Radyne Corporation
Notes to the Consolidated Financial Statements
For the year ended December 31, 2007, 2006 and 2005
|
1.
|
Organization and Nature of Business
|
Radyne Corporation designs, manufactures and
sells products and systems used for the transmission and reception of data and video over satellite, microwave and cable communication networks. 2007 fiscal revenue totaled $142,054. We operate three reporting segments: Satellite Electronics,
Microsatellites and Amplifiers.
The Satellite Electronics segment manufactures products under both the Radyne and Tiernan brand names. Radyne supplies satellite
electronics used in satellite ground stations and Tiernan supplies HDTV and SDTV encoding and transmission equipment. The Microsatellite segment manufactures products under the AeroAstro name. AeroAstro is a leader in innovative microsatellite
(typically weighing less than 150 kg) systems, components and advanced communication technologies. The Amplifier segment manufactures products under the Xicom brand name. Xicom produces high power amplifiers for communication applications.
Our corporate headquarters lie in Phoenix, Arizona; and we have sales and manufacturing facilities in Phoenix, Arizona; San Diego and Santa Clara, California;
Ashburn, Virginia and sales or service centers in Boca Raton, Florida; Littleton, Colorado; Singapore; China; Indonesia; and the United Kingdom.
|
2.
|
Summary of Significant Accounting Policies
|
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires our management to
make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements. Such estimates and assumptions affect the reported
amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions
are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
Principles of Consolidation
The consolidated financial statements include the accounts of Radyne and our subsidiaries. The consolidated statements of operations and cash flows include the
results of operations of Xicom from May 27, 2005, the date of the acquisition, through December 31, 2005. The consolidated
statements of operations and cash flows include the results for AeroAstro from August 1, 2007, the date of acquisition, through December 31, 2007. We
eliminate intercompany accounts and transactions in our consolidation.
Cash & Cash Equivalents
We consider all money market accounts and short term AAA or AA investments with original maturities of 90 days or less to be cash equivalents. The amount of cash & cash
equivalents at December 31, 2007 and 2006, were $24,789 and $27,540, respectively.
Accounts Receivable
Accounts receivable consist of trade receivables from customers. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers
to make required payments. We assess this allowance on a regular basis and based on historical experience, management makes a periodic judgment of the collectability of the receivables. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Revenue Recognition
We recognize a sale when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and when collectability is reasonably assured. We
recognize revenue associated with services when performance of the related service has taken place. Amounts billed to customers for shipping and handling is included in revenue. We do not have a policy which allows for customer sales returns, nor
have we experienced a significant volume of returns. Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted.
We have commercial and U.S. government fixed-price contracts that we account for under AICPA Statement of Position No. 81-1, “Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.” We primarily use the percentage-of-completion method and generally recognize revenue based on the relationship of total costs incurred to total estimated costs. We review and revise
these estimates periodically throughout the lives of the contracts and we make adjustments to profits resulting from such revisions cumulative to the date of change. We also record a provision for anticipated losses on uncompleted contracts in the
period in which such losses become evident.
Long-term U.S. government cost-reimbursable type contracts are also specifically covered by Accounting Research Bulletin
No. 43, Chapter 11 –
Government Contracts
(“ARB 43”), in addition to SOP No. 81-1. We record revenue as we incur costs and include estimated fees in the proportion that costs incurred to date bear to
32
$ in thousands, except per share amounts
total estimated costs. The fees earned under certain commercial and U.S. government contracts may be increased or decreased in accordance with costs or performance
incentive provisions that measure actual performance against established targets or other criteria. Such incentive fee awards or penalties are included in revenue either at the time the amounts can be reasonably determined, or when they are actually
awarded.
Revenue from contracts that contain multiple elements that are not accounted for under the percentage-of-completion method is accounted for in accordance
with Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Revenue from these contracts is allocated to each respective element based on each element’s
relative fair value, if determinable, and is recognized when the respective revenue recognition criteria for each element are met. When the fair value of any undelivered item is not determinable and until all elements of the entire contract are
delivered, we defer revenue.
Inventories
Inventories are valued at
standard costs, which approximates lower of cost or market using the first-in, first-out (“FIFO”) method. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of
inventory and the estimated market value based on assumptions about future demand and market conditions. If market conditions were to improve, we would not reverse previously recorded downward adjustments.
Property and Equipment
We record property and equipment at cost. We state equipment
held under capital leases at the present value of future minimum lease payments. Expenditures for repairs and maintenance are charged to operations as incurred and improvements, which extend the useful lives of the assets, are capitalized. We
compute depreciation using the straight-line method over the estimated useful lives of the assets. Estimated useful lives of major asset classes are as follows:
|
|
|
|
|
Asset
|
|
Life (in years)
|
|
Machinery and equipment
|
|
3-7
|
|
Furniture and fixtures
|
|
2-7
|
|
Demonstration units
|
|
2-3
|
|
Computers and software
|
|
3-5
|
Equipment held under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of
the lease term or the estimated useful lives of the assets.
Intangible Assets and Impairment of Long-Lived Assets
Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. In
accordance with the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS 142”) No. 142,
Goodwill and Other Intangible Assets
, goodwill is not amortized. We review goodwill at least annually, considering factors such as projected cash flows, revenue and earnings multiples, to determine whether the carrying value of goodwill is
impaired. If goodwill is deemed impaired, the difference between the carrying amount reflected in the financial statements and the estimated fair value is recognized as an expense in the period in which the impairment occurs.
We assess the recoverability of the carrying value of our other long-lived assets, including identifiable intangible assets with finite useful lives, whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable in accordance with SFAS 144. We evaluate the recoverability of such assets based upon the expectations of undiscounted cash flows from such assets. If the sum of
the expected future undiscounted cash flows were less than the carrying amount of the asset, an impairment loss would be recognized and the carrying amount of the asset would be reduced to its estimated fair value.
Warranty Costs
We provide limited warranties on certain products and systems for
periods generally not exceeding two years. Estimated warranty costs for potential product liability and warranty claims based on our claim experience are accrued as a cost of sales at the time revenue is recognized. While we engage in extensive
product quality programs and processes, including actively monitoring and evaluating the quality of vendors, our warranty liability is affected by product failure rates and material usage and service delivery costs incurred in correcting product
failures. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required. The following table summarizes the activity related to our product
warranty liability for 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
Warranty Costs
|
|
2007
|
|
2006
|
|
|
Balance at beginning of period
|
|
$
|
2,526
|
|
$
|
2,101
|
|
|
Provisions
|
|
|
2,213
|
|
|
3,572
|
|
|
Payments
|
|
|
2,929
|
|
|
(3,147
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,810
|
|
$
|
2,526
|
|
|
|
|
|
|
|
|
|
|
Research and Development
The
cost of research and development is charged to expense as incurred.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.
Under this method, deferred tax
33
$ in thousands, except per share amounts
assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and
negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would not be able to realize our
deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would increase the provision for income taxes.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an Interpretation of FASB
Statement No. 109
(FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income
Taxes
. FIN 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation
processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. This interpretation also provides
guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
We adopted the provisions
of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, we recognized a decrease of $533 in the liability for unrecognized tax benefits, which we accounted for as an increase to the January 1, 2007 balances of retained
earnings and additional paid in capital in the amounts of $479 and $54, respectively.
In December 2007, the FASB issued SFAS No. 141R,
Business
Combinations
, or SFAS 141R. SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statement to
evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for
fiscal years beginning after December 15, 2008. Accordingly, any business combinations we engage in will be recorded and disclosed following existing GAAP until
January 1, 2009. We expect SFAS No. 141R will have an impact on our consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions we
consummate after the effective date. We are still assessing the full impact of this standard on our future consolidated financial statements.
We recognize interest
and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated
balance sheet.
We do not anticipate that the total amount of unrecognized tax benefits will significantly change during 2008.
Concentration of Credit Risk
Financial instruments, which potentially subject us to
concentrations of credit risk, are principally accounts receivable. We maintain ongoing credit evaluations of our customers and generally do not require collateral.
We maintain allowances for doubtful accounts for the estimated losses resulting from the inability of our customers to make required payments and such losses have not exceeded management’s expectations. If the financial condition of
our customers was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Periodically during the year,
we maintain cash in financial institutions in excess of the amounts insured by the federal government. These amounts were $24,689 and $27,440 as of December 31, 2007 and 2006, respectively.
Net Earnings Per Share
We compute basic earnings per share by dividing earnings
available to common stockholders by the weighted-average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or contracts to issue common stock were exercised or
converted to stock or resulted in the issuance of stock that then shared in our earnings.
Fair Value of Financial Instruments
Our financial instruments include cash equivalents, accounts receivable and accounts payable.
34
$ in thousands, except per share amounts
The fair value of cash
equivalents, accounts receivable and accounts payable approximates the carrying value due to the short-term nature of these instruments.
Share-Based Compensation
Effective January 1, 2006, we began accounting for share-based compensation under the provision of Statement of Financial Accounting Standards (“SFAS
123 (R)”) No. 123(R),
Share-Based Payment
, which requires the recognition of the fair value of share-based compensation. Under the fair value recognition provisions of SFAS 123(R), compensation expense is estimated at the grant date
based on the fair value of the awards expected to vest and recognized as an expense ratably over the requisite service period of the award. We have used the Black-Scholes valuation model to estimate the fair value of share-based awards, which
requires various assumptions including estimating stock price volatility, forfeiture rates and expected life. For details on the accounting effect of share-based compensation, see
Note 4 – Share-Based Compensation
.
On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3,
Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards
(FSP
123(R)-3). We adopted the alternative transition method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS 123(R) in the fourth quarter of fiscal 2006. The alternative transition method
includes simplified methods to establish the beginning balance of the hypothetical additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation and to determine the subsequent impact on the hypothetical
APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R). The adoption did not have a material impact on our results of operations and
financial condition.
Segment Reporting
We have utilized the management
approach, as defined by Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information
(“SFAS 131”), to determine if we have reportable operating segments. Based on this
evaluation, after the acquisition of AeroAstro, we organized into three reporting segments: 1) Satellite Electronics, which includes satellite and cable communications products, represented by the Radyne and Tiernan brand products; 2)
Microsatellites, which includes AeroAstro; and 3) Amplifiers, which represents Xicom brand products. Each segment is organized and managed separately to make key decisions such as sales and marketing and product development. Ultimately, the chief
operating decision maker evaluates and makes decisions based on the financial information available about these three segments. Our chief operating decision maker is the CEO.
Foreign Currency Translation
Assets and liabilities are translated to U.S. dollars at the reporting period exchange rate and the resulting gains and losses arising from the translation of net
assets are recorded as other comprehensive income in equity in the Consolidated Balance Sheets. Elements of the Consolidated Statements of Earnings are translated at average exchange rates in effect during the period and foreign currency transaction
gains and losses are included in the Consolidated Statements of Earnings. Xicom Technology Europe, Ltd (“XTEL”), a Xicom subsidiary, is located in the United Kingdom and uses the Great Britain Pound as its functional currency. We also
maintain small balances of local currencies for transaction purposes in support of our operations in Singapore and China.
Lease Obligations
We recognize lease obligations with fixed escalations of rental payments on a straight-line basis in accordance with SFAS No. 13,
Accounting for Leases
. Accordingly,
the total amount of base rentals over the term of our leases are charged to expense on a straight-line method, with the amount of rental expense in excess of lease payments recorded as a deferred rent liability.
Reclassification
We have reclassified certain prior year amounts to conform to the
current year presentation. The operating activities section of the Consolidated Statement of Cash Flows reflects this reclassification.
|
3.
|
Acquisition – Business Combination
|
On August 1, 2007, we completed our
acquisition of AeroAstro, Inc. AeroAstro is a leading provider of satellites, microsatellites and other space systems. The combination of AeroAstros satellites and space systems with our line of satellite electronics, broadcast equipment and
amplifiers makes us a full-line supplier of satellite electronic systems.
We paid approximately $17,193 in cash, $876 in shares (81,699 shares valued at $10.72 per
share-based on the average share price for the two-days prior through the two days after acquisition agreement) and assumed $354 in debt for 100% of the common stock of AeroAstro. Any subsequent changes to the costs may result in a charge to
earnings in accordance with
SFAS 141 — Business Combinations.
35
$ in thousands, except per share amounts
The table below reflects the purchase price we recorded:
|
|
|
|
|
|
AeroAstro Purchase Price
|
|
Cash
|
|
$
|
17,193
|
|
Assumption of debt, net of cash acquired
|
|
|
354
|
|
Stock (81,699 shares x $10.72)
|
|
|
876
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
18,423
|
|
|
|
|
|
|
Stock Options Exchanged
|
|
$
|
968
|
|
Transactional Costs
|
|
|
274
|
|
|
|
|
|
|
Total Costs Associated with Transaction
|
|
$
|
19,665
|
|
|
|
|
|
The table below reflects our allocation of the purchase price:
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
Current assets, net of cash acquired
|
|
$
|
2,645
|
|
|
Property and equipment
|
|
|
203
|
|
|
Deposits
|
|
|
56
|
|
|
Intangible assets
|
|
|
4,520
|
|
|
Current liabilities
|
|
|
(2,698
|
)
|
|
Capital lease obligation
|
|
|
(247
|
)
|
|
Deferred revenue
|
|
|
(445
|
)
|
|
|
|
|
|
|
|
|
|
|
Excess of purchase price - Goodwill
|
|
$
|
15,631
|
|
On May 27, 2005, we completed our acquisition of Xicom Technology, Inc. (“Xicom”). Xicom is a leading
provider of satellite and microwave power amplifiers and other RF products. The combination of Xicom’s amplifier products and RF technologies with our line of satellite electronics and broadcast equipment made us a full-line supplier of
satellite electronic systems.
We paid approximately $37,539 in cash, $2,018 in shares (219,708 shares valued at $9.186 per share-based on the
average share price for the two-days prior through the two days after acquisition agreement) and assumed $5,034 in debt for 100% of the common stock of Xicom.
The purchase price decreased during the year of the acquisition, which was due to R&D tax credits recognized for the pre-acquisition periods and offset by certain liabilities, which were not recorded as of the acquisition date, which is
reflected as a decrease to goodwill for 2006. Any subsequent changes to the purchase price allocation will likely result in a charge to earnings in accordance with
SFAS 141 — Business Combinations.
The table below reflects the purchase price we recorded:
|
|
|
|
|
|
Xicom Purchase Price
|
|
Cash
|
|
|
37,539
|
|
Assumption of debt, net of cash acquired
|
|
|
5,034
|
|
Stock
|
|
|
2,018
|
|
Acquisition costs
|
|
|
1,268
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
45,859
|
|
|
|
|
|
The table below reflects our allocation of the purchase price:
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
Current assets
|
|
$
|
18,863
|
|
|
Property and equipment
|
|
|
2,207
|
|
|
Intangible assets
|
|
|
7,370
|
|
|
Current liabilities
|
|
|
(8,414
|
)
|
|
Deferred tax liability
|
|
|
(1,800
|
)
|
|
Customer advances
|
|
|
(1,823
|
)
|
|
Long-term obligations & income tax
|
|
|
(494
|
)
|
|
|
|
|
|
|
|
|
|
|
Excess of purchase price - Goodwill
|
|
$
|
29,950
|
|
36
$ in thousands, except per share amounts
The following unaudited pro forma summary of condensed combined financial information is intended to reflect our combined results of operations as if the acquisition
of Xicom and AeroAstro had occurred at the beginning of each period presented. We had full financial inclusion of Xicom during 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Financials
|
|
2007
(1)
|
|
2006
(2)
|
|
2005
|
|
Net sales
|
|
As reported
|
|
$
|
142,054
|
|
$
|
134,209
|
|
$
|
103,263
|
|
|
|
AeroAstro addition
|
|
|
7,387
|
|
|
12,364
|
|
|
-
|
|
|
|
Xicom addition
|
|
|
-
|
|
|
-
|
|
|
42,537
|
|
|
|
Pro forma
|
|
|
149,441
|
|
|
146,573
|
|
|
145,800
|
|
|
|
|
|
|
|
Operating income
|
|
As reported
|
|
|
14,324
|
|
|
16,897
|
|
|
15,411
|
|
|
|
AeroAstro addition
|
|
|
(1,471)
|
|
|
(620)
|
|
|
-
|
|
|
|
Xicom addition
|
|
|
-
|
|
|
-
|
|
|
(307)
|
|
|
|
Pro forma
|
|
|
12,853
|
|
|
16,277
|
|
|
15,104
|
|
|
|
|
|
|
|
Net earnings
|
|
As reported
|
|
|
10,212
|
|
|
11,865
|
|
|
10,686
|
|
|
|
AeroAstro addition
|
|
|
(1,099)
|
|
|
(942)
|
|
|
-
|
|
|
|
Xicom addition
|
|
|
-
|
|
|
-
|
|
|
(824)
|
|
|
|
Pro forma
|
|
|
9,113
|
|
|
10,923
|
|
|
9,862
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
As reported
|
|
$
|
0.54
|
|
$
|
0.63
|
|
$
|
0.60
|
|
|
|
AeroAstro addition
|
|
$
|
(0.02)
|
|
$
|
(0.05)
|
|
$
|
-
|
|
|
|
Xicom addition
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(0.05)
|
|
|
|
Pro forma
|
|
$
|
0.52
|
|
$
|
0.58
|
|
$
|
0.55
|
|
(1)
|
Pro forma results for 2007 were adjusted using additional amortization and other expenses of $445, interest expense of
$499 and tax (benefit) of ($584).
|
|
(2)
|
Pro forma results for 2006 were adjusted using additional amortization and other expenses of $763, interest expense of
$856 and tax (benefit) of ($535).
|
|
4.
|
Share-Based Compensation
|
On January 1, 2006, we adopted Statement of
Financial Accounting Standard No. 123 (revised 2004) (“SFAS 123(R)”),
Share-Based Payment
and SEC Staff Accounting Bulletin No. 107 (SAB 107),
Share-Based Payment
, requiring the measurement and recognition of all
share-based compensation under the fair value method. We implemented SFAS 123(R) using the modified prospective transition method, which does not result in the restatement of previously issued financial statements. We elected to use the Alternative
Method of calculating our hypothetical APIC Pool in accordance with FSP 123(R)–3 during the fourth quarter of 2006.
Prior to Adoption of SFAS 123 (R)
For those periods prior to December 31, 2005, we accounted for stock option grants in accordance with Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees
and related interpretations for fiscal 2005 and prior years and accordingly, recognized no compensation expense for the stock option grants. In December 2005, we accelerated the vesting of all
“unvested” stock options and recorded a charge of $365, in accordance with APB 25 as interpreted by FASB Interpretation No. 44 (FIN 44),
Accounting for Certain Transactions involving Stock Compensation,
related to the future
expected forfeiture rate on the accelerated options. We recognized expenses of $365, which were reflected in the various categories on the Consolidated Statement of Earnings: cost of sales - $62,
selling, general and administration - $226 and research & development - $77. As a result of the vesting acceleration, options to purchase approximately
1.4 million shares became exercisable immediately. Under SFAS 123(R) which we adopted effective January 1, 2006, we would have been required to recognize approximately $3,500 in additional stock compensation expense over the remaining
vesting term of the unvested options in our Consolidated Statements of Earnings. By vesting these options prior to adoption of SFAS 123(R), we reduced future stock compensation expense related to these options.
The following table represents the effect on net income and earnings per share if we had applied the fair value based method and recognition provisions of SFAS 123 for 2005:
|
|
|
|
|
|
|
Effects of Fair Value Method & SFAS 123
|
|
2005
|
|
|
Net earnings:
|
|
|
|
|
|
As reported
|
|
$
|
10,686
|
|
|
Compensation expense, using intrinsic method, net of tax
|
|
|
365
|
|
|
Compensation expense, using fair value method, net of tax
|
|
|
(3,248
|
)
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
7,073
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic - as reported
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
Basic - pro forma
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
Diluted - as reported
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
Diluted - pro forma
|
|
$
|
0.40
|
|
|
|
|
|
|
|
37
$ in thousands, except per share amounts
Financial Impact of SFAS 123 (R)
SFAS 123(R) resulted in stock option
expense during the years ended 2007 and 2006. Below is an allocation of the expense:
|
|
|
|
|
|
|
|
|
Share Based Payment
Expense
|
|
2007
|
|
2006
|
|
Cost of sales
|
|
$
|
207
|
|
$
|
266
|
|
Research and development
|
|
|
269
|
|
|
273
|
|
Selling, general and administrative
|
|
|
836
|
|
|
1,848
|
|
|
|
|
|
|
|
|
|
Total stock compensation expense
|
|
|
1,312
|
|
$
|
2,387
|
|
|
|
|
|
|
|
|
|
Total stock compensation expense, after tax
|
|
|
849
|
|
$
|
1,572
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share impact
|
|
$
|
0.04
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
Of the total stock-based compensation expense before income tax benefit recognized in fiscal 2007 and 2006, $367 and $429,
respectively, relates to stock-based awards issued pursuant to the Employee Stock Purchase Plan.
We utilize the Black-Scholes Options-Pricing Model to determine the
fair value of shares awarded under SFAS 123(R). Management is required to make certain assumptions with respect to selected model inputs,
including anticipated changes in the underlying stock price (i.e., expected volatility) and option exercise activity (i.e., expected term). We made assumptions for the
three categories of compensation expense recorded during the period: stock options, employee stock purchase plan and awards granted. Since directors, executives and non-executives have different historical option exercise patterns, we grouped our
assumptions into categories for options issued under these categories. Using the simplified method as defined under SAB 107 and 110, the expected term was determined to be 5 years for directors, 6 years for executives and 3 years for non-executives
based on these historical option exercise patterns and excluding grants that we determined were not reflective of the current business environment. We calculate volatility using our historical volatility rates. We calculated the risk free interest
rate using the current quoted rates from U.S government treasury instruments. The following table outlines the assumptions, on average, for all of the share-based compensation we issued during 2007:
|
|
|
|
|
|
|
Valuation Assumptions
(1)
|
|
2007
|
|
2006
|
|
Expected life (years)
|
|
3.62
|
|
4.0
|
|
Risk-free interest rate
|
|
4.1%
|
|
4.7%
|
|
Expected dividend yield
|
|
-
|
|
-
|
|
Expected stock price volatility
|
|
46%
|
|
67%
|
(1)
For the employee stock purchase plan, historical
information was used from the prior six-month period to determine the term and volatility.
We currently have three option-share-based compensation programs, the 1996 Incentive Stock Option Plan (the “1996 Plan”), the 2000 Long-Term Incentive Stock Option Plan (the “2000 Plan”) and the 2007 Stock
Incentive Plan (the “2007 Plan”). The table below outlines the grants under these plans, for further grant detail refer to
Note 16 – Employee Benefit Plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Based Stock
Awards
|
|
Number of
Awards
|
|
|
Weighted - Average
Exercise Price
|
|
Average
Remaining Term
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at December 31, 2006
|
|
2,366
|
|
|
$
|
8.89
|
|
|
|
|
|
|
AeroAstro Conversion
|
|
184
|
|
|
$
|
7.18
|
|
|
|
|
|
|
Granted
|
|
66
|
|
|
|
9.24
|
|
|
|
|
|
|
Exercised
|
|
(220
|
)
|
|
|
5.19
|
|
|
|
|
|
|
Cancelled or expired
|
|
(22
|
)
|
|
|
11.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
2,374
|
|
|
$
|
9.08
|
|
5.80
|
|
$
|
4,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Expected to Vest
|
|
2,324
|
|
|
$
|
9.04
|
|
5.74
|
|
$
|
4,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of share options granted during the year ended December 31, 2007 was $4.79.
The aggregate intrinsic value represents the difference between our closing stock price of $9.20 as of December 31, 2007 and the exercise price multiplied by the number of options outstanding and exercisable as of that date. The actual tax
benefit realized from stock plan dispositions totaled $440 for the year ended December 31, 2007. In accordance with FSP 123(R)-3, in the Consolidated Statement of Cash Flows, we classified the $440 tax benefits from stock plan dispositions to
cash provided by financing activities. We received $2,262 in cash on the exercise of stock awards and net proceeds for sales to employees during 2007.
We will
recognize approximately $1,099 in future compensation expense related to non-vested options with a weighted average vesting period remaining of 1.8 years.
38
$ in thousands, except per share amounts
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
Inventory
|
|
2007
|
|
2006
|
|
Raw materials and components
|
|
$
|
16,293
|
|
$
|
14,638
|
|
Work-in-process
|
|
|
3,667
|
|
|
4,069
|
|
Finished goods
|
|
|
3,274
|
|
|
2,398
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
23,234
|
|
$
|
21,106
|
|
|
|
|
|
|
|
|
|
6.
|
Property and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Plant, Property & Equipment
|
|
2007
|
|
|
2006
|
|
|
Machinery & equipment
|
|
$
|
8,292
|
|
|
$
|
7,286
|
|
|
Furniture & fixtures
|
|
|
557
|
|
|
|
536
|
|
|
Leasehold improvements
|
|
|
992
|
|
|
|
668
|
|
|
Demonstration units
|
|
|
2,872
|
|
|
|
2,526
|
|
|
Computers & software
|
|
|
3,209
|
|
|
|
2,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,921
|
|
|
$
|
13,747
|
|
|
Less: accumulated depreciation & amortization
|
|
|
(12,146
|
)
|
|
|
(9,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total plant, property & equipment, net
|
|
$
|
3,775
|
|
|
$
|
3,822
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended December 31, 2007, 2006 and 2005 was $2,329, $2,287 and
$1,703, respectively.
The following intangible assets as of December 31, 2007,
resulted from the valuation of the assets acquired in the Xicom acquisition in 2005 and the acquisition of AeroAstro in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2007
|
|
Intangible assets subject
to amortization:
|
|
Life
|
|
|
Cost
|
|
Accumulated
amortization
|
|
Net
|
|
Additions
|
|
Amortization
Expense
|
|
Net
|
|
Core technologies
|
|
10
|
|
|
$
|
4,920
|
|
$
|
779
|
|
$
|
4,141
|
|
$
|
-
|
|
$
|
492
|
|
$
|
3,649
|
|
Customer relationships
|
|
4
|
|
|
|
2,040
|
|
|
808
|
|
|
1,232
|
|
|
-
|
|
|
510
|
|
|
722
|
|
Covenant not-to compete
|
|
3
|
|
|
|
410
|
|
|
216
|
|
|
194
|
|
|
-
|
|
|
137
|
|
|
57
|
|
Developed technologies
|
|
10
|
|
|
|
3,300
|
|
|
-
|
|
|
-
|
|
|
3,300
|
|
|
138
|
|
|
3,162
|
|
Contracts
|
|
5
|
|
|
|
500
|
|
|
-
|
|
|
-
|
|
|
500
|
|
|
42
|
|
|
458
|
|
Customer relationships
|
|
10
|
|
|
|
300
|
|
|
-
|
|
|
-
|
|
|
300
|
|
|
23
|
|
|
277
|
|
Beneficial lease
|
|
4.6
|
|
|
|
341
|
|
|
-
|
|
|
-
|
|
|
341
|
|
|
31
|
|
|
310
|
|
Covenant not-to compete
|
|
3
|
|
|
|
70
|
|
|
-
|
|
|
-
|
|
|
70
|
|
|
10
|
|
|
60
|
|
Backlog
|
|
3
|
|
|
|
9
|
|
|
-
|
|
|
-
|
|
|
9
|
|
|
1
|
|
|
8
|
|
Total
|
|
8.3
|
(1)
|
|
$
|
11,890
|
|
$
|
1,803
|
|
$
|
5,567
|
|
$
|
4,520
|
|
$
|
1,384
|
|
$
|
8,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Weighted average life
|
Amortization expense for the years ended December 31, 2007 and 2006 was $1,384 and $1,100, respectively. Amortization expense for the following years is estimated as follows: 2008 - $1,620, 2009 - $1,265, 2010 - $1,042, 2011 - $1,026,
2012 - $923 and $2,839 for the remaining lives.
Goodwill, non-tax deductible, created in connection with the acquisition of Xicom and AeroAstro, decreased over the
year ended December 31, 2006 due to additional R&D tax credits of $711 recognized for the periods prior to acquisition and offset by certain liabilities totaling $328 which were not recorded as of the acquisition date. Any subsequent
changes to the costs may result in a charge to earnings in accordance with
SFAS 141 – Business Combinations.
39
$ in thousands, except per share amounts
The following represents a summary of accrued expenses:
|
|
|
|
|
|
|
|
|
Accrued Expenses
|
|
2007
|
|
2006
|
|
Wages, vacation & related payroll taxes
|
|
$
|
4,548
|
|
$
|
4,868
|
|
Professional fees
|
|
|
804
|
|
|
705
|
|
Warranty reserve
|
|
|
1,810
|
|
|
2,525
|
|
Commissions
|
|
|
969
|
|
|
767
|
|
Deferred rent
|
|
|
139
|
|
|
269
|
|
Taxes payable
|
|
|
159
|
|
|
444
|
|
Royalties
|
|
|
90
|
|
|
-
|
|
Contract Loss Provisions
|
|
|
329
|
|
|
-
|
|
Other
|
|
|
407
|
|
|
416
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
9,255
|
|
$
|
9,994
|
|
|
|
|
|
|
|
|
During 2007, we entered into a new credit arrangement with a
syndicate of banks to replace our existing line of credit. The new arrangement provides up to $60,000. The amount of credit available to us under the credit agreement at December 31, 2007 was approximately $59,928. We paid approximately $140
representing a facility fee and bank costs for a four-year commitment on the arrangement, whether or not we draw any amounts on the line of credit. The credit agreement expires on August 31, 2011 and limits transfers of assets, liens, loans and
investments in other entities and limits the use of proceeds, acquisitions of assets, indebtedness and capital expenditures without the bank’s consent. Substantially all of our assets collateralize the line of credit and to be eligible to draw
funds under the line of credit, the credit agreement requires us to maintain specific levels of tangible net worth, earnings and other ratios. We were in compliance with all covenants at December 31, 2007. The overall credit agreement specifies
interest rates between LIBOR plus 100 - 175 basis points based on certain financial measurements or prime rate minus 50 basis points depending on terms and other conditions.
Amounts paid under operating lease and rental agreements were $2,476,
$2,102 and $2,300 for the years ended December 31, 2007, 2006 and 2005, respectively. We record lease expense on a straight-line basis over the lease term when the lease contains escalating rent
payments. Future minimum rentals under leases after December 31, 2007 are as follows:
|
|
|
|
|
|
Fiscal Year
|
|
Operating Leases
|
|
2008
|
|
$
|
2,835
|
|
2009
|
|
|
2,772
|
|
2010
|
|
|
2,642
|
|
2011
|
|
|
2,435
|
|
2012
|
|
|
1,386
|
|
Thereafter
|
|
|
6,304
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
18,374
|
|
|
|
|
|
The lease for our Phoenix facility expires in July 2018 subject to an option to renew for two consecutive terms of five
years each. The lease for the Chandler facility expires in October 2008 subject to an option for a five-year renewal. The lease for the San Diego facility expires in June 2010 subject to an option to renew for two consecutive terms of five years
each. The lease for the Santa Clara facility renewed in 2006 expiring in April 2012, with additional square footage acquired, subject to an option for a five-year renewal. The lease for the Ashburn facility expires in February 2012.
We currently sublease a portion of our Phoenix and Armer facilities. We offset rent expense of $713, $702 and $692 with $501, $488 and $292 for the years ended December 31,
2007, 2006 and 2005, respectively, for rent payments received through these subleases. As of December 31, 2007, future minimum rentals under leases after December 31, 2007 have not been reduced by minimum sublease rentals of $412 for the
year ended December 31, 2008. These sublease agreements expires in 2008. We are currently in the process of renewing the sublease at our Phoenix facility.
We
primarily have commitments with certain suppliers and subcontract manufacturers to supply certain components and products and we estimate that non-cancelable obligations under these commitments were approximately $35,753 at December 31, 2007,
$26,711 of which is anticipated to be paid in 2008. Payments due under these obligations for 2009 -$7,742, 2010 - $185, 2011 - $0 and 2012 - $1,114. In addition to these commitments, we currently have issued $72 of outstanding letters of
credit.
40
$ in thousands, except per share amounts
Future capital lease obligations due after December 31, 2007 are
as follows:
|
|
|
|
|
|
Fiscal Year
|
|
Capital Leases
|
|
2008
|
|
$
|
139
|
|
2009
|
|
|
81
|
|
2010
|
|
|
19
|
|
2011
|
|
|
6
|
|
2012
|
|
|
1
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
|
246
|
|
|
|
|
|
|
Less: Interest
|
|
|
39
|
|
Present value of future minimum capital lease payments
|
|
|
207
|
|
Less: Current installments
|
|
|
111
|
|
|
|
|
|
|
Capital lease obligations due after one year
|
|
$
|
96
|
|
|
|
|
|
Included in the current tax expense (benefit) is approximately $440,
$2,318 and $836 related to tax benefits allocated directly to additional paid-in capital for the 2007, 2006 and 2005 years, respectively. In addition, included in the current tax expense is approximately $4 related to the net increase in FIN 48
uncertain tax benefits for the 2007 year, approximately $64 related to interest accrued related to FIN 48 liabilities, and approximately $35 related to interest on amended tax return filings.
Income tax expense (benefit) amounted to $5,555, $6,150 and $5,138 for the years ended December 31, 2007, 2006 and 2005, respectively. The federal statutory tax rate for
2007, 2006 and 2005 was 35%. The reconciliation our effective tax rate on income from continuing operations and the statutory tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
2007
|
|
2006
|
|
2005
|
|
Computed Federal statutory tax expense
|
|
$
|
5,518
|
|
$
|
6,306
|
|
$
|
5,538
|
|
State tax expense (benefit)
|
|
|
293
|
|
|
608
|
|
|
530
|
|
Extra territorial income exclusion
|
|
|
-
|
|
|
(349)
|
|
|
(407)
|
|
Research and development credit
|
|
|
(412)
|
|
|
(254)
|
|
|
(400)
|
|
Domestic Production Activities Deduction
|
|
|
(307)
|
|
|
(187)
|
|
|
|
|
Other adjustments
|
|
|
463
|
|
|
26
|
|
|
(123)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,555
|
|
$
|
6,150
|
|
$
|
5,138
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax Income
|
|
$
|
15,767
|
|
$
|
18,016
|
|
$
|
15,824
|
|
Computed Federal statutory tax expense
|
|
|
35%
|
|
|
35%
|
|
|
35%
|
|
State tax expense (benefit)
|
|
|
2%
|
|
|
3%
|
|
|
3%
|
|
Extra territorial income exclusion
|
|
|
0%
|
|
|
-2%
|
|
|
-3%
|
|
Research and development credit
|
|
|
-3%
|
|
|
-1%
|
|
|
-3%
|
|
Domestic Production Activities Deduction
|
|
|
-2%
|
|
|
-1%
|
|
|
0%
|
|
Other adjustments
|
|
|
3%
|
|
|
0%
|
|
|
-1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
35%
|
|
|
34%
|
|
|
32%
|
|
|
|
|
|
|
|
|
|
|
|
41
$ in thousands, except per share amounts
Components of income tax expense (benefit) for 2007, 2006 and 2005 follow:
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
2007
|
|
2006
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
6,474
|
|
$
|
5,258
|
|
$
|
1,540
|
|
State
|
|
|
482
|
|
|
702
|
|
|
518
|
|
Foreign
|
|
|
60
|
|
|
3
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,016
|
|
|
5,963
|
|
|
2,068
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,441)
|
|
|
5
|
|
|
2,773
|
|
State
|
|
|
(20)
|
|
|
182
|
|
|
297
|
|
Foreign
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1,461)
|
|
|
187
|
|
|
3,070
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
$
|
5,555
|
|
$
|
6,150
|
|
$
|
5,138
|
|
|
|
|
|
|
|
|
|
|
|
We have not recognized U.S. income and foreign withholding taxes on the excess of the amount for financial reporting over
the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. The amount of such temporary
differences totaled approximately $398 at December 31, 2007. Determination of the amount of any unrecognized deferred tax liability on this temporary difference is not practicable.
Components of deferred tax assets and liabilities follow:
|
|
|
|
|
|
|
|
|
Deferred Tax Assets
|
|
2007
|
|
2006
|
|
Tax effect of net operating loss carryforwards:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,322
|
|
$
|
1,489
|
|
State
|
|
|
303
|
|
|
62
|
|
Foreign
|
|
|
-
|
|
|
-
|
|
Tax credits
|
|
|
190
|
|
|
390
|
|
Reserves and accruals:
|
|
|
|
|
|
|
|
|
|
|
|
Compensated absenses
|
|
|
561
|
|
|
402
|
|
Inventory reserves
|
|
|
548
|
|
|
201
|
|
Bad debt reserves
|
|
|
401
|
|
|
95
|
|
263A Inventory
|
|
|
385
|
|
|
439
|
|
Warranty reserves
|
|
|
704
|
|
|
994
|
|
Deferred rent
|
|
|
142
|
|
|
131
|
|
Deferred revenue
|
|
|
326
|
|
|
-
|
|
Other reserves
|
|
|
1,008
|
|
|
907
|
|
Depreciation
|
|
|
1,308
|
|
|
441
|
|
Stock based compensation
|
|
|
523
|
|
|
397
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
8,721
|
|
|
5,948
|
|
Valuation allowance
|
|
|
(1,004)
|
|
|
(1,201)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,717
|
|
$
|
4,747
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
Basis in goodwill and intangibles
|
|
|
(2,954)
|
|
|
(1,706)
|
|
Other deferred tax liabilities
|
|
|
(421)
|
|
|
(258)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
4,342
|
|
$
|
2,783
|
|
|
|
|
|
|
|
|
Subsequent recognition of any of the valuation allowance would be allocated to reduce goodwill of other non-current
intangible assets of acquired entities and would not result in an income statement benefit.
During the year ended December 31, 2007, we reduced the valuation
allowance related to net operating loss deferred tax assets by approximately $197 due to the expiration of a portion of the net operating loss carryforwards, which were limited as to their utilization pursuant to IRC §382. At December 31,
2007, we had federal net operating loss carryforwards of approximately $6,600 expiring in various amounts from 2008 through 2022; state net operating loss carryforwards of approximately $6,800 expiring in various amounts from 2009 to 2027; and state
tax credit carryforwards of approximately $837 which do not expire. Approximately $2,900 of the federal net operating loss carryforwards are expected to expire due to
42
$ in thousands, except per share amounts
limitations pursuant to IRC §382, thus we have maintained a valuation allowance for these net operating losses. The balance of these net operating losses and tax
credits are available for utilization against taxable income/taxes payable in future periods, if any.
Realization of the deferred tax assets is dependent on
generating sufficient taxable income in future periods or within applicable carryback periods. Although realization is not assured, our management has recorded a net deferred tax asset for the amount it believes is more likely than not to be
realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year, in thousands:
|
|
|
|
|
|
Unrecognized Tax Benefit
|
|
2007
|
|
Unrecognized tax benefit - opening balance
|
|
$
|
1,724
|
|
Gross increases - tax positions in prior period
|
|
|
8
|
|
Gross decreases - tax positions in prior period
|
|
|
(179)
|
|
Gross increases - tax positions in current period
|
|
|
201
|
|
|
|
|
|
|
Unrecognized tax benefit - ending balance
|
|
$
|
1,754
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at December 31, 2007, are approximately $992 of tax benefits that,
if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits at December 31, 2007, are approximately $483 of tax benefits that, if recognized would result in a decrease to goodwill recorded in
purchase business combinations, and approximately $279 of tax benefits, that if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.
We recognize interest accrued related to unrecognized tax benefits and penalties as a component of income tax expense. Related to the uncertain tax benefits noted above, we have not accrued any penalties and have accrued interest of
approximately $64 during 2007, and in total, as of December 31, 2007, have not recognized any liability for penalties and have recognized a liability for interest of $89.
We do not anticipate that the total amount of our unrecognized tax benefits will significantly change during the next twelve-months.
Radyne
and our subsidiaries are subject to the following material taxing jurisdictions: U.S. federal, Arizona and
California. The tax years that remain open to examination by the U.S. federal jurisdiction are years 2004, 2005, 2006 and 2007; the Arizona and California filings that
remain open to examination are years 2003, 2004, 2005, 2006 and 2007.
|
13.
|
Significant Customers and Foreign and Domestic Sales
|
During the year ended
December 31, 2007, one customer represented more than 10% of consolidated sales. During the years ended December 31, 2006 and 2005, no single customer represented more than 10% of our net sales. Because of the nature of our business, we
anticipate that any customer who could potentially represent 10% or more of our total revenue will vary from period to period depending upon the placement of significant orders by a particular customer or customers in any given year. Two customers
in both the Amplifier and Microsatellite segments and one customer in the Satellite Electronics segment accounted for more than 10% of the segmented sales. During 2007, there was no country, besides the United States, that accounted for more than
10% of consolidated sales.
Our sales in principal foreign and domestic markets as a percentage of total sales for the years ended December 31, 2007, 2006 and
2005 follow:
|
|
|
|
|
|
|
|
|
|
|
|
Region
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Asia
|
|
16
|
%
|
|
19
|
%
|
|
16
|
%
|
|
Africa/Middle East
|
|
3
|
%
|
|
5
|
%
|
|
7
|
%
|
|
Americas
|
|
3
|
%
|
|
2
|
%
|
|
3
|
%
|
|
Europe
|
|
13
|
%
|
|
16
|
%
|
|
15
|
%
|
|
Total Foreign Sales
|
|
35
|
%
|
|
42
|
%
|
|
41
|
%
|
|
Domestic
|
|
65
|
%
|
|
58
|
%
|
|
59
|
%
|
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Stockholders’ Equity
We
have the authority to issue ten million shares of preferred stock, par value $0.001 per share. At December 31, 2007 and 2006, no preferred shares were issued or outstanding.
|
14.
|
Related Party Transactions
|
The Chairman of our Board of Directors, Dr. C.J.
Waylan, also serves on the Board of Directors of one of our customers, GlobeComm Systems, Inc. 2007 sales with this customer totaled $1,747 and accounts receivable as of December 31, 2007 were $659.
43
$ in thousands, except per share amounts
Below are the results of operations from the three reporting
segments. We acquired in August of 2007, thus the results below are not comparable from 2006 to 2007. We acquired Xicom in May 2005, thus the results below are not comparable from 2005 to 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Reporting
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite Electronics
|
|
$
|
62,199
|
|
|
$
|
72,156
|
|
|
$
|
70,848
|
|
|
Microsatellites
|
|
|
7,668
|
|
|
|
-
|
|
|
|
-
|
|
|
Amplifiers
|
|
|
72,187
|
|
|
|
62,053
|
|
|
|
32,415
|
|
|
Corporate
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
142,054
|
|
|
$
|
134,209
|
|
|
$
|
103,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite Electronics
|
|
|
44%
|
|
|
|
54%
|
|
|
|
69%
|
|
|
Microsatellites
|
|
|
5%
|
|
|
|
0%
|
|
|
|
0%
|
|
|
Amplifiers
|
|
|
51%
|
|
|
|
46%
|
|
|
|
31%
|
|
|
Corporate
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite Electronics
|
|
$
|
11,056
|
|
|
$
|
26,659
|
|
|
$
|
27,423
|
|
|
Microsatellites
|
|
|
543
|
|
|
|
-
|
|
|
|
-
|
|
|
Amplifiers
|
|
|
9,209
|
|
|
|
6,485
|
|
|
|
1,656
|
|
|
Corporate
|
|
|
(6,484
|
)
|
|
|
(16,246
|
)
|
|
|
(13,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Income
|
|
$
|
14,324
|
|
|
$
|
16,898
|
|
|
$
|
15,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite Electronics
|
|
$
|
54,530
|
|
|
$
|
57,126
|
|
|
$
|
42,136
|
|
|
Microsatellites
|
|
|
23,927
|
|
|
|
-
|
|
|
|
-
|
|
|
Amplifiers
|
|
|
61,431
|
|
|
|
62,878
|
|
|
|
58,492
|
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
139,888
|
|
|
$
|
120,004
|
|
|
$
|
100,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite Electronics
|
|
$
|
1,017
|
|
|
$
|
1,056
|
|
|
$
|
973
|
|
|
Microsatellites
|
|
|
283
|
|
|
|
-
|
|
|
|
-
|
|
|
Amplifiers
|
|
|
2,413
|
|
|
|
2,385
|
|
|
|
1,405
|
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation & Amortization
|
|
$
|
3,713
|
|
|
$
|
3,441
|
|
|
$
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite Electronics
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Microsatellites
|
|
|
15,631
|
|
|
|
-
|
|
|
|
-
|
|
|
Amplifiers
|
|
|
29,950
|
|
|
|
29,950
|
|
|
|
30,333
|
|
|
Corporate
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Goodwill
|
|
$
|
45,581
|
|
|
$
|
29,950
|
|
|
$
|
30,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005, we classified certain assets obtained in the acquisition of Xicom as assets of
the Satellite Electronics segment. As of December 31, 2006, we reclassified these assets in the Amplifier segment for all periods presented.
44
$ in thousands, except per share amounts
A reconciliation of the numerators and the denominators of the
basic and diluted per share computations and a description and amount of potentially dilutive securities follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
10,212
|
|
$
|
11,865
|
|
$
|
10,686
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for basic earnings per share
|
|
|
18,526
|
|
|
18,026
|
|
|
16,838
|
|
Net effect of dilutive stock options and warrants
|
|
|
502
|
|
|
819
|
|
|
862
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for diluted earnings per share
|
|
|
19,028
|
|
|
18,845
|
|
|
17,700
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Net earnings per basic share
|
|
$
|
0.55
|
|
$
|
0.66
|
|
$
|
0.63
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Net earnings per diluted share
|
|
$
|
0.54
|
|
$
|
0.63
|
|
$
|
0.60
|
|
Options and warrants excluded from earnings per share due to anti-dilution:
|
|
|
|
|
|
|
|
|
|
|
Stock options with exercise price greater than the average market price
|
|
|
1,007
|
|
|
595
|
|
|
693
|
|
17.
|
Employee Benefit Plans
|
401(k) Plan
Radyne has a qualified contributory 401(k) plan that covers all employees who have attained the age of 18 and employed at the enrollment date. Overall, we provided contributions
of $737, $515 and $372 respectively, for the years ended December 31, 2007, 2006 and 2005. Each participant may elect to contribute any portion of his or her gross compensation up to the maximum amount allowed by the Internal Revenue Service.
On July 1, 2007, Radyne and Tiernan began matching two-thirds of the first six percent of employee contributions. In the six-months of 2007 prior to July 1, 2007 and during the years ended December 31, 2006 and 2005, Radyne matched
50% of each employee contribution to the plan up to a maximum annual match of $2. We contributed $346 under the Radyne match for 2007. AeroAstro matches dollar-for-dollar the first three percent of employee’s contributions. We contributed $53
under the AeroAstro match from August 1, 2007 until December 31, 2007. Xicom matches two-thirds of the first six percent of employee’s contributions. We contributed $338 under the Xicom match for 2007.
Employee Stock Options
In May 2007, the Board of Directors adopted the 2007
Stock Incentive Plan (the “2007 Plan”), which was approved by the stockholders on May 30, 2007. The 2007 Plan provided for the grant of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted
stock units, performance shares, performance share units and stock to eligible individuals. The 2007 Plan authorizes the issuance of up to 1,000,000 shares of our common stock. At December 31, 2007, we had 1,000,000 options outstanding and
available for future issuance.
In June 2000, the Board of Directors adopted the 2000 Long-Term Incentive Stock Option Plan (the “2000 Plan”), which was approved by the stockholders on June 29,
2000. The 2000 Plan provided for the grant of options to employees of Radyne to purchase 2,500,000 shares of common stock. In May 2002, the shareholders approved an amendment to the plan that increased the shares available for issuance under the
plan by 1,500,000 to 4,000,000 shares. The option price per share under the 2000 Plan may not be less than the fair market value of the stock (110 percent of the fair market value for an optionee who is a 10 percent stockholder) on the day the
option is granted. At December 31, 2007, Radyne had 1,663,939 options outstanding under this plan and 420,617 options available for future issuance.
In
November 1996, the Board of Directors adopted the 1996 Incentive Stock Option Plan (the “1996 Plan”), which was approved by the stockholders on January 8, 1997. The 1996 Plan provided for the grant of options to employees of Radyne to
purchase up to 1,282,042 shares of common stock, of which 110,100 shares were used for a stock rights offering to employees in 1997. The option price per share under the 1996 Plan may not be less than the fair market value of the stock (110 percent
of the fair market value for an optionee who is a 10 percent stockholder) on the day the option is granted. In November 1998, the 1996 Plan was amended to increase the options available by 900,000, providing a total of 2,071,942 options available to
purchase shares of common stock. At December 31, 2007, we had 518,119 options outstanding under this plan and zero options available for future issuance.
Typically, the Board of Directors grants options with a ten year contractual term with a vesting schedule of 25% vesting immediately and the rest vesting over a three year period.
45
$ in thousands, except per share amounts
A summary of the aforementioned stock plan activity follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
|
Weighted
Average Price
Per Share
|
|
Balance, Year End, 2004
|
|
2,623,562
|
|
|
$
|
6.62
|
|
Granted
|
|
671,650
|
|
|
|
9.87
|
|
Forfeited
|
|
(37,660
|
)
|
|
|
6.98
|
|
Exercised
|
|
(462,671
|
)
|
|
|
4.46
|
|
|
|
|
|
|
|
|
|
Balance, Year End, 2005
|
|
2,794,881
|
|
|
$
|
7.75
|
|
Granted
|
|
453,500
|
|
|
|
12.78
|
|
Forfeited
|
|
(10,437
|
)
|
|
|
13.44
|
|
Exercised
|
|
(870,570
|
)
|
|
|
7.21
|
|
|
|
|
|
|
|
|
|
Balance, Year End 31, 2006
|
|
2,367,374
|
|
|
$
|
8.89
|
|
Granted
|
|
65,775
|
|
|
|
9.24
|
|
AeroAstro conversion
|
|
183,069
|
|
|
|
7.18
|
|
Forfeited
|
|
(22,070
|
)
|
|
|
11.24
|
|
Exercised
|
|
(220,158
|
)
|
|
|
5.19
|
|
|
|
|
|
|
|
|
|
Balance, Year End, 2007
|
|
2,373,990
|
|
|
$
|
9.08
|
|
|
|
|
|
|
|
|
A summary of stock options outstanding at December 31, 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable
|
|
Range of exercise
prices
|
|
Number
outstanding
|
|
Weighted average
remaining
contractual life in
years
|
|
Weighted
average
exercise
price
|
|
$ 2.25 to $ 4.25
|
|
273,536
|
|
3.42
|
|
$
|
3.50
|
|
$ 5.07 to $ 6.00
|
|
282,275
|
|
5.42
|
|
|
5.37
|
|
$ 6.15 to $ 6.59
|
|
256,372
|
|
5.22
|
|
|
6.50
|
|
$ 6.60 to $ 7.68
|
|
313,291
|
|
5.68
|
|
|
7.39
|
|
$ 8.05 to $ 9.12
|
|
256,002
|
|
7.01
|
|
|
8.48
|
|
$ 9.92 to $ 12.40
|
|
340,084
|
|
8.22
|
|
|
11.50
|
|
$ 12.62 to $ 13.70
|
|
265,350
|
|
8.29
|
|
|
12.93
|
|
$ 13.87 to $ 14.00
|
|
91,750
|
|
5.22
|
|
|
13.93
|
|
$ 14.59 to $ 14.59
|
|
32,750
|
|
7.87
|
|
|
14.59
|
|
$ 14.63 to $ 14.63
|
|
262,580
|
|
2.49
|
|
|
14.63
|
|
|
|
2,373,990
|
|
5.80
|
|
$
|
9.08
|
Employee Stock Purchase Plan
On June 15, 1999, our shareholders adopted the 1999 Employee Stock Purchase Plan (the “Purchase Plan”) as a means of rewarding and retaining existing employees. The Purchase Plan
allows employees, including officers and directors who are employees, to purchase shares of our common stock at semi-annual intervals through periodic payroll
deductions. The purchase price per share, in general, will be 85% of the lower of the fair market value of the common stock on the participant’s entry date into the offering period or 85% of the fair market value on the semi-annual purchase
date. The Board of Directors or a committee of two or more directors, none of whom will be officers or employees, have full authority to administer all aspects of the Purchase Plan. There were 1,000,000 shares authorized for issuance under the
Purchase Plan. As of December 31, 2007, 1 share remains un-issued under the Purchase Plan. The Purchase Plan is deemed a compensatory plan after the adoption of SFAS 123(R) due to the plan provisions.
We are involved in litigation and claims arising in the normal course
of operations. In the opinion of management based on consultation with legal counsel, losses, if any, from this litigation are covered by insurance or are immaterial; therefore, no provision has been made in the accompanying consolidated financial
statements for losses, if any, which might result from the ultimate outcome of these matters.
As previously disclosed, in April 2006, Comtech EF Data Corp. filed a
complaint (Comtech EF Data Corporation v. Radyne Corporation Case No. 2:06cv01132) in the United States District Court for the District of Arizona alleging one count of patent infringement claiming that some of our radio frequency converter
products infringed on a patent held by Comtech EF Data Corp. The complaint seeks an injunction and unspecified monetary damages. We submitted our answer to the complaint on May 30, 2006. A special master, assigned by the court, issued a report
and recommendation on patent claim construction to the court (i.e., on the scope of the patent claims) and recommended that the patent claims asserted against our down-converter products be found invalid, because the claims were too defective to be
construed.
The court has not yet made a determination as to whether it will adopt the recommendation of the special master. We believe all of Comtech EF Data
Corp.’s claims are without merit and that it has substantial factual and legal defenses to the claims. There have been no further developments during the year ended December 31, 2007 regarding this complaint. We intend to defend our self
vigorously in this lawsuit. However, there is no assurance that we will ultimately prevail in this proceeding.
46
$ in thousands, except per share amounts
|
19.
|
Supplemental Financial Information
|
A summary of additions and deductions related to
the allowance for doubtful accounts for the years ended December 31, 2007, 2006 and 2005 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31:
|
|
Balance
at
beginning
of year
|
|
Acquired
Xicom
reserve
|
|
Acquired
AeroAstro
reserve
|
|
Additions
|
|
Deductions
|
|
Balance
at end
of year
|
|
2007
|
|
$
|
266
|
|
-
|
|
135
|
|
694
|
|
64
|
|
1,031
|
|
2006
|
|
|
804
|
|
-
|
|
-
|
|
374
|
|
912
|
|
266
|
|
2005
|
|
|
350
|
|
473
|
|
-
|
|
331
|
|
350
|
|
804
|
|
20.
|
Quarterly Financial Data - Unaudited
|
A summary of the quarterly data for the years
ended December 31, 2007, 2006 and 2005 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Total
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
29,650
|
|
$
|
34,317
|
|
$
|
38,374
|
|
$
|
39,713
|
|
$
|
142,054
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
12,132
|
|
|
13,797
|
|
|
15,196
|
|
|
15,063
|
|
|
56,188
|
|
Operating expenses
|
|
|
9,407
|
|
|
10,073
|
|
|
10,465
|
|
|
11,919
|
|
|
41,864
|
|
Earnings from operations
|
|
|
2,725
|
|
|
3,725
|
|
|
4,731
|
|
|
3,143
|
|
|
14,324
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
1,917
|
|
|
2,648
|
|
|
3,586
|
|
|
2,061
|
|
|
10,212
|
|
Basic earnings per share
|
|
$
|
0.10
|
|
$
|
0.14
|
|
$
|
0.19
|
|
$
|
0.11
|
|
$
|
0.54
|
|
Diluted earnings per share
|
|
$
|
0.10
|
|
$
|
0.14
|
|
$
|
0.19
|
|
$
|
0.11
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
Quarter
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Total
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
31,193
|
|
$
|
34,633
|
|
$
|
32,073
|
|
$
|
36,310
|
|
$
|
134,209
|
|
Gross profit
|
|
|
12,889
|
|
|
14,430
|
|
|
14,208
|
|
|
14,944
|
|
|
56,471
|
|
Operating expenses
|
|
|
9,395
|
|
|
9,661
|
|
|
10,423
|
|
|
10,095
|
|
|
39,574
|
|
Earnings from operations
|
|
|
3,494
|
|
|
4,769
|
|
|
3,785
|
|
|
4,849
|
|
|
16,897
|
|
Net earnings
|
|
|
2,393
|
|
|
3,155
|
|
|
2,754
|
|
|
3,563
|
|
|
11,865
|
|
Basic earnings per share
|
|
$
|
0.14
|
|
$
|
0.18
|
|
$
|
0.15
|
|
$
|
0.19
|
|
$
|
0.66
|
|
Diluted earnings per share
|
|
$
|
0.13
|
|
$
|
0.17
|
|
$
|
0.15
|
|
$
|
0.19
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
Quarter
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Total
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
13,709
|
|
$
|
20,613
|
|
$
|
32,146
|
|
$
|
36,795
|
|
$
|
103,263
|
|
Gross profit
|
|
|
7,126
|
|
|
9,640
|
|
|
13,366
|
|
|
15,880
|
|
|
46,012
|
|
Operating expenses
|
|
|
5,175
|
|
|
6,547
|
|
|
8,992
|
|
|
9,887
|
|
|
30,601
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
1,951
|
|
|
3,093
|
|
|
4,374
|
|
|
5,993
|
|
|
15,411
|
|
Net earnings
|
|
|
1,444
|
|
|
2,075
|
|
|
2,880
|
|
|
4,287
|
|
|
10,686
|
|
Basic earnings per share
|
|
$
|
0.09
|
|
$
|
0.12
|
|
$
|
0.17
|
|
$
|
0.25
|
|
$
|
0.63
|
|
Diluted earnings per share
|
|
$
|
0.08
|
|
$
|
0.12
|
|
$
|
0.16
|
|
$
|
0.24
|
|
$
|
0.60
|
47
$ in thousands, except per share amounts