CALIFORNIA AMPLIFIER INC
Form: 10-Q Filing Date: 7/12/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 29, 1999 AND MAY 30, 1998
SALES
Sales increased by $4.0 million, or 44.5%, to $13.1 million for the three months
ended May 29, 1999 from $9.1 million for the three months ended May 30, 1998.
Sales of Satellite products increased $4.8 million, or 219%, to $7.0 million
from $2.2 million. Sales of Wireless products decreased $583,000, or 10.5%, to
approximately $5.0 million. Sales of Antenna products by Micro Pulse decreased
$213,000, or 16.3%, to $1.1 million.
The increase in Satellite product sales resulted from increased sales of Ku DBS
products as the Company has continued to emphasize its shift from C-band
products, as well as sales of the U.S. DBS products, which were acquired from
Gardiner Communications and included in shipments since April 19, 1999. The
decrease in Wireless product sales resulted primarily from continued softness in
the Worldwide Wireless Cable market, primarily in Latin America. The decrease in
Antenna product sales resulted from continued competition in GPS related
markets.
GROSS PROFITS AND GROSS MARGINS
Gross profits increased by $1.1 million, or 40.1%, to $3.9 million from $2.8
million. Gross margins decreased to 29.9% from 30.8%. The decrease in gross
profits resulted from the 44.5% increase in sales, offset slightly by lower
gross margins. The .9% decline in gross margin resulted primarily from higher
sales of Satellite products at lower gross margins, offset by improvements in
gross margins due to cost reductions since the first quarter of the prior year.
OPERATING EXPENSES
Research and development expenses decreased by $17,000 from $1,216,000 to
$1,199,000.
Selling expenses decreased by $126,000 from $1,246,000 to $1,120,000.
General and administrative expenses decreased by $4,000 from $1,071,000 to
$1,067,000.
During the prior year, the Company focused on reducing operating costs more in
line with the then current sales levels. Accordingly, the organizational
infrastructure was downsized in the later part of fiscal year 1999 resulting in
lower operating costs. Total operating costs in the first quarter of fiscal year
2000 increased approximately $400,000, compared to the aggregate operating costs
in the fourth quarter of fiscal year 1999, which is primarily attributable to
increased operating costs associated with the acquisition of Gardiner in April
1999.
INCOME (LOSS) FROM OPERATIONS
Income from operations, for the reasons noted above, increased by $1.3 million,
to income of $527,000 from a loss of $740,000. See also Note 4. Segments,
included in Notes to unaudited Consolidated Financial Statements included
elsewhere herein.
MINORITY INTEREST SHARE IN INCOME (LOSS) OF MICRO PULSE
The Company consolidates 100% of the sales and expenses of Micro Pulse. The
minority interest share in income of Micro Pulse eliminates the 49.5% of the
income (loss) of Micro Pulse.
(PROVISION FOR) BENEFIT FROM INCOME TAXES
The provision for taxes for the first quarter of fiscal 2000 is based upon an
annualized tax rate of 36%, the same tax rate as fiscal year 1999. This tax rate
assumes savings from benefits allowed for export sales through a foreign sales
corporation and research and development tax credits.
NET INCOME (LOSS)
Net income, for reasons outlined above, increased by $843,000, to net income of
$358,000 from a loss of $485,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $6.0 million credit facility with Santa Monica Bank at the
bank's prime rate (8.0% at July 1, 1999). As of May 29, 1999, there were no
amounts were outstanding under this arrangement.
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 has not had a material effect on its
operations.
YEAR 2000 COMPLIANCE
COMPANY PRODUCTS
The Company's satellite, wireless cable, voice and data, and antenna
microwave reception and transceiver products do not contain time or date code
applications and are therefore, not impacted by the Year 2000 century change.
The Company's wireless cable scrambling and conditional access system,
MultiCipher, does have date and time characteristics in microprocessor embedded
software and in its software interface applications. The Company has identified
programming issues that may impact how certain information must be input by
MultiCipher customers, for example, the scheduling of future pay-per-view
events. Upgrades to address such issues are now available to customers on a fee
basis. All current shipments of MultiCipher system head-ends are year 2000
compliant.
INTERNAL OPERATIONS
GENERAL. The computer system issues relating to dates beyond 1999 are the result
of many computer programs being written to use and store dates with only the
last two digits of the applicable year. As a result, these programs may assume
that all two digit dates are twentieth century dates. This could result in
system failure, anomalous system behavior or incorrect system reporting. System
failure could, in turn, temporarily affect the Company's ability to process
customer transactions, interface with vendors and engage in similar normal
business activities.
The Company has assessed how it may be impacted. The Company has formulated
and begun implementation of a plan to address all known aspects of the issue.
The Company has already completed a substantial portion of this plan and is on
schedule to fully complete the plan by August of 1999, except for some desktop
personal computers which may extend into the last quarter of calendar 1999.
SOFTWARE INFORMATION SYSTEMS. The Company's software information systems consist
primarily of a financial and manufacturing system (Computer Associates KBM), and
other smaller scale software applications, and other programs developed
internally.
In January 1999, the Computer Associates KBM financial and manufacturing
software upgrade was completed and is now year 2000 compliant. Telemagic and
Sales Tracker, two software applications, are not year 2000 compliant and will
be upgraded or discontinued prior to July 1999. In addition, software on
networks and desktop computers are currently being tested for year 2000
compliance. The Company does not expect any major issues related to upgrading
these software applications, at a cost of less than $60,000.
COMPUTER HARDWARE AND OPERATING SYSTEMS. Computer hardware and operating systems
includes all data center equipment (IBM AS400 system) and networks (Novell and
Microsoft NT). In January 1999, the Company purchased a new IBM AS400 in
conjunction with the Computer Associates software upgrades and is now year 2000
compliant. The current NT networks are year 2000 compliant, but the Novell
Network is not. This network will be upgraded or converted to NT by August 1999
with an estimated cost of less than $20,000.
COMMUNICATIONS SYSTEMS. Communications systems includes all data center
equipment (fax machines, telephone systems, and related software systems) used
to support external communications with customers, employees, and suppliers,
business partners and all corporate equipment and software systems used to
support internal business management communications. Each significant component
of these communications systems has been upgraded.
SUPPLIERS AND OTHER BUSINESS PARTNERS. This area of the plan called for all
significant suppliers and other business partners to be surveyed for year 2000
readiness. Most of the significant trade vendors have already been contacted.
The Company anticipates that these activities will continue into the third
quarter of calendar 1999. The Company is not currently aware of any single
vendor or business partner with year 2000 compliance issues that could have a
material impact on the Company. The Company can provide no assurance that year
2000 compliance will be successfully implemented by all of its suppliers.
CONTINGENCY PLANNING. The Company has not yet developed a comprehensive
contingency plan to address the risk of operational problems and costs likely to
result from a failure by the Company or by a supplier or business partner to
address year 2000 readiness. This plan will be developed by the end of August
1999. It will list specific action plans for failure in any of the identified
areas of the year 2000 compliance plan. The Company believes that failure to
complete any of the remaining work to be done will not alone adversely affect
the continuity of the core business. The Company believes its current state of
readiness is on schedule with a conservative plan to be fully year 2000
compliant by August of 1999 and that business risks have been minimized.
However, there can be no guarantee that year 2000 compliance issues not yet
identified or fully addressed will not materially affect the Company's
operations or expose it to third party liability.
SAFE HARBOR STATEMENT
Forward looking statements in this Form 10-Q which include, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions, projections and other information regarding future
performance, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. These forward-looking statements reflect the Company's current views
with respect to future events and financial performance and are subject to
certain risks and uncertainties, including, without limitation, product demand,
competitive market growth, timing and market acceptance of new product
introductions, competition, pricing and other risks and uncertainties that are
detailed from time to time in the Company's periodic reports filed with the
Securities and Exchange Commission, copies of which may be obtained from the
Company upon request. Such risks and uncertainties could cause actual results to
differ materially from historical results or those anticipated. Although the
Company believes the expectations reflected in such forward-looking statements
are based upon reasonable assumptions, it can give no assurance that its
expectations will be attained. The Company undertakes no obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
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