Net loss (10,260) (10,260)
Shares issued under stock option plan (553) 109,625 817 264
Issuance of shares as compensation (32) 5,769 100 68
----------------------------------------------------------------------------
BALANCE DECEMBER 25, 1994 17,053,120 3,411 17,578 26,921 (6,110,264) (41,008) 6,902
Net loss (13,034) (13,034)
Shares issued under stock option plan (607) 145,825 1,032 425
Shares issued under warrants (1,114) 408,822 2,688 1,574
Shares issued pursuant to rights and
stock offering 1,150,000 230 8,311 2,964,870 19,898 28,439
Issuance of shares as compensation 14 8,421 58 72
----------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 18,203,120 $3,641 $24,182 $13,887 (2,582,326) $(17,332) $24,378
============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-5
<PAGE> 49
CINCINNATI MICROWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands except share data)
NOTE 1 - BASIS OF PRESENTATION
The Company's financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The operations of the Company in
recent years have not generated sufficient funds to meet working capital and
capital expenditure needs. The Company has funded these operating shortfalls
through bank borrowings under its credit facility, through extending vendor
terms and through equity offerings. The Company is currently working with a
lending institution to refinance the amounts under its current credit facility
and to provide additional credit availability. Management is reviewing all
facets of the Company's operations with the intent to improve its operating
results and generate additional cash flow for payment of vendor obligations
through such actions as acceleration of accounts receivable receipts and
inventory reductions. The Company's ability to continue as a going concern is
dependent upon its ability to achieve a satisfactory level of profitable
operations and renew or replace its existing credit facility.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company designs, manufactures and markets ultrahigh frequency and
microwave wireless communications products. The Company's three main product
lines include radar warning detectors, digital spread spectrum cordless
telephones, and wireless data modems.
The Company markets its products both under the Escort(R) brand name through
direct retail advertising and resellers and as an original equipment
manufacturer (OEM) supplier. Substantially all of the Company's operations are
domestic with the exception of a minimal amount of international sales
facilitated through distributor relationships.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in the bank, commercial paper and
various money market instruments with original maturities of three months or
less and are carried at cost which approximates market value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the FIFO (first-in, first-out) method.
RESTRICTED CASH
Restricted cash consists of cash in the bank restricted as to its use for
customer credit card processing and lease commitments.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Buildings and improvements are depreciated over 5 to 40 years. Manufacturing,
test, and engineering equipment are depreciated over 1 to 7 years, while
office, computer and other equipment is depreciated over 1 to 5 years. Gain or
loss realized on disposition of properties is included in income. Major
additions and improvements are capitalized while maintenance and repairs are
expensed.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of," which is required
to be adopted by 1996. The implementation of this Statement is not anticipated
to have a material impact on the Company's financial statements.
S-6
<PAGE> 50
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method. Patents, trade
names and the excess of the purchase price over the fair value of net assets
acquired are being amortized over periods not to exceed fifteen years.
Intangible assets are considered impaired if net assets exceed the projected
future cash flows from the sales of related products. To date, no impairments
have been recorded.
REVENUE RECOGNITION
Revenue is recognized from sales when the product is shipped to the customer.
The Company provides a 30 day, money-back guarantee on the majority of its
products. The Company also provides, at no cost to its customers, a one year
warranty on the majority of its products. The Company records the estimated
future costs of returns and warranties in the year of the sale.
UNEARNED REVENUE
The Company offers two and five year warranties for a fee to certain customers.
Unearned revenue is amortized on a straight-line basis over the warranty
period.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of shares
of common stock outstanding during each period.
INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes," deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of
assets and liabilities. SFAS No. 109 also requires that a valuation allowance
be established for deferred tax assets when it is more likely than not that the
asset will not be realized.
USE OF ESTIMATES
The financial statements, which are prepared in conformity with generally
accepted accounting principles, require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates. In particular, management has
utilized estimates based on the facts and circumstances existing at the date of
the financial statements which are sensitive to change in the near term. These
significant estimates include the estimated net realizable value of inventories
and litigation exposure.
SOURCES OF SUPPLY
The Company currently sole sources certain of its important components for its
products. Although there are a limited number of manufacturers of these
components, management believes that other suppliers could provide similar
components. A change in suppliers, however, could cause a delay in
manufacturing and a possible postponement or loss of sales, which could
adversely effect operating results.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and debt approximate fair value.
STOCK BASED COMPENSATION
The provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," will
be effective for the Company in 1996. This standard requires that stock-based
compensation either continue to be determined under Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," or in
accordance with the provisions of SFAS No. 123 whereby compensation expense is
recognized based on the fair value of stock-based awards on the grant date.
The Company currently expects to continue to account for such awards under the
provisions of APB No. 25. Although SFAS No. 123 will require additional
disclosures beginning in 1996, management believes the impact of SFAS No. 123
will not be material to the Company's financial statements.
S-7
<PAGE> 51
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
NOTE 3 - RIGHTS AND STOCK OFFERING
In the first quarter of 1995, the Company completed a rights offering of
1,482,435 units for $7 per unit; each unit consisted of two Common Shares and
one warrant entitling the holder to purchase one additional Common Share for
$4. The rights offering generated net proceeds of $9.3 million.
The proceeds from the rights offering were used to reduce debt and to increase
working capital. Offering costs of $175, included as a prepaid asset at
December 25, 1994, reduced Paid-in capital upon completion of the offering. In
conjunction with the rights offering, 2,964,870 shares of Treasury stock were
reissued. Paid-in capital was reduced by the excess cost of Treasury stock
over the net proceeds of the rights offering.
In the third quarter of 1995, the Company completed a stock offering of
4,600,000 Common shares, of which 1,150,000 shares were sold by the Company and
3,450,000 were sold by a selling shareholder. The 1,150,000 shares sold by the
Company generated net proceeds of $19.1 million which were used to pay amounts
outstanding under the existing revolving credit line and to fund working
capital. Paid-in Capital was reduced by offering costs of $1,580.
NOTE 4 - SIGNIFICANT CUSTOMERS
The following table summarizes net sales for all customers who accounted for
more that 10% of the Company's net sales for 1995, 1994 or 1993. No other
customer accounted for 10% or more of the Company's net sales.
<TABLE>
<CAPTION>
================================================================================
Customer Name December 31, December 25, December 26,
1995 1994 1993
================================================================================
<S> <C> <C> <C>
Lucent Technologies (formerly AT&T) 14,389 4,029 0
Cobra Electronics Corporation 5,494 2,547 7,426
Home Shopping Network 6,564 9,193 4,739
================================================================================
</TABLE>
NOTE 5 - INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
================================================================================
December 31, December 25,
1995 1994
================================================================================
<S> <C> <C>
Materials and supplies $8,363 $6,314
Work in process 3,906 1,933
Finished goods 17,425 2,516
Inventory valuation reserve (4,324) (1,604)
-----------------------
$25,370 $9,159
================================================================================
</TABLE>
In the fourth quarter of 1995, the Company recorded a lower of cost or market
reserve of $3,000 related to modems and cordless telephones.
S-8
<PAGE> 52
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
================================================================================
December 31, December 25,
1995 1994
================================================================================
<S> <C> <C>
Land and improvements $875 $829
Building and improvements 12,094 12,030
Manufacturing, test and engineering equipment 21,055 17,455
Office and computer equipment 5,983 6,071
Transportation equipment 57 57
-----------------------
40,064 36,442
Accumulated depreciation (25,415) (21,899)
-----------------------
$14,649 $14,543
================================================================================
</TABLE>
NOTE 7 - LEASE OBLIGATIONS
The Company has entered into leasing arrangements for certain manufacturing
equipment under capital leases. The Company has the option to purchase certain
leased equipment for $1,488 upon expiration of the leases. The cost and
accumulated depreciation under capital leases included in property, plant, and
equipment are as follows:
<TABLE>
<CAPTION>
================================================================================
December 31, December 25,
1995 1994
================================================================================
<S> <C> <C>
Manufacturing, test and engineering equipment $4,065 $3,548
Accumulated depreciation (2,221) (1,063)
----------------------
$1,844 $2,485
================================================================================
</TABLE>
Future minimum lease payments under capital leases and the net present value of
the minimum lease payments as of December 31, 1995 are as follows:
<TABLE>
================================================================================
<S> <C>
1996 $1,208
1997 715
1998 112
1999 0
2000 and beyond 0
------
Total minimum lease payments 2,035
Amount representing interest (207)
------
Net present value of minimum lease payments 1,828
Less current maturities (1,075)
------
Long-term maturities $753
================================================================================
</TABLE>
S-9
<PAGE> 53
NOTE 8 - INCOME TAXES
Income taxes related to continuing operations were as follows for the years:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
================================================================================
<S> <C> <C> <C>
Provision for income taxes (benefit):
Current federal $(4,878) $(2,481) $(416)
Deferred federal 3,440 2,481 416
-----------------------------
$(1,438) 0 0
================================================================================
</TABLE>
Deferred income taxes are provided for those items for which the income tax
bases and the carrying amount of the assets and liabilities differ. The
sources of these differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
================================================================================
<S> <C> <C> <C>
Deferred income tax components:
Change in valuation allowance $4,904 $3,546 $157
Inventories (859) (399) 31
Plant and equipment (193) (123) (116)
Accounts receivable (163) (14) 5
Investment in CDI 0 0 680
Marketable equity securities 0 0 (382)
Other (249) (529) 41
----------------------------
Income tax expense (benefit) $3,440 $2,481 $416
================================================================================
</TABLE>
Reconciliations between the statutory and effective income tax rates are as
follows:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
================================================================================
<S> <C> <C> <C>
Statutory U.S. federal income tax rate (34.0)% (34.0)% (34.0)%
Release of tax reserve (9.9) 0.0 0.0
Change in valuation allowance 33.9 31.0 12.2
Goodwill and other intangible amortization 2.1 3.0 21.8
Other (2.0) 0.0 0.0
----------------------------
Effective income tax rate (9.9)% (0.0)% (0.0)%
================================================================================
</TABLE>
S-10
<PAGE> 54
The components of deferred income tax assets and liabilities at December 31,
1995 and December 25, 1994 are as follows:
<TABLE>
<CAPTION>
================================================================================
December 31, December 25,
1995 1994
================================================================================
<S> <C> <C>
Deferred tax assets:
Current
Inventories $1,586 $727
Unearned revenue 352 397
Accrued warranty 205 131
Allowance for bad debts 178 15
Accrued vacation 151 142
Sales returns 94 114
Other 50 42
-----------------------
2,616 1,568
Noncurrent
NOL carry forward 9,833 6,113
Alternative minimum tax credit 117 117
Other 20 76
-----------------------
9,970 6,306
Deferred tax assets valuation allowance (12,022) (7,118)
-----------------------
Deferred tax assets net of valuation allowance 564 756
Deferred tax liabilities:
Noncurrent
Plant and equipment (564) (756)
-----------------------
Net deferred tax assets 0 0
================================================================================
</TABLE>
As required by SFAS No. 109, the Company has recorded a valuation allowance to
the extent that deferred tax assets exceed deferred tax liabilities as it is
not considered more likely than not that the assets will be realized.
At December 31, 1995, the Company had net operating loss (NOL) carry forwards
for federal income tax purposes of approximately $28,921, which expire
beginning in 2006. In 1991, the Company generated an alternative minimum tax
(AMT) credit of $117. This amount is allowable as a credit against the excess
of regular tax over AMT in future years. Under current federal tax laws, this
credit may be carried forward indefinitely.
In March 1995, as a result of the closure of the Company's 1991 Federal tax
return, the Company released certain tax reserves to income. The adjustment
increased net income for the first quarter of 1995 by $1.4 million.
S-11
<PAGE> 55
NOTE 9 - NOTES PAYABLE
At December 31, 1995, the Company had borrowed $6,934 (term loan balance of
$2,450 and $4,484 on the revolving credit facility) against its credit facility
due June 30, 1996. The $7,500 credit facility consisted of (i) the term loan,
(ii) a $5,000 revolving credit facility and (iii) a standby letter of credit
facility not to exceed $1,000; however, the sum of the outstanding principal
balance of the revolving credit and the aggregate amount of the Company's
outstanding letters of credit shall not exceed $5,000 at any time. At December
31, 1995, the term loan and revolving credit facility interest rates were 10
3/4% and 10 1/2%, respectively. The credit facility is secured by first and
exclusive liens on all accounts receivable, inventory, machinery, equipment,
other personal property, real estate and intangibles owned by the Company.
At December 25, 1994, the financing agreement with the Bank included (i) a
revolving line of credit for general working capital and standby letters of
credit maturing on June 30, 1996 in the amount of up to $6,000 based upon a
receivables and inventory formula, bearing interest at the Bank's prime rate
plus 3/4% per annum or 9 3/4%; and (ii) a term loan from the Bank in the
amount of up to $4,000 initially due December 25, 1994, bearing interest at the
Bank's prime rate plus 1% per annum or 10%. At December 25, 1994, the Company
had borrowed $8.0 million (term loan balance of $3,000 and revolving credit
facility balance of $5,019).
The credit facility requires compliance with certain affirmative and negative
covenants including, without limitation, a prohibition of payment of dividends
for the term of the credit facility without the prior consent of the Bank,
covenants regarding the Company's financial condition and achievement of
profitability levels.
As a result of violations of covenants in the borrowing agreement in the third
and fourth fiscal quarters of 1995, the Bank decreased the revolving credit
facility limit and increased the interest rates applicable to both the
revolving credit facility and the term loan. These covenants require positive
accounting income in the third and fourth quarters of 1995 and the maintenance
of a certain cash flow coverage ratio.
The Bank waived the Company's violation for the third quarter; however, on
January 2, 1996, the Bank declared the Company in default due to the loss
incurred in the fourth quarter and violation of the cash flow coverage ratio
covenant. As a result of these defaults, the Bank can accelerate the
indebtedness owed by the Company.
Effective February 1, 1996, the term loan and revolving credit facility
interest rates were increased to prime plus 5 1/4% and prime plus 5%,
respectively, from prime plus 2 1/4% and prime plus 2%, respectively,
established on October 31, 1995. Effective March 31, 1996, the revolving
credit facility was reduced to $2,500.
The Company is presently seeking to refinance its existing bank debt to obtain,
in particular, a higher credit limit, a longer term, less restrictive covenants
and lower interest rates and costs. Although there can be no assurances that
the new financing can be obtained, in March 1996, the Company received
proposals from three financial institutions at interest rates below those
currently being charged by the Bank and for amounts exceeding twice the current
facility. The Company selected The CIT Group/Credit Finance, Inc. (CIT) to
proceed with their due diligence review and believes that it will be able to
complete negotiations with CIT, or an alternative comparable lender, and
receive funding in the next 30-60 days. Funding is subject to successful
completion of the due diligence process and execution of a definitive
Borrowing Agreement.
The credit facility is not expected to be subject to financial covenants.
Proceeds from the new credit facility will be used to pay off the existing
credit facility with the Bank and will be used going forward to fund working
capital requirements, including the reduction of accounts payable. The
agreement will be secured by substantially all of the Company's assets.
S-12
<PAGE> 56
NOTE 10 - CAPITAL SHARES
STOCK OPTIONS
The Company's 1991 Stock Option Plan (Plan) has reserved 2,000,000 shares for
issuance pursuant to incentive or non-qualified stock options to be granted at
a price equal to or greater than the market value at the date of grant. These
options become exercisable ratably over a four year period beginning six months
and one day from the date of grant and expire ten years after the date of
grant. The following is a summary of option activity under the Plan:
<TABLE>
<CAPTION>
====================================================================================
December 31, December 25,
1995 1994
====================================================================================
<S> <C> <C>
Options outstanding at the beginning of year 953,625 931,625
Options granted 483,000 304,000
Options exercised 145,825 109,625
Options canceled 256,750 172,375
-----------------------------
Options outstanding at end of year 1,034,050 953,625
-----------------------------
Options exercisable at end of year 511,425 319,375
Common shares available for options to be granted
at end of year 547,000 773,250
Option price range for options granted $4.50 - $9.625 $4.125 - $11.625
Option price range for options exercised $2.00 - $7.875 $2.00 - $3.00
Option price range for options exercisable
at end of year $2.00 - $11.625 $2.00 - $7.50
====================================================================================
</TABLE>
In April 1991, the Company also granted options to purchase 500,000 shares to
the Scotcrest Group, Inc. (Scotcrest) in conjunction with a contract with
Scotcrest to provide the services of Jacques A. Robinson, President and Chief
Executive Officer of the Company. These options were granted at a price of
$1.25 per share (market value at date of grant) and are exercisable at any
time. In addition, on May 15, 1995, the Company granted options to purchase
150,000 shares to the Scotcrest Group, Inc. in conjunction with the contract
renewal with Scotcrest. These options were granted at a price of $12.25 per
share (market value at date of grant) and are exercisable ratably over a four
year period. These options expire ten years from the date of grant. None of
these options were exercised or cancelled during 1995, 1994 or 1993.
In May 1992, the Company established the 1992 Stock Option Plan for
Non-Employee Directors. Under this plan, an option to purchase 5,000 common
shares shall be granted to each non-employee director on the date of the
Company's annual meeting of shareholders at or above the fair market value of
the stock. These options become exercisable six months from the date of
issuance and expire ten years after the date of grant. The Company has
reserved for issuance upon the exercise of options granted under this plan
150,000 common shares. During 1995, 20,000 options to purchase common shares
were issued to the Company's four non-employee directors at a price of $17.125.
During 1994, 20,000 options to purchase common shares were issued to the
Company's four non-employee directors at a price of $8.375. During 1993,
15,000 options to purchase common shares were issued to the Company's three
non-employee directors at a price of $4.375.
DIRECTORS' STOCK COMPENSATION
In July 1991, the Company established a Directors' Restricted Share Plan. This
plan provides that each director shall receive seventy percent of his total
annual compensation in the form of stock, restricted as to disposition for six
months. The stock will be granted at a price equal to the average market price
for the prior twelve months. This plan has a term of ten years and provides
that the aggregate number of
S-13
<PAGE> 57
shares of common stock which may be awarded may not exceed 500,000 shares.
Shares issued and related expense recorded under the plan were 8,421 and $72
during 1995, 5,769 and $47 during 1994, 15,186 and $47 during 1993.
EXECUTIVE STOCK COMPENSATION
During 1993, Jacques A. Robinson and James L. Jaeger, Chairman of the Board,
agreed to receive certain compensation in the form of the Company's stock in
lieu of cash payments. Total treasury shares issued were 30,992 for Mr.
Robinson and 11,005 for Mr. Jaeger with market values of $78 and $27,
respectively.
WARRANTS
In the first quarter of 1995 and in conjunction with the rights offering, the
Company issued 1,482,435 warrants entitling the holder to purchase one Common
Share of the Company's stock for $4.00. During 1995, 408,822 warrants were
exercised. At December 31, 1995, the Company had warrants outstanding of
1,073,613 that expire December 31, 1998.
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Company has a defined contribution retirement savings plan and a defined
contribution profit sharing plan covering substantially all of its employees.
The Company generally contributes to the retirement savings plan on behalf of
each participant based upon the employee's contributions to the plan. The
Company may change its contributions at its discretion. The Company generally
contributes 5% of eligible compensation earned by participants to the profit
sharing plan. The costs of employee benefit plans are charged to expense and
funded throughout the year. Total costs for these plans were $836 in 1995,
$769 in 1994, and $881 in 1993.
NOTE 12 - RELATED PARTY TRANSACTIONS
Until June 21, 1993, the President and Chief Executive Officer of the Company
was a director of BI Incorporated ("BI"), an OEM customer of the Company. Net
revenues generated from the sale of products to BI amounted to $420, $3,567 and
$2,596 for the years ended December 31, 1995, December 25, 1994 and December
26, 1993, respectively. The Company had outstanding accounts receivable from
BI of $42, $497 and $390 at December 31, 1995, December 25, 1994 and December
26, 1993, respectively. Subsequent to December 25, 1994, the Company and BI
terminated their manufacturing agreement.
The Company owned approximately 6% of the stock of Cellular Data Inc. ("CDI").
CDI was a development stage company formed to develop and market a technology
to transmit data over cellular telephone networks without using or interfering
with the radio spectrum allocated for voice transmission on those networks. In
accordance with an agreement with CDI, the Company provided engineering
services of $0, $0 and $374 to CDI in 1995, 1994 and 1993, respectively. These
costs are included in research and development expenses.
S-14
<PAGE> 58
NOTE 13 - OTHER INCOME, NET
Other income, net consists of the following:
<TABLE>
<CAPTION>
================================================================================
For the Year Ended: December 31, December 25, December 26,
1995 1994 1993
================================================================================
<S> <C> <C> <C>
Gain on disposition of fixed assets $2 658 738
Interest and dividend income 150 7 189
Other income/(expense) (145) (163) (41)
--------------------------------------
$7 $502 $886
================================================================================
</TABLE>
NOTE 14 - CONTINGENCIES
Four shareholder lawsuits were filed against the Company in October and
November 1995. On January 9, 1996, these lawsuits were consolidated, and, on
February 23, 1996, the plaintiffs filed an Amended Complaint asserting claims,
allegedly on behalf of all purchasers of the Company's common shares on the
open market between July 12, 1995 and October 13, 1995, and who suffered
damages, and on behalf of all persons who purchased the Company's common shares
from the defendants pursuant or traceable to an August 24, 1995 public offering
of 4,600,000 common shares between August 24, 1995 and October 13, 1995, and
who suffered damage as a result. Plaintiffs purport to assert claims against
the Company and other defendants for violations of various provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and for
violations of the common law of negligent misrepresentation and fraud. The
Company is presently evaluating the allegations contained in this lawsuit and
intends to vigorously defend itself. The failure to achieve a favorable
resolution of this lawsuit could materially adversely affect the Company's
business and financial condition, including working capital, and results of
operations. No accrual for loss has been recorded as the Company is
unable to estimate the range of loss, if any. However, based on damages
sought, management believes that the potential loss could be material and
adversely impact the Company's results of operations or financial condition.
Pursuant to certain contractual obligations, the Company has agreed to
indemnify its directors and officers under certain circumstances against claims
arising from the lawsuit. The Company may be obligated to indemnify certain of
its directors and officers for the costs they may incur as a result of the
lawsuit. In addition, pursuant to certain contractual obligations, the Company
may be obligated to indemnify the underwriter defendants against claims and
expenses arising from the above litigation.
The Company is involved in other legal proceedings arising from the normal
course of business, none of which, in management's opinion, is expected to have
a material adverse impact on the Company's results of operations or financial
condition.
S-15
<PAGE> 59
COMMON STOCK INFORMATION (Unaudited)
The Common Shares and Warrants of Cincinnati Microwave, Inc. are traded on the
NASDAQ National Market System under the symbol CNMW and CNMWW, respectively.
The following table sets forth for the periods indicated the high and low sales
prices for the Common Shares and the Warrants as reported on the NASDAQ
National Market:
<TABLE>
<CAPTION>
================================================================================
COMMON SHARES LOW HIGH
================================================================================
<S> <C> <C>
1994
First quarter $7.250 $12.000
Second quarter 6.500 12.000
Third quarter 5.875 10.125
Fourth quarter 2.125 6.500
1995
First quarter $3.500 $11.250
Second quarter 8.375 12.125
Third quarter 13.625 21.125
Fourth quarter 4.000 14.750
================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Warrants Low High
================================================================================
<S> <C> <C>
1994
Fourth quarter $0.625 $2.750
1995
First quarter $1.250 $7.250
Second quarter 4.625 12.750
Third quarter 10.125 17.125
Fourth quarter 1.750 11.000
================================================================================
</TABLE>
On December 31, 1995, the last reported sales price on the NASDAQ National
Market for the Common Shares was $4.50 per share and for the Warrants was $1.75
per Warrant. As of December 31, 1995, there were approximately 1,086 holders
of record of the Common Shares and 63 holders of record of the Warrants.
DIVIDEND POLICY
Historically, the Company has not paid any cash or other dividends. The
Company does not expect to pay dividends in the foreseeable future, but
currently intends to retain any earnings to finance operations and future
growth. Furthermore, the credit facility between the Company and its bank
prohibits the payment of dividends.
S-16
<PAGE> 60
CINCINNATI MICROWAVE, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNT
YEARS ENDED DECEMBER 31, 1995, DECEMBER 25, 1994 AND DECEMBER 26, 1993
<TABLE>
<CAPTION>
=============================================================================================================
Balance at Charged to Charged to Deductions Balance at
Description beginning cost and other (1) end of year
of year expenses accounts
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts $ 43 $ 495 $ (15) $ (523)
(deducted from accounts receivable) ==== ===== ===== ======
- -------------------------------------------------------------------------------------------------------------
Year ended December 25, 1994
Allowance for doubtful accounts $ 2 $ 62 $ (21) $ (43)
(deducted from accounts receivable) === ==== ===== =====
- -------------------------------------------------------------------------------------------------------------
Year ended December 26, 1993
Allowance for doubtful accounts $ 18 $ 459 $ (475) $ 2
(deducted from accounts receivable) ==== ===== ====== ===
=============================================================================================================
<FN>
(1) Accounts deemed to be uncollectible.
</TABLE>
S-17
<PAGE> 1
CINCINNATI MICROWAVE, INC.
NONINCENTIVE STOCK OPTION AGREEMENT
-----------------------------------
This Option Agreement is granted this 15th day of May, 1995 (the "Grant
Date") by Cincinnati Microwave, Inc. (the "Company") to The Scotcrest Group,
Inc., a California corporation (the "Optionee").
1. The Company hereby grants to the Optionee an option to
purchase, in accordance with and subject to the terms and restrictions of this
Option Agreement, the number of the Company's common shares, without par value
(the "Shares"), set forth immediately below, with the price at which the Shares
subject to this option may be purchased (the "Option Price") also being set
forth immediately below:
Number of Shares: 150,000
Option Price $12.25 per Share
The option granted pursuant to this Option Agreement is not an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. (a) Except as otherwise may be provided in paragraphs 3 and
4 of this Option Agreement, this option is exercisable (which means that Shares
may be purchased under this option): (i) as to 37,500 Shares at any time on or
after (but not before) May 15, 1996; (ii) as to an additional 37,500 Shares at
any time on or after (but not before) May 15, 1997; (iii) as to an additional
37,500 Shares at any time on or after (but not before) May 15, 1998; and (iv)
as to an additional 37,500 Shares at any time on or after (but not before) May
15, 1999.
(b) For purposes of this Option Agreement, Shares which as of
any specific date are not yet subject to being purchased under this option are
considered "nonvested" as of such date, while Shares which as of any specific
date are subject to being purchased under this option are considered "vested"
as of such date.
3. Unless earlier terminated under paragraph 4 of this Option
Agreement, this option shall become nonexercisable and void on May 15, 2005
(the "Final Expiration Date") as to all Shares which have not been purchased on
or before such date.
4. If, at any time prior to the Final Expiration Date, both the
Optionee's agreement to provide services to the Company terminates for any
reason (including but not limited to the dissolution of the Optionee) and
Jacques A. Robinson (who is the President of the Optionee on the Grant Date)
ceases to be an executive officer of the Company, then this option (i) will not
be exercisable and will be void as of the later of the date on which the
Optionee's agreement to provide services to the Company
<PAGE> 2
terminates and the date on which Jacques A. Robinson ceases to be an executive
officer of the Company (the later of such dates being called herein the
"Termination Expiration Date") as to any Shares which are nonvested as of such
date but (ii) will be exercisable as to any Shares which are vested but not yet
purchased as of the Termination Expiration Date until two years have expired
after the Termination Expiration Date or until the Final Expiration Date,
whichever occurs first. This option will not be exercisable and will be void
as to all such vested but unpurchased Shares upon two years expiring after the
Termination Expiration Date or upon the Final Expiration Date, whichever occurs
first.
5. This option is non-assignable and non-transferable by the
Optionee; except that this option may be assigned by the Optionee at any time
to Jacques A. Robinson (and, if Jacques A. Robinson dies after such assignment,
this option may be further assigned or transferred from Jacques A. Robinson
pursuant to his will or the laws of descent and distribution). This option is
exercisable only by the Optionee; except that, if this option is assigned under
the terms of the immediately preceding sentence, then this option may after
such assignment be exercised by Jacques A. Robinson (or, in the event of his
death after such assignment, by the representative or representatives of
Jacques A. Robinson's estate or by the person or persons who have acquired the
right to exercise this option by bequest or inheritance from Jacques A.
Robinson).
6. This option may not be exercised for any fractional Share.
7. (a) This option may be exercised only by written notice to
the Secretary of the Company, signed by the then President of the Optionee (or,
if this option has been assigned under the terms of paragraph 5 of this Option
Agreement, signed by such other person as is entitled to exercise this option
pursuant to the terms of paragraph 5 of this Option Agreement). The notice
shall state the number of Shares with respect to which this option is being
exercised and shall be accompanied by this Option Agreement and by payment in
full for the Shares being purchased.
(b) At the request of the Company, such notice shall contain
the representation of the Optionee (or such other person who is exercising this
option) that it (or he or she) is purchasing the Shares for investment purposes
only and its (or his or her) agreement not to sell any Shares purchased
pursuant to this option in any manner that is in violation of the Securities
Act of 1933, as amended, or any other applicable federal or state law. Such
restrictions or notice thereof shall be placed on the certificates representing
the Shares purchased pursuant to this option, and the Company may refuse to
issue the certificates or to transfer the Shares on its books unless it is
satisfied that no violation of such restrictions will occur.
(c) Payment for the Shares shall be made in cash.
<PAGE> 3
(d) The Company will cause certificates for the Shares with
respect to which the option is exercised to be issued in the name of the
Optionee (or such other person who is exercising this option). If this option
is exercised in part and not in full, this option shall be returned to the
Optionee (or such other person who is exercising this option) with an
appropriate notation as to the number of Shares purchased hereunder and
the number of Shares which remain purchasable hereunder.
8. If, after the date of grant of this option, there is any change
in the Shares resulting from stock splits, stock dividends, combinations or
exchanges of shares, mergers, reorganizations, or other similar capitalization
adjustments, the Company shall, by amendment to be appended hereto, make
equitable proportionate adjustments in the number of Shares subject to this
option and in the Option Price of such Shares.
9. At the time of the transfer of any Shares as a result of the
exercise of this option, the Company shall have the right to retain or sell,
without notice to the Optionee (or such other person who may be exercising this
option), a sufficient number of Shares to cover the amount of any tax required
by any government to be withheld or otherwise deducted from such transfer and
paid to such government, remitting any balance to the Optionee (or such other
person who may be exercising this option). The Optionee (or such other person
who may be exercising this option) shall have the right, however, to provide
the Company, prior to the transfer of the Shares, with the funds to enable the
Company to pay such tax, in which case the Company shall not retain or sell any
of such Shares at the time of their transfer to the Optionee (or such other
person who may be exercising this option).
10. The Optionee acknowledges that the grant of this option, the
issuance by the Company of Shares upon exercise of this option, and the resale
or other disposition of such Shares by the Optionee (or such other person who
may be exercising this option) are, or may be, subject to certain provisions of
federal and state securities law. The Optionee further acknowledges and agrees
that the Board of Directors of the Company may, within its sole discretion,
take any action reasonably necessary to ensure full compliance with all federal
and state securities laws, and further agrees that this Option Agreement may be
amended by such Board at any future date to reflect any such action.
11. When the issue or transfer of the Shares covered by this option
may, in the opinion of the Company's Board of Directors, conflict or be
inconsistent with any applicable law or regulation of any governmental agency
having jurisdiction, the Company and the Optionee acknowledge and agree that
the Company shall have the right to refuse to issue or transfer said Shares.
12. The Company and the Optionee acknowledge and agree that the
Company's Board of Directors has the authority to construe and interpret the
terms of this Option Agreement whenever any question of meaning arises under
it, and any
<PAGE> 4
such construction or interpretation shall be binding on both the Company and on
the Optionee, or anyone else having or claiming to have an interest hereunder.
This Option Agreement shall be construed and administered in accordance with
the laws of the State of Ohio.
13. The Optionee, by acceptance of this option, shall be bound, on
the Optionee's own behalf and on behalf of Jacques A. Robinson (and his
personal representatives, the representatives of his estate, and his heirs) and
anyone else claiming through or under the Optionee or Jacques A. Robinson, by
all of the terms and conditions of this Option Agreement and by the actions of
the Company's Board of Directors with regard to this option.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Option Agreement as of the date first mentioned above.
CINCINNATI MICROWAVE, INC.
By /s/ Gilbert L. Wachsman
- --------------------------
Gilbert L. Wachsman
Chairman, Compensation Committee of
the Board of Directors
THE SCOTCREST GROUP, INC.
By /s/ Jacques A. Robinson
- --------------------------
Jacques A. Robinson
President and CEO
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-54124, No. 33-55146, No. 33-55144) of our report
dated March 15, 1996 which appears on page S-1 of Cincinnati Microwave, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1995.
PRICE WATERHOUSE LLP
Cincinnati, Ohio
April 1, 1996
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CINCINNATI MICROWAVE INC., an Ohio corporation (hereinafter
referred to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the Rules and Regulations thereunder, an Annual Report on
Form 10-K; and
WHEREAS, the undersigned is a director and officer of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James L.
Jaeger, Jacques A. Robinson, Craig V. Wolf and Walter P. Masavage, and each of
them singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such Annual Report and
thereafter to execute and file any amendments or supplements thereto, hereby
giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he might
or could do if personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of March, 1996.
/s/ James L. Jaeger
------------------------
James L. Jaeger
Chairman of the Board
Director
STATE OF Ohio )
) SS:
COUNTY OF Warren )
On the 25th day of March, 1996, personally appeared before me James L.
Jaeger, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 25th day of March, 1996.
/s/Elaine M. Bacon
------------------------
Notary Public
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CINCINNATI MICROWAVE INC., an Ohio corporation (hereinafter
referred to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the Rules and Regulations thereunder, an Annual Report on
Form 10-K; and
WHEREAS, the undersigned is a director and officer of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James L.
Jaeger, Jacques A. Robinson, Craig V. Wolf and Walter P. Masavage, and each of
them singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such Annual Report and
thereafter to execute and file any amendments or supplements thereto, hereby
giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he might
or could do if personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th
day of March, 1996.
/s/Jacques A. Robinson
------------------------
Jacques A. Robinson
Chief Executive Officer,
Chief Operating Officer,
President and Director
STATE OF Ohio )
) SS:
COUNTY OF Warren )
On the 20th day of March, 1996, personally appeared before me Jacques A.
Robinson, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 20th day of March, 1996.
/s/Elaine M. Bacon
------------------------
Notary Public
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CINCINNATI MICROWAVE INC., an Ohio corporation (hereinafter
referred to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the Rules and Regulations thereunder, an Annual Report on
Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James L.
Jaeger, Jacques A. Robinson, Craig V. Wolf and Walter P. Masavage, and each of
them singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such Annual Report and
thereafter to execute and file any amendments or supplements thereto, hereby
giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he might
or could do if personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd
day of March, 1996.
/s/Charles M. Fullgraf
------------------------
Charles M. Fullgraf
Director
STATE OF Ohio )
) SS:
COUNTY OF Warren )
On the 22nd day of March, 1996, personally appeared before me Charles M.
Fullgraf, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 22nd day of March, 1996.
/s/Martha Muchmore
------------------------
Notary Public
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CINCINNATI MICROWAVE INC., an Ohio corporation (hereinafter
referred to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the Rules and Regulations thereunder, an Annual Report on
Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James L.
Jaeger, Jacques A. Robinson, Craig V. Wolf and Walter P. Masavage, and each of
them singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such Annual Report and
thereafter to execute and file any amendments or supplements thereto, hereby
giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he might
or could do if personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 19th
day of March, 1996.
/s/Joseph M. O'Donnell
------------------------
Joseph M. O'Donnell
Director
STATE OF Florida )
) SS:
COUNTY OF Palm Beach )
On the 20th day of March, 1996, personally appeared before me Joseph M.
O'Donnell, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 20th day of March, 1996.
/s/Rosalind S. Seiden
------------------------
Notary Public
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CINCINNATI MICROWAVE INC., an Ohio corporation (hereinafter
referred to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the Rules and Regulations thereunder, an Annual Report on
Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James L.
Jaeger, Jacques A. Robinson, Craig V. Wolf and Walter P. Masavage, and each of
them singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such Annual Report and
thereafter to execute and file any amendments or supplements thereto, hereby
giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he might
or could do if personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of March, 1996.
/s/Gilbert L. Wachsman
------------------------
Gilbert L. Wachsman
Director
STATE OF Colorado )
) SS:
COUNTY OF Pitkin )
On the 21st day of March, 1996, personally appeared before me Gilbert L.
Wachsman, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 21st day of March, 1996.
/s/Andrea A. Rizzo
------------------------
Notary Public
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CINCINNATI MICROWAVE INC., an Ohio corporation (hereinafter
referred to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the Rules and Regulations thereunder, an Annual Report on
Form 10-K; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James L.
Jaeger, Jacques A. Robinson, Craig V. Wolf and Walter P. Masavage, and each of
them singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such Annual Report and
thereafter to execute and file any amendments or supplements thereto, hereby
giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he might
or could do if personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th
day of March, 1996.
/s/Erika Williams
------------------------
Erika Wiliams
Director
STATE OF California )
) SS:
COUNTY OF Sacramento )
On the 20th day of March, 1996, personally appeared before me Erika
Williams, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 20th day of March, 1996.
/s/Kathleen R. Berdan
------------------------
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND RELATED STATEMENT OF OPERATIONS OF CINCINNATI MICROWAVE INC. FOR THE
PERIOD ENDING DECEMBER 31, 1995 AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000729583
<NAME> CINCINNATI MICROWAVE INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-26-1994
<PERIOD-END> DEC-31-1995
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 11,446
<ALLOWANCES> 523
<INVENTORY> 25,370
<CURRENT-ASSETS> 37,083
<PP&E> 40,064
<DEPRECIATION> 25,415
<TOTAL-ASSETS> 54,196
<CURRENT-LIABILITIES> 28,715
<BONDS> 0
<COMMON> 3,641
0
0
<OTHER-SE> 20,737
<TOTAL-LIABILITY-AND-EQUITY> 54,196
<SALES> 79,199
<TOTAL-REVENUES> 79,199
<CGS> 67,061
<TOTAL-COSTS> 67,061
<OTHER-EXPENSES> 25,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,207
<INCOME-PRETAX> (14,472)
<INCOME-TAX> (1,438)
<INCOME-CONTINUING> (13,034)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,034)
<EPS-PRIMARY> (0.90)
<EPS-DILUTED> (0.90)
</TABLE>
