ITEM 1. BUSINESS
GENERAL
California Microwave, Inc. (the "Company") designs, manufactures and markets sophisticated systems and products used worldwide in satellite and wireless communications for the transmission of voice, data, facsimile and video. The Company applies its expertise in microwave radio technologies to: satellite earth stations and equipment, microwave radios for wireless application, and electronic intelligence systems. California Microwave is a leading provider of both satellite earth stations used for satellite communications and digital and analog microwave radios for the cellular, personal communications network and private network markets.
The Company sells its products through a variety of channels for use by many of the world's principal providers of telecommunications services. These include AT&T, MCI, Sprint, GTE, COMSAT Corporation, British Telecom, and telephone companies around the world. Other users of the Company's products include private networks, such as broadcast and cable television operators, utilities and other major corporations, and municipal, state and national governments. California Microwave believes that it is among the limited number of key suppliers to these entities because of its proven track record of technical performance and reliability, customer support and cost effectiveness.
In May 1995, California Microwave acquired Microwave Networks Incorporated ("MNI") in a merger effected by exchanging 3,342,653 shares of its common stock and options to acquire 132,347 shares of its common stock for all the outstanding MNI common and preferred stock and MNI then-outstanding options, warrants or other convertible securities. MNI is a manufacturer of digital microwave transmission products and systems for worldwide cellular operators, private businesses and domestic common carriers. The merger was accounted for as a pooling of interests; accordingly, all periods presented in this report include the results of MNI.
In June 1995, the Company recorded restructuring and other charges of approximately $36.4 million in connection with a program to reduce costs and improve operating efficiencies. The program includes, among other things: the integration of certain of the Company's wireless operations and the exit by California Microwave -- TeleCom Transmission Systems, Inc. ("TTS") from the short-haul radio market, which included certain short-haul radio contracts and the shifting of short-haul radio sales to its Microwave Radio Communications division ("MRC"); the recording of certain contract costs at its Satellite Transmission Systems division ("STS"); the elimination of excess facilities; the reduction of employees at STS; the write-off of excess inventory and capital equipment; and the write-down of intangible assets. During 1996, the program was expanded, without a net charge to operations, to include merging the operations of TTS and MNI with certain operations of MRC into a new unit, Microwave Networks Systems ("MNS"), resulting in the write-off of additional excess inventories and other assets and reducing the number of employees at MNS.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides companies with a "safe harbor" when making forward looking statements. Statements of the Company that are not historical facts, including statements about management's expectations for fiscal year 1997 and beyond, are forward looking statements and involve certain risks and uncertainties. Factors that could cause the Company's actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to, the following:
(a) The timing of receipt of significant orders and of deliveries of new and existing products and systems;
(b) The time it takes to successfully integrate operations of new businesses that are acquired;
(c) Fluctuating market demand, price competition and new product introductions by competitors and the ability to develop and introduce competitive products and bring them to market in a timely manner;
(d) Cost overruns and contract terminations or adjustments;
(e) With regard to international sales, fluctuations in foreign currency exchange rates, the availability of suitable export financing, political and economic instability and the ability to retain stable and experienced in-country partners to provide sales and support services;
(f) The availability of quality components and subsystems used by the Company in its products and the dependence upon subcontractors to manufacture and deliver certain items in a timely and satisfactory manner;
(g) The limitation on the ability to reduce inventory and expenses if forecasts and demand are not realized;
(h) The nonpayment of accounts receivable arising out of customer dissatisfaction or inability to pay;
(i) Inventory obsolescence;
(j) The reliance of certain of the Company's operations upon major orders from a small number of customers;
(k) Legal and regulatory developments; and
(l) Changes in industry or general economic conditions.
TELECOMMUNICATIONS INDUSTRY OVERVIEW
Telecommunications Market. The demand for improved telecommunications is increasing worldwide as emerging economies seek to modernize, and as increasingly information intensive developed countries introduce new telecommunications services. The telecommunications industry has expanded rapidly during the last decade, principally due to technological advances and regulatory changes in the United States and internationally. Advances in technology have lowered per-unit communications costs, increased product reliability, and encouraged a proliferation of new and enhanced communications products and services. Regulatory initiatives (such as the breakup of the Bell system and the assignment of radio frequency spectrum for cellular telephone services) have enhanced competition, permitted the opening of new markets and provided incentives for the development of new products.
Alternative Transmission Media. Customers for telecommunications equipment must weigh the relative costs and advantages of the four presently available transmission media: copper cable, fiber optic cable, satellite systems and terrestrial microwave radio systems.
- Copper cable, the traditional transmission medium most familiar to consumers, is being replaced and supplemented by the other media, particularly for high-volume and long-distance transmissions where it has substantial capacity, cost and reliability limitations.
- Fiber optic cable is best suited to high-volume, point-to-point, short- or long-distance links where its advantages -- capacity, quality and security -- justify the long lead time and high cost to equip and install a network.
- Satellite systems are often a preferred medium for transmitting to a large geographical or multipoint area. These systems, which use microwave technology, are well suited for rapid introduction of service in remote areas or where terrestrial alternatives are unavailable, such as mobile, shipboard or military applications. Satellite systems require a sizeable initial capital investment by service providers to build and launch one or more satellites. Once the satellites are in orbit, however, there are substantial incentives to use this capacity, which typically requires continued investment in satellite earth stations.
- Terrestrial microwave radio systems can be quickly and easily installed, require relatively low initial capital investment and can be upgraded and expanded over time. There are a wide variety of microwave radios offering different frequencies, modulation techniques (analog or digital), and transmission capacities. However, microwave radio applications typically require government licensing and frequency coordination in order to prevent signal interference among various users, and require a
line of sight between the transmitting and receiving antennas. Unavailability of sufficient frequency spectrum has historically inhibited sales in developed countries, although this constraint is being alleviated by the actions of various governments and the availability of radios that do not require governmental licensing prior to use.
Rarely is a complete communications system based solely on one of these media. Transmission is normally routed through a combination of media, each employed where it fits most cost-effectively within the communications network. For example, a microwave radio studio-to-transmitter link used by a television broadcaster may connect to a satellite system used to distribute programs domestically and overseas. In addition, the various media provide routing alternatives for the other media, as in the case of satellite backup facilities for undersea fiber optic cables.
STRATEGY
California Microwave's strategy is to apply its expertise in microwave technologies to systems and products for the satellite communications, wireless and intelligence systems markets. The Company works closely with existing and potential customers to specify and develop new products and product enhancements that have long-term growth potential. The Company considers its ability to create and maintain long-term customer relationships an important component of its overall strategy in each of its markets.
The Company has concentrated its efforts on sales of systems and products used for communications infrastructure rather than on consumer terminals and equipment.
The Company's strategy includes the following key elements:
Maintenance of Strong Position in Satellite Communications and Intelligence Systems Markets. By introducing new products and expanding its marketing efforts and distribution capabilities worldwide, the Company intends to continue to strengthen its position in its markets for satellite communications and intelligence systems.
Wireless Growth. The Company believes that the wireless telecommunications market offers numerous opportunities because of its rapid growth and relatively fragmented nature. Emerging opportunities for the sale of microwave radios include cellular and other portable personal communication systems, mobile data entry, remote data collection and device monitoring and wireless local area networks. Many of these opportunities relate to the portability and mobility requirements of customers.
International Expansion. The Company's systems and equipment are marketed on a worldwide basis. The Company's international sales are comprised of both satellite communications and wireless systems and products, and represented 49% of total sales for the fiscal year ended June 30, 1996. International sales are expected to increase due to international infrastructure requirements in developing countries and the emergence of wireless opportunities worldwide.
Acquisitions. The Company has enhanced its market position through acquisitions of companies or lines of business that complement its existing businesses. Consistent with this strategy, the Company in April 1992 acquired MRC, in October 1993 acquired substantially all of the assets and certain of the liabilities of TTS and in May 1995 acquired MNI. In addition, the Company acquired Mobile Satellite Products Corporation (formerly ViaSat Technology Corporation; "MobileSat"), Microwave Data Systems ("MDS") and EFData Corp. ("EFData") in recent years.
Core Technology Focus. Since its founding in 1968, the Company's systems and products have been based on microwave radio technologies. The Company's products employ both analog and digital applications of radio frequency technology. Digital technology significantly enhances performance and capacity and facilitates new product development. The Company has invested significant resources in these technologies and believes its microwave communications technologies provide a solid base for the development of future wireless communications products and services, including new forms of mobile and portable communications systems.
Decentralized Organizational Structure. California Microwave's subsidiaries and divisions operate, for the most part, on a decentralized basis. The Company believes this organizational structure has allowed the key entrepreneurial personnel of each division to be responsive to particular markets and customers. Each subsidiary and division typically maintains its own sales, marketing, product development and manufacturing functions. The Company is moving towards centralized coordination of certain common functions.
Products and Markets. The Company's sales are summarized below:
SATELLITE COMMUNICATIONS
California Microwave is a leader in the design, assembly, integration and installation of satellite earth stations, from the largest international gateway earth stations, through an extensive series of mid-size earth stations, to very small portable and fixed VSAT network earth stations. Earth stations are integrated systems consisting of antennas (1 to 32 meters in diameter), transmitting and receiving equipment, and video, data and telephone system interface equipment. The Company also manufactures many electronic products, such as modems and frequency converters, which are incorporated into earth stations. Large antennas and certain other equipment are obtained from third parties. The Company's line of digital and analog earth stations provides point-to-point and point-to-multipoint transmission of voice, data, facsimile and video, as well as tracking and command of the satellites themselves. Many of the earth stations and related equipment are incorporated into communications networks designed, installed and integrated by the Company. The Company's systems are installed and operating in more than 110 countries.
Turnkey Satellite Earth Stations and Networks. The Company, through its STS division, is a leading supplier of turnkey satellite transmit/receive earth stations and networks for domestic, international and government applications. The Company is both an equipment supplier and a large-scale network integrator. It has installed more than 1,000 major earth stations on a turnkey basis, including more than 200 digital earth stations for use by members of the INTELSAT network. Turnkey satellite earth stations typically are completed in three to twelve months.
Transportable, Mobile, Portable and Other Satellite Earth Stations. The Company, through its STS division and EFData subsidiary, manufactures a variety of transportable, mobile, portable and other satellite earth stations. Most have modular designs, which reduce equipment costs, installation costs and delivery lead times, and accommodate a wide variety of capacity, frequency band or other customer requirements. Transportable and mobile earth stations are typically used for rapid deployment to supply broadcast and voice communications where telephone service may be non-existent or temporarily unavailable.
Satellite Earth Station Products. Through various of its subsidiaries and divisions, California Microwave manufactures a broad line of electronic products used in earth stations. The products are used extensively in the Company's own earth stations and are also sold in volume to other earth station suppliers and to operators of communication networks to upgrade existing earth stations. EFData is a leading producer of high speed (up to 155 million bits per second) digital modems, RF transceivers and frequency converters used in satellite
communications networks. Since 1988, EFData has delivered more than 30,000 satellite modems, RF transceivers and frequency converters for use in INTELSAT systems, satellite backup facilities for undersea fiber optic cable, digital video and for many private network applications. EFData also manufactures a completely self-contained earth station electronics package for low-cost rural and infrastructure networks. STS manufactures a range of frequency converters used in satellite earth stations, and proprietary computer-based monitor and control systems.
The Company's principal satellite communications products are summarized in the following table:
WIRELESS
California Microwave designs, manufactures and markets digital and analog microwave radios and other equipment used in land-based point-to-point and point-to-multipoint communications links. The Company is a leading manufacturer of microwave radios for cellular and other personal communications networks, and for private voice and data communications networks and for portable electronic news gathering and studio-to-transmitter links. The Company believes that wireless is one of the fastest growing areas of the telecommunications industry due to technological advances, regulatory initiatives and the expanding requirements for connectivity between people and computers and other electronic devices.
Cellular and Personal Communications Networks and Systems. The Company, through its MNS Division, manufactures short- and long-distance digital microwave radio systems for worldwide applications in cellular and portable personal communications networks and systems. Over the past four years the Company has delivered equipment to service providers in the U.S., the United Kingdom, Germany, Belgium, Israel, Mexico, Brazil, Australia, the Philippines, China and India. The microwave equipment (13, 15, 18, 23 and 38 GHz) is used to interconnect the microcells of the cellular and personal communications systems. In 1995, the FCC allocated to the U.S. Personal Communications Services ("PCS") market a part of the frequency spectrum that is currently used by utilities and municipalities for telecommunications networks. Incumbent users have to relocate to a different frequency, which requires new microwave radios, primarily in the 6- and 10-GHZ frequency ranges, if microwave is to be used as the transmission medium. In 1996, California Microwave began delivering microwave radios for the emerging PCS market.
Land Mobile and Utility Communications. The Company, through its MNS division, manufacturers and sells digital and analog microwave radio systems for the interconnection of statewide public safety mobile networks. Most of these sales are made through Motorola, with whom MNS has an equipment supply agreement. MNS also sells products to large utilities to provide voice and data communications along major rights of way.
Television Broadcast. The Company's MRC division is a leading supplier of analog microwave radios to U.S. and international broadcast and cable television markets for use principally in portable electronic news gathering and studio-to-transmitter applications.
Wireless Data Networking. The Company, through its MDS division, manufactures point-to-point and point-to-multipoint microwave data radios. MDS point-to-point radios are used to extend the reach of a communications system in areas where low capacity, multi-channel voice or data communications links are required. Point-to-multipoint radio systems are used principally to connect central computers to remote computer terminals or to physical measurement and control devices. Typical applications include remote monitoring and automated operation of oil and gas production and distribution, water-wastewater treatment systems, and control of electric utility power generation facilities. Over 100,000 MDS data radios have been sold since MDS commenced the sale of radios in 1986.
The Company's principal wireless products are summarized in the following table:
INTELLIGENCE SYSTEMS
The Company participates in selected areas of the U.S. government market which are closely related to the Company's commercial technological and product base. In recent years, as U.S. defense spending has declined, the Company has competed effectively by offering adaptations of its technologies and commercially available "off-the-shelf" products to stable and growing segments of the Department of Defense market at significantly less cost than would be the case under military specification procurement procedures. The Company integrates electronic and electro-optical systems for both airborne and ground-based applications. These systems collect, process and disseminate intelligence and reconnaissance information using advanced radio communications hardware and both special-purpose and off-the-shelf computers and software. The Company maintains and upgrades these systems throughout their useful lives, which can be a decade or more. The Company has developed a series of products with secure, portable, ruggedized suitcase-sized packaging that incorporate key intelligence information collection, processing and analysis capabilities contained in its larger systems.
The Company also designs and develops state-of-the-art multisensor imaging systems and sophisticated electronic intelligence collection systems which it integrates into inexpensive commercial aircraft. In fiscal 1991, the Company received contracts totaling $19.6 million as a prime contractor for the U.S. Army's Air
Reconnaissance Low ("ARL") program. The ARL program employs both imagery and signal intelligence sensors mounted on deHavilland-7 aircraft. These sensors collect information which can be immediately transmitted to designated receiving locations. The ARL aircraft can be rapidly deployed anywhere in the world. The Company completed its initial ARL contracts and made final delivery of the first aircraft to the Army in 1993. The Company has received significant follow-on ARL contracts involving additional aircraft.
In early 1993, the Company introduced its new airborne intercept and direction finding and geo-location system. The Company believes that this system locates signals from over a wide range of frequencies more rapidly and accurately than do other systems.
The Company's intelligence projects typically involve multi-year, multi-million dollar contracts. In addition, the Company sells subsystems and other equipment to U.S. government agencies on a short-term delivery basis. The price of a project depends on a number of factors, including the amount of development involved, quantities ordered, maintenance requirements and whether an aircraft is to be modified and supplied by the Company in connection with the contract.
SALES, MARKETING AND CUSTOMER SUPPORT
California Microwave directs its sales and marketing efforts toward major users of its systems and products through a well established international distribution network. The sales and marketing strategy of the Company varies with the particular market served and involves direct sales by the Company's own sales force, sales through representatives, value-added resellers, or a combination of the foregoing. The Company also has entered into sales distribution agreements with respect to certain of its satellite communications and wireless products.
The Company considers its ability to create and maintain long-term customer relationships an important component of its overall strategy in each of its markets. Relationships with customers are established and maintained by the Company's divisional area managers and their technical and marketing staffs. The Company's strategy also includes its commitment to provide ongoing customer support for its systems and products. This support involves providing direct access to the Company's engineering staff or trained technical representatives located throughout the world to resolve technical or operational problems. The Company has sold products in over 110 countries. The Company intends to continue to expand its marketing efforts and distribution channels worldwide.
MANUFACTURING
Manufacturing operations consist principally of assembly and testing of electronic systems built from fabricated parts, printed circuits and electronic components. Both manual and various automated methods are employed, depending primarily upon production volume. The Company employs formal Total Quality Management programs and other training programs, and most of its operations have qualified for International Standards Organization ("ISO") quality procedure registration to ISO 9001, a standard sometimes imposed by foreign buyers. Those operations not yet certified are working toward registration to ISO 9001, and the Company believes that lack of such registration does not currently have any material adverse effect on its business.
Electronic components and raw materials used in the Company's products are generally obtained from a large number of suppliers. Some components are standard items and others are manufactured to the Company's specifications by subcontractors. The Company obtains certain components and subsystems from single, or a limited number of, sources. The Company operates without a substantial inventory of components and subsystems but believes that most components and subsystems are available from existing or alternative suppliers and subcontractors. A significant interruption in the delivery of such items could have a material adverse effect on the Company's results of operations.
COMPETITION
California Microwave is engaged in a highly competitive business and the number of potential customers for the Company's products is limited. Many of the Company's competitors have significantly greater financial, marketing and operating resources than the Company. In addition, certain of the Company's customers have technological capabilities in the Company's product areas and could choose to replace the Company's products with their own. The Company's major competitors by product area include: NEC, Alcatel Telespace and Scientific-Atlanta, Inc. -- satellite communications; NEC, Digital Microwave Corporation, Harris Corporation, Alcatel, P-Com, Inc., and Motorola -- wireless; ESL, Inc. (a subsidiary of TRW Inc.), Lockheed Martin Corporation and E-Systems, Inc. -- intelligence.
The Company believes that competition in its markets is based primarily on price, performance, reputation, on-time delivery, reliability and customer support. The Company believes that it has the ability to develop, produce and install turnkey satellite earth stations, and to deliver satellite and wireless equipment, faster than many of its competitors. In the intelligence area, the Company believes that it has the ability to solve customers' problems with proprietary solutions and to offer cost-effective approaches using commercially available products.
RESEARCH AND DEVELOPMENT
Research and development expenses were $30.9 million, $29.7 million and $17.6 million in fiscal 1996, 1995 and 1994, respectively, representing 6.7%, 6.3% and 4.3% of total sales, respectively, for the same periods.
The Company obtains customer funding for research and development where possible to adapt the Company's basic technology to specialized customer requirements. Most research and development expenses in turnkey satellite earth stations and intelligence systems are customer-funded and are included in cost of products sold. Since the Company expects to emphasize equipment sales, particularly in the wireless area, it expects research and development expenditures, as a percent of sales, to continue to increase.
PATENTS AND LICENSES
Due to the rapidly changing nature of technology in the Company's business, patents and licenses have been of substantially less significance in the Company's business than have been the timely application of its technology and the design, development and marketing capabilities of its personnel.
EMPLOYEES
At June 30, 1996, California Microwave had 2,294 employees, 1,169 of whom were engaged in production and production support, 621 in research and development and other engineering support, 315 in marketing and 189 in general and administration functions. None of the employees is represented by a labor union. The Company believes that its employee relations are good.
REGULATION
Radio communications, including satellite communications, are subject to regulation by United States and foreign laws and international treaty. The Company's equipment must conform to domestic and international requirements established to avoid interference among users of microwave frequencies and to permit interconnection of equipment.
The use of microwave signals depends upon the availability of frequencies that permit interference-free operation. In many developed countries, the unavailability of frequency spectrum has historically inhibited the growth of microwave systems. However, two factors are alleviating this problem. First, the proliferation of fiber optics for high capacity systems has reduced the demand for microwave frequencies for such systems, thus freeing up frequency spectrum for new types of services, particularly for portable or mobile communications. Second, many government regulatory agencies are reallocating frequencies from one type of use to another, thus providing incentive for new communications services. Current regulatory efforts by international and national regulatory authorities are directed at providing microwave frequencies for new portable wireless
personal communications services. Equipment to support these new services can be marketed only if permitted by suitable frequency allocations and regulations, and the process of establishing new regulations is complex and lengthy.
BACKLOG
At June 30, 1996, the Company's backlog of undelivered orders was $168.4 million (approximately 95% of which is expected to be delivered during fiscal 1997) compared with $231.5 million at June 30, 1995. In the Company's experience, its backlog at any given time is not necessarily indicative of prospective period revenues. The Company generally records an order in backlog when the Company receives a firm contract or purchase order which identifies product quantities and delivery dates, and in the case of government contracts, when such contracts have been funded by the government. While from time to time a substantial portion of the Company's backlog has been comprised of large orders, the cancellation of any of which could have a material adverse effect on the Company's operating results, the Company historically has not experienced significant changes in its backlog from cancellations or revisions of orders.
ITEM 2.
ITEM 2. PROPERTIES
The table below describes the location and general character of the principal plants and materially important physical properties that are owned or leased by the Company and its subsidiaries as of June 30, 1996.
- --------------- * The Company plans to sell or sublease this space, which totals approximately 260,000 square feet.
The Company believes that its facilities are adequate for its present needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On November 9, 1995, and December 12, 1995, putative class action lawsuits entitled Rick Fairchild v. California Microwave, Inc. et al. and Mark E. McKinney v. California Microwave, Inc. et al. were filed in the United States District Court for the Northern District of California. The plaintiffs in these two cases, which have been consolidated, purport to represent a class of all persons who purchased common stock of California Microwave, Inc. (the "Company") between September 6, 1994, and June 29, 1995 (the "Class Period"). Named as defendants are the Company and certain of its current and former executive officers. The complaints allege that defendants violated various federal securities laws through material misrepresentations and omissions during the Class Period. Defendants filed motions to dismiss the complaints, which the court granted on April 19, 1996, with leave to amend. The plaintiffs filed amended complaints and in August, 1996, defendants filed motions to dismiss those complaints. Although the ultimate outcome of these proceedings cannot be determined, California Microwave, Inc. believes that it has meritorious defenses to the claims alleged in these lawsuits and intends to defend the actions vigorously.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all executive officers of the Company, and all positions with the Company held by such person, are as follows:
Philip F. Otto rejoined the Company as a Director and as President of the Wireless Products Group in January 1992, became President and Chief Executive Officer of the Company in March 1992 and Chairman of the Board in January 1993. He served as Executive Vice President, Chief Financial Officer and a director of General Cellular Corporation, a cellular telecommunications company, from 1989 to 1991. Subsequent to Mr. Otto's employment by General Cellular Corporation, that corporation negotiated a "prepackaged" plan of reorganization under Chapter 11 that involved the infusion of additional capital. He also served as President of Netline Communications Corporation, a telecommunications software company, in 1988; as a consultant to the telecommunications industry from 1986 to 1988; and as Chief Executive Officer and a director of Telco Systems, Inc., a fiber optics telecommunications company, from 1981 to 1986. Mr. Otto served as Chief Financial Officer of the Company from 1975 to 1980, was a director of the Company from 1976 to 1985 and was an Executive Vice President of the Company from 1979 to 1981. He holds a Bachelor of Science Degree in Engineering from Yale University and a Master's Degree in Business Administration from the Harvard Business School.
Gilbert F. Johnson, who joined California Microwave in 1973, became the Company's President and Chief Operating Officer in 1985 and President of the Government Group in 1991. Mr. Johnson, who holds a Bachelor's Degree in Electrical Engineering from the University of Illinois and a Master's Degree in Electrical Engineering from the University of Southern California, is a senior member of the IEEE. Prior to joining
California Microwave, Mr. Johnson held engineering management positions at Applied Technology and Hughes Aircraft Company.
Dr. Douglas H. Morais joined California Microwave in February 1993 as Senior Vice-President-Corporate Development, became President of the Wireless Products Group in July 1993 and became Executive Vice President for Business Development and Technology in March 1996. From October 1992 to February 1993, Dr. Morais engaged in private business development and investment; from October 1990 to October 1992 he was an officer of Digital Microwave Corporation, becoming its President and Chief Operating Officer in May 1991. Prior to joining Digital Microwave, Dr. Morais spent 24 years at the Farinon Division of Harris Corporation and headed the division as general manager from 1983 to 1990. Dr. Morais received a B.Sc. in electrical engineering from the University of Edinburgh in Scotland and an M.Sc. and Ph.D., also in electrical engineering, from the University of California at Berkeley and the University of Ottawa, respectively. He is a senior member of the IEEE.
Leon F. Blachowicz joined the Company in January 1995 as President of the Satellite Communications Group and in March 1996 also became President of the combined Wireless and Satellite Communications Group. From 1989 to January 1995 he was Vice President/General Manager of Varian's Microwave Equipment Products division. Prior to 1989 he was Vice President of the Business Communications System Division of Harris Corporation for the last three of his 20 years at Harris Corporation.
Dennis R. Raney became an Executive Vice President and the Chief Financial Officer of the Company in May 1996. He served as Senior Vice President and Chief Financial Officer of the Pharmaceutical Products Group of Bristol Myers Squibb Co. from October 1993 to November 1995, and as Chief Financial Officer of General Magic, Inc., a publicly held company engaged in the development of mobile computing agents, from December 1995 to May 1996. From 1970 to 1993, Mr. Raney held various positions with Hewlett Packard Company, including Administrative Manager South Asia; Director, Finance and Administration, International Operations: Director, Finance and Administration, European Operations; and Director of Worldwide Real Estate Operations. He holds an MBA from the University of Chicago and a BS in chemical engineering from South Dakota School of Mines.
George L. Spillane became Vice President-Finance and Chief Financial Officer of the Company in November 1980 and Secretary of the Company in October 1981. When Garrett E. Pierce became Chief Financial Officer in April 1994, Mr. Spillane's title was changed to Vice President and Secretary and when Mr. Pierce resigned in January 1996 Mr. Spillane served as Chief Financial Officer until Mr. Raney joined the Company in May 1996. From 1975 to March 1980, Mr. Spillane was the treasurer of Farinon Corporation (now a part of Harris Corporation). Prior thereto, Mr. Spillane was employed by Arthur Andersen & Co.
Michael L. Foster became a Vice President of the Company in October 1990. Mr. Foster joined California Microwave in 1979 as Manager-Corporate Planning, was promoted to Director-Finance and Planning in 1980 and to Staff Vice President in 1983. Prior thereto, Mr. Foster was with Watkins Johnson, where he held the position of financial manger for one of the systems divisions. Mr. Foster holds an MBA from Stanford University.
Carl Lee became Vice-President-Controller of the Company in December 1995. From 1986 to 1996, Mr. Lee was a partner in Ernst & Young LLP, holding the position of National Director of Business Systems Consulting from October 1986 through March 1994, and the position of National Partner -- Entrepreneurial Consulting from April 1994 until he joined the Company.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The stock and stock price information on page 32 of California Microwave's 1996 Annual Report to Stockholders is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data on page 32 of California Microwave's 1996 Annual Report to Stockholders is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The management's discussion and analysis of financial condition and results of operations on pages 28 through 31, of California Microwave's 1996 Annual Report to Stockholders is incorporated herein by reference. For factors affecting any forward-looking statements contained in such discussion and analysis, see "Business -- Information Regarding Forward Looking Statements" in Item 1 of Part 1 of this Form 10-K Annual Report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements on pages 16 through 26, and the financial results by fiscal quarter information on page 32, of California Microwave's 1996 Annual Report to Stockholders are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to directors of California Microwave required to be furnished pursuant to this item is incorporated by reference from portions of the Company's definitive Proxy Statement for its annual meeting of shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after June 30, 1996 (the "Proxy Statement") under the caption "Election of Directors." Certain information relating to executive officers of the Company is set forth in Item 4A of Part I of this Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from portions of the Proxy Statement under the caption "Compensation of Directors and Executive Officers."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CALIFORNIA MICROWAVE, INC.
Incorporated by reference from portions of the Proxy Statement under the captions "Certain Shareholders" and "Compensation of Directors and Executive Officers."
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
Included in Part II of this report by incorporation by reference from the California Microwave 1996 Annual Report to Stockholders
Report of Ernst & Young LLP, Independent Auditors (page 27 of 1996 Annual Report to Stockholders)
Consolidated statements of operations for each of the three years in the period ended June 30, 1996 (page 16 of 1996 Annual Report to Stockholders)
Consolidated balance sheets as of June 30, 1996 and 1995 (page 17 of 1996 Annual Report to Stockholders)
Consolidated statements of stockholders' equity for each of the three years in the period ended June 30, 1996 (page 18 of 1996 Annual Report to Stockholders)
Consolidated statements of cash flows for each of the three years in the period ended June 30, 1996 (page 19 of 1996 Annual Report to Stockholders)
Notes to consolidated financial statements (pages 20 through 26 of 1996 Annual Report to Stockholders)
With the exception of the information incorporated by reference into Items 5, 6, 7 and 8 of this Form 10-K, the California Microwave 1996 Annual Report to Stockholders is not deemed filed as part of this report.
(A) 2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedule II -- Valuation and Qualifying Accounts for the three years ended June 30, 1996.
All other schedules are omitted because they are not required, or are not applicable, or the information is included in the consolidated financial statements or notes to consolidated financial statements.
(A) 3. EXHIBITS
- --------------- * Registrant agrees to file such exhibits upon request by the Commission.
** Compensatory plan or arrangement.
Exhibits are available from the Registrant upon request.
(B) REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: September 27, 1996 CALIFORNIA MICROWAVE, INC.
By /s/ PHILIP F. OTTO
------------------------------------ Philip F. Otto Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
CALIFORNIA MICROWAVE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS)
- --------------- Amounts from acquisition of TTS not charged to income:
(1) $360
(2) $145
(3) $5,595
INDEX OF EXHIBITS