Fourth Quarter Operating Performance

Net sales were $90.5 million compared with $101.2 million in the prior-year quarter due to lower industry demand for network and power products, partially offset by higher wireless sales as sales to new antenna customers continue to increase. Sequentially, net sales decreased 5.8 percent compared with third quarter net sales of $96.0 million.

Cost of sales declined 3.8 percent to $73.2 million from $76.1 million in the prior-year quarter. The company’s gross profit margin was 19.1 percent compared with 24.8 percent in the prior-year and 23.0 percent in the third quarter. The lower gross margin compared to the prior year reflects lower volume, higher wage rates, higher raw material costs, lower pricing for network and power products. Compared to the third quarter, gross profit margin decreased mainly due to wireless non-recurring costs and inefficiencies in ramping up new programs which were in excess of 1 percent of total sales, and lower volume and pricing.

Operating expenses decreased 2.4 percent to $18.8 million from $19.3 million in the fourth quarter of 2010, and on a comparable basis excluding one-time items, operating expenses declined 7.3 percent. The decrease in spending was due to expense reduction actions and prudent expense management in light of lower sales.

Operating loss (U.S. GAAP) was $2.7 million compared with a profit of $4.1 million in the prior-year quarter. Non-GAAP operating loss was $0.9 million compared with $5.4 million in the prior-year quarter. The operating loss (U.S. GAAP) and non-GAAP operating loss included the net favorable impact of a $1.0 million licensing fee for prior use of intellectual property agreed with another firm. Additionally, the operating loss (U.S. GAAP) included $1.1 million for severance, impairment and associated costs.

The company’s net loss of $43.4 million, compared to a net gain of $1.5 million in the prior-year quarter, included an increase in tax valuation allowances of approximately $38 million. The company concluded that it was unlikely to realize any of its deferred tax assets resulting from recent losses as well as other factors.

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