Caleres Inc (CAL) 2002 Q1 法說會逐字稿

Good day everyone.

Welcome to the Remec

conference call.

This call is being recorded.

At this time for opening

remarks I would like to turn

the call over to Mr. Ron Ragland,

Chief Executive Officer.

Please go ahead, sir.

Thank you all for joining

us on this important call.

We are very pleased to tell you

about our plans,

Remec and Spectrian.

In today's call we have myself,

Tom Waechter who is President

and CEO of Spectrian and Dave

Morash who is our Chief

Financial Officer.

We are going to limit the comments and

questions today to the

Spectrian acquisition.

It will be an one-hour

conference call.

We are calling in from

multiple locations, so we may

not be choreographed

ideally, but we will do our

best.

It is not our intent to

disclose all aspects of the

merger agreement.

We will be filing a merger

agreement approximately the

time of the proxy filing.

And we do not intend to

address arbitrage questions in

the call today.

I am going to read the safe harbor

language.

Statements in the press

release and this conference

call that are not historical

are forward-looking statements

which involve known and

unknown risks and

uncertainties, particularly

relative to the forecast of

income and cash flow.

Actual results could differ

materially from those implied

by such forward-looking

statements due to a variety of

factors, including general and

industry economic conditions,

competition, development

factors, operating costs and

other risks and uncertainties

that are detailed from time to

time in our filings with the

Securities and Exchange

Commission.

Well, again, thanks for joining us.

We are very excited about the

deal, that it brings the

Spectrian and Remec families

together as a team.

We have gone through a very

methodical and detailed due

diligence process on both

sides of the equation.

It will be Tom and mine, and

Dave's job today to try to

tell you why we are excited

about this, and why we think

it's good for the shareholders

of our respective companies.

It's been Remec's goal all

along and our battle cry from

the day we started Remec to

deliver an optimum solution

using the best technology

available, and provide our

customers a product with the

most affordable cost.

This deal leverages that

thesis in a dynamic way in our

mobile wireless infrastructure

business.

Tom brings a very strong team

to this merger of capabilities,

and I have to tell you, from a

personal and a business

perspective, I'm thrilled to

have Tom joining the team as

the Chief Operating Officer

and President.

Errol Ekaireb who has been

planning retirement has been

an incredible asset to this

corporation, and I don't know

what we would have ever done

without Errol.

Again, a wonderful

contribution.

He will be continuing through

a transition period, and then

will continue to be available

to the company on special

assignments, and -- so I take

this moment to thank Errol for

his tremendous contribution as

we look forward, excitingly to

Tom and what he brings to our

team.

We have, in this merger, an

excellent combination of

technologies.

Although Remec is relatively

new to the power amplifier

market, we have been praised

by the customer community on

our technology achievements,

and when we blend these

technology achievements and

the really significant

opportunities that we are

looking into and merge those

with the Spectrian technology

excellence, it's very, very

powerful combination.

Quite frankly, we

expect to give our very

talented competitors some real

challenges in the competitive

market place.

We also -- Remec, as those of

you who have followed Remec in

the past know, that our secret

to success is integrating the

product to a system level, and

in doing so, providing an

optimum solution at the most

affordable cost.

With Tom and Spectrian joining

our team, we believe we will

be at the forefront of giving

our customer an integrated

base station solution.

And that's very exciting to

us.

Another real, I'm going to use

the word irony, another real

irony of the deal is that

Remec and Spectrian have not

been head-on competitors.

Where we have focused, they

have not.

And where they have focused,

we have not.

What we find when we add the

two companies and our customer

bases, that it's just

extremely complimentary.

Tom's going to give you some

detail in his presentation,

but let me just use an

example.

Our largest customer at nominally 20 to

25 percent is Nokia.

Tom, Spectrian doesn't do a

dollar's worth of business

with Nokia.

Tom's got a tremendous activity

in Korea, a significant part

of the business.

Remec has never sold a dollar

to Korea.

It goes farther than that and

it's stronger than that.

But that gives you the flavor

of our excitement in that

area.

So this is going to give us an

expanded global platform and

an expanded customer base

that's pretty impressive.

Tom's been practicing there at

Spectrian a flexible

outsourcing model, and

has two excellent

partners that have been

supporting him.

Needless to say that Remec

with its offshore

manufacturing capability will

find a dual benefit in this in

being able to have a larger

manufacturing base to spread

the infrastructure costs of

our company, and also to have

the flexibility to work with,

and team with these gentlemen

who have provided excellent

contract manufacturing

services to Tom in the past.

We also are going to get a

significant boost to our

purchasing power equation, and

there are some unique and

specific competitive

advantages we will gain with

this combination.

So my global manufacturing

organization is really excited

about this, also.

And it's an area where we will

be experiencing substantial

synergies.

The combination, also,

underwrites a very effective

sales and worldwide marketing

organization.

Tom has an extensive

organization, as do we.

And again, because of our global

and customer-based differences,

what we end up with is an

excellent byproduct of the

best of both.

So I think that's a key point

to share with you.

For those of you who followed

Remec for some time, you know

that I have talked in the past

about the chicken egg of

building an infrastructure

that's capable of taking this

corporation forward to a

billion, and then a

multi-billion dollar

performance level in revenue.

And you have heard me cite

that we are building an

infrastructure that needs, as

a starting platform, a $500

million revenue run rate to

fully absorb the structure we

have put together.

This deal, with modest growth,

puts us at that platform.

And I think that's a very

important aspect of this

transaction.

Further, we are combining two

very strong balance sheets to

end up with the strongest

balance sheet in our

competitive market place.

And that balance sheet is going to fuel

our ability to serve our

customers, take advantage of

opportunities in the

marketplace and be able to

have the resources to back up

and succeed with our

initiatives.

I mentioned earlier, that we

are fundamentally, our core

belief is that we deliver

value to our customers.

So being able to deliver in

the mobile wireless market

place and to our customer

community the optimum solution

at the most affordable cost is

critical.

This deal adds substantial

leverage to this thesis.

You know, it's easy to sit

here and talk about synergies,

but I want to emphasize that

in our due diligence process,

we went through a formal

process with Spectrian and

jointly put together the

synergy list and

we have some very specific

expectations.

They will be refined as we go

forward, but we are confident

that within the first year of

our combination, we will

deliver a minimum $20 million

of synergies to the bottom

line.

And in excess of $30 million

annually thereafter.

I have talked with Tom and my

team extensively about the

importance of developing a

transition team to do the

important planning to assure a

smooth, effective integration.

Our most precious resource

going forward is time.

And to the degree that we

properly prepare in our

planning for a subsequent

execution once the

shareholders authorize this

deal, is essential.

I have asked Tom, as the

future Chief Operating Officer

and President of Remec to run

this group, and we are going

to staff it with our best and

brightest on both sides.

So that this execution, this

transitional execution, which

I expect to be very straight

forward, I'm going to sidebar

for a second and say, this

only affects -- this is mobile

infrastructure, it will not

affect our broadband wireless

group.

It obviously will not affect

our defense group.

It does not affect our

advanced technologies activities

that are going on.

For the production group, the

global manufacturing group, I

think it's very important to

point out that Tom's already

gone through the outsource

model.

So in terms of documentation

and discipline of working with

a separate organization, we

are expecting a very, very

smooth transition and

integration.

Nevertheless, we are going to

have this transaction planned

in detail, and have the total

situation wired, and the day

we hit closing, we are

flipping the circuit breaker

and moving out smartly with

the implementation.

I will be making some more

comments at the close but

right now I would like to turn

it over to Tom.

Thanks, Ron.

Thanks for all the positive

comments about Spectrian and

this opportunity in front of

us.

As the President and CEO of

Spectrian, I would like to

take a few minutes to really

explain to you what I think

are the benefits and

opportunities to our customers,

our shareholders, and as well,

the employees of Spectrian,

and why I have been so

enthusiastic about this

merger between the two

companies.

I think if I look at the major

benefits, one of the things

that the market and our

customers have been demanding

of us is to come to an

integrated RF solution for the

base station.

Spectrian has looked at

various ways we could achieve

that, and when we were able to

match up with Remec and look

at what they have, and the

number of solutions, and the

technology, we are extremely

excited about that because it

really accelerates what we

could do internally by three

to four years with this

integrated model.

So, we believe we can move very

quickly, it's going to provide a

very efficient and cost

effective solution to our

customer base.

We know that price is a very

important issue out there, and

efficiency, and we believe we

can move down that path very,

very quickly.

For our customers, it will

provide one-stop stopping.

Where today they maybe have to

deal with three or four

different suppliers and try to

marry the equipment together,

they will now be able to go to

one, Remec, for a full

integrated solution.

And if you look at between the

two organizations and our

capabilities in the R&D groups,

this is really going to allow

us to get more done with the

same combined entities that we

have in R&D.

We won't be duplicating as

many efforts as we do today.

Therefore, we can take on more

projects for our customers.

We see quite a bit of those

today in the market.

Also, we will be working with

the ever widening customer

base.

I think for those who have

followed Spectrian, you know

we have worked very diligently

over the last couple of years

to really expand our customer

base.

Going back two years ago we

had one major customer that

was about 80 percent of our

business.

We have been able to broaden

that, but I'm extremely

excited when I look on one

piece of paper now the major

customers that we will be

working with between Remec and

Spectrian.

Remec has a very strong

presence with the OEMs in

Europe, a very strong

relationship that Spectrian

desperately needs today.

We really don't have that kind

of presence.

I think we both have very

strong interests in China.

We have done a lot of the

right things and by localization,

having a strong

presence with our people.

And now combined, I think that

will strengthen that much

more.

And, of course, Spectrian has

a really strong heritage in

Korea.

It's a major base for us.

We've done extremely well,

and that will open up now to

the combined entity.

And an area where Remec

doesn't really play today, in

the North American and Latin American

network operators, Spectrian

has developed a really strong

business.

So if I just look at a list of some

of the major customers, to me, again

it's very exciting.

I have seen what it's taken

Spectrian to get to an

expanded customer base.

Now, that starts to explode

for all of us.

Looking at people like Nokia

Samsung, Lucent, Motorola,

Nortel, Verizon, Cingular,

these are the key players in

the industry.

We will have those as a strong

customer base at this point.

I also think, for our

shareholders, we will improve

the stability.

Spectrian today has one major

product offering, a broad

portfolio within that, but we

are a stand alone power

amplifier business.

As a result there are is a lot

of ups and downs.

There are a lot of cycles.

If I look at merging in our

amplifier business into

Remec's mobile wireless

business, it's quite exciting.

Plus you also have two other

strong businesses there that

Remec has, defense and the

broadband wireless.

Ron mentioned earlier, and

I'll tell you this is

something that gets me

extremely excited, is the

combined balance sheet that

both companies will have.

I don't think there's anyone

in the industry that will have

the strength of Remec once we

combine our two balance

sheets.

We will have no debt and

approximately $150 million in

cash going forward.

That really allows us to make

those kinds of decisions that

are the right once for our

customers and really looking at the

long-term pay back for our

investors.

The other thing to me that was

very, very important and I

have been feeling better and

better about it as we went

through due diligence and I

got to meet Ron more and his

team of people, we are closely

aligned between our corporate

cultures.

I think any time you do this

type of acquisition and we are

merging Spectrian into Remec,

you can't underestimate how

important that is.

And I think both of our teams

from the comments and to see

how smoothly this has gone up

to this point, I am very

encouraged by the fact that we

really have a lot of synergies

between our corporate

cultures.

So those are some of the

benefits I see, and the things

that really encouraged me to

look at, you know, merging

Spectrian into the Remec

organization.

Just if I look ahead, Ron

mentioned being prepared,

getting ready to go as soon as

the deal's closed.

We flip the switch and we are

on with it.

I think that's extremely

important.

The market's moving quickly,

the integrated solution is

important.

We really need to achieve the

synergies both from a revenue

standpoint and a cost

standpoint as we go forward.

So I'm very excited to have

the opportunity to be leading

this charge.

Again, I think we have very

good people on both sides.

We will put our best on there,

as Ron mentioned.

We will be ready to go and

we'll charge out of the

starting blocks very, very

quickly.

I think, as a result, our

shareholders, which today are

separate as Spectrian and

Remec, as this gets combined,

they will see some very

important synergies and I

think some very nice paybacks

over time.

At this point I would like to

turn it over to Dave Morash for

some comments.

Thanks very much, Tom.

I will address the deal

structure and the synergies

statements on the synergies

are also covered under the

forward-looking statement.

I will not be answering any

questions today on our quarter,

or any anticipated

restructuring charges.

Remec will acquire Spectrian

for $14 per share for

approximately $160 million in

aggregate.

Remec will have, at its sole

discretion, the ability to

deliver up to $45 million as

part of the acquisition

consideration at any time

prior to five days before

closing.

Frankly, we don't like our

stock where it is, so if we

need to, we will spend cash

rather than issue too cheap a

stock.

I know that you will like to

know what we -- excuse me.

I know that you would like to

know what will make us decide

one way or another.

We have made no decision.

We don't have a formula.

We will look at our price, at

our prospects on an ongoing

basis, and when we feel the

time is right to move in one

direction, we will decide and

announce.

Candidly, I expect it will be

later rather than sooner so

that Remec keeps most

flexibility in the process.

The stock portion of the offer

price will be based upon a

minimum and a maximum value

for Remec's stock of a floor

of $7 and a ceiling of $10.50

respectively.

If the deal is all stock,

minimum exchange ratio of 1.33

giving upside potential to

Spectrian above $10.50 per

share for Remec.

Maximum $2 minimizing paying

for Remec at $7 or below.

If the deal is all stock, we

will issue a minimum of 15.2

million shares and a maximum

of 22.8 million shares.

Based on 45.2 million Remec

shares currently outstanding,

this results in Spectrian

stockholders ownership of

between 25.2 percent and 33.5

percent of the combined

company.

If things stay on plan, the

process should work as

follows. We will file an 8-K

shortly.

We will work on the proxy and

meet SEc requirements, mail

the proxy sometime in

June.

Sometime in July we'll make

our cash election filed by

shareholder votes of both

companies.

Rest assured the Spectrian

shareholders will know, with sufficient notice, how

much cash they will be offered

in the aggregate.

They will have to wait for proration

results after the vote

to know how much each

shareholder will receive in

cash and stock.

With regard to the collar, I

would like to give more

details, but I will leave it

at that during the call.

Feel free to call me or my

financial advisors after the

call if you have additional

collar questions.

You should know that as a

principal, the Spectrian

shareholders are protected

from the downside or share in

the upside of Remec stock only

in the non-cash portion of the

deal.

We are paying $14 or $160

million in aggregate.

But if our stock runs up, the

Spectrian shareholders'

benefit, not on the whole $14

price, but only on that part

of the $14 that we do not pay

in cash.

It is probably easier to work

out specific examples.

I will help you with the math

on three examples with Remec

stock at the 7 to $10 collar

range, at the collar range or

below the collar range.

Let's say that we use 20

million in cash, about $1.75 a

share.

That leaves $160 million less

$20 million in cash, or $140

million to pay in stock value.

We will do that based on

Remec's average closing sales

price for a 10-day period

prior to the meetings.

If our average price is within

the collar range between 7 and

$10.50, we will issue shares

worth $140 million.

We just divide the $140

million by the average price.

If the average price is above

the ceiling, say $14, as we

hope we issue -- as we hope,

we issue $140 million, divided

by the maximum value of $10.50

so 13.3 million shares.

At closing this could be worth

a total of 20 million in cash,

plus value of 13.3 million

shares at $14.

186 million for a total of 206

million or an average of $18 a

share.

Then Spectrian shareholders

will be happy, but so will

Remec shareholders.

In reverse, if our stock is $6,

we will issue stock valued at

no less than $7 or 20 million

shares.

We will issue 20 million

shares to pay the 140 million

in stock value at the floor

level of $7, not $6.

The total actual value will

then be 20 million in cash,

plus 120 million in stock, or

140 million or less than the

160 million within the range.

Because of the potential cash

component, you cannot

effectively use the exchange

ratios of 1.33 or $2 to figure

out the values received by

Spectrian outside the collar.

Within the collar, it is the

$14.

But outside it is more or less

influenced not by the whole

value of the transaction, but

only by the portion which we

do not elect in cash.

Again, to make our decision,

we will look at all factors.

Do we like our stock price?

Do we need the cash?

And decide.

But you will have sufficient

notice to determine your

choice.

There is, I should mention

take there is a $6 million

break-up fee.

There is no walk away point if

the stock price and the normal

merger conditions in the

contract such others

regulatory approvals.

In terms of synergies, as we

stated in the press release,

Remec expects that the

transaction will generate a

very substantial synergies and

will be accretive to its

earnings in the first year

following closing.

Excluding, of course, the

transaction related expenses,

based on achieving expected

synergies.

A preliminary evaluation of

synergies conducted by Remec

and Spectrian indicates

estimated operating synergies

in excess of 20 million in the

12 months following closing

and in excess of 30 million as

an exit thereafter.

Fundamentally with our larger

size, the transaction will

absorb unused capacity in a

number of areas.

We expect to generate

synergies from a number of

areas including the elimination

duplicative expenses

in sales and marketing,

research and development,

finance and accounting,

general and administrative,

corporate spending, a number

of department items such as

repair cost reduction, QA spending, I.T.

network spending and HR

spending.

These are combined with raw

materials purchasing leverage,

as well as savings on

redundant facilities.

We have assumed a modest

amount of additional revenues

based upon our larger market

presence and combined effort.

Now, I would like to turn the

call back over to Ron.

Ron?

Okay.

Thanks, Dave.

Make a couple other comments

and go into questions.

First of all, there will be a

test on all that math we just

threw at you.

And the -- want to point out

that we're going to have a webcast

that we do on the 10th of June

which will expand on the

information we have presented

today.

The webcast will also talk

about the broader companies

and outlooks.

We will, in New York, be at an

investor conference in both

Spectrian and Remec will be

presenting at that investor

conference on the 11th of

June.

We also intend to have a

webcast and a road show

followed by a road show at an

appropriate point in time

before the shareholder vote

where we intend to address

investors and customers.

I would tell you that a random

feedback is that the

substantial number of investor

calls and customer calls into

both companies have been

exceedingly positive and that

buoys our confidence that we

feel in the goodness of this

merger.

With those comments, Brent,

let's go to questions.

Thank you.

Today's Q&A session will be

conducted electronically.

If you would like to ask a

question please hit the star

followed by the digit one on your

touch tone phone.

Again, that's star, one for questions.

We will take them in the order

as presented and as many time

as allows.

Our first question is from

Rich Valera with Needham and

Company.

Congratulations gentlemen.

Congratulations on the market

reaction yesterday. It's pretty rare these days to see even the acquiring company's stock price go up.

First question I think for you,

Tom.

On the product side, we know

your products pretty well,

your power end product.

Can you talk about how they

fit within what Remec has on

the power amp side and if

there's some complimentary

products there or some

overlap?

Thanks.

I think as Ron mentioned we

haven't seen each other a lot

in the market as far as direct

competition in the customer

base.

I think what we have evaluated

with the Remec technology as

we have gone through due

diligence it's quite

impressive.

They have worked on some

advance technology that I

think is being very well

received by the OEM.

I think in most cases it's

complimentary. As you know,

Spectrian has been working on

the [INAUDIBLE] technology and digital

pre-distortion and I think

they are complimentary types

of technologies from

everything we have seen.

And again, I want to

emphasize by putting the two

R&D groups together the

resources we have to really address

solutions for our customer

base is very significant in

this industry.

So I would see mostly

complimentary, and actually

allowing us to get more

projects done over a period of

time as a combined entity

rather than doing it

alone.

On the integrated product

front can you give us an idea, either Ron or Tom,

where you think you first

might attack in terms of

integrating products?

Presumably integrating some

components in with the power

amps, maybe first?

I'll just make a knee-jerk

reaction to that.

I think the biggest, probably

one of the biggest next steps

with each of the OEMs we serve

is how are you going to

provide us an integrated

solution?

Needless to say this is how

Remec has built our company,

is being at the forefront of

integrating an optimum

solution up toward the system

level.

So, Tom said in his remarks,

that the customers were

demanding this vertical

integration.

I would go so far as to say

the customers are screaming

for it.

And it's -- I believe, I don't

want to speak for Tom here,

but I'll toss it over to him

but I'll say that was a major

motivation for Spectrian

to have these discussions.

Yeah, it was, Ron.

As I mentioned earlier, as we

looked at what the customer's

needs were and looked at

technology road maps, it was

very clear that this

integration model was coming

faster than any of us

anticipated, even six months

ago.

So, again, this gives us three

or four steps very quickly

with the integration.

I think back to your question

specifically, Rich, I would say one

that is very obviously is the

amplifiers and filters.

That's something we are

hearing on a regular basis.

But, without giving any secrets out,

we have some ideas where we

can be proactive and offer some

solutions something beyond

what the customer is actually thinking

today as well.

Great.

We go next to Dale

Fowl with CIBC World Markets.

Congratulations, gentlemen.

Ron, for one time I have you.

I'm in China this time and you

are finally, I guess, back in

San Diego for awhile.

That's a flip isn't it?

That's a new one.

Congratulations, guys.

Great merger of the two.

I have a question, I guess,

that's a financial thing.

Taking a look at synergies a

you are talking about, both

Remec and certainly Spectrian

recently have suffered from

margin deterioration

and stagnating margins in the

low 20s.

With the synergies and with

your outlooks in the

businesses, can we see the

margins creep up any time

soon?

Or are we looking -- what is

your outlook for the combined

company for where we can

actually get to in margins

over the next 12 to 18 months?

The company will not get

anywhere near our stock

expectation without delivering

our shareholder community, the

investor community strong

bottom line profits and damn

good margins.

We are -- we are of the belief

that we can have competitively

differentiated product that

gives good value and gives

Remec good margins going

forward.

And I would say that operating

margins approximately 30

percent would be a reasonable

target.

Needless to say, the customer

community would always like to

see it lower, and we would

always like to see it higher.

So -- but I think that that's

a reasonable balance between

the two influences.

One of the things that we

have seen is with this

integration of the technology,

if you do it inside one

company, I think you can make

that technology much more

efficient and cost effective.

Both the customer and the

company can benefit from that

rather than multiple companies

designing the product trying

to bolt them together later.

You build in a lot of

redundancy that way.

So I think there's some uptick

in the margin and benefit

directly to the customer from

those synergies of planning it

in advance.

Our deteriorated margins,

at this point in time, are

more volume based than they

are individual achievement

based.

In other words, back to my

point about $500 million.

And I'm use a stupid example,

my paycheck.

It's much better for my

paycheck to be absorbed by

$500 million revenue than it

is by a $350 million revenue.

So I think the deteriorating

margins are not a function of

the product design, the price

the customer is paying.

I think it's the fact that we

had such a steep and abrupt

cutback in business.

We are not going to layoff,

not to live for another day.

Now, I say that, at the same

time Tom's taking his team

from 700 to 250 and outsourced

his manufacturing, and we have

laid-off just shy of a third

of the Remec team over the

past year which is painful as

hell.

We cannot layoff

infrastructure and capability

that are required to become

the billion dollar company we

hope to become in the near

future.

I guess I would add to that,

that this is probably the

first transaction that we have

done where we really are

planning a full integration of

the operation.

So I think, you know, of any

size, anyway.

So I think that this -- our

ability to execute will then

allow us to generate some

pretty significant synergies

relatively rapidly and improve

the margins that you have

talked about.

I mentioned in many

previous conference calls that

the reorganization and

restructuring of the company

is going to allow a

significant extraction of

synergies as we bring

additional teams into the

family.

This is going to be an

exemplar situation, I think,

that proves out that

prediction.

Ron, just a clarification.

You said 30 percent net

operating.

Do you mean 30 percent gross

margins?

Yes, I'm sorry.

I thought I said gross

margins.

Okay.

The delirium of the moment.

30 percent gross margins.

I do want you to know, we have

said this in previous

conference calls, we are not

going to be satisfied unless

we have pre-tax profits well

into double digits.

Very important aspect of the

total Remec structuring is the

clever and effective tax

consideration we have

worked -- that we have worked

out, and the fact that we have

manufacturing facilities in

tax free zones.

So we understand what it takes,

we believe, to be valued in

the market in the future by

our investors, and we intend

to deliver strong bottom line.

And one other question.

Obviously you have been a

leader in the consolidation

and sort of the infrastructure,

sub-assembly component space.

Should we look for more of

that in the industry?

Only if it makes sense.

I guess that's a way of being

cute, isn't it?

I'd say that we are not in a

frenzy.

There are some very

significant opportunities for

consolidation of talented

teams.

This is one such.

We have been extremely pleased

with some of the other values.

We have been able to extract

from the marketplace.

And what a wonderful feeling to

reiterate a tune that I have

been singling for some time,

what a wonderful aspect of the

this downturn to extinguish

non-viable business plans.

So we think we got a viable

model here, we got a viable

team going forward, and we're

going to be competing

against other viable business

plans.

Charles DeSanza

with GKM.

Hello, gentlemen.

Ron, I don't think we have met

before.

No, I don't think so,

Charles.

I'm having trouble hearing.

I'm guessing everybody else

might be so if you could push

a little more volume.

I'll push a little more

volume out.

What specifically do you sell

to Nokia for infrastructure?

And secondly, who provides the

power supplies?

You know, I don't know who

provides their power supplies.

That's not in our world.

We develop, primarily,

microwave and millimeterwave

product here.

Power supply, I don't know.

We provide front end passive

distribution, filtering, we

have, also into their base

station products, various

coverage enhancement product

we provide to them.

We have been working with them

diligently to expand that

product offering, and I think

this combination with

Spectrian, although our

technology, I believe, is

exciting, we are a relatively

new entrant in terms of legacy

and critical mass to a major

OEM and the size of their

needs.

So I believe that the OEM

community will view this

combination as putting -- I

believe we already have a

check mark in technology in

power amplification, this is

going to give in addition to

that and positive checkmarks

on cost, it's add legacy

and critical mass to our

credential.

I think it will be very

powerful.

Tom any comment to that?

No, I think if you look at

technology that Remec's

working on, our technology at

Spectrian and then, you know,

we have 850,000 power

amplifiers installed around

the world.

So it's a huge knowledge base

that we have developed with

time.

And I think, again, combining

that with what Remec has to

offer is quite powerful.

But away from the microwave and

millimeter stuff, what are you

talking about?

Are you talking about receive

channel filtering?

Existing products?

I'm sorry.

We are talking about

everything in a base station

that operates at microwave and

certainly when we look at base

station back haul, we will be

looking at millimeterwave,

also.

So I would say that you are

welcome, if you are interested,

to call in and we'll line you

up with the right information,

right folks that can give you

a technical description.

You spoke about other teams

and the illusion that maybe

you have more acquisitions.

What about other products?

What kind of product would

help you fill out your

importance to the carriers?

Charles, I don't wish to be

the least bit rude, you are

welcome to call me personally,

but this conference call is

primarily on the Spectrian

acquisition and I will go to a

next call.

So you are welcome to call me,

and I would be glad to address

that with you.

Next question from

Mark Jordan with AG Edwards.

Good afternoon, gentlemen.

First I would like to talk

about the manufacturing

capabilities that Remec has,

and how that can be leveraged

with this acquisition.

Do you have the capabilities,

or where would you potentially

shift the work that [INAUDIBLE] Thailand

is doing to Philippines, Costa

Rica or China and do

they have the capabilities

inhouse today to assume that

work?

Hi, Mark, how are you

doing?

Just great.

Those of you who have

listened to me before, you

know we have a strength of

being open and direct and a

weakness of being open and

direct.

Right now there's a couple of

manufacturers sitting out

there who were serving

Spectrian, very interested in

what I have to say on the

subject.

I will try to find a construct

that fully utilizes our

manufacturing capabilities,

and still treats them as a

partner and tries to

understand their needs having

served Spectrian.

I personally believe that we

will be generating substantial

additional revenues in our

combination.

David has stated that in our

synergies we have taken a very

conservative look at that.

But, there will be a

significant impact on our

purchasing power, and we will

be moving as we grow product

into both Costa Rica,

the Philippines and China.

So I see this as a very, very

important step in creating the

absorption base for our global

manufacturing infrastructure.

I am very hopeful that we are

able to deal, interact,

communicate, with the

Spectrian's existing suppliers

and find a win/win instead of

a disappointment.

That would be my goal.

Recognize that it's a

sensitive subject.

Right.

As you mentioned your combined

balance sheets would have

upwards of $150 million of

cash as we speak.

Ron, you placed an emphasis on

maintaining a strong balance

sheet during these tough times

here.

How far, with the combined

companies, how far would you

be willing to allow your cash

position to work down either

by incremental

acquisitions or use cash for,

again, offsetting the

acquisition costs?

Um -- Mark, you know, I think,

David unless you want to jump

in there, I would be reluctant

to want to put a number on it.

I don't feel like this

acquisition was made to

acquire cash.

That would be the -- that

wasn't on my list of

synergies.

I felt very comfortable where

we were.

The fact of the matter is,

though, there are incredible

values of different varieties

in a marketplace that is under

as much pressure as this

marketplace.

So I think we would look at

each deal individually, and

separately, and make a

judgment.

I think that the 150 million

plus that we will have without

debt puts us in an excellent

position to make value

judgments going forward.

And Tom had a comment that he

wanted to add to your last

question, also.

Just if I could take a

second.

We were talking about

manufacturing.

One of the things that really

excites me about the

combination of the low cost

offshore manufacturing that

Remec has today, very high

quality, and our outsourcing

model, it gives us a lot of

flexibility for upticks in the

market.

I do believe when the market

starts to turn, it can turn

very quickly.

I think it gives us the

ongoing Remec entity, one of

the few companies out there

that have redundant

manufacturing capabilities who

offer to the major customers.

And I know that's very

important to large customers

to insure a source of supply.

So I'm pretty excited about

the balance we can reach

between the two going forward.

Okay.

I guess I would add, just in

terms of the cash side, that

obviously that changes as we

improve our cash flow position,

and, you know, so our number

one focus, at this point, is

to improve and get to a strong

positive cash flow which then

allows us greater flexibility

in terms of the use of the

cash for acquisitions and

other things.

Next we go to Lee

Parker with Compass Fund.

Hi, guys.

Hi.

Hi.

I'm just, I don't know, a

little curious as to the

timing of the acquisition.

It seems that Spectrian's

business has been very weak

lately.

Quarterly revenues declining

and probably getting down to

about 20 million this quarter.

And yet you seem to be

implying on a run rate basis

the revenue might be 150

million.

I'm just wondering, I don't

know if you can talk a little

bit more about why you are

doing the acquisition now and

why not wait a little while?

Well, I guess that's always

a good question.

I would say that it is

not -- it hasn't been a knee

jerk.

I have been looking, and

talking with Spectrian for six

years.

So, it's not a recent

familiarity.

I would say that, as both

companies looked at the market

going forward, we both saw

excellent reasons to do the

deal now.

And I'm going to let it go at

that and invite Tom to make

any comments he might want to

make.

You know, I think the entire

market's under pressure, both

stocks are under pressure.

From a relative point of view,

we thought this was a good

transaction.

We think we accurately

understand their future.

They think they accurately

understand our future.

I believe we are both right,

and Tom, what do you have to

say about it?

Yeah, I would say from a timing

standpoint, a lot of it, to me,

was dictated by what the

customers' needs were.

As we said earlier the

integrated model is something

that the customers are getting

very, very interested in.

And has really come upon us

very quickly.

I think, not to go down a rat

hole here, but if you look at

the Spectrian revenue, we

actually, in our December

quarter from September, had

about 27, 28 percent growth

and we had

eight percent from December to

March and that was the first

fiscal fourth quarter we had

an up quarter in about three

or four years.

So I don't think we have been

in a declining revenue

situation from that

standpoint.

Next Mike Walky

with RBC Capital Markets.

Thank you.

Congratulations on the deal.

Seems like a great fit.

I was wondering if you could

go back to the synergies real quick

and maybe could you

share how much in the 20

million in synergies comes

from cross-selling

opportunities and were you

able to receive the most from

the cross-selling

opportunities and how much

would come from the cost side?

That's a good question.

I would say -- I would say

that a large part of the

synergies that we have

evaluated, and Dave, I'm gonna

throw -- Dave and Tom, I will

throw out a knee jerk of 85 to

90 percent is going to be from cost

synergies.

We have actually put very

little speculation, although

we have substantial enthusiasm,

we put various speculation into

prospective increased sales,

cross sales, although they are

clearly there.

I would say we are dealing

with a little higher order in

terms of the rational and the

basis for the synergy

estimates that we have done.

Therefore, they tend to be

predominantly cost-based.

Tom?

I'm sorry.

The -- certainly the analysis

we have done is based upon the

fact that, you know, with two

public companies and so

there's duplicate costs there

and duplicate costs in terms

of how we operate, and so we

are really more looked at the

expense side, really the

revenue side we figured while

we think it's significant, we

think that that takes a little

while longer to kind of get it

going and so forth.

You have to bid on things, and

those have got to turn into

sales.

So, we really have not spent much

in the way of synergy forecast

relative to the sales.

And I would say that Ron is

correct in the estimate, it

might even be a little higher than that.

So it's probably 90 percent is

cost synergies.

Tom?

Yeah, I think Dave's very

accurate in the way we have

gone through the synergy

analysis between the two teams

and came to the conclusion.

I think the cost part is

always the part that's more

predictable.

It's more manageable.

The revenue synergies are

there, it's a matter of

spending some more time out

with the customer base as now

we have come public with the

announcement and are able to

see, what kind of levels we

are talking about as we go

forward in the revenue side.

Okay great, thank you.

Maybe one question for you,

Tom.

We have seen [INAUDIBLE] and

now Remec and Spectrian

combine.

Any thoughts on long term remaining an

independent power amp supplier

in the market?

I don't want to single out

a specific competitor, but

I would say that one of the

things that did catch my eye

was the [INAUDIBLE]

combination the move towards

integrated solutions.

I feel very good about this

combination between Remec and

Spectrian with where we are

going to come out as this

thing closes and can come out

very quickly.

But, as you can see from my

enthusiasm about it, that I do

believe it's the right model

to follow, and again, I think

there's a lot of synergies by

doing it that way.

I think I would be at fault

if I did not state that Remec

was getting substantial

traction in the market place

promoting an integrated

solution.

It's our skills, it's what we

have built the company around,

it's the secret to our success

and defense and we believe

it's deja vu all over again here in

the commercial world.

So I have mentioned why the

addition of Spectrian to our

thesis makes us so much more

powerful.

Point made, I guess.

Thank you.

We go next to John Cardoza

with Chesapeake Partners.

First of all, just

congratulations on the

transaction.

Thanks, John.

My question was partially

answered.

It relates to the time period

over which you consider the

transaction.

Sounds like the companies have

known each other for awhile.

Maybe you can give some more

color as to how the

discussions led to what seems

like a very good combination.

You know, I can give some

light on that.

You know, Spectrian has

obviously known Remec for

quite awhile.

Again we are competitors in

the market.

We don't tend to fall over

each other every day.

I have gotten to know Ron

through some of the industry

forums, analyst meetings,

those types of things.

Over that time we have spent

some time together to talk

about the industry and where

we thought this thing was

going.

I liked what I saw with Remec,

aggressive company, they are

out there, they are always

pushing the envelope forward,

building this

integrated model.

And you know that attracted my

attention.

And then when I started really

understanding the business

more and how well these two

things fit together, and we

really didn't have a lot of

revenue that we were sharing,

that is pretty much, you know,

all additional revenue between

the two of us, it was

a -- something that I felt

very comfortable with.

And, you know, approached Ron

and talked about the

potentials of the businesses

going forward.

And I think one thing led to

another after that, as far as

the enthusiasm around what

this could bring to the market

place.

Two other comments.

The first one is he called me

about a half hour before I

would have called him, and it

started six months ago in this

last cycle and went through

probably three cycles prior to

that over the past six years.

We'll take our last question from

Larry Harris with HC

Wainright.

Thank you.

Good afternoon and

congratulations on the

announcement.

I was wondering if I could get

some additional information as

to what types of Remec

products might be sold

directly to service providers?

I know that Spectrian's

customers include Cingular,

and any clarification would be

helpful.

Right now the Remec history

was to be initially a prime

contractor to defense primes.

Then we entered the commercial

arena back in 1995 with a cold

start under the belief that

our defense technology was

applicable to the commercial

arena.

We started out in the same

frame, if you will, business

model serving the OEM just

like we served the prime

contractor.

One of the attractions to the

Airtech acquisition several

years ago was the fact that

they were in the product

business.

And we had been primarily OEM.

Well, with the squeeze on OEM

operating margins so they get

their competitive advantage,

product became very attractive

to us because, if you've got the

leading solution in the space,

you've got a competitive

advantage in technology and

the cost of the product, and

you do your job really, really

right, you can get

substantially north of the

gross margins that you can

earn from the OEMs.

So our concept has been moving

toward, how do we blend a

strong niche product business that

doesn't step on the toes of

our customers with a strong

OEM business, and we happen to

be very strong believers in

the synergy of the two working

together.

Constructively between us and

our customers, and also us and

the service providers.

Now, the specific answer to

the question is we sell

masthead amplifiers, we sell

boosters for base stations.

We're selling fixed wireless

access, total solutions, and

very -- I said I wasn't going

to talk about anything else so

I will not tell you how

excited I am about that market

space in the less developed

countries.

We'll save that for the 10th

and the 11th.

And we sell point-to-point radios.

At present there haven't been

great sales to the service

provider community.

Be assured, across the board,

we are looking at how to go to

a nirvana downstream of 50/50

OEM and niche product and try

to get a blended gross margin

north of the 30 percent I was

talking about.

Tom, with his support here in

North America of, for example,

of Verizon and Cingular, adds to

that product perspective and we

see this being able to be

accomplished without it being

disruptive to our OEM

customers.

Matter of fact, we see a strategy that allows

it to be very constructive and very

favorable in terms of them

getting what they want at a

lower price across a greater

absorption base with some

insights and possibly even some

market advantages by working

together as a team.

So I hope that's not too high

falutant an answer.

Tom, would you add to that?

Yes, I think Ron's very

right.

We can look at some very

integrated solutions that we

already have a strong

relationship with these

network operators.

I think we can take that to

the next level as we look at

offering them some new cost

savings and efficiencies in

their base station.

And continue to grow a strong

relationship with the OEMs at

the same time.

That concludes

today's Q&A portion.

I would like to turn the call

back over to Mr. Ragland for

any additional or closing

remarks.

Well, we are, you know

historically enthused.

We love doing what we are

doing and we love the idea of

doing a good job for our

shareholders.

But I happen to, maybe not

throw out the right set of

adjectives or adverbs, but

I'm really tickled with this deal from

top to bottom.

The synergies, the opportunity

to work with Tom, the merging

of the technologies, I think

probably the only sadness in

the whole damn thing is the

fondness we have and the

respect we have for Errol and

the fact that we all get older

and some day we will retire

and focus on other things.

That's the only downer.

Errol's gonna stay near us and

close to us, so that's the

good news.

I also want to point out that

Spectrian has been served by

RBC and Remec has been served

by Needham, and so any

questions or any appropriate

issues you want to address to

our investment banking

advisors, they would be the

targets.

And so it's a pleasure to talk

to you.

We will be, as I said, webcast

on the 10th of June,

investment conference on the

11th of June in New York, CIBC

conference.

We also will be doing a

webcast followed by a road

show to interested investors

and customers before the

shareholder vote.

And we'll announce that in

plenty of time.

So thanks for joining us.

Appreciate your positive and

supportive comments.

Bye-bye