SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the fiscal year ended February 27, 1999 Commission File Number 0-12182
CALIFORNIA AMPLIFIER, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 95-3647070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 CALLE SAN PABLO, CAMARILLO, CALIFORNIA 93012
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$.01 PAR VALUE COMMON STOCK
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant as of May 17, 1999 was approximately
$48,085,697.
There were 11,796,547 shares of the Registrant's Common Stock outstanding as
of May 17, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on July 16, 1999 are incorporated by
reference into Part III, Items 11, 12 and 13 of this Form 10-K. This Proxy
Statement will be filed within 120 days after the end of the fiscal year covered
by this report.
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
California Amplifier, Inc. (the "Company") was incorporated in 1981. Since
its inception, the Company has been engaged in the design, manufacture and
marketing of microwave components used in both defense and commercial markets,
primarily relating to the amplification and conversion of microwave signals used
in various reception applications. In 1990, the Company discontinued its
involvement in its defense business and focused its business strategy on two
major product lines: Satellite Television and Wireless Cable products. In
January 1998, the Company reorganized into the following business units:
Satellite Products, Wireless Cable Products, and Voice and Data Products.
Wireless Cable and Voice and Data products are combined as Wireless Products.
In addition, the Company has a 50.5% ownership interest in Micro Pulse, Inc.,
a company who designs manufactures and markets antennas for various wireless
applications, primarily for Global Positioning Satellite (GPS) applications.
SATELLITE PRODUCTS
Satellite dishes are used for the reception of video, audio and data
transmitted from orbiting satellites. The Company's products, which are
components of the dish assembly, are used in both commercial satellite dish
applications and home satellite dishes. The Company's Satellite product dollar
sales to date, however, have been primarily generated from sales of
downconverters, amplifiers and integrated feedhorns and amplifiers used in home
satellite dish and cable headend dish applications.
The satellite dish is a parabolic reflector antenna. Microwave signals
transmitted primarily in Ku-band or C-band for video and data transmission, are
transmitted from orbiting satellites toward the earth's surface. The dish
reflects the microwaves back to a focal point where a feedhorn collects the
microwaves transferring the signals into an amplifier/downconverter. The
microwave amplifier literally amplifies the microwave signal millions of times
for further processing. The downconverter changes the frequency into an
intermediate frequency so that the receiver and television can process the
signal and create a picture.
The Company began supplying C-band downconverters and amplifiers for the
"large backyard dish" in the early 1980's to markets worldwide, but primarily to
markets in the United States, Brazil and the Middle East. The Company
experienced its highest unit volume shipments in the 1992-1993 timeframe, when
the markets for multichannel pay television began to experience significant
growth. The Company sold primarily C-band products during this period with sales
of Ku-band products in niche markets.
In 1994, the Direct Broadcast System (DBS) was introduced in the United
States, which really focused the U.S. consumer on satellite television as a
means of obtaining multichannel programming. The DBS system uses high powered
satellites and Ku-Band to transmit programming to subscribers digitally. As a
result of the satellite transmission power and the Ku frequency, the satellite
dish required for signal reception is only eighteen inches in diameter. This
compares to C-Band dishes that range from five to twelve feet in diameter. The
Ku-DBS system has been very well accepted since its introduction and
installations total over 10 million television households, while C-Band
installations are now less than 1.5 million.
The international market for satellite television exists primarily in Europe,
the Middle East, Asia and Latin America where cable penetration is substantially
less than in the United States. The Company believes the international market
for satellite television, which has an installed base of over 20 million dishes,
will continue to grow in response to increased worldwide demand for television
spurred, in part, by an increase in the availability and variety of programming.
Certain United States cable television networks have expanded their programming
coverage internationally. The availability of highly desirable programming such
as HBO, CNN, MTV, ESPN and Disney has led to the growth of the various methods
of multichannel television delivery in the many international markets. As
previously stated, both C-Band and Ku-Band dishes are used by consumers
depending upon how the programmers choose to transmit such signals. Both Ku-Band
and C-Band satellite launches are scheduled over the next several years however
the Ku-DBS alternative is becoming increasingly more popular to programmers as a
means of delivery directly to subscribers.
With the Company's 1997 reorganization into separate business units, the
Satellite Products business unit focused its resources on Ku-DBS applications,
as well as a broad line of commercial applications. For the DBS market, the
Company must emphasize competitive DBS solutions in the mainstream consumer
markets, as well as higher sales price products which offer feature,
performance, or installation advantages. For commercial applications, the
Company will focus on digital applications for satellite head-ends and data
transmission.
In April 1999, the Company purchased substantially all of the satellite
television products from Gardiner Communications Corp. This acquisition allows
the Company immediate entry into the U.S. and European DBS mainstream consumer
market, and provides the Company with competitive products for Europe, and
China, both of which position the Company to be a more significant supplier to
key markets around the world (see Note 13 of Notes to Consolidated Financial
Statements).
WIRELESS CABLE PRODUCTS
Wireless Cable television operates in many ways similar to coaxial cable
multichannel television transmission. The key difference is that Wireless Cable
does not have cable connecting the headend/transmission site to each home, but
instead uses a microwave frequency band to transmit programming within a local
service area. The signal can generally be received by subscribers within a 25-40
mile omni-directional radius of the transmission tower depending on the
transmitter power; however, the subscriber must have a direct line-of-sight or
"view" between the tower and the receive antenna. Typically, 65%-80% of the
homes within the service area will be able to receive the wireless signal, with
the remainder shadowed from the transmitter. The percentage of line-of-sight
homes is affected by the tower elevation, local topography and the subscriber
antenna height.
In the United States there are approximately 110 million television
households, of which approximately 75% receive their programming from cable
companies and approximately 15% from satellite. Currently there are
approximately 220 Wireless Cable operations in the United States, serving
approximately 800,000 subscribers, with line-of-sight access to approximately 30
million television households. Industry analysts estimate that a fully-financed
wireless system could reach penetration levels of 10%-15% of line-of-sight homes
due to inherent cost advantages of the technology, compared to cable. These
penetration levels can be achieved by addressing various factors but primarily
additional capital availability to finance growth, and the adoption of digital
compression which would substantially reduce constraints with respect to channel
capacity.
In 1995, the Wireless Cable industry in the United States generated a great
deal of interest with Tele-TV, a consortium comprised of Bell Atlantic, NYNEX
and Pacific Telesis, which announced its intention to deliver video to customers
using Wireless Cable digital compression technology. Initial projections for a
digital subscriber rollout by Tele-TV were 2.0 million subscribers within three
years of introduction. In late 1996, the Tele-TV consortium announced that
certain members had changed their strategic emphasis and were not going forward
with their Wireless Cable plans. In 1996, BellSouth announced its plan to use
digital Wireless Cable technology to deliver video services in the southeastern
region of the United States. To date, BellSouth has launched video programming
in Atlanta, New Orleans, Orlando, Daytona Beach, and Jacksonville, and appears
committed to Wireless Cable technology.
The Tele-TV participation in Wireless Cable television was viewed by many
industry experts as the beginning of well financed companies entering the
Wireless Cable market through acquisition or alliances with existing domestic,
multiple system operators. The decision by the Tele-TV partners to re-assess
their video delivery strategy, combined with other factors, has resulted in a
significant slowdown in the domestic Wireless Cable market. Independent
operators are now confronted with limited financing alternatives, negative cash
flow from operations with current subscriber levels, and the decision of whether
to expand subscriber counts using analog equipment prior to the availability of
digital equipment.
The decision to switch from analog to digital is a costly one, both from a
system architecture, and per subscriber standpoint. As a result of the current
capital constraints confronting the independent system operators, the conversion
from analog to digital is no longer an equipment availability issue. Until the
Wireless Cable industry in the United States can attract financial resources to
introduce digital Wireless Cable television through alliances, acquisitions or
the equity/debt markets, the industry will continue to be an insignificant
participant in the delivery of multichannel pay television to consumers. This
has directly impacted the Company's shipment levels over the last eighteen
months, and has created a great deal of uncertainty with respect to future
subscriber growth for U.S. Wireless Cable operators, and hence the growth of the
Company's product sales to this industry in the U.S. (see Voice and Data
Products).
Internationally, the Wireless Cable industry has experienced significant
growth in response to increasing worldwide demand for multichannel television
and the increased availability of a variety of programming such as HBO, CNN,
MTV, ESPN and Disney. The Company believes that Wireless Cable technology, in
many instances, is better suited than traditional cable to provide multichannel
television to the consumer, especially in less developed countries and in areas
that are not densely populated. The lack of a need for a cable network allows
Wireless Cable operators to commence broadcasting more quickly, with less of an
initial investment than for traditional cable, and to quickly expand throughout
a service area. To date, Wireless Cable systems have been launched throughout
the world, including major systems in Canada, Mexico, Venezuela, Brazil,
Argentina, Paraguay, Chile, Qatar, Thailand, Malaysia, Nigeria, Australia, Czech
Republic, Russia and Ireland. Similar launches in these countries, and other
geographical areas, are expected to continue as programming is made available to
these areas. Because the international markets do not have a high percentage of
pay television subscribers to television households, and are not dominated by a
single method of delivery, as cable is in the United States, the potential for
Wireless Cable as a programming delivery method internationally is still
significant, but not until capital becomes once again available to the emerging
markets.
VOICE AND DATA PRODUCTS
Wireless Cable operators own significant wireless spectrum or bandwidth in
the 2.5 to 2.7 gigahertz range. As a result of the trend to switch from analog
transmission of video to digital transmission, the number of video channels
increased from approximately 31 channels to as much as 175 channels. Depending
on the demand for video services, operators have considered using the unused
video bandwidth for voice (telephony) or data (Internet access) applications. To
date, there has only been limited system testing for these "wireless
local-loops." It is the belief of many industry experts that the technology is
proven; however, the rollout of wireless local-loop systems on a broad scale
will require a significant financial commitment which to date has not existed
within the Wireless Cable television industry. Beginning in March 1999, MCI
WorldCom and Sprint began making debt and equity investments in certain U.S.
multi-system wireless operators. This is viewed by many to represent the capital
commitment and strategic alliances necessary to initiate a broad roll-out of
two-way wireless local loop systems in cities throughout the United States, and
ultimately throughout major cities worldwide.
California Amplifier has worked closely with the Wireless Cable operators as
well as with system integrators to develop two-way transceivers for wireless
local-loop applications. Because of the telecommunications move toward wireless
communication, the Company has increased its focus on wireless fixed location
products with the formation of its Voice and Data Products business unit as part
of the January 1998 reorganization.
In addition, this business unit works closely with Micro Pulse to broaden the
market opportunities for its core antenna technologies and will pursue other
wireless broadband access applications.
ANTENNA PRODUCTS
In January 1993, the Company purchased a 50% ownership interest in Micro
Pulse, Inc. ("Micro Pulse") for $500,000. Micro Pulse designs, manufactures and
markets antennas and amplifiers used principally in global positioning systems
("GPS"). Such products are used in surveying applications, vehicle tracking and
marine and airborne navigation. In fiscal year 1998 (March 1997), the Company
acquired additional shares resulting in a 50.5% controlling interest and, as a
result, beginning in fiscal year 1998, the Company began to consolidate Micro
Pulse in its financial statements. In fiscal year 1997, the investment in Micro
Pulse was accounted for using the equity method.
PRODUCTS
The Company designs, manufactures and markets a broad line of amplifiers,
downconverters, antennas and integrated products used in the reception,
conversion and amplification of microwave signals used in conjunction with the
reception of video, audio, and data transmitted from satellites or earth-based
transmitters using microwave signals, and transceivers used in two-way voice and
data transceivers for wireless communication between fixed locations.
The Company also markets MultiCipher, a broadband analog scrambling system
for the Wireless Cable industry. Because MultiCipher is a broadband scrambling
system, it decodes all channels transmitted simultaneously which allows a
"whole-house" solution for the Wireless Cable operator thereby eliminating the
requirement of installing conventional set-top boxes on each television in the
subscribers' home.
The Company, through its 50.5% controlling interest in Micro Pulse, designs
manufactures and markets a broad line of antenna products used in GPS
applications for vehicle and asset tracking, surveying, and marine and airborne
navigation.
During fiscal years 1999, 1998, and 1997, Wireless products, which include
Wireless Cable products and Voice and Data products, accounted for 54.8%, 59.1%,
and 70.1% of the Company's sales, respectively, and Satellite products accounted
for 33.7%, 28.0%, and 29.9% of the Company's sales, respectively. Antenna
products, which represent sales by Micro Pulse, accounted for 11.5%, and 12.9%
of the consolidated sales in fiscal years 1999 and 1998, respectively.
For additional information regarding the Company's sales by segment and
geographical area, see Note 10 of Notes to Consolidated Financial Statements.
MANUFACTURING
The Company currently manufactures and assembles its products in its
Camarillo, California, USA, facility. Manufacturing operations consist
principally of assembling of components built from fabricated parts, printed
circuit boards and electronic devices, and microwave tuning and testing of
assembled products. In fiscal years 1997 and 1998 the Company assembled products
in Mexico and from time-to-time evaluates other manufacturing operations in
other countries based upon various factors, including anticipated sales growth,
labor content, product life cycles and shipments by geographical regions.
Electronic devices, components and raw materials used in the Company's
products are generally obtained from a number of suppliers, although certain
materials are obtained from a limited number of sources. Some devices or
components are standard items while others are manufactured to the Company's
specifications by its suppliers. The Company attempts to operate without
substantial levels of raw materials by depending on certain key suppliers to
provide material on a "just-in-time" basis. The Company believes that most raw
materials are available from alternative suppliers. However, any significant
interruption in the delivery of such items could have an adverse effect on the
Company's operations.
ISO 9001 INTERNATIONAL CERTIFICATION
In August 1995, the Company became registered to ISO 9001, the international
standard for conformance to quality excellence in meeting market needs in all
areas including product design, manufacturing, quality assurance and marketing.
The registration assessment was performed by Underwriter's Laboratory, Inc.,
according to the ISO 9001:1994 International Standard. Continuous assessments to
maintain certification are performed semi-annually, and the Company has
maintained its certification through each audit evaluation, most recently
May 1999.
RESEARCH AND DEVELOPMENT
Each of the markets the Company competes in are characterized by
technological change, evolving industry standards, and new product requirements
to meet market growth. During the last three years, the Company has focused its
research and development resources on four primary areas: digital Wireless Cable
reception products, the MultiCipher "whole-house" broadband scrambling system,
Ku-DBS products, and two-way transceivers. In addition, development resources
were allocated to broaden existing product lines, reduce product costs and
improve performance by product redesign efforts.
Research and development expenses were $4,764,000, $4,475,000, and
$5,789,000, during fiscal years 1999, 1998, and 1997, respectively.
SALES AND MARKETING
The Company sells its voice and data products directly to system operators as
well as through distributors and system integrators. The Company sells its
Satellite products through satellite equipment distributors, but, from time to
time, sells certain products to manufacturers for incorporation into complete
satellite dish systems, or directly to DBS operators.
The Company's sales and marketing functions for each business unit are
centralized in its Camarillo, California, USA, corporate headquarters. In
addition, the Company has sales offices and personnel in Paris, France; Sao
Paulo, Brazil; and Bangkok, Thailand. The Company may add additional sales
offices and employees as market conditions warrant, in market areas that require
additional sales and customer support not adequately served by a major
distributor or reseller.
Micro Pulse sales and marketing functions are centralized in its Camarillo,
California USA corporate headquarters. In addition, Micro Pulse also utilizes
sales representatives to identify markets and customers, and to sell its
products.
See also Note 10 of Notes to Consolidated Financial Statements for segment
and geographical sales information.
COMPETITION
The markets in which the Company competes are highly competitive. In
addition, if the markets for the Company's products continue to grow, the
Company anticipates increased competition from new companies entering such
markets, some of whom may have financial and technical resources substantially
greater than those of the Company. Furthermore, because some of the Company's
products may not be proprietary, they may be duplicated by low-cost producers,
resulting in price and margin pressures.
The Company believes that competition in its markets is based primarily on
price, performance, reputation, product reliability and technical support. In
the Wireless Cable market, the Company has supplier relationships with major
Wireless Cable operators in various regions of the world, and believes that its
pricing, accompanied by product performance, reliability, low field failure
rate, and its ongoing technical support, are currently competitive advantages to
the Company. In the Satellite Television market, where the Company has
participated since its inception in 1981, its reputation for performance and
quality allows the Company a competitive advantage if pricing of its products is
comparable to its competitors. The acquisition of Gardiner products (see Note 13
of Notes to Consolidated Financial Statements) will broaden the Company's
satellite product offering, and should strengthen its competitive position in
key markets. In the GPS and wireless antenna markets Micro Pulse relies upon its
reputation for innovation, quality and its quick time to market with new design
requirements.
The Company's continued success in these markets, however, will depend upon
its ability to continue to design and manufacture quality products at
competitive prices.
BACKLOG
The Company's products are sold to customers that do not usually enter into
long-term purchase agreements, and as a result, the Company's backlog at any
date is not significant. In addition, because of customer order modifications,
cancellations, or orders requiring wire transfers or letters of credit from
international customers, the Company's backlog as of any particular date, may
not be indicative of sales for any future period. Moreover, the lack of backlog
makes it more difficult for the Company to forecast its sales from period to
period, since "book and ship" orders are such a significant percentage of sales.
PATENTS, TRADEMARKS AND LICENSES
The Company's timely application of its technology and its design,
development and marketing capabilities have been of substantially greater
importance to its business than patents or licenses.
The Company currently has twelve patents ranging from design features for
downconverter and antenna products, to its MultiCipher broadband scrambling
system. Those that relate to its downconverter products do not give the Company
any significant advantage since other manufacturers using different design
approaches can offer similar microwave products in the marketplace. The Company
does believe, however, that certain Wireless Cable antenna patented designs, and
the broadband scrambling technology for encoding and decoding multi-channel
television signals used in the MultiCipher system are significant and may result
in a competitive advantage for the Company.
The Company currently has six other patents pending.
California Amplifier(R) and MultiCipher(R) are federally registered
trademarks of the Company. The Company has also filed for trademark protection
for its MultiCipher Plus product line.
EMPLOYEES
At February 27, 1999, the Company had 236 employees and Micro Pulse had 52
employees. None of the Company's employees are represented by a labor union.
ITEM 2. PROPERTIES
The Company's corporate headquarters and manufacturing facility is located in
Camarillo, California (approximately 60 miles north of Los Angeles) and consists
of approximately 64,000 square feet located on approximately four acres of land.
The Company also leases an aggregate of approximately 30,000 square feet of
space in two facilities across from its headquarters facility which are used for
finished goods storage, and a tool and die operation. These leases expire in
2004. The Company also leases offices in Paris, France; Sao Paulo, Brazil; and
Bangkok, Thailand. See also Note 9 to Consolidated Financial Statements.
Micro Pulse's corporate headquarters and manufacturing facility is located in
approximately 15,000 square feet of leased space in Camarillo, California which
Micro Pulse rents on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
On June 11, 1997, the Company and certain of its directors and officers had
two legal actions filed against them, one in the United States District Court,
Central District of California, entitled Yourish v. California Amplifier, Inc.,
et al., Case No. 97-4293 CBM (Mcx), and the other in the Superior Court for the
State of California, County of Ventura, entitled Yourish v. California
Amplifier, Inc. et al., Case No. CIV 173569. On June 30, 1997, another legal
action was filed against the same defendants in the Superior Court for the State
of California, County of Ventura, entitled Burns, et al., v. California
Amplifier, Inc., et al., Case No. CIV 173981. All three actions are purported
class actions on behalf of purchasers of the common stock of the Company between
September 12, 1995 and August 8, 1996. The actions claim that the defendants
engaged in a scheme to make false and misleading statements and omit to disclose
material adverse facts to the public concerning the Company, allegedly causing
the Company's stock price to artificially rise, and thereby allegedly allowing
the individual defendants to sell stock at inflated prices. Plaintiffs claim
that the purported stockholder class was damaged when the price of the stock
declined upon disclosure of the alleged adverse facts. On September 21, 1998,
the Federal legal action was dismissed in the United States District Court, but
the State legal action remains in the Superior Court for the State of
California. The Company and its legal counsel are currently evaluating the
claims. Based upon the analysis performed to date, the Company, its directors
and officers, plan to vigorously defend themselves against these claims in State
court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three months ended February 27, 1999, no matters were submitted to
a vote of the Company's security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market under the symbol
"CAMP." The following table sets forth for each fiscal period indicating the
high and low closing sale prices for the Company's Common Stock, as reported by
Nasdaq:
Low High
Fiscal Year Ended February 27, 1999:
1st Quarter $ 2.50 $ 3.44
2nd Quarter 1.25 2.56
3rd Quarter 1.25 3.47
4th Quarter 1.44 2.88
Fiscal Year Ended February 28, 1998:
1st Quarter $ 3.25 $ 5.50
2nd Quarter 3.62 6.12
3rd Quarter 3.12 6.00
4th Quarter 2.00 3.75
On March 22, 1996, the Company effected a two-for-one stock split. All per
share amounts contained herein have been retroactively adjusted to reflect the
stock split.
At May 17, 1999 the number of stockholders of record of the Company's Common
Stock was 330. The number of stockholders of record does not include the number
of persons having beneficial ownership held in "street name" which are estimated
to approximate 4,640.
The Company has never paid a cash dividend and has no current plans to pay
cash dividends on its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data which has been
derived from the audited consolidated financial statements of the Company for
each of the respective years. The selected financial data should be read in
conjunction with the consolidated financial statements and related notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained herein.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
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Feb. 27, Feb. 28, Mar. 1, Mar 2, Mar 4,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $37,140 $46,933 $49,290 $61,590 $45,656
Income (loss) before taxes (2,217) (4,149) 1,037 7,638 3,770
Net income (loss) (1,436) (2,665) 633 4,958 2,451
Diluted net income (loss)
per share (0.12) (0.23) 0.05 0.41 0.22
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CONSOLIDATED BALANCE SHEETS DATA:
(in thousands)
As of Each Year End
- -------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
Total assets $25,549 $27,831 $29,536 $32,573 $22,087
Working capital 15,477 14,886 15,001 15,743 8,552
Long-term debt, net of
current portion 516 1,112 525 767 782
Stockholders' equity 20,065 21,397 24,148 22,924 14,899
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</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
sales represented by items included in the Company's Consolidated Statements of
Operations:
Years Ended
Feb. 27, Feb. 28, March 1,
1999 1998 1997
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Sales:
Wireless Products 54.8% 59.1% 70.1%
Satellite Products 33.7 28.0 29.9
Antenna Products 11.5 12.9 ---
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Total sales 100.0 100.0 100.0
Gross profit 28.4 22.8 29.4
Research and development 12.8 9.5 11.8
Selling 12.0 11.1 9.7
General and administrative 10.4 10.3 6.5
Income (loss) from operations (6.8) (8.1) 1.4
Interest and other, net --- --- .7
Minority interest share in
(income) loss of Micro Pulse .8 (.7) ---
Income (loss) before provision for
income taxes (6.0) (8.8) 2.1
Benefit (provision) from income taxes 2.1 3.2 (.8)
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Net income (loss) (3.9%) (5.6)% 1.3%
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FISCAL YEARS 1999 AND 1998
Sales decreased $9.8 million, or 20.9%, from $46.9 million in fiscal year
1998 to $37.1 million in fiscal year 1999. The fiscal year 1999 sales decrease
resulted from decreases in sales in each of the Company's product groups.
Sales of Wireless products decreased $7.4 million, or 26.7%, from $27.7
million to $20.3 million. Sales of Satellite products decreased $600,000, or
4.6%, from $13.1 million to $12.5 million. Sales of Antenna products which
represent total sales by Micro Pulse, decreased $1.8 million, or 29.5%, from
$6.1 million to $4.3 million.
The $7.4 million sales decrease in Wireless products was primarily a result
of decreases in sales of MultiCipher scrambling products in key markets in
Africa, Latin America, and the United States. Wireless cable operators in most
major markets curtailed expansion of new systems, as well as net subscriber
growth in their existing systems due primarily to a lack of available capital.
Sales of Wireless reception products remained relatively flat with the prior
year, with increased sales in the United States and Canada because of new
systems by BellSouth and Look TV, offset by decreases in Latin America and
Africa, and other U.S. operators. The Company's Voice and Data products
accounted for approximately $1.1 million in sales in fiscal year 1999, its first
year of offering such products.
The $600,000 sales decrease in Satellite products resulted primarily from
lower C-Band sales in the United States and the Middle East, offset by increases
in Ku-Band DBS sales in Canada.
The $1.8 million sales decrease in sales of Antenna products by Micro Pulse
resulted primarily from significantly lower unit sales to certain major GPS
customers, as foreign competition increased, and the end of a major military
contract.
Gross profits decreased approximately $200,000, or 1%, from $10.7 million in
fiscal year 1998 to $10.5 million in fiscal year 1999. The decrease in gross
profits occurred because of a $9.8 million sales decrease, offset by higher
gross margins.
Gross margins increased from 22.8% in fiscal year 1998 to 28.4% in fiscal
year 1999. The gross margin between years should be compared, however, after
adjusting for a fiscal year 1998 inventory obsolescence charge of $3.0 million
which impacted 1998 gross margins by approximately 6.5%. Adjusting for this
charge, the gross margins between years were relatively constant. Factors
affecting fiscal year 1999 gross margins was the $9.2 million or 20.9% decrease
in sales, as well as the aggressive inventory reduction program, both of which
impacted overhead utilization. Offsetting these factors were improvements in
supply management which reduced material component costs, improved productivity,
reduced overhead, and lowered product returns under warranty. Management
believes that the operational improvements made during fiscal year 1999 could
have a positive impact on fiscal year 2000 gross margins if sales volumes
increase.
Research and development expenses increased by approximately $300,000, from
$4.5 million to $4.8 million. As a percentage of sales however, research and
development increased from 9.5% to 12.8%. Although the Company continued to
focus on cost containment programs, the Company remained committed to new
product design, and therefore, development expenditures increased in fiscal year
1999 as compared to fiscal year 1998. The increase relates primarily to
increased salaries for engineers, and some personnel additions.
Selling expenses decreased by approximately $800,000 from $5.2 million to
$4.4 million. The decrease relates primarily to the decreases in certain
discretionary sales and marketing expenses.
General and administrative expenses decreased by approximately $900,000 from
$4.8 million to $3.9 million. The decrease results primarily from certain
reorganization expenses incurred in 1998 and not in 1999 and lower bad debt
expense in fiscal year 1999.
The loss from operations decreased by approximately $1.3 million from $3.8
million to $2.5 million. The principal reasons for the improvement were, as
described above, decreased sales offset by lower operating expenses.
The benefit from taxes was $781,000, or 35.2% of the loss before taxes. This
is relatively consistent with prior year tax provisions of approximately 35.8%.
For the reasons outlined above, the net loss for fiscal year 1999 was $1.4
million, as compared to net loss of $2.7 million in fiscal year 1998.
FISCAL YEARS 1998 AND 1997
Sales decreased $2.4 million, or 5%, from $49.3 million in fiscal year 1997
to $46.9 million in fiscal year 1998. The fiscal year 1998 sales decrease
resulted from decreases in Wireless Cable and Satellite product sales, offset by
sales of Antenna products which represent sales by Micro Pulse, consolidated
since March 1997 when the Company increased its ownership interest in Micro
Pulse from 50.0% to 50.5%.
Sales of Wireless Cable products decreased $6.7 million, or 19%, from $34.4
million to $27.7 million. Sales of Satellite products decreased $1.7 million, or
11%, from $14.8 million to $13.1 million. Sales of Antenna products which
represent sales by Micro Pulse, were $6.1 million in fiscal year 1998, but were
not consolidated in fiscal year 1997.
The $6.7 million sales decrease in Wireless products was primarily a result
of decreases in sales of MultiCipher scrambling products in Asia and the United
States as customers curtailed their subscriber growth. Wireless reception
products remained relatively flat with the prior year, with increased sales in
Latin America, offset by decreases in the United States, Asia and Africa.
Domestically, there continues to be a lack of capital availability for
independent domestic operators to fund subscriber growth, as well as the
continued delays in the introduction of digital Wireless Cable television by
certain telcos, such as Pacific Bell and BellSouth.
The $1.7 million sales decrease in Satellite products resulted primarily from
lower sales in the United States because of the continued shift from C-band to
DBS delivery systems, in which the Company does not participate on a broad
scale, and in the Middle East where pricing competition has caused the Company
to lose sales.
Gross profits decreased $3.8 million, or 26%, from $14.5 million in fiscal
year 1997 to $10.7 million in fiscal year 1998. The decrease in gross profits
resulted from lower sales volumes and lower gross margins.
Gross margins decreased from 29.4% in fiscal year 1997 to 22.8% in fiscal
year 1998. The decrease in gross margins resulted primarily from $8.4 million in
lower sales by California Amplifier in fiscal year 1998 which resulted in
significant under-utilization of direct labor and factory overhead. In addition
gross margins were negatively impacted because of higher warranty expenses, and
$3.0 million in charges relating to slow-moving and obsolete inventory reserves.
The inventories which have been reserved relate primarily to Wireless Cable
products, both reception equipment and MultiCipher, which have been severely
impacted by the slowdown experienced in the Wireless Cable industry. The Company
believes that gross margins in fiscal year 1999 will improve from fiscal year
1998 levels of 22.8% due to reduced headcount, improved operating efficiencies,
and inventory control programs.
Research and development expenses decreased by approximately $1.3 million,
from $5.8 million to $4.5 million. As a percentage of sales, research and
development decreased from 11.8% to 9.5%. The decrease in expenses during fiscal
year 1998 as compared to fiscal year 1997 results from significant development
expenses incurred during fiscal year 1997 relating to the development and
introduction of MultiCipher Plus, the Company's tiered, whole-house scrambling
system. Offsetting these decreases, however, are research and development
expenses relating to Micro Pulse, which were consolidated during the current
fiscal year. Although the Company continues to focus on cost containment
programs until the revenue trend reverses, the Company remains committed to new
product design and therefore expects development expenditures to increase in
fiscal year 1999 as compared to fiscal year 1998 amounts.
Selling expenses increased by approximately $400,000 from $4.8 million to
$5.2 million. The increase relates primarily to the inclusion of application and
field engineering expenses in selling expense in fiscal year 1998, and expenses
in the current year relating to Micro Pulse, offset by decreases in certain
discretionary sales and marketing spending.
General and administrative expenses increased by approximately $1.6 million
from $3.2 million to $4.8 million. The increase results primarily from certain
reorganization expenses, increased bad debt expense, legal expenses relating to
the stockholder litigation, and the inclusion of general and administrative
expenses relating to Micro Pulse.
Income (loss) from operations decreased by approximately $4.5 million from
$688,000 to ($3,806,000). The principal reasons for the decline were, as
described above, decreased sales and gross margins, and increases in general and
administrative expenses.
The benefit from taxes was $1,484,000, or 35.8% of the loss before taxes. In
fiscal year 1997, the Company had a provision for taxes of 39%.
The net loss for fiscal year 1998 was $2.7 million, as compared to net income
of $633,000 in fiscal year 1997. The significant decline in earnings relates
primarily to the decline in sales and gross margins, and higher general and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of February 27, 1999, the Company had cash on hand of $9.3 million and a
$3.5 million available under a working capital facility with Pacific Century
Bank.
In April 1999, the Company entered into a credit facility arrangement with
Santa Monica Bank. Under the agreement, the Company obtained a $6.0 million
working capital facility, of which $3.0 million can be converted to a term loan,
interest only for one year, and then a three year-term. Interest on both
arrangements is at the Bank's prime rate.
The Company believes that cash flow from operations, together with the funds
available under its credit facilities, are sufficient to support operations and
capital equipment requirements over the next twelve months.
The Company believes that inflation has not had a material effect on its
operations.
YEAR 2000 COMPLIANCE
COMPANY PRODUCTS
The Company's satellite, wireless cable, voice and data, and antenna
microwave reception and transceiver products do not contain time or date code
applications and are therefore, not impacted by the Year 2000 century change.
The Company's wireless cable scrambling and conditional access system,
MultiCipher, does have date and time characteristics in microprocessor embedded
software and in its software interface applications. The Company has identified
programming issues that may impact how certain information must be input by
MultiCipher customers, for example, the scheduling of future pay-per-view
events. Upgrades to address such issues are now available to customers on a fee
basis. All current shipments of MultiCipher system head-ends are year 2000
compliant.
INTERNAL OPERATIONS
GENERAL. The computer system issues relating to dates beyond 1999 are the result
of many computer programs being written to use and store dates with only the
last two digits of the applicable year. As a result, these programs may assume
that all two digit dates are twentieth century dates. This could result in
system failure, anomalous system behavior or incorrect system reporting. System
failure could, in turn, temporarily affect the Company's ability to process
customer transactions, interface with vendors and engage in similar normal
business activities.
The Company has assessed how it may be impacted. The Company has formulated
and begun implementation of a plan to address all known aspects of the issue.
The Company has already completed a substantial portion of this plan and is on
schedule to fully complete the plan by August of 1999, except for some desktop
personal computers which may extend into the last quarter of calendar 1999.
SOFTWARE INFORMATION SYSTEMS. The Company's software information systems consist
primarily of a financial and manufacturing system (Computer Associates KBM), and
other smaller scale software applications, and other programs developed
internally.
In January 1999, the Computer Associates KBM financial and manufacturing
software upgrade was completed and is now year 2000 compliant. Telemagic and
Sales Tracker, two software applications, are not year 2000 compliant and will
be upgraded or discontinued prior to July 1999. In addition, software on
networks and desktop computers are currently being tested for year 2000
compliance. The Company does not expect any major issues related to upgrading
these software applications, at a cost of less than $60,000.
COMPUTER HARDWARE AND OPERATING SYSTEMS. Computer hardware and operating systems
includes all data center equipment (IBM AS400 system) and networks (Novell and
Microsoft NT). In January 1999, the Company purchased a new IBM AS400 in
conjunction with the Computer Associates software upgrades and is now year 2000
compliant. The current NT networks are year 2000 compliant, but the Novell
Network is not. This network will be upgraded or converted to NT by August 1999
with an estimated cost of less than $20,000.
COMMUNICATION SYSTEMS. Communications systems includes all data center
equipment (computers, telephone systems, and software systems) used to support
external communications with customers, employees, and suppliers, business
partners and all corporate equipment and software systems used to support
internal business management communications. Each significant component of these
communications systems has been tested or is in the process of testing. The
Company's telephone system will be upgraded in May 1999, at a cost of less than
$10,000.
SUPPLIERS AND OTHER BUSINESS PARTNERS. This area of the plan called for all
significant suppliers and other business partners to be surveyed for year 2000
readiness. Most of the significant trade vendors have already been contacted.
The Company anticipates that these activities will continue into the third
quarter of calendar 1999. The Company is not currently aware of any single
vendor or business partner with year 2000 compliance issues that could have a
material impact on the Company. The Company can provide no assurance that year
2000 compliance will be successfully implemented by all of its suppliers.
CONTINGENCY PLANNING. The Company has not yet developed a comprehensive
contingency plan to address the risk of operational problems and costs likely to
result from a failure by the Company or by a supplier or business partner to
address year 2000 readiness. This plan will be developed by the end of August
1999. It will list specific action plans for failure in any of the identified
areas of the year 2000 compliance plan. The Company believes that failure to
complete any of the remaining work to be done will not alone adversely affect
the continuity of the core business. The Company believes its current state of
readiness is on schedule with a conservative plan to be fully year 2000
compliant by August of 1999 and that business risks have been minimized.
However, there can be no guarantee that year 2000 compliance issues not yet
identified or fully addressed will not materially affect the Company's
operations or expose it to third party liability.
SAFE HARBOR STATEMENT
Forward looking statements in this Form 10-K which include, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions, projections and other information regarding future
performance, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. These forward-looking statements reflect the Company's current views
with respect to future events and financial performance and are subject to
certain risks and uncertainties, including, without limitation, product demand,
competitive market growth, timing and market acceptance of new product
introductions, competition, pricing and other risks and uncertainties that are
detailed from time to time in the Company's periodic reports filed with the
Securities and Exchange Commission, copies of which may be obtained from the
Company upon request. Such risks and uncertainties could cause actual results to
differ materially from historical results or those anticipated. Although the
Company believes the expectations reflected in such forward-looking statements
are based upon reasonable assumptions, it can give no assurance that its
expectations will be attained. The Company undertakes no obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information required to be
filed hereunder are indexed on page 19 of this report and are incorporated
herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
Name Age Position
Ira Coron 70 Chairman of the Board of Directors
Fred M. Sturm 41 Chief Executive Officer, President
and Director
Philip Cox 59 Vice President, Wireless Products
Dale DeHart 46 Vice President, Operations
Michael R. Ferron 44 Vice President, Finance, Chief
Financial Officer
and Corporate Secretary
Robert Hannah 38 Vice President, Satellite Products
Kris Kelkar 35 Vice President, Voice and Data
Products
Arthur H. Hausman (1) 75 Director
William E. McKenna(1(2) 79 Director
Thomas L. Ringer (2) 67 Director
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Ira Coron has been Chairman of the Board for California Amplifier, Inc. since
March of 1994, and in addition was the Chief Executive Officer until 1997 and
remained an officer of the Company until February 1999. From 1989 to 1994 he was
an independent management consultant to several companies and venture capital
firms. He retired from TRW, Inc., after serving in numerous senior management
positions from June 1967 to July 1989 among which was Vice President and General
Manager of TRW's Electronic Components Group. He also serves on the Board of
Directors of Made 2 Manage Systems, Inc., CMC Industries, Inc., and is a member
of the Executive Committee of the Wireless Communications Association. Mr. Coron
is a graduate of the United States Military Academy with a Bachelor of Science
in Engineering.
<PAGE>
Fred M. Sturm was appointed Chief Executive Officer, President and Director
in August 1997. Prior to joining the Company from 1990 to 1997, Mr. Sturm was
President of Chloride Power Systems (USA), and Managing Director of Chloride
Safety, Security, and Power Conversion (UK), both of which are part of Chloride
Group, PLC (LSE: CHLD). From 1979 to 1990, he held a variety of general
management positions with M/A-Com and TRW Electronics, which served RF and
microwave markets.
Philip Cox joined the Company in July 1996. In January 1998, in conjunction
with the reorganization previously mentioned, Mr. Cox was appointed Vice
President, Wireless Products. Prior to July 1996, he held various sales and
marketing positions with Signal Technology and M/A-Com.
Dale DeHart was appointed Vice President, Operations in January 1998. Prior
to joining the Company, Mr. DeHart lead his own manufacturing consulting
practice, and from 1996 to 1997 was Vice President, Operations for Vixel
Corporation, a manufacturer of telecommunications products. From 1994 to 1996 he
was the Vice President, Operations of Spectrian, Inc., a manufacturer of power
amplifiers for cellular base stations. He has also held management positions at
Colortan, Inc., TRW Electronics, M/A-Com and Hewlett Packard.
Michael R. Ferron joined the Company as Vice President, Finance and Chief
Financial Officer in October 1990 and was appointed Corporate Secretary in March
1991. Prior to October 1990, Mr. Ferron was employed by the accounting firms of
Deloitte & Touche and Arthur Young & Company, respectively.
Robert Hannah joined the Company as Vice President of Engineering in April
1995. In January 1998, in conjunction with the reorganization previously
mentioned, Mr. Hannah was appointed Vice President, Satellite Products. Prior to
April 1995, Mr. Hannah held various positions with Hughes, most recently the
position of Technical Manager at Hughes Network Systems.
Kris Kelkar was appointed Senior Vice President of Sales and Marketing in
April 1995 and Vice President, Marketing in April 1997. In January 1998, in
conjunction with the reorganization previously mentioned, Mr. Kelkar was
appointed Vice President, Voice and Data Products. Prior to April 1995, he held
various positions with General Instrument Corporation, most recently, the
position of Vice President of International Marketing for General Instrument's
Communications Division.
Arthur H. Hausman has been a director of the Company since 1987. Mr. Hausman
is Chairman Emeritus of the Board of Ampex Corporation. He served as Chairman of
the Board of Directors and Chief Executive Officer of Ampex, having been with
Ampex for 27 years until his retirement in 1988. He currently serves as a
director of Drexler Technology Corporation, and director emeritus of TCI, Inc.
He was appointed by President Reagan to the President's Export Council, to the
Council's Executive Committee and to the Chairmanship of the Export
Administration Subordinate Committee of the Council for the period 1985 to 1989.
William E. McKenna has been a director of the Company since October
1983. Since December 1977, Mr. McKenna has been general partner of MCK
Investment Company, a private investment company. Mr. McKenna was
Chairman of the Board of Directors of Technicolor, Inc. from 1970 to
1976 and was formerly Chairman of the Board of Directors and Chief
Executive Officer of Hunt Foods & Industries, Inc. and its successor,
Norton Simon, Inc. From 1960 to 1967, Mr. McKenna was associated with
Litton Industries, Inc. as a Director and in various executive
capacities. He is currently a director of Safeguard Health, Inc.,
Midway Games, Inc., Drexler Technology Company and WMS Industries, Inc.
Thomas L. Ringer has been a director of the Company since August
1996. Since January 1999, Mr. Ringer has been Chairman of Wedbush
Morgan Securities, Inc., and since June 1992, Chairman of the Board of
M.S. Aerospace, Inc. a manufacturer of precision fasteners. Mr. Ringer
also serves as Chairman of the Board of Document Sciences Corporation,
Aquatec Water Systems and the Center for Innovation and
Entrepreneurship. Prior to 1990, Mr. Ringer served as Chairman,
President and Chief Executive Officer of Recognition Equipment, Inc.,
President and Chief Executive Officer of Fujitsu Systems of America,
Inc., and President and Chief Executive Officer of Computer Machinery
Corporation.
Officers are appointed by and serve at the discretion of the Board of
Directors.
Each director holds office until the next annual meeting of stockholders or
until his successor has been duly elected and qualified. Each non-employee
director receives an annual stock option grant to purchase 8,000 shares at the
fair-market-value at time of grant which vest over a one-year period, a monthly
fee of $1,250, and reimbursement of out-of-pocket expenses in attending the
Company's Board of Directors meetings. There are no family relationships among
any directors or executive officers of the Company.
The Company has a Compensation Committee which reviews and makes
recommendations to the Board of Directors with respect to the compensation of
the Company's executive officers and to administer the Company's Key Employee
Stock Option Plan.
The Company also has an Audit Committee which reviews the scope of audit
procedures employed by the Company's independent auditors, reviews the audit
reports rendered by the Company's independent auditors and approves the audit
fee charged by the independent auditors. The Audit Committee reports to the
Board of Directors with respect to such matters and recommends the selection of
independent auditors.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the captions "Executive
Compensation" in the Company's definitive proxy statement for the Annual Meeting
of Stockholders to be held on July 16, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the caption "Stock
Ownership" in the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on July 16, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information contained under the caption
"Certain Relationships and Related Transactions" in the Company's definitive
proxy statement for the Annual Meeting of Stockholders to be held on July 16,
1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements. Reference is made to the Index to
Consolidated Financial Statements on page 20 of this report.
(b) Form 8-K. The Company made no filings on Form 8-K during the three months
ended February 27, 1999.
(c) Exhibits. Reference is made to the Index to Exhibits on pages
35-36 of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CALIFORNIA AMPLIFIER, INC.
By: /s/ Fred M. Sturm
Chief Executive Officer
Dated: May 25, 1999
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 in the capacities and on the dates indicated.
CAPACITIES
SIGNATURES IN WHICH SERVED DATES
/s/ Ira Coron Chairman of the Board of Directors May 25, 1999
/s/ Fred M. Sturm Chief Executive Officer, President
and Director May 25, 1999
/s/ William E. McKenna Director May 25, 1999
/s/ Arthur H. Hausman Director May 25, 1999
/s/ Thomas L. Ringer Director May 25, 1999
/s/ Michael R. Ferron Vice President, Finance, May 25, 1999
Chief Financial Officer
(Principal Accounting Officer)
and Corporate Secretary
<PAGE>
CALIFORNIA AMPLIFIER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 20
FINANCIAL STATEMENTS:
Consolidated Balance Sheets 21
Consolidated Statements of Operations 22
Consolidated Statements of Stockholders' Equity
and Comprehensive Income 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25-34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
California Amplifier, Inc.:
We have audited the accompanying consolidated balance sheets of California
Amplifier, Inc. (a Delaware corporation) and subsidiaries as of February 27,
1999 and February 28, 1998, and the related consolidated statements of
operations, stockholders' equity and comprehensive income, and cash flows for
each of the three years in the period ended February 27, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of California Amplifier, Inc. and
subsidiaries as of February 27, 1999 and February 28, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended February 27, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
April 6, 1999
<PAGE>
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
Feb. 27, Feb. 28,
1999 1998
- -----------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 9,312 $ 4,422
Accounts receivable, net 4,823 5,745
Income tax receivable 179 407
Inventories 3,974 6,851
Deferred tax asset 1,597 2,000
Prepaid expenses and other current assets 446 462
- -----------------------------------------------------------------------
Total current assets 20,331 19,887
Property and equipment -- at cost, net of
accumulated depreciation and amortization 4,498 7,116
Other assets 720 828
- -----------------------------------------------------------------------
$25,549 $27,831
- ------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,644 $ 1,861
Accrued liabilities 1,613 2,399
Current portion of long-term debt 597 741
- -----------------------------------------------------------------------
Total current liabilities 4,854 5,001
Long-term debt 516 1,112
Minority interest share in net assets of
Micro Pulse, Inc. 114 321
Stockholders' equity:
Preferred stock, 3,000 shares authorized;
no shares outstanding --- ---
Common stock, $.01 par value; 30,000 shares authorized;
11,785 shares outstanding in February 1999 and
11,771 shares outstanding in February 1998 118 118
Additional paid-in capital 14,050 14,025
Retained earnings 6,067 7,503
Accumulated other comprehensive income (170) (249)
- -----------------------------------------------------------------------
Total stockholders' equity 20,065 21,397
- -----------------------------------------------------------------------
$25,549 $27,831
- ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except net income (loss) per share)
<TABLE>
<CAPTION>
Years Ended
Feb. 27, Feb. 28, March 1,
1999 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 37,140 $ 46,933 $ 49,290
Cost of sales 26,595 36,236 34,810
- ---------------------------------------------------------------------
Gross profit 10,545 10,697 14,480
Research and development 4,764 4,475 5,789
Selling 4,441 5,215 4,802
General and administrative 3,880 4,813 3,201
- ---------------------------------------------------------------------
Income (loss) from operations (2,540) (3,806) 688
Interest and other income, net 227 153 327
Interest expense (199) (212) (118)
Minority interest share in (income)
loss of Micro Pulse 295 (284) ---
Income attributable to
equity investment in Micro Pulse --- --- 140
- ---------------------------------------------------------------------
Income (loss) before benefit from
(provision for) income taxes (2,217) (4,149) 1,037
Benefit from (provision for)
income taxes 781 1,484 (404)
- ----------------------------------------------------------------------
Net income (loss) $(1,436) $(2,665) $ 633
- ----------------------------------------------------------------------
Net income (loss) per share:
Basic/Diluted $ (.12) $ (.23) $ .05
- ----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at
March 2, 1996 11,519 $115 $13,255 $9,535 $ 19 $22,924
Comprehensive income:
Net income --- --- --- 633 --- 633
Foreign translation
adjustment --- --- --- --- (146) (146)
--------
487
Exercise of stock options
and warrants 194 2 735 --- --- 737
- ------------------------------------------------------------------------------
Balances at
March 1, 1997 11,713 117 13,990 10,168 (127) 24,148
Comprehensive income:
Net loss --- --- --- (2,665) --- (2,665)
Foreign translation
adjustment --- --- --- --- (122) (122)
--------
(2,787)
Exercise of stock options 58 1 35 --- --- 36
- ------------------------------------------------------------------------------
Balances at
February 28, 1998 11,771 118 14,025 7,503 (249) 21,397
Comprehensive Income:
Net loss --- --- --- (1,436) --- (1,436)
Foreign translation
adjustment --- --- --- --- 79 79
--------
(1,357)
Exercise of stock options 14 --- 25 --- --- 25
- ------------------------------------------------------------------------------
Balances at
February 27, 1999 11,785 $ 118 $14,050 $6,067 $(170) $20,065
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
Feb. 27, Feb. 28, March 1,
1999 1998 1997
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $(1,436) $(2,665) $ 633
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,013 3,280 2,016
Loss on sale of property and
equipment 14 1 12
Minority interest share in net
income net (loss) of Micro Pulse (207) 195 ---
Income attributable to equity
investment in Micro Pulse --- --- (140)
(Increase) decrease in assets and
liabilities, net of effect from
purchase of controlling interest
in Micro Pulse:
Accounts receivable 922 1,537 (1,873)
Inventories 2,877 1,983 (1,456)
Income tax receivable 228 399 (806)
Deferred tax asset 403 (1,200) 400
Prepaid expenses and other assets 203 303 (313)
Increase (decrease) in:
Accounts payable 783 (766) (1,094)
Accrued liabilities (786) (37) (2,731)
- -------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 6,014 3,030 (5,352)
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (1,321) (2,750) (3,421)
Proceeds from sale of property and
equipment 912 12 ---
Purchase of controlling interest in
Micro Pulse --- 327 ---
- -------------------------------------------------------------------------------
Net cash used in investing activities (409) (2,411) (3,421)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Debt borrowings --- 1,582 608
Debt repayments (740) (980) (1,044)
Issuances of common stock,
net of retirements 25 36 737
- -------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (715) 638 301
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 4,890 1,257 (8,472)
Cash and cash equivalents
at beginning of year 4,422 3,165 11,637
- -------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 9,312 $ 4,422 $ 3,165
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
California Amplifier, Inc. (the "Company") designs, manufactures and markets
microwave products used primarily in the reception of video transmitted from
satellites or wireless terrestrial sites. The Company most recently introduced
two-way wireless products used in emerging voice (telephony) and data (Internet)
applications.
The Company also has a 50.5% controlling interest in Micro Pulse, Inc. ("Micro
Pulse"), a company that designs, manufactures and markets antennas and
amplifiers used principally in global positioning systems. (See Notes 2 and 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company (a
Delaware company) and its wholly-owned subsidiaries, California Amplifier
s.a.r.l., the Company's subsidiary in France, and Cal Amp FSC, Inc., a foreign
sales corporation. The consolidated financial statements as of and for the years
ended February 27, 1999 and February 28, 1998 include the accounts of Micro
Pulse. In fiscal year 1998, the Company acquired additional shares of Micro
Pulse which resulted in the Company holding a 50.5% controlling interest. All
significant intercompany transactions have been eliminated. Prior to fiscal
1998, the Company's 50% non-controlling ownership interest in Micro Pulse was
accounted for using the equity method.
FISCAL YEAR
The Company reports results on the basis of a 52/53 week accounting calendar
ending on the last Saturday of February or the first Saturday of March. Each of
the fiscal years 1999, 1998, and 1997 consisted of 52 weeks.
REVENUE RECOGNITION
Revenue on product sales is recognized at the time of shipment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONCENTRATION OF RISK
At February 27, 1999 and February 28, 1998, the Company had its cash and cash
equivalents in U.S. banks in excess of Federally insured amounts, foreign banks,
and grade A1P1 commercial paper investments at Salomon Smith Barney as follows
(in 000's):
1999 1998
- -------------------------------------------------------------------------------
U.S. Banks $4,884 $2,517
Foreign Banks 362 350
Salomon Smith Barney 4,066 1,555
- -------------------------------------------------------------------------------
$9,312 $4,422
- -------------------------------------------------------------------------------
As of February 27, 1999, the Company had an account receivable due from one
customer in the amount of $1,144,554, or 23.8% of consolidated accounts
receivable, and from another customer in the amount of $677,740, or 14.1% of
consolidated accounts receivable. At February 28, 1998 the Company had an
account receivable due from one customer in the amount of $787,360, or 11.9% of
consolidated receivables. All amounts were paid by each customer subsequent to
the respective year ends in accordance with credit terms.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with an original maturity of less
than three months to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company has established a reserve for potential write-offs relating to
noncollectibility of accounts receivable. As of February 27, 1999 and February
28, 1998, the allowance for doubtful accounts was $535,000 and $850,000,
respectively. In fiscal years 1999, 1998, and 1997, $96,000, $592,000, and
$14,000 was charged to expense, respectively. Amounts charged to the allowance
account for bad debt write-offs and costs relating to product returns were
$411,000, $443,000, and $671,000, in fiscal years 1999, 1998, and 1997,
respectively.
WARRANTY
The Company warrants its products against defects over periods ranging from one
to five years. An accrual for estimated future costs relating to products
returned under warranty is recorded as an expense when products are shipped.
Warranty expense was $377,000, $834,000, and $206,000, in fiscal years 1999,
1998, and 1997, respectively. Amounts charged to accrued warranty for the actual
costs of maintaining the Company's warranty program were $487,000, $734,000, and
$806,000, in fiscal years 1999, 1998, and 1997, respectively.
INVENTORIES
Inventories include costs of materials, labor and manufacturing overhead and are
stated at the lower of cost (first-in, first-out) or market, and consist of the
following (in 000's):
Feb. 27, Feb. 28,
1999 1998
- -------------------------------------------------------------------------------
Raw materials $2,441 $2,694
Work in process 40 66
Finished goods 1,493 4,091
- -------------------------------------------------------------------------------
$3,974 $6,851
===============================================================================
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following (in
000's):
Feb. 27, Feb. 28,
1999 1998
- -------------------------------------------------------------------------------
Land $ --- $ 706
Machinery and equipment 9,362 10,548
Furniture and computers 5,013 4,686
Tooling 3,955 4,227
Leasehold improvements 1,116 1,153
- -------------------------------------------------------------------------------
19,446 21,320
Less accumulated depreciation and amortization (14,948) (14,204)
- -------------------------------------------------------------------------------
$4,498 $7,116
===============================================================================
<PAGE>
The Company follows the policy of capitalizing expenditures which materially
increase asset lives, and charging ordinary maintenance and repairs to
operations, as incurred. When assets are sold or disposed of, the cost and
related depreciation are removed from the accounts and any resulting gain or
loss is included in income (loss) from operations.
Depreciation and amortization is based upon the estimated useful lives of the
related assets using the straight-line method. Useful lives range from two to
five years, and in the case of leasehold improvements over the life of the
lease.
NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." The statement replaces primary EPS with basic EPS, which is computed by
dividing reported earnings available to common stockholders by weighted average
shares outstanding. The provision also requires the calculation of diluted EPS,
which increases the weighted average shares outstanding for the dilutive effect
of stock options and warrants. The Company adopted this statement in fiscal year
1998, and all prior year earnings per share amounts have been recalculated based
on the provisions of SFAS No. 128.
The following schedule summarizes the information used to compute earnings per
common share (in 000's except per share data):
Years Ended
- -------------------------------------------------------------------------------
Feb. 27, Feb. 28, March 1,
1999 1998 1997
- -------------------------------------------------------------------------------
Net income (loss) $(1,436) $(2,665) $ 633
- -------------------------------------------------------------------------------
Weighted average number of common shares
used to compute basic net income (loss)
per common share 11,782 11,734 11,638
Dilutive effect of common share
equivalents --- --- 913
- -------------------------------------------------------------------------------
Weighted average number of common shares
used to compute diluted net income
(loss) per common share 11,782 11,734 12,551
- -------------------------------------------------------------------------------
Basic net income (loss) per common share $ (.12) $ (.23) $ .05
Diluted net income (loss) per
common share $ (.12) $ (.23) $ .05
- -------------------------------------------------------------------------------
The dilutive effects of stock options were not included in the computation of
diluted loss per share in fiscal years 1999 and 1998 because there inclusion
would be anti-dilutive and reduce the loss per share.
STATEMENTS OF CASH FLOWS
In fiscal years 1999, 1998, and 1997 the Company paid interest of $199,000,
$212,000, and $118,000, respectively.
In fiscal years 1999, 1998, and 1997 the Company paid income taxes of $0,
$375,000, and $839,000, respectively.
In fiscal year 1998, the Company exchanged $100,000 in amounts due from Micro
Pulse for an additional ownership interest increasing its ownership from 50.0%
to 50.5%.
<PAGE>
ACCOUNTING FOR STOCK OPTIONS
The Company adopted SFAS No. 123, "Accounting for Stock Based
Compensation" in fiscal 1997. As allowed by SFAS No. 123, the Company
has elected to continue to measure compensation cost under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25) and comply with the pro forma disclosure
requirements of the standard (see Note 8).
3. MICRO PULSE, INC.
In January 1993, the Company acquired a 50% ownership interest in Micro Pulse
for $500,000. In March 1997, the Company acquired additional shares of Micro
Pulse for $100,000 resulting in the Company owning a 50.5% controlling interest
in Micro Pulse. Costs in excess of net assets acquired (goodwill) of $236,000
relating to the acquisition of Micro Pulse is included in other assets and are
being amortized over a ten year period.
For fiscal year 1997, the investment in Micro Pulse was accounted for using the
equity method of accounting. Summary information relating to the results of
operations and the financial condition of Micro Pulse as of March 1, 1997 and
for the year then ended is as follows (in 000's):
Sales $5,540
Net income 358
Total assets 2,031
Stockholders' Deficit (152)
- -------------------------------------------------------------------------------
The Company recognized sales to Micro Pulse of $93,000 in fiscal year 1997. The
Company recognized interest income relating to the receivable due from Micro
Pulse of $68,000 in fiscal year 1997.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in 000's):
Feb. 27, Feb.28,
1999 1998
- -------------------------------------------------------------------------------
Payroll and related expenses $ 727 $ 811
Warranty 545 655
Income taxes 6 236
Other accrued liabilities 335 697
- -------------------------------------------------------------------------------
$1,613 $2,399
- -------------------------------------------------------------------------------
5. SHORT-TERM BORROWINGS
As of February 27, 1999, the Company had a $3.5 million working capital credit
facility with Pacific Century Bank. Borrowings outstanding bear interest at the
bank's prime rate (7.75% at February 27, 1999) and are secured by substantially
all of the Company's assets, excluding the assets secured by other debt
arrangements. At February 27, 1999 and February 28, 1998, no amounts were
outstanding under this credit facility and $3.5 million was available for
borrowing. The credit facility contains certain financial covenants and ratios
that the Company is required to maintain. At February 27, 1999, the Company was
in compliance with certain covenants and had obtained waivers from the bank for
those covenants the Company was not in compliance.
<PAGE>
In April 1999, the Company entered into a credit facility arrangement with Santa
Monica Bank. Under the agreement, the Company obtained a $6.0 million working
capital facility, of which $3.0 million can be converted to a term loan,
interest only for one year, and then a three year-term. Interest on both
arrangements is at the Bank's prime rate.
6. LONG-TERM DEBT
Long-term debt consists of the following (in 000's):
Feb. 27, Feb.28,
1999 1998
- -------------------------------------------------------------------------------
Notes payable to a bank, secured by equipment,
bearing interest at rates ranging
from 8.19% to 8.24% payable monthly
through January 2002 $1,113 $1,853
Less portion due within one year (597) (741)
- -------------------------------------------------------------------------------
$ 516 $1,112
- -------------------------------------------------------------------------------
Annual maturities on long-term debt as of February 27, 1999, are as follows (in
000's):
2000 $ 597
2001 372
2002 144
2003 ---
- -------------------------------------------------------------------------------
$1,113
- -------------------------------------------------------------------------------
7. INCOME TAXES
The (benefit from) provision for income taxes for fiscal years 1999, 1998, and
1997 are as follows (in 000's):
1999 1998 1997
- -------------------------------------------------------------------------------
Current - Federal $(352) $ (584) $ (175)
- State --- (95) (31)
- Foreign (26) 395 210
Deferred- Federal (343) (1,020) 340
- State (60) (180) 60
- -------------------------------------------------------------------------------
$(781) $(1,484) $ 404
===============================================================================
Differences between the provision for (benefit from) income taxes and income
taxes computed using the statutory federal income tax rate for fiscal years
1999, 1998, and 1997 are as follows (in 000's):
1999 1998 1997
- -------------------------------------------------------------------------------
Income tax at statutory federal
rate (34%) $(788) $(1,772) $ 353
State income taxes (8.84%), net of
federal income tax effect (107) (300) 62
Foreign taxes (26) 395 210
Research and development credit 96 --- ---
Other, net 44 193 (221)
- -------------------------------------------------------------------------------
$(781) $(1,484) $ 404
===============================================================================
<PAGE>
The components of the net deferred income tax asset are as follows (in 000's):
Feb. 27, Feb. 28,
1999 1998
- -------------------------------------------------------------------------------
Depreciation $ 124 $ 73
Warranties 117 209
Inventory valuation 216 1,346
Allowance for doubtful accounts 102 209
Research and development credit 998 ---
Other, net 40 163
- -------------------------------------------------------------------------------
$ 1,597 $2,000
===============================================================================
8. STOCK OPTIONS
The Company has one stock option plan for its employees, the 1989 Key Employee
Stock Option Plan ("1989 Plan"). Under the 1989 Plan, stock options can be
granted at prices not less than 100% of the fair market value at the date of
grant. Option grants are exercisable at the discretion of the Compensation
Committee, but usually over a four year vesting period.
The following table summarizes the option activity for fiscal years 1999, 1998,
and 1997 (in 000's except dollar amounts):
Weighted
Number Average
Shares Option Price
- -------------------------------------------------------------------------------
Outstanding at March 2, 1996 1,314 $ 4.83
Granted 330 18.19
Exercised (109) 3.08
Canceled (147) 11.00
- -------------------------------------------------------------------------------
Outstanding at March 1, 1997 1,388 7.49
Granted 976 3.42
Exercised (95) 1.68
Canceled (400) 15.13
- -------------------------------------------------------------------------------
Outstanding at February 28, 1998 1,869 4.16
Granted 340 2.23
- -------------------------------------------------------------------------------
Exercised (14) 1.98
Canceled (178) 3.81
- -------------------------------------------------------------------------------
Outstanding at February 27, 1999 2,017 $ 3.88
- -------------------------------------------------------------------------------
The weighted average theoretical value for options granted during the year was
$1.77, $2.59, and $15.01 for fiscal years 1999, 1998, and 1997, respectively.
The number of common stock options available for grant as of each fiscal year
end were 175,225 for 1999, 337,100 for 1998, and 912,650 for 1997.
<PAGE>
Options outstanding at February 27, 1999 and related weighted average price and
life information is as follows:
<TABLE>
<CAPTION>
Weighted Total
Average Weighted Weighted
Range of Total Remaining Average Average
Exercise Options Life Exercise Options Exercise
Prices Outstanding (Years) Price Exercisable Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.69-$0.82 95,700 1.2 $ 0.76 95,700 $ 0.76
$1.38-$1.75 69,000 6.5 1.64 51,000 1.73
$1.88-$2.76 806,000 9.0 2.28 245,166 2.37
$3.50-$4.09 635,725 7.6 3.88 273,225 3.80
$4.72-$6.88 117,500 7.5 5.92 78,125 5.66
$7.22-$9.00 257,850 6.5 7.33 190,700 7.33
$16.25 16,000 7.5 16.25 16,000 16.25
$21.88-$26.97 20,000 7.1 24.43 15,000 23.58
- -------------------------------------------------------------------------------
$0.69-$26.97 2,017,775 7.7 $ 3.88 964,916 $ 4.39
- -------------------------------------------------------------------------------
</TABLE>
As permitted by SFAS No. 123, the Company continues to apply the accounting
rules of APB No. 25 governing the recognition of compensation expense from its
Stock Option Plans. Such accounting rules measure compensation expense on the
first date at which both the number of shares and the exercise price are known.
Under the Company's plans, this would typically be the grant date. To the extent
that the exercise price equals or exceeds the market value of the stock on the
grant date, no expense is recognized. As options are generally granted at
exercise prices not less than the fair market value on the date of grant, no
compensation expense is recognized under this accounting treatment in the
accompanying statements of operations.
The fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
1999 1998 1997
-------- ------- -----
Expected life (years) 10 10 10
Dividend yield --- --- ---
The range for interest rates is 4.15% - 7.14%, and the range for volatility is
65% - 77%. The estimated stock-based compensation cost calculated using the
assumptions indicated totaled $949,000, $713,000, and $1,863,000 in fiscal years
1999, 1998, and 1997 respectively. This would result in pro forma net losses
resulting from the increased compensation cost of $2,385,000, or $.19 per share,
$3,378,000, or $.27 per share, and $485,000, or $.04 per share, in fiscal year
1999, 1998, and 1997 respectively. The effect of stock-based compensation on net
income (loss) for fiscal 1999, 1998 and 1997 may not be representative of the
effect on pro forma net income in future years because compensation expense
related to grants made prior to fiscal 1996 is not considered.
9. COMMITMENTS
The Company leases its corporate and manufacturing facility as part of an
operating lease through February 2004. The lease agreement requires the Company
to pay all property taxes and any insurance premiums associated with the
coverage of the facility.
In addition, the Company leases a finished goods and storage facility as part of
an operating lease through February 2004. The Company also leases offices in
Paris, France; Sao Paulo, Brazil; and Bangkok, Thailand, under certain lease
arrangements. In addition, the Company leases equipment used in the
manufacturing operation.
<PAGE>
The following table represents the future minimum rent payments
required under all operating leases with terms in excess of one year as of
February 27, 1999 (in 000's):
Fiscal Year:
2000 $ 603
2001 605
2002 590
2003 600
2004 605
- -------------------------------------------------------------------------------
$3,003
===============================================================================
Rent expense for fiscal years 1999, 1998, and 1997, was $780,000, $707,000, and
$1,013,000, respectively.
10. SEGMENT AND GEOGRAPHIC DATA (UNAUDITED)
In June 1997, the FASB introduced SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information". In conjunction with the Company's
reorganization into business units in January 1998, the Company has adopted SFAS
No. 131 in fiscal year 1999, and will be applied on a limited basis to interim
periods thereafter. The adoption of this standard had no effect on the Company's
financial position or results of operations, but did change the presentation of
segment information presented below (in 000's):
Wireless Satellite Antenna Corporate Total
- -------------------------------------------------------------------------------
Sales $20,338 $12,503 $4,299 $ --- $37,140
Gross Profit 5,837 3,377 1,331 --- 10,545
Operating Profit 557 850 (518) (3,429) (2,540)
Depreciation 1,526 994 227 266 3,013
Identifiable Assets $7,347 $4,146 $1,582 $12,474 $25,549
- -------------------------------------------------------------------------------
Sales information by product line and by geographical area for each of the three
years in the period ended February 27, 1999, as presented prior to the adoption
of SFAS No. 131, are as follows (in 000's):
1999 1998 1997
- -------------------------------------------------------------------------------
Wireless Products $20,338 $27,738 $34,532
Satellite Products 12,503 13,131 14,758
Antenna Products 4,299 6,064 ---
- -------------------------------------------------------------------------------
$37,140 $46,933 $49,290
===============================================================================
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
United States $20,265 $19,378 $17,070
Canada 2,987 2,750 1,955
Latin America 3,556 12,122 8,495
Europe 3,094 4,726 5,265
Middle East 520 203 2,267
Africa 3,739 4,014 4,637
Asia 1,449 2,757 8,921
Australia 1,530 983 680
- -------------------------------------------------------------------------------
$37,140 $46,933 $49,290
===============================================================================
In fiscal year 1999 and fiscal year 1998 no customer accounted for 10% or more
of consolidated sales.
In fiscal year 1997 a wireless product customer accounted for 11.1% of
consolidated sales.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes certain quarterly statement of operations data for each
of the quarters in fiscal years 1999 and 1998 (in 000's, except percentages and
per share data):
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter 1999
- -------------------------------------------------------------------------------
Sales $9,060 $8,322 $9,681 $10,077 $37,140
Gross profits 2,793 1,939 2,776 3,037 10,545
Gross margins 30.8% 23.3% 28.7% 30.1% 28.4%
Net (loss) (485) (837) (205) 91 (1,436)
Loss per share $(0.04) $(0.07) $(0.02) $ 0.01 $ (0.12)
- -------------------------------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter 1998
- -------------------------------------------------------------------------------
Sales $12,013 $13,091 $13,382 $ 8,447 $46,933
Gross profits 3,671 3,956 2,865 205 10,697
Gross margins 30.6% 30.2% 21.4% 2.4% 22.8%
Net income (loss) 130 204 (894) (2,105) (2,665)
Income (loss) per share $ 0.01 $ 0.02 $ (0.08) $ (0.18) $ (0.23)
- -------------------------------------------------------------------------------
12. LEGAL PROCEEDINGS
On June 11, 1997, the Company and certain of its directors and officers had two
legal actions filed against them, one in the United States District Court,
Central District of California, entitled Yourish v. California Amplifier, Inc.,
et al., Case No. 97-4293 (BM (Mcx), and the other in the Superior Court for the
State of California, County of Ventura, entitled Yourish v. California
Amplifier, Inc. et al., Case No. CIV 173569. On June 30, 1997, another legal
action was filed against the same defendants in the Superior Court for the State
of California, County of Ventura, entitled Burns, et al., v. California
Amplifier, Inc., et al., Case No. CIV 173981. All three actions are purported
class actions on behalf of purchasers of the common stock of the Company between
September 12, 1995 and August 8, 1996. The actions claim that the defendants
engaged in a scheme to make false and misleading statements and omitted to
disclose material adverse facts to the public concerning the Company, allegedly
causing the Company's stock price to artificially rise, and thereby allegedly
allowing the individual defendants to sell stock at inflated prices. Plaintiffs
claim that the purported stockholder class was damaged when the price of the
stock declined upon disclosure of the alleged adverse facts. The Company and its
legal counsel are currently evaluating the claims. At this stage, it is not
possible to predict the outcome or determine a range of possible costs or
losses, if any. Based upon the analysis performed to date, the Company, its
directors and officers, plan to vigorously defend themselves against these
claims.
13. SUBSEQUENT EVENTS
On April 19, 1999, the Company acquired the technology and product rights to
substantially all of Gardiner Communications Corp.'s ("Gardiner") products, and
manufacturing and development related equipment and inventory from Gardiner to
support these product lines. The total purchase price, including related costs,
was approximately $9.1 million, of which $3.5 million relates to the acquisition
of product and technology rights
The Company will pay $6.0 million in cash and Gardiner stockholders will receive
a $3.1 million 8% one year note payable, of which approximately $2.2 million can
be converted into 525,000 shares of the Company's common stock at $4.25 per
share on April 19, 2000. The $4.25 per share conversion price is approximately
150% of the average closing price for the twenty-day trading period prior to the
acquisition. However, if the average closing price of the Company's common stock
for the immediate twenty trading days prior to April 19, 2000 is less than $4.25
per share, Gardiner stockholders can elect to extend the note for at least an
additional six months, but not more than one year, with the right to convert a
portion of the debt into 525,000 shares of the Company's common stock at a lower
per share conversion price equal to the average closing price for the twenty day
trading period prior to April 19, 2000.
<PAGE>
INDEX TO EXHIBITS
3.1 Certificate of Incorporation of the Registrant, as amended, filed as
Exhibit 3.1 to the Registrant's Registration Statement on Form S-1
(33-59702) and by this reference is incorporated herein and made a part
hereof.
3.1.1 Amendment to Certificate of Incorporation of the Registrant, as filed with
the Delaware Secretary of State on September 19, 1996, filed as Exhibit
3.1.1 to the Registrant's Interim Report on Form 10-Q for the period ended
August 31, 1996.
3.2 Bylaws of the Registrant, as amended, filed as Exhibit 3.2 to the
Registrant's Form 8-K dated February 27, 1992 and by this reference is
incorporated herein and made a part hereof.
10.1 1984 Key Employee Stock Option Plan filed as Exhibit 10.1 to the
Registrant's Registration Statement on Form S-1 (2-87042) and by this
reference is incorporated herein and made a part hereof.
10.2 Form of Incentive Stock Option Agreement filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1 (2-87042) and by this
reference is incorporated herein and made a part hereof.
10.3 Form of Nonqualified Stock Option Agreement filed as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 (2-87042) and by this
reference is incorporated herein and made a part hereof.
10.4 1989 Key Employee Stock Option Plan filed as Exhibit 4.4 to the
Registrant's Registration Statement on Form S-8 (33-31427) and by this
reference is incorporated herein and made a part hereof.
10.4.1 Amendment No. 1 to the 1989 Key Employee Stock Option
Plan filed as Exhibit 4.7 to the Registrant's Registration
Statement on Form S-8 (33-36944) and by this reference is
incorporated herein and made a part hereof.
10.4.2 Amendment No. 2 to the 1989 Key Employee Stock Option
Plan filed as Exhibit 4.8 to the Registrant's Registration
Statement on Form S-8 (33-72704) and by this reference is
incorporated herein and made a part hereof.
10.4.3 Amendment No. 3 to the 1989 Key Employee Stock Option
Plan filed as Exhibit 4.10 to the Registrant's Registration
Statement on Form S-8 (33-60879) and by this reference is
incorporated herein and made a part hereof.
10.5 Form of Incentive Stock Option Agreement filed as Exhibit 4.6 to the
Registrant's Registration Statement on Form S-8 (33-31427) and by this
reference is incorporated herein and made a part hereof.
10.6 Form of Nonqualified Stock Option Agreement filed as Exhibit 4.6 to the
Registrant's Registration Statement on Form S-8 (33-31427) and by this
reference is incorporated herein and made a part hereof.
10.7 Form of Option Agreement for Non-Employee Directors filed as Exhibit 4.9
to the Registrant's Registration Statement on Form S-8 (33-36944) and by
this reference is incorporated herein and made a part hereof.
10.8 Letter Agreements regarding sale of the building dated July 18, 1988,
filed as an exhibit to Form 8-K, dated February 27, 1989, filed as an
exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1989 and by this reference is incorporated herein and
made a part hereof.
10.9 Building Lease and Rider on building between the Registrant and Calle San
Pablo Property Co. dated January 31, 1989, filed as an exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year ended February
28, 1989 and by this reference is incorporated herein and made a part
hereof.
10.9.1 Amendment of Lease on building between the Registrant
and Calle San Pablo Property Co. dated February 9, 1995, filed as
an exhibit to this Annual Report on Form 10-K for the fiscal year
ended March 4, 1995.
10.10 Form of Indemnity Agreement filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended February 29, 1988 and by
this reference is incorporated herein and made a part hereof.
10.11 Stockholder Rights Plan filed as an exhibit to the Registrant's Form 8-K
dated September 5, 1991 and by this reference is incorporated herein and
made a part hereof.
10.12 Distribution Agreement between Registrant and Pan Asian Systems, Ltd.,
dated July 3, 1992 filed as Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (33-59702) and by this reference is incorporated
herein and made a part hereof.
10.13 Stock Purchase Agreement dated December 31, 1992 by and among Registrant,
Peter J. Connolly, Steven G. Ow and Toni Ow, and The Peter J. Connolly
Charitable Remainder Unitrust dated June 15, 1992 filed as Exhibit 10.20
to the Company's Registration Statement on Form S-1 (33-59702) and by this
reference is incorporated herein and made a part hereof.
10.24 Commercial Security Agreement between Registrant and California United
Bank dated July 26, 1995, filed as Exhibit 10.24 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 2, 1996.
10.25 First Amendment to Business Loan Agreement between Registrant and
California United Bank, dated July 26, 1995, filed as Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended March 2,
1996.
10.26 Promissory Note between Registrant and California United Bank dated
August 6, 1996, filed as an exhibit to this Annual Report on Form 10-K for
the fiscal year ended March 1, 1997.
10.27 Second Amendment to Business Loan Agreement between Registrant and
California United Bank, dated August 6, 1996, filed as an exhibit to this
Annual Report on Form 10-K for the fiscal year ended March 1, 1997.
10.28 Building Lease on building between the Registrant and The Jennings Bypass
Trust, dated September 11, 1996, filed as an exhibit to this Annual Report
on Form 10-K for the fiscal year ended March 1, 1997.
10.29 Land Purchase Agreement on land between the Registrant and Rhoda-May A.
Dallas Trust, dated February 13, 1996, filed as an exhibit to this Annual
Report on Form 10-K for the fiscal year ended March 1, 1997.
10.30 Loan Agreement between Registrant and California United Bank, dated August
22, 1997, filed as Exhibit 10.30 to the Registrant's Quarterly Report on
Form 10-Q for the period ended August 30, 1997.
10.31 Change in Terms Agreement between Registrant and California United Bank,
dated August 22, 1997, and filed as Exhibit 10.31 to the Registrant's
Quarterly Report on Form 10-Q for the period ended August 30, 1997.
*27 Financial Data Schedule
- -------------------
*Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS ON PAGE 21 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS ON PAGE 22 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED FEBRUARY 27,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000730255
<NAME> CALIFORNIA AMPLIFIER, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> FEB-27-1999
<CASH> 9312
<SECURITIES> 0
<RECEIVABLES> 5358
<ALLOWANCES> 535
<INVENTORY> 3974
<CURRENT-ASSETS> 20331
<PP&E> 19446
<DEPRECIATION> 14948
<TOTAL-ASSETS> 25549
<CURRENT-LIABILITIES> 4854
<BONDS> 0
0
0
<COMMON> 14168
<OTHER-SE> 5897
<TOTAL-LIABILITY-AND-EQUITY> 25549
<SALES> 37140
<TOTAL-REVENUES> 37140
<CGS> 26595
<TOTAL-COSTS> 13085
<OTHER-EXPENSES> 522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (199)
<INCOME-PRETAX> (2217)
<INCOME-TAX> (781)
<INCOME-CONTINUING> (1436)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1436)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
