-----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, FAhe5UdWSTkFnQVuPoT2+TenV6VXLOxUFtilge4asCFYlMMfjp7KBEeUnSLu6EjZ rvYC3YzVZ8aRoTiFFuPv1g== 0000950168-95-000897.txt : 19951026 0000950168-95-000897.hdr.sgml : 19951026 ACCESSION NUMBER: 0000950168-95-000897 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951025 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLENAYRE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000808918 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 980085742 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15761 FILM NUMBER: 95584083 BUSINESS ADDRESS: STREET 1: 4201 CONGRESS ST STE 455 CITY: CHARLOTTE STATE: NC ZIP: 28209 BUSINESS PHONE: 7045530038 FORMER COMPANY: FORMER CONFORMED NAME: N W GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NU WEST GROUP INC DATE OF NAME CHANGE: 19880221 FORMER COMPANY: FORMER CONFORMED NAME: NU WEST GROUP LTD DATE OF NAME CHANGE: 19871126 10-Q 1 GLENAYRE TECHNOLOGIES 10-Q 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 September 30, 1995 [ ] 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 0-15761 GLENAYRE TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 98-0085742 (State or other jurisdiction of ( I.R.S. Employer Identification No.) incorporation or organization) 5935 CARNEGIE BOULEVARD, CHARLOTTE, NORTH CAROLINA 28209 (Address of principal executive offices) Zip Code (704) 553-0038 (Registrant's telephone number, including area code) 4201 CONGRESS STREET, SUITE 455, CHARLOTTE, NC 28209 (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 The number of shares outstanding of the Registrant's common stock, par value $.02 per share, at October 24, 1995 was 39,914,246 shares. GLENAYRE TECHNOLOGIES, INC. Index
Part I - Financial Information: Item 1. Financial Statements Page Independent Accountants' Review Report........................................ 3 Condensed Consolidated Balance Sheets as of September 30,1995 (Unaudited) and December 31, 1994.................... 4 Condensed Consolidated Statements of Operations for the nine months ended September 30, 1995 and 1994 (Unaudited).............. 5 Condensed Consolidated Statements of Operations for the three months ended September 30, 1995 and 1994 (Uaudited).............. 6 Condensed Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 1995 (Unaudited).................. 7 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1994 (Unaudited).............. 8 Notes to Condensed Consolidated Financial Statements (Unaudited).......... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 12 Part II - Other Information: Item 6. Exhibits and Reports on Form 8-K....................................... 16
2 Independent Accountants' Review Report To the Board of Directors and Stockholders of Glenayre Technologies, Inc. Charlotte, North Carolina We have reviewed the accompanying condensed consolidated balance sheet of Glenayre Technologies, lnc. and subsidiaries as of September 30, 1995, and the related condensed consolidated statements of operations for the nine-month period and three-month period ended September 30, 1995, the condensed consolidated statement of stockholders' equity for the nine months ended September 30, 1995 and the condensed consolidated statement of cash flows for the nine-month period ended September 30, 1995. These financial statements are the responsibility of the Company's management. The condensed consolidated balance sheet of Glenayre Technologies, Inc. and subsidiaries as of September 30, 1994, and the related condensed consolidated statement of operations for the nine-month period and three-month period ended September 30, 1994, the condensed consolidated statement of stockholders' equity for the nine months ended September 30, 1994 and the condensed consolidated statement of cash flows for the nine-month period ended September 30, l994 were reviewed by other accountants whose report (dated October 26, 1994) stated that they were not aware of any material modifications that should be made to those statements for them to be in conformity with generally accepted accounting principles. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements at September 30, 1995, and for the three-month and nine-month periods then ended for them to be in conformity with generally accepted accounting principles. The consolidated balance sheet of Glenayre Technologies, Inc. as of December 31, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein) were previously audited, in accordance with generally accepted auditing standards, by other auditors who expressed an unqualified opinion dated February 3, 1995 on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1994, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst & Young LLP Charlotte North Carolina October 19, 1995 3 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
September 30, December 31, 1995 1994 ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 60,886 $ 52,043 Short-term investments 53,869 39,462 Accounts receivable, net 72,903 33,707 Trade notes receivable, current 9,241 8,816 Inventories (Note 3) 51,554 24,261 Deferred income taxes 12,039 6,518 Prepaid expenses and other current assets 6,439 5,526 Total current assets 266,931 170,333 Trade notes receivable 14,416 12,480 Property, plant and equipment, net 36,871 17,707 Goodwill (Note 4) 81,096 61,436 Deferred income taxes 26,409 22,510 Other assets 305 495 TOTAL ASSETS $426,028 $284,961 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 17,198 $ 9,871 Accrued liabilities 41,425 25,035 Other current liabilities 1,279 218 Total current liabilities 59,902 35,124 Other liabilities 4,268 4,402 Stockholders' Equity (Note 6): Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, $.02 par value; authorized 50,000,000 shares; outstanding: September 30, 1995 - 39,900,896 shares; December 31, 1994 - 37,327,693 shares 798 747 Contributed capital 288,592 216,235 Retained earnings from February 1, 1988 72,468 28,453 Total stockholders' equity 361,858 245,435 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $426,028 $284,961
Note: The balance sheet at December 31, 1994 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. See notes to condensed consolidated financial statements. 4 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts) (unaudited) Nine Months Ended September 30, 1995 1994 NET SALES (Notes 1 and 2) . . . . . . . . . . $222,945 $123,791 COSTS AND EXPENSES: Cost of sales . . . . . . . . . . . . . 96,067 52,906 Selling, general and administrative expense 39,657 29,016 Research and development expense . . . 17,084 11,620 Depreciation and amortization expense . 5,778 4,302 Total costs and expenses . . . . . . . . 158,586 97,844 INCOME FROM OPERATIONS . . . . . . . . . . . 64,359 25,947 OTHER INCOME (EXPENSES): Interest income . . . . . . . . . . . . 6,100 3,239 Interest expense . . . . . . . . . . . . (138) (242) Foreign exchange gain (loss) . . . . . . 248 (294) Other, net . . . . . . . . . . . . . . (2) (116) Total other income (expenses), net . . . 6,208 2,587 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES . . . . . . . . . . . 70,567 28,534 PROVISION FOR INCOME TAXES (Note 5) . . . . . 17,501 5,083 INCOME FROM CONTINUING OPERATIONS . . . . . . 53,066 23,451 DISCONTINUED OPERATIONS (Note 2) . . . . . . -- 388 NET INCOME . . . . . . . . . . . . . . . . . $53,066 $23,839 PRIMARY INCOME PER COMMON SHARE (Note 6): Continuing operations . . . . . . . . . $ 1.28 $ .60 Discontinued operations . . . . . . . . -- .01 NET INCOME PER COMMON SHARE - PRIMARY. . . . . $ 1.28 .61 FULLY DILUTED INCOME PER COMMON SHARE (Note 6): Continuing operations . . . . . . . . . $ 1.27 $ .60 Discontinued operations . . . . . . . . -- .01 NET INCOME PER COMMON SHARE - FULLY DILUTED . $ 1.27 $ .61 See notes to condensed consolidated financial statements. 5 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts) (unaudited) Three Months Ended September 30, 1995 1994 NET SALES (Notes 1 and 2) . . . . . . . . . . $ 88,104 $43,892 COSTS AND EXPENSES: Cost of sales . . . . . . . . . . . . . 37,886 18,459 Selling, general and administrative expense 15,432 10,555 Research and development expense . . . 6,440 4,452 Depreciation and amortization expense . 2,257 1,465 Total costs and expenses . . . . . . . . 62,015 34,931 INCOME FROM OPERATIONS . . . . . . . . . . . 26,089 8,961 OTHER INCOME (EXPENSES): Interest income . . . . . . . . . . . . 2,033 1,339 Interest expense . . . . . . . . . . . . (54) (59) Foreign exchange gain (loss) . . . . . . 151 23 Other, net . . . . . . . . . . . . . . 51 (38) Total other income (expenses), net . . . 2,181 1,265 INCOME BEFORE INCOME TAXES . . . . . . . . . 28,270 10,226 PROVISION FOR INCOME TAXES (Note 5) . . . . . 7,209 1,841 NET INCOME . . . . . . . . . . . . . . . . . $21,061 $ 8,385 INCOME PER COMMON SHARE (Note 6): Primary . . . . . . . . . . . . . . . . . $ .50 $ .21 Fully Diluted . . . . . . . . . . . . . . $ .50 $ .21 See notes to condensed consolidated financial statements. 6 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (dollars and shares in thousands) (unaudited) Total Common Stock Contributed Retained Stockholder's Shares Amount Capital Earnings Equity Balances, December 31, 1994 37,328 $747 $216,235 $28,453 $245,435 Net income 53,066 53,066 Stock options exercised 1,783 35 12,448 12,483 Shares issued and options assumed in connection with business acquisition (Note 1) 790 16 27,249 27,265 Utilization of net operating loss carryforwards (Note 5) 9,051 (9,051) Tax benefit of stock options exercised 23,609 23,609 Balances, September 30, 1995 39,901 $798 $288,592 $72,468 $361,858 See notes to condensed consolidated financial statements. 7 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Nine Months Ended September 30, 1995 1994 NET CASH PROVIDED BY OPERATING ACTIVITIES $32,162 $ 22,611 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of plant and equipment (21,517) (5,432) Proceeds from sale of equipment 14 8 Maturities of short-term investments 83,471 14,779 Purchases of short-term investments (97,878) (54,125) Cash acquired net of acquisition costs (Note 1) 396 -- NET CASH USED IN INVESTING ACTIVITIES (35,514) (44,770) CASH FLOWS FROM FINANCING ACTIVITIES: Changes in other liabilities (288) (1,441) Issuance of common stock 12,483 3,212 NET CASH PROVIDED BY FINANCING ACTIVITIES 12,195 1,771 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,843 (20,388) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 52,043 66,099 CASH AND CASH EQUIVALENTS AT END OF PERIOD $60,886 $45,711 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 139 $ 153 Income taxes 1,323 1,738 SUPPLEMENTAL INFORMATION OF NONCASH INVESTING AND FINANCING ACTIVITIES: On April 25, 1995, the Company acquired Western Multiplex Corporation ("MUX"). In connection with this acquisition the Company paid $1,307,000 in cash and issued stock valued at $27,260,000 for assets with a fair value of $9,074,000 and assumed liabilities of $3,186,000. See notes to condensed consolidated financial statements. 8 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (tabular amounts in thousands of dollars except per share data) (unaudited) The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X . Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-and nine-month periods ended September 30, 1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. The Company's financial results in any quarter are highly dependent upon various factors, including the timing and size of customer orders and the shipment of products for large orders. Large orders from customers can account for a significant portion of products shipped in any quarter. Accordingly, the shipment of products in fulfillment of such large orders can dramatically affect the results of operations of any single quarter. For further information, refer to the consolidated financial statements and footnotes thereto included in the Glenayre Technologies, Inc. annual report on Form 10-K for the year ended December 31, 1994. 1. BUSINESS ACQUISITION On April 25, 1995 the Company completed the acquisition of Western Multiplex Corporation ("MUX"), located in Belmont, California. MUX designs, manufactures and markets products for use in point-to-point microwave communication systems. The purchase price of approximately $28.6 million consisted of 1,124,955 shares of the Company's common stock (including 334,805 shares issuable upon exercise of stock options) valued at approximately $27.3 million and approximately $1.3 million in acquisition costs. The consolidated financial statements for the nine-months ended September 30, 1995 include the operating results of MUX for the period April 25, 1995 to September 30, 1995. The acquisition was accounted for as a purchase and the purchase price was assigned to the net assets acquired based on the fair values of such assets and liabilities at the date of the acquisition, as follows: Current assets $ 7,886 Property, plant and equipment 1,188 Goodwill 21,982 Deferred tax asset 704 Liabilities assumed (3,186) $28,574 The following table summarizes, on an unaudited pro forma basis, the estimated combined results of operations for the nine-month periods ended September 30, 1995 and 1994 as if the acquisition of MUX had occurred at January 1, 1994, after giving effect to an adjustment to amortization of goodwill related to the acquisition. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made on that date. Nine Months Ended September 30, 1995 1994 Net Sales $228,197 $137,878 Income from continuing operations 53,218 24,795 Income from continuing operations per common share $ 1.27 $ .62 9 2. DISCONTINUED OPERATIONS Real Estate Operations Following the November 1992 acquisition (the "Acquisition") of the telecommunications equipment manufacturing and related software business of Glentel Inc. of Vancouver, British Columbia, Canada (the "GEMS Business") the Company restructured its real estate operations. On July 6, 1993, the Company adopted a formal plan which called for the disposal of its remaining real estate assets (principally four parcels of undeveloped land in the western United States). The sales of the remaining parcels were completed as of June 30, 1994, with an aggregate recognized gain in the nine-months ended September 30, 1994 of approximately $388,000, net of income taxes of $248,000. Net cash proceeds from the sales of real estate properties amounted to approximately $4.9 million for the nine-months ended September 30, 1994. Oil and Gas Pipeline Construction Operations In October 1993, the Company sold its interest in an oil and gas pipeline construction business receiving approximately $3.3 million in cash and a $3.6 million promissory note (included in other current assets at December 31, 1994.) The $3.6 million note was paid in full in March 1995. 3. INVENTORIES September 30, December 31, Inventories consist of: 1995 1994 Raw materials $30,845 $10,999 Work-in-process: Uncompleted contracts 937 762 Other 9,800 6,425 Finished goods 9,972 6,075 $51,554 $24,261 4. GOODWILL Goodwill is shown net of accumulated amortization of $8.1 million and $5.8 million at September 30, 1995 and December 31, 1994, respectively. 5. INCOME TAXES The Company's consolidated income tax provision was different from the amount computed using the U.S. statutory income tax rate for the following reasons:
Three Months Ended September 30, Nine Months Ended September 30, 1995 1994 1995 1994 Income tax provision at U.S. statutory rate $9,894 $3,580 $24,698 $9,987 Reduction in valuation allowance (2,595) (2,848) (9,051) (8,281) Foreign taxes at rates other than U.S. statutory rate (1,391) 461 (1,259) 1,558 State taxes (net of federal benefit) 917 412 2,293 1,113 Non-deductible goodwill amortization 384 236 820 706 Income tax provision $7,209 $1,841 $17,501 $5,083
10 Subsequent to the quasi-reorganization completed on February 1, 1988, as described in Note 6, the benefits derived from the utilization of tax net operating loss carryforwards are reported in the statement of operations in the year such tax benefits are realized and then reclassified from retained earnings to contributed capital. The Company adopted the accounting method for utilization of these tax net operating loss carryforwards outlined above on February 1, 1988. On September 28, 1989, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin No. 86 ("SAB 86") which set forth the SEC staff's position with respect to this accounting treatment. According to the SEC staff's interpretation of Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes," contained in SAB 86, realized tax benefits should be reported as a direct addition to contributed capital. Subsequently, the Company consulted with the SEC staff and determined that the SEC staff would not object to the accounting method outlined above for companies which had adopted such accounting methods prior to the issuance of SAB 86. If the original guidance in SAB 86 had been applied, the Company's net income for the nine months ended September 30, 1995 and 1994 would have been reduced by the amount of the benefit from utilization of tax net operating loss carryforwards. Such reduction in net income would have been $2.6 million ($.06 per share) and $2.8 million ($.07 per share) for the three months ended September 30, 1995 and 1994, respectively. Additionally, the reduction in net income would have been $9.1 million ($.22 per share) and $8.3 million ($.21 per share) for the nine months ended September 30, 1995 and 1994, respectively. The Company believes that it is more likely than not that the net deferred tax asset recorded at September 30, 1995 will be fully realized. 6. STOCKHOLDERS' EQUITY (a) Quasi-Reorganization On February 1, 1988, the Company completed a quasi-reorganization. After determining that the Company's balance sheet reflected approximate fair value on that date and that revaluation was not necessary, the accumulated deficit and the cumulative translation adjustment were adjusted to zero by reclassifying them to contributed capital. A new retained earnings account was established as of February 1, 1988. (b) Stock Split On May 24, 1995, the Board of Directors of the Company adopted a resolution authorizing a three for-two split of the Company's common stock, effected in the form of a 50% stock dividend distributed on June 19, 1995 to stockholders of record on June 5, 1995. All share and per share amounts have been restated to reflect this stock dividend. (c) Income per Common Share Primary income per common share was computed by dividing net income by the weighted average number of shares of common stock outstanding plus the shares that would be outstanding assuming exercise of dilutive stock options which are considered to be common stock equivalents. The number of common shares that would be issued from the exercise of stock options has been reduced by the number of common shares that could be purchased from the proceeds at the average market price of the Company's stock during the periods such options were outstanding. The number of shares used to compute primary per share data for the nine-month periods ended September 30, 1995 and 1994 was 41,389,024 and 38,965,853, respectively. The number of shares used to compute primary per share data for the three-month periods ended September 30, 1995 and 1994 was 42,357,381 and 39,126,159, respectively. For purposes of the fully diluted income per share computations, the number of shares that could be issued from the exercise of stock options outstanding at the end of the period has been reduced by the number of shares which could have been purchased from the proceeds at the higher of the market price of the Company's stock on September 30, 1995 and 1994 or the average market prices during the periods such options were outstanding. For those options exercised during the period, the computation for the period prior to exercise is based on the market price when the option was exercised. The number of shares used to compute fully diluted per share data for the nine-month periods ended September 30, 1995 and 1994 was 41,775,822 and 39,044,934, respectively. The number of shares used to compute fully diluted per share data for the three-month periods ended September 30, 1995 and 1994 was 42,471,761 and 39,182,150, respectively. 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Background On November 10, 1992, Glenayre Technologies, Inc. acquired the GEMS Business. The GEMS Business designs, manufactures, markets and services switches, transmitters, controls and related software used in personal communications systems (including paging, voice messaging, and message management and mobile data systems), transit communications systems and radio telephone systems. On July 6, 1993, the Company adopted formal plans to dispose of its real estate operation. This operation is accounted for as a discontinued operation and accordingly, its operating results are reported in this manner and excluded from continuing operations in the accompanying consolidated statements of operations for the nine and three months ended September 30, 1994. In October 1993, the Company sold its interest in an oil and gas pipeline construction business. (See Note 2 to the Company Condensed Consolidated Financial Statements). On April 25, 1995, the Company completed the acquisition of Western Multiplex Corporation ("MUX"), located in Belmont, California. MUX designs, manufactures and markets products for use in point-to-point microwave communication systems. The purchase price of approximately $28.6 million consisted of 1,124,955 shares of the Company's common stock (including 334,805 shares issuable upon exercise of stock options) valued at approximately $27.3 million and approximately $1.3 million in acquisition costs. The acquisition was accounted for as a purchase. The Company does not expect the MUX operations to require material financing commitments by the Company for the foreseeable future. See Note 1 to the Company Condensed Consolidated Financial Statements. Set forth below are: (i) a comparison of the results of operations of the Company for the nine months ended September 30, 1995 to the results of operations for the nine months ended September 30, 1994 (ii) a comparison of the results of the operations of the Company for the three months ended September 30, 1995 to the results of operations for the three months ended September 30, 1994; (iii) a discussion of the Company's discontinued operations; and (iv) a discussion of the Company's financial condition and liquidity. Nine Months Ended September 30, 1995 Compared with Nine Months Ended September 30, 1994 NET SALES Net sales for the nine months ended September 30, 1995 increased to approximately $222.9 million from net sales for the nine months ended September 30, 1994 of approximately $123.8 million, an increase of approximately $99.1 million, or 80.0%. Net sales of paging systems and voice messaging systems for the nine months ended September 30, 1995 increased to approximately $161.9 million and $34.9 million, respectively, from approximately $89.9 million and $18.5 million, respectively, for the prior period. The increase in net sales was primarily a result of the sales of new systems and the continued expansion and upgrading of existing systems within the installed customer base. One customer accounted for approximately 19% and 14% of sales for the nine months ended September 30, 1995 and 1994, respectively. GROSS PROFIT Gross profit increased to approximately $126.9 million, or 56.9% of net sales, for the nine months ended September 30, 1995, from approximately $70.9 million, or 57.3% of net sales, for the nine months ended September 30, 1994. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expense increased to approximately $39.7 million, or 17.8% of net sales, for the nine months ended September 30, 1995, from approximately $29.0 million, or 23.4% of net sales, for the nine months ended September 30, 1994. The $10.7 million increase primarily resulted from: (i) increased selling and marketing expenses of approximately $5.3 million for additional sales personnel, (ii) increase in commissions and employee incentives of $2.7 million relating to increased orders and overall business profitability, and (iii) $1.4 million of promotional material, international expenses and increased travel. 12 RESEARCH AND DEVELOPMENT EXPENSE Research and development costs increased to approximately $17.1 million, or 7.7% of net sales, for the nine months ended September 30, 1995, from approximately $11.6 million, or 9.4% of net sales, for the nine months ended September 30, 1994, an increase of $5.5 million, or 47.0%. The increase of $5.5 million was primarily a result of increased research and development manpower and product development expenses. Both hardware and software development costs are included in research and development costs. All research and development costs are expensed as incurred. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expense increased to $5.8 million for the nine months ended September 30, 1995 from $4.3 million for the nine months ended September 30, 1994. The increase is primarily attributable to (i) higher incremental purchases of plant and equipment in 1995 compared to 1994 and (ii) goodwill related to the acquisition of MUX in April 1995. INTEREST INCOME, NET The Company realized net interest income of approximately $6.0 million for the nine months ended September 30, 1995 compared to net interest income realized of approximately $3.0 million for the nine months ended September 30, 1994. The increase is primarily attributable to higher average balances in cash and cash equivalents and short-term investments. INCOME TAXES The difference between the combined U.S. federal and state statutory tax rate of approximately 40% and the effective tax rate of 24.8% for the nine months ended September 30, 1995 and 17.8% for the nine months ended September 30, 1994 is primarily the result of the utilization of the Company's net operating losses and the application of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," ("SFAS 109"), in computing the Company's tax provision. The difference between the effective tax rate of 24.8% in 1995 and 17.8% in 1994 is primarily the result of a variance between the 1995 and 1994 adjustments for realization of tax benefits for financial statement purposes in accordance with SFAS 109 primarily due to revisions during each period to the estimated future taxable income during the Company's loss carryforward period. See Note 5 to the Company Condensed Consolidated Financial Statements. Three Months Ended September 30, 1995 Compared with Three Months Ended September 30, 1994 NET SALES Net sales for the three months ended September 30, 1995, increased to approximately $88.1 million from net sales for the three months ended September 30, 1994 of approximately $43.9 million, an increase of approximately $44.2 million, or 100.7%. Net sales of paging systems and voice messaging systems for the three months ended September 30, 1995 increased to approximately $62.5 million and $14.2 million, respectively, from approximately $31.1 million and $7.4 million, respectively, for the prior period. The increase in net sales was primarily a result of the sales of new systems and the continued expansion and upgrading of existing systems within the installed customer base. One customer accounted for approximately 21% and 12% of sales for the three months ended September 30, 1995 and 1994, respectively. GROSS PROFIT Gross profit increased to approximately $50.2 million, or 57.0% of net sales, for the three months ended September 30, 1995, from approximately $25.4 million, or 57.9% of net sales, for the three months ended September 30, 1994. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expense increased to approximately $15.4 million, or 17.5% of net sales, for the three months ended September 30, 1995 from approximately $10.6 million, or 24.0% of net sales, for the three months ended September 30, 1994. The $4.8 million increase primarily resulted from: (i) increased selling and marketing expenses of approximately $1.9 million for additional sales personnel; (ii) increase in commissions and employee incentives of $1.3 million related to increased orders and overall business profitability and (iii) additional sales office expenses of $1.3 million. 13 RESEARCH AND DEVELOPMENT EXPENSE Research and development costs increased to approximately $6.4 million, or 7.3% of net sales, for the three months ended September 30, 1995, from approximately $4.5 million, or 10.1% of net sales, for the three months ended September 30, 1994, an increase of $2.0 million, or 44.7%. The increase of $2.0 million was primarily a result of increased research and development manpower and research material purchased. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expense increased to $2.3 million for the three months ended September 30, 1995 from $1.5 million for the nine months ended September 30, 1994. The increase is primarily attributable to (i) higher incremental purchases of plant and equipment in 1995 compared to 1994 and (ii) goodwill related to the acquisition of MUX in April 1995. INTEREST INCOME, NET The Company realized net interest income of approximately $2.0 million for the three months ended September 30, 1995 compared to net interest income realized of approximately $1.3 million for the three months ended September 30, 1994. The increase is primarily attributable to higher average balances in cash and cash equivalents and short-term investments. INCOME TAXES The difference between the combined U.S. federal and state statutory tax rate of approximately 40% and the effective tax rate of 25.5% for the three months ended September 30, 1995 and 18.0% for the three months ended September 30, 1994 is primarily the result of the utilization of the Company's net operating losses and the application of SFAS 109 in computing the Company's tax provision. The difference between the effective tax rate of 25.5% in 1995 and 18.0% in 1994 is primarily the result of a variance between the 1995 and 1994 adjustments for realization of tax benefits for financial statement purposes in accordance with SFAS 109 primarily due to revisions during each period to the estimated future taxable income during the Company's loss carryforward period. See Note 5 to the Company Condensed Consolidated Financial Statements. Discontinued Operations Real Estate Operations Following the Acquisition of the GEMS Business the Company restructured its real estate operations. On July 6, 1993, the Company adopted a formal plan which called for the disposal of its remaining real estate assets (principally four parcels of undeveloped land in the western United States). The sales of remaining parcels were completed as of June 30, 1994, with an aggregate recognized gain in the nine months ended September 30, 1994 of approximately $388,000, net of income taxes of $248,000. Net cash proceeds from the sales of real estate properties amounted to approximately $4.9 million for the nine months ended September 30, 1994. Oil and Gas Pipeline Construction Operations In October 1993, the Company sold its interest in an oil and gas pipeline construction business receiving approximately $3.3 million in cash and a $3.6 million promissory note (included in other current assets at December 31, 1994.) The $3.6 million note was paid in full in March 1995. Financial Condition and Liquidity The Company's working capital at September 30, 1995 was approximately $207.0 million, including cash and cash equivalents and short-term investments of approximately $114.8 million. Accounts receivable, inventories, trade notes receivable, accounts payable, and accrued liabilities at September 30, 1995 increased from December 31, 1994 primarily as a result of increased levels of operating activities during the first nine months of 1995. Goodwill at September 30, 1995 increased from December 31, 1994 due to the acquisition of MUX in April 1995. During the nine months ended September 30, 1995 the Company received cash of approximately $12.5 million from the exercise of stock options and $3.6 million from the payment in full of the note discussed above. During the nine months ended September 30, 1995, the Company spent approximately $21.5 million for capital expenditures. These expenditures were necessary in order to provide the equipment and capacity to meet the growth of the business. Additionally, at September 30, 1995, the Company had a commitment for expenditures of approximately $5.1 million to be paid in the fourth quarter 1995 related to a building acquisition. 14 The Company's cash and cash equivalents are placed in short-term investments consisting of high-grade commercial paper, bank certificates of deposit, U.S. Treasury bills and notes, and repurchase agreements backed by U.S. Government securities with original maturities of three months or less. The Company's short-term investments are comprised of identical types of investments with the exception that their original maturities are greater than three months, but do not exceed one year. The Company expects to use its cash, cash equivalents, and short-term investments for working capital and other general corporate purposes, including the expansion and development of its existing products and markets and the possible expansion into complementary businesses. The Company believes that funds generated from continuing operations, together with its current cash reserves, will be sufficient to support its short-term and long-term liquidity requirements for current operations (including capital expenditures). Company management believes that, if needed, it can establish appropriate borrowing arrangements with lending institutions. 15 PART II - OTHER INFORMATION Items 1 through 5 are inapplicable and have been omitted. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 11 Computation of earnings per common share for the nine-month and three-month periods ended September 30, 1995 and 1994. Exhibit 15 Letter regarding unaudited interim financial information. Exhibit 27 Financial Data Schedule. (Filed in electronic format only. Pursuant to Rule 402 of Regulation S-T, this schedule shall not be deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934.) (b) Reports on Form 8-K None 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Glenayre Technologies, Inc. (Registrant) /s/ Stanley Ciepcielinski Stanley Ciepcielinski Executive Vice President and Chief Financial Officer /s/ Billy C. Layton Billy C. Layton Controller and Chief Accounting Officer Date: October 25, 1995 17 EX-11 2 EXHIBIT 11 Exhibit 11 GLENAYRE TECHNOLOGIES, INC. COMPUTATION OF EARNINGS PER COMMON SHARE In Thousands Except Per Share Amounts (Unaudited)
Nine Months Three Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Income from continuing operations $53,066 $23,451 $21,061 $ 8,385 Income from discontinued operations -- 388 -- -- Net Income $53,066 $23,839 $21,061 $ 8,385 Primary Earnings Per Share: Weighted average shares outstanding during the period 38,499 36,488 39,346 36,824 Common stock equivalents 2,890 2,478 3,011 2,302 41,389 38,966 42,357 39,126 Continuing operations $ 1.28 $ .60 $ .50 $ .21 Discontinued operations -- .01 -- -- Net income per share $ 1.28 $ .61 $ .50 $ .21 Fully Diluted Earnings Per Share: Weighted average shares outstanding during the period 38,499 36,488 39,346 36,824 Common stock equivalents 3,277 2,557 3,126 2,358 41,776 39,045 42,472 39,182 Continuing operations $ 1.27 $ .60 $ .50 $ .21 Discontinued operations -- .01 -- -- Net income per share $ 1.27 $ .61 $ .50 $ .21
EX-15 3 EXHIBIT 15 Exhibit 15 October 19, l995 To the Board of Directors and Stockholders of Glenayre Technologies, Inc. Charlotte, North Carolina We are aware of the incorporation by reference in the Registration Statement Number 33-43797 on Form S-8 dated November 5, 1991, Registration Statement Number 33-43798 on Form S-8 dated November 5, 1991 (amended December 9, 1992), Registration Statement Number 33-68766 on Form S-8 dated September 14, 1993, and Registration Statement Number 33-80464 on Form S-8 dated June 17, 1994, of our report dated October 19, 1995 relating to the unaudited condensed consolidated interim financial statements of Glenayre Technologies, Inc. and subsidiaries which are included in its Form 10-Q, for the quarter ended September 30, 1995. Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 or the Securities Act of 1933. Ernst & Young LLP Charlotte, North Carolina EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1995 SEP-30-1995 114,755 0 96,560 0 51,554 266,931 36,871 0 426,028 59,902 0 289,390 0 0 72,468 426,028 222,945 222,945 96,067 96,067 62,519 0 138 70,567 17,501 53,066 0 0 0 53,066 1.28 1.27
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