-----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, TA8LXsAZ22i/6UwlPYBA3Knfwbl2IxM+/efueDcCMUdvKElL/tR2epCvXZtj3c/D zuh8gI52ZSJiqvwfWONb2A== 0000950168-96-001290.txt : 19960724 0000950168-96-001290.hdr.sgml : 19960724 ACCESSION NUMBER: 0000950168-96-001290 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960723 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLENAYRE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000808918 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] 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: 96597931 BUSINESS ADDRESS: STREET 1: 5935 CARNEGIE BOULEVARD 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 #44516.1 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 JUNE 30, 1996 ------------------------ [ ] 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 Incorporation or Organization) Identification No.) 5935 CARNEGIE BLVD., CHARLOTTE, NORTH CAROLINA 28209 ------------ (Address of principal executive offices) Zip Code --------------- (704) 553-0038 ------------------------------------------------------------- (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 [ ] The number of shares outstanding of the Registrant's common stock, par value $.02 per share, at July 22, 1996 was 61,321,868 shares. GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- INDEX Part I - Financial Information: Item 1. Financial Statements
Page Independent Accountant's Review Report........................................................3 Condensed Consolidated Balance Sheets as of June 30, 1996 (Unaudited) and December 31, 1995..........................................4 Condensed Consolidated Statements of Income for the Six months ended June 30, 1996 and 1995 (Unaudited)......................................5 Condensed Consolidated Statements of Income for the Three months ended June 30, 1996 and 1995 (Unaudited)....................................6 Condensed Consolidated Statement of Stockholder's Equity For the six months ended June 30, 1996 (Unaudited).......................................7 Condensed Consolidated Statements of Cash Flows for the Six months ended June 30, 1996 and 1995 (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 4. Submission of Matters to a Vote of Security Holders..........................................16 Item 6. Exhibits and Reports on Forms 8-K............................................................16
2 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- 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, Inc. and subsidiaries as of June 30, 1996, and the related condensed consolidated statements of income for the three-month periods and six-month periods ended June 30, 1996 and 1995, the condensed consolidated statement of stockholders' equity for the six months ended June 30, 1996 and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 1996 and 1995. These financial statements are the responsibility of the Company's Management. We conducted our reviews 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 reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Glenayre Technologies, Inc. as of December 31, 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated January 31, 1996, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1995, 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 July 19, 1996 3 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, 1996 DECEMBER 31, 1995 ASSETS (Unaudited) Current Assets: Cash and cash equivalents ............................................................. $116,360 $ 70,600 Short-term investments ................................................................ 63,791 44,054 Accounts receivable, net .............................................................. 89,837 89,265 Trade notes receivable, current ....................................................... 7,856 7,960 Inventories ........................................................................... 51,529 50,045 Deferred income taxes ................................................................. 9,216 7,568 Prepaid expenses and other current assets ............................................. 7,298 7,189 -------- -------- Total Current Assets .............................................................. 345,887 276,681 Trade notes receivable ..................................................................... 9,642 14,973 Property, plant and equipment, net ......................................................... 53,742 47,920 Goodwill ................................................................................... 78,531 80,240 Deferred income taxes ...................................................................... 24,722 27,487 Other assets ............................................................................... 522 279 -------- -------- TOTAL ASSETS ...................................................................... $513,046 $447,580 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ...................................................................... $ 16,877 $ 15,709 Accrued liabilities ................................................................... 35,775 36,162 Other current liabilities ............................................................. 1,330 1,323 -------- -------- Total Current Liabilities ............................................................. 53,982 53,194 Other liabilities .......................................................................... 3,831 3,692 Stockholders' Equity: Preferred stock, $.01 per value; 5,000,000 shares authorized, no shares issued and outstanding ................................................... -- -- Common stock, $.02 par value; authorized 200,000,000 shares; outstanding: June 30, 1996 - 61,321,868 shares; December 31, 1995 - 60,044,752 shares .............................................. 1,226 1,201 Contributed capital ........................................................................ 324,084 297,017 Retained earnings .......................................................................... 129,923 92,476 -------- -------- Total stockholders' equity ............................................................ 455,233 390,694 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................................. $513,046 $447,580 ======== ========
Note: The balance sheet at December 31, 1995 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 INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Six Months Ended June 30, ---------------------------- 1996 1995 ----------- --------------- NET SALES ...................................... $ 194,463 $ 134,841 --------- --------- COSTS AND EXPENSES: Costs of sales ............................ 85,599 58,181 Selling, general and administrative expense 37,055 24,225 Research and development expense .......... 13,407 10,644 Depreciation and amortization expense ..... 6,376 3,521 --------- --------- Total Costs and Expenses .............. 142,437 96,571 --------- --------- INCOME FROM OPERATIONS ......................... 52,026 38,270 --------- --------- OTHER INCOME (EXPENSES): Interest income ........................... 4,821 4,067 Interest expense .......................... (96) (84) Other, net ................................ 76 44 --------- --------- Total Other Income (Expenses), net .... 4,801 4,027 --------- --------- INCOME BEFORE INCOME TAXES ..................... 56,827 42,297 PROVISION FOR INCOME TAXES ..................... 16,888 10,292 --------- --------- NET INCOME ..................................... $ 39,939 $ 32,005 ========= ========= NET INCOME PER COMMON SHARE - PRIMARY .......... $ .63 $ .52 ========= ========= NET INCOME PER COMMON SHARE - FULLY DILUTED ............................. $ .62 $ .52 ========= =========
See notes to condensed consolidated financial statements 5 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended June 30, ----------------------- 1996 1995 ----------- --------- NET SALES ...................................... $ 105,085 $ 74,979 COSTS AND EXPENSES: Costs of sales ............................ 45,832 32,322 Selling, general and administrative expense 19,041 12,274 Research and development expense .......... 7,054 5,945 Depreciation and amortization expense ..... 3,280 1,929 --------- --------- Total Costs and Expenses .............. 75,207 52,470 --------- --------- INCOME FROM OPERATIONS ......................... 29,878 22,509 --------- --------- OTHER INCOME (EXPENSES): Interest income ........................... 2,542 2,086 Interest expense .......................... (43) (39) Other, net ................................ 56 71 --------- --------- Total Other Income (Expenses), net .... 2,555 2,118 --------- --------- INCOME BEFORE INCOME TAXES ..................... 32,433 24,627 PROVISION FOR INCOME TAXES ..................... 9,570 6,404 --------- --------- NET INCOME ..................................... $ 22,863 $ 18,223 ========= ========= NET INCOME PER COMMON SHARE - PRIMARY .......... $ .36 $ .29 ========= ========= NET INCOME PER COMMON SHARE - FULLY DILUTED ............................. $ .36 $ .29 ========= =========
See notes to condensed consolidated financial statements 6 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS AND SHARES IN THOUSANDS) (UNAUDITED)
Total Common Stock Contributed Retained Stockholders' Shares Amount Capital Earnings Equity -------- ----------- -------------- ------------ ----------------- Balances, December 31, 1995........... 60,045 $1,201 $297,017 $92,476 $390,694 Net Income............................ 39,939 39,939 Stock options exercised............... 1,352 27 12,855 12,882 Utilization of net operating loss carry forwards..................... 2,492 (2,492) -- Tax benefit of stock options exercised.......................... 14,147 14,147 Repurchase of common stock........... (75) (2) (2,427) (2,429) --------- --------- ----------- ---------- ---------------- Balances, June 30, 1996............... 61,322 $1,226 $324,084 $129,923 $455,233 ====== ====== ======== ======== ========
See notes to condensed consolidated financial statements 7 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Six Months Ended June 30, -------------------------------------------- 1996 1995 ------------ ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES................................. 65,547 $ 12,999 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of plant and equipment .................................... (10,568) (10,168) Proceeds from sale of equipment ..................................... 94 15 Net proceeds from 1993 sale of interest in oil and gas pipeline construction business ............................ -- 3,600 Maturities of short-term investments ................................ 78,535 49,260 Purchases of short-term investments ................................. (98,272) (48,862) Cash acquired net of acquisition costs .............................. -- 400 --------- --------- Net cash used in investing activities ........................... (30,211) (5,755) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in other liabilities ........................................ (90) (61) Issuance of common stock ............................................ 12,943 5,198 Common stock repurchases ............................................ (2,429) -- --------- --------- Net cash provided by financing activities ....................... 10,424 5,137 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS ................................ 45,760 12,381 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................................................... 70,600 52,043 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 116,360 $ 64,424 ========= ========= SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest ............................................................ $ 75 $ 80 Income taxes ........................................................ $ 3,685 $ 1,027
SUPPLEMENTAL INFORMATION OF NONCASH INVESTING AND FINANCING ACTIVITIES: On April 25, 1995, the Company acquired Western Multiplex Corporation. In connection with this acquisition the Company paid $1,323,000 in acquisition costs and issued common stock valued at $27,260,000 for assets with a fair value of $31,769,000 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) (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 six-month periods ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. 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. In April 1995, the Company completed the acquisition of Western Multiplex Corporation ("MUX"). The operating results of MUX are included in the operating results of the Company since the acquisition date. 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, 1995. 1. INVENTORIES June 30, December 31, Inventories consist of: 1996 1995 ---------------- ----------------- Raw materials.................... $29,653 $30,191 Work-in-process: Uncompleted contracts......... 1,946 604 Other......................... 7,703 7,743 Finished goods................... 12,227 11,507 ----------- ----------- $51,529 $50,045 ======= ======== 2. GOODWILL Goodwill is shown net of accumulated amortization of $10.6 million and $8.9 million at June 30, 1996 and December 31, 1995, respectively. 9 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- 3. 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 Six Months Ended June 30, June 30, -------------------------- ------------------------- 1996 1995 1996 1995 ---------- ------------ ---------- ---------- Income tax provision at U.S. statutory rate ... $ 11,351 $ 8,620 $ 19,889 $ 14,804 Reduction in valuation allowance .............. (650) (3,261) (2,492) (6,456) Foreign taxes at rates other than U.S. statutory rate ............................. (1,742) - (1,980) 132 State taxes (net of federal benefit) .......... 1,054 802 1,847 1,376 U.S. Research and Experimentation Credits ..... (744) - (977) -- Non-deductible goodwill amortization .......... 301 243 601 436 -------- -------- -------- -------- Income tax provision .......................... $ 9,570 $ 6,404 $ 16,888 $ 10,292 ======== ======== ======== ========
Subsequent to the quasi-reorganization completed on February 1, 1988, as described in Note 4, 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 three and six month periods ended June 30, 1996 and 1995 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 $650 thousand ($.01 per share) and $3.3 million ($.05 per share) for the three months ended June 30, 1996 and 1995, respectively. Additionally, the reduction in net income would have been $2.5 million ($.04 per share) and $6.5 million ($.11 per share) for the six months ended June 30, 1996 and 1995, respectively. The Company believes that it is more likely than not that the net deferred tax asset recorded at June 30, 1996 will be fully realized. 10 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- 4. 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 REPURCHASE Pursuant to a stock repurchase plan approved in 1994 by the Board of Directors, the Company repurchased 75,000 shares of its common stock at a cost of $2.4 million (shown as a reduction of common stock and contributed capital) in March 1996. (C) ESTABLISHMENT OF INCENTIVE STOCK PLAN On May 22, 1996, the Company's stockholders approved the establishment of the 1996 Incentive Stock Plan (the "Plan") to promote the long-term financial interest and growth of the company, reserving 2,200,000 shares for directors, certain key employees and other key persons providing services to the Company and its subsidiaries. The Plan is administered by a committee of the Board of Directors. (D) 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 six-month periods ended June 30, 1996 and 1995 was 63,882,377 and 61,304,325, respectively. The number of shares used to compute primary per share data for the three-month periods ended June 30, 1996 and 1995 was 64,014,861 and 62,123,573, 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 June 30, 1996 and 1995 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 six-month periods ended June 30, 1996 and 1995 was 64,118,305 and 61,804,263, respectively. The number of shares used to compute fully diluted per share data for the three-month periods ended June 30, 1996 and 1995 was 64,144,361 and 62,415,821, respectively. 11 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION BACKGROUND Glenayre Technologies, Inc. ("Glenayre" or the "Company") designs, manufactures, markets and services telecommunications equipment and software used in wireless personal communications systems throughout the world. The Company's product families are grouped in either (i) Wireless Messaging (paging and narrowband personal communication service ("NPCS") products), or (ii) Voice and Data Technologies (voice messaging, microwave communication and radio telephone products) categories. Additionally, Glenayre provides service and support to its products. In April 1995, the Company completed the acquisition of Western Multiplex Corporation ("MUX"). The operating results of MUX are included in the operating results of the Company since the acquisition date. The following discussion should be read in conjunction with the Company's Condensed Consolidated Financial Statements and related Notes. SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995 NET SALES Net sales for the six months ended June 30, 1996 increased to $194.5 million from net sales for the six months ended June 30, 1995 of $134.8 million, an increase of $59.6 million, or 44.2%. Net sales of Wireless Messaging products and Voice and Data products for the six months ended June 30, 1996 increased to approximately $155.7 million and $25.7 million, respectively, from approximately $111.1 million and $11.4 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. In the 1996 period, service revenue including maintenance contracts, installation, project management and training revenue increased to approximately $13.0 million from $12.3 million for the 1995 period. Sales to a single customer totaled approximately 15% and 18% of sales for the six months ended June 30, 1996 and 1995, respectively. GROSS PROFIT Gross profit increased to $108.9 million, or 56.0% of net sales, for the six months ended June 30, 1996, from $76.7 million, or 56.9% of net sales, for the six months ended June 30, 1995. The minimal change in gross margin percentage was due to a change in the mix of products sold and the increase in fixed manufacturing costs incurred as additional capacity was brought on line during the latter half of 1995. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expense increased to $37.1 million, or 19.1% of net sales, for the six months ended June 30, 1996, from $24.2 million, or 18.0% of net sales, for the six months ended June 30, 1995. The $12.8 million increase primarily resulted from: (i) increased expenses of approximately $8.8 million for additional personnel related to sales, marketing and general support functions, (ii) $2.2 million of promotional material, trade shows, increased travel, and support costs, 12 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- and (iii) increase of $900 thousand relating to increased cost of leased premises and international sales offices. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expense increased to $6.4 million or 3.3% of net sales, for the six months ended June 30, 1996 from $3.5 million or 2.6% of net sales for the prior period. The increase is primarily attributable to (i) the significant purchases of plant and equipment during 1995 and (ii) goodwill related to the acquisition of MUX in April 1995. RESEARCH AND DEVELOPMENT EXPENSE Research and development costs increased to $13.4 million, or 6.9% of net sales, for the six months ended June 30, 1996, from $10.6 million, or 7.9% of net sales, for the six months ended June 30, 1995, an increase of $2.8 million, or 26.0%. The increase was primarily a result of increased research and development manpower and research material purchased. The research and development costs were primarily for new product development and enhancements to existing products. Both hardware and software development costs are included in research and development costs. All research and development costs are expensed as incurred. INTEREST INCOME, NET The Company realized net interest income of $4.8 million for the six months ended June 30, 1996 compared to net interest income realized of $4.0 million for the six months ended June 30, 1995. 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 29.7% for the six months ended June 30, 1996 and 24.3% for the six months ended June 30, 1995 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 29.7% in 1996 and 24.3% in 1995 is primarily the result of a variance between the 1996 and 1995 adjustments for realization of tax benefits of net operating loss carryforwards 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 3 to the Condensed Consolidated Financial Statements. THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995 NET SALES Net sales for the three months ended June 30, 1996, increased to $105.1 million from net sales for the three months ended June 30, 1995 of $75.0 million, an increase of $30.1 million, or 40.2%. Net sales of Wireless Messaging products and Voice and Data products for the three months ended June 30, 1996 13 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- increased to approximately $83.9 million and $16.1 million, respectively, from approximately $60.5 million and $6.8 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. In 1996, service revenue decreased to approximately $5.2 million from $7.7 million from 1995. The decrease was primarily due to fewer project management and installation contracts being completed in 1996 compared to the prior period. One customer accounted for approximately 12% and 11% of sales for the three months ended June 30, 1996 and 1995, respectively. GROSS PROFIT Gross profit increased to $59.3 million, or 56.4% of net sales, for the three months ended June 30, 1996, from $42.7 million, or 56.9% of net sales, for the three months ended June 30, 1995. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expense increased to $19.0 million, or 18.1% of net sales, for the three months ended June 30, 1996 from $12.3 million, or 16.4% of net sales, for the three months ended June 30, 1995. The $6.8 million increase primarily resulted from: (i) increased expenses of approximately $4.0 million for additional personnel related to sales, marketing and general support functions; (ii) an increase of $2.1 million relating to additional marketing, sales support costs such as trade shows, foreign office lease expense, travel and hiring expenses, and (iii) an additional $700 thousand related to legal costs associated with international offices, and other normal expenses associated with increased sales activities and building expansions. RESEARCH AND DEVELOPMENT EXPENSE Research and development costs increased to $7.1 million, or 6.7% of net sales, for the three months ended June 30, 1996, from $5.9 million, or 7.9% of net sales, for the three months ended June 30, 1995, an increase of $1.1 million, or 18.7%. The increase was primarily a result of increased research and development manpower and research material purchased. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expense increased to $3.3 million or 3.1% of net sales for the three months ended June 30, 1996 from approximately $1.9 million or 2.6% of net sales for the same period in 1995. The increase is primarily attributable to the significant purchases of plant and equipment during 1995. INTEREST INCOME, NET The Company realized net interest income of $2.5 million for the three months ended June 30, 1996 compared to net interest income realized of $2.0 million for the three months ended June 30, 1995. The increase is primarily attributable to higher average balances in cash and cash equivalents and short-term investments. 14 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- INCOME TAXES The difference between the combined U.S. federal and state statutory tax rate of approximately 40% and the effective tax rate of 29.5% for the three months ended June 30, 1996 and 26.0% for the three months ended June 30, 1995 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 29.5% in 1996 and 26.0% in 1995 is primarily the result of a variance between the 1996 and 1995 adjustments for realization of tax benefits of net operating loss carryforwards 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 3 to the Condensed Consolidated Financial Statements. FINANCIAL CONDITION AND LIQUIDITY The Company's working capital at June 30, 1996 was $291.9 million, including cash and cash equivalents and short-term investments of $180.2 million. During the six months ended June 30, 1996 the Company received cash of $12.9 million from the exercise of stock options. During the six months ended June 30, 1996, the Company spent $10.6 million for capital expenditures. These expenditures were necessary in order to provide the equipment and capacity to meet the growth of the business. In April 1996, the Company completed negotiations to build a 75,000 square foot facility with a total cost of approximately $6.5 million in Atlanta, Georgia to replace the current leased Atlanta facilities used for sales, service, research and development, and training. Approximately $1.8 million paid toward the new facility is included in the capital expenditures for the six months ended June 30, 1996 with the remaining $4.7 million expected to be paid by the Company in 1996. 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, financing customer purchases of its products, 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 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- PART II - OTHER INFORMATION ITEMS 1 THROUGH 3 ARE INAPPLICABLE AND HAVE BEEN OMITTED. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. At the Company's Annual Meeting of Stockholders held on May 22, 1996, the following matters were submitted to a vote of the stockholders of the Company. (i). The election of three directors each to serve a three-year term expiring in 1999: Nominee Shares Voted For Shares Withheld --------------------------- ----------------- --------------- Ramon D. Ardizzone 50,750,850 384,872 Barry W. Gray 50,914,189 221,533 Edward J. Rosenthal 50,776,614 359,108 (ii). The approval of the Glenayre 1996 Incentive Stock Plan: Votes for: 35,779,472 Votes against: 14,878,809 Votes abstained: 139,964 Broker non-votes: 337,477 (iii). Ratification of the selection of Ernst & Young LLP as auditors for the year ending December 31, 1996 was approved by a vote of 51,067,434 shares for and 9,970 shares against, with 58,318 shares abstaining. ITEM 5 IS INAPPLICABLE AND HAS BEEN OMITTED. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 11 Computation of earnings per common share for the six-month and three-month periods ended June 30, 1996 and 1995. 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.) Exhibit 99 Cautionary statement under safe harbor provisions of the Private Securities Litigation Reform Act of 1995. (b) Reports on Form 8-K None. 16 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- 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 (Principal Financial Officer) /s/ Billy C. Layton --------------------------------------------- Billy C. Layton Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) Date: July 23, 1996 EX-11 2 EXHIBIT 11 Exhibit 11 GLENAYRE TECHNOLOGIES, INC. COMPUTATION OF EARNINGS PER COMMON SHARE In Thousands Except Per Share Amounts (Unaudited)
Six Months Ended June 30, Three Months Ended June 30 1996 1995 1996 1995 Net Income ........................................................ $39,939 $32,005 $22,863 $18,223 ------- ------- ------- ------- PRIMARY EARNINGS PER SHARE: Weighted average shares outstanding during the period ............. 60,664 57,103 60,935 57,849 Common stock equivalents .......................................... 3,218 4,201 3,080 4,275 ------- ------- ------- ------- 63,882 61,304 64,015 62,124 ======= ====== ====== ====== Net income per share .............................................. $ .63 $ .52 $ .36 $ .29 ======= ====== ====== ====== FULLY DILUTED EARNINGS PER SHARE: Weighted average shares outstanding during the period ............. 60,664 57,103 60,935 57,849 Common stock equivalents .......................................... 3,454 4,701 3,209 4,567 ------- ------- ------ ------- 64,118 61,804 64,144 62,416 ======= ====== ====== ====== Net income per share .............................................. $ .62 $ .52 $ .36 $ .29 ======= ====== ====== ======
EX-15 3 EXHIBIT 15 GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- EXHIBIT 15 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, Registration Statement Number 33-80464 on Form S-8 dated June 17, 1994, Registration Statement Number 33-88818 on Form S-4, dated March 24, 1995 (amended by Post Effective Amendment Number 1 on Form S-8 dated March 25, 1996), and Registration Statement Number 333-04635 on Form S-8 dated May 28, 1996, of our report dated July 19, 1996 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 June 30, 1996. 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 July 19, 1996 EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS DEC-31-1996 JUN-30-1996 180,151 0 107,335 0 51,529 345,887 68,950 15,208 513,046 53,982 0 0 0 325,310 129,923 513,046 194,463 194,463 85,599 85,599 56,838 0 96 56,827 16,888 39,939 0 0 0 39,939 .63 .62
EX-99 5 EXHIBIT 99 EXHIBIT 99 CAUTIONARY STATEMENT UNDER SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Glenayre Technologies, Inc. ("Glenayre" or the "Company") sets forth below the following cautionary statement identifying important factors that could cause the Company's actual results to differ materially from those projected in any forward looking statements made by or on behalf of the Company. These cautionary statements are made pursuant to Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both enacted pursuant to the Private Securities Litigation Reform Act of 1995. POTENTIAL MARKET CHANGES RESULTING FROM RAPID TECHNOLOGICAL ADVANCES Glenayre's business is primarily focused on paging and is subject to competition from alternative forms of communication. In addition, Glenayre's business is focused entirely upon the wireless telecommunications industry. The wireless telecommunications industry is characterized by, and subject to, rapid and significant technological change and future technological advances, including digital-based cellular telephone systems, which may result in the availability of new services or products which compete, directly or indirectly, with Glenayre's products or the services provided by the Company's customers. The effect of such technological advances on the business of the Company can not be predicted, and there can be no assurance that such technological advances will not adversely affect Glenayre. While the introduction of more advanced forms of telecommunication may provide opportunities to Glenayre for the development of new products, these advanced forms of telecommunication may reduce the demand for pagers and thus the type of paging transmission systems and related software designed and sold by Glenayre. In addition, there can be no assurance that Glenayre will be able to develop successfully these new products or to provide additional enhancements to its existing products. COMPETITION The Company currently faces competition from a number of other equipment manufacturers, certain of which are larger and have significantly greater resources than the Company, and there can be no assurance that the Company will be able to compete successfully in the future. In addition, manufacturers of wireless telecommunications equipment, including those in the cellular telephone industry, certain of which are larger and have significantly greater resources than the Company, could elect to enter into the Company's markets and compete with Glenayre's products. The Company also faces indirect competition from alternative wireless telecommunications technologies, including cellular telephone services, mobile satellite systems, specialized and private mobile radio systems, digital-based cellular telephone systems and broadband personal communication services. These technologies, among others, are currently in use or under development. Although these technologies are higher priced than traditional paging services or are not yet commercially available, technological improvements could result in increased capacity and efficiency for wireless two-way communication and, accordingly, could result in increased competition for the Company. VARIABILITY OF QUARTERLY RESULTS 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. Sales to one customer totalled approximately 13% and 16% of 1994 and 1995 fiscal year net sales, respectively. The customers with whom the Company does the largest amount of business generally change from year to year which results from the timing for development and expansion of its customers' systems. Furthermore, if a customer delays or accelerates its delivery requirements or a product's completion is delayed or accelerated, revenues expected in a given quarter may be deferred or accelerated into subsequent or earlier quarters. Therefore, annual financial results are more indicative of the Company's performance than quarterly results, and results of operations in any quarterly period may not be indicative of results likely to be realized in the following quarterly periods. In addition, comparisons to the results of the Company's prior quarterly periods may not be appropriate indicators of future quarterly period results. VOLATILITY OF STOCK PRICE The market price of Glenayre Common Stock is volatile. The market price of Glenayre Common Stock could be subject to significant fluctuations in response to variations in Glenayre's quarterly operating results and other factors such as announcements of technological developments or new products by Glenayre, developments in Glenayre's relationships with its customers, technological advances by existing and new competitors, general market conditions in the industry and changes in government regulations. In addition, in recent years conditions in the stock market in general and shares of technology companies in particular have experienced significant price and volume fluctuations which have often been unrelated to the operating performance of these specific companies. Such market fluctuations and economic conditions unrelated to Glenayre may adversely affect the market price of Glenayre's Common Stock. LIMITS ON PROTECTION OF PROPRIETARY TECHNOLOGY AND INFRINGEMENT CLAIMS Glenayre owns or licenses numerous patents used in its operations. Glenayre believes that while these patents are useful to Glenayre, they are not critical or valuable on an individual basis. The collective value of the intellectual property of Glenayre is comprised of its patents, blueprints, specifications, technical processes and cumulative employee knowledge. Although Glenayre attempts to protect its proprietary technology through a combination of trade secrets, patent law, nondisclosure agreements and technical measures, such protection may not preclude competitors from developing products with features similar to Glenayre's products. The laws of some foreign countries in which Glenayre sells or may sell its products, including The Republic of Korea, The People's Republic of China, Saudi Arabia, Thailand, Dubai, India and Brazil, do not protect Glenayre's proprietary rights in the products to the same extent as do the laws of the United States. Although Glenayre believes that its products and technology do not infringe on the proprietary rights of others, Glenayre is currently party to certain infringement claims, and there can be no assurance that third parties will not assert additional infringement claims against Glenayre in the future. If such litigation resulted in Glenayre's inability to use technology, Glenayre might be required to expend substantial resources to develop alternative technology or to license the prior technology. There can be no assurance that Glenayre could successfully develop alternative technology or license the prior technology on commercially reasonable terms. Glenayre does not believe, however, that an adverse resolution of the pending claims would have a material adverse effect on Glenayre. POTENTIAL CHANGES IN GOVERNMENT REGULATION Many of Glenayre's products operate on radio frequencies. Radio frequency transmissions and emissions, and certain equipment used in connection therewith, are regulated in the United States, Canada and internationally. Regulatory approvals generally must be obtained by Glenayre in connection with the manufacture and sale of its products, and by Glenayre's paging service provider customers to operate Glenayre's products. There can be no assurance that appropriate regulatory approvals will continue to be obtained, or that approvals required with respect to products being developed for the personal communications services market will be obtained. The enactment by federal, state, local or international governments of new laws or regulations or a change in the interpretation of existing regulations could affect the market for Glenayre's products. Although recent deregulation of international telecommunications industries along with recent radio frequency spectrum allocations made by the Federal Communications Commission ("FCC") in the United States have increased the demand for Glenayre's products by providing users of those products with opportunities to establish new paging and other wireless personal communications services, there can be no assurance that the trend toward deregulation and current regulatory developments favorable to the promotion of new and expanded personal communications services will continue or that other future regulatory changes will have a positive impact on Glenayre. In February 1996, the FCC released a notice of proposed rule making covering a licensing rule and procedure change on the 929 MHz and 931 MHz 2 as well as certain other paging frequencies which included a freeze on its acceptance of new applications for paging system licenses. In April 1996, the FCC partially lifted this freeze to permit paging service providers to submit expansion applications for paging transmitter sites within 40 miles of their existing sites. As the issuance of new paging system licenses stimulates demand for the Company's products, this freeze may adversely affect sales and the timing of sales of the Company's products in the United States. FINANCING CUSTOMER PURCHASES FOR DEVELOPMENT OF NPCS MARKET The Company expects to finance customer purchases of its products for development of the narrowband personal communications services ("NPCS") market and to facilitate the build-out of NPCS networks by its customers who recently acquired NPCS licenses auctioned by the FCC (the "NPCS License Holders"). Glenayre has provided customer financing in the past on a selected basis but generally has not extended credit except in accordance with the usual and customary terms of the industry. The NPCS market, including two-way paging, is still in the developmental stages and will require the application of new technology. There can be no assurances that this technology will be developed, that NPCS will be accepted in the marketplace or that NPCS will be commercially viable. The development of the NPCS market will be affected by matters beyond the control of the Company such as technological changes in wireless messaging services, regulatory developments and general economic conditions. Many of the NPCS License Holders with whom the Company expects to enter into customer financing arrangements have limited operating histories, significant debt related to the acquisition of their NPCS licenses and start-up expenses, negative cash flows from operations and some have never generated an operating profit. There can be no assurance that these customers will be able to repay Glenayre for the equipment sold under customer financing arrangements. The Company plans to retain a lien on any equipment for which it provides financing. There can be no assurance that the equipment will be returned in the event of a default or be saleable upon recovery. INTERNATIONAL BUSINESS RISKS Approximately 35% of 1995 fiscal year net sales were generated in markets outside of the United States. International sales are subject to the customary risks associated with international transactions, including political risks, local laws and taxes, the potential imposition of trade or currency exchange restrictions, tariff increases, transportation delays, difficulties or delays in collecting accounts receivable, and, to a lesser extent, exchange rate fluctuations. Although a substantial portion of the international sales of the Company's products and services for fiscal year 1995 was negotiated in U.S. dollars, there can be no assurance that the Company will be able to maintain such a high percentage of U.S. dollar denominated international sales. The Company seeks to mitigate its currency exchange fluctuation risk by entering into currency hedging transactions. The Company also acts to mitigate certain risks associated with international transactions through the purchase of political risk insurance and the use of letters of credit. 3 -----END PRIVACY-ENHANCED MESSAGE-----