10-Q/A 1 a2092724z10-qa.htm 10-Q/A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q/A

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 3, 2002

Commission File Number 1-16541

REMEC, INC.
(Exact name of registrant as specified in its charter)

CALIFORNIA (State of other jurisdiction of incorporation or organization)		95-3814301 I.R.S. Employer Identification Number
3790 VIA DE LA VALLE DEL MAR, CALIFORNIA (Address of principal executive offices)		92014 (Zip Code)

(858) 505-3713
(Registrant's telephone number, including area code)

Indicate by check whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 month (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o

Indicate number of shares outstanding of each of the issuer's classes of common stock, at the latest practicable date:

Class		Outstanding as of: May 3, 2002
Common shares, $.01 par value		45,312,820

REMEC, Inc.
Form 10-Q
For The Quarterly Period Ended May 3, 2002

Index		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Unaudited Financial Statements:
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
PART II	OTHER INFORMATION
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	17
Item 6.	Exhibits and Reports on Form 8-K	17
SIGNATURES		18

PART I—FINANCIAL INFORMATION

Item 1

REMEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

	May 3, 2002		January 31, 2002
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	34,413	$	49,438
Accounts receivable, net		43,717		33,765
Tax refund and other receivables		14,348		—
Inventories, net		44,704		44,314
Deferred income taxes		24,879		34,582
Other current assets		3,998		2,767

Total current assets		166,059		164,866
Property, plant and equipment, net		89,859		92,279
Restricted cash		17,049		17,049
Goodwill, net		35,409		34,909
Intangible assets, net		7,702		8,774
Other assets		5,619		8,354

	$	321,697	$	326,231

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	15,420	$	11,039
Accrued expenses and other current liabilities		22,969		30,055

Total current liabilities		38,389		41,094
Deferred income taxes and other long-term liabilities		7,858		3,268
Shareholders' equity		275,450		281,869

	$	321,697	$	326,231

See accompanying notes.

REMEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)

	Three months ended
	May 3, 2002			April 27, 2001
Net sales	$	59,063		$	58,923
Cost of sales		49,130			54,552

Gross profit		9,933			4,371
Operating expenses:
Selling, general and administrative		9,556			12,000
Research and development, including in-process		7,827			6,203

Total operating expenses		17,383			18,203

Loss from operations		(7,450	)		(13,832	)

Other income (expense):
Write-down of investment		—			(9,400	)
Gain on sale of subsidiary		—			7,614
Interest income and other, net		178			1,726

Loss before credit for income taxes		(7,272	)		(13,892	)
Credit for income taxes		(2,109	)		(4,723	)

Net loss	$	(5,163	)	$	(9,169	)

Net loss per common share:
Basic	$	(0.11	)	$	(0.21	)

Diluted	$	(0.11	)	$	(0.21	)

Shares used in computing net loss per common share:
Basic		45,217			44,681

Diluted		45,217			44,681

See accompanying notes.

REMEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

		Three months ended
		May 3, 2002			April 27, 2001
OPERATING ACTIVITIES
Net loss		$	(5,163	)	$	(9,169	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization			5,090			4,793
Write-down of investment			—			9,400
Gain on sale of subsidiary			—			(7,614	)
Changes in operating assets and liabilities:
	Accounts receivable		(9,952	)		11,019
	Tax refund and other receivables		(14,348	)		—
	Inventories		(391	)		(2,276	)
	Other current assets		12,303			(722	)
	Accounts payable		4,380			(5,861	)
	Accrued expenses, deferred income taxes and other long-term liabilities		(5,433	)		(5,293	)

Net cash used by operating activities			(13,514	)		(5,723	)
INVESTING ACTIVITIES
Additions to property, plant and equipment			(4,897	)		(7,658	)
Payment for acquisitions, net of cash acquired			—			(24,363	)
Proceeds from sale of subsidiary			—			13,782
Proceeds from sale of fixed assets			2,600			—
Other assets			(126	)		1,855

Net cash used by investing activities			(2,423	)		(16,384	)
FINANCING ACTIVITIES
Repayments on credit facilities and long-term debt			—			(2,200	)
Proceeds from sale of common stock			676			111

Net cash provided (used) by financing activities			676			(2,089	)
Effect of exchange rate changes on cash			236			(67	)

Decrease in cash and cash equivalents			(15,025	)		(24,263	)
Cash and cash equivalents at beginning of period			49,438			138,526

Cash and cash equivalents at end of period		$	34,413		$	114,263

See accompanying notes

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Quarterly Financial Statements

The interim condensed consolidated financial statements included herein have been prepared by REMEC, Inc. (the "Company" or "REMEC") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures, normally included in annual financial statements, have been condensed or omitted pursuant to such SEC rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended January 31, 2002, included in REMEC's Annual Report on Form 10-K. In the opinion of management, the condensed consolidated financial statements included herein reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of REMEC as of May 3, 2002, and the results of its operations for the three month periods ended May 3, 2002 and April 27, 2001. The results of operations for the interim period ended May 3, 2002, are not necessarily indicative of the results which may be reported for any other interim period or for the entire fiscal year.

The statements in this report on Form 10-Q that relate to future plans, events or performance are forward-looking statements. Actual results could differ materially due to a variety of factors, including REMEC's success in penetrating the commercial wireless market, risks associated with the cancellation or reduction of orders by significant commercial or defense customers, trends in the commercial wireless and defense markets, risks of cost overruns and product nonperformance and other factors and considerations described in REMEC's Annual Report on Form 10-K, and the other documents REMEC files from time to time with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. REMEC undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, other than as required by applicable law, that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

2. Earnings Per Share

REMEC calculates earnings per share in accordance with SFAS No. 128, "Earnings per Share." Basic earnings per share is computed using the weighted average shares outstanding for each period presented. Diluted earnings per share is computed using the weighted average shares outstanding plus potentially dilutive common shares using the treasury stock method at the average market price during the reporting period.

Dilutive securities may include options, warrants, and preferred stock as if converted and restricted stock subject to vesting. Potentially dilutive securities (consisting of stock options) totaling 321 and 581 shares for the three months ended May 3, 2002 and April 27, 2001, respectively, were excluded from the calculation of diluted earnings per share because of their anti-dilutive effect.

3. Inventories

Inventories consist of the following (in thousands):

	May 3, 2002		January 31, 2002
Raw materials	$	31,430	$	30,068
Work in progress		13,274		14,246

	$	44,704	$	44,314

Inventories related to contracts with prime contractors to the U.S. Government included capitalized general and administrative expenses of $1,000 and $1,067 at May 3, 2002, and January 31, 2002, respectively. REMEC had a reserve for excess and obsolete inventory of $22,989 and $23,221 as of May 3, 2002, and January 31, 2002, respectively.

4. Comprehensive Income

Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income, including foreign currency translation adjustments and unrealized gains and losses on investments, shall be reported, net of their related tax effect, to arrive at comprehensive income (loss).

The components of comprehensive loss, net of tax, are as follows (in thousands):

	Three Months Ended
	May 3, 2002			April 27, 2001
Net loss	$	(5,163	)	$	(9,169	)
Change in net unrealized gain (loss) on investment		(2,616	)		3,665
Foreign currency translation adjustment		236			409

Comprehensive loss	$	(7,543	)	$	(5,095	)

5. Acquisition Transactions

ADC Mersum Oy ("Solitra")

On October 26, 2001, REMEC acquired Solitra, located in Oulu, Finland, from ADC Telecommunications, Inc. The Company acquired the assets and assumed all of the obligations of Solitra's radio frequency (RF) division and 100% of the shares of Solitra in exchange for cash consideration of $51.6 million. Solitra specializes in supplying RF equipment to the leading OEMs in the mobile wireless infrastructure industry. The addition of Solitra will expand our product portfolio and global footprint, and furthers our engineering expertise within products currently developed and already supplied for 2.5G and 3G cellular systems. Solitra further expands our presence in Europe and strengthens our relationship with key strategic customers, especially those located in Scandinavia. The acquisition has been accounted for as a purchase, and accordingly, the total purchase price has been allocated to the acquired assets and liabilities assumed at their estimated fair values. The estimated excess of the purchase price over the net tangible assets acquired of approximately $29.6 million is being carried as intangible assets, including goodwill of $24.8 million. REMEC's consolidated financial statements include the results of Solitra from the date of acquisition.

Pacific Microwave Corporation ("PMC")

On March 7, 2001, REMEC acquired substantially all of the assets and assumed all of the obligations of PMC, a privately held microwave electronics manufacturing company located in the Philippines, in exchange for cash consideration of approximately $23.1 million. PMC was a privately held microwave electronics manufacturing company located in the Philippines. PMC specializes in the assembly, manufacture and test of RF, microwave and millimeter wave gallium arsenide devices, components, subsystem and systems for broadband voice, and data transmission over wireless communications networks. We believe that the addition of PMC will provide an increase in our millimeter wave manufacturing capacity. The acquisition has been accounted for as a purchase, and accordingly, the total purchase price has been allocated to the acquired assets and

liabilities assumed at their estimated fair values. REMEC's consolidated financial statements include the results of PMC from the date of acquisition.

Humphrey, Incorporated

On February 26, 2001, REMEC sold substantially all of the operating assets and operations of its wholly owned subsidiary Humphrey, Inc. in exchange for cash consideration of $13.8 million. The sale of Humphrey resulted in a gain of $7.6 million, which has been recorded in the fiscal 2002 consolidated statement of operations.

Pro Forma Information

The following unaudited pro forma summary presents the consolidated results of operations of the Company assuming that the acquisition's of Solitra, PMC and the disposition of Humphrey had occurred on the first day of REMEC's fiscal year ended January 2002. The pro forma condensed consolidated results of operations would be as follows (in thousands, except per share data):

		Three Months Ended
		May 3, 2002			April 27, 2001
		(Historical)
Net sales		$	59,063		$	73,509
Net loss		$	(5,163	)	$	(11,465	)
Loss per share:
	Basic	$	(0.11	)	$	(0.26	)
	Diluted	$	(0.11	)	$	(0.26	)

6. Information by Segment

Our business is divided into four groups: Broadband Wireless, Mobile Wireless, Defense and Space and Global Manufacturing. Not included in the above groups are certain non-operating subsidiaries of REMEC and certain foreign subsidiaries, including Nanowave, Inc., a majority owned subsidiary which designs and produces custom monolithic integrated circuits, critical modules and integrated subassemblies for fiber optic and broadband wireless communications. The Company's reportable segments have been determined based on the nature of the products offered to customers or the nature of their function within the organization. The Company evaluates performance and allocates resources based on profit or loss from operations before interest, other income and income taxes.

Segment Data (in thousands):

		Three Months Ended
		May 3, 2002			April 27, 2001
Net sales:
Broadband Wireless		$	7,905		$	19,603
Mobile Wireless			24,276			18,660
Defense and Space			17,234			15,294
Global Manufacturing			15,401			16,539
All other			2,315			4,503
Intersegment revenues			(8,068	)		(15,676	)

	Consolidated net sales	$	59,063		$	58,923

Income (loss) from operations:
Broadband Wireless		$	(5,266	)	$	(2,775	)
Mobile Wireless			(4,407	)		(9,430	)
Defense and Space			1,991			710
Global Manufacturing			2,106			339
All other			(1,874	)		(2,676	)

	Consolidated loss from operations	$	(7,450	)	$	(13,832	)

Depreciation and amortization:
Broadband Wireless		$	405		$	1,075
Mobile Wireless			977			692
Defense and Space			775			731
Global Manufacturing			2,082			1,055
All other			851			1,240

	Consolidated depreciation and amortization	$	5,090		$	4,793

		May 3, 2002		January 31, 2002
Identifiable assets:
Broadband Wireless		$	8,543	$	33,275
Mobile Wireless			74,724		84,911
Defense and Space			33,510		31,725
Global Manufacturing			101,911		57,597
All other			105,025		123,077

	Consolidated identifiable assets	$	323,713	$	330,585

7. Restructuring

During the fourth quarter of fiscal 2002, the Company announced that it was undertaking various actions to restructure its operations to improve its overall financial performance. The Company's restructuring plan included reductions in its overall cost structure, realignment of manufacturing capacity to current levels of demand and the transition of manufacturing operations to low cost, low tax offshore locations. Part of the restructuring effort also included a reduction in force of approximately 1,100 employees. As a result of this plan, restructuring related charges of approximately $17.3 million were recognized as operating expenses in fiscal 2002.

The following table (in thousands) summarizes the balance of the accrued restructuring reserve, which has been included in accrued liabilities at May 3, 2002:

		Severance Costs for Involuntary Employee Terminations			Costs to Exit Certain Lease Obligations			Other Costs Related to Consolidation of Facilities			Total
Balance at January 31, 2002		$	707		$	2,208		$	250		$	3,165
Restructuring Charge Activity:
	Cash		(114	)		(323	)		(75	)		(512	)

Balance at May 3, 2002		$	593		$	1,885		$	175		$	2,653

8. Goodwill and Other Intangible Assets—Adoption of Statement 142

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No.141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase method of accounting be used for all business combinations closed after June 30, 2001. SFAS 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 also requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Additionally, SFAS 142 requires that goodwill included in the carrying value of equity method investments no longer be amortized.

The Company has implemented SFAS No. 141 and SFAS 142 and began applying the new rules on accounting for goodwill and other intangible assets effective February 1, 2002. The net book value assigned to our assembled workforce intangible asset of $500,000 has been reclassed and reported as goodwill and goodwill will no longer be amortized effective February 1, 2002.

The following table presents a roll-forward of goodwill from January 31, 2002 to May 3, 2002:

	Goodwill, net
Balance at January 31, 2002	$	34,909,000
Reclassification of assembled workforce intangible		500,000

Balance at May 3, 2002	$	35,409,000

The following table presents reconciliation's of net loss and per share data to what would have been reported had the new rules been in effect for the three months ended April 27, 2001. (in thousands, except per share data):

	Three Months Ended
	May 3, 2002			April 27, 2001
Net loss as reported	$	(5,163	)	$	(9,169	)
Add back goodwill amortization, net of tax		—			606

Adjusted net loss	$	(5,163	)	$	(8,563	)

Basic and diluted net loss per share:
Reported net loss per share	$	(0.11	)	$	(0.21	)
Goodwill amortization per share, net of tax		—			0.01

Adjusted net loss per share	$	(0.11	)	$	(0.20	)

Other Intangible Assets

Acquired intangible assets subject to amortization at May 3, 2002 were as follows (in thousands):

	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Core technology	$	9,800	$	2,843	$	6,957
Trademark and trade name		1,464		719		745

	$	11,264	$	3,562	$	7,702

Amortization expense for intangible assets was $347 and $201 for the three months ended May 3, 2002 and April 27, 2001 respectively.

The estimated annual amortization expense for amortized intangible assets owned as of December 31, 2002 for each of the five fiscal years is as follows (in thousands):

Years Ending December 31,
2002	$	1,265
2003		1,388
2004		1,388
2005		1,388
2006		684
Thereafter		1,772

	$	7,885

9. Subsequent Event

On May 19, 2002, REMEC and Spectrian Corporation, a publicly held company, designer and manufacturer of single carrier and multi-carrier high-power RF amplifiers, announced that the two companies had entered into a definitive merger agreement through with REMEC will acquire Spectrian for approximately $160 million in stock and cash. This transaction is subject to the REMEC and Spectrian shareholders' approval, as well as customary closing conditions and regulatory approvals. Spectrian is located in Sunnyvale, California.

10. Legal Proceedings

Neither REMEC nor any of its subsidiaries is presently subject to any material litigation, nor to REMEC's knowledge, is such litigation threatened against REMEC or its subsidiaries, other than routine actions and administrative proceedings arising in the ordinary course of business, all of which collectively are not anticipated to have a material adverse effect on the business, results of operations or financial condition of REMEC.

Item 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our business is divided into four groups: Broadband Wireless, Mobile Wireless, Defense and Space and Global Manufacturing. The Broadband Wireless group develops and manufactures microwave products for fixed access wireless communications infrastructure equipment integrated into wireless networks for high speed voice, video, data and internet services. The Mobile Wireless group develops and manufactures integrated RF products that improve the performance and cost effectiveness of mobile wireless communications infrastructure equipment. The Defense and Space group provides a broad spectrum of RF, microwave and guidance products for systems integrated by prime contractors in military and space applications. The Global Manufacturing group provides high volume production of microwave products, including test and critical hybrid circuits, primarily to the other product groups. Not included in the above groups are certain non operating subsidiaries of REMEC and certain foreign subsidiaries, including Nanowave, Inc., a majority owned subsidiary which designs and produces custom monolithic integrated circuits, critical modules and integrated subassemblies for fiber optic and broadband wireless communication systems.

Results of Operations as a Percentage of Net Sales

The following table sets forth, as a percentage of total net sales, certain consolidated statement of income data for the periods indicated.

	Three months ended
	May 3, 2002		April 27, 2001
Net sales	100.0	%	100.0	%
Cost of sales	83.2		92.6

Gross profit	16.8		7.4
Operating expenses:
Selling, general & administrative	16.2		20.4
Research and development	13.2		10.5

Total operating expenses	29.4		30.9

Loss from operations	(12.6	)	(23.5	)
Write-down of investment	—		(15.9	)
Gain on sale of subsidiary	—		12.9
Interest income and other, net	0.3		2.9

Loss before income taxes	(12.3	)	(23.6	)
Credit for income taxes	(3.6	)	(8.0	)

Net loss	(8.7	)%	(15.6	)%

Results of Operations

Net Sales And Gross Profit. Net sales were $59.1 million for the three months ended May 3, 2002, and were essentially unchanged from the comparable prior year period. Gross profit increased 127.2% from $4.4 million for the three months ended April 27, 2001, to $9.9 million for the three months ended

May 3, 2002. Consolidated gross margin as a percentage of sales increased from 7.4% in the prior year to 16.8% for the three months ended May 3, 2002. Results for the three months ended April 27, 2001, included reserves for excess inventory of approximately $7.0 million. The improvement in both gross profit and gross margin as a percentage of sales during the current year reflects the absence of these charges and a reduction of operating costs associated with the Company's restructuring efforts.

Segment Information. The following segment information should be read in conjunction with the financial results of each reporting segment as detailed in Note 6 of the Condensed Consolidated Financial Statements. The following segment sales figures exclude intersegment revenues totaling $8.1 million and $15.7 million for the three months ended May 3, 2002 and April 27, 2001, respectively. Intersegment revenues resulted primarily from sales from the Global Manufacturing group. For purposes of this discussion, intersegment revenues were eliminated. Results within each of our business segments were as follows:

Broadband Wireless ("BBW"). Sales decreased 61.8% from $19.6 million for the three months ended April 27, 2001 to $7.5 million for the three months ended May 3, 2002. The decline in BBW sales reflects the overall decline in industry demand for point-to-point radios and transceivers. Gross margin as a percentage of sales decreased from 16.3% for the three months ended April 27, 2001 to 1.8% for the three months ended May 3, 2002. The decrease in gross margins in the current year is due to decreased overhead absorption resulting from the decline in production volume.

Mobile Wireless. Sales increased 1.7% from $18.7 million for the three months ended April 27, 2001 to $18.9 million for the three months ended May 3, 2002, primarily as a result of an increase in filter products sales for mobile wireless communications infrastructure equipment which offset declining masthead and amplifier sales. Gross margins increased from a negative 22.1% for the three months ended April 27, 2001 to a positive 16.2% for the three months ended May 3, 2002. Results for the three months ended April 27, 2001 include reserves for excess inventory totaling approximately $5.2 million. The improvement in gross margins in the current year is due to the absence of such costs.

Defense and Space. Sales increased 12.7% from $15.3 million for the three months ended April 27, 2001 to $17.2 million for the three months ended May 3, 2002. Gross margins as a percentage of sales increased from 22.0% for the period ended April 27, 2001 to 22.5% for the period ended May 3, 2002. The increase in sales revenue and the increase in gross margins as a percentage of sales reflect increased production volumes based on customer contract delivery requirements.

Global Manufacturing. Sales to external customers increased 117.2% from $6.0 million for the three months ended April 27, 2001 to $13.1 million for the three months ended May 3, 2002. The increase in sales is primarily due to increased demand for consignment and turnkey manufacturing services. Gross margin as a percentage of sales increased from 11.3% for the three months ended April 27, 2001 to 18.6% for the three months ended May 3, 2002 as a result of improved overhead absorption due to increased production volume.

Other Sales. Other sales, which are primarily generated at our majority owned Nanowave subsidiary, decreased 42.9% from $4.1 million for the three months ended April 27, 2001 to $2.3 million for the three months ended May 3, 2002. The sales decline is attributable to decreased demand for microwave modules for the fiber optic market. Gross margin as a percentage of sales increased to 18.3% for the three months ended May 3, 2002 as a result of a reduction of manufacturing overhead at Nanowave.

Selling, General and Administrative Expenses. Selling, general and administrative expenses, or SG&A, decreased 20.4% from $12.0 million for the three months ended April 27, 2001 to $9.6 million for the three months ended May 3, 2002. The decrease in SG&A is primarily attributable to the reversal of $1.2 million of previously accrued bonuses which were not paid due to the Company's poor financial performance during fiscal 2002 and the deteriorating business climate, the reversal of $0.5 million reserve for professional fees that the Company had determined were not required and a $0.6 million

reduction of goodwill amortization due to the implementation of FAS 142 which eliminates the requirement to amortize goodwill. As a percentage of net sales, SG&A expenses decreased from 20.4% for the three months ended April 27, 2001 to 16.2% for the three months ended May 3, 2002 as a result of the factors noted above.

Research And Development Expenses. Research and development expenses increased 26.2% from $6.2 million for the three months ended April 27, 2001 to $7.8 million for the three months ended May 3, 2002, and as a percentage of net sales, increased from 10.5% for the three months ended April 27, 2001 to 13.2% for the three months ended May 3, 2002. These expenditures are almost entirely attributable to REMEC's Broadband Wireless and Mobile Wireless groups and reflect activity associated with new wireless communications product development initiatives which the Company believes are required to meet current and future market and customer requirements.

Write-Down Of Investment. Results of operations for the three months ended April 27, 2001 include a $9.4 million charge to operations representing the write-down of our investment in Allgon AB common stock, which had been acquired in conjunction with our proposed merger with Allgon, to its market value. Subsequent increases and decreases have been recorded as unrealized gains and losses in other comprehensive income. There was no similar write-down in the current period.

Gain On Sale Of Subsidiary. Results of operations for the three months ended April 27, 2001 include the gain of $7.6 million from the sale of our Humphrey, Inc. subsidiary. There was no similar gain in the current period.

Interest Income And Other, Net. Interest income and other, net decreased 89.7% from $1.7 million for the three months ended April 27, 2001 to $0.2 million for the three months ended May 3, 2002. The decrease was due to the combination of a reduction in the amount of funds available for investment and reduced yields on our investments as short term interest rates declined from their levels of a year ago.

Credit For Income Taxes. The Company recorded a credit for income taxes of $2.1 during the three months ended May 3, 2002 as compared to a credit of $4.7 million for the comparable period. The credit for income taxes recorded during this fiscal period reflects the recognition of the tax benefit associated with REMEC's domestic net operating losses.

The effective tax rate for the three months ended May 3, 2002 and April 27, 2001 are 34% and 29%, respectively. The effective rate differences relate to distinct changes in operational income from year to year, as well as foreign tax rate differences, the utilization of tax credits, and the establishment of valuation reserves against deferred tax assets.

Liquidity and capital resources

At May 3, 2002, REMEC had $127.7 million of working capital, which included cash and equivalents totaling $34.4 million. REMEC leases certain office and production facilities under noncancelable agreements classified as operating leases. In accordance with generally accepted accounting principles, obligations under these long-term leases are not recorded on the balance sheet as liabilities until payment is due. For further discussion of REMEC's lease obligations, see our Annual Report on Form 10-K for the year ended January 31, 2002. During fiscal 2001, REMEC entered into a security agreement with a bank whereby REMEC agreed to pledge approximately $17.0 million in connection with the collateralization of one of our facility leases with an affiliate of the bank. The collateral for this lease is included in our balance sheet as restricted cash.

During the three months ended May 3, 2002, operations used cash of approximately $13.5 million. The negative operating cash flow during the first quarter was principally the result of cash used to fund working capital requirements, including a $10.0 million increase in accounts receivable arising as a result of difficulties encountered in converting to our new accounting system.

During the three months ended May 3, 2002, $2.4 million was used by investing activities consisting of $4.9 million of capital expenditures and a net cash inflow of approximately $2.6 million resulting from the net cash proceeds received from the sale of certain real property.

Financing activities provided approximately $0.7 million during the three months ended May 3, 2002, as a result of proceeds from the issuance of common stock by REMEC under its Employee Stock Purchase Plan and from stock option exercises.

Our future capital requirements will depend upon many factors, including the nature and timing of orders by OEM customers, the progress of our research and development efforts, expansion of our marketing and sales efforts, and the status of competitive products. REMEC believes that available capital resources will be adequate to fund its operations for at least twelve months.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially may result in materially different results under different assumptions or conditions. We consider the following accounting policies to be those that are both most important to the portrayal of our financial results and that require the most subjective judgment.

Revenue Recognition. We derive the majority of our revenue from product sales and we recognize revenue from these sales upon transfer of title to the product, which generally occurs upon shipment to the customer. We generally ship to our customers "Free on Board" shipping point. The Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition," provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. We believe that our revenue recognition policy is consistent with this guidance and in accordance with generally accepted accounting principles. If our shipping policies, including the point of title transfer, were to change, materially different reported results would be likely.

Inventory Adjustments. Inventories are stated at the lower of weighted average cost or market. We review the components of our inventory on a regular basis for excess, obsolete and impaired inventory based on estimated future usage and sales. As a general rule, stock levels in excess of one year's expectation of usage or sales are fully reserved. The likelihood of any material inventory write-down is dependent on customer demand, competitive conditions or new product introductions by us or our customers that vary from our current expectations. If future demand were significantly less favorable than projected by management, increases to the reserve would be required. At May 3, 2002, inventories totaled $44.7 million, net of reserves for excess and obsolete inventory of $23.0 million and contract losses of $2.9 million.

Valuation of Goodwill, Intangible and Other Long-Lived Assets. In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for Impairment of Long-Lived Assets, we periodically assess the impairment of goodwill, intangible and other long-lived assets which require us to make assumptions and judgments regarding the carrying value of these assets. The assets are considered to be impaired if we determine that the carrying value may not be recoverable based upon our assessment of the following events or changes in circumstances: the asset's ability to continue to generate income from operations and positive cash flow in future periods; any volatility or significant decline in our stock price and market capitalization compared to our net book value; loss of legal

ownership or title to the asset; significant changes in our strategic business objectives and utilization of the asset(s); and the impact of significant negative industry or economic trends.

If assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. In addition, we base the useful lives and related amortization or depreciation expense on our estimate of the period that the assets will generate revenues or otherwise be used by us. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase.

In 2002, SFAS No. 142 "Goodwill and Other Intangible Assets" became effective and as a result, we no longer amortize goodwill assets. In lieu of amortization, we are required to perform an initial impairment review of our goodwill in 2002 and an annual impairment review thereafter.

Accrued Restructuring Related Costs. To the extent that exact amounts are not determinable, we have estimated amounts for the direct costs and liabilities related to our restructuring in accordance with the Emerging Issues Task Force ("EITF") Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." We recorded a charge for restructuring related costs of $17.3 million during fiscal 2002. At May 3, 2002, the remaining balance of accrued restructuring costs was $2.7 million. Materially different reported results would be likely if any of the estimated costs or expenses were different from our estimations or if the approach, timing and extent of the restructuring plans adopted by management were different.

Valuation of Deferred Income Taxes. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Management is implementing tax strategies in fiscal 2003, including the carryback of net operating losses and an international tax reorganization, that are expected to provide for the realization of the deferred tax assets generated in fiscal 2002. Thus, the deferred tax assets relating to the domestic net operating loss and tax credit carryforwards have been classified as current. The likelihood of a material change in our expected realization of these assets depends on: our ability to carry back losses to periods with taxable income, future taxable income allowing us to deduct tax loss carryforwards against such future taxable income, the effectiveness of our tax planning and strategies among the various tax jurisdictions in which we operate and any significant changes in the tax treatment received in the foreign jurisdictions in which we operate.

PART II—OTHER INFORMATION

Item 3. Qualitative and Quantitative Disclosures About Market Risk

Interest Rate Risk. REMEC is exposed to changes in interest rates to the extent of its investments in certain held-to-maturity securities. Under current REMEC policies, REMEC does not use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical 100 basis point increase in interest rates in REMEC cash equivalent securities would not materially affect the fair value of these securities at May 3, 2002.

Foreign Currency Exchange Rate. REMEC's earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. To a certain extent, foreign currency exchange rate movements also affect REMEC's competitive position, as exchange rate changes may affect business practices and/or pricing strategies on non-U.S. based competitors. The primary foreign currency risk exposure is related to U.S. dollar to British pound and U.S. dollar and British pound to Euro conversions. Considering the anticipated cash flows from firm sales commitments, anticipated sales for the next quarter and foreign currency denominated accounts as of May 3, 2002, a hypothetical 10% weakening of the U.S. dollar relative to all other currencies would not materially adversely affect expected second quarter earnings or cash flows. This analysis is dependent on actual export sales during the next quarter occurring within 90% of budgeted forecasts. The effect of the hypothetical change in exchange rates ignores the effect this movement may have on other variables including competitive risk. If it were possible to quantify this competitive impact, the results could well be different than the sensitivity effects described above. In addition, it is unlikely that all currencies would uniformly strengthen or weaken relative to the U.S. dollar. In reality, some currencies may weaken while others may strengthen. REMEC reviews its position each month for expected currency exchange rate movements we currently do not enter into financial contracts to hedge foreign currency exchange risk on current, anticipated or forecasted transactions.

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits.

•: Exhibit 99.1—Certification under Section 906 of the Sarbanes—Oxley Act 2002.

(b): There were no reports on Form 8-K filed by the registrant during the quarter ended May 3, 2002.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

REMEC, Inc. (Registrant)
By:	/s/ RONALD E. RAGLAND Ronald E. Ragland Chairman and Chief Executive Officer
By:	/s/ DAVID L. MORASH David L. Morash Chief Financial and Accounting Officer
Date:	November 12, 2002

I, Ronald E. Ragland, Chief Executive Officer of REMEC, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q/A of REMEC, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

Date: November 12, 2002
		/s/ RONALD E. RAGLAND Ronald E. Ragland, Chairman and Chief Executive Officer

I, David L. Morash, Chief Financial and Accounting Officer of REMEC, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q/A of REMEC, Inc.;

Date: November 12, 2002
		/s/ DAVID L. MORASH David L. Morash, Chief Financial and Accounting Officer

QuickLinks

REMEC, Inc. Form 10-Q For The Quarterly Period Ended May 3, 2002
PART I—FINANCIAL INFORMATION

Item 1

REMEC, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
REMEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share data)
REMEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Item 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II—OTHER INFORMATION

Item 3. Qualitative and Quantitative Disclosures About Market Risk

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES