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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended January 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-27414
REMEC, INC.
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 95-3814301
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9404 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (619) 560-1301
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 twelve (12) months (or such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on April 8, 1997 was approximately $248.7 million based on the last
reported sale price on the Nasdaq National Market of $23 3/4 per share of such
stock on April 8, 1997.
The number of outstanding shares of Registrant's Common Stock as of April 8,
1997 was 12,301,266.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's Annual Meeting of
Shareholders expected to be held on June 6, 1997, a definitive copy of which
will be filed with the SEC within 120 days after the end of the year covered by
this Form 10-K, are incorporated by reference herein in Part III of this Form
10-K.
This document contains _____ pages.
The Exhibit Index begins on page ___.
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REMEC, INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I
ITEM 1. BUSINESS ........................................................ 1
ITEM 2. PROPERTIES....................................................... 13
ITEM 3. LEGAL PROCEEDINGS................................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.................. 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS............................ 14
ITEM 6. SELECTED FINANCIAL DATA.......................................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..................... 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 21
ITEM 11. EXECUTIVE COMPENSATION........................................... 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................. 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 21
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K........................................ 22
</TABLE>
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PART I
The statements in this Annual Report on Form 10-K that relate to future
plans, events or performance are forward-looking statements. Actual results
could differ materially due to a variety of factors, including the risks
described in this Annual Report and the other documents the Registrant files
from time to time with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
ITEM 1. BUSINESS
INTRODUCTION
REMEC, Inc. ("REMEC" or the "Company") is a leader in the design and
manufacture of microwave multi-function modules (MFMs) for microwave
transmission systems used in defense applications and has recently entered, and
now derives significant revenue from, the commercial wireless telecommunications
market. The Company believes that its expertise in microwave transmission system
components such as filters, amplifiers, mixers, switches and oscillators and its
expertise in integrating these components into MFMs give REMEC a strong
competitive position in the emerging commercial wireless infrastructure
equipment market. The Company's capabilities enable it to develop and
manufacture MFMs with reduced size, weight, parts count and cost, and increased
reliability and performance.
The Company's products operate at high RF (800 MHz to 1 GHz), microwave
(1 GHz to 20 GHz) and millimeter wave (20 GHz to 50 GHz) frequencies (these
frequencies are collectively referred to elsewhere in this Annual Report on Form
10-K as microwave). Modern wireless telecommunications systems employ microwave
transmission technology pioneered in the defense industry. Microwave frequency
bands have been used for emerging wireless telecommunications applications
because they are less congested and have more available bandwidth, affording
greater voice, data and video transmission capacity than lower frequency bands.
Fueled by technological advances and regulatory changes, demand for wireless
telecommunications products has increased in recent years for applications such
as mobile telephony (cellular and personal communications services ("PCS")),
rural telephony (VSAT), paging, wireless cable, interactive television and
wireless local loop. These emerging wireless applications require a large
infrastructure of microwave transmission equipment such as base stations and
point-to-point radios.
The Company also designs and manufactures precision instruments for
guidance, control and measurement systems used by the defense, aerospace,
petroleum and mining industries.
The Company pursues acquisitions to augment MFM technology by acquiring
specialized component firms and to take advantage of opportunities to
consolidate smaller, niche companies in a currently fragmented microwave
equipment industry. In 1996, REMEC acquired Magnum Microwave Corporation
("Magnum"), a leading supplier of oscillators and mixers, and RF Microsystems, a
satellite communications engineering company. In February 1997, the Company
acquired Radian Technology, Inc. ("Radian"). Radian provides the defense market
with microwave components, primarily synthesizers, receivers, oscillators and
filters. In March 1997, the Company acquired Verified Technical Corporation
("Veritek"), a producer of high quality surface mount manufacturing assemblies.
In April 1997, the Company reached a definitive agreement to acquire
C&S Hybrid ("C&S Hybrid") through a merger of C&S into a newly formed subsidiary
of the Company. C&S Hybrid designs
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and manufactures microwave components and MFMs. Completion of this acquisition
is subject to satisfaction of customary conditions.
INDUSTRY BACKGROUND
In recent years there has been a significant increase in demand for
wireless telecommunications services from business and consumer users worldwide.
This trend has led to significant growth in the number of subscribers for
existing wireless communications systems and to the emergence of new wireless
applications. An industry study estimated that there were 109 million wireless
subscribers worldwide through June 1996, increasing to more than 140 million
subscribers by the end of 1996. In response to the increasing demand,
governmental regulatory agencies are allocating additional frequencies for PCS
which can be used for a broad range of wireless voice, data and facsimile
services.
The Company expects demand for PCS and cellular infrastructure
equipment to increase. As of February 1996, service providers had paid in excess
of $7.0 billion for licenses auctioned in the United States. The Company
believes that these licensees will rapidly deploy infrastructure equipment in
order to begin offering service from which to recover their investment. In
addition, the licensees are required by FCC regulations to establish a PCS
infrastructure to service approximately 33% of the population in their
respective service areas within five years and 67% within ten years or risk
forfeiting their licenses. This requirement is expected to drive a rapid
build-up of base station equipment in advance of the start of subscriber
service. Additional development of infrastructure is expected in the cellular
industry as well. In response to increased demand, existing cellular service
providers in densely populated urban areas are expanding the capacity of their
existing cellular systems by incorporating microcellular networks that divide
current cells into several smaller radius cells in order to maintain service
quality and availability, requiring deployment of infrastructure equipment.
Microwave frequency bands have been allocated for evolving wireless
telecommunications applications because they are less congested and have more
available bandwidth, affording greater voice, data and video transmission
capacity than lower radio frequency bands. The microwave technology used in
modern wireless telecommunications systems employs technology pioneered in the
defense industry. Governments worldwide have funded the development of microwave
transmission technologies for defense purposes including missile guidance,
electronic warfare, communications, radar, radar jamming, navigation and
identification of other aircraft. Higher frequency transmissions have been
desirable for defense applications because they have traditionally been less
congested, afford greater positional accuracy at shorter range, and allow for
the use of smaller equipment, especially important characteristics in
satellites, aircraft and missiles.
A typical cellular or PCS communications system contains a number of
cells, each with a base station, which are networked to form a service
provider's coverage area. Each base station or cell site houses the equipment
that transmits and receives telephone calls to and from the cellular or PCS
subscriber within the cell and to and from the switching office of the local
wireline telephone system. This equipment usually consists of several
multi-channel radios, some of which operate at lower frequencies to communicate
with the subscriber (phone, modem, etc.) and others operating at higher
frequencies to communicate with the local switching office and with adjacent
base stations. In the past, base stations typically were interconnected through
leased telephone lines, but with the advent of less expensive radio systems, it
is often easier and more cost effective to use microwave point-to-point radios
for wireless interconnection links.
Wireless technology has other potentially broad applications beyond
cellular and PCS systems. The recent worldwide trend toward privatization of
public telephone operators and deregulation of local telephone or "local loop"
services has resulted in increased competition in the delivery of telephone
service
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from alternative access providers. Many of these new access providers,
such as long-distance telephone carriers, public utilities and cable television
companies, must install or upgrade infrastructure to support basic and enhanced
services. In addition, worldwide demand for basic telephone service has grown,
especially in developing countries. As new infrastructure is established to
deliver local telephone service, service providers are increasingly choosing
wireless microwave transmission systems, which involve a number of short-haul
radio connections, instead of a traditional wired approach, to connect
subscribers to the public telephone network because wireless systems generally
offer lower cost and faster installation. Wireless systems can also be used to
bypass local telephone operating companies for private networking applications.
A growing segment of the wireless communications industry involves
VSATs (very small aperture terminals), which are communications systems
utilizing fixed-site satellite terminals. Historically, these systems were
primarily designed for certain specific data applications. However, recent
improvements in VSAT technology for satellite-based wireless voice and data
networks have led to their increasing use in a variety of broader, higher system
throughput commercial applications such as mobile and rural telephony and more
complicated data transmissions. Satellite telephony systems are being utilized
by developing countries that lack a terrestrial-based telecommunication
infrastructure, and which seek to provide telephone service for large areas
fairly rapidly and on a cost-effective basis. Additionally, even where
terrestrial systems exist, satellite systems are used to fill in coverage for
remote areas.
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TECHNOLOGY
Wireless transmissions require the conversion of information into a
higher frequency signal that can be transmitted and received through the air.
Generally, the frequency spectrum is allocated for different wireless uses by
governmental entities. The following diagram illustrates the frequency ranges at
which various wireless applications operate or are expected to operate.
ALLOCATION OF FREQUENCY RANGE FOR WIRELESS APPLICATIONS
<TABLE>
<CAPTION>
FREQUENCY
BAND RANGE USES
- ----------------------------------- ---------------------- ---------------------------
<S> <C> <C>
LOW FREQUENCY (LF) -- <300 MHz Navigation Equipment
(Aeronautical/Marine)
VERY HIGH FREQUENCY (VHF) AM/FM Radio
Amateur/CB Radio
Television
Dispatch Radio
- ---------------------------------------------------------------------------------------------
ULTRA HIGH FREQUENCY (UHF) 300 - 800 MHz UHF Television
Specialized Mobile
Radio (SMR)
Paging
Wireless Data
Collection
- ---------------------------------------------------------------------------------------------
HIGH RADIO FREQUENCY (RF) 800 MHz - 1 GHz Analog Cellular
Digital Cellular
Two-way Messaging
Cordless Phone
- ---------------------------------------------------------------------------------------------
MICROWAVE 1 - 2 GHz Private Radio Networks
PCS
Mobile Satellite
Telephony
Military
Communication/Navigation
- ---------------------------------------------------------------------------------------------
MICROWAVE/MILLIMETER WAVE 2 - 50 GHz VSAT
Satellite Voice/Messaging
Point-to-Point Radios
Wireless TV
Radar
Electronic Warfare
- ---------------------------------------------------------------------------------------------
</TABLE>
As new applications emerge for wireless technology, higher and higher
frequencies must be used due to congestion at lower frequencies. Additionally,
higher frequency bands allow a greater number of channels to be allocated to the
same percentage of spectrum compared with lower frequencies, affording greater
capacity at similar cost. The microwave transmission systems and associated
equipment required to implement these applications are similar in nature and
require similar design and manufacturing expertise as those developed for
defense applications. Examples of such equipment are millimeter wave
point-to-point radios which have been increasingly utilized for short-haul
wireless connections such as interconnecting cellular and PCS base stations or
providing private local loop service. High frequency radios are well suited for
these applications because the signal strength fades out very quickly in the
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atmosphere, allowing frequencies to be "re-used" beyond relatively small
geographic areas such as cellular systems. For example, the signal of a 23 GHz
point-to-point radio has a range of approximately 10 miles.
Every microwave transmission system contains a microwave "front end"
that performs the function of transforming modulated voice, data or video from
an intermediate frequency ("IF") signal (generally 10 MHz to 500 MHz) into a
microwave frequency signal for transmission and/or converting an incoming signal
from microwave frequencies back into an IF modulated voice, data or video
signal. A microwave front end will usually consist of several interconnected
MFMs and single function components.
A typical microwave radio front end contains, among other things, the
following components:
- - Amplifiers are used in the transmitter and receiver to increase the
power level of the signal to a usable range. In the transmitter, a
power amplifier is used at the output prior to transmission of the
signal to increase the signal to the necessary power so that it will
have enough strength when it is transmitted through the air to reach
the desired location. In the receiver, a low noise amplifier is used at
the input to minimize degradation of the received signal which is
usually low in signal strength due to the attenuation that occurs in
the atmosphere while the signal is traveling to the receiver.
- - The oscillator is a component that oscillates at a set frequency,
thereby generating a signal. Oscillators, multipliers and mixers work
together in the transmitter to convert voice, data or video signals at
low frequencies (generally, under 20 MHz) into signals at higher
frequencies (as high as 50 GHz) for transmission and in the receiver,
to convert transmit signals with higher frequencies back to the
original voice, data, or video signal. In systems that operate at
microwave frequencies, a signal may go through the process of having
its frequency increased/decreased two or three times in order to get
the signal to the desired frequency level.
- - The multiplier increases the frequency of the signal produced by the
oscillator by an integer multiple.
- - In the transmitter, the mixer combines the signal generated by the
oscillator and multiplier with the input signal (the signal being
transmitted) to generate an output signal that has a frequency equal to
the sum of the frequencies of the input signal and the signal produced
by the oscillator and multiplier. In the receiver, the mixer combines
the signal generated by the oscillator and multiplier with input signal
(the signal being received) to generate an output signal that has a
frequency equal to the difference of the frequencies of the two
combined signals in order to reduce its frequency to that of the
original signal prior to transmission.
- - Filters provide the important function in various stages of a
transmission or receiver system of eliminating signals that are outside
of the desired frequency range, while allowing signals of the desired
frequency to pass through. Generally, after the frequency or strength
of a signal has been increased or decreased, a filter is used to
eliminate undesired signals.
- - A variable attenuator adjusts the strength of a signal to an optimal
range. Often, a variable attenuator is used to decrease the strength of
a signal so as to avoid overloading the system or to reduce distortion.
- - A switch selects the path of a signal. For example, switches are used
to change between transmit and receive on radar systems. Switches can
also be used to switch between available channels on communication
systems.
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PRODUCTS
Microwave MFMs and Components. The Company designs customized microwave
MFMs and components, as well as subsystems incorporating multiple MFMs and
components, to address the specific requirements of its OEM and defense
contractor customers.
An MFM typically consists of one or a number of microwave circuit
boards and/or ceramic substrates mounted into a single package on which
semiconductor devices and other electronic components are interconnected to
perform signal processing functions such as amplification, conversion from one
frequency to another and filtering. The performance of the MFM is affected by
the characteristics of the semiconductor devices and other electronic
components, the interconnectivity patterns of various components, the shape,
size and location of the components with respect to each other, the type of
material used for the circuit board or substrate, and the size, shape and type
of enclosure that is designed to hold the circuit boards and/or substrates.
Predicting and controlling performance in module designs at microwave
frequencies requires a combination of design experience using accurate modeling
of component performance and manufacturing experience employing repeatable and
precise tolerance manufacturing processes. Perfecting module designs also
requires expertise in partitioning circuit blocks. Knowledge of which functions
to integrate or separate and how various blocks will interact in the system
results in better overall performance and smaller size. Knowledge of which
materials, devices and technology best implement each function results in lower
cost.
The Communication, Navigation and Identification (CNI) system for the
F-22 Stealth Tactical Fighter Aircraft illustrates the benefits derived from the
application of REMEC's MFM technology. A product team comprised of TRW Inc. and
REMEC engineers concurrently developed the requirements documents for 15 unique
MFMs and several components that comprise the microwave front end of the CNI
system. The product team optimized TRW's preliminary design for maximum
electrical performance, minimal package size and weight, minimum number of
unique MFMs and low manufacturing cost. The product team was able to reduce the
number of unique MFMs from 15 to 13, the weight from 24 to 17 pounds and the
volume by 30%, while improving performance and reducing the cost of production.
When the Company was founded in 1983, its first products were filters,
single function components. Since inception, the Company has excelled at
developing a broad range of filter products. The Company believes that its core
filter technology has been a significant enabler in the MFM business. Today, the
Company designs and manufactures a number of components, including filters,
switches, variable attenuators, amplifiers, oscillators, mixers and multipliers.
The Company believes that its component level expertise is a key competitive
advantage in designing MFMs. The Company's components generally are able to
operate at high frequencies and are relatively small in size. Although most of
the Company's revenues currently are from sales of MFMs, the Company does sell a
significant number of single-function filters, switches, multipliers and
amplifiers.
Commercial systems which utilize these products include infrastructure
radio equipment for cellular and PCS systems. Defense applications which utilize
these products include radar, radar jamming, communications and navigation
systems on aircraft, satellites and missile guidance systems.
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The following table lists certain of the Company's microwave components
and MFMs:
<TABLE>
<CAPTION>
PRODUCT TYPES FUNCTION
------------- --------
<S> <C>
Filters, Duplexers and Multiplexers........................ Separate desired frequency bands from undesired bands
Frequency Mixers........................................... Provide frequency conversion function
Voltage Controlled Oscillators............................. Generate frequency controlled by an input voltage
Dielectric Resonator Oscillators........................... Generate fixed frequency microwave signal
Cavity Oscillators......................................... Generate fixed frequency microwave signal
Switches................................................... Switch signal between different signal paths
Switch Attenuators......................................... Select discrete attenuation values
Variable Attenuators....................................... Select continuously variable attenuation values
Switch Matrices............................................ Allow MxN connectivity between M-inputs and N-outputs
Switched Delay Lines....................................... Select discrete phase delays
Switched Filters........................................... Select between multiple filters
Multipliers................................................ Multiply an input frequency by an integer
Comb Generators............................................ Provide several multiplied frequencies in a single output
Frequency Generators....................................... Generate multiple discrete frequency outputs
Frequency Synthesizers..................................... Generate a discrete stepped frequency output
Switched Amplifiers........................................ Provide multiple amplified signal functions
Frequency Converters....................................... Provide frequency conversion function
VSAT Tranceivers........................................... Transmit, receive and channel select microwave
signals for satellite applications
Point to Point Radio Front Ends............................ Transmit, receive and channel select microwave
signals for terrestrial applications
</TABLE>
The Company began shipping the front end of a 23 GHz point-to-point
radio for P-COM in November 1995. This subsystem consists of the integration of
a number of MFMs and components which perform multiple frequency conversions
between the baseband IF signal and the 23 GHz transmit/receive signal. The
re-design involves circuit optimization to reduce component count, size and cost
and re-packaging to combine multiple functions into a smaller number of MFMs.
As a result of the acquisition of RFM in April 1996, the Company
obtained the technology and began producing a standard C-Band transceiver. In
August 1996, the Company began production of a fully integrated DAMA (demand
assigned multiple access) C-Band Transceiver. This transceiver provides band
width on demand allowing a large number of data channels to be multiplexed into
a single communications link which provides a cost advantage over current single
channel products.
In the satellite communications market, the Company has developed with
Orbital Sciences Corporation transmit and receive modules used in the satellites
that comprise their LEO (low earth orbit) constellation designed to provide
two-way data and messaging service anywhere on the globe. Two prototype
satellites
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which include the Company's microwave products have been launched.
The Company also supplies components to Motorola, Inc. on the Iridium satellite
program.
The Company has commenced development of radio transceivers for other
frequency bands, but has no contract for production. REMEC is also developing a
low cost single channel SES (subscriber earth station) VSAT terminal for STM to
provide satellite-based phone services to outlying areas in underdeveloped
countries. In the cellular/PCS market, the Company is developing and producing a
number of filter and integrated filter products for base station applications.
Products include both ceramic and cavity filters, diplexers, LNA and
distribution and delay assemblies. The Company is currently transitioning to
production for Motorola, Inc. ("Motorola") a complex filter MFM integrating
switches, detectors, isolators and distribution circuits used in Motorola's base
station infrastructure.
Inertial Guidance Products. REMEC also designs and manufactures
precision instruments for guidance, control and measurement systems through a
wholly owned subsidiary, Humphrey, Inc., which was incorporated in 1951 and
acquired by the Company effective January 31, 1994. These instruments are used
by the defense, aerospace, petroleum and mining industries. Humphrey's primary
products are gyroscopes used for military missile and bomb guidance.
Most of Humphrey's business is the design, manufacture and sale of
guidance and control components, including gyroscopes, rate sensors,
accelerometers, potentiometers, pendulums, magnetometers, north-seeking devices
and related products for control and instrumentation systems. These products
indicate changes in the direction and speed of moving objects and are sold to a
wide variety of missile and defense aircraft manufacturers
for use in primary control systems for the stabilization and guidance of
missiles and in instrumentation systems. In addition, these products are
purchased by manufacturers of commercial and general aviation aircraft.
Humphrey's products are designed for use in defense, aircraft, aerospace and
oceanographic applications. A smaller portion of Humphrey's business is
directional survey equipment consisting of directional gyroscopes, cameras,
optical compasses and related instruments used for subsurface directional
surveying in exploration and production drilling in the petroleum and mining
industries.
Satellite Engineering Services. RF Microsystems, acquired by REMEC in
April 1996, provides engineering and design services for the Department of
Defense in the satellite communications area.
CUSTOMERS
Commercial. As of January 31, 1997, the Company has received orders
totaling $51.5 million for the manufacture of point-to-point radio front ends
and related MFMs for P-COM, Inc. ("P-COM"). The Company, through its Magnum
subsidiary, produces numerous MFMs and components, such as mixers and
oscillators, which are critical to the transmit and receive functions of
microwave radios for customers such as the Farinon Division of Harris
Corporation ("Harris-Farinon") Alcatel Network Systems and California Microwave,
Inc. REMEC also has received orders for microwave MFMs and components from
Alcatel Network Systems ("Alcatel"), AT&T Corp., Caterpillar Inc., Glenayre
Technologies, Inc., Lucent Technologies, Inc., Motorola, Orbital Sciences
Corporation and Pacific Communications Sciences, Inc.
The Company expects that sales of its wireless commercial products will
continue to be concentrated among a limited number of major customers. If the
Company were to lose a major customer or if orders by such customer were to be
canceled or otherwise decrease, the Company's business, financial condition and
results of operations would be materially adversely affected.
P-COM. P-COM produces point-to-point millimeter wave radio systems for
use in wireless telecommunications applications. P-COM and the Company entered
into an agreement in August 1995
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for the production by the Company of microwave front ends for 23 GHz
point-to-point radios in quantities and at fixed prices set forth in purchase
orders issued by P-COM and accepted by the Company. The Company has accepted
orders to produce in excess of 15,000 units for P-COM. The orders are being
executed in three phases. In the first phase, the Company produced and shipped
in late 1995 a small number of units in accordance with P-COM's original product
design. In the second phase, the Company re-designed several MFMs to lower cost
and increase producability. In the third phase, the Company completed the
re-design of MFMs and is currently transitioning that design into production.
The Company produces the units based on a rolling six-month forecast provided by
P-COM. The agreement provides that all of the units will be delivered by
December 1998. The Company has agreed to sell the products which are the subject
of the agreement exclusively to P-COM and not to compete with P-COM in the sale
of point-to-point radios under conditions applicable to both parties. The
Company faces the risk of cost overruns if it fails to achieve forecasted
product design goals and manufacturing efficiencies in the production of
point-to-point radio front ends for P-COM.
STM. STM sells complete VSAT network systems to foreign governments and
corporate entities to provide both voice and data communications over long
distance through use of satellite communications. In connection with the
acquisition of RFM from STM, REMEC received orders from STM for approximately
$20.0 million and recently has received additional orders for approximately
$10.4 million of VSAT transceivers.
Motorola. In the cellular/PCS market, the Company has received $3.8
million in awards from Motorola for the development and production of numerous
filter and filter MFM products.
Defense. REMEC focuses its efforts on defense programs which it
believes have the highest probability of follow-on production. Tactical
aircraft, satellites, missile systems and smart weapons comprise the majority of
the platforms of the Company's customers. Defense industry programs from which
REMEC derives or may derive significant revenues include: the F-22 Stealth
Tactical Fighter Aircraft program for the U.S. Air Force for which the Company
is developing switch amplifiers, switch filters, integrated switch modules,
power amplifiers, frequency generators, frequency converters and frequency
multipliers for three different RF subsystems (CNI, Radar and Electronic
Warfare); the Airborne Self-Protection Jammer (ASPJ) program for foreign
military customers for which the Company has developed and produced a 28-channel
switched filter bank and multi-function components such as frequency modulators;
the Advanced Medium Range Air to Air Missile (AMRAAM) program for the U.S. Air
Force for which the Company has developed and produced frequency multipliers,
converters and filters; and the radar warning receiver program (ALR 56M) for the
U.S. Air Force for which the Company has developed and produced switch filters,
notch filters, switches and filters.
The Company sells microwave MFMs and components to prime contractors
such as Hughes Aircraft Co. ("Hughes Aircraft"), Northrop Grumman Corporation
("Northrop Grumman") and Lockheed Martin Corporation ("Lockheed Martin"). The
Company through Humphrey sells inertial guidance products primarily to defense
prime contractors such as Texas Instruments, Inc., British Aerospace plc and
Lockheed Martin.
Historically, most of the Company's revenues have been derived from
sales to the defense market. Revenues for defense applications constituted
approximately 87%, 82%, and 65% of the Company's revenues for each of the years
ended January 31, 1995, 1996 and 1997, respectively. The Company expects to
continue to derive a substantial portion of its revenues from the defense
industry and to develop products for defense applications. As a result, the
Company's sales could be materially adversely impacted by a decrease in
government defense budgets because of spending cuts, general budgetary
constraints or otherwise.
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BACKLOG
The Company's backlog of orders as of January 31, 1997 and 1996 was
$127.8 million ($67.6 million commercial and $60.2 million defense) and $87.5
million ($45.1 million commercial and $42.4 million defense), respectively. The
Company includes in its backlog only those orders for which it has accepted
purchase orders. However, backlog is not necessarily indicative of future sales.
A substantial amount of the Company's backlog can be canceled at any time
without penalty, except, in most cases, for the recovery of the Company's actual
committed costs and profit on work performed up to the date of cancellation. For
example, the government terminated a large defense program in December 1992 for
which the Company had been supplying in excess of $4.0 million of products on an
annual basis. A substantial portion of the purchase orders comprising backlog at
January 31, 1997 include product specifications not yet achieved by the Company.
A failure to develop products meeting such specifications could lead to a
cancellation of the related purchase orders.
SALES AND MARKETING
The Company uses a team-based sales approach to facilitate close
management by Company personnel of relationships at multiple levels of the
customer's organization, including management, engineering and purchasing
personnel. The Company's integrated sales approach involves a team consisting of
a senior executive, a business development specialist, members of the Company's
engineering department and, occasionally, a local technical sales
representative. In particular, the use of experienced engineering personnel as
part of the sales effort enables close technical collaboration with the customer
during the design and qualification phase of new communications equipment which,
the Company believes, is critical to the integration of its products into its
customers equipment. The Company's executive officers are also involved in all
aspects of the Company's relationships with its major customers and work closely
with their senior management. The Company utilizes manufacturers and sales
representatives to identify opportunities.
To date, the Company has sold its products overseas with the assistance
of independent sales representatives. Sales outside of the United States
represented 12%, 16% and 9% of net sales in fiscal years ended January 31, 1995,
1996 and 1997, respectively. Sales outside of the United States are denominated
in U.S. dollars in order to reduce the risks associated with the fluctuations of
foreign currency exchange rates. The international sales do not include products
sold to foreign end users by the Company's domestic OEM customers.
MANUFACTURING
The Company assembles, tests, packages and ships products at its
manufacturing facilities located in San Diego, San Jose and Santa Clara,
California. The Company believes that process expertise and discipline are key
elements of successful high volume production of microwave MFMs because of the
precise specifications required. Since inception, the Company has been
manufacturing products for defense programs in compliance with the stringent
MIL-Q-9858 specifications. The Company believes that it can readily bring to the
commercial market the manufacturing quality and discipline it has demonstrated
in the defense market. The Company received ISO-9001 certification from the
Defense Electronics Supply Center for its microwave facilities. ISO-9001 is a
standard established by the International Organization for Standardization that
provides a methodology by which manufacturers can obtain quality certification.
Although this certification is not currently required by any of its customers,
REMEC believes that it will be beneficial to the acquisition of future business.
To assure the highest product quality and reliability and to maximize control
over the complete manufacturing cycle and costs, the Company seeks to achieve
vertical integration in the manufacturing process wherever appropriate.
10
<PAGE> 13
Historically, the volume of the Company's production requirements in
the defense markets was not sufficient to justify the widespread implementation
of automated manufacturing processes. The Company anticipates that increased
sales of its products to the wireless telecommunications industry will require a
significant increase in the Company's manufacturing capacity. Accordingly, the
Company has introduced automated manufacturing techniques for product assembly
and testing and is currently planning to expand its facilities. Following the
acquisition of Veritek in March 1997, the Company now has the in-house
capability for cost effective, optimized cycle time manufacture of surface mount
assemblies, including microwave soft substrate assemblies.
The Company attempts to utilize standard parts and components that are
available from multiple vendors. However, certain components used in the
Company's products are currently available only from single sources, and other
components are available from only a limited number of sources. The Company's
reliance on contract manufacturers and on sole suppliers involves several risks,
including a potential inability to obtain critical materials or services and
reduced control over production costs, delivery schedules, reliability and
quality of components or assemblies. Any inability to obtain timely deliveries
of acceptable quality, or any other circumstance that would require the Company
to seek alternative contract manufacturers or suppliers, could delay the
Company's ability to deliver its products to its customers, which in turn would
have a material adverse effect on the Company's business, financial condition
and results of operations. Despite the risks associated with purchasing
components from single sources or from a limited number of sources, the Company
has made the strategic decision to select single source or limited source
suppliers in order to obtain lower pricing, receive more timely delivery and
maintain quality control. The Company also relies on contract manufacturers for
circuit board assembly. The Company generally orders components and circuit
boards from its suppliers and contract manufacturers by purchase order on an as
needed basis.
COMPETITION
The markets for the Company's products are extremely competitive and
are characterized by rapid technological change, new product development,
product obsolescence and evolving industry standards. In addition, price
competition is intense and significant price erosion generally occurs over the
life of a product. The Company faces some competition from component
manufacturers who have integration capabilities, but believes that its primary
competition is from the captive manufacturing operations of large wireless
telecommunications OEMs (including all of the major telecommunications equipment
providers) and defense prime contractors who are responsible for a substantial
majority of the present worldwide production of MFMs. The Company's future
success is dependent upon the extent to which these OEMs and defense prime
contractors elect to purchase from outside sources rather than manufacture their
own microwave MFMs and components. The Company's customers and large
manufacturers of microwave transmission equipment could also elect to enter into
the non-captive market for microwave products and compete directly with the
Company. Many of the Company's current and potential competitors have
substantially greater technical, financial, marketing, distribution and other
resources than the Company and have greater name recognition and market
acceptance of their products and technologies. No assurance can be given that
the Company's competitors will not develop new technologies or enhancements to
existing products or new products that will offer superior price or performance
features or that new products or technologies will not render obsolete the
products of the Company's customers. For example, innovations such as a wireless
telephone system utilizing satellites instead of terrestrial base stations or a
device that integrates microwave functionality could significantly reduce the
potential market for the Company's products. The Company believes that to remain
competitive in the future it will need to invest significant financial resources
in research and development.
11
<PAGE> 14
RESEARCH AND DEVELOPMENT
Research and development expenses recorded by the Company for the
fiscal years ended January 31, 1995, 1996 and 1997 were approximately
$1,028,000, $2,274,000 and $2,840,000 respectively. The Company's research and
development efforts in the defense industry are conducted in direct response to
the unique requirements of a customer's order and, accordingly, are included in
cost of sales and the related funding in net sales. The Company expects that as
its commercial business expands, research and development expenses will increase
in amount and as a percentage of sales.
GOVERNMENT REGULATIONS
The Company's products are incorporated into wireless
telecommunications systems that are subject to regulation domestically by the
FCC and internationally by other government agencies. Although the equipment
operators and not the Company are responsible for compliance with such
regulations, regulatory changes, including changes in the allocation of
available frequency spectrum, could materially adversely affect the Company's
operations by restricting development efforts by the Company's customers,
obsoleting current products or increasing the opportunity for additional
competition. Changes in, or the failure by the Company to manufacture products
in compliance with, applicable domestic and international regulations could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, the increasing demand for wireless
telecommunications has exerted pressure on regulatory bodies worldwide to adopt
new standards for such products, generally following extensive investigation of
and deliberation over competing technologies. The delays inherent in this
governmental approval process have in the past caused and may in the future
cause the cancellation, postponement or rescheduling of the installation of
communications systems by the Company's customers, which in turn may have a
material adverse effect on the sale of products by the Company to such
customers.
The Company is also subject to a variety of local, state and federal
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture the Company's products. The failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes or
cessation of operations.
Because of its participation in the defense industry, the Company is
subject to audit from time to time for its compliance with government
regulations by various agencies, including the Defense Contract Audit Agency,
the Defense Investigative Service and the Office of Federal Control Compliance
Programs. These and other governmental agencies may also, from time to time,
conduct inquiries or investigations that may cover a broad range of Company
activity. Responding to any such audits, inquiries or investigations may involve
significant expense and divert management attention. Also, an adverse finding in
any such audit, inquiry or investigation could involve penalties that may have a
material adverse effect on the Company's business, financial condition or
results of operation.
The Company believes that it operates its business in material
compliance with applicable government regulations.
INTELLECTUAL PROPERTY
The Company does not presently hold any significant patents applicable
to its products. In order to protect its intellectual property rights, the
Company relies on a combination of trade secret, copyright and trademark laws
and employee and third-party nondisclosure agreements, as well as limiting
access to and distribution of proprietary information. There can be no assurance
that the steps taken by the Company to protect its intellectual property rights
will be adequate to prevent misappropriation of the Company's
12
<PAGE> 15
technology or to preclude competitors from independently developing such
technology. Furthermore, there can be no assurance that, in the future, third
parties will not assert infringement claims against the Company or with respect
to its products for which the Company has indemnified certain of its customers.
Asserting the Company's rights or defending against third party claims could
involve substantial costs and diversion of resources, thus materially and
adversely affecting the Company's business, financial condition and results of
operations. In the event a third party were successful in a claim that one of
the Company's products infringed its proprietary rights, the Company may have to
pay substantial royalties or damages, remove that product from the marketplace
or expend substantial amounts in order to modify the product so that it no
longer infringes such proprietary rights, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
As of April 1, 1997, the Company had a total of 1,166 employees,
including 793 in manufacturing and operations, 178 in research, development and
engineering (including 43 designers and drafters, 14 manufacturing engineers, 5
quality engineers and 116 electrical and mechanical engineers), 55 in quality
assurance, 46 in sales and marketing and 94 in administration. The Company
believes its future performance will depend in large part on its ability to
attract and retain highly skilled employees. None of the Company's employees is
represented by a labor union and the Company has not experienced any work
stoppage. The Company considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company's principal administrative, engineering and manufacturing
facilities are located in eight buildings aggregating approximately 199,000
square feet in San Diego, California, consisting of one 23,000 square foot
facility owned by the Company and seven leased facilities, pursuant to leases
which expire in December 1998 and January 2000. The facilities of Magnum and
Radian are located in 31,000 and 23,000 square feet buildings located in San
Jose and Santa Clara, California, respectively. The Magnum lease expires in
January 2001 and the Radian lease expires in March 1998. The Company believes
that its existing facilities are adequate to meet its current needs and that
suitable additional or alternative space will be available on commercially
reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is presently subject to
any material litigation, nor to the Company's knowledge, is such litigation
threatened against the Company or its subsidiaries, other than routine actions
and administrative proceedings arising in the ordinary course of business, all
of which collectively are not anticipated to have a material adverse effect on
the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of the Company's shareholders
during the last quarter of its fiscal year ended January 31, 1997.
13
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
MARKET INFORMATION
Prior to the quotation of the Common Stock on the Nasdaq National
Market beginning on February 1, 1996, there was no established trading market
for the Common Stock. Since February 1, 1996, the Common Stock has been quoted
on the Nasdaq National Market under the symbol "REMC." The following table sets
forth the range of high and low closing sale prices of the Common Stock as
reported on the Nasdaq National Market for the quarterly periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31, 1997 High Low
------ -------
<S> <C> <C>
First Quarter (from February 1, 1996)...................... $17 3/8 $ 8 1/8
Second Quarter............................................. 22 3/8 11 3/8
Third Quarter.............................................. 15 3/4 11 1/4
Fourth Quarter ............................................ 26 1/4 14
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National
Market on April 8, 1997 was $23 3/4. As of April 8, 1997 there were
approximately 502 holders of record of Common Stock.
DIVIDEND POLICY
The Company currently intends to retain all future earnings, if any,
for use in the operation and development of its business and, therefore, does
not expect to declare or pay any cash dividends on its Common Stock in the
foreseeable future. The Company's line of credit agreement restricts the amount
of cash dividends that the Company may pay. See Note 4 to Consolidated Financial
Statements.
14
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below with respect
to the Company's statements of income for each of the years in the three year
period ended January 31, 1997 and with respect to the balance sheets at January
31, 1996 and 1997, are derived from the consolidated financial statements that
have been audited by Ernst & Young LLP, independent auditors, which are included
elsewhere in this Annual Report on Form 10-K and are qualified by reference to
such financial statements. The statement of operations data for the years ended
January 31, 1993 and 1994 and the balance sheet data at January 31, 1993, 1994
and 1995, are derived from audited financial statements not included in this
Annual Report on Form 10-K. The following selected financial data should be read
in conjunction with the Consolidated Financial Statements for REMEC and notes
thereto and Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
----------------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Net sales ..................................... $ 42,347 $ 46,577 $ 57,553 $ 62,145 $ 85,944
Cost of sales ................................. 29,749 33,196 42,707 46,598 63,660
-------- -------- -------- -------- --------
Gross profit .................................. 12,598 13,381 14,846 15,547 22,284
Operating expenses:
Selling, general and ........................ 6,484 7,256 9,244 9,583 11,811
administrative
Research and development .................... 992 782 1,028 2,274 2,840
-------- -------- -------- -------- --------
7,476 8,038 10,272 11,857 14,651
-------- -------- -------- -------- --------
Income from operations ...................... 5,122 5,343 4,574 3,690 7,633
Interest expense and other .................... (43) (38) 299 35 (348)
-------- -------- -------- -------- --------
Income before provision for
income taxes .................................. 5,165 5,381 4,275 3,655 7,981
and extraordinary item
Provision for income taxes .................... 1,638 1,836 1,743 1,499 3,111
-------- -------- -------- -------- --------
Income before extraordinary ................... 3,527 3,545 2,532 2,156 4,870
item
Extraordinary item ............................ 167 -- -- -- --
-------- -------- -------- -------- --------
Net income .................................... $ 3,694 $ 3,545 $ 2,532 $ 2,156 $ 4,870
======== ======== ======== ======== ========
Net income per share(2) ....................... $ 0.44 $ 0.52 $ 0.38 $ 0.32 $ 0.54
======== ======== ======== ======== ========
Shares used in per share ...................... 8,429 6,852 6,667 6,639 9,039
calculations
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
BALANCE SHEET DATA(1):
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ..................... $ 3,349 $ 3,671 $ 1,755 $ 1,326 $ 62,402
Working capital ............................... 10,332 13,367 11,993 11,912 79,904
Total assets .................................. 21,378 30,878 29,190 33,739 108,740
Long-term debt ................................ 1,008 3,895 1,165 1,900 -
Total shareholders' equity .................... 13,593 17,158 18,713 20,094 95,895
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------
1996 1997
------- --------
BACKLOG(1)(2):
<S> <C> <C>
Commercial ........................................................................................... $ 45,134 $ 67,614
Defense .............................................................................................. 42,382 60,182
-------- --------
Total ........................................................................................ $ 87,516 $127,796
======== ========
</TABLE>
(1) The Company acquired Magnum in August 1996 in a transaction that was
accounted for as a pooling of interests and, as such, all financial
amounts contained in the table and the accompanying Consolidated
Financial Statements have been restated to include the financial
results and data of Magnum for all periods presented.
(2) Computed on the basis described in Note 1 to Consolidated Financial
Statements. Backlog is not necessarily indicative of future sales and
is generally subject to cancellation.
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REMEC commenced operations in 1983 and has become a leader in the
design and manufacture of MFMs for the defense industry. The Company's
consolidated results of operations include the operations of REMEC Microwave
("Microwave"), REMEC Wireless, Inc. ("Wireless"), Humphrey, Inc. ("Humphrey"),
RF Microsystems, Inc. ("RFM") and Magnum Microwave Corporation ("Magnum").
All revenue and related costs of sales are recognized when products are
shipped or engineering services are performed. In fiscal 1996 and fiscal 1997,
sales to the Company's top ten customers accounted for approximately 60% and
62%, respectively, of total net sales; sales to the Company's top three
customers accounted for approximately 30% and 31%, respectively, of total net
sales; and sales to the top customer accounted for 13% and 18%, respectively, of
total net sales. The Company recorded revenue of approximately $27.9 million
(32%) of total revenue for fiscal 1997 to the wireless telecommunications
market. As of January 31, 1997, the Company had an order backlog of $127.8
million, with $67.6 million (53%) representing commercial wireless
telecommunications orders. The Company expects sales to the commercial
telecommunications market to represent an increasing percentage of revenue in
the near future because of its backlog and the Company's strategy to increase
its presence in the commercial wireless telecommunications market. The Company's
international sales as a percentage of net sales for fiscal years 1996 and 1997
were 16% and 9%, respectively. The international sales percentages do not
include products sold to foreign end users by the Company's domestic OEM
customers.
The Company's research and development efforts in the defense industry
are conducted in direct response to the unique requirements of a customer's
order and, accordingly, expenditures related to such efforts are included in
cost of sales and the related funding is included in net sales. As a result,
historical Company funded research and development expenses have been minimal.
As the Company's commercial business has expanded, research and development
expenses have generally increased in amount and as a percentage of sales. The
Company expects this trend to continue, although research and development
expenses may fluctuate on a quarterly basis both in amount and as a percentage
of sales.
Effective January 31, 1994, the Company acquired all the outstanding
stock of Humphrey in a transaction that was accounted for as a purchase.
Humphrey designs and manufactures precision instruments for guidance, control
and measurement systems used in defense and commercial applications. Effective
April 30, 1996, the Company acquired all of the outstanding common stock of RFM
and various VSAT (very small aperture terminals) microwave design and
manufacturing resources from STM in a transaction that was accounted for as a
purchase. RFM provides the Department of Defense with research and analysis,
systems engineering and test evaluation services. The consolidated statements of
income and cash flows for the year ended January 31, 1997 include RFM's
operating results from April 30, 1996. The Company's January 31, 1997 balance
sheet includes RFM's assets and liabilities.
On August 26, 1996, the Company acquired all of the outstanding common
stock of Magnum in a transaction that was accounted for as a pooling of
interests. Magnum is a leading supplier of oscillators and mixers. All
accompanying historical financial statement information has been restated to
include Magnum's operations and assets and liabilities.
On February 28, 1997, the Company acquired all of the outstanding
common stock of Radian, in a transaction that was accounted for as a pooling of
interests. Radian provides the defense market with microwave components,
primarily synthesizers, receivers, oscillators and filters. In March 1997, the
Company acquired Veritek, a producer of high quality surface mount manufacturing
assemblies. Since Radian and Veritek were acquired after the end of fiscal 1997,
no financial statements included herein reflect the results of operations or
assets and liabilities of Radian or Veritek.
16
<PAGE> 19
In April 1997, the Company reached a definitive agreement to acquire
C&S Hybrid through a merger of C&S Hybrid into a newly formed subsidiary of the
Company. C&S Hybrid designs and manufactures microwave components and MFMs. The
shareholders of C&S Hybrid are expected to receive approximately 860,000 shares
of the Company's Common Stock in the acquisition. Completion of the acquisition
is subject to satisfaction of customary conditions and, if completed, will be
treated as a pooling of interests.
The Company's microwave defense business is conducted at Microwave,
Magnum and RFM, its commercial wireless telecommunications business is conducted
through Wireless and Magnum and its precision instrument business is conducted
at Humphrey.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total net sales,
certain consolidated statement of income data for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales ..................................... 100% 100% 100%
Cost of goods sold ............................. 74 75 74
---- ---- ----
Gross profit ................................. 26 25 26
Operating expenses:
Selling, general & administrative ............ 16 15 14
Research and development ..................... 2 4 3
---- ---- ----
Total operating expenses .................. 18 19 17
---- ---- ----
Income from operations ......................... 8 6 9
Interest (income) expense ...................... 1 -- (1)
---- ---- ----
Income before income taxes ..................... 7 6 10
Provision for income taxes ..................... 3 3 4
---- ---- ----
Net income ..................................... 4% 3% 6%
==== ==== ====
</TABLE>
FISCAL YEAR ENDED JANUARY 31, 1997 VS. FISCAL YEAR ENDED JANUARY
31, 1996
Net Sales. Net sales increased 38% from $62.1 million during fiscal
1996 to $85.9 million for fiscal 1997. The increase in net sales is attributable
to sales increases at all of the Company's operating subsidiaries, including
$4.8 million of net sales of RFM from the effective date of the acquisition.
Microwave net sales increased from $26.9 million for fiscal 1996, to $27.5
million for fiscal 1997. Humphrey net sales increased from $20.6 million in
fiscal 1996 to $21.2 million in fiscal 1997, Wireless net sales increased from
$5.4 million in fiscal 1996 to $21.1 million in fiscal 1997 and Magnum net sales
increased from $9.4 million in fiscal 1996 to $11.3 million in fiscal 1997.
The increase in Microwave net sales is attributable to increased
defense bookings during fiscal 1997. Results for fiscal 1996 include $2.4
million of non-recurring Microwave revenue, $0.9 million of gross profit and
$0.3 million of selling, general and administrative expenses associated with the
settlement of a termination claim for a large defense contract that was
terminated in December 1992. The increase in Humphrey revenue is primarily
attributable to increased shipments on production contracts for existing
programs and customers. Sales to commercial wireless customers for Wireless were
almost entirely attributable to the production of microwave front-ends and VSAT
equipment for P-COM and STM, respectively. Magnum sales include commercial
wireless sales of $5.6 million and $6.8 million for fiscal 1996 and 1997,
respectively. With the inclusion of Magnum commercial wireless sales,
17
<PAGE> 20
consolidated commercial wireless sales were $11.0 million and $27.9 million, or
18% and 32%, of total sales for fiscal 1996 and 1997, respectively.
Gross Profit. Gross profit increased 43% from $15.5 million for fiscal
1996 to $22.3 million for fiscal 1997. Gross margin increased from 25% in fiscal
1996 to 26% in fiscal 1997. Gross margins for Microwave were 20% in fiscal 1996
and 22% in fiscal 1997. Gross margins for Humphrey were 30% for fiscal 1996
versus 33% for fiscal 1997. Humphrey gross profit for fiscal 1996 was adversely
affected by a $1.1 million provision for additional losses on certain long-term
contracts in place at the time of the Company's acquisition of Humphrey. Gross
margin for Wireless for fiscal 1996 were 12% versus 20% for the comparable
fiscal 1997 period. Wireless gross margins increased due to the increased sales
volume. Magnum gross margins increased from 37% for fiscal 1996 to 39% for the
comparable fiscal 1997 period. The improved gross margin is attributable to the
increased sales volume. With the inclusion of the gross profit on Magnum
commercial wireless sales of $2.1 million and $2.7 million, respectively,
consolidated commercial wireless gross margins were 25% for both fiscal 1996 and
fiscal 1997. Gross profit for fiscal 1997 includes $649,000 of gross profit from
RFM with a gross margin of 14%.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased 23% from $9.6 million during fiscal
1996 to $11.8 million for fiscal 1997. This increase is primarily attributable
to additional SG&A costs associated with the Wireless and RFM operations,
neither of which were significant contributors to prior year SG&A costs.
Wireless was operating at start-up levels during fiscal 1996, while RFM was not
included in prior year results as it was not acquired until the second quarter
of fiscal 1997. In addition, SG&A expenses for fiscal 1997 increased due to
$424,000 of non-recurring acquisition costs associated with the Magnum merger.
SG&A declined as a percentage of net sales from 15% for fiscal 1996 to 14% for
fiscal 1997, due to increased sales volume. The Company expects SG&A expenses to
increase in absolute dollars in the future as it pursues opportunities in the
commercial wireless telecommunications market.
Research and Development Expenses. Research and development expenses
increased from $2.3 million for fiscal 1996 to $2.8 million for fiscal 1997.
This increase resulted primarily from commercial wireless telecommunications
research and development expenses totaling $1.5 million during fiscal 1997
versus $937,000 for the comparable fiscal 1996 period. This increase is a result
of the start-up of the commercial wireless business.
Interest (Income) Expense. Interest expense decreased from $35,000 of
interest expense for fiscal 1996 to a total interest income of $348,000 for
fiscal 1997. The change is primarily attributable to the increased level of cash
on hand as a result of the funds generated from the Company's initial public
offering which was consummated in February 1996. The interest expense incurred
during the prior year reflects interest on debt obligations incurred in
connection with the Humphrey acquisition, net of interest income generated at
Magnum.
Provision for Income Taxes. The Company's effective income tax rate
declined from 41% for fiscal 1996 to 39% for fiscal 1997. The decrease reflects
the benefit of available tax credits on certain capital expenditures. The
Company expects its fiscal 1997 effective tax rate to be approximately 39%.
FISCAL YEAR ENDED JANUARY 31, 1996 VS. FISCAL YEAR ENDED JANUARY, 1995
Net Sales. Net sales increased 8% from $57.6 million in fiscal year
ended January 31, 1995 to $62.1 million in fiscal year ended January 31, 1996.
The effects of a reduction in defense Microwave and Magnum sales were offset by
increased Humphrey and Wireless sales. Microwave sales decreased from $30.5
million for fiscal 1995 to $26.9 million for fiscal 1996. Magnum sales decreased
from $11.3 million in fiscal 1995 to $9.4 million in fiscal 1996. Humphrey net
sales increased from $15.8 million
18
<PAGE> 21
in fiscal 1995 to $20.6 million in fiscal 1996, while Wireless net sales were
$5.4 million for fiscal 1996 versus no sales during fiscal 1995.
The decrease in Microwave sales is attributable to continued reductions
in available defense industry production programs as well as the defense
marketplace factors discussed above. This decrease was offset by $2.4 million of
non-recurring Microwave revenue associated with the settlement of a claim
relating to a large defense contract that was terminated in December 1992. The
increase in Humphrey revenue is primarily attributable to increased shipments on
production contracts for existing programs and customers. Sales to commercial
wireless customers were almost entirely attributable to the production of
microwave front-ends for P-COM. The primary reason for the decrease in Magnum
sales was a $2.3 million reduction in cavity oscillator shipments to
Harris-Farinon, Magnum's single largest customer. While the decrease represents
a permanent reduction in this business, Magnum has designed a series of
oscillators to replace the obsolete cavity oscillators and has begun shipments
of these products to Harris-Farinon. To a lesser extent, the decrease in revenue
is attributable to the relocation of Magnum's facility from Fremont to San Jose
which temporarily disrupted production.
Gross Profit. Gross profit increased 5% from $14.8 million for fiscal
1995 to $15.6 million for fiscal 1996. Gross margin declined from 26% in fiscal
1995 to 25% in fiscal 1996. Gross margins for Microwave were 20% for both
periods. A decrease in Microwave gross profit on recurring contracts was offset
by the gross profit on the non-recurring revenue associated with the settlement
described above. Gross margins for Humphrey were 26% for fiscal 1995 and 30% for
fiscal 1996. Gross margin for Wireless for fiscal 1996 was 12%. Wireless gross
margins were affected by start-up costs associated with the P-COM contract.
Magnum gross margins decreased from 40% in fiscal 1995 to 37% in fiscal 1996.
This decrease is due primarily to the reduced revenue levels in the cavity
oscillator product line, the disruption in operations created by the facility
relocation and the continued erosion of the average selling prices in many of
Magnum's products.
Selling, General and Administrative Expenses. SG&A expenses increased
4% from $9.2 million during fiscal 1995 to $9.6 million for fiscal 1996. The
increase in SG&A is primarily attributable to the recognition of expenses
associated with the settlement described above. These expenses as a percentage
of net sales declined from 16% for fiscal 1995 to 15% for fiscal 1996.
Research and Development Expenses. Research and development expenses
increased from $1.0 million for fiscal 1995 to $2.3 million for fiscal 1996.
This increase resulted primarily from initial commercial wireless
telecommunications research and development expenses totaling $937,000 during
fiscal 1996.
Interest (Income) Expense. Interest expense decreased from $298,000 for
fiscal 1995 to $35,000 for fiscal 1996. The decrease is attributable to
continued reductions in average bank borrowings as the Company reduced the debt
attributable to the Humphrey acquisition.
Provision for Income Taxes. The Company's effective income tax rate was
41% in fiscal 1995 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1997, the Company had $62.4 million of cash and cash
equivalents and $79.9 million of working capital. The Company also has $17.0
million in available credit facilities consisting of a $9.0 million revolving
working capital line of credit and a $8.0 million revolving term loan. The
borrowing rate under both credit facilities is prime. The revolving working
capital line of credit terminates July 1, 1998. The revolving period under the
term loan expires July 1, 1998, at which time any loan amount outstanding
converts to a term loan to be fully amortized and paid in full by January 2,
19
<PAGE> 22
2002. As of January 31, 1997, there were no borrowings outstanding under the
Company's credit facilities.
During fiscal 1997, the Company's net cash provided by operations was
approximately $881,000. The fiscal year 1997 net cash provided by operations
primarily consisted of approximately $7.5 million of net income and depreciation
and amortization expenses offsetting increases in accounts receivable and
inventories of $4.0 million and $2.2 million, respectively. The increase in
accounts receivable and inventories during fiscal 1997 resulted from the
Company's increased level of sales.
Investing activities utilized $8.9 million in cash during fiscal 1997,
primarily as a result of the $4.0 million cash acquisition of RFM, and $6.3
million of capital expenditures, the bulk of which were associated with the
expansion of the Company's commercial wireless telecommunications business. The
above expenditures were financed primarily by funds raised in the Company's
public offerings completed in February 1996 and January 1997. The Company's
future capital expenditures will continue to be substantially higher than
historical levels as a result of commercial wireless telecommunications
expansion requirements.
In February 1996, the Company completed an initial public offering in
which it sold a total of approximately 2.3 million shares of Common Stock at
$8.00 per share. The net proceeds from the offering after deducting underwriting
commissions and expenses totaled $15.6 million. In January 1997, the Company
sold approximately 2.4 million shares of Common Stock at $23.00 per share in a
public offering. The net proceeds from the offering after deducting underwriting
commissions and expenses totaled $52.0 million. The Company also realized
proceeds of approximately $3.2 million from additional issuances of stock
primarily attributable to the Company's Employee Stock Purchase Plan and a
private equity placement by the Company's Magnum subsidiary completed prior to
its merger in August 1996. In addition to the funds invested in connection with
the acquisition of RFM, an additional $2.4 million of the initial public
offering proceeds were utilized to pay down certain bank obligations, including
$526,000 of obligations assumed in the acquisition of RFM.
The Company's future capital requirements will depend upon many
factors, including the nature and timing of orders by OEM customers, the
progress of the Company's research and development efforts, expansion of the
Company's marketing and sales efforts, and the status of competitive products.
The Company believes that available capital resources and the proceeds from the
Follow-On Offering will be adequate to fund its operations for at least twelve
months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included as a separate section following
Item 14 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
20
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information pertaining to directors and executive officers of the
Registrant is set forth under "Election of Directors -- Information Regarding
Nominees and Executive Officers" in the Registrant's Proxy Statement for the
Annual Meeting of Shareholders expected to be held on June 6, 1997 and is herein
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information pertaining to executive compensation is set forth under
"Election of Directors -- Executive Compensation" in the Registrant's Proxy
Statement for the Annual Meeting of Shareholders expected to be held on June 6,
1997 and is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to security ownership of the Registrant's Common
Stock is set forth under "Election of Directors -- Principal Shareholders" in
the Registrant's Proxy Statement for the Annual Meeting of Shareholders expected
to be held on June 6, 1997 and is herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information pertaining to certain relationships and related
transactions is set forth under "Certain Relationships and Related Transactions"
in the Registrant's Proxy Statement for the Annual Meeting of Shareholders
expected to be held on June 6, 1997 and is herein incorporated by reference.
21
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheet at January 31, 1996 and 1997
Consolidated Statements of Income for the
years ended January 31, 1995, 1996 and 1997
Consolidated Statements of Shareholders' Equity
as of January 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the years
ended January 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted since the required
information is not present or is not present in amounts
sufficient to require submission of the schedules or because
the information required is included in the Consolidated
Financial Statements or Notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
2.1 (1) Agreement and Plan of Reorganization and Merger between Magnum
Microwave Corporation, the Registrant and REMEC Acquisition
Corporation
2.2 (2) Stock Purchase Agreement dated March 31, 1996 between STM Wireless,
Inc., a Delaware Corporation, and the Registrant
3.1 (3) Restated Articles of Incorporation
3.2 (3) By-Laws, as amended
10.1 (3) Equity Incentive Plan
10.2 (3) Employee Stock Purchase Plan
10.3 (3) Form of Indemnification Agreements between Registrant and its officers
and directors
10.4 (3) Credit Agreement between the Registrant and The Bank of California,
N.A., dated June 17, 1993, as amended
+ 10.5 (3) Manufacturing Agreement Terms and Conditions dated August 10, 1995
between the Registrant and P-COM, Inc.
10.6 (3) Standard Industrial Lease between the Registrant and
Transcontinental Realty Investors, Inc., dated February 1,
1990, as amended.
10.7 (3) Standard Industrial Lease between the Registrant and
Chesapeake Business Park 1983, dated December 13, 1988, as
amended.
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C>
10.8 (1) Form of Employment and Non-Competition Agreement with
Joseph Lee (attached as Exhibit 1 to Agreement and Plan of
Reorganization and Merger filed as Exhibit 2.1)
10.9 (4) 1996 Nonemployee Directors Stock Option Plan
10.10(6) Employment and Non-Competition Agreement between Jim Mongillo and
the Registrant
11.1 (6) Statement Re: Computation of per Share Data
21.1 (5) Subsidiaries of the Registrant
24.1 (6) Power of Attorney (included on Page S-1 of this Annual Report on Form
10-K)
</TABLE>
- ----------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement on Form S-4 (No. 333-05343) filed on
July 30, 1996 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Form 8-K filed on May 3, 1996 and incorporated herein by
reference.
(3) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement on Form S-1 (No. 333-80381) filed on
February 1, 1996 and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement on Form S-8 (No. 333-16687) filed on
November 25, 1996 and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement on Form S-1 (No. 333-18325) filed on
December 20, 1996.
(6) Filed with this Annual Report on Form 10-K.
+ Confidential treatment granted
(b) Report on Form 8-K
There were no reports on Form 8-K filed in the fourth quarter of fiscal
1997.
23
<PAGE> 26
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
REMEC, INC.
<S> <C>
Report of Ernst & Young LLP, Independent Auditors....................................................... F-2
Consolidated Balance Sheets at January 31, 1996 and 1997 ............................................... F-3
Consolidated Statements of Income for the years ended January 31, 1995, 1996 and 1997 .................. F-4
Consolidated Statements of Shareholders' Equity as of January 31, 1995, 1996 and 1997 .................. F-5
Consolidated Statements of Cash Flows for the years ended January 31, 1995, 1996
and 1997....................................................................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
</TABLE>
F-1
<PAGE> 27
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
REMEC, Inc.
We have audited the accompanying consolidated balance sheets of REMEC, Inc. as
of January 31, 1996 and 1997, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended January 31, 1997. 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 consolidated financial position of REMEC, Inc. at
January 31, 1996 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended January 31, 1997
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
----------------------
ERNST & YOUNG LLP
San Diego, California
February 24, 1997
F-2
<PAGE> 28
REMEC, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 1,326,292 $ 62,402,428
Short-term investments ..................................................... 1,482,548 --
Accounts receivable, net ................................................... 5,385,500 10,488,455
Inventories, net ........................................................... 12,223,871 14,767,962
Deferred income taxes ...................................................... 1,669,314 2,447,527
Prepaid expenses and other current assets .................................. 218,911 409,969
------------ ------------
Total current assets .................................................... 22,306,436 90,516,341
Property, plant and equipment, net ........................................... 9,026,482 13,138,517
Deferred offering costs ...................................................... 1,108,424 --
Intangible and other assets .................................................. 1,298,029 4,659,406
------------ ------------
$ 33,739,371 $108,314,264
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 3,301,216 $ 3,351,285
Accrued salaries, benefits and related taxes ............................... 3,956,951 3,370,016
Income taxes payable ....................................................... 1,144,943 2,245,466
Accrued expenses ........................................................... 1,550,811 2,071,068
Current portion of notes payable ........................................... 440,838 --
------------ ------------
Total current liabilities ............................................... 10,394,759 11,037,835
Deferred rent ................................................................ 420,628 262,432
Deferred income taxes ........................................................ 930,000 1,119,353
Bank revolving term loan and line-of-credit, less
current portion ............................................................ 1,900,000 --
Commitments
Shareholders' equity:
Convertible preferred shares -- $.01 par value, 718,607 shares authorized,
issued and outstanding at January 31, 1996; aggregate liquidation
preference of $6,000,000 ................................................ 7,186 --
Common shares-- $.01 par value, 40,000,000
shares authorized; issued and outstanding
shares -- 5,361,956 and 11,502,655 at January
31, 1996 and 1997, respectively ......................................... 53,620 115,027
Paid-in capital ............................................................ 11,876,824 82,888,227
Retained earnings .......................................................... 8,156,354 12,891,390
------------ ------------
Total shareholders' equity ......................................... 20,093,984 95,894,644
------------ ------------
$ 33,739,371 $108,314,264
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE> 29
REMEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net sales ................................... $57,553,458 $62,144,707 $ 85,944,248
Cost of sales ............................... 42,706,883 46,597,521 63,660,207
----------- ----------- ------------
Gross profit ........................... 14,846,575 15,547,186 22,284,041
Operating expenses:
Selling, general and administrative ....... 9,244,258 9,582,819 11,810,727
Research and development .................. 1,028,476 2,273,902 2,839,632
----------- ----------- ------------
Total operating expenses .................... 10,272,734 11,856,721 14,650,359
----------- ----------- ------------
Income from operations ................. 4,573,841 3,690,465 7,633,682
Interest (income) expense ................... 298,441 35,172 (347,939)
----------- ----------- ------------
Income before provision for income taxes 4,275,400 3,655,293 7,981,621
Provision for income taxes .................. 1,743,471 1,498,899 3,111,313
----------- ----------- ------------
Net income ............................. $ 2,531,929 $ 2,156,394 $ 4,870,308
=========== =========== ============
Net income per share ........................ $ 0.38 $ 0.32 $ 0.54
=========== =========== ============
Shares used in per share calculations ....... 6,667,018 6,639,215 9,038,998
=========== =========== ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE> 30
REMEC, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED SHARES COMMON SHARES
----------------- ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- -------- ----------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1994 ..... 718,607 $ 7,186 5,729,515 $ 57,296 $ 13,515,435 $ 3,577,620 $ 17,157,537
Issuance of common shares
upon exercise of stock
options ..................... -- -- 6,262 62 7,048 -- 7,110
Repurchase of common
shares ........................ -- -- (207,594) (2,076) (926,278) -- (928,354)
Cash dividends ................ -- -- -- -- -- (54,789) (54,789)
Net income .................... -- -- -- -- -- 2,531,929 2,531,929
-------- ------- ---------- -------- ------------ ----------- ------------
Balance at January 31, 1995 ..... 718,607 7,186 5,528,183 55,282 12,596,205 6,054,760 18,713,433
Issuance of common shares
upon exercise of stock
options ..................... -- -- 18,910 189 67,271 -- 67,460
Repurchase of common shares ... -- -- (185,137) (1,851) (786,652) -- (788,503)
Cash dividends ................ -- -- -- -- -- (54,800) (54,800)
Net income .................... -- -- -- -- -- 2,156,394 2,156,394
-------- ------- ---------- -------- ------------ ----------- ------------
Balance at January 31, 1996 ..... 718,607 7,186 5,361,956 53,620 11,876,824 8,156,354 20,093,984
Issuance of common shares
in initial public offering .. -- -- 2,264,893 22,649 15,626,560 -- 15,649,209
Conversion of preferred
shares ...................... (718,607) (7,186) 1,077,909 10,779 (3,593) -- --
Issuance of common shares
for cash .................... -- -- 131,837 1,318 1,479,257 -- 1,480,575
Issuance of common shares
under employee stock
purchase plan ............... -- -- 231,900 2,319 1,671,797 -- 1,674,116
Issuance of common shares
upon exercise of stock
options ..................... -- -- 21,660 217 80,233 -- 80,450
Income tax benefits related to
employee stock purchase plan
and stock options exercised . -- -- -- -- 209,399 -- 209,399
Issuance of common shares
in stock offering ........... -- -- 2,412,500 24,125 51,947,750 -- 51,971,875
Net income .................... -- -- -- -- -- 4,870,308 4,870,308
Elimination of Magnum
activity for the duplicated
two months ended March 31, .. -- -- -- -- -- (135,272) (135,272)
-------- ------- ---------- -------- ------------ ----------- ------------
1996
Balance at January 31, 1997 ..... -- $ -- 11,502,655 $115,027 $ 82,888,227 $ 12,891,390 $ 95,894,644
======== ======= ========== ======== ============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 31
REMEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income ..................................................... $ 2,531,929 $ 2,156,394 $ 4,870,308
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................ 1,941,520 2,012,794 2,636,960
Deferred income taxes ........................................ 810,558 (631,470) (588,860)
Changes in operating assets and liabilities:
Accounts receivable ........................................ (293,626) (47,351) (3,975,190)
Inventories ................................................ 263,824 (1,554,519) (2,242,388)
Prepaid expenses and other current
assets .................................................. 6,194 56,513 (152,252)
Accounts payable ........................................... 126,137 1,286,950 (548,034)
Accrued expenses, income taxes payable and
deferred rent ........................................... (775,201) 929,745 880,178
------------ ------------ ------------
Net cash provided by operating
activities ............................................ 4,611,335 4,209,056 880,722
Investing activities:
Additions to property, plant and equipment ..................... (1,476,654) (3,571,123) (6,302,982)
Payment for purchase of RF Microsystems, net of
$60,337 cash acquired.......................................-- -- (4,011,735)
Purchase of short-term investments ............................. (1,454,598) (981,607) --
Sale of short-term investments................................-- 953,657 1,482,548
Other assets ................................................... (22,053) -- (36,108)
------------ ------------ ------------
Net cash used by investing activities ................... (2,953,305) (3,599,073) (8,868,277)
Financing activities:
Proceeds from bank revolving term loan,
line-of-credit and long-term debt ............................ 11,102,000 14,600,000 --
Repayments on bank revolving term loan,
line-of-credit and long-term debt ............................ (13,700,397) (13,754,353) (2,867,399)
Repurchase of common stock ..................................... (928,354) (788,503) --
Proceeds from issuance of common stock ......................... 7,110 67,460 70,856,225
Change in deferred offering costs.............................-- (1,108,424) 1,108,424
Cash dividends ................................................. (54,789) (54,800) --
------------ ------------ ------------
Net cash provided (used) by financing activities ........ (3,574,430) (1,038,620) 69,097,250
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ................. (1,916,400) (428,637) 61,109,695
Cash and cash equivalents at beginning of year ................... 3,671,329 1,754,929 1,326,292
Elimination of Magnum's net cash activities for the
duplicated two months ended March 31, 1996 ..................... -- -- (33,559)
------------ ------------ ------------
Cash and cash equivalents at end of year ......................... $ 1,754,929 $ 1,326,292 $ 62,402,428
============ ============ ============
Supplemental disclosures of cash flow information: Cash paid for:
Interest ..................................................... $ 397,650 $ 175,839 $ 21,986
============ ============ ============
Income taxes ................................................. $ 1,307,955 $ 1,713,105 $ 1,568,000
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE> 32
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
REMEC, Inc. (the "Company") was incorporated in the State of California
in January 1983. The Company is engaged in a single business segment consisting
of the research, design, development and manufacture of microwave and radio
frequency (RF) components and subsystems and precision instruments for control
and measurement systems. Prior to fiscal 1996, substantially all of the
Company's sales have been to prime contractors to various agencies of the U.S.
Department of Defense and to foreign governments. In May 1995, the Company
incorporated REMEC Wireless, Inc. (a wholly owned subsidiary) to research,
design, develop and manufacture products based on microwave technologies for
commercial customers. In fiscal 1997, the Company acquired Magnum Microwave
Corporation, a manufacturer of microwave components and subsystems, and RF
Microsystems, Inc., a satellite communications engineering company.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries Humphrey, Inc., REMEC Wireless, Inc.,
RF Microsystems, Inc. and Magnum Microwave Corporation. All intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents. Short-term investments are recorded at amortized cost plus accrued
interest which approximates market value. The Company evaluates the financial
strength of institutions at which significant investments are made and believes
the related credit risk is limited to an acceptable level.
The Company has adopted Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities. Statement
No. 115 requires companies to record certain debt and equity security
investments at market value. At January 31, 1996 and 1997, the cost of cash
equivalents and short-term investments approximated fair value.
Concentration of Credit Risk
Accounts receivable are principally from U.S. government contractors,
companies in foreign countries and domestic customers in the telecommunications
industry. Credit is extended based on an evaluation of the customer's financial
condition and generally collateral is not required. The Company performs
periodic credit evaluations of its customers and maintains reserves for
potential credit losses.
Inventory
Inventories are stated at the lower of average cost or market. In
accordance with industry practice, the Company has adopted a policy of
capitalizing general and administrative costs as a
F-7
<PAGE> 33
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
component of the cost of government contract related inventories to achieve a
better matching of costs with the related revenues.
Progress Payments
Progress payments received from customers are offset against
inventories associated with the contracts for which the payments were received.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets which range from three to
thirty years. Leasehold improvements are amortized using the straight-line
method over the shorter of their estimated useful lives or the lease period.
Intangible Assets
Intangible assets in the accompanying balance sheets are primarily
comprised of goodwill and purchased technology recorded in connection with the
acquisitions of Humphrey, Inc. (in February 1994) and RF Microsystems, Inc. (See
Note 2.) These assets are being amortized using the straight-line method over
ten and fifteen years, respectively. Amortization expense related to the
intangible assets totaled $173,962 and $341,868 for fiscal years 1996 and 1997,
respectively.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amount. Adoption of
Statement No. 121 on February 1, 1996 did not have a significant impact on the
Company's financial position or results of operations.
Revenue Recognition
Revenues on fixed-price long-term and commercial contracts are
recognized using the units of delivery method. Revenues associated with the
performance of non-recurring engineering and development contracts are
recognized when earned under the terms of the related contract. Revenues for
cost-reimbursement contracts are recorded as costs are incurred and includes
estimated earned fees in the proportion that costs incurred to date bears to
estimated costs. Prospective losses on long-term contracts are recorded in the
period when such losses are known. Loss provisions are based upon the
anticipated excess of inventoriable manufacturing costs over the selling price
of the remaining units to be delivered. Actual losses could differ from those
estimated due to changes in the ultimate manufacturing costs and contract terms.
F-8
<PAGE> 34
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Research and Development
Research and development costs incurred by the Company are expensed in
the period incurred.
Net Income Per Share
Net income per share is computed based on the weighted average number
of common and common equivalent shares outstanding during each period using the
treasury stock method. Pursuant to the requirements of the Securities and
Exchange Commission, common and common equivalent shares issued during the
twelve-month period prior to the Company's initial public offering ("IPO") (See
Note 5) have been included in the calculations as if they were outstanding for
all periods presented using the treasury stock method. In addition, the
calculation of the number of shares used in computing net income per share also
includes convertible preferred stock, which converted into 1,077,909 common
shares upon the closing of the initial public offering, as if they were
converted into common shares as of their original dates of issuance. The
calculation of net income per share reflects the historical information for both
REMEC and Magnum after adjusting the Magnum information to reflect the
conversion of Magnum common shares into REMEC shares as stipulated in the
acquisition agreement between REMEC and Magnum. (See Note 2.)
Stock Options
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123") requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions about the future that affect the amounts reported in the
consolidated financial statements. These estimates include assessing the
collectability of accounts receivable, the usage and recoverability of
inventories and long-lived assets and the incurrence of losses on long term
contracts and warranty costs. Actual results could differ from those estimates.
2. ACQUISITIONS
Magnum Microwave Corporation ("Magnum")
On August 26, 1996, the Company issued 1,074,933 shares of its common
stock in exchange for all of the outstanding shares of common stock of Magnum, a
manufacturer of microwave components and subsystems. Immediately prior to the
acquisition, Magnum issued 131,458 equivalent shares of stock for
F-9
<PAGE> 35
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
cash of approximately $1,500,000. The acquisition of Magnum was accounted for as
a pooling of interests. Therefore, the Company's consolidated financial
statements for all periods prior to the acquisition of Magnum have been restated
to include the financial position, results of operations, and cash flows of
Magnum.
Prior to the combination, Magnum's fiscal year ended on the Friday
closest to March 31. In recording the business combination, Magnum's financial
statements for the fiscal years ended March 31, 1995 and March 29, 1996 were
combined with REMEC's for the fiscal years ended January 31, 1995 and 1996,
respectively. Consolidated operating results and the net change in consolidated
cash and cash equivalents for the year ended January 31, 1997 include Magnum's
results of operations and change in cash flows for the two months ended March
31, 1996. Magnum's net sales and net income for the two month period ended March
31, 1996 were $1,743,000 and $135,000, respectively. Included in general and
administrative expenses in the consolidated statement of income for the year
ended January 31, 1997 are costs of $424,000 related to the acquisition of
Magnum.
Net sales and net income reported by REMEC and Magnum for periods prior
to acquisition are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales:
Remec ............... $46,246,959 $52,784,385 $74,643,897
Magnum .............. 11,306,499 9,360,322 11,300,351
----------- ----------- -----------
Total ........ $57,553,458 $62,144,707 $85,944,248
=========== =========== ===========
Net Income:
Remec ............... $ 1,427,925 $ 1,480,744 $ 3,765,120
Magnum .............. 1,104,004 675,650 1,105,188
----------- ----------- -----------
Total ........ $ 2,531,929 $ 2,156,394 $ 4,870,308
=========== =========== ===========
</TABLE>
RF Microsystems, Inc. ("RFM")
Effective April 30, 1996, the Company acquired all of the outstanding
common stock of RFM and certain other assets in exchange for cash consideration
of approximately $4,066,000. The acquisition has been accounted for as a
purchase, and accordingly, the total purchase price has been allocated to the
acquired assets and liabilities assumed at their estimated fair values in
accordance with the provisions of Accounting Principles Board Opinion No. 16.
The estimated excess of the purchase price over the net assets acquired of
$3,559,000 is being carried as intangible assets, and will be amortized over an
estimated life of 15 years. The Company's consolidated financial statements
include the results of RFM from April 30, 1996.
F-10
<PAGE> 36
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
A summary of the RFM acquisition costs and an allocation of the
purchase price to the assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Total acquisition cost:
Cash paid .............................................. $ 3,933,000
Payment of acquisition related expenses ................ 133,000
$ 4,066,000
===========
Allocated as follows:
Current assets ......................................... $ 1,622,000
Machinery and equipment ................................ 320,000
Acquired intangibles ................................... 3,559,000
Liabilities assumed .................................... (1,435,000)
-----------
$ 4,066,000
===========
</TABLE>
Assuming that the acquisition of RFM had occurred on the first day of
the Company's fiscal year- ended January 31, 1996, pro forma condensed
consolidated results of operations would be as follows:
PRO FORMA RESULTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
---------------------------
1996 1997
------- -------
<S> <C> <C>
Net Sales .............................. $70,216 $87,909
Net Income ............................. 1,941 4,829
Net Income Per Share ................... $ 0.29 $ 0.53
</TABLE>
F-11
<PAGE> 37
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. FINANCIAL STATEMENT DETAILS
Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Raw materials .......................... $ 7,953,813 $ 8,309,071
Work in progress ....................... 8,375,730 8,477,878
------------ ------------
16,329,543 16,786,949
Less unliquidated progress payments .... (4,105,672) (2,018,987)
------------ ------------
$ 12,223,871 $ 14,767,962
============ ============
</TABLE>
Inventories related to contracts with prime contractors to the U.S.
Government included capitalized general and administrative expenses of
$1,924,000 and $1,642,000 at January 31, 1996 and 1997, respectively.
During fiscal 1993, the Company received notice to terminate, for
convenience, a production contract and in turn, the Company terminated related
subcontracts. In fiscal 1996, the Company obtained final approval to bill the
contractors for remaining inventory and fees associated with the contract. The
accompanying consolidated statement of income for the year ended January 31,
1996 includes $2,444,000 of revenue and $1,803,000 of costs related to this
contract.
Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Land, building and improvements .............. $ 1,412,895 $ 1,440,001
Machinery and equipment ...................... 22,938,912 28,630,328
Furniture and fixtures ....................... 1,215,859 1,195,296
Leasehold improvements ....................... 1,726,344 2,288,980
------------ ------------
27,294,010 33,554,605
Less accumulated depreciation and amortization (18,267,528) (20,416,088)
------------ ------------
$ 9,026,482 $ 13,138,517
============ ============
</TABLE>
4. BANK REVOLVING TERM CREDIT FACILITY AND LINE-OF-CREDIT
The Company has a $9,000,000 working capital line-of-credit with a
bank, which is due July 1, 1998. Interest is due monthly on advances at the
bank's prime interest rate (8.5% at January 31, 1997). At January 31, 1997,
there were no outstanding borrowings on the facility.
F-12
<PAGE> 38
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company also has a $8,000,000 term credit facility with the bank
which is available until July 1, 1998. Outstanding borrowings at July 1, 1998
under this facility automatically convert into a 42 month term note payable in
monthly installments. Interest is due monthly on advances under the facility at
the Bank's prime interest rate. At January 31, 1997, there were no outstanding
borrowings on the facility.
Advances under these agreements are secured by substantially all assets
of the Company. The agreements also contain covenants which require the Company
to maintain certain financial ratios, achieve specified levels of profitability,
restrict the incurrence of additional debt, restrict the incurrence of capital
expenditures in excess of specified amounts, limit the payment of cash
dividends, and include certain other restrictions. As of January 31, 1997, the
Company was in compliance with all covenants specified.
5. SHAREHOLDERS' EQUITY
Convertible Preferred Shares
A summary of the convertible preferred shares issued and outstanding is as
follows:
<TABLE>
<CAPTION>
SHARES
ISSUED AND PREFERENCE IN
OUTSTANDING PAR VALUE LIQUIDATION
----------- --------- -------------
<S> <C> <C> <C>
Series A 461,538 $ 4,615 $3,000,000
Series B 257,069 2,571 3,000,000
-------- ---------- ----------
718,607 $ 7,186 $6,000,000
======== ========== ==========
</TABLE>
Concurrent with the closing of the Company's initial public offering
("IPO") in February 1996 all of the outstanding shares of Series A and Series B
preferred stock were converted into 1,077,909 shares of common stock.
Equity Offerings
In February 1996, the Company completed its IPO of common stock in which
the Company sold a total of 2,264,893 shares of common stock at $8.00 per share.
The net proceeds from the offering were $15,649,209. In connection with the
Company's IPO, certain shareholders also sold 1,185,107 shares as part of the
offering.
In January 1997, the Company sold in a public offering 2,412,500 shares
of common stock at $23.00 per share. The net proceeds from this offering were
$51,971,875. Certain shareholders also sold 750,000 shares as part of this
offering.
F-13
<PAGE> 39
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Dividends
In each of the two years ended January 31, 1996, the Company paid a cash
dividend of $.01 per share including payment to preferred shares on an as
converted basis. The Company currently anticipates that it will not pay
dividends in the foreseeable future.
Stock Option Plans
In January 1996, the Company's shareholders approved the 1995 Equity
Incentive Plan, under which 750,000 common shares were reserved for issuance
pursuant to stock options, restricted stock awards, stock purchase rights or
performance shares. The Plan provides for the grant of incentive and
non-statutory stock options. The exercise price of the incentive stock options
must at least equal the fair market value of the common stock on the date of
grant, and the exercise price of nonstatutory options may be no less than 85% of
the fair market value of the common stock on the date of grant. Options granted
under the plans vest over a period of three years and expire four and one-half
years from the date of grant.
The Company had maintained previous stock option plans prior to the
inception of the 1995 Equity Incentive Plan. These incentive plans were
terminated upon the closing of the Company's IPO in February 1996 and all
outstanding options remain exercisable in accordance with their original terms.
A summary of the Company's stock option activity and related information
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------------------------------------------
1995 1996 1997
-------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 84,464 $ 3.59 69,901 $ 3.78 118,404 $ 3.95
Granted ..................... 19,439 $ 4.02 82,916 $ 4.02 396,624 $16.36
Exercised ................... (6,262) $ 1.14 (17,910) $ 3.54 (21,660) $ 3.71
Forfeited ................... (27,740) $ 3.97 (16,503) $ 4.01 (4,115) $11.47
------- ------ -------- ------ -------- ------
Outstanding - end year ........ 69,901 $ 3.78 118,404 $ 3.95 489,253 $ 7.47
======= ====== ======== ====== ======== ======
Exercisable - end of year ..... 40,726 $ 3.64 20,257 $ 3.67 39,573 $ 3.99
======= ====== ======== ====== ======== ======
</TABLE>
Exercise prices for options outstanding as of January 31, 1997 ranged
from $0.21 to $25.63. Of the options outstanding at January 31, 1997,
approximately 96,000 options have a weighted average exercise price of
approximately $4.00 per share and the remaining outstanding options have a
weighted average exercise price of $16.41 per share. The weighted-average
remaining contractual life of options outstanding at January 31, 1997 is
approximately 3.75 years. At January 31, 1997, options for 346,837 shares were
available for future grant.
F-14
<PAGE> 40
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Pro forma information regarding net income and net income per share is
required by Statement 123, and has been determined as if the Company has
accounted for its employee stock options and employee stock purchase plan shares
under the fair value method of that statement. The fair value of these options
or employee stock purchase rights was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1997, respectively: risk-free interest rates of 5.9% to
6.0%; dividend yields of 0%; volatility factors of the expected market price of
the Company's common stock of 0 and 90.9%; a weighted-average life of the option
of 3.0 years; and a weighted-average life of the stock purchase rights of three
months.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options and rights under the
employee stock purchase plan have characteristics significantly different from
those of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options or the rights granted under the employee stock
purchase plan.
For purposes of pro forma disclosures, the estimated fair value of the
options and the shares granted under the employee stock purchase plan is
amortized to expense over their respective vesting or option periods. The
effects of applying Statement 123 for pro forma disclosure purposes are not
likely to be representative of the effects on pro forma net income in future
years because they do not take into consideration pro forma compensation expense
related to grants made prior to 1996. The Company's pro forma information
follows:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1997
---------- ----------
<S> <C> <C>
Pro forma net income ......................................... $2,147,142 $1,981,174
Pro forma net income per share ............................... $ 0.32 $ 0.22
Weighted-average fair value of options granted during the year $ 0.78 $ 7.64
</TABLE>
Stock Purchase Plan
In January 1996, the Company's shareholders approved the Employee Stock
Purchase Plan (the Purchase Plan) under which 250,000 common shares may be
issued to eligible employees. The price of the common shares purchased under the
Purchase Plan will be equal to 85% of the fair market value of the common shares
on the first or last day of the offering period, whichever is lower. During
fiscal 1997, the Company issued a total of 231,900 shares of its common stock
under the Purchase Plan.
F-15
<PAGE> 41
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Changes in Capitalization
In January 1996, the Company's shareholders approved an increase in the
authorized common stock of the Company to 40,000,000 shares, the creation of a
new undesignated class of preferred stock consisting of 5,000,000 shares and a
1-for-2 reverse split of the Company's common stock. Fractional shares resulting
from the split were settled in cash. All share, per share and stock option
amounts have been restated to reflect retroactively the reverse stock split.
6. COMMITMENTS
Deferred Savings Plan
The Company has established a Deferred Savings Plan for its employees,
which allows participants to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. The Company matches contributions
up to $100 per quarter, per employee, subject to the attainment of certain
quarterly profit levels by the Company. Employees vest immediately in their
contributions and Company contributions vest over a two year period. The Company
has charged to operations contributions of approximately $65,000, $88,000 and
$218,000, for the years ended January 31, 1995, 1996 and 1997, respectively.
Prior to its acquisition in fiscal 1997, the Company's Magnum subsidiary
maintained a separate defined contribution 401(k) retirement plan for
substantially all of its employees. Magnum made contributions to this plan of
$55,000 and $38,000 for fiscal 1995 and 1996, respectively. This plan was merged
into the REMEC plan in March 1997.
Leases
The Company leases office and production facilities under operating
leases through 2001. Minimum future obligations under non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
JANUARY 31,
<S> <C>
1998 .......................... $2,207,000
1999 .......................... 2,059,000
2000 .......................... 1,595,000
2001 .......................... 291,000
2002 .......................... 30,000
----------
$6,182,000
</TABLE>
Certain of these lease agreements provide for annual rental adjustments
based on changes in the Consumer Price Index.
Rent expense totaled $1,955,000, $2,196,000 and $2,209,000 in 1995,
1996 and 1997, respectively.
F-16
<PAGE> 42
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. INCOME TAXES
Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
January 31,
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation ........ $ 1,168,000 $ 1,233,000
Inventory costs capitalization .... 524,000 265,000
Other ............................. 47,000 47,000
----------- -----------
1,739,000 1,545,000
Deferred tax assets:
Inventory and other reserves ...... 999,000 1,476,000
Deferred rent ..................... 238,000 108,000
Accrued expenses .................. 1,183,000 1,076,000
Other ............................. 58,000 213,000
----------- -----------
Total deferred tax assets ........... 2,478,000 2,873,000
----------- -----------
Net deferred tax liabilities (assets) $ (739,000) $(1,328,000)
=========== ===========
</TABLE>
The provision for taxes based on income consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------------------
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 659,000 $ 1,752,000 $ 3,041,000
State . 260,000 377,000 659,000
Deferred:
Federal 722,000 (497,000) (500,000)
State . 102,000 (133,000) (89,000)
---------- ----------- -----------
$1,743,000 $ 1,499,000 $ 3,111,000
========== =========== ===========
</TABLE>
A reconciliation of the effective tax rates and the statutory Federal income tax
rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1995 1996 1997
-------------------- ------------------ ---------------------
AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C>
Tax at Federal rate ........... $ 1,478,000 35% $1,268,000 35% $ 2,794,000 35%
State income tax net of federal 283,000 6 159,000 4 479,000 6
Other ......................... (18,000) -- 72,000 2 (162,000) (2)
----------- -- ---------- -- ----------- ---
$ 1,743,000 41% $1,499,000 41% $ 3,111,000 39%
=========== == ========== == =========== ===
</TABLE>
F-17
<PAGE> 43
REMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. SIGNIFICANT CUSTOMERS AND EXPORT SALES
The following table summarizes the percentage of sales by customers when
sales to such customers exceeded 10% or more of the Company's net sales for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CUSTOMER A .................... -- -- 18%
CUSTOMER B .................... 10% 13% --
CUSTOMER C .................... 12% -- --
</TABLE>
Export sales were 12%, 16% and 9% of net sales for the years ended January 31,
1995, 1996 and 1997, respectively.
9. SUBSEQUENT EVENT (UNAUDITED)
Radian Technology, Inc. ("Radian")
On February 28, 1997, the Company acquired Radian in exchange for 633,349
shares of the Company's common stock. The transaction will be accounted for as a
pooling of interests; accordingly, commencing with the first quarter of fiscal
1998, all of the Company's prior period financial statements will be restated as
if the transaction took place at the beginning of such periods. During its most
recent fiscal year ended December 27, 1996, Radian reported revenues of $9.1
million and net income of $858,000. Assuming that the acquisition of Radian had
occurred on February 1, 1994, the Company's pro forma condensed consolidated
results of operations would be as follows:
PRO FORMA RESULTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net Sales ...................... $64,604 $71,245 $95,072
Net Income ..................... 2,987 2,854 5,728
Net Income per Share ........... $ 0.41 $ 0.39 $ 0.59
</TABLE>
F-18
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
on April 15, 1997.
REMEC, INC.
By: /s/ Ronald E. Ragland
-----------------------------
Ronald E. Ragland
Chairman of the Board and
Chief Executive Officer
POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ronald E. Ragland and Thomas A. George,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ Ronald E. Ragland Chairman of the Board and April 15, 1997
- -------------------------------- Chief Executive Officer
Ronald E. Ragland (Principal Executive Officer)
/s/ Errol Ekaireb President, Chief Operating April 15, 1997
- -------------------------------- Officer and Director
Errol Ekaireb
/s/ Jack A. Giles Executive Vice President, April 15, 1997
- -------------------------------- President of REMEC Microwave
Jack A. Giles Division and Director
</TABLE>
S-1
<PAGE> 45
<TABLE>
<S> <C> <C>
/s/ Denny Morgan Director, Senior Vice President April 15, 1997
- -------------------------------- and Chief Engineer
Denny Morgan
/s/ Joseph T. Lee Executive Vice President and April 15, 1997
- -------------------------------- Director
Joseph T. Lee
/s/ Thomas A. George Chief Financial Officer, Senior April 15, 1997
- -------------------------------- Vice President and Secretary
Thomas A. George (Principal Financial and
Accounting Officer)
/s/ Andre R. Horn Director April 15, 1997
- --------------------------------
Andre R. Horn
/s/ Gary L. Luick Director April 15, 1997
- --------------------------------
Gary L. Luick
/s/ Jeffrey M. Nash Director April 15, 1997
- --------------------------------
Jeffrey M. Nash
/s/ Thomas A. Corcoran Director April 15, 1997
- --------------------------------
Thomas A. Corcoran
/s/ William H. Gibbs Director April 15, 1997
- --------------------------------
William H. Gibbs
</TABLE>
S-2
<PAGE> 46
SCHEDULE II
REMEC, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING OF COSTS AND AT END
CONTRACT LOSS RESERVE PERIOD PERIOD DEDUCTIONS OF PERIOD
--------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended January 31, 1995........... $3,250,000 $ 455,000 $(1,799,000) $1,906,000
Year ended January 31, 1996........... 1,906,000 2,139,000 (2,675,000) 1,370,000
Year ended January 31, 1997........... 1,370,000 821,991 (620,000) 1,571,991
</TABLE>
<PAGE> 47
REMEC, INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 31, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Pages
- ----------- ----------- --------------
<S> <C>
2.1 (1) Agreement and Plan of Reorganization and Merger between Magnum
Microwave Corporation, the Registrant and REMEC Acquisition
Corporation
2.2 (2) Stock Purchase Agreement dated March 31, 1996 between
STM Wireless, Inc., a Delaware Corporation, and the Registrant
3.1 (3) Restated Articles of Incorporation
3.2 (3) By-Laws, as amended
10.1 (3) Equity Incentive Plan
10.2 (3) Employee Stock Purchase Plan
10.3 (3) Form of Indemnification Agreements between Registrant and its officers
and directors
10.4 (3) Credit Agreement between the Registrant and The Bank of California, N.A.,
dated June 17, 1993, as amended
+ 10.5 (3) Manufacturing Agreement Terms and Conditions dated August 10, 1995
between the Registrant and P-COM, Inc.
10.6 (3) Standard Industrial Lease between the Registrant and Transcontinental
Realty Investors, Inc., dated February 1, 1990, as amended
10.7 (3) Standard Industrial Lease between the Registrant and Chesapeake
Business Park 1983, dated December 13, 1988, as amended
10.8 (1) Form of Employment and Non-Competition Agreement with Joseph Lee
(attached as Exhibit 1 to Agreement and Plan of Reorganization and
Merger filed as Exhibit 2.1)
10.9 (4) 1996 Nonemployee Directors Stock Option Plan
10.10(6) Employment and Non-Competition Agreement between Jim Mongillo
and the Registrant
11.1 (6) Statement Re: Computation of per Share Data
21.1 (5) Subsidiaries of the Registrant
24.1 (6) Power of Attorney (included on Page S-1 of this Annual Report
on Form 10-K)
</TABLE>
- ----------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement on Form S-4 (No. 333-05343) filed on
July 30, 1996 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Form 8-K filed on May 3, 1996 and incorporated herein by
reference.
(3) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement on Form S-1 (No. 333-80381) filed on
February 1, 1996 and incorporated herein by reference.
<PAGE> 48
(4) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement on Form S-8 (No. 333-16687) filed on
November 25, 1996 and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an exhibit
to Registrant's Registration Statement on Form S-1 (No. 333-18325) filed on
December 20, 1996.
(6) Filed with this Annual Report on Form 10-K.
+ Confidential treatment granted
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement") is
made and entered into as of February 28, 1997, by and among Radian Technology,
Inc., a California corporation ("Radian"), REMEC, Inc., a California corporation
("REMEC") and Jim Mongillo ("Employee").
BACKGROUND
This Agreement is being executed in connection with the merger (the
"Merger") of Radian Technology Acquisition Corporation, a California corporation
("RTI"), a wholly owned subsidiary of REMEC with Radian, pursuant to an
Agreement and Plan of Reorganization dated ________________________________ , by
and among REMEC, RTI and Radian. All of Employee's capital stock prior to the
Merger is being converted into shares of common stock of REMEC in connection
with Merger. Prior to the Merger, Employee has been employed Merger. Prior to
the Merger, Employee has been employed by Radian as its President and Chief
Executive Officer. As part of the Acquisition, Radian will become a wholly owned
subsidiary of REMEC. REMEC has asked Employee to continue his employment with
Radian as a subsidiary of REMEC after the Merger to provide, for the term of
this Agreement, the continued benefit of Employee's experience in the business
acquired in the Merger and to become a Vice President of REMEC.
AGREEMENT
THE PARTIES AGREE AS FOLLOWS:
1. Duties. (a) During the term of this Agreement, Employee shall be
employed by and shall serve Radian as its President and REMEC as a Vice
President and Radian and REMEC agree to employ and retain Employee in such
capacity or in such other capacity as Radian and the Board of Directors of REMEC
may from time to time elect in the future provided, however, Employee's duties
may not be materially diminished or changed without his consent. Employee shall
be employed full-time basis in such capacity and shall devote all of Employee's
business time, energy and skill to the affairs of Radian and REMEC. During the
term of this Agreement, Employee shall report directly to Jack A. Giles or Errol
Ekaireb. Said duties shall be performed at such place or places within Santa
Clara County as Radian shall reasonably designate or as shall be reasonably
appropriate and necessary to the discharge of Employee's duties. Employee will
duly, punctually and faithfully observe the general employment policies and
practices of Radian and REMEC, including, without limitation, any and all rules,
regulations, policies and/or procedures which Radian and REMEC may now or
hereafter establish governing the conduct of its employees generally.
(b) If Employee is elected or appointed a director of Radian
or REMEC or an officer or director of any other subsidiary or affiliate of REMEC
for any periods during the term
<PAGE> 2
of this Agreement, Employee will serve in such capacities without compensation
in addition to that specified in Section 2 and 3 hereof.
2. TERM OF EMPLOYMENT.
2.1 Basic Term. The term of employment of Employee shall
commence on the date first above written and shall continue until February 28,
2000 unless terminated as provided in this Section 2. Employee shall continue to
be an employee of Radian or REMEC after termination of this Agreement on
substantially the same terms set forth in this Agreement on an "At Will" basis.
2.2 Termination by Reason of Disability. In the event that,
during the term of this Agreement, Employee should become Disabled (as defined
below), Radian and REMEC shall have the right to terminate Employee's employment
hereunder by giving at least thirty (30) days written notification to Employee
and payment to Employee of all accrued salary, vested deferred compensation
(other than pension plan or profit sharing plan benefits, which will be paid in
accordance with the applicable plan), and all accrued vacation pay, all to the
date of termination, but no other compensation or reimbursement of any kind.
For purposes of this Agreement, "Disabled" shall mean the absence of
Employee performing Employee's duties with Radian or REMEC on a full-time basis
for a period of sixty (60) consecutive business days, or for shorter periods
aggregating ninety (90) or more business days in any twelve (12) month period,
as a result of incapacity due to mental or physical illness which is determined
by a physician selected by Radian or REMEC or their insurers, who is reasonably
acceptable to Employee.
2.3 Death. In the event of Employee's death during the term of
this Agreement, Employee's employment shall be deemed to have terminated as of
the last day of the calendar month following the calendar month during which
Employee's death occurred, and Radian or REMEC shall pay to Employee's estate
accrued salary, vested deferred compensation (other than pension plan or profit
sharing plan benefits, which will be paid in accordance with the applicable
plan), and all accrued vacation pay, all to the date of termination, but no
other compensation or reimbursement of any kind.
2.4 Termination For Cause. Termination For Cause (defined
below) may be effected by Radian and REMEC at any time during the term of this
Agreement and shall be effected by written notification to Employee. Upon
Termination For Cause, Employee shall be immediately paid all accrued salary,
incentive compensation to the extent earned, vested deferred compensation (other
than pension plan or profit sharing plan benefits, which shall be paid in
accordance with the applicable plan), and all accrued vacation pay, all to the
date of termination, but Employee shall not be entitled to any other
compensation or reimbursement of any kind. Termination For Cause shall mean
termination by Radian and REMEC of Employee's employment by reason of Employee's
(i) dishonesty towards, fraud upon, Radian or REMEC; (ii) continued (following
written notice) refusal to obey reasonable and lawful orders or directions of
Radian or REMEC; or (iii) continued (following written notice) willful breach or
habitual neglect of duty.
-2-
<PAGE> 3
2.5 Termination Without Cause. Notwithstanding any other
provision of this Section 2, Radian and REMEC shall have the right to terminate
Employee's employment without Cause at any time, but any such termination, other
than as expressly provided in Section 2.1 through 2.4 herein, shall be without
prejudice to Employee's rights to receive (in addition to all amounts due
Employee in connection with Termination For Cause) the Base Salary for the
remainder of the term. In addition, upon a termination without Cause, if
Employee is terminated without Cause, Employee may elect to receive a lump sum
payment representing the present value of the aggregate unpaid Base Salary
discounted to present value at a rate of five percent (5%) per annum in lieu of
the Employee's right to receive the base salary for the remainder of the Term.
3. SALARY, BENEFITS, AND INCENTIVE COMPENSATION.
3.1 Base Salary. As payment for the services to be rendered by
Employee as provided in Section 1 and subject to the terms and conditions of
Section 2, Radian or REMEC agrees to pay to Employee a base salary at the rate
of Two Hundred Thousand Dollars ($200,000) per year, payable at the times and
places as Radian or REMEC pays its payroll in general. Employee's salary shall
be reviewed (but may not be decreased) by REMEC Executive Management and the
Board of Directors of REMEC on an annual basis commencing in April 1998.
3.2 Fringe Benefits. Employee shall be eligible to participate
in such benefit plans as are now generally available or later made generally to
employees of REMEC, including, without limitation, medical, dental, life and
disability insurance plans.
3.3 Vacation; Sick Time. Employee shall be entitled to six (6)
weeks per year vacation. Employee will be entitled to and sick time in
accordance with existing REMEC policy. Sick time balances will not be payable
upon termination. The days selected for Employee's vacation must be mutually
agreeable to the Company and Employee. Employee hereby waives all claims to sick
time in excess of two hundred forty (240) hours accrued prior to the Merger.
3.4 Relocation Expenses. Notwithstanding any other provision
of this Agreement, Radian and REMEC may not require Employee to relocate his
permanent office outside of the Santa Clara County Area. However, if Radian or
REMEC requests that Employee relocate and Employee consents, in his sole and
absolute discretion, to such request, then Radian or REMEC shall reimburse
Employee for: (i) all expenses actually incurred by Employee in connection with
his relocation, including travel, moving and storage expenses for Employee and
his immediate family and their household effects: and (ii) real estate
commissions incurred by Employee in connection with, at Employee's option,
either the sale of his current residence or the purchase of a new residence.
4. COVENANT NOT TO COMPETE.
4.1 Definitions. For the purposes of this Section 4, the
following terms shall have the following meanings:
-3-
<PAGE> 4
"Business" means the design, manufacture and sale of Products,
including the business of Radian as currently conducted.
"Products" shall mean microwave components, including filters,
switch filters, receivers, oscillators and synthesizers or any
substantially similar products.
"Restriction Period" shall mean the period commencing upon the
date of this Agreement and ending on February 28, 2000.
4.2 Non-Competition. Employee covenants to REMEC that during
the Restriction Period, and except as provided in Section 4.3 below, he shall
not:
(i) engage in the Business, directly or indirectly, as a
principal, owner, shareholder, partner, officer, director or employee
throughout all geographical areas in which Radian now conducts the
Business and especially in the California counties of Alameda, Contra
Costa, Los Angeles, Marin, Orange, Riverside, San Diego, San Francisco,
San Mateo, Santa Clara, Santa Cruz, Solano and Ventura;
(ii) induce or attempt to induce, directly or indirectly, any
customer, supplier or distributor of REMEC or Radian to terminate its
relationship with REMEC or Radian in order to enter into any such
relationship with Employee or with any other person in competition with
the Business; or
(iii) solicit or induce or attempt to solicit or induce,
directly or indirectly, any employee of REMEC or Radian, to terminate
such employee's employment relationship with REMEC or Radian in order
to enter into any such relationship with Employee or with any other
person in competition with the Business, whether or not such person
would commit a breach of any employment agreement by reason of leaving
service.
4.3 Exceptions. Notwithstanding the provisions of Section 4.2
above, nothing shall prevent Employee from owning less than 5% of the
outstanding shares of any corporation traded on a recognized securities exchange
or the Nasdaq Stock Market.
4.4 Notice. Employee shall notify REMEC of any proposed
activity that might be prohibited by this Agreement and shall describe the
proposed activity in reasonable detail in such notice.
4.5 Payment for Non-Competition Covenants. In consideration of
the non-competition and non-solicitation covenants contained in Sections 4.1
through 4.4 of this Agreement, Radian or REMEC shall pay to Employee the sum of
$50,000. The payments to Employee under this Section 4 shall be in addition to
any payments pursuant to other provisions of this Agreement. Payment will be
made on April 1, 1997.
5. SEVERABILITY. The scope and effect of the covenants contained in
this Agreement shall be as broad as may be permitted under the provisions of
applicable law. To the extent that the language of such covenants may restrict
competition to a greater degree than permitted by
-4-
<PAGE> 5
such applicable law, that portion thereof shall be ineffective, but the
provisions of the covenants shall nevertheless remain effective with respect to
such portions as shall be permitted by applicable law.
6. MISCELLANEOUS.
6.1 Confidentiality. Employee shall enter into a customary
Invention and Confidential Disclosure Agreement in a form agreed upon by
Employee, Radian and REMEC.
6.2 Waiver. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
6.3 Entire Agreement; Modifications. Except as otherwise
provided herein, this Agreement and the Option Documentation, taken together,
represent the entire understanding among the parties with respect to the subject
matter hereof, and this Agreement and the Option Documentation, taken together,
supersedes any and all prior understandings, agreements, plans, and
negotiations, whether written or oral, with respect to the subject matter
hereof, including without limitation, any understandings, agreements, or
obligations respecting any past or future compensation, bonuses, reimbursements,
or other payments to Employee from Radian and REMEC. All modifications to the
Agreement must be in writing and signed by the party against whom enforcement of
such modification is sought.
6.4 Notices. All notices and other communications under this
Agreement shall be in writing and shall be given by personal delivery or by
telegraph or first class mail, certified or registered with return receipt
requested, and shall be deemed to have been duly given upon receipt if
personally delivered, three days after mailing, if mailed, or 24 hours after
transmission, if delivered by telegram, to the respective persons named below:
If to Radian: Radian Technology, Inc.
4211 Burton Drive
Santa Clara, California 95054-1512
If to REMEC: REMEC, Inc.
9404 Chesapeake Drive
San Diego, California 92123
Attention: President
If to Employee: Joseph Mongillo
13610 Roble Alto Ct.
Los Altos Hill, California 94022
Any party may change such party's address for notices by notice duly
given pursuant to this Section .
-5-
<PAGE> 6
6.5 Headings. The Section headings herein are intended for
reference and shall not be used in the construction or interpretation of this
Agreement.
6.6 Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
California applicable to contracts entered into and wholly to be performed
within the State of California by California residents. Employee hereby submits
to the exclusive jurisdiction and venue of the Superior Court of the State of
California for the County of Santa Clara or the United States District Court for
the Northern District of California for purposes of any legal action. Employee
agrees that service upon Employee in any such action may be made by first class
mail, certified or registered, in the manner provided for delivery of notices in
this Agreement.
6.7 Assignment/Sale. The rights and obligations of Radian and
REMEC under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of Radian and REMEC and any subsequent assignee.
No assignment of this Agreement by Radian or REMEC shall relieve them of their
obligations hereunder, including any assignment by sale, merger, consolidation,
liquidation or otherwise. Employee may not assign his rights and obligations
under this Agreement.
6.8 Supersedes Prior Agreements. This Agreement supersedes and
replaces all employment contract rights Employee may have had with Radian prior
to the Merger including, without limitation, and Employee acknowledges that all
of Employee's rights under any employment contract(s) with Radian prior to the
Merger have been satisfied.
6.9 Counterparts. This Agreement may be executed in one or
more counterparts, all of which taken together shall constitute one and the same
agreement.
6.10 Withholding. All sums payable to Employee hereunder shall
be reduced by all federal, state, local, and other withholding and similar taxes
and payments required by applicable law.
6.11 Enforcement. If any portion of this Agreement is
determined to be invalid or unenforceable, such portion shall be adjusted,
rather than voided, to achieve the intent of the parties to the extent possible,
and the remainder shall be enforced to the maximum extent possible.
6.12 Arbitration. Any dispute, controversy or claim arising
out of or in respect to this Agreement (or its validity, interpretation or
enforcement), the employment relationship or the subject matter hereof shall at
the request of either party be submitted to and settled by arbitration conducted
before a single arbitrator in Santa Clara County, California in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
arbitration of such issues, including the determination of any amount of damages
suffered, shall be final and binding upon the parties to the maximum extent
permitted by law. The arbitrator in such action shall not be authorized to
change or modify any provision of this Agreement. Judgment upon the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The arbitrator shall award reasonable expenses and attorneys fees
(including reimbursement of the assigned arbitration costs) to the prevailing
party upon application therefor.
-6-
<PAGE> 7
6.13 Injunctive Relief. The parties expressly acknowledge that
the services by Employee to Radian and REMEC are of a special, unique, unusual,
extraordinary, or intellectual character, and that it is not feasible to
adequately compensate Radian and REMEC in damages in an action at law for the
failure of Employee to perform his obligations hereunder. Accordingly, in the
event of any breach hereunder, Radian and REMEC shall be entitled, from a court
of competent jurisdiction and without posting bond, to full and complete relief
as a court of equity can then afford, in addition to all other relief and
remedies otherwise available.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
RADIAN TECHNOLOGY, INC.
By:
--------------------------------
Title:
--------------------------------
REMEC, INC.
By:
--------------------------------
Title:
--------------------------------
EMPLOYEE
--------------------------------------
Joseph Mongillo
-7-
<PAGE> 1
EXHIBIT 11.1
REMEC, INC.
STATEMENT RE: COMPUTATION OF PER SHARE DATA
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net income .................................... $2,532 $2,156 $4,870
====== ====== ======
Average common shares outstanding ............. 5,545 5,517 8,942
Adjustments to reflect requirements of the
Securities and Exchange Commission
(Effect of SAB 83) ........................ 44 44 --
Effect of assumed conversion of preferred
shares from date of issuance .............. 1,078 1,078 --
Effect of common stock equivalents ............ -- -- 97
------ ------ ------
Adjusted shares outstanding ................... 6,667 6,639 9,039
====== ====== ======
Net income per share reflecting requirements
of the Securities and Exchange Commission . $ 0.38 $ 0.32 $ 0.54
====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 62,402,428
<SECURITIES> 0
<RECEIVABLES> 10,778,651
<ALLOWANCES> 290,196
<INVENTORY> 14,767,962
<CURRENT-ASSETS> 90,516,341
<PP&E> 33,554,605
<DEPRECIATION> 20,416,088
<TOTAL-ASSETS> 108,314,264
<CURRENT-LIABILITIES> 11,037,835
<BONDS> 0
0
0
<COMMON> 115,027
<OTHER-SE> 95,779,617
<TOTAL-LIABILITY-AND-EQUITY> 108,314,264
<SALES> 85,944,248
<TOTAL-REVENUES> 85,944,248
<CGS> 63,660,207
<TOTAL-COSTS> 63,660,207
<OTHER-EXPENSES> 14,650,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (347,939)
<INCOME-PRETAX> 7,981,621
<INCOME-TAX> 3,111,313
<INCOME-CONTINUING> 4,870,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,870,308
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
