-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TF6MM19KHXkmVw1FSXiik0vC1NaJXOKf745gx4zmVPy/S2HO6/SKcoRd8gDQJp+z 4uoahZq4w+nOSThzWz3FGA== 0000912057-00-024739.txt : 20000516 0000912057-00-024739.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024739 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAVETEK WANDEL & GOLTERMANN INC CENTRAL INDEX KEY: 0001043015 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 330457664 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-32195 FILM NUMBER: 634566 BUSINESS ADDRESS: STREET 1: 1030 SWABIA COURT STREET 2: STE 301 CITY: RESEARCH TRIANGLE PA STATE: NC ZIP: 27709-3585 BUSINESS PHONE: 6197932300 MAIL ADDRESS: STREET 1: 11995 EL CAMINO REAL STREET 2: STE 301 CITY: SAN DIEGO STATE: CA ZIP: 92130 FORMER COMPANY: FORMER CONFORMED NAME: WAVETEK CORP DATE OF NAME CHANGE: 19970724 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____. Commission file number 333-32195 WAVETEK WANDEL GOLTERMANN, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) DELAWARE 33-0457664 - ------------------------------- ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1030 SWABIA COURT RESEARCH TRIANGLE PARK, NORTH CAROLINA 27709-3585 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (919) 941-5730 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) NOT APPLICABLE ------------------------------------------ Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report. Indicate by check mark 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 months (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 X No . --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 15, 2000, Registrant had only one class of common stock, of which there were 13,320,423 shares outstanding. WAVETEK WANDEL GOLTERMANN, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 TABLE OF CONTENTS
PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 31, 2000 and September 30, 1999..................3 Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2000 and March 31, 1999.....................................................4 Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2000 and March 31, 1999...............................................................5 Notes to Consolidated Financial Statements...............................................6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................................................27 PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS.......................................................................28 ITEM 2 CHANGES IN SECURITIES...................................................................28 ITEM 3 DEFAULTS UPON SENIOR SECURITIES.........................................................28 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................28 ITEM 5 EXHIBITS AND REPORTS ON FORM 8-K........................................................28
PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS WAVETEK WANDEL GOLTERMANN, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
March 31, September 30, 2000 1999 --------- --------- (unaudited) (note) ASSETS Current assets: Cash and cash equivalents ........................................................... $ 17,974 $ 17,089 Accounts receivable (less allowance for doubtful accounts of $4,071 at March 31, 2000 (unaudited) and $4,608 at September 30, 1999) ...................... 92,113 102,532 Inventories ......................................................................... 71,506 62,515 Deferred income taxes ............................................................... 6,467 8,922 Other current assets ................................................................ 13,997 13,636 --------- --------- Total current assets .................................................................. 202,057 204,694 Property, plant and equipment, net .................................................... 53,066 60,575 Intangible assets, net ................................................................ 136,903 162,482 Other non-current assets .............................................................. 5,457 6,982 --------- --------- Total assets .......................................................................... $ 397,483 $ 434,733 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks .............................................................. $ 9,094 $ 17,510 Current portion of long-term obligations ............................................ 5,079 6,202 Current portion of long-term obligations to related parties ......................... 9,582 10,721 Trade payables ...................................................................... 34,307 31,549 Accrued compensation ................................................................ 22,811 26,626 Income taxes payable ................................................................ 4,105 4,250 Other current liabilities ........................................................... 42,283 38,838 --------- --------- Total current liabilities ............................................................. 127,261 135,696 Long-term obligations, net of current portion ......................................... 199,942 228,083 Pension liabilities ................................................................... 33,455 35,671 Deferred income taxes ................................................................. 4,418 7,957 Other non-current liabilities ......................................................... 7,582 9,389 --------- --------- Total liabilities ..................................................................... 372,658 416,796 --------- --------- Commitments and contingencies Stockholders' equity: Common stock, par value $.01, 50,000 shares authorized, 13,320 shares at March 31, 2000 and 13,202 shares at September 30, 1999 issued and outstanding .......................................................... 133 132 Additional paid-in capital ........................................................ 73,222 72,948 Accumulated deficit ............................................................... (59,387) (65,641) Other comprehensive income ........................................................ 10,857 10,498 --------- --------- Total stockholders' equity ............................................................ 24,825 17,937 --------- --------- Total liabilities and stockholders' equity ............................................ $ 397,483 $ 434,733 ========= =========
Note: The balance sheet at September 30, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Accompanying Notes to Consolidated Financial Statements are an Integral Part of these Balance Sheets. 3 WAVETEK WANDEL GOLTERMANN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Six Months Ended March 31, Ended March 31, ---------------------- ---------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Net sales ................................................. $ 127,155 $ 114,466 $ 262,731 $ 240,931 Cost of goods sold ........................................ 50,434 47,927 103,428 102,562 --------- --------- --------- --------- Gross margin .............................................. 76,721 66,539 159,303 138,369 Operating expenses: Marketing and selling ................................... 35,974 34,915 73,042 70,437 Research and development ................................ 18,454 18,771 36,231 36,615 General and administrative .............................. 10,634 11,538 21,270 23,626 Amortization of intangible assets ....................... 4,049 4,874 8,488 9,690 Provisions for restructuring operations and other non-recurring charges ................................. 1,652 -- 2,020 --------- --------- --------- --------- Total operating expenses ..................... 70,763 70,098 141,051 140,368 --------- --------- --------- --------- Operating income (loss) ................................... 5,958 (3,559) 18,252 (1,999) Other (income) expense, net: Interest income ......................................... (307) (242) (567) (475) Interest expense ........................................ 4,606 5,244 9,968 10,435 Other, net .............................................. (3,834) 370 (2,522) 131 --------- --------- --------- --------- Other (income) expense, net .................. 465 5,372 6,879 10,091 --------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes 5,493 (8,931) 11,373 (12,090) Provision (benefit) for income taxes ...................... 2,471 (5,716) 5,119 (7,738) --------- --------- --------- --------- Net income (loss) ......................................... $ 3,022 $ (3,215) $ 6,254 $ (4,352) ========= ========= ========= ========= Basic net income (loss) per share ......................... $ .23 $ (0.24) $ .47 $ (0.33) ========= ========= ========= ========= Weighted average number of shares outstanding-basic ....... 13,313 13,202 13,288 13,202 ========= ========= ========= ========= Diluted net income (loss) per share ....................... $ .22 $ (0.24) $ .46 $ (0.33) ========= ========= ========= ========= Weighted average number of shares outstanding-diluted ..... 13,653 13,202 13,567 13,202 ========= ========= ========= =========
The Accompanying Notes to Consolidated Financial Statements are an Integral Part of these Statements of Operations. 4 WAVETEK WANDEL GOLTERMANN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Six Months Ended March 31, ---------------------- 2000 1999 --------- --------- OPERATING ACTIVITIES: Net income (loss) ................................................ $ 6,254 $ (4,352) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization expense .......................... 14,428 17,308 Restructuring and other non-recurring charges .................. 2,020 -- Deferred income taxes .......................................... (1,082) (7,984) Changes in operating assets and liabilities: Accounts receivable .......................................... 10,462 1,989 Inventories .................................................. (8,958) 5,558 Other current assets ......................................... 488 6 Accounts payable and accrued expenses ........................ (1,425) (16,267) Income taxes payable, net .................................... (144) 14 Pension liabilities .......................................... (2,200) 2,033 Gain on sale of assets ....................................... (3,229) -- Other, net ................................................... 1,890 1,278 --------- --------- Net cash provided by (used in) operating activities .............. 18,504 (417) INVESTING ACTIVITIES: Purchase of property, plant and equipment ........................ (6,365) (7,642) Exercise of stock options ........................................ 275 -- Proceeds from sale of assets ..................................... 29,400 -- --------- --------- Net cash provided (used in) by investing activities .............. 23,310 (7,642) FINANCING ACTIVITIES: Proceeds from long-term obligations .............................. 107,477 139,059 Principle payments on long-term obligations ...................... (147,407) (145,702) Other, net ....................................................... -- (672) --------- ---------- Net cash used in financing activities ............................ (39,930) (7,315) Effect of exchange rate changes on cash and cash equivalents ..... (999) (3,047) --------- ---------- Increase (decrease) in cash and cash equivalents ................. 885 (18,421) Cash and cash equivalents at beginning of period ................. 17,089 35,544 --------- --------- Cash and cash equivalents at end of period ....................... $ 17,974 $ 17,123 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: Cash paid for interest ........................................... $ 10,406 $ 9,067 ========= ========= Cash paid for income taxes ....................................... $ 3,223 $ 3,653 ========= =========
The Accompanying Notes to Consolidated Financial Statements are an Integral Part of these Statements of Cash Flows. 5 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION Wavetek Wandel Goltermann, Inc., (the "Company") is a leading global designer, manufacturer, and marketer of a broad range of communications test instruments used to develop, manufacture, install, and maintain communications networks and equipment. The Company conducts its communications test business, which addresses most sectors of the communications test market, in four product areas: (1) telecom networks (traditional voice/data transmissions and new multi-service networks), (2) enterprise networks (local and wide-area network infrastructures), (3) multimedia (cable television and digital video broadcast), and (4) wireless (mobile telephony and data). These products provide comprehensive testing solutions to a wide range of end users. The Company's high-end instruments are used during the product development phase to stress test product functionality and performance. Other products are used during the production process to verify conformance to manufacturing specifications, while the Company's enhanced portable field service tools enable field technicians to quickly install, repair and maintain complex network infrastructures, as well as validate service levels. The Company also provides distributed remote test systems to many of its service provider customers, which allow such customers to more efficiently utilize their network engineers to monitor and test service levels. In addition, the Company provides repair, upgrade, and calibration services, as well as value-added professional services such as consulting and training on a worldwide basis. The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated balance sheet as of September 30, 1999 has been taken from the audited financial statements as of that date. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-K for the fiscal year ended September 30, 1999. The consolidated financial statements included herein reflect all adjustments (none of which are other than normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the information included. All significant intercompany accounts and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results to be expected for the full year. For comparative purposes, certain amounts have been reclassified to conform with the fiscal 2000 presentation. 2. NET INCOME (LOSS) PER SHARE The Company computes earnings per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE ("SFAS 128"). Basic net income (loss) per share is based only on average common shares outstanding and excludes the dilutive effects of the Company's outstanding stock options. Diluted net income (loss) per share includes the dilutive effect of the Company's outstanding stock options. The Company has a simple capital structure and, accordingly, the only difference in the Company's computations of basic and diluted net income (loss) per share is the dilutive effect of outstanding stock options. For the three and six months ended March 31, 1999, the effect of outstanding stock options would have been anti-dilutive and, therefore, was not considered in the computation of diluted loss per share for such periods. All net income (loss) per share amounts for all periods have been presented in accordance with the requirements of SFAS 128. 6 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. FINANCIAL STATEMENT DETAILS Inventories consist of the following:
March 31, September 30, 2000 1999 ---------- ------------- (dollars in thousands) Materials ............... $17,919 $13,997 Work-in-progress ........ 14,718 18,172 Finished goods .......... 38,869 30,346 ------- ------- $71,506 $62,515 ========= =======
4. OTHER COMPREHENSIVE INCOME (LOSS) On October 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income, which established standards for reporting and displaying comprehensive income (loss) and its components in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss). The Company's current and accumulated other comprehensive income (loss) as of and for the three and six month periods ended March 31, 2000 and 1999 is comprised solely of foreign currency translation adjustments. Comprehensive income (loss) is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------ ---------------- 2000 1999 2000 1999 ------- ------- ------ ------- (dollars in thousands) Net income (loss) ...................... $ 3,022 $(3,215) $6,254 $(4,352) Foreign currency translation adjustments (764) (345) 360 (671) ------- ------- ------ ------- Comprehensive income (loss) ............ $ 2,258 $(3,560) $6,614 $(5,023) ======= ======= ====== =======
5. SEGMENT INFORMATION Based on its organizational structure prior to January 2000, the Company previously operated in two reportable segments: communications test and other test products. The Company's communications test business includes telecom networks, enterprise networks, multimedia, wireless and the service business. In the second quarter of 2000, the Company divested itself of its other test products business, which included test tools, precision measurement instruments, and electromagnetic measurement instruments. The Company's chief operating decision makers utilize revenue and operating income (loss) information, as defined below, in assessing performance and making overall operating decisions and resource allocations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. 7 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Information about the Company's operating segments for the three months ended March 31, 2000 and 1999 is as follows (in thousands):
Communications Other Test Corporate/ Test Products Other Total -------------- -------------- ----------- ------------- Revenues: 2000 ...................................... $124,592 $ 2,563 $ -- $127,155 1999 ...................................... 106,825 7,641 -- 114,466 Operating income (loss): 2000 (1) .................................. 10,764 333 562 11,659 1999 (1) .................................. 2,846 204 (1,735) 1,315
Information about the Company's operating segments for the six months ended March 31, 2000 and 1999 is as follows (in thousands):
Communications Other Test Corporate/ Test Products Other Total -------------- -------------- ----------- ------------- Revenues: 2000 ...................................... $250,564 $12,167 $ -- $262,731 1999 ...................................... 226,090 14,842 -- 240,932 Operating income (loss): 2000 (1) .................................. 28,423 287 51 28,760 1999 (1) .................................. 14,176 937 (7,422) 7,691 Information about the Company's operating segments as of March 31, 2000 and September 30, 1999 is as follows (in thousands):
Communications Other Test Corporate/ Test Products Other (2) Total -------------- -------------- ----------- ------------- Total Assets: March 31, 2000 ............................ $117,619 $ 3,934 $275,931 $397,483 September 30, 1999 ........................ 129,426 6,749 298,558 434,733
Notes: (1) Operating income (loss) on reportable segments is defined by management as operating income (loss), including intersegment profits, and excluding amortization of intangible assets and restructuring and other non-recurring charges. (2) Corporate/Other assets include purchased intangible assets and investments in subsidiaries at March 31, 2000 and September 30, 1999 totaling $203,433 and $237,499, respectively. 8 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. SALE OF PRECISION MEASUREMENT AND TEST TOOLS DIVISIONS In January 2000, the Company completed the sale of its precision measurement and test tools divisions to Fluke Electronics Corporation, a subsidiary of Danaher Corporation. It was determined that these businesses were not a strategic fit with the Company's core communications test business. Sales for the three months ended December 31, 1999 amounted to $8.8 million and fiscal year 1999 sales totaled $25.8 million. There were no significant gains or losses realized on the sale of these two divisions. 7. SALE OF SAFETY TEST SOLUTION BUSINESS In February 2000, the Company completed the sale of its safety test solution business to L-3 Communications Corporation. It was determined that this business was not a strategic fit with the Company's core communications test business. Sales for the three months ended December 31, 1999 amounted to $.8 million and fiscal year 1999 sales totaled $4.4 million. Sales from January 1, 2000 to the closing date of the sale were immaterial. The gain realized on the sale was approximately $3.2 million. 8. MERGER WITH DYNATECH CORPORATION On February 14, 2000, the Company, Dynatech corporation, a Delaware corporation ("Dynatech"), and DWW Acquisition Corporation, a Delaware corporation and indirect subsidiary of Dynatech ("Mergerco"), entered into an Agreement and Plan of Merger pursuant to which Mergerco would merge with the Company, with the Company as the surviving corporation. The merger is subject to customary closing conditions, including obtaining applicable competition law approvals. In the merger, at the election of holders of the Company's common stock, such holders will be entitled to receive with respect to each share of common stock of the Company (i) $25.00 or (ii) 4.49 shares of common stock of Dynatech. The aggregate transaction value is approximately $600 million, which includes approximately $224 million of the Company's indebtedness. The merger will constitute a change in control with respect to the Company's 10.125% Senior Subordinated Notes due June 14, 2007. As a result, the Company will be obligated to send to the holders of the notes within ten days following the closing of the merger an offer to purchase the notes at 101% of their principal amount. Such offer must specify a day not less than 30 and not more than 60 days from the date the Company's notice mailed on which the Company will purchase all notes tendered to the Company. On March 14, 2000, the Company launched a tender offer to repurchase all of the outstanding notes. The tender offer for the notes is conditioned upon the closing of the merger. In connection with the merger, Dynatech intends to enter into a new multi-currency senior credit facility with a syndicate of banks for an aggregate principal amount of approximately $860 million including revolver and term loans, and to sell newly-issued common stock to Clayton, Dubilier & Rice Fund V Limited Partnership ("Fund V"), Dynatech's controlling stockholder, and Clayton Dublier & Rice Fund VI Limited Partnership ("Fund VI"), an affiliate of Dynatech's controlling stockholder, at a price per share of $4.00. In addition, Dynatech expects to make a rights offering to the Company's other stockholders to purchase newly issued shares at the same price per share offered to Fund V and Fund VI. The Company anticipates the customary closing conditions, including obtaining applicable competition law approvals will be finalized by late May 2000 and the Company estimates that the closing of the merger will occur shortly thereafter. Peter Wagner, the Company's Chief Executive Officer, has indicated that he will remain with the Company through the closing of the Merger with Dynatech. However, Mr. Wagner has accepted employment with another company as of June 1, 2000. In the event that the Merger is not consummated by such time, the Company will appoint an interim Chief Executive Officer or make other interim arrangements. 9 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA The Company's payment obligations under its 10.125% Senior Subordinated Notes are guaranteed by all of the Company's current and future domestic subsidiaries (collectively, the "Subsidiary Guarantors"). WGTI, Wandel & Goltermann ATE Systems, Inc., and Wavetek U.S. Inc. and its subsidiary, Digital Transport Systems, Inc. are shown as Subsidiary Guarantors for all periods presented. Such guarantees are full and unconditional and joint and several. Separate financial statements of the Subsidiary Guarantors are not presented because the Company's management has deemed that they would not be material to investors. The following supplemental condensed consolidating financial data sets forth, on an unconsolidated basis, balance sheets, statements of operations, and statements of cash flows data for (i) the Company (Wavetek Wandel Goltermann, Inc., formerly Wavetek Corporation, the issuer of the Notes), (ii) the current Subsidiary Guarantors, and (iii) the Company's foreign subsidiaries (the "Foreign Subsidiaries"). The supplemental financial data reflects the investments of the Company in the Subsidiary Guarantors and the Foreign Subsidiaries using the equity method of accounting. 10 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING BALANCE SHEETS AS OF MARCH 31, 2000 (DOLLARS AND SHARES IN THOUSANDS)
Wavetek Wandel Goltermaun Subsidiary Foreign Inc. Guarantors Subsidiaries Eliminations Consolidated -------------- ---------- ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents...................... $ 663 $ 4,424 $ 12,887 $ - $ 17,974 Accounts receivable (less allowance for doubtful accounts of $4,071)................. 44,998 62,503 79,405 (94,793) 92,113 Inventories.................................... - 19,161 57,564 (5,219) 71,506 Deferred income taxes.......................... 2,912 3,932 (876) 499 6,467 Other current assets........................... 57 1,009 12,931 - 13,997 -------------- ---------- ------------ ------------ ------------ Total current assets.............................. 48,630 91,029 161,911 (99,513) 202,057 Property, plant and equipment, net................ 1,322 7,266 44,478 - 53,066 Intangible assets, net............................ 5,922 100,875 30,106 - 136,903 Investment in subsidiaries........................ 166,712 - - (166,712) - Other non-current assets.......................... 3 (434) 2,618 3,270 5,457 -------------- ---------- ------------ ------------ ------------ Total assets...................................... $ 222,589 $ 198,736 $ 239,113 $ (262,955) $ 397,483 ============== ========== ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable.................................. $ - $ - $ 9,094 $ - $ 9,094 Current portion of long-term obligations .... - 633 4,446 - 5,079 Current portion of long-term obligations to related parties ............................. - - 9,582 - 9,582 Trade payables................................. 31,105 28,127 62,870 (87,795) 34,307 Accrued compensation........................... 1,195 4,551 17,065 - 22,811 Income taxes payable........................... (21,650) 21,419 4,336 - 4,105 Other current liabilities...................... 3,814 8,122 32,667 (2,320) 42,283 ------------- --------- ----------- ----------- ---------- Total current liabilities......................... 14,464 62,852 140,060 (90,115) 127,261 Long-term obligations, net of current portion..... 172,565 1,626 29,323 (3,572) 199,942 Pension liabilities............................... - 203 33,252 - 33,455 Deferred income taxes............................. (519) 22,662 (15,696) (2,029) 4,418 Other non-current liabilities..................... - 2,140 5,442 - 7,582 -------------- ---------- ------------ ------------ ---------- Total liabilities 186,510 89,483 192,381 (95,716) 372,658 -------------- ---------- ------------ ------------ ------------ Commitments and contingencies Stockholders' equity: Common stock................................... 133 - (1,466) 1,466 133 Additional paid-in capital..................... 73,222 171,122 85,506 (256,628) 73,222 Accumulated deficit............................ (59,386) (61,841) (33,946) 95,786 (59,387) Other comprehensive income (loss).............. 22,110 (28) (3,362) (7,863) 10,857 -------------- ---------- ------------ ------------ ------------ Total stockholders' equity........................ 36,079 109,253 46,732 (167,239) 24,825 -------------- ---------- ------------ ------------ ------------ Total liabilities and stockholders' equity........ $222,589 $ 198,736 $ 239,113 $ (262,955) $ 397,483 ============== ========== ============ ============ ============
11 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING BALANCE SHEETS AS OF SEPTEMBER 30, 1999 (DOLLARS IN THOUSANDS)
Wavetek Wandel Goltermaun Subsidiary Foreign Inc. Guarantors Subsidiaries Eliminations Consolidated -------------- ---------- ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents...................... $ 11 $ 4,578 $ 12,500 $ - $ 17,089 Accounts receivable (less allowance for doubtful accounts of $4,608)................. 42,956 46,715 87,312 (74,451) 102,532 Inventories.................................... - 13,884 52,388 (3,757) 62,515 Deferred income taxes.......................... 561 4,482 3,879 - 8,922 Other current assets........................... 156 1,917 11,563 - 13,636 -------------- ---------- ------------ ------------ ---------- Total current assets.............................. 43,684 71,576 167,642 (78,208) 204,694 Property, plant and equipment, net................ 1,361 8,013 51,201 - 60,575 Intangible assets, net............................ 5,617 110,170 46,695 - 162,482 Investment in subsidiaries........................ 167,992 - - (167,992) - Other non-current assets.......................... 6 1,988 4,988 - 6,982 -------------- ---------- ------------ ------------ ---------- Total assets...................................... $ 218,660 $ 191,747 $ 270,526 $ (246,200) $ 434,733 ============== ========== ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable.................................. $ - $ - $ 17,510 $ - $ 17,510 Current portion of long-term obligations ...... - 685 5,517 - 6,202 Current portion of long-term obligations to related parties - - 10,721 - 10,721 Trade payables................................. 17,236 17,322 61,873 (64,882) 31,549 Accrued compensation........................... 396 6,734 19,496 - 26,626 Income taxes payable........................... (18,986) 18,978 4,258 - 4,250 Other current liabilities...................... 4,516 5,786 28,536 - 38,838 -------------- ---------- ------------ ------------ ---------- Total current liabilities......................... 3,162 49,505 147,911 (64,882) 135,696 Long-term obligations, net of current portion..... 198,080 7,784 31,695 (9,476) 228,083 Pension liabilities............................... - - 35,671 - 35,671 Deferred income taxes............................. (519) 19,953 (11,477) - 7,957 Other non-current liabilities..................... - 4,088 5,301 - 9,389 -------------- ---------- ------------ ------------ ---------- Total liabilities 200,723 81,330 209,101 (74,358) 416,796 -------------- ---------- ------------ ------------ ------------ Commitments and contingencies Stockholders' equity: Common stock................................... 132 - - - 132 Additional paid-in capital..................... 72,948 171,121 87,187 (258,308) 72,948 Accumulated deficit............................ (65,641) (60,682) (36,282) 96,964 (65,641) Other comprehensive income (loss).............. 10,498 (22) 10,520 (10,498) 10,498 -------------- ---------- ------------ ------------ ------------ Total stockholders' equity........................ 17,937 110,417 61,425 (171,842) 17,937 -------------- ---------- ------------ ------------ ------------ Total liabilities and stockholders' equity........ $218,660 $ 191,747 $ 270,526 $ (246,200) $434,733 ============== ========== ============ ============ ============
12 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 (DOLLARS IN THOUSANDS)
Wavetek Wandel Goltermaun Subsidiary Foreign Inc. Guarantors Subsidiaries Eliminations Consolidated -------------- ---------- ------------ ------------ ------------ Net sales......................................... $ - $ 46,224 $ 100,851 $ (19,920) $127,155 Cost of goods sold................................ - 21,908 47,534 (19,008) 50,434 -------------- ---------- ------------ ------------ ------------ Gross margin...................................... - 24,316 53,317 (912) 76,721 Operating expenses: Marketing and selling.......................... 552 9,764 25,658 - 35,974 Research and development....................... - 5,881 12,573 - 18,454 General and administrative..................... 17 3,148 7,469 - 10,634 Amortization of intangible assets.............. (52) 2,993 1,108 - 4,049 Provisions for restructuring operations and other non-recurring charges 521 779 641 (289) 1,652 -------------- ---------- ------------ ------------ ---------- Total operating expenses.................... 1,038 22,565 47,449 (289) 70,763 -------------- ---------- ------------ ------------ ------------ Operating income (loss)........................... (1,038) 1,751 5,868 (623) 5,958 Other (income) expense, net: Interest income................................ (514) (174) (133) 514 (307) Interest expense............................... 3,260 264 1,596 (514) 4,606 Equity in net (income) loss of subsidiaries.. Other, net..................................... (386) 85 (5,321) 1,788 (3,834) -------------- ---------- ------------ ------------ ------------ Other (income) expense, net................. 2,360 175 (3,858) 1,788 465 -------------- ---------- ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes ................................... (3,398) 1,576 9,726 (2,411) 5,493 Provision (benefit) for income taxes.............. (6,420) (128) 6,800 2,219 2,471 -------------- ---------- ------------ ------------ ------------ Net income (loss)................................. 3,022 1,704 2,926 (4,630) 3,022 ============== ========== ============ ============ ============
13 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (DOLLARS IN THOUSANDS)
Wavetek Wandel Goltermaun Subsidiary Foreign Inc. Guarantors Subsidiaries Eliminations Consolidated -------------- ---------- ------------ ------------ ------------ Net sales......................................... $ - $ 36,025 $ 94,383 $ (15,942) $ 114,466 Cost of goods sold................................ 11 17,274 47,122 (16,480) 47,927 -------------- ---------- ------------ ------------ ------------ Gross margin...................................... (11) 18,751 47,261 538 66,539 Operating expenses: Marketing and selling.......................... 487 8,994 25,434 - 34,915 Research and development....................... 2 5,846 12,923 - 18,771 General and administrative..................... 1,824 2,388 7,326 - 11,538 Amortization of intangible assets.............. 85 3,008 1,781 - 4,874 -------------- ---------- ------------ ------------ ------------ Total operating expenses................... 2,398 20,236 47,464 - 70,098 -------------- ---------- ------------ ------------ ------------ Operating income (loss)........................... (2,409) (1,485) (203) 538 (3,559) Other (income) expense, net: Interest income................................ (305) (85) (157) 305 (242) Interest expense............................... 3,694 153 1,702 (305) 5,244 Equity in net (income) loss of subsidiaries.... (439) - - 439 - Other, net..................................... (558) (35) 963 - 370 -------------- ---------- ------------ ------------ ------------ Other (income) expense, net................ 2,392 33 2,508 439 5,372 -------------- ---------- ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes ................................... (4,801) (1,518) (2,711) 99 (8,931) Provision (benefit) for income taxes.............. (1,586) (112) 2,024 (6,042) (5,716) -------------- ---------- ------------ ------------ ------------ Net income (loss)................................. $ (3,215) $ (1,406) $ (4,735) $ 6,141 $ (3,215) ============== ========== ============ ============ ============
14 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2000 (DOLLARS IN THOUSANDS)
Wavetek Wandel Goltermaun Subsidiary Foreign Inc. Guarantors Subsidiaries Eliminations Consolidated -------------- ---------- ------------ ------------ ------------ Net sales......................................... $ - $ 92,877 $209,460 $ (39,606) $ 262,731 Cost of goods sold................................ - 43,587 97,985 (38,144) 103,428 -------------- ---------- ------------ ------------ ------------ Gross margin...................................... - 49,290 111,475 (1,462) 159,303 Operating expenses: Marketing and selling.......................... 1,082 19,502 52,458 - 73,042 Research and development....................... - 11,566 24,665 - 36,231 General and administrative..................... 306 6,497 14,467 - 21,270 Amortization of intangible assets.............. (73) 6,080 2,481 - 8,488 Provisions for non-recurring charges........... 521 783 1,005 (289) 2,020 -------------- ---------- ------------ ------------ ------------ Total operating expenses................... 1,836 44,428 95,076 (289) 141,051 -------------- ---------- ------------ ------------ ------------ Operating income (loss)........................... (1,836) 4,862 16,399 (1,173) 18,252 Other (income) expense, net: Interest income................................ (1,031) (199) (368) 1,031 (567) Interest expense............................... 7,201 541 3,257 (1,031) 9,968 Equity in net (income) loss of subsidiaries.... (5,105) - - 5,105 - Other, net..................................... 87 338 (4,735) 1,788 (2,522) -------------- ---------- ------------ ------------ ------------ Other (income) expense, net................ 1,152 680 (1,846) 6,893 6,879 -------------- ---------- ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes ................................... (2,988) 4,182 18,245 (8,066) 11,373 Provision (benefit) for income taxes.............. (9,242) 1,567 11,572 1,222 5,119 -------------- ---------- ------------ ------------ ------------ Net income (loss)................................. 6,254 2,615 6,673 (9,288) 6,254 ============== ========== ============ ============ ============
15 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1999 (DOLLARS IN THOUSANDS)
Wavetek Wandel Goltermaun Subsidiary Foreign Inc. Guarantors Subsidiaries Eliminations Consolidated -------------- ---------- ------------ ------------ ------------ Net sales......................................... $ - $ 74,859 $ 198,864 $ (32,792) $ 240,931 Cost of goods sold................................ 39 38,032 95,829 (31,338) 102,562 -------------- ---------- ------------ ------------ ------------ Gross margin...................................... (39) 36,827 103,035 (1,454) 138,369 Operating expenses: Marketing and selling.......................... 1,512 18,054 50,871 - 70,437 Research and development....................... 2 11,189 25,424 - 36,615 General and administrative..................... 2,885 5,377 15,364 - 23,626 Amortization of intangible assets.............. 121 6,016 3,553 - 9,690 -------------- ---------- ------------ ------------ ------------ Total operating expenses................... 4,520 40,636 95,212 - 140,368 -------------- ---------- ------------ ------------ ------------ Operating income (loss)........................... (4,559) (3,809) 7,823 (1,454) (1,999) Other (income) expense, net: Interest income................................ (339) (135) (306) 305 (475) Interest expense............................... 6,563 293 3,884 (305) 10,435 Equity in net (income) loss of subsidiaries.... (2,451) - 1,452 999 - Other, net..................................... (693) (288) 1,112 - 131 -------------- ---------- ------------ ------------ ------------ Other (income) expense, net................ 3,080 (130) 6,142 999 10,091 -------------- ---------- ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes.................................... (7,639) (3,679) 1,681 (2,453) (12,090) Provision (benefit) for income taxes.............. (3,287) 119 5,979 (10,549) (7,738) -------------- ---------- ------------ ------------ ------------ Net income (loss)................................. $ (4,352) $ (3,798) $ (4,298) $ 8,096 $ (4,352) ============== ========== ============ ============ ============
16 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2000 (DOLLARS IN THOUSANDS)
Wavetek Wandel Goltermaun Subsidiary Foreign Inc. Guarantors Subsidiaries Eliminations Consolidated -------------- ---------- ------------ ------------ ------------ OPERATING ACTIVITIES Net cash provided by (used in) operating activities.................................... $ (764) $ 6,795 $ 12,473 $ - $ 18,504 INVESTING ACTIVITIES Purchase of property and equipment.............. (230) (1,209) (4,926) - (6,365) -------------- ---------- ------------ ------------ ------------ Net cash provided by (used in) investing activities.................................... 25,345 (8,024) 5,989 - 23,310 FINANCING ACTIVITIES Proceeds from long-term obligations............. 95,077 - 12,400 - 107,477 Principal payments on long-term obligations..... (119,007) - (28,400) - (147,407) Capital contribution from Wavetek Wandel Goltermann, Inc. to subsidiary................ - 650 (650) - - Loans to subsidiaries from Wavetek Wandel Goltermann, Inc. ............................. (1,461) - 1,461 - - Repayment of loan from subsidiary to Wavetek Wandel Golterman Inc. ........................ 297 (26) (271) - - Repayment of loans from subsidiaries............ (1,575) - 1,575 - - Other, net...................................... 2,739 451 (3,190) - - -------------- ---------- ------------ ------------ ------------ Net cash provided by (used in) financing activities ................................... (23,930) 1,075 (17,075) - (39,930) Effect of exchange rate changes on cash and cash equivalets .............................. - - (999) - (999) -------------- ---------- ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents .................................. 652 (154) 387 - 885 Cash and cash equivalents at beginning of period ....................................... 11 4,578 12,500 - 17,089 -------------- ---------- ------------ ------------ ------------ Cash and cash equivalents at end of period...... 663 4,424 12,887 - 17,974 ============== ========== ============ ============ ============
17 WAVETEK WANDEL GOLTERMANN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 1999 (DOLLARS IN THOUSANDS)
Wavetek Wandel Goltermaun Subsidiary Foreign Inc. Guarantors Subsidiaries Eliminations Consolidated -------------- ---------- ------------ ------------ ------------ OPERATING ACTIVITIES Net cash provided by (used in) operating activities ................................... $(23,865) $ 22,301 $ 1,147 $ - $ (417) INVESTING ACTIVITIES Purchase of property and equipment.............. (264) (1,588) (5,790) - (7,642) Transfer of subsidiaries (28,536) - 28,536 - - -------------- ---------- ------------ ------------ ------------ Net cash provided by (used in) investing activities ................................... (28,800) (1,588) 22,746 - (7,642) FINANCING ACTIVITIES Proceeds from long-term obligations............. 107,352 1,402 30,305 - 139,059 Principal payments on long-term obligations..... (59,408) (1,775) (84,519) - (145,702) Dividend from subsidiary to Wavetek Wandel Goltermann, Inc. ............................. 22,000 (22,000) Capital contribution from Wavetek Wandel Goltermann, Inc. to subsidiary ............... (2,034) - 2,034 - - Loans to subsidiaries from Wavetek Wandel Goltermann, Inc. ............................. (36,078) 6,203 29,875 - - Repayment of loan from subsidiary to Wavetek Wandel Goltermann, Inc. ...................... 28,996 (28,996) - - - Repayment of loans from subsidiaries............ (7,500) (1,818) 9,318 - - Other, net...................................... (672) - - - (672) -------------- ---------- ------------ ------------ ------------ Net cash provided by (used in) financing activities ................................... 52,656 (46,984) (12,987) - (7,315) Effect of exchange rate changes on cash and cash equivalents ............................. - - (3,047) - (3,047) -------------- ---------- ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents .................................. (9) (26,271) 7,859 - (18,421) Cash and cash equivalents at beginning of period ....................................... 19 31,143 4,382 - 35,544 -------------- ---------- ------------ ------------ ------------ Cash and cash equivalents at end of period...... $ 10 $ 4,872 $ 12,241 $ - $ 17,123 ============== ========== ============ ============ ============
18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements included in Item 1 herein. GENERAL The Company is a leading global designer, manufacturer, and marketer of a broad range of communications test instruments used to develop, manufacture, install, and maintain communications networks and equipment. The Company conducts its communications test business, which addresses most sectors of the communications test market, in four product areas: (1) telecom networks (traditional voice/data transmissions and new multi-service networks), (2) enterprise networks (local and wide-area network infrastructures), (3) multimedia (cable television and digital video broadcast), and (4) wireless (mobile telephony and data). These products provide comprehensive testing solutions to a wide range of end users. The Company's high-end instruments are used during the product development phase to stress test product functionality and performance. Other products are used during the production process to verify conformance to manufacturing specifications, while the Company's enhanced portable field service tools enable field technicians to quickly install, repair, and maintain complex network infrastructure, as well as validate service levels. The Company also provides distributed remote test systems to many of its service provider customers, which allow such customers to more efficiently utilize their network engineers to monitor and test service levels. In addition, the Company provides repair, upgrade, and calibration services, as well as value-added professional services such as consulting, training an rental services on a worldwide basis. The Company sells its products to a broad base of over 5,000 customers worldwide, including (1) global communications equipment manufacturers such as Alcatel, 3Com, Cisco Systems, Ericsson, IBM, Lucent Technologies, Motorola, NCR Corporation, Nokia, Nortel and Siemens, (2) communications service providers such as AT&T/TCI, Bell South, Continental Cablevision, Deutsche Telekom and Time Warner Cable and (3) the information service departments of corporations and governmental entities such as Boeing, DaimlerChrysler and the U.S. Navy. The Company's sales are also diversified geographically. The Company sells and services its products through (1) its global sales and service organization of over 800 employees in over 25 countries and (2) a global network of over 250 distributors, resellers and independent representatives, which together provide the Company with a sales and service presence in over 85 countries. The Company has design and manufacturing capabilities through 11 facilities located in the United States, Germany, France, the United Kingdom, Switzerland and Brazil. The Company's operating expenses are substantially impacted by marketing and selling activities, as well as by research and development activities. Marketing and selling expenses are primarily driven by: (1) sales volume, with respect to sales force expenses and commission expenses, (2) the extent of market research activities for new product design efforts, (3) advertising and trade show activities and (4) the number of new products launched in the period. In recent periods, the Company has increased its spending on research and development activities primarily to accelerate the timing of new product introductions. General and administrative expenses primarily include costs associated with the Company's administrative employees, facilities, and functions. The Company incurs expenses in foreign countries primarily in the functional currencies of such locations. As a result of the Company's substantial international operations, the United States dollar amount of its expenses is impacted by changes in foreign currency exchange rates. The Company's ability to maintain and grow its sales depends on a variety of factors, including its ability to maintain its competitive position in areas such as technology, performance, price, brand identity, quality, reliability, distribution, and customer service and support, and its ability to continue to introduce new products that respond to technological change and market demand in a timely manner. 19 RESULTS OF OPERATIONS The following table sets forth selected financial information as a percentage of sales for the periods indicated:
Three Months Ended Six Months Ended March 31, March 31, ---------------------------- -------------------------- 2000 1999 2000 1999 ----------- ------------- ----------- ----------- Sales..................................................... 100.0% 100.0% 100.0% 100.0% Cost of goods sold........................................ 39.7 41.9 39.4 42.6 ----------- ------------- ----------- ----------- Gross margin.............................................. 60.3 58.1 60.6 57.4 Operating expenses........................................ 55.6 61.2 53.7 58.2 ----------- ------------- ----------- ----------- Operating income (loss)................................... 4.7 (3.1) 6.9 (0.8) Interest expense, net..................................... 3.4 4.4 3.6 4.1 Other (income) expense, net............................... (3.0) 0.3 (1.0) 0.1 ----------- ------------- ----------- ----------- ncome (loss) before provision (benefit) for income taxes.................................................... 4.3 (7.8) 4.3 (5.0) Provision (benefit) for income taxes...................... 1.9 (5.0) 1.9 (3.2) ----------- ------------- ----------- ----------- Net income (loss)......................................... 2.4% (2.8)% 2.4% (1.8)% =========== ============= =========== =========== EBITDA (1) 11.1% 4.7% 13.2% 7.5% =========== ============= =========== ===========
The Company's ratio of earnings to fixed charges was as follows for the periods indicated:
Three Months Ended Six Months Ended March 31, March 31, ---------------------------- -------------------------- 2000 1999 2000 1999 ----------- ------------- ----------- ----------- Ratio of earnings to fixed charges (2).................. 2.0x (0.5)x 2.0x 0.0x
(1) EBITDA, as defined in the Indenture related to the Company's 10.125% Senior Subordinated Notes due June 15, 2007 (the "Indenture"), is operating income plus depreciation and amortization expense, acquired in-process research and development and provisions for restructuring operations and other non-recurring charges. While EBITDA should not be construed as a substitute for income from operations, net income, or cash flows from operating activities in analyzing the Company's operating performance, financial position or cash flows, the Company has included EBITDA because it may be viewed as an indicator of compliance with certain covenants in the Indenture and is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance, leverage, and liquidity and to determine a company's ability to service debt. EBITDA, as presented by the Company herein, may not be comparable to similarly titled measures reported by other companies. In addition, the amount reported by the Company as EBITDA may not be fully available for management's discretionary use due to the Company's needs to conserve funds for debt service, capital expenditures and other commitments. (2) For purposes of computing this ratio, earnings consist of income (loss) before provision (benefit) for income taxes plus fixed charges. Fixed charges consist of interest expense and one-third of the rent expense from operating leases, which management believes is a reasonable approximation of the interest factor of the rent. 20 THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 NET SALES. Net sales in the three months ended March 31, 2000 increased $12.7 million, or 11.1%, to $127.2 million from $114.5 million in the comparable fiscal 1999 period. This increase is primarily due to an increase in cable television product shipments as a result of strong infrastructure investments by cable television operators, an increase in transport test product shipments due to new product features offered to the customer, and increases in both the wireless and fiber optic businesses. As a result, there was an increase in sales to customers in the United States of $9.1 million, or 35.3%, to $35.1 million while international sales increased $3.5 million, or 4.0%, to $92.1 million in comparison to the three months ended March 31, 1999. The Company's sales to customers outside the United States decreased to 72.4% of total sales in the three months ended March 31, 2000 from 77.4% in the comparable fiscal 1999 period. Changes in certain foreign exchange rates had a $2.9 million or 2.3% unfavorable impact on the United States dollar equivalent of the Company's sales denominated in foreign currencies in the three months ended March 31, 2000. Sales of the Company's communications test products in the three months ended March 31, 2000 increased $17.8 million, or 17.5%, from the comparable fiscal 1999 period to $119.0 million also, which increase was primarily due to the increase in cable television, transport, wireless and fiber optic product shipments. Sales of the Company's other test products decreased $5.1 million, or 66.5%, from the comparable fiscal 1999 period to $2.6 million due primarily to the divestiture of the precision measurement and test tools divisions, and the safety test solution business in 2000. GROSS MARGIN. The Company's gross margin in the three months ended March 31, 2000 increased $10.2 million, or 15.3%, to $76.7 million from $66.5 million in the comparable fiscal 1999 period primarily due to the impact of change in product mix. Gross margin as a percentage of sales increased to 60.3% in the three months ended March 31, 2000 from 58.1% in the comparable fiscal 1999 period. Changes in foreign exchange rates had a $2.3 million or 3.0% unfavorable impact on the United States dollar equivalent of gross margins related to international sales denominated in foreign currencies in the three months ended March 31, 2000. OPERATING EXPENSES. Operating expenses in the three months ended March 31, 2000 increased slightly in comparison to the three months ended March 31, 1999. Operating expenses as a percentage of sales decreased to 55.6% in the three months ended March 31, 2000 from 61.2% in the comparable fiscal 1999 period. Marketing and selling expenses increased $1.1 million, or 3.2%, to $36.0 million in the three months ended March 31, 2000 from $34.9 million in the comparable fiscal 1999 period due primarily to increased spending related to certain market development resources and fixed selling expenses. General and administrative expenses decreased $0.9 million, or 7.8%, to $10.6 million in the three months ended March 31, 2000 from $11.5 million in the comparable fiscal 1999 period due primarily to non-recurring employee retention and compensation expenses at March 31, 1999 related to the exchange transaction between Wavetek Corporation and Wandel & Goltermann Management Holding GmbH. Restructuring and other non-recurring charges increased $1.7 million, or 100% in the three months ended March 31, 2000 from $0.0 in the comparable fiscal 1999 period due primarily to restructuring charges for the shut down of operating locations. Changes in foreign exchange rates had a $1.3 million or 17.3% unfavorable impact on the United States dollar equivalent of operating expenses denominated in foreign currencies in the three months ended March 31, 2000. OTHER (INCOME) EXPENSE, NET. Other (income) expense, net, in the three months ended March 31, 2000 decreased by $4.9 million over the comparable fiscal 1999 period to $0.5 million. The decrease was primarily due to the gain on sale of the safety test solution business during the three months ended March 31, 2000. PROVISION (BENEFIT) FOR INCOME TAXES. The Company's effective tax rate decreased to approximately 45% in the three months ended March 31, 2000, from approximately 64% in the comparable fiscal 1999 period. The Company's effective tax rate takes into account the expected annual mix of income and related tax rates by geographical location. Such effective rate also reflects the non-deductibility of the amortization expense related to certain intangible assets and other expenses related to the Exchange Transaction. NET INCOME (LOSS). As a result of the above factors, net income (loss) was $3.0 million in the three months ended March 31, 2000 as compared to ($3.2) million in the comparable fiscal 1999 period. 21 SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999 NET SALES. Net sales in the six months ended March 31, 2000 increased $21.8 million, or 9.0%, to $262.7 million from $240.9 million in the comparable fiscal 1999 period. This increase is primarily due to an increase in cable television product shipments as a result of strong infrastructure investments by cable television operators, an increase in transport test product shipments due to new product features offered to the customer, and increases in both the wireless and fiber optic businesses. As a result, there was an increase in sales to customers in the United States of $16.4 million, or 30.6%, to $70.2 million while international sales increased $5.4 million, or 2.9%, to $192.5 million in comparison to the six months ended March 31, 1999. The Company's sales to customers outside the United States decreased to 73.3% of total sales in the six months ended March 31, 2000 from 77.7% in the comparable fiscal 1999 period. Changes in certain foreign exchange rates had a $3.2 million or 1.2% unfavorabl impact on the United States dollar equivalent of the Company's sales denominated in foreign currencies in the six months ended March 31, 2000. Sales of the Company's communications test products in the six months ended March 31, 2000 increased $24.0 million, or 11.2%, from the comparable fiscal 1999 period to $238.3 million, which increase was also primarily due to the increase in cable television, transport, wireless and fiber optic product shipments. Sales of the Company's other test products decreased $2.7 million, or 18.0%, from the comparable fiscal 1999 period to $12.2 million due primarily to the divestiture of the precision measurement and test tools divisions, and the safety test solution business in 2000. GROSS MARGIN. The Company's gross margin in the six months ended March 31, 2000 increased $20.9 million, or 15.1%, to $159.3 million from $138.4 million in the comparable fiscal 1999 period primarily due to the impact of change in product mix. Gross margin as a percentage of sales increased to 60.6% in the six months ended March 31, 2000 from 57.4% in the comparable fiscal 1999 period. Changes in foreign exchange rates had a $2.7 million or 1.66% unfavorable impact on the United States dollar equivalent of gross margins related to international sales denominated in foreign currencies in the six months ended March 31, 2000. OPERATING EXPENSES. Operating expenses in the six months ended March 31, 2000 increased slightly in comparison to the six months ended March 31, 1999. Operating expenses as a percentage of sales decreased to 53.7% in the six months ended March 31, 2000 from 58.2% in the comparable fiscal 1999 period. Marketing and selling expenses increased $2.6 million, or 3.7%, to $73.0 million in the six months ended March 31, 2000 from $70.4 million in the comparable fiscal 1999 period due primarily to a one-time purchase price reclassification between operating expense accounts at March 31, 1999 related to the exchange transaction between Wavetek Corporation and Wandel & Goltermann Management Holding GmbH, and increased spending related to certain market development resources and fixed selling expenses. General and administrative expenses decreased $2.4 million, or 10.2%, to $21.3 million in the six months ended March 31, 2000 from $23.6 million in the comparable fiscal 1999 period due primarily to a one-time purchase price reclassification between operating expense accounts and non-recurring retention and compensation expenses at March 31, 1999 related to the exchange transaction between Wavetek Corporation and Wandel & Goltermann Management Holding GmbH. Restructuring and other non-recurring charges increased $2.0 million, or 100% in the six months ended March 31, 2000 from $0.0 in the comparable fiscal 1999 period due primarily to restructuring charges for the shut down of operating locations. Changes in foreign exchange rates had a $1.9 million or 9.42% unfavorable impact on the United States dollar equivalent of operating expenses denominated in foreign currencies in the six months ended March 31, 2000. OTHER (INCOME) EXPENSE, NET. Other (income) expense, net, in the six months ended March 31, 2000 decreased by $3.2 million over the comparable fiscal 1999 period to $6.9 million. The decrease was primarily due to the gain on sale of the safety test solution business during the three months ended March 31, 2000. PROVISION (BENEFIT) FOR INCOME TAXES. The Company's effective tax rate decreased to approximately 45% in the six months ended March 31, 2000, from approximately 64% in the comparable fiscal 1999 period. The Company's effective tax rate takes into account the expected annual mix of income and related tax rates by geographical location. Such effective rate also reflects the non-deductibility of the amortization expense related to certain intangible assets and other expenses related to the Exchange Transaction. NET INCOME (LOSS). As a result of the above factors, net income (loss) was $6.3 million in the six months ended March 31, 2000 as compared to ($4.4) million in the comparable fiscal 1999 period. 22 LIQUIDITY AND CAPITAL RESOURCES The Company's cash provided by operating activities of $18.5 million for the six months ended March 31, 2000 included net income of $6.3 million, and non-cash charges of $14.4 million in depreciation and amortization expense, $2.0 million in restructuring and other non-recurring charges, and ($1.1) million in deferred income taxes. In addition, the changes in operating assets and liabilities during the six months ended March 31, 2000 produced a negative cash flow of $3.1 million. This was primarily due to the gain on sale of the safety test solution business. The Company's net cash provided by investing activities was $23.3 million for the six months ended March 31, 2000. This was primarily due to proceeds of $29.4 million from the sale of the precision measurement and test tools divisions and the safety test solutions business. The Company's net cash used in financing activities was $39.9 million for the six months ended March 31, 2000, which represented the net effect of payments on borrowings of $147.4 million and new borrowings of $107.5 million from its credit agreements and the multi-currency revolving credit facility and bilateral ancillary facilities. The Company invests its excess cash in highly liquid money market funds, U.S. Treasury obligations and investment grade commercial paper. In recent years, the Company has funded its business through operating cash flow, has not relied on sales of equity to provide cash, and has used short-term debt primarily for cash management purposes. The Company had borrowings outstanding under revolving credit agreements of $129.1 million at March 31, 2000, including amounts borrowed for working capital requirements, of which $9.1 million was classified as short-term. The Company also has contingent obligations outstanding totaling approximately $6.5 million in the form of letters of credit and bank guarantees. The Company's total credit lines provide for total availability of $158.4 million. At March 31, 2000, the Company had approximately $26.7 million available under these facilities. The reduction in the funds available of $41.6 million from September 30, 1999 to March 31, 2000 is primarily due to a reduction in the credit limits associated with our credit agreements, which resulted because of the sale of the precision measurement division, and due to the unfavorable changes in the foreign exchange rates. The Company believes that its cash and cash equivalents of $18.0 million, cash flow from operations, as well as the remaining borrowings under its existing credit agreements and the multi-currency revolving credit facility and bilateral ancillary facilities will be sufficient to fund the Company's debt service obligations and working capital requirements, as well as implement the Company's growth strategy over the remaining fiscal year. 23 FOREIGN OPERATIONS As discussed above, a significant portion of the Company's sales and expenses are denominated in currencies other than the United States dollar. In order to maintain access to such foreign currencies, the Company, and certain of its foreign subsidiaries, have credit facilities providing for borrowings in local currency. Adjustments made in translating the balance sheet accounts of the foreign subsidiaries from their respective functional currencies at appropriate exchange rates are included as a separate component of stockholders' equity. In addition, the Company periodically uses forward exchange contracts and collars to hedge certain known foreign exchange exposures. Gains or losses from such contracts are included in the Company's consolidated statements of operations to offset gains and losses from the underlying foreign currency transactions. The Indenture, under which the Company's 10.125% Senior Subordinated Notes due June 15, 2007 were issued, permits the Company and its subsidiaries to make investments in, and intercompany loans to, its foreign subsidiaries. Payments to the Company or its other subsidiaries by such foreign subsidiaries, including the payment of dividends, redemption of capital stock or repayment of such intercompany loans, may be restricted by the credit agreements of the foreign subsidiaries. On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing currencies and a new common currency (the "EURO"). The participating countries adopted the EURO as their common legal currency on that date. The Company is assessing the potential impact from the EURO conversion in a number of areas, including the competitive impact of cross-border price transparency, which may make it more difficult for businesses to charge different prices for the same products on a country-by-country basis, and the impact on currency exchange costs and currency exchange rate risk. At this stage of its assessment, the Company believes most of the impact has been absorbed in the company's pricing and currency policies. 24 PERIODIC FLUCTUATIONS The Company's net sales occurred in the following percentages in each of the last four quarters: 22% for the quarter ended June 30, 1999, 28% for the quarter ended September 30, 1999, 26% for the quarter ended December 31, 1999 and 24% for the quarter ended March 31, 2000. A variety of factors may cause period-to-period fluctuations in the operating results of the Company. Such factors include, but are not limited to, the purchase of businesses, product mix, European summer holidays and other seasonal influences, competitive pricing pressures, materials costs, currency fluctuations, revenues and expenses related to new products and enhancements of existing products, as well as delays in customer purchases in anticipation of the introduction of new products or product enhancements by the Company or its competitors. The majority of the Company's revenues in each quarter result from orders received in that quarter. As a result, the Company establishes its production, inventory and operating expenditure levels based on anticipated revenue levels. Thus, if sales do not occur when expected, expenditure levels could be disproportionately high and operating results for that quarter, and potentially future quarters, would be adversely affected. IMPACT OF YEAR 2000 Many computer programs and applications define the applicable year using two digits rather than four in order to save memory and enhance the speed of repeated date-based calculations. The "Year 2000 Issue" refers to the inability of these computer programs on and after January 1, 2000 to recognize that "00" refers to "2000" rather than "1900." The term "Year 2000-compliant" means a computer or a computer system that has been designed or modified to recognize dates on and after January 1, 2000. The Company established programs to coordinate its year 2000 ("Y2K") compliance efforts across all business functions and geographic areas. Starting in 1995, the Company began to evaluate their internal business and information systems for Year 2000 compliance. The Company modified or replaced existing hardware and software to mitigate the Year 2000 Issue and there was no material impact on or interruption to the operations of the Company subsequent to January 1, 2000, including the leap year date, February 29, 2000. Since inception of its program through March 31, 2000, the costs related to the Company's Y2K compliance efforts totaled approximately $2.2 million, including costs associated with the implementation of certain new core information systems. Much of this expenditure would have been necessary in any case as part of the regular process of maintaining and updating systems. In some instances, the expenditures were accelerated in order to comply with Year 2000 requirements. 25 CAUTIONARY STATEMENTS Certain of the information contained herein may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as the same may be amended from time to time ("the Act") and in releases made by the Securities and Exchange Commission ("SEC") from time to time. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results, performance, or achievements expressed or implied by such forward-looking statements. The words "estimate", "believes", "project", "intend", "expect" and similar expressions when used in connection with the Company, are intended to identify forward-looking statements. Any such forward-looking statements are based on various factors and derived utilizing numerous assumptions and other important factors that could cause actual results to differ materially from those on the forward-looking statements. These cautionary statements are being made pursuant to the Act, with the intention of obtaining benefits of the "Safe Harbor" provisions of the Act. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements as a result of various factors, including but not limited to those set forth below. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: (i) risks associated with leverage, including cost increases due to rising interest rates; (ii) risks associated with the possibility of the Company not meeting its debt covenant requirements, including financial covenants, in accordance with various debt agreements; (iii) risks associated with changes in domestic and/or foreign laws and regulations, including changes in tax laws, accounting standards, environmental laws, occupational, health and safety laws; (iv) risks associated with access to foreign markets together with foreign economic conditions, including currency fluctuations and trade, monetary and/or tax policies; (v) uncertainty as to the effect of competition in existing and potential future lines of business; (vi) economic uncertainty in various countries throughout the world; (vii) changes in laws and regulations, including changes in tax rates, accounting standards, environmental laws, occupational, health and safety laws; (viii) access to foreign markets together with foreign economic conditions, including currency fluctuations; and (ix) the effect of, or changes in, general economic conditions. Other factors and assumptions not identified above may also be involved in the derivation of forward-looking statements, and the failure of such other assumptions to be realized, as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements. 26 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company uses financial instruments, including fixed and variable rate debt, to finance its operations. The information below summarizes the Company's market risks associated with debt obligations outstanding as of March 31, 2000. The following table presents principal cash flows and related weighted average interest rates by fiscal year of maturity. Variable interest rate obligations under the Credit Facility and other revolving bank credit agreements, capital lease obligations, and notes payable to related parties are not included in the table. The Company has no long-term variable interest obligations other than certain borrowings under the Credit Facility which have been classified as long-term. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The actual cash flows of the instruments are denominated in U.S. dollars ("US$"), German Deutsche marks ("DM") and other currencies ("other") as indicated.
EXPECTED MATURITY DATE ----------------------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 Thereafter Total ----------- ------------ ------------ ------------ ------------ ------------ ------------ (US$ EQUIVALENT IN THOUSANDS) Long-term Obligations: Fixed Rate (US$)........... $ 685 $ 633 $ 585 $ 541 $ 500 $85,000 $87,944 Average interest rate.... 8.2% 8.2% 8.2% 8.2% 8.2% 10.1% 10.1% Fixed Rate (DM)............ $ 2,124 $3,977 $3,609 $3,562 $2,443 $10,839 $26,553 Average interest rate.... 5.9% 5.8% 5.7% 5.7% 5.3% 5.6% 5.7% Fixed Rate (other)......... $ 282 $ 82 $1,581 $ 55 $ 58 $ 447 $ 2,505 Average interest rate.... 7.6% 6.0% 5.3% 6.4% 6.4% 6.3% 5.8%
The carrying amounts of the Company's debt instruments approximate their fair values. At March 31, 2000, the Company had interest rate cap agreements and swap agreements in an aggregate notional amount of $9.7 million to limit its exposure on interest rate changes related to certain variable interest rate debt instruments. The carrying values of the interest rate caps and swaps approximate fair value. The Company uses forward exchange contracts and collars in the ordinary course of business to mitigate its exposure to changes in foreign currency exchange rates relating to cash, accounts receivable, accounts payable, significant transactions and anticipated future sales denominated in foreign currencies. The terms of these contracts are generally less than one year. The Company's risk management policies do not provide for the utilization of financial instruments for trading purposes. Gains and losses on financial instruments that qualify as hedges of existing assets or liabilities or firm commitments are recognized in income or as adjustments of carrying amounts when the hedged transaction occurs. Financial instruments which are not designated as hedges of specific assets, liabilities, firm commitments or anticipated transactions are marked to market and any resulting unrealized gains or losses are recorded in "Other (income) expense, net" in the accompanying consolidated statements of operations. At March 31, 2000, the Company had foreign exchange contracts outstanding in an aggregate notional amount of $16.6 million. While it is not the Company's intention to terminate any of these contracts, the estimated fair value of these contracts indicated that termination of the forward currency exchange contracts at March 31, 2000 would have resulted in a loss of $1.0 million. Due to the volatility of currency exchange rates, these estimated results may or may not be realized. 27 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the ordinary course of its business, the Company from time to time is subject to legal claims. The Company does not believe that the likely outcome of any such claims or related lawsuits would have a material adverse affect on the Company's results of operations, financial condition, cash flows or its ability to develop new products. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12 Schedule Re: Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule for the three and six months ended March 31, 2000 (b) Reports on Form 8-K The Company filed a Form 8-K on March 2, 2000 relating to the merger between the Company and Dynatech corporation. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of the 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WAVETEK WANDEL GOLTERMANN, INC. (Registrant) /s/ KARL-HEINZ EISEMANN ------------------------------- Karl-Heinz Eisemann Executive Vice President, Chief Financial Officer, Treasurer and Secretary (principle financial officer and principle accounting officer) Dated: May 15, 2000 29 EX-12 2 EXHIBIT 12 EXHIBIT 12 SCHEDULE RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (dollars in thousands)
Three Months Ended March 31, Six Months Ended March 31, ------------------------------ ---------------------------- 2000 1999 2000 1999 -------------- -------------- ------------- ------------- Income (loss) before provision (benefit) for income taxes.... $ 5,493 $(8,931) $ 11,373 $(12,090) Interest expense............................................. 4,606 5,244 9,968 10,435 Interest portion of rental expense........................... 708 541 1,506 1,556 -------------- -------------- ------------- ------------- Earnings..................................................... $10,807 $(3,146) $ 22,847 $ (99) ============== ============== ============= ============= Interest expense............................................. 4,606 $ 5,244 $ 9,968 $ 10,435 Interest portion of rental expense........................... 708 541 1,506 1,556 -------------- -------------- ------------- ------------- Fixed charges................................................ $ 5,314 $ 5,785 $ 11,474 $ 11,991 ============== ============== ============= ============= Ratio of earnings to fixed charges........................... 2.0x (0.5)x 2.0x 0.0x
EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-2000 MAR-31-2000 17,974 0 96,184 4,071 71,506 202,057 143,984 90,918 397,483 127,261 199,942 0 0 133 73,222 397,483 262,731 262,731 103,428 244,479 6,879 0 9,968 11,373 5,119 6,254 0 0 0 6,254 .47 .46
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