Second Quarter Operating Performance
Net sales were $100.4 million compared with $94.8 million in the prior-year quarter due to higher wireless sales as sales to new antenna customers continue to increase, partially offset by ongoing industry weakness which constrained demand for network and power products. Sequentially, net sales increased 6.6 percent compared with first quarter net sales of $94.1 million on higher wireless sales and seasonal increases in network and power.
Cost of sales increased 12.1 percent to $81.2 million from $72.4 million in the prior-year quarter. The company’s gross profit margin was 19.1 percent compared with 23.6 percent in the prior-year quarter and 19.5 percent in the first quarter. The lower gross profit margin compared to the prior year reflects higher labor costs, lower pricing and volumes for network and power products, the unfavorable mix effect of the growth of lower-margin wireless business, and ramp up costs and inefficiencies associated with the growth in wireless.
Operating expenses decreased 11.6 percent to $18.8 million from $21.3 million in the second quarter of 2011. The decrease in spending was due to aggressive expense reduction actions and sustained scrutiny over all discretionary spending.
Operating loss (U.S. GAAP) was $0.1 million compared with a loss of $4.2 million in the prior-year quarter. Non-GAAP operating profit was $0.8 million compared with $1.5 million in the prior-year quarter and a loss of $0.2 million in the first quarter. Second quarter operating loss (U.S. GAAP) included $0.5 million for severance, impairment and associated costs.
The company had $19.8 million of cash and cash equivalents at June 29, 2012 compared with $17.6 million at December 30, 2011. During the second quarter the company had no changes to its net borrowing.
As part of the amendment to the credit facility completed in March 2012, the company issued to its existing bank group warrants to purchase approximately 2.6 million shares of common stock, which represent 6.1% of all outstanding shares. Unless the outstanding borrowings under the credit facility are repaid by certain dates, the vesting of the warrants occurs in three stages over the course of the remainder of this calendar year. As previously announced, the company did not retire the facility in full by the first deadline of June 28, 2012 and approximately 0.8 million warrants, which convert into the equivalent of 1.8% of the outstanding shares of common stock, vested on that date.