================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 3, 2001 COMMISSION FILE NUMBER 0-12182
CALIFORNIA AMPLIFIER, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 95-3647070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 CALLE SAN PABLO, CAMARILLO, CALIFORNIA 93012
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
$.01 PAR VALUE COMMON STOCK
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [|X|]
The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant as of May 22, 2001 was approximately
$67,931,284.
There were 13,600,701 shares of the Registrant's Common Stock outstanding
as of May 22, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on July 20, 2001 are incorporated by
reference into Part III, Items 11, 12 and 13 of this Form 10-K. This Proxy
Statement will be filed within 120 days after the end of the fiscal year covered
by this report.
================================================================================
PART I
ITEM 1. BUSINESS
THE COMPANY
California Amplifier, Inc. (the "Company") was incorporated in 1981. Since
its inception, the Company has been engaged in the design, manufacture and
marketing of microwave components used in both defense and commercial markets,
primarily relating to the amplification and conversion of microwave signals used
in various reception applications. In 1990, the Company discontinued its
involvement in its defense business and focused its business strategy on two
major product lines: Satellite Television and Wireless Cable products. In
January 1998, the Company reorganized into the following business units:
Satellite Products, Wireless Cable Products, and Voice and Data Products. In
September 1999, the Company combined its Wireless Cable and Voice and Data
Products into a separate business unit, Wireless Access Products, to more keenly
focus its resources on the emerging two-way fixed wireless broadband market.
In addition, the Company has a 50.5% ownership interest in Micro Pulse,
Inc. (Micro Pulse), a company who designs, manufactures and markets antennas for
various wireless applications, primarily for Global Positioning Satellite (GPS)
applications.
SATELLITE PRODUCTS
Satellite dishes are used for the reception of video, audio and data
transmitted from orbiting satellites. The Company's products, which are
components of the dish assembly, are used in both commercial satellite dish
applications and home satellite dishes. The Company's Satellite product sales to
date have been primarily generated from sales of integrated downconverters,
amplifiers and feedhorns used in home satellite dish and cable headend dish
applications.
The satellite dish is a parabolic reflector antenna. Microwave signals
transmitted primarily in Ku-band or C-band for video and data transmission, are
transmitted from orbiting satellites toward the earth's surface. The dish
reflects the microwaves back to a focal point where a feedhorn collects the
microwaves transferring the signals into an amplifier/downconverter. The
microwave amplifier amplifies the microwave signal millions of times for further
processing. The downconverter changes the frequency into an intermediate
frequency so that the receiver and television can process the signal and create
a picture.
Since its inception in 1983 the Company has been a leading supplier of
C-band downconverters and amplifiers for the "large backyard dish" to markets
worldwide, but primarily to markets in the United States in the 1980's and
1990's, and Brazil and the Middle East in the mid 1990's. With the Company's
1998 reorganization into separate business units, the Satellite Products
business unit focused its resources on Ku-DBS applications, as well as a broad
line of C-band and Ku-band commercial applications. In April 1999, the Company
purchased substantially all of the satellite television products from Gardiner
Communications Corp. This acquisition allowed the Company immediate entry into
the U.S. Ku-band Direct Broadcast Satellite mainstream consumer market, and
provides the Company with the opportunity to service certain satellite markets
in Europe, and Asia, both of which position the Company to be a more significant
supplier to key markets around the world.
In fiscal year 2000, approximately 80% of the Company's satellite product
sales were Ku-DBS products, while approximately 20% were C-band consumer and
commercial products. The Company believes Ku-DBS products will continue to
comprise a significant percentage of satellite product sales as the Company
focuses on the DBS market opportunities in the United States, Europe, Latin
America and Asia.
2
WIRELESS ACCESS PRODUCTS
The Company's legacy Wireless Access products relate primarily to microwave
downconvertr/amplifier receive products similar in function to its satellite
products for wireless cable video reception, except that the microwave
programming is transmitted from a terrestrial tower instead of a satellite. The
Company's product focus has shifted to two-way transceiver products for use in
"last-mile" wireless access to homes and businesses. The market and product
background will be outlined below:
WIRELESS CABLE VIDEO
Wireless Cable television operates in many ways similar to coaxial cable
multichannel television transmission. The key difference is that Wireless Cable
does not have cable connecting the headend/transmission site to each home, but
instead uses a microwave frequency band (MMDS) to transmit programming within a
local service area. The signal can generally be received by subscribers within a
25-40 mile omni-directional radius of the transmission tower depending on the
transmitter power; however, the subscriber must have a direct line-of-sight or
"view" between the tower and the receive antenna. Typically, 65%-80% of the
homes within the service area will be able to receive the wireless signal, with
the remainder shadowed from the transmitter. The percentage of line-of-sight
homes is affected by the tower elevation, local topography and the subscriber
antenna height.
In 1995, the Wireless Cable industry in the United States generated a great
deal of interest with Tele-TV, a consortium comprised of Bell Atlantic, NYNEX
and Pacific Telesis, which announced its intention to deliver video to customers
using Wireless Cable digital compression technology. Initial projections for a
digital subscriber rollout by Tele-TV were 2.0 million subscribers within three
years of introduction. In late 1996, the Tele-TV consortium announced that
certain members had changed their strategic emphasis and were not going forward
with their Wireless Cable plans. In 1996, BellSouth announced its plan to use
digital Wireless Cable technology to deliver video services in the southeastern
region of the United States, and launched video programming services in Atlanta,
New Orleans, Orlando, Daytona Beach, and Jacksonville. In 2000, BellSouth
re-evaluated its video programming delivery service, and are currently working
with DBS satellite operators to deliver video services. This will allow
BellSouth to consider other uses for its MMDS spectrum.
The Tele-TV participation in Wireless Cable television was viewed by many
industry experts as the beginning of well financed companies entering the
Wireless Cable market through acquisition or alliances with existing domestic,
multiple system operators. The decision by the Tele-TV partners to re-assess
their video delivery strategy, combined with other factors, resulted in a
significant slowdown in the domestic Wireless Cable market. Independent
operators were confronted with limited financing alternatives, negative cash
flow from operations with their current subscriber levels, and the decision of
whether to expand subscriber counts using analog equipment prior to the
availability of digital equipment. Additionally, the quality and breadth of
programming offered by satellite programmers put analog wireless cable operators
at a distinct disadvantage. These factors, coupled with the U.S. household
market opportunities becoming more focused on Internet services, has resulted in
the MMDS industry largely abandoning one-way video services for two-way fixed
Internet and telephony applications (see Wireless Access Products).
Internationally, the Wireless Cable industry has experienced significant
growth in response to increasing worldwide demand for multichannel television
and the increased availability of a variety of programming such as HBO, CNN,
MTV, ESPN and Disney. The Company believes that Wireless Cable technology, in
many instances, is better suited than traditional cable to provide multichannel
television to the consumer, especially in less developed countries and in areas
that are not densely populated. The lack of a need for a cable network allows
Wireless Cable operators to commence broadcasting more quickly, with less of an
initial investment than for traditional cable, and to quickly expand throughout
a service area. To date, Wireless Cable systems have been launched throughout
the world, including major systems in Canada, Mexico, Venezuela, Brazil,
Argentina, Paraguay, Chile, Qatar, Thailand, Malaysia, Nigeria, Australia, Czech
Republic, Russia and Ireland. Similar launches in these countries, and other
geographical areas, are expected to continue as programming is made available to
these areas. Because the international markets do not have a high percentage of
pay television subscribers to television households, and are not dominated by a
single method of delivery, as cable is in the United States, the potential for
Wireless Cable as a programming delivery method internationally is still
significant if capital becomes available for operators to roll-out systems. In
addition, many operators/MMDS spectrum owners may re-assess their video strategy
and focus on two-way Internet and telephony services as the United States market
has initiated as described below.
3
TWO-WAY TRANSCEIVER PRODUCTS
Terrestrial Wireless Cable operators owned significant wireless spectrum in
the 2.5 to 2.7 gigahertz range. As worldwide markets move toward wireless
communications, wireless cable operators have considered using a portion or all
of the video bandwidth for voice (telephony) or data (Internet access)
applications.
By deploying MMDS two-way wireless technology, operators can offer a
high-speed data service alternative for bridging the critical "last mile"
between networks and customers. There are key distinctions between MMDS and the
two most prevalent traditional high-speed pipelines, cable and digital
subscriber line (DSL), typically provided by local cable or telephone companies.
MMDS not only allows rapid deployment of this new wireless alternative at
relatively low build out costs, it extends high-speed access to rural and
suburban markets that are not served or are underserved by cable or DSL.
Essentially, operators will establish two-way transmissions to and from central
headends, homes, and businesses operating in many instances like cellular
systems. The Company currently provides outdoor transceivers, which the system
operator installs on the subscriber's home or business rooftop. The transceivers
interface with an indoor modem which is connected to PCs or LANs, and send and
receive data to/from the base stations and provide access to the Intenet. The
network management system manages and controls the traffic transmitted over the
broadband wireless system.
Beginning in March 1999, MCI WorldCom and Sprint began making debt and
equity investments in many of the U.S. multi-system operators, essentially
acquiring over 60% of the MMDS spectrum in major cities throughout the United
States. In conjunction with these acquisitions, the companies announced their
intention to initiate a broad-based roll-out of fixed wireless services to
consumers in approximately 100 U.S. cities by the end of 2001. As of May 2001,
Sprint was operating in 13 cities, and MCI WorldCom in 3 cities. Both companies
have re-evaluated their previous roll-out strategies, and are awaiting next
generation non-line-of-sight technologies before finalizing their deployment
strategies. The Company is currently co-developing integrated non-line-of-sight
transceiver/modem equipment in which Sprint has expressed significant interest.
However, there can be no assurances that these development efforts will be
successful.
ANTENNA PRODUCTS
In January 1993, the Company purchased a 50% ownership interest in Micro
Pulse for $500,000, and in fiscal year 1998 increased its ownership to a 50.5%
controlling interest. Micro Pulse designs, manufactures and markets antennas and
amplifiers used principally in GPS applications. Such products are used in
surveying applications, vehicle tracking and marine and airborne navigation.
During fiscal years 2001, 2000, and 1999 Satellite products accounted for
68.1%, 69.9%, and 33.7% of the Company's sales, respectively. Wireless access
products accounted for 25.6%, 22.0%, and 54.8% of the Company's sales,
respectively. Antenna products, which represent sales by Micro Pulse, accounted
for 6.3%, 8.1%, and 11.5% of the Company's consolidated sales in fiscal years
2001, 2000, and 1999, respectively.
For additional information regarding the Company's sales by segment and
geographical area, see Note 11 of Notes to Consolidated Financial Statements.
4
MANUFACTURING
The Company currently manufactures and assembles its products in Camarillo,
California and under a subcontract arrangement in China. In fiscal years 2000
and 2001, the Company also manufactured and assembled satellite DBS products in
Garland, Texas. Manufacturing operations consist of placing hundreds of
electronic devices onto printed circuit boards, assembling one or more boards
into primarily aluminum housings, tuning microwave circuits, and testing of
final assembled products.
Electronic devices, components and made-to-order assemblies used in the
Company's products are generally obtained from a number of suppliers, although
certain materials are obtained from a limited number of sources. Some devices or
components are standard items while others are manufactured to the Company's
specifications by its suppliers. The Company attempts to operate without
substantial levels of raw materials by depending on certain key suppliers to
provide material on a "just-in-time" basis. The Company believes that most raw
materials are available from alternative suppliers. However, any significant
interruption in the delivery of such items could have an adverse effect on the
Company's operations. During the second half of fiscal year 2000, and during the
first quarter of fiscal year 2001, the Company experienced difficulty in
receiving timely delivery of certain key components which, to some extent,
affected shipments and manufacturing productivity. There can be no assurances
that such electronic component shortages will not occur again nor to what extent
these shortages impact production.
ISO 9001 INTERNATIONAL CERTIFICATION
In August 1995, the Company became registered to ISO 9001, the
international standard for conformance to quality excellence in meeting market
needs in all areas including product design, manufacturing, quality assurance
and marketing. The registration assessment was performed by Underwriter's
Laboratory, Inc., according to the ISO 9001:1994 International Standard.
Continuous assessments to maintain certification are performed semi-annually,
and the Company has maintained its certification through each audit evaluation,
most recently March 22, 2001.
RESEARCH AND DEVELOPMENT
Each of the markets the Company competes in are characterized by
technological change, evolving industry standards, and new product requirements
to meet market growth. During the last three years, the Company has focused its
research and development resources primarily on: Satellite DBS products, two-way
MMDS transceivers, two-way MMDS integrated transceiver/modems. In addition,
development resources were allocated to broaden existing product lines, reduce
product costs and improve performance by product redesign efforts.
Research and development expenses were $6,979,000, $5,540,000, and
$4,764,000, during fiscal years 2001, 2000, and 1999, respectively.
SALES AND MARKETING
The Company sells its wireless access products directly to system operators
as well as through distributors and system integrators. The Company sells its
Satellite products through satellite equipment distributors, but, from time to
time, sells certain products to manufacturers for incorporation into complete
satellite dish systems, or directly to DBS operators.
The Company's sales and marketing functions for each business unit are
centralized in its Camarillo California, USA, corporate headquarters. In
addition, the Company has sales offices and personnel in Paris, France; Sao
Paulo, Brazil; as well as some sales activity in its Hong Kong, China material
procurement operation. The Company may add additional sales offices and
employees as market conditions warrant, in market areas that require additional
sales and customer support not adequately served by a major distributor or
reseller.
Micro Pulse sales and marketing functions are centralized in its Camarillo
California, USA corporate headquarters. In addition, Micro Pulse also utilizes
sales representatives to identify markets and customers, and to sell its
products.
See also Note 11 of Notes to Consolidated Financial Statements for segment
and geographical sales information.
5
COMPETITION
The markets in which the Company competes are highly competitive. In
addition, if the markets for the Company's products continue to grow, the
Company anticipates increased competition from new companies entering such
markets, some of whom may have financial and technical resources substantially
greater than those of the Company. Furthermore, because some of the Company's
products may not be proprietary, they may be duplicated by low-cost producers,
resulting in price and margin pressures.
The Company believes that competition in its markets is based primarily on
price, performance, reputation, product reliability and technical support. In
the terrestrial Wireless Access market, the Company has supplier relationships
with major operators in various regions of the world, and believes that its
pricing, accompanied by product performance, reliability, low field failure
rate, and its ongoing technical support, are currently competitive advantages to
the Company. In the Satellite Television market, its reputation for performance
and quality allows the Company a competitive advantage if pricing of its
products is comparable to its competitors. Its acquisition of rights to U.S. DBS
products in 1999 allowed the Company immediate entry into the U.S. DBS market
where it maintains a leadership position. In the GPS and wireless antenna
markets Micro Pulse relies upon its reputation for innovation, quality and its
quick time to market with new design requirements.
The Company's continued success in these markets, however, will depend upon
its ability to continue to design and manufacture quality products at
competitive prices.
BACKLOG
The Company's products are sold to customers that do not usually enter into
long-term purchase agreements, and as a result, the Company's backlog at any
date is not significant to the annualized sales trends. In addition, because of
customer order modifications, cancellations, or orders requiring wire transfers
or letters of credit from international customers, the Company's backlog as of
any particular date, may not be indicative of sales for any future period.
Moreover, the lack of backlog beyond any ninety-day period makes it more
difficult for the Company to forecast its sales over longer timeframes.
PATENTS, TRADEMARKS AND LICENSES
The Company's timely application of its technology and its design,
development and marketing capabilities have been of substantially greater
importance to its business than patents or licenses.
The Company currently has sixteen patents ranging from design features for
downconverter and antenna products, to its MultiCipher broadband scrambling
system. Those that relate to its downconverter products do not give the Company
any significant advantage since other manufacturers using different design
approaches can offer similar microwave products in the marketplace. The Company
does believe, however, that certain Wireless Cable antenna patented designs, and
the broadband scrambling technology for encoding and decoding multi-channel
television signals used in the MultiCipher system are important and may result
in a competitive advantage for the Company.
In October 2000, the Company obtained an exclusive field use license for
U.S. patent No. 4,907,291, which relates to simultaneous two-way microwave
communication.
The Company currently has nine other patents pending.
California Amplifier(R) and MultiCipher(R) are federally registered
trademarks of the Company. The Company has also filed for trademark protection
for its MultiCipher Plus product line.
EMPLOYEES
At March 3, 2001, the Company had 363 employees, including contract
employees, and Micro Pulse had 71 employees. None of the Company's employees are
represented by a labor union.
6
ITEM 2. PROPERTIES
The Company's corporate headquarters and its primary manufacturing
operations are located in three adjacent facilities in Camarillo, California
(approximately 60 miles north of Los Angeles) totaling approximately 94,000
square feet. The leases on all three facilities expire in 2004. The Company
also has offices in Paris, France; Sao Paulo, Brazil; and Hong Kong, China.
See also Note 9 to Consolidated Financial Statements.
Micro Pulse's corporate headquarters and manufacturing facility is located
on approximately 18,579 square feet of leased space in Camarillo, California,
which Micro Pulse rents on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
YOURISH CLASS ACTIONS AND RLI INSURANCE COMPANY LITIGATION
On June 11, 1997, the Company and certain of its directors and officers had
two legal actions filed against them, one in the United States District Court,
Central District of California, entitled YOURISH V. CALIFORNIA AMPLIFIER, INC.,
ET AL., Case No. 97-4293 CBM (Mcx), and the other in the Superior Court for the
State of California, County of Ventura, entitled YOURISH V. CALIFORNIA
AMPLIFIER, INC. ET AL., Case No. CIV 173569. On June 30, 1997, another legal
action was filed against the same defendants in the Superior Court for the State
of California, County of Ventura, entitled BURNS, ET AL., V. CALIFORNIA
AMPLIFIER, INC., ET AL., Case No. CIV 173981. All three actions were purported
class actions on behalf of purchasers of the common stock of the Company between
September 12, 1995 and August 8, 1996. The actions claimed that the defendants
engaged in a scheme to make false and misleading statements and omit to disclose
material adverse facts to the public concerning the Company, allegedly causing
the Company's stock price to artificially rise, and thereby allegedly allowing
the individual defendants to sell stock at inflated prices. Plaintiffs claimed
that the purported stockholder class was damaged when the price of the stock
declined upon disclosure of the alleged adverse facts. On September 21, 1998,
the Federal legal action was dismissed in the United States District Court. The
dismissal was upheld by the U.S. Court of Appeals for the Ninth Circuit on
October 8, 1999.
On March 27, 2000 the trial began for the lawsuit filed in the Superior
Court for the State of California, County of Ventura, entitled YOURISH V.
CALIFORNIA AMPLIFIER, INC., ET AL., Case No. CIV 173569. On March 29, 2000 the
parties reached a settlement. The terms of the settlement called for the
issuance by the Company of 187,500 shares of stock along with a cash payment of
$3.5 million, funded in part by insurance proceeds, for a total settlement of
approximately $11.0 million. Of the total settlement, $9.5 million was accrued
in the consolidated financial statements for the year ended February 26, 2000.
By Order dated September 14, 2000, the court approved the terms of the
settlement and dismissed the action with prejudice. As of March 3, 2001, the
Company had issued 65,625 of the 187,500 shares and paid $2.5 million of the
$3.5 million with one of its insurance carriers paying the remaining $1.0
million. As of March 3, 2001 $4.8 million was accrued in the consolidated
financial statements primarily related to the remaining 121,875 shares still to
be issued under the settlement agreement.
In connection with the settlement of the YOURISH action, the Company and
certain of its former and current officers and directors have filed a lawsuit
(CALIFORNIA AMPLIFIER, INC., ET AL. V. RLI INSURANCE COMPANY, ET AL., Ventura
County Superior Court Case No. CIV196258), against one of its insurance carriers
to recover $2.0 million of coverage the insurance carrier has stated was not
covered under its policy of insurance. The insurance carrier filed a Motion for
Judgment on the Pleadings seeking judgment on the basis, INTER ALIA, that the
claims in the YOURISH action for alleged violations of Sections 25400 and 25500
of the California Corporation Code were not insurable as a matter of law
pursuant to Insurance Code Section 533. The Plaintiffs opposed the motion and a
hearing was held on September 22, 2000. On October 18, 2000, the Court entered
an Order on granting the motion for judgment on the pleadings. Judgment was
entered on November 9, 2000, and Notice of Entry of Judgment given on November
15, 2000. California Amplifier filed a Notice of Appeal on November 21, 2000 and
the appeal has been fully briefed by both parties. No hearing date has been set
to argue the appeal.
7
ANDREW CORPORATION LITIGATION
On March 7, 2000, the Company announced that it had received a complaint of
patent infringement from Andrew Corporation (Andrew). The complaint, filed
against California Amplifier in U.S. District Court for the Eastern District of
Texas, alleges that certain California Amplifier products infringe Andrew's
patent rights. The complaint was served with this initial pleading on or about
June 5, 2000. A first amended complaint was filed by Andrew on June 28, 2000. On
July 18, 2000, Andrew filed a motion for preliminary injunction seeking to
enjoin the Company from selling the products that Andrew claims infringe its
patent rights. During the briefing period regarding the preliminary injunction,
Andrew filed a motion to strike the Company's preliminary injunction opposition
brief. Also during this briefing period, the Company secured an exclusive
license, with enforcement rights, to a certain patent that the Company believes
both invalidates Andrew's '052 patent and applies to Andrew's competing
products. The Company has commenced patent litigation against Andrew in the
United States District Court for the Central District of California under this
patent, in an action styled CALIFORNIA AMPLIFIER, INC. AND NEC CORPORATION V.
ANDREW CORPORATION, Case No. CV-01-01391 AHM (RZx) ("The California Action").
California Amplifier successfully defeated the motion to strike, and
Andrew's reply relating to the preliminary injunction brief was filed on March
16, 2001. The preliminary injunction hearing was scheduled for April 12-13,
2001, but the hearing was removed from the Court's schedule due to ongoing
settlement negotiations between the parties. The Company believes that the
litigation will be resolved in the near future. If it is not, then the Company
will continue to defend itself vigorously.
2001 SECURITIES LITIGATION
Following the announcement by the Company on March 29, 2001 of the
resignation of its Controller and the possible overstatement of net income for
the fiscal year ended February 26, 2000 and the subsequent restatement of fiscal
year 2000 and the interim periods of fiscal years 2000 and 2001, the Company and
certain of its officers and directors have been named defendants in twenty
putative class actions in federal court:
(A) JOHN MICHAEL ROBERTS AND DAVID SCIORSCI, ON BEHALF OF THEMSELVES AND
ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS V. CALIFORNIA AMPLIFIER, INC.,
DEFENDANT, United States District Court, Central District of California,
Western Division, Case No. CV-01-02988 MMM (RNBx). This action alleges
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder.
(B) MIKE ROGERS, ON HIS OWN BEHALF AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., FRED STURM, AND MICHAEL
R. FERRON, DEFENDANTS, United States District Court, Central District of
California, Western Division, Case No. CV-01-02992 ER (JWJx). This action
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder.
(C) JAMES LEONHARD, ON HIS OWN BEHALF AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., FRED STURM AND MICHAEL
R. FERRON, DEFENDANTS, United States District Court, Central District of
California, Western Division, Case No. CV-01-03046 ER (CWx). This action
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder.
(D) STEPHEN W. BROCK, ON HIS OWN BEHALF AND ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., FRED STURM,
AND MICHAEL R. FERRON, DEFENDANTS, United States District Court, Central
District of California, Western Division, Case No. SACV-01-373 DOC (ANx).
This action alleges violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
(E) EDWARD KALL, ON HIS OWN BEHALF AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., FRED STURM, AND MICHAEL
R. FERRON, DEFENDANTS, United States District Court, Central District of
California, Western Division, Case No. SACV-01-382 DOC (ANx). This action
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder.
8
(F) RICHARD TAYLOR, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., FRED STURM, AND MICHAEL
R. FERRON, DEFENDANTS, United States District Court, Central District of
California, Western Division, Case No. CV-01-03112 MRP (AIJx). This action
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder.
(G) MICHAEL SEBANI, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,
PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States District
Court, Central District of California, Western Division, Case No.
CV-01-03187 FMC (CWx). This action alleges violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
(H) PETER CHERVIN, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,
PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States District
Court, Central District of California, Western Division, Case No.
CV-01-03300 (Ex). This action alleges violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
(I) BRIAN ABRAMSON, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,
PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States District
Court, Central District of California, Western Division, Case No.
CV-01-03322 MRP (DNBx). This action alleges violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
(J) ORLANDO MARTINEZ, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States
District Court, Central District of California, Western Division, Case No.
CV-01-03329 NM (SHx). This action alleges violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
(K) CHARLES MEDALIE, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States
District Court, Central District of California, Western Division, Case No.
CV-01-03379 CBM (BQRx). This action alleges violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
(L) DENNIS M. MCCARTHY, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States
District Court, Central District of California, Western Division, Case No.
CV-01-03441 WJR (MANx). This action alleges violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
(M) RONALD E. BEARD, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States
District Court, Central District of California, Western Division, Case No.
CV-01-03507 GAF (CTx). This action alleges violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
(N) DAVID G. HESS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., FRED STURM, MICHAEL R.
FERRON, AND JOHN DOE DEFENDANTS, United States District Court, Central
District of California, Western Division, Case No. CV-01-03508 DT (CWx).
This action alleges violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
(O) RICHARD BRADFORD BREWER, ON HIS OWN BEHALF AND ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., FRED STURM,
AND MICHAEL R. FERRON, DEFENDANTS, United States District Court, Central
District of California, Western Division, Case No. CV-01-03511 AHM (RZ).
This action alleges violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
(P) YOUSEF MACHOUR, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,
PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States District
Court, Central District of California, Western Division, Case No.
CV-01-03587 CM (BQRx). This action alleges violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
9
(Q) JAMES WELCH, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,
PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States District
Court, Central District of California, Western Division, Case No.
CV-01-03758 SVW (MANx). This action alleges violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
(R) JAMES S. THOMAS, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., FRED STURM, AND MICHAEL
R. FERRON, DEFENDANTS, United States District Court, Central District of
California, Western Division, Case No. CV-01-03774 TJH (MANx). This action
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder.
(S) GREG MOCCIA, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,
PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States District
Court, Central District of California, Western Division, Case No.
CV-01-03776 FMC (MANx). This action alleges violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
(T) CHADRAKANT ITCHHAPORIA, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY
SITUATED, PLAINTIFF V. CALIFORNIA AMPLIFIER, INC., DEFENDANT, United States
District Court, Central District of California, Western Division, Case No.
CV-01-03896 DDP (Mcx). This action alleges violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.
Sixteen of the class actions seek to represent a class of purchasers of the
Company's common stock for the period between April 6 or 7, 2000 to March 28,
2001. Four of the class actions seek to represent a class of purchasers of the
Company's common stock for the period between June 10 or 11, 1999 to March 28 or
29, 2001 (TAYLOR, WELCH, MOCCIA, AND ITCHHAPORIA). All of the complaints cite to
the Company's March 29, 2001 announcement regarding the resignation of the
Company's corporate controller and statement that net income for the fiscal year
ended February 26, 2000 may have been overstated by as much as $2.2 million. The
complaints generally allege that the defendants artificially inflated the price
of California Amplifier stock during the class period by allegedly making false
representations about the Company's financial results or failing to disclose
adverse facts about its financial results. The complaints also allege without
specific facts that the individual defendants knew or were reckless in making
the alleged false statements about the Company's financial results.
The twenty actions are expected to be consolidated into a single action
pursuant to stipulation of the parties. The Company expects to move to dismiss
the complaints after they are consolidated and a lead plaintiffs' counsel
appointed, and intends to defend the actions vigorously. At this time it is not
possible to determine the outcome of these actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three months ended March 3, 2001, no matters were submitted to a
vote of the Company's security holders.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol "CAMP." The following table sets forth for each fiscal period indicating
the high and low sale prices for the Company's Common Stock, as reported by
Nasdaq:
LOW HIGH
FISCAL YEAR ENDED MARCH 3, 2001:
1st Quarter $14.50 $49.75
2nd Quarter 19.25 63.00
3rd Quarter 15.50 45.88
4th Quarter 5.44 19.44
FISCAL YEAR ENDED FEBRUARY 26, 2000:
1st Quarter $ 1.69 $ 5.88
2nd Quarter 4.06 14.94
3rd Quarter 11.18 25.12
4th Quarter 22.25 45.00
At May 22, 2001 the number of stockholders of record of the Company's
Common Stock was 242. The number of stockholders of record does not include the
number of persons having beneficial ownership held in "street name" which are
estimated to approximate 14,500.
The Company has never paid a cash dividend and has no current plans to pay
cash dividends on its Common Stock.
On March 29, 2001, subsequent to the Company's announcement that it was
investigating improper adjustments made by the corporate controller to the
Company's accounting records, NASDAQ halted trading of the Company's common
stock.
On May 3, 2001, the Company announced that it had received notification from
NASDAQ that due to the Company's failure to comply with filing requirements
requiring audited financial statements to be included in its annual report,
NASDAQ intended to delist the shares of the Company's common stock at the
opening of business on May 8, 2001. The Company presented testimony at the
NASDAQ hearing held on May 25, 2001 regarding the continued listing of the
Company's common stock on NASDAQ. The Company believes that it provided
satisfactory answers to the questions raised and was advised that the hearing
panel is expected to issue a ruling on the matter some time in June 2001. In the
interim, trading in the common stock will remain halted.
11
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data which has
been derived from the audited consolidated financial statements of the Company
for each of the respective years. The selected financial data should be read in
conjunction with the consolidated financial statements and related notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
(in thousands, except per share data)
YEARS ENDED
------------------------------------------------------------------------------------------------------------------------
MAR. 3, FEB. 26, FEB. 27, FEB. 28, MAR. 1,
2001 2000(1) 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------
Sales $ 124,979 $ 86,417 $ 37,547 $ 47,293 $ 49,816
Income (loss) before taxes 8,098 (7,908) (2,217) (4,149) 1,037
Net income (loss) 5,209 (5,064) (1,436) (2,665) 633
Diluted net income
(loss) per share 0.37 (0.42) (0.12) (0.23) 0.05
========================================================================================================================
(1) Fiscal year 2000 includes a $9.5 million charge for settlement of
litigation. Excluding this charge net income would have been approximately
$1,019,000, or $.08 per fully diluted share.
CONSOLIDATED BALANCE SHEETS DATA:
(in thousands)
AS OF EACH YEAR END
---------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------
Total assets $ 49,812 $ 51,497 $ 25,549 $ 27,831 $ 29,536
Working capital 20,491 4,472 15,478 14,886 15,001
Long-term debt, net of current portion 4,500 145 517 1,112 525
Stockholders' equity 29,624 18,281 20,065 21,397 24,148
===========================================================================================================================
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of sales represented by items included in the Company's Consolidated Statements
of Operations:
YEARS ENDED
---------------------------------------------------------------------------------------------------------------------------
MAR. 3, FEB. 26, FEB. 27,
2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------
Sales:
Satellite Products 68.1% 69.9% 33.7%
Wireless Access Products 25.6 22.0 54.8
Antenna Products 6.3 8.1 11.5
---------------------------------------------------------------------------------------------------------------------------
Total sales 100.0 100.0 100.0
Gross margin 21.2 20.6 28.1
Research and development 5.6 6.4 12.7
Selling 3.3 5.7 11.8
General and administrative 5.2 6.2 10.4
---------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 7.1 2.3 (6.8)
Settlement of litigation --- (11.0) ---
Other income (expense), net (.3) (.2) ---
Minority interest share in (income) loss of Micro Pulse (.3) (.3) .8
---------------------------------------------------------------------------------------------------------------------------
Income (loss) before (provision for) benefit from income taxes 6.5 (9.2) (6.0)
(Provision for) benefit from income taxes (2.3) 3.3 2.2
---------------------------------------------------------------------------------------------------------------------------
Net income (loss) 4.2% (5.9)% (3.8)%
===========================================================================================================================
13
FISCAL YEARS 2001 AND 2000
Sales increased $38.6 million, or 44.6%, from $86.4 million in fiscal year
2000 to $125.0 million in fiscal year 2001. The fiscal year 2001 sales increase
resulted primarily from increases in each of the Company's three major sales
categories.
Sales of Satellite products increased $24.7, or 40.9%, from $60.4 million
to $85.1 million. Sales of Wireless Access products increased $13.0 million, or
68.4%, from $19.0 million to $32.0 million. Sales of Antenna products, which
represent total sales by Micro Pulse, increased $862,000, or 12.3%, from $7.0
million to $7.9 million.
The $24.7 million or 40.9% sales increase in Satellite products resulted
primarily from increased sales of U.S. DBA products. The Company experienced
significant year-to-year sales growth ($28.7 million increase) in the first
half of fiscal year 2001 as compared to the first half of fiscal year 2000,
offset by a negative comparison ($4.0 million decrease) for the second half
year-to-year comparisons. The reductions of shipments of satellite DBS
products in the second half of fiscal year 2000 reflects a slowing of
subscriber additions, reduction in inventory levels by operators, in addition
to the elimination of single output downconverters from their product
offering. A delay by the Company of a new product introduction contributed
$3.4 million of the fourth quarter sales decrease. This product began
shipments of small volume in the Company's first quarter of fiscal year 2002.
The $13.0 million sales increase in Wireless Access products results from
increased sales of two-way wireless transceivers, offset by reductions in the
Company's legacy wireless cable video products.
The $862,000 sales increase in sales of Antenna products resulted primarily
from Micro Pulse expanding its customer base for certain other antenna
applications.
Gross profits increased $8.7 million, or 48.6%, from $17.8 million in
fiscal year 2000 to $26.5 million in fiscal year 2001. The increase in gross
profits occurred primarily because of the increase in sales, and slightly higher
product gross margins.
Gross margins increased from 20.6% in fiscal year 2000 to 21.2% in fiscal
year 2001. The increase in gross margins relates to increased sales of Wireless
Access products at higher gross margins of 32.6% while Satellite product gross
margins remained relatively consistent with the prior year at 15.2%. See also
Note 11 to notes to the consolidated financial statements included elsewhere
herein.
Research and development expenses increased by $1.5 million, from $5.5
million in fiscal year 2000 to $7.0 million in fiscal year 2001. The increase
results primarily to additional design personnel in the Wireless Access business
unit to focus on the development of wireless two-way MMDS transceivers, and
salary increases to ensure engineers' compensation is competitive with current
market conditions.
Selling expenses decreased by $793,000 from $4.9 million in fiscal year
2000 to $4.1 in fiscal year 2001. The decrease relates primarily to reductions
in discretionary marketing expense, offset by additions in personnel and salary
increases.
General and administrative expenses increased by $1.2 million from $5.4
million in fiscal year 2000 to $6.6 million in fiscal year 2001. The increase
results primarily from increases in legal and professional fees.
Income from operations increased by $6.9 million from $2.0 million in
fiscal year 2000 to $8.9 million in fiscal year 2001. The principal reasons
for the improvement are as described above: a $38.6 million increase in
sales, a $8.7 million increase in gross profits, offset by a $1.8 million
increase in operating expenses.
The $9.5 million settlement of litigation in fiscal year 2000 relates to
the settlement of the class action lawsuit filed in June 1997. See Note 10 to
notes to consolidated financial statements included elsewhere herein.
The (provision for) benefit from income taxes for fiscal years 2001 and
2000 was approximately 36% of income (loss) before taxes.
14
For the reasons outlined above, net income for fiscal year 2001 increased
$10.3 million from a loss of $5.1 million in fiscal year 2000 to net income of
$5.2 million in fiscal year 2001.
FISCAL YEARS 2000 AND 1999
Sales increased $48.9 million, or 130%, from $37.5 million in fiscal year
1999 to $86.4 million in fiscal year 2000. The fiscal year 2000 sales increase
resulted primarily from the significant increase in sales of satellite products.
Sales of Satellite products increased $47.8, or 377%, from $12.7 million to
$60.4 million. Sales of Wireless access products decreased $1.6 million, or
7.6%, from $20.6 million to $19.0 million. Sales of Antenna products, which
represent total sales by Micro Pulse, increased $2.7 million, or 63%, from $4.3
million to $7.0 million.
The $47.8 million increase in Satellite products sales resulted primarily
from significantly higher unit sales of U.S. DBS products, which were acquired
from Gardiner Communications in April 1999.
The $1.6 million decrease in Wireless Access products sales was a result of
approximately $3.0 million decrease in sales of wireless cable video products,
offset by a $1.5 million increase in sales of two-way transceiver products.
The $2.7 million sales increase in sales of Antenna products resulted
primarily from Micro Pulse expanding its customer base for certain GPS
applications with a resulting increase in units sold.
Gross profits increased $7.3 million, or 69%, from $10.5 million in fiscal
year 1999 to $17.8 million in fiscal year 2000. The increase in gross profits
occurred because of a 130% increase in sales offset by lower product gross
margins of 20.6%, as a result of sales of lower margin satellite DBS products
which represented a larger percentage of total sales in fiscal year 2000 as
compared to fiscal year 1999.
Gross margins decreased from 28.1% in fiscal year 1999 to 20.6% in fiscal
year 2000. The decrease in gross margins relates primarily to the fact that
approximately 70% of total sales were sales of satellite products with gross
margins of approximately 15.1%. The Satellite products gross margins for fiscal
year 2000 were negatively impacted by significantly lower product gross margins
in the third and fourth quarter of fiscal year 2000. Factors affecting satellite
product gross margins in the third and fourth quarter of fiscal year 2000 were
as follows: competitive pricing, higher than anticipated labor and overhead
costs to initiate production of DBS products in two factories beginning in
September 1999, higher pricing for critical components used in manufacturing of
the product, and assembly line shut downs because of electronic component
shortages. Wireless Access products gross margins of 31.5%, although higher than
satellite products, were impacted negatively by excess manufacturing capacity.
See also Note 11 Segment and Geographic Data to Notes to Consolidated Financial
Statements included elsewhere herein.
Research and development expenses increased by $776,000, from $4.8 million
in fiscal year 1999 to $5.5 million in fiscal year 2000. The increase results
from additional personnel to support the new satellite products, and
company-wide salary increases to remain competitive with industry compensation
trends. As a percentage of sales, however, research and development expenses
decreased to 6.4% from 12.7% in fiscal year 1999. This is primarily a result of
the significant increase in sales and the fact that in prior years the Company
maintained research and development regardless of lower sales in the near-term.
Selling expenses increased by $436,000 from $4.4 million in fiscal year
1999 to $4.9 million in fiscal year 2000. The increase relates primarily to
increases in salaries and additions in personnel to support increased satellite
sales.
General and administrative expenses increased by $1.5 million from $3.9
million in fiscal year 1999 to $5.4 million in fiscal year 2000. The increase
results primarily from increases in incentive bonuses, legal fees, and additions
relating to the acquisition of Gardiner, including goodwill amortization.
15
Each of the functional operating expenses declined as a percentage of sales
due to the 130% increase in total sales, so it is difficult to analyze such
costs from year-to-year as a percentage of sales.
Income (loss) from operations increased by $4.6 million from a loss of $2.5
million in fiscal year 1999 to income of $2.0 million in fiscal year 2000.
The settlement of litigation relates to the class action litigation filed
in June 1997. See also Note 10 to notes to consolidated financial statements
included elsewhere herein.
The benefit from income taxes was $2.8 million, or 36% of the loss
before taxes in fiscal year 2000, relatively consistent with the tax rate of
35.2% in fiscal year 1999.
For the reasons outlined above, the net loss for fiscal year 2000 was $5.1
million, as compared to a net loss of $1.4 million in fiscal year 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 3, 2001, the Company had cash and cash equivalents on hand of
$10.0 million and $8.0 million available under a working capital credit facility
as described below.
In September 2000, the Company finalized a new banking arrangement with
U.S. Bank. Under the agreement, the Company borrowed $5.0 million under a
term loan interest only at Libor plus 2.2%, until September 2001 at which
time the loan converts to a five-year term loan. In addition, the Company's
working capital credit facility was increased to $8.0 million. The credit
facility contains certain financial covenants and ratios the Company is
required to maintain. At March 3, 2001, the Company was not in compliance with
certain debt covenants under the working capital credit facility, but there
were no borrowings outstanding. In May 2001, the bank amended the covenants
retroactive to November 2000. In addition, the Bank agreed to amend the debt
covenants for fiscal 2002.
The Company believes that cash flow from operations together with the funds
available under its credit facility, are sufficient to support operations and
capital equipment requirements over the next twelve months.
The Company believes that inflation and foreign currency exchange rates
have not had a material effect on its operations. The Company believes that
fiscal year 2002 will not be impacted significantly by foreign exchange since a
significant portion of the Company's fiscal year 2002 projected sales are to
U.S. markets, or to international markets where its sales are negotiated in U.S.
dollars. Import tariffs in countries such as Brazil and China have made it more
difficult to compete with in-country manufacturers.
NEW AUTHORITATIVE PRONOUNCEMENTS
In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," and SFAS No. 137, which
delayed the effective date of SFAS No. 133. Management does not expect adoption
of this standard to have a material impact on the Company's financial position
or results of operations.
In December 1999, the SEC staff released Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements," to provide guidance on
the recognition, presentation and disclosure of revenue in financial statements.
The adoption of SAB No. 101 did not have a material impact on the Company's
revenue recognition and results of operations.
In May 2001, the FASB reached a consensus on portions of its Business
Combination Project. Under terms of the consensus, the Company will stop
amortizing goodwill at the close of fiscal year 2002.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. As of
March 3, 2001, the Company's term debt and credit facility with its bank are
subject to variable interest rates. The Company monitors its debt and
interest bearing cash equivalents levels to mitigate the risk of interest
rate fluctuations. A fluctuation of one percent in interest rates would have
an annual impact of less than $50,000 on the Company's Statement of Operations.
16
SAFE HARBOR STATEMENT
Forward looking statements in this Form 10-K which include, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions, projections and other information regarding future
performance, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. These forward-looking statements reflect the Company's current views
with respect to future events and financial performance and are subject to
certain risks and uncertainties, including, without limitation, product demand,
market growth, new competition, competitive pricing and continued pricing
declines in the DBS market, supplier constraints, manufacturing yields, meeting
demand with multiple facilities, timing and market acceptance of new product
introductions, new technologies, the outcome of pending litigation, and other
risks and uncertainties that are detailed from time to time in the Company's
periodic reports filed with the Securities and Exchange Commission, copies of
which may be obtained from the Company upon request. Such risks and
uncertainties could cause actual results to differ materially from historical
results or those anticipated. Although the Company believes the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be attained.
The Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information required to be
filed hereunder are indexed on page 22 of this report and are incorporated
herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
---------------------------- --- -------------------------------------------------
Ira Coron (1) 72 Chairman of the Board of Directors
Fred M. Sturm 43 Chief Executive Officer, President and Director
Philip Cox 61 Vice President, Wireless Products
Michael R. Ferron 46 Vice President, Finance, Chief Financial Officer
and Corporate Secretary
Robert Hannah 40 Vice President, Satellite Products
Kris Kelkar 37 Vice President, Wireless Access Products
Richard B. Gold 46 Director
Arthur H. Hausman (1)(2) 77 Director
Frank Perna, Jr. (2) 63 Director
Thomas L. Ringer (2) 69 Director
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
17
IRA CORON has been Chairman of the Board for California Amplifier, Inc.
since March of 1994, and in addition was the Chief Executive Officer until 1997
and remained an officer of the Company until February 1999. From 1989 to 1994 he
was an independent management consultant to several companies and venture
capital firms. He retired from TRW, Inc., after serving in numerous senior
management positions from June 1967 to July 1989 among which was Vice President
and General Manager of TRW's Electronic Components Group. He also served as a
member of the Executive Committee of the Wireless Communications Association.
FRED M. STURM was appointed Chief Executive Officer, President and Director
in August 1997. Prior to joining the Company from 1990 to 1997, Mr. Sturm was
President of Chloride Power Systems (USA), and Managing Director of Chloride
Safety, Security, and Power Conversion (UK), both of which are part of Chloride
Group, PLC (LSE: CHLD). From 1979 to 1990, he held a variety of general
management positions with M/A-Com and TRW Electronics, which served RF and
microwave markets.
PHILIP COX joined the Company in July 1996. In January 1998, in conjunction
with the reorganization previously mentioned, Mr. Cox was appointed Vice
President, Wireless Products and most recently Vice President Sales, Wireless
Access Products. Prior to July 1996, he held various sales and marketing
positions with Signal Technology and M/A-Com.
MICHAEL R. FERRON joined the Company as Vice President, Finance and Chief
Financial Officer in October 1990 and was appointed Corporate Secretary in March
1991. Prior to October 1990, Mr. Ferron was employed by the accounting firms of
Deloitte & Touche (1987-1990) and Arthur Young & Company (1977-1987).
ROBERT HANNAH joined the Company as Vice President of Engineering in April
1995. In January 1998, in conjunction with the reorganization previously
mentioned, Mr. Hannah was appointed Vice President, Satellite Products. Prior to
April 1995, Mr. Hannah held various positions with Hughes, most recently the
position of Technical Manager at Hughes Network Systems.
KRIS KELKAR was appointed Senior Vice President of Sales and Marketing in
April 1995 and Vice President, Marketing in April 1997. In January 1998, in
conjunction with the reorganization previously mentioned, Mr. Kelkar was
appointed Vice President, Voice and Data Products, and, most recently, Vice
President, Wireless Access Products. Prior to April 1995, he held various
positions with General Instrument Corporation, the most recent Vice President of
International Marketing for General Instrument's Communications Division.
RICHARD B. GOLD became a director of California Amplifier, Inc. in December
2000. Mr. Gold has been the President and Chief Executive Officer of Genoa
Corporation, a privately-held optical communications equipment company, since
January 1999. From November 1991 through December 1998, Mr. Gold held various
senior-level executive positions with Pacific Monolithics, Inc., a supplier of
wireless communications equipment, including Vice President -- Engineering,
Chief Operating Officer and, from January 1997 through December 1998, President
and Chief Executive Officer. In October 1998, Pacific Monolithics filed a
voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. From 1987 through 1991, Mr. Gold was Executive Director of the
Massachusetts Microelectronics Center, a non-profit education and research
consortium. Mr. Gold currently is a member of the Board of Directors of
Nucentrix Broadband Networks, Inc., a fixed broadband wireless Internet
provider.
ARTHUR H. HAUSMAN has been a director of the Company since 1987. Mr.
Hausman is Chairman Emeritus of the Board of Ampex Corporation. He served as
Chairman of the Board of Directors and Chief Executive Officer of Ampex, having
been with Ampex for 27 years until his retirement in 1988. He currently serves
as a director of Drexler Technology Corporation, and director emeritus of TCI,
Inc. He was appointed by President Reagan to the President's Export Council, to
the Council's Executive Committee and to the Chairmanship of the Export
Administration Subordinate Committee of the Council for the period 1985 to 1989.
FRANK PERNA, JR. has been a director since May 2000. From 1990 to 1993, Mr.
Perna was Chief Executive Officer of MagneTek. From 1994 to 1998 Mr. Perna was
Chairman and Chief Executive Officer of EOS Corporation, and from 1998 to the
present as Chairman and Chief Executive Officer of MSC Software. Mr. Perna
18
also serves as Chairman of the Board of Software.com, as a director of
Intelllisys, and on the board of Trustees of Kettering University.
THOMAS L. RINGER has been a director of the Company since August 1996.
Since 1990, Mr. Ringer has been actively involved as a member of the boards of
directors for various companies. Mr. Ringer is currently Chairman of Wedbush
Morgan Securities, Inc., Chairman of M.S. Aerospace, Inc., Chairman of Document
Sciences Corporation, Chairman of Wedbush Capital Corporation, and Chairman of
the Center for Innovation and Entrepreneurship. Prior to 1990, Mr. Ringer served
as Chairman, President and Chief Executive Officer of Recognition Equipment,
Inc., President and Chief Executive Officer of Fujitsu Systems of America, Inc.,
and President and Chief Executive Officer of Computer Machinery Corporation.
Each director holds office until the next annual meeting of stockholders or
until his successor has been duly elected and qualified. Each non-employee
director receives an annual stock option grant to purchase 8,000 shares at the
fair-market-value at time of grant, which vest over a one-year period, a monthly
fee of $1,250, and reimbursement of out-of-pocket expenses in attending the
Company's Board of Directors meetings. There are no family relationships among
any directors or executive officers of the Company.
The Company has a Compensation Committee which reviews and makes
recommendations to the Board of Directors with respect to the compensation of
the Company's executive officers and to administer the Company's Stock Option
Plans.
The Company also has an Audit Committee which reviews the scope of audit
procedures employed by the Company's independent auditors, approves the audit
fee charged by the independent auditors, and reviews the audit reports rendered
by the Company's independent auditors. The Audit Committee reports to the Board
of Directors with respect to such matters and recommends the selection of
independent auditors.
Officers are appointed by and serve at the discretion of the Board of
Directors.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the captions
"Executive Compensation" in the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held on July 20, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the caption "Stock
Ownership" in the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on July 20, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information contained under the caption
"Certain Relationships and Related Transactions" in the Company's definitive
proxy statement for the Annual Meeting of Stockholders to be held on July 20,
2001.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS. Reference is made to the Index to Consolidated
Financial Statements on page 22 of this report.
(b) FORM 8-K. The Company made no filings on Form 8-K during the three months
ended March 3, 2001.
(c) EXHIBITS. Reference is made to the Index to Exhibits on pages 41-42 of this
report.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CALIFORNIA AMPLIFIER, INC.
By: /s/ Fred M. Sturm
Chief Executive Officer
Dated: June 1, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
CAPACITIES
SIGNATURES IN WHICH SERVED DATES
------------------------------- ------------------------------- ------------------
/s/ Ira Coron Chairman of the Board of Directors June 1, 2001
/s/ Fred M. Sturm Chief Executive Officer, President
and Director June 1, 2001
/s/ Richard B. Gold Director June 1, 2001
/s/ Arthur H. Hausman Director June 1, 2001
/s/ Frank Perna, Jr. Director June 1, 2001
/s/ Thomas L. Ringer Director June 1, 2001
/s/ Michael R. Ferron Vice President, Finance, June 1, 2001
Chief Financial Officer
(Principal Accounting Officer)
and Corporate Secretary
21
CALIFORNIA AMPLIFIER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 23
FINANCIAL STATEMENTS:
Consolidated Balance Sheets 24
Consolidated Statements of Operations 25
Consolidated Statements of Stockholders' Equity and Comprehensive
Income (Loss) 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28-40
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To California Amplifier, Inc.:
We have audited the accompanying consolidated balance sheets of California
Amplifier, Inc. (a Delaware corporation) and subsidiaries as of March 3, 2001
and February 26, 2000, and the related consolidated statements of operations,
stockholders' equity and comprehensive income (loss), and cash flows for each of
the three years in the period ended March 3, 2001. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of California Amplifier, Inc.
and subsidiaries as of March 3, 2001 and February 26, 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended March 3, 2001 in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 30, 2001
23
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
MAR. 3, FEB. 26,
2001 2000
---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,009 $ 2,791
Accounts receivable, net of allowance of $467
at March 3, 2001 and $473 at
February 26, 2000 12,370 16,038
Inventories 10,373 12,893
Deferred tax asset 2,256 4,864
Prepaid expenses and other current assets 515 615
---------------------------------------------------------------------------------------------------------------------------
Total current assets 35,523 37,201
Property and equipment, at cost, net of
accumulated depreciation and amortization 10,231 9,736
Goodwill, net of accumulated amortization of $495
at March 3, 2001 and $225 at February 26, 2000 3,557 3,827
Other assets 501 733
---------------------------------------------------------------------------------------------------------------------------
$ 49,812 $ 51,497
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,677 $ 14,658
Accrued liabilities 8,711 13,099
Short-term debt and current portion of long-term debt 644 4,972
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 15,032 32,729
Long-term debt, net of current portion 4,500 145
Minority interest share in net assets of
Micro Pulse, Inc. 656 342
Commitments and contingencies
Stockholders' equity:
Preferred stock, 3,000 shares authorized;
no shares issued and outstanding --- ---
Common stock, $.01 par value; 30,000 shares authorized;
13,602 shares outstanding in March 2001 and
12,658 shares outstanding in February 2000 136 127
Additional paid-in capital 23,975 17,377
Accumulated other comprehensive loss (699) (226)
Retained earnings 6,212 1,003
---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 29,624 18,281
---------------------------------------------------------------------------------------------------------------------------
$ 49,812 $ 51,497
===========================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE)
YEARS ENDED
------------------------------------------------------------------------------------------------------------------------
MAR. 3, FEB. 26, FEB. 27,
2001 2000 1999
------------------------------------------------------------------------------------------------------------------------
Sales $ 124,979 $ 86,417 $ 37,547
Cost of sales 98,474 68,580 27,002
------------------------------------------------------------------------------------------------------------------------
Gross profit 26,505 17,837 10,545
Research and development 6,979 5,540 4,764
Selling 4,084 4,877 4,441
General and administrative 6,567 5,395 3,880
------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 8,875 2,025 (2,540)
Settlement of litigation --- (9,500) ---
Other income (expense), net (386) (131) 28
Minority interest share in (income) loss of
Micro Pulse (391) (302) 295
------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 8,098 (7,908) (2,217)
(Provision for) benefit from income taxes (2,889) 2,844 781
------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,209 $ (5,064) $ (1,436)
========================================================================================================================
Net income (loss) per share:
Basic $ .39 $ (.42) $ (.12)
Diluted $ .37 $ (.42) $ (.12)
========================================================================================================================
Shares used in per share calculation:
Basic 13,365 12,072 11,782
Dilluted 14,217 12,072 11,782
========================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------ PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS LOSS TOTAL
---------------------------------------------------------------------------------------------------------------------------
Balances at February 28, 1998 11,771 $ 118 $14,025 $ 7,503 $ (249) $21,397
Comprehensive loss:
Net loss --- --- --- (1,436) --- (1,436)
Foreign currency translation adjustment --- --- --- --- 79 79
---
(1,357)
Exercise of stock options 14 --- 25 --- --- 25
---------------------------------------------------------------------------------------------------------------------------
Balances at February 27, 1999 11,785 118 14,050 6,067 (170) 20,065
Comprehensive loss:
Net loss --- --- --- (5,064) --- (5,064)
Foreign currency translation adjustment --- --- --- --- (56) (56)
-----
(5,120)
Exercise of stock options 873 9 3,327 --- --- 3,336
---------------------------------------------------------------------------------------------------------------------------
Balances at February 26, 2000 12,658 127 17,377 1,003 (226) 18,281
Comprehensive income:
Net income --- --- --- 5,209 --- 5,209
Foreign currency translation adjustment --- --- --- --- (473) (473)
------
4,736
Issuances of common stock 591 6 4,391 --- --- 4,397
Exercise of stock options 353 3 2,207 --- --- 2,210
---------------------------------------------------------------------------------------------------------------------------
Balances at March 3, 2001 13,602 $ 136 $23,975 $ 6,212 $ (699) $29,624
---------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
CALIFORNIA AMPLIFIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED
-----------------------------------------------------------------------------------------------------------------------
MAR. 3, FEB. 26, FEB. 27,
2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,209 $ (5,064) $ (1,436)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Non-cash litigation charge --- 9,500 ---
Provision for doubtful accounts 144 37 96
Depreciation and amortization 4,250 2,990 3,013
(Gain) loss on sale and disposal of property
and equipment (41) 3 14
Minority interest share in net income (loss)
of Micro Pulse, net of tax 314 228 (207)
Deferred tax asset 2,608 (4,252) 403
Change in assets and liabilities,
net of effect of Gardiner acquisition in 2000:
Accounts receivable 3,524 (11,252) 826
Inventories 2,520 (6,267) 2,877
Prepaid expenses and other assets 184 263 352
Accounts payable (8,981) 10,014 783
Accrued liabilities (2,222) 4,615 (786)
-----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,509 815 5,935
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,337) (5,357) (1,321)
Net assets acquired from Gardiner --- (6,170) ---
Proceeds from sale of property and equipment 51 7 912
-----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (4,286) (11,520) (409)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt borrowings 5,000 1,500 ---
Debt repayments (2,742) (596) (740)
Exercise of stock options 2,210 3,336 25
-----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,468 4,240 (715)
EFFECT OF FOREIGN EXCHANGE RATES (473) (56) 79
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 7,218 (6,521) 4,890
Cash and cash equivalents
at beginning of year 2,791 9,312 4,422
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $10,009 $ 2,791 $ 9,312
=======================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
California Amplifier, Inc. (the "Company") designs, manufactures and markets
microwave equipment used in the reception of video transmitted from satellites
and wireless terrestrial transmission sites, and two-way wireless transceivers
used in the emerging fixed point wireless voice (telephony) and data (Internet)
applications.
The Company also has a 50.5% controlling interest in Micro Pulse, Inc. ("Micro
Pulse"), a company that designs, manufactures and markets antennas and
amplifiers used principally in global positioning systems. (See Note 2).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company (a
Delaware corporation) and its wholly-owned subsidiaries, California Amplifier
s.a.r.l., the Company's subsidiary in France, Cal Amp FSC, Inc., a foreign
sales corporation, and Cal Amp Limited, the Company's Hong Kong subsidiary
since April 1999. The consolidated financial statements also include the
accounts of Micro Pulse. The Company holds a 50.5% controlling interest in
Micro Pulse. All significant intercompany transactions have been eliminated.
FISCAL YEAR
The Company reports results on the basis of a 52/53 week accounting calendar
ending on the last Saturday of February or the first Saturday of March. Fiscal
year 2001 consisted of 53 weeks. Fiscal years 2000 and 1999 each consisted of 52
weeks.
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed and determinable and
collection is probable. Generally, these criteria are met at the time product is
shipped.
In the fourth quarter of fiscal year 2001, the Company adopted Emerging
Issues Task Force (EITF), Issue No. 00-10, Accounting for Shipping and
Handling Fees and Costs. In accordance with the requirements of this
pronouncement, the Company includes shipping and handling fees billed to
customers as sales. Prior to the adoption of this pronouncement such amounts
were excluded from sales and netted against the associated costs in costs of
sales. The retroactive adoption of this pronouncement will increase sales and
cost of sales, but has no impact on gross profits for any period presented.
Shipping and handling fees included in sales for fiscal years 2001, 2000 and
1999 were $446,000, $567,000, and $407,000, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with an original maturity of less
than three months to be cash equivalents.
28
CONCENTRATION OF RISK
At March 3, 2001 and February 26, 2000 the Company had cash and cash equivalents
in three U.S. banks, some in excess of Federally insured amounts. Cash and cash
equivalents in U.S. and foreign banks is as follows (in 000's):
2001 2000
----------------------------------------------------------------------------------------
U.S. banks $ 8,983 $ 2,166
Foreign banks 1,026 625
----------------------------------------------------------------------------------------
$ 10,009 $ 2,791
========================================================================================
The following table summarizes accounts receivable balances due from
customers (designated by letter) which are greater than 10% of consolidated
accounts receivable at March 3, 2001 and February 26, 2000 (in 000's):
Mar. 3, Feb. 26,
2001 2000
-------------------------------------------
A $ 2,219 (17.9%) $ 4,486 (28.0%)
B 2,549 (20.6%) *
C 2,376 (19.2%) *
D * 2,471 (15.4%)
E * 1,658 (10.3%)
*less than 10% of consolidated accounts receivable. All customers are Satellite
Products customers except B which is a Wireless Access customer.
See also Note 11 - Segments and Geographical Data for major customer sales data.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company has established a reserve for potential write-offs relating to
noncollectibility of accounts receivable. In fiscal years 2001, 2000, and 1999,
$144,000, $37,000, and $96,000 was charged to expense, respectively. Amounts
charged to the allowance account for bad debt write-offs and costs relating to
product returns were $150,000, $99,000, and $411,000 in fiscal years 2001, 2000,
and 1999, respectively.
INVENTORIES
Inventories include costs of materials, labor and manufacturing overhead and are
stated at the lower of cost (first-in, first-out) or market, and consist of the
following (in 000's):
Mar. 3, Feb.26,
2001 2000
----------------------------------------------------------------------------------
Raw materials $ 7,174 $ 10,147
Work in process 251 1,073
Finished goods 2,948 1,673
----------------------------------------------------------------------------------
$ 10,373 $ 12,893
==================================================================================
29
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following (in
000's):
Mar. 3, Feb. 26,
2001 2000
-----------------------------------------------------------------------------------------------------------------------
Machinery and equipment $ 19,790 $ 16,780
Furniture and computers 4,564 4,652
Tooling 3,844 3,438
Leasehold improvements 1,401 1,129
------------------------------------------------------------------------------------------------------------------------
29,599 25,999
Less accumulated depreciation and amortization (19,368) (16,263)
------------------------------------------------------------------------------------------------------------------------
$ 10,231 $ 9,736
========================================================================================================================
The Company follows the policy of capitalizing expenditures which materially
increase asset lives, and charging ordinary maintenance and repairs to
operations, as incurred. When assets are sold or disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in income (loss) from operations.
Depreciation and amortization are based upon the estimated useful lives of the
related assets using the straight-line method. Useful lives range from two to
five years, and in the case of leasehold improvements over the life of the
lease.
GOODWILL
Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible assets of businesses acquired. Goodwill is
amortized on a straight-line basis over 15 years. The Company continually
evaluates whether events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill might warrant revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company uses an
estimate of undiscounted future net cash flows over the remaining life of
goodwill to determine if impairment has occurred. Assets are grouped at the
lowest level for which there are identifiable cash flows that are largely
independent from other asset groups. The Company uses discounted future expected
net cash flows to determine the amount of impairment loss. No impairment
losses were recorded in fiscal years 2001, 2000, or 1999. Amortization expense
was $270,000 in fiscal year 2001 and $225,000 in fiscal year 2000. In May
2001, the FASB reached a consensus on portions of its Business Combinations
Project. Under terms of the consensus, the Company will stop amortizing
goodwill at the close of fiscal year 2002.
ACCOUNTING FOR LONG-LIVED ASSETS
The Company reviews property and equipment and other long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of an asset may not be recoverable. Recoverability is measured
by comparison of carrying amount to future net cash flows an asset is expected
to generate. If an asset is considered to be impaired, the impairment to be
recognized is measured by the amount at which the carrying amount of the assets
exceeds the projected discounted future cash flows arising from the asset.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate:
Cash and cash equivalents, Accounts receivable and Accounts payable - The
carrying amount is a reasonable estimate of fair value.
Long-term debt - The carrying value approximates fair value since the
interest rate on the long-term loan approximates the rate which is currently
available to the Company for the issuance of debt with similar terms and
maturities.
WARRANTY
The Company warrants its products against defects over periods ranging from
three to fifteen months. An accrual for estimated future costs relating to
products returned under warranty is recorded as an expense when products are
shipped. Warranty expense was $333,000, $201,000, and $377,000, in fiscal years
2001, 2000, and 1999, respectively. Amounts charged against accrued warranty for
the actual costs of maintaining the Company's warranty program were $348,000,
$284,000, and $487,000 in fiscal years 2001, 2000, and 1999, respectively.
FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE INCOME (LOSS)
The financial statements of the Company's Paris, France subsidiary are
translated into United States dollars using current or historical exchange
rates, as appropriate, with gains or losses included in the accumulated other
comprehensive loss account in the stockholders' equity section of the
consolidated balance sheets. Foreign
30
currency translation adjustments are the Company's only component of
comprehensive income (loss), which includes all non-owner changes in
stockholders' equity. The Hong Kong subsidiary's functional currency is the
United States Dollar.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing reported earnings
available to common stockholders by weighted average number of shares
outstanding. Diluted net income per share increases the weighted average number
of shares outstanding for the dilutive effect of stock options, warrants, and
convertible debt arrangements. The diluted loss per share for fiscal years 2000
and 1999 does not include the effects of stock options, warrants, and
convertible debt arrangements since the inclusion would be anti-dilutive and
reduce the loss per share.
For fiscal years 2001, 2000, and 1999 there were 488,000, 1,357,000, and 175,000
options, respectively, not considered in the diluted weighted average shares
calculation since their inclusion would be anti-dilutive.
STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
In fiscal years 2001, 2000, and 1999, the Company paid interest and incurred
interest expense of $479,000, $382,000, and $199,000, respectively.
In fiscal years 2001 and 2000 the Company paid income taxes of $14,000 and
$21,000, respectively. No income taxes were paid in fiscal year 1999.
NONCASH INVESTING AND FINANCING ACTIVITIES:
In fiscal year 2001, the Company issued 525,000 shares of common stock at $4.25
per share as a reduction in debt. These amounts have been excluded from the
statement of cash flows.
In fiscal year 2001, the Company issued 65,625 shares of common stock at $33.00
per share as a reduction in accrued liabilities. These amounts have been
excluded from the statement of cash flows.
In fiscal year 2000, the Company issued a $3,100,000 promissory note in
connection with the Gardiner acquisition. This promissory note and a
corresponding amount of net assets acquired from Gardiner have been excluded
from the statement of cash flows.
In fiscal year 2000, the Company recorded a noncash charge of $9,500,000
relating to the settlement of litigation. In connection with this charge, the
Company recorded a non-cash income tax benefit of $3,606,000.
ACCOUNTING FOR STOCK OPTIONS
As allowed by Statement of Financial Accounting Standards (SFAS) No. 123, the
Company has elected to continue to measure compensation cost under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" APB
No. 25 and comply with the pro forma disclosure requirements of the standard
(see Note 8).
NEW AUTHORITATIVE PRONOUNCEMENTS
In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," and SFAS No. 137, which
delayed the effective date of SFAS No. 133. Management does not expect adoption
of this standard to have a material impact on the Company's financial position
or results of operations.
In December 1999, the SEC staff released Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition in Financial Statements," to provide guidance on
the recognition, presentation and disclosure of revenue in financial
statements. The adoption of SAB No. 101 did not have a material impact on the
Company's revenue recognition and results of operations.
31
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
3. ACQUISITION AND PRO FORMA RESULTS OF OPERATIONS
On April 19, 1999, the Company acquired the technology and product rights to
substantially all of Gardiner Communications Corp.'s (Gardiner) products,
inventory, and manufacturing and development related equipment. The total
purchase price, including assumption of certain liabilities and certain costs
incurred in connection with the acquisition was approximately $9.3 million.
The Company paid $6.2 million in cash, and Gardiner received a $3.1 million,
8% one year convertible promissory note due April 19, 2000. In April 2000, a
portion of the debt was converted into 525,000 shares of the Company's common
stock at $4.25 per share, which approximated the market value at the date of
the acquisition, and the remaining balance was paid in cash. As part of the
purchase, the Company recorded Goodwill of $4.1 million which is being
amortized over 15 years. The purchase price was allocated as follows (in
000's):
Inventory and prepaid expenses $ 2,900
Equipment 2,700
Goodwill 4,100
Assumption of liabilities and cost of acquisition (400)
--------
Total purchase price $ 9,300
========
The following unaudited pro forma statements combines the operations of the
Company and Gardiner as if the acquisition had occurred at the beginning of each
of the respective periods (in 000's except per share data):
YEAR ENDED YEAR ENDED
FEBRUARY 26, 2000 FEBRUARY 27, 1999
------------------------- --------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
Sales $ 86,417 $ 88,417 $ 37,547 $ 59,308
Net income (loss) (5,064) (4,904) (1,436) 321
Net income (loss) per share Basic (.42) (.41) (.12) .03
Diluted (.42) (.41) (.12) .03
Shares used in per share calculation
Basic 12,072 12,072 11,782 11,782
Diluted 12,072 12,072 11,782 12,600
=========================================================================================================================
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in 000's):
Mar. 3, Feb. 26,
2001 2000
------------------------------------------------------------------------------------------------------------------------
Accrued settlement for litigation $4,834 $ 9,500
Payroll and related expenses 1,594 1,924
Customer prepayments 1,117 ---
Warranty 447 462
Income taxes 219 78
Other accrued liabilities 500 1,135
------------------------------------------------------------------------------------------------------------------------
$8,711 $13,099
========================================================================================================================
32
5. SHORT-TERM BORROWINGS AND CREDIT FACILITIES
In April 1999, in conjunction with the Gardiner acquisition (Note 3), the
Company issued a $3.1 million one-year convertible promissory note bearing
interest at 8% due on April 19, 2000. In April 2000, a portion of the note was
converted into 525,000 shares of common stock at $4.25 per share and the
remaining balance was paid in cash.
At February 26,2000, the Company had borrowed $1.5 million from U.S. Bank at the
bank's prime rate under a working capital credit facility.
In September 2000, the working capital facility with U.S. Bank was increased
to $8.0 million. Borrowings outstanding bear interest at the bank's prime
rate (8.5% at March 3, 2001) and are secured by substantially all of the
Company's assets, excluding the assets secured by other debt arrangements
(see Note 6). At March 3, 2001, no amounts were outstanding under this credit
facility and $8 million was available for borrowing. The credit facility
contains certain financial covenants and ratios that the Company is required
to maintain. At March 3, 2001, the Company was not in compliance with certain
covenants but in May 2001 the covenants were amended retroactive to November
2000.
6. LONG-TERM DEBT
Long-term debt consists of the following (in 000's):
Mar. 3, Feb. 26,
2001 2000
--------------------------------------------------------------------------------------------------------------------------
Note payable to U.S. Bank interest at Libor plus 2.2% (7.45% at March 3, 2001)
principal due over sixty payments beginning September 2001. $5,000 $ ---
Notes payable to a bank, secured by equipment,
bearing interest at libor plus 2.55% (7.80% at March 3, 2001)
payable monthly through January 2002 144 517
------ ------
5,144 517
Less portion due within one year (644) (372)
--------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 4,500 $ 145
==========================================================================================================================
Annual maturities on long-term debt as of March 3, 2001, are as follows
(in 000's):
2002 $ 644
2003 1,000
2004 1,000
2005 1,000
2006 1,000
Thereafter 500
-----------------------------------------------------------------------------
$ 5,144
=============================================================================
33
7. INCOME TAXES
The Company's income (loss) before tax for fiscal years 2001, 2000 and 1999
are as follows (in 000's):
2001 2000 1999
-------------------------------------------------------------------------------------------------
Domestic $ 6,898 $(8,309) $(2,436)
Foreign 1,200 401 219
-------------------------------------------------------------------------------------------------
$ 8,098 $(7,908) $(2,217)
=================================================================================================
The (provision for) benefit from income taxes for fiscal years 2001, 2000, and
1999, are as follows (in 000's):
2001 2000 1999
-------------------------------------------------------------------------------------------------
Current - Federal $ 20 $ (610) $ 352
- State (11) (133) ---
- Foreign (290) (161) 26
Deferred - Federal (2,353) 3,185 343
- State (294) 563 60
- Foreign 39 --- ---
-------------------------------------------------------------------------------------------------
$ (2,889) $ 2,844 $ 781
=================================================================================================
Differences between the (provision for) benefit from income taxes and income
taxes computed using the statutory federal income tax rate for fiscal years
2001, 2000, and 1999 are as follows (in 000's):
2001 2000 1999
---------------------------------------------------------------------------------------------------------------
Income tax at statutory federal rate (34%) $ (2,753) $ 2,681 $ 788
State income taxes, net of federal
income tax effect (210) 153 107
Foreign taxes --- (161) 26
Valuation reserve (157) --- ---
Research and development credit --- --- (96)
Other, net 231 171 (44)
---------------------------------------------------------------------------------------------------------------
$ (2,889) $ 2,844 $ 781
===============================================================================================================
The components of the net deferred income tax asset for fiscal years 2001 and
2000 are as follows (in 000's):
Mar. 3, Feb. 26,
2001 2000
--------------------------------------------------------------------------------------------------------------------------
Depreciation $ 204 $ 294
Warranties 129 158
Compensation accrual 304 121
Inventory reserve 357 353
Allowance for doubtful accounts 145 132
Research and development credit 2,621 1,707
Litigation settlement accrual 1,063 3,606
Tax loss carryforward 8,692 6,608
Tax credits 966 818
Other, net 283 (84)
--------------------------------------------------------------------------------------------------------------------------
14,764 13,713
Valuation allowance (12,508) (8,849)
--------------------------------------------------------------------------------------------------------------------------
$ 2,256 $ 4,864
==========================================================================================================================
The Company establishes a valuation allowance in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." The Company
continually reviews the adequacy of the valuation allowance and recognizes
the benefits from its deferred tax assets only when an analysis of both
positive and negative factors indicate that it is more likely than not that
the benefits will be realized. Based on the Company's analysis of its
operating performance and the estimated realizability of its deferred tax
assets, the Company has recorded valuation allowances of approximately $12.5
million and $8.8 million at March 3, 2001 and February 26, 2000,
respectively. Approximately $8.9 million of the valuation allowance at March
3, 2001 is related to tax assets generated upon the exercise of non-qualified
stock options. As such, any future benefit from the recognition of this
deferred tax asset will be an adjustment to the valuation allowance and
additional paid-in capital.
At March 3, 2001, the Company has net operating loss carryforwards of
approximately $25.6 million and $8.7 million for Federal and state purposes
expiring at various dates through 2021 and 2006, respectively.
34
8. STOCK OPTIONS
The Company has two stock option plans for its employees, the 1989 Key Employee
Stock Option Plan ("1989 Plan"), and the 1999 Stock Option Plan ("1999 Plan").
Under the 1999 Plan, stock options can be granted at prices not less than 100%
of the fair market value at the date of grant. Option grants are exercisable at
the discretion of the Compensation Committee, but usually over a four-year
vesting period. The 1989 Plan expired in May 1999 and no additional options may
be granted under this plan. Under provisions of the 1989 Stock Option Plan, all
options vest upon a change in control of ownership of the Company.
The following table summarizes the option activity for fiscal years 2001, 2000,
and 1999 (in 000's except dollar amounts):
Weighted
Number Average
Shares Option Price
--------------------------------------------------------------------------------------------
Outstanding at February 28, 1998 1,869 $ 4.16
Granted 340 2.23
Exercised (14) 1.98
Canceled (178) 3.81
--------------------------------------------------------------------------------------------
Outstanding at February 27, 1999 2,017 3.88
Granted 706 19.25
Exercised (873) 3.82
Canceled (165) 3.74
--------------------------------------------------------------------------------------------
Outstanding at February 26, 2000 1,685 10.36
Granted 564 28.78
Exercised (353) 6.27
Canceled (102) 29.84
--------------------------------------------------------------------------------------------
Outstanding at March 3, 2001 1,794 $ 15.85
============================================================================================
Options outstanding at March 3, 2001 and related weighted average price and life
information is as follows:
Weighted Total
Total Average Weighted Weighted
Range of Options Remaining Life Average Options Average
Exercise Prices Outstanding (Years) Exercise Price Exercisable Exercise Price
---------------------- -------------------- -------------------- ------------------- -------------------- ------------------
$ 1.50-$1.88 226,500 7.6 $ 1.80 80,000 $ 1.81
2.06- 2.76 289,650 6.9 2.27 181,650 2.23
3.50- 4.88 250,000 6.0 3.97 166,875 3.97
5.00- 7.22 189,788 6.1 6.73 138,913 6.97
8.00-12.25 122,815 8.2 9.81 69,982 9.52
13.69-19.88 149,000 9.4 19.40 9,375 16.16
20.19-27.44 156,834 8.9 25.55 81,325 25.50
28.00-40.00 225,000 9.0 38.91 55,000 40.00
43.50-50.56 184,000 9.1 44.73 0 0
---------------------- ----------------- ----------------------- ------------------- ---------------- ----------------------
$1.50-$50.56 1,793,587 7.7 $15.85 783,120 $ 9.29
====================== ================= ======================= =================== ================ ======================
The weighted average theoretical value for options granted during the year was
$26.28, $9.43, and $1.77 for fiscal years 2001, 2000, and 1999, respectively.
The number of common stock options available for grant at the end of each fiscal
year were 500,000, 500,000, and 175,225 for 2001, 2000 and 1999, respectively.
As permitted by SFAS No. 123, the Company continues to apply the accounting
rules of APB No. 25 governing the recognition of compensation expense from its
Stock Option Plans. Such accounting rules measure compensation
35
expense on the first date at which both the number of shares and the exercise
price are known. Under the Company's plans, this would typically be the grant
date. To the extent that the exercise price equals or exceeds the market value
of the stock on the grant date, no expense is recognized. As options are
generally granted at exercise prices not less than the fair market value on the
date of grant, no compensation expense is recognized under this accounting
treatment in the accompanying consolidated statements of operations.
The fair value of options at date of grant was estimated using the Black-Scholes
model with the following assumptions:
2001 2000 1999
------------- ------------- -------------
Expected life (years) 5 to 10 10 10
Dividend yield --- --- ---
The range for interest rates is 4.15% - 6.82%, and the range for volatility
is 49% - 147%. The estimated stock-based compensation cost calculated using
the assumptions indicated totaled $6,369,000, $846,000, and $949,000 in
fiscal years 2001, 2000, and 1999, respectively. This would result in pro
forma net income (loss) and net income (loss) per share, resulting from the
increased compensation cost, of $1,113,000 or $.08 per share, ($5,605,000) or
($.46) per share, and ($2,043,000) or ($.17) per share in fiscal year 2001,
2000, and 1999, respectively. The effect of stock-based compensation on net
income (loss) for fiscal 2001, 2000, and 1999, may not be representative of
the effect on pro forma net income or loss in future years because
compensation expense related to grants made prior to fiscal 1996 is not
considered.
9. COMMITMENTS
The Company leases its corporate and manufacturing facilities under operating
leases that expire in February 2004. The lease agreement for its corporate
facility requires the Company to pay all property taxes and insurance premiums
associated with the coverage of the facility.
In addition, the Company leases a manufacturing facility in Garland, Texas; and
sales offices in Paris, France; Sao Paulo, Brazil; and Hong Kong, China, under
certain lease arrangements. The Company also leases certain equipment used in
the manufacturing operation under operating lease arrangements.
The following table represents the future minimum rent payments required under
all operating leases with terms in excess of one year as of March 3, 2001 (in
000's):
Fiscal Year:
2002 $ 854
2003 738
2004 697
---------------------------------------------------------------------------------------------------------------------------
$ 2,289
===========================================================================================================================
Rent expense for fiscal years 2001, 2000, and 1999, was $842,000, $732,000, and
$780,000, respectively.
10. LEGAL PROCEEDINGS
YOURISH CLASS ACTIONS AND RLI INSURANCE COMPANY LITIGATION
On June 11, 1997, the Company and certain of its directors and officers had two
legal actions filed against them, one in the United States District Court,
Central District of California, entitled YOURISH V. CALIFORNIA AMPLIFIER, INC.,
ET AL., Case No. 97-4293 CBM (Mcx), and the other in the Superior Court for the
State of California, County of Ventura, entitled YOURISH V. CALIFORNIA
AMPLIFIER, INC. ET AL., Case No. CIV 173569. On June 30, 1997, another legal
action was filed against the same defendants in the Superior Court for the State
of California, County of Ventura, entitled BURNS, ET AL., V. CALIFORNIA
AMPLIFIER, INC., ET AL., Case No. CIV 173981. All three actions were purported
class actions on behalf of purchasers of the common stock of the Company between
September 12, 1995 and August 8, 1996. The actions claimed that the defendants
engaged in a scheme to make false and misleading statements and omit to disclose
material adverse facts to the public concerning the Company, allegedly causing
36
the Company's stock price to artificially rise, and thereby allegedly allowing
the individual defendants to sell stock at inflated prices. Plaintiffs claimed
that the purported stockholder class was damaged when the price of the stock
declined upon disclosure of the alleged adverse facts. On September 21, 1998,
the Federal legal action was dismissed in the United States District Court. The
dismissal was upheld by the U.S. Court of Appeals for the Ninth Circuit on
October 8, 1999.
On March 27, 2000 the trial began for the lawsuit filed in the Superior Court
for the State of California, County of Ventura, entitled YOURISH V.
CALIFORNIA AMPLIFIER, INC., ET AL., Case No. CIV 173569. On March 29, 2000
the parties reached a settlement. The terms of the settlement called for the
issuance by the Company of 187,500 shares of stock along with a cash payment
of $3.5 million, funded in part by insurance proceeds, for a total settlement
of approximately $11.0 million. Of the total settlement, $9.5 million was
accrued in the consolidated financial statements for the year ended February
26, 2000. By Order dated September 14, 2000, the court approved the terms of
the settlement and dismissed the action with prejudice. As of March 3, 2001,
the Company had issued 65,625 of the 187,500 shares and paid $2.5 million of
the $3.5 million and one of its insurance carriers paying the remaining $1.0
million. As of March 3, 2001 $4.8 million was accrued in the consolidated
financial statements primarily related to the remaining 121,875 shares still
to be issued under the settlement agreement.
In connection with the settlement of the YOURISH action, the Company and
certain of its former and current officers and directors have filed a lawsuit
(CALIFORNIA AMPLIFIER, INC., ET AL. V. RLI INSURANCE COMPANY, ET AL., Ventura
County Superior Court Case No. CIV196258), against one of its insurance
carriers to recover $2.0 million of coverage the insurance carrier has stated
was not covered under its policy of insurance. The insurance carrier filed a
Motion for Judgment on the Pleadings seeking judgment on the basis, INTER
ALIA, that the claims in the YOURISH action for alleged violations of
Sections 25400 and 25500 of the California Corporation Code were not
insurable as a matter of law pursuant to Insurance Code Section 533. The
Plaintiffs opposed the motion and a hearing was held on September 22, 2000.
On October 18, 2000, the Court entered an Order on granting the motion for
judgment on the pleadings. Judgment was entered on November 9, 2000, and
Notice of Entry of Judgment given on November 15, 2000. California Amplifier
filed a Notice of Appeal on November 21, 2000 and the appeal has been fully
briefed by both parties. No hearing date has been set to argue the appeal.
ANDREW CORPORATION LITIGATION
On March 7, 2000, the Company announced that it had received a complaint of
patent infringement from Andrew Corporation (Andrew). The complaint, filed
against California Amplifier in U.S. District Court for the Eastern District of
Texas, alleges that certain California Amplifier products infringe Andrew's
patent rights. The complaint was served with this initial pleading on or about
June 5, 2000. A first amended complaint was filed by Andrew on June 28, 2000. On
July 18, 2000, Andrew filed a motion for preliminary injunction seeking to
enjoin the Company from selling the products that Andrew claims infringe its
patent rights. During the briefing period regarding the preliminary injunction,
Andrew filed a motion to strike the Company's preliminary injunction opposition
brief. Also during this briefing period, the Company secured an exclusive
license, with enforcement rights, to a certain patent that the Company believes
both invalidates Andrew's '052 patent and applies to Andrew's competing
products. The Company has commenced patent litigation against Andrew in the
United States District Court for the Central District of California under this
patent, in an action styled CALIFORNIA AMPLIFIER, INC. AND NEC CORPORATION V.
ANDREW CORPORATION, Case No. CV-01-01391 AHM (RZx) ("The California Action").
California Amplifier successfully defeated the motion to strike, and Andrew's
reply relating to the preliminary injunction brief was filed on March 16, 2001.
The preliminary injunction hearing was scheduled for April 12-13, 2001, but the
hearing was removed from the Court's schedule due to ongoing settlement
negotiations between the parties. The Company believes that the litigation will
be resolved in the near future. If it is not, then the Company will continue to
defend itself vigorously.
2001 SECURITIES LITIGATION
Following the announcement by the Company on March 29, 2001 of the resignation
of its Controller and the possible overstatement of net income for the fiscal
year ended February 26, 2000 and the subsequent restatement of fiscal year 2000
and the interim periods of fiscal years 2000 and 2001, the Company and certain
of its officers and directors have been named defendants in twenty putative
class actions in federal court. The complaints generally allege that the
defendants artificially inflated the price of California Amplifier stock during
the class period
37
by allegedly making false representations about the Company's financial results
or failing to disclose adverse facts about its financial results. The complaints
also allege without specific facts that the individual defendants knew or were
reckless in making the alleged false statements about the Company's financial
results. The twenty actions are expected to be consolidated into a single action
pursuant to stipulation of the parties. The Company expects to move to dismiss
the complaints after they are consolidated and a lead plaintiffs' counsel
appointed, and intends to defend the actions vigorously. At this time it is not
possible to determine the outcome of these actions.
The Company has also been named as a defendent in other matters in the
ordinary course of business. Management believes the resolution of these
other matters will not have a material effect on the Company's financial
position and results of operations.
11. SEGMENT AND GEOGRAPHIC DATA
In conjunction with the Company's reorganization into separate business units
in January 1998, the Company adopted SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information" in fiscal year 1999. The adoption
of this standard had no effect on the Company's financial position or results
of operations, but did change the presentation of segment information
presented below (in 000's except margin data):
FISCAL YEAR 2001:
SATELLITE WIRELESS ACCESS ANTENNA CORPORATE TOTAL
---------------------------------------------------------------------------------------------------------------------------
Sales $ 85,107 $ 32,022 $ 7,850 $ --- $ 124,979
Gross Profit 12,920 10,433 3,152 --- 26,505
Gross Margin 15.2% 32.6% 40.2% --- 21.2%
Income (loss) before tax 8,719 5,259 398 (6,278) 8,098
Identifiable Assets 22,146 8,262 2,359 17,045 49,812
===========================================================================================================================
FISCAL YEAR 2000:
SATELLITE WIRELESS ACCESS ANTENNA CORPORATE TOTAL
---------------------------------------------------------------------------------------------------------------------------
Sales $ 60,411 $ 19,018 $ 6,988 $ --- $ 86,417
Gross Profit 9,146 5,987 2,704 --- 17,837
Gross Margin 15.1% 31.5% 38.7% --- 20.6%
Income (loss) before tax 5,440 752 309 (14,409) (7,908)
Identifiable Assets 21,773 8,349 2,436 17,254 51,497
===========================================================================================================================
FISCAL YEAR 1999:
SATELLITE WIRELESS ACCESS ANTENNA CORPORATE TOTAL
---------------------------------------------------------------------------------------------------------------------------
Sales $12,658 $ 20,590 $ 4,299 $ --- $ 37,547
Gross Profit 3,377 5,837 1,331 --- 10,545
Gross Margin 26.7% 28.3% 31.0% --- 28.1%
Income (loss) before taxes 850 557 (518) (3,106) (2,217)
Identifiable Assets 4,146 7,347 1,582 12,474 25,549
===========================================================================================================================
The Company does not have significant long-lived assets outside the United
States.
38
Sales information by geographical area for each of the three years in the period
ended March 3, 2001 is as follows (000's):
2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------
United States $ 101,614 $ 67,293 $ 20,672
Canada 11,220 5,419 2,987
Latin America 2,661 1,240 3,556
Europe 2,895 4,394 3,094
Middle East 1,447 847 520
Africa 2,895 1,832 3,739
Asia 2,247 4,368 1,449
Australia --- 1,024 1,530
---------------------------------------------------------------------------------------------------------------------------
$ 124,979 $ 86,417 $ 37,547
===========================================================================================================================
In fiscal years 2001 and 2000, one Satellite Products customer accounted for
22.4%, and 19.3% of sales, respectively, and another Satellite Products customer
accounted for 20.6% and 10.3% of sales, respectively. A third Satellite Products
customer accounted for 17.3% of sales in fiscal year 2000. No customer accounted
for 10% or more of consolidated sales in fiscal year 1999.
12. QUARTERLY FINANCIAL INFORMATION (unaudited)
The following summarizes certain quarterly statement of operations data for each
of the quarters in fiscal years 2001 and 2000 (in 000's, except percentages and
per share data):
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter 2001
---------------------------------------------------------------------------------------------------------------------------
Sales $ 31,953 $ 33,811 $ 32,738 $ 26,477 $ 124,979
Gross profits 6,787 6,839 7,394 5,485 26,505
Gross margins 21.2% 20.2% 22.6% 20.7% 21.2%
Net income 1,540 1,419 1,850 400 5,209
Net income per diluted share 0.11 0.10 0.13 0.03 0.37
===========================================================================================================================
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter 2000
---------------------------------------------------------------------------------------------------------------------------
Sales $ 13,019 $ 18,860 $ 26,712 $ 27,826 $86,417
Gross profits 3,643 5,252 3,236 5,706 17,837
Gross margins 28.0% 27.8% 12.1% 20.5% 20.6%
Net income (loss) 239 933 (572) (5,664) (5,064)
Income (loss) per diluted share 0.02 0.07 (0.05) (0.46) (0.42)
===========================================================================================================================
13. FINANCIAL STATEMENT RESTATEMENT
On March 29, 2001, the Company announced that during preparation for the
Company's fiscal 2001 audit, its corporate controller had abruptly resigned and
advised management by letter that he had made certain improper adjustments to
the Company's accounting records that caused a reduction in recorded expenses.
The results of the internal investigation revealed that the controller had
reduced expenses through the posting of improper adjustments, and irregularities
in the consolidation of its Hong Kong procurement subsidiary. The effect of such
irregularities (and certain other less significant items uncovered as part of
the restatement) was to understate the net loss for the year ended February 26,
2000 by approximately $3.7 million, and overstate net income for the nine months
ended November 25, 2000 by approximately $1.8 million. The results of operations
for fiscal year 2000 and the thee interim periods in the period ended November
25, 2000 included in these financial statements reflect the restated financial
statements. In connection with the restatement, the Company reassessed the
realizability of the deferred tax asset. The Company concluded that the deferred
tax asset, specifically as it relates to the future tax deductibility for the
exercise of non-qualified stock options, should be reduced for amounts
previously
39
recognized in fiscal years 2000 and 2001. Accordingly, deferred taxes and
stockholders' equity were reduced by $5,800,000 in fiscal year 2000 and by an
additional $3,775,000 for the nine months ended November 25, 2000.
The amended Annual Report on Form 10-K/A for the year ended February 26, 2000,
and the quarterly reports on Form 10-Q/A for the periods May 29, 1999 through
November 25, 2000 were filed with the Securities and Exchange Commission on May
23, 2001.
14. SUBSEQUENT EVENTS
On March 29, 2001, subsequent to the Company's announcement that it was
investigating improper adjustments made by the corporate controller to the
Company's accounting records (see Note 13), NASDAQ halted trading of the
Company's common stock.
On May 3, 2001, the Company announced that it had received notification from
NASDAQ that due to the Company's failure to comply with filing requirements
requiring audited financial statements to be included in its annual report,
NASDAQ intended to delist the shares of the Company's common stock at the
opening of business on May 8, 2001. The Company presented testimony at the
NASDAQ hearing held on May 25, 2001 regarding the continued listing of the
Company's common stock on NASDAQ. The Company believes that it provided
satisfactory answers to the questions raised and was advised that the hearing
panel is expected to issue a ruling on the matter some time in June 2001. In the
interim, trading in the common stock will remain halted.
On May 4, 2001, the Company announced that it had received notice from the
Securities and Exchange Commission (the SEC) that the SEC is conducting an
informal inquiry into the circumstances that caused the Company to restate its
financial statements. The Company intends to cooperate with the SEC inquiry.
40
INDEX TO EXHIBITS
3.1 Certificate of Incorporation of the Registrant, as amended, filed as
Exhibit 3.1 to the Registrant's Registration Statement on Form S-1
(33-59702) and by this reference is incorporated herein and made a part
hereof.
3.1.1 Amendment to Certificate of Incorporation of the Registrant, as filed
with the Delaware Secretary of State on September 19, 1996, filed as
Exhibit 3.1.1 to the Registrant's Interim Report on Form 10-Q for the
period ended August 31, 1996.
3.2 Bylaws of the Registrant, as amended, filed as Exhibit 3.2 to the
Registrant's Form 8-K dated February 27, 1992 and by this reference is
incorporated herein and made a part hereof.
10.1 1984 Key Employee Stock Option Plan filed as Exhibit 10.1 to the
Registrant's Registration Statement on Form S-1 (2-87042) and by this
reference is incorporated herein and made a part hereof.
10.2 Form of Incentive Stock Option Agreement filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1 (2-87042) and by this
reference is incorporated herein and made a part hereof.
10.3 Form of Nonqualified Stock Option Agreement filed as Exhibit 10.3 to
the Registrant's Registration Statement on Form S-1 (2-87042) and by
this reference is incorporated herein and made a part hereof.
10.4 1989 Key Employee Stock Option Plan filed as Exhibit 4.4 to the
Registrant's Registration Statement on Form S-8 (33-31427) and by this
reference is incorporated herein and made a part hereof.
10.4.1 Amendment No. 1 to the 1989 Key Employee Stock Option Plan filed as
Exhibit 4.7 to the Registrant's Registration Statement on Form S-8
(33-36944) and by this reference is incorporated herein and made a
part hereof.
10.4.2 Amendment No. 2 to the 1989 Key Employee Stock Option Plan filed as
Exhibit 4.8 to the Registrant's Registration Statement on Form S-8
(33-72704) and by this reference is incorporated herein and made a
part hereof.
10.4.3 Amendment No. 3 to the 1989 Key Employee Stock Option Plan filed as
Exhibit 4.10 to the Registrant's Registration Statement on Form S-8
(33-60879) and by this reference is incorporated herein and made a
part hereof.
10.4.4 The 1999 Stock Option Plan filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8 (333-93097) and by this reference is
incorporated herein and made a part hereof.
10.5 Form of Incentive Stock Option Agreement filed as Exhibit 4.6 to the
Registrant's Registration Statement on Form S-8 (33-31427) and by this
reference is incorporated herein and made a part hereof.
10.6 Form of Nonqualified Stock Option Agreement filed as Exhibit 4.6 to the
Registrant's Registration Statement on Form S-8 (33-31427) and by this
reference is incorporated herein and made a part hereof.
10.7 Form of Option Agreement for Non-Employee Directors filed as Exhibit
4.9 to the Registrant's Registration Statement on Form S-8 (33-36944)
and by this reference is incorporated herein and made a part hereof.
10.8 Letter Agreements regarding sale of the building dated July 18, 1988,
filed as an exhibit to Form 8-K, dated February 27, 1989, filed as an
exhibit to the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1989 and by this reference is incorporated
herein and made a part hereof.
10.9 Building Lease and Rider on building between the Registrant and Calle
San Pablo Property Co. dated January 31, 1989, filed as an exhibit to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1989 and by this reference is incorporated herein and made
a part hereof.
41
10.9.1 Amendment of Lease on building between the Registrant and Calle San
Pablo Property Co. dated February 9, 1995, filed as an exhibit to this
Annual Report on Form 10-K for the fiscal year ended March 4, 1995.
10.10 Form of Indemnity Agreement filed as an exhibit to the Registrant's
Annual Report on Form 10-K for the fiscal year ended February 29, 1988
and by this reference is incorporated herein and made a part hereof.
10.11 Stockholder Rights Plan filed as an exhibit to the Registrant's
Form 8-K dated September 5, 1991 and by this reference is incorporated
herein and made a part hereof.
10.12 Distribution Agreement between Registrant and Pan Asian Systems, Ltd.,
dated July 3, 1992 filed as Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (33-59702) and by this reference is incorporated
herein and made a part hereof.
10.13 Stock Purchase Agreement dated December 31, 1992 by and among
Registrant, Peter J. Connolly, Steven G. Ow and Toni Ow, and The Peter
J. Connolly Charitable Remainder Unitrust dated June 15, 1992 filed as
Exhibit 10.20 to the Company's Registration Statement on Form S-1
(33-59702) and by this reference is incorporated herein and made a part
hereof.
10.24 Commercial Security Agreement between Registrant and California United
Bank dated July 26, 1995, filed as Exhibit 10.24 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 2, 1996.
10.25 First Amendment to Business Loan Agreement between Registrant and
California United Bank, dated July 26, 1995, filed as Exhibit 10.25 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
March 2, 1996.
10.26 Promissory Note between Registrant and California United Bank dated
August 6, 1996, filed as an exhibit to this Annual Report on Form 10-K
for the fiscal year ended March 1, 1997.
10.27 Second Amendment to Business Loan Agreement between Registrant and
California United Bank, dated August 6, 1996, filed as an exhibit to
this Annual Report on Form 10-K for the fiscal year ended March 1,
1997.
10.28 Building Lease on building between the Registrant and The Jennings
Bypass Trust, dated September 11, 1996, filed as an exhibit to this
Annual Report on Form 10-K for the fiscal year ended March 1, 1997.
10.29 Land Purchase Agreement on land between the Registrant and Rhoda-May A.
Dallas Trust, dated February 13, 1996, filed as an exhibit to this
Annual Report on Form 10-K for the fiscal year ended March 1, 1997.
10.30 Loan Agreement between Registrant and California United Bank, dated
August 22, 1997, filed as Exhibit 10.30 to the Registrant's Quarterly
Report on Form 10-Q for the period ended August 30, 1997.
10.31 Change in Terms Agreement between Registrant and California United
Bank, dated August 22, 1997, and filed as Exhibit 10.31 to the
Registrant's Quarterly Report on Form 10-Q for the period ended August
30, 1997.
23.1 Consent of Independent Public Accountants.
42