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, 1996
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number 0-27266
WESTELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3154957
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 KENDALL POINT DRIVE, OSWEGO, IL 60543
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 820-1919
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check or mark whether the registrant (1) has filed all documents and
reports required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or period for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock, $0.01 Par Value -- 14,971,453 shares at October 31, 1996
Class B Common Stock, $0.01 Par Value -- 21,338,913 shares at October 31, 1996
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION: Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
- As of March 31, 1996 and September 30, 1996 (unaudited)
Condensed Consolidated Statements of Operations (unaudited) 5
- Three months ended September 30, 1995 and 1996
- Six months ended September 30, 1995 and 1996
Condensed Consolidated Statements of Cash Flows (unaudited) 6
- Six months ended September 30, 1995 and 1996
Notes to the Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SAFE HARBOR STATEMENT
Certain statements contained under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in this 10-Q, and other risks
detailed in the Company's Securities and Exchange Commission filings, including
its Form 10-K for the fiscal year ended March 31, 1996, which are not historical
facts (including, without limitation, statements about our confidence and
strategies and our expectations about new and existing products, technologies,
opportunities, market growth, demand and acceptance of new and existing products
and future commercial deployment of the Company's products such as its DSL
modem) are forward looking statements that involve risks and uncertainties.
These risks include, but are not limited to, product demand and market
acceptance risks (including the future commercial acceptance of the Company's
DSL products by telephone companies and other customers), the impact of
competitive products and technologies (such as cable modems and fiber optic
cable), competitive pricing pressures, product development, commercialization
and technological delays or difficulties (including delays or difficulties in
developing, producing, testing and selling new products and technologies, such
as DSL modems), the effect of the Company's accounting policies, the effect of
economic conditions and trade, legal, social, and economic risks (such as
import, licensing and trade restrictions).
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, September 30,
1996 1996
(unaudited)
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $21,789 $ 59,847
Accounts receivable (net of allowance of $462,000
and $503,000, respectively)..................... 10,217 12,622
Inventories....................................... 10,684 12,167
Prepaid expenses and deposits..................... 745 340
Refundable income taxes........................... 444 444
Deferred income tax asset......................... 1,868 4,604
Land and building construction held for sale...... 4,431 9,985
Total current assets........................... 50,178 100,009
Property and equipment:
Machinery and equipment........................... 9,933 10,271
Office, computer and research equipment........... 11,520 12,738
Leasehold improvements............................ 1,387 1,550
22,840 24,559
Less accumulated depreciation and amortization.... 11,188 13,243
Property and equipment, net.................... 11,652 11,315
Deferred income tax asset and other assets.......... 2,618 2,592
Total assets.................................. $64,448 $ 113,917
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
1996 1996
(unaudited)
(in thousands)
Current liabilities:
Accounts payable.................................. $ 7,643 $ 6,950
Accrued expenses.................................. 3,899 2,477
Accrued compensation.............................. 2,995 2,467
Current portion of long-term debt................. 1,591 1,518
Construction financing............................ 2,968 -
Deferred revenue.................................. 2,341 526
Total current liabilities...................... 21,437 13,938
Long-term debt...................................... 2,836 2,057
Other long-term liabilities......................... 1,040 593
Deferred income taxes............................... 150 150
Commitments and contingencies
Stockholders' equity:
Class A common stock, par $0.01................... 128 150
Authorized - 43,500,000 shares
Issued and outstanding - 12,801,606 shares
at March 31, 1996 and 14,971,278 shares
at September 30, 1996
Class B common stock, par $0.01................... 218 213
Authorized - 25,000,000 shares
Issued and outstanding - 21,838,376 shares
at March 31, 1996 and 21,338,913 shares
at September 30, 1996
Preferred stock, par $0.01........................ - -
Authorized - 1,000,000 shares
Issued and outstanding - none
Additional paid-in capital........................ 34,285 96,089
Cumulative translation adjustment................. (59) (65)
Retained earnings................................. 4,413 791
Total stockholders' equity...................... 38,985 97,179
Total liabilities and stockholders' equity.. $64,448 $ 113,917
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
</TABLE>
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1995 1996 1995 1996
(unaudited)
(in thousands, except per share data)
<s <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $ 20,460 $ 21,052 $ 42,947 $ 41,311
Cost of goods sold . . . . . . . . . . . . 12,611 14,081 25,433 27,081
Gross margin . . . . . . . . . . . . . . . 7,849 6,971 17,514 14,230
Operating expenses:
Sales and marketing . . . . . . . . . . . . 3,428 3,627 7,113 7,549
Research and development . . . . . . . . . 3,358 4,737 6,382 8,959
General and administrative . . . . . . . . 2,065 2,115 4,086 4,339
Total operating expenses . . . . . . . . 8,851 10,479 17,581 20,847
Operating (loss) from continuing
operations . . . . . . . . . . . . . . . (1,002) (3,508) (67) (6,617)
Other income (expense), net . . . . . . . . 55 473 (203) 702
Interest expense . . . . . . . . . . . . . 261 100 521 197
(Loss) from continuing operating before (1,208) (3,135) (791) (6,112)
taxes . . . . . . . . . . . . . . . . . . .
(Benefit) for income taxes . . . . . . . . (586) (1,205) (558) (2,495)
(Loss) from continuing operations . . . . . (622) (1,930) (233) (3,617)
Income (loss) from discontinued operations
(net of tax benefits (expense) of
$335,000, ($2,000) (529) 3 (594) (5)
$376,000 and $3,000, respectively)
Net (loss) . . . . . . . . . . . . . . . . $(1,151) $(1,927) $ (827) $(3,622)
(Loss) per share:
Continuing operations . . . . . . . . . . . $(0.02) $(0.05) $ (0.01) $ (0.10)
Discontinued operations . . . . . . . . . . (0.02) (0.00) (0.02) (0.00)
Net (loss) per share . . . . . . . . . . . $(0.04) $(0.05) $ (0.03) $ (0.10)
Average number of common shares
outstanding . . . . . . . . . . . . . . . . 28,952 36,308 28,952 35,567
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements
</TABLE>
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1995 1996
(unaudited)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (827) $ (3,622)
Reconciliation of net income to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 1,864 2,530
Stock awards . . . . . . . . . . . . . . . . . . . . . . . . . 38 34
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . (1,331) (2,347)
Changes in assets and liabilities:
(Increase) in accounts receivable . . . . . . . . . . . . . . . (508) (2,829)
(Increase) in inventory . . . . . . . . . . . . . . . . . . . . (427) (1,489)
(Increase) decrease in prepaid expenses and deposits . . . . . (265) 375
Increase (decrease) in accounts payable and
accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 663 (2,321)
(Decrease) in accrued compensation . . . . . . . . . . . . . . (522) (529)
Increase (decrease) in deferred revenues . . . . . . . . . . . 5,945 (1,815)
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . 4,630 (12,013)
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . (1,322) (2,417)
Decrease in other assets . . . . . . . . . . . . . . . . . . . 38 4
Land and building construction held for resale . . . . . . . . (1,438) (8,522)
Net cash used in investing activities . . . . . . . . . . . . . (2,722) (10,935)
Cash flows from financing activities:
Net repayment under revolving promissory notes . . . . . . . . (279)
-
Repayment of long-term debt and leases payable . . . . . . . . (644) (787)
Proceeds from the issuance of common stock . . . . . . . . . . - 61,787
Net cash provided by (used in) financing activities . . . . . . (923) 61,000
Effect of exchange rate changes on cash . . . . . . . . . . . . 34 6
Net increase in cash . . . . . . . . . . . . . . . . . . . . . 1,019 38,058
Cash and cash equivalents, beginning of period . . . . . . . . 450 21,789
Cash and cash equivalents, end of period . . . . . . . . . . . $ 1,469 $ 59,847
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements
</TABLE>
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
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 Rule
10-01 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. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended March 31, 1996.
In the opinion of management, the unaudited interim financial statements
included herein reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the Company's consolidated financial
position and the results of operations and cash flows at September 30, 1996, and
for all periods presented. The results of operations for the six month period
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the fiscal year ending March 31, 1997.
NOTE 2 DISCONTINUED OPERATIONS
In August 1996, the Company completed its disposition of KPINS. The effect
of this disposition was not significantly different from that disclosed in Note
10 of the Company's March 31, 1996 fiscal year end consolidated financial
statements.
NOTE 3 COMMITMENTS AND CONTINGENCIES
In September 1996, the Company entered into a net out of court settlement
of $400,000 to resolve a claim for wrongful termination and breach of contract
alleged in January 1995 as disclosed in Note 9 of the Company's March 31,1996
fiscal year end consolidated financial statements. While management continues
to believe that the claims alleged were without merit, the net out of court
settlement was prudent given the likelihood of even higher costs to continue the
litigation defense.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
Westell Technologies, Inc. ("Westell" or the "Company") derives most of its
revenues from the sale of telecommunication products that enable
telecommunication services over copper telephone wires. The Company's
telecommunication products can be categorized in three product groups: (i)
products based on digital subscriber line technologies ("DSL products"),
including Asymmetric Digital Subscriber Line ("ADSL") and High bit-rate Digital
Subscriber Line ("HDSL") systems, which enable telephone companies to provide
interactive multimedia services over copper telephone wires, such as high speed
Internet access, video on demand, medical imaging, video conferencing and
telecommuting, while simultaneously carrying traditional telephone services
(ii) Digital Signal Hierarchy Level 1 based products ("DS1 products"), which are
used by telephone companies to enable high speed digital T-1 transmission at
approximately 1.5 mega bits per second and (iii) Digital Signal Hierarchy Level
0 based products ("DS0 products"), which are used by telephone companies to
deliver digital services at speeds ranging from approximately 2.4 to 64 kilo
bits per second and analog services over a 4 kilohertz bandwidth. Westell's net
revenues increased 2.9% in the three months ended September 30, 1996, and
decreased by 3.8% in the six months ended September 30, 1996 when compared to
the same periods of the prior year. The increase in revenue during the three
month period was primarily a result of increased DS1 product shipments, as well
as increased teleconferencing service revenues. This was partially offset by an
anticipated decrease in ADSL revenue due to one large trial shipment of video
dial tone product in the same quarter in the prior year to a foreign telephone
operator. The decrease in revenue in the six month period was primarily due to
the absence of revenue recorded in the 1995 period related to ADSL video dial
tone trial shipments to two foreign telephone operators. The decrease in DSL
revenue for the six month period was offset in part by an increase in DS1 sales
of 20.5% when compared to the corresponding six month period of the prior year.
During the current fiscal year, both three and six month periods, the majority
of the DSL revenue has been generated by data dial tone ADSL shipments.
Customer focus has migrated from video dial tone applications (i.e., video on
demand, distance learning, etc.) to data dial tone applications (i.e., internet
access, work at home, etc.) due to the growth in users accessing the World Wide
Web through the internet and the need to increase the transmission speed when
downloading large text, graphics, and video files. Historically, revenue from
DS1 and DS0 products provided most of the Company's revenue.
The Company expects to continue to evaluate new product opportunities and
engage in extensive research and development activities. This will require the
Company to continue to invest heavily in research and development and sales and
marketing, which could adversely affect short-term results of operations. The
Company believes that its future revenue growth and profitability will
principally depend on its success in increasing sales of ADSL products and
developing new and enhanced DS1 and other DSL products. In view of the Company's
reliance on the emerging ADSL market for growth and the unpredictability of
orders and subsequent revenues, the Company believes that period to period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance. Revenues from DS0
products have declined in recent years as telcos continue to move from analog to
digital transmission services. The Company also expects that revenues from
Network Interface Unit ("NIU") products in its DS1 product group may decline as
telcos increase the use of alternative technologies such as HDSL. Failure to
increase revenues from new products, whether due to lack of market acceptance,
competition, technological change or otherwise, would have a material adverse
effect on the Company's business and results of operations.
RESULTS OF OPERATIONS - Periods ended September 30, 1996 compared to periods
ended September 30, 1995
Revenues. The Company's revenues increased 2.9% from $20.5 million in the three
months ended September 30, 1995 to $21.1 million in the three months ended
September 30, 1996. This revenue increase was due to an increase in DS1 revenue
of $2.6 million for the three months ended September 30, 1996 when compared to
the same period in the prior year. The increased DS1 sales was caused by overall
unit volume increases and slightly higher average unit sale prices as a result
of changes in product sales mix which was offset in part by continued
competitive pricing pressures on unit sales prices when compared to the
corresponding period in the preceding year. This increase was partially offset
by a 44.3% decrease in DSL revenue from $5.7 million in the three months ended
September 30, 1995 to $3.2 million in the three months ended September 30, 1996.
The decrease in DSL revenue was due to the absence of $4.0 million of revenue
recorded in the September 1995 quarter related to ADSL video dial tone trial
shipments to a foreign telephone operator. DSL shipments in the quarter ended
September 30, 1996 consisted primarily of data dial tone product shipments for
field and market trials. Unit shipments of DSL products have increased, but
have a lower average sales price when compared to the DSL shipments made in the
corresponding periods of the prior year. The lower average sales price is
primarily a result of product integration efforts. DS0 revenue also decreased by
$100,000 when compared to the same quarter of the prior year. This decrease in
DS0 revenue was due primarily to lower average unit sales prices brought about
by continued competitive pricing pressures and changes in product sales mix
which was partially offset by slightly higher unit sales. Other revenue
increased by $630,000 in the three month period ended September 30, 1996 when
compared to the corresponding three month period of the preceding year. This
increase in other revenue was due primarily to an increase in teleconference
service revenue from the Company's Conference Plus subsidiary.
The Company's revenues decreased 3.8% in the six months ended September 30,
1996, from $43.0 million to $41.3 million in the six month periods ended
September 30, 1995 and 1996, respectively. The revenue decrease was principally
due to a decrease in DSL revenue of $7.6 million for the six months ended
September 30, 1996 when compared to the same period in the prior year. The
decrease in DSL revenue was due to the absence of $10.5 million of revenue
recorded during the six month period ended September 30, 1995 related to ADSL
video dial tone trial shipments to two foreign telephone operators. Unit
shipments of DSL products have increased, but have a lower average sales price
when compared to the DSL shipments made in the corresponding periods of the
prior year. The lower average sales price is primarily a result of product
integration efforts. The DSL revenue decrease was partially offset by an
increase of $4.3 million in DS1 revenue and an increase of $1.7 million in other
revenue for the six months ended September 30, 1996 when compared to the same
period in the prior year. The increase in DS1 sales was caused by overall unit
volume increases and slightly higher average unit sale prices as a result of
product sales mix, offset in part by continued competitive pricing pressures on
unit sales prices in certain products in the DS1 product family. The increase
in other revenue was mainly due to an increase of $1.5 million in teleconference
service revenue and video teleconference equipment sales from the Company's
Conference Plus subsidiary.
Gross Margin. Gross margin as a percentage of revenue decreased from 38.4% in
the three months ended September 30, 1995 to 33.1% in the three months ended
September 30, 1996 and decreased from 40.8% in the six months ended September
30, 1995 to 34.4% for the six months ended September 30, 1996. The decrease in
gross profit margin was due to higher margins received on video dial tone trial
units shipped internationally to two foreign telephone operators in the
comparable prior periods, change in product mix and competitive pricing
pressures in both the DS0 and DS1 product families. The gross margin for the
six months ended September 30, 1996 was also impacted by a large video
teleconference equipment OEM sale with a lower margin than Company equipment
sales.
Sales and Marketing. Sales and marketing expenses increased 5.8% from $3.4
million in the three months ended September 30, 1995 to $3.6 million in the
three months ended September 30, 1996, and increased 6.1% from $7.1 million in
the six months ended September 30, 1995 to $7.6 million in the six months ended
September 30, 1996. Sales and marketing expenses increased as a percentage of
revenues from 16.8% in the three months ended September 30, 1995 to 17.2% in the
three months ended September 30, 1996 and increased as a percentage of revenues
from 16.6% in the six month period ended September 30, 1995 to 18.3% for the six
month period ended September 30, 1996. The increases in sales and marketing
expenses during the periods were due to staff additions, in both international
and domestic markets, to support and promote the Company's product lines,
particularly the Company's ADSL products. The Company believes that continued
investment in sales and marketing will be required to expand its product lines,
bring new products to market and service customers. The Company anticipates that
sales and marketing expenses will continue to increase in absolute dollars.
Research and Development. Research and development expenses increased 41.1%,
from $3.4 million in the three months ended September 30, 1995 to $4.7 million
in the three months ended September 30, 1996 and increased 40.4%, from $6.4
million in the six months ended September 30, 1995 to $9.0 million in the six
months ended September 30, 1996. Research and development expenses increased as
a percentage of revenues from 16.4% in the three months ended September 30, 1995
to 22.5% in the three months ended September 30, 1996 and increased as a
percentage of revenues from 14.9% in the six months ended September 30, 1995 to
21.7% in the six months ended September 30, 1996. The increase in research and
development expenses for the three and six month periods were primarily due to
costs associated with additional hiring and increased prototype material costs
to support new product development activities. Furthermore, the Company had
received non-recurring engineering project funding of $500,000 and $1,000,000 in
the three and six month periods ended September 30, 1995 for a customer-
sponsored research and development project that was not present in the three and
six month periods ended September 30, 1996. The Company believes that a
continued commitment to research and development will be required for the
Company to remain competitive and anticipates that research and development
costs will continue to increase in absolute dollars.
General and Administrative. General and administrative expenses increased 2.4%,
from $2.07 million in the three months ended September 30, 1995 to $2.12 million
in the three months ended September 30, 1996 and increased 6.2% from $4.1
million in the six months ended September 30, 1995 to $4.3 million in the six
months ended September 30, 1996. General and administrative expenses decreased
as a percentage of revenues from 10.1% in the three months ended September 30,
1995 to 10.0% in the three months ended September 30, 1996. For the six month
period ended September 30,1996, general and administrative expenses increased as
a percentage of revenue from 9.5% to 10.5% when compared to the same period in
the preceding year. The dollar increase in general and administrative expenses
was due to continued expansion of operations in domestic and international
markets. The Company anticipates that general and administrative costs will
continue to increase in absolute dollars as the Company hires additional
personnel.
Other income (expense), net. Other income (expense), net increased from income
of $55,000 in the three months ended September 30, 1995 to income of $473,000 in
the three months ended September 30, 1996 and increased from an expense of
$203,000 in the six months ended September 30, 1995 to income of $702,000 in the
six months ended September 30, 1996. The income for the three and six month
periods ended September 30, 1996 was due to interest income earned on temporary
cash investments made as a result of investing available funds generated in the
Company's initial public offering of Class A Common Stock in early December 1995
and the secondary public offering of Class A Common Stock made in late June
1996. The income for the three and six month periods ended September 30, 1996
was partially off set by a $400,000 out of court settlement to resolve a claim
for wrongful termination and breach of contract alleged in January 1995 by a
former officer of a discontinued subsidiary. The expense for the six month
period ended September 30, 1995 was primarily due to a reserve of $270,000
established for fluctuations in foreign currency rate on receivables.
Interest expense. Interest expense decreased from $261,000 in the three months
ended September 30, 1995 to $99,000 in the three months ended September 30, 1996
and decreased from $521,000 in the six months ended September 30, 1995 to
$196,000 in the six months ended September 30, 1996. Interest expense decreased
as a result the Company utilizing approximately $11.1 million of the proceeds
generated in the Company's initial public offering of Class A Common Stock to
repay amounts outstanding under the Company's revolving promissory notes used to
finance working capital requirements.
Benefit for income taxes. Benefit for income taxes represents the tax benefit
generated by the loss before income taxes and tax credits primarily generated by
increasing research and development activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's initial public offering of Class A Common Stock in early December
1995 generated $33.3 million in funds. Proceeds from the stock sale were used to
pay down approximately $11.1 million in bank borrowings under the Company's
revolving promissory notes. The Company also completed a secondary public
offering of Class A Common Stock in June 1996 which generated $61.6 million in
funds. As of September 30, 1996 the Company had $59.8 million in cash which is
being invested in short-term cash investments consisting of federal government
agency instruments and the highest rated grade corporate commercial paper.
The Company's operating activities used cash of approximately $12.0 million in
the six months ended September 30, 1996, which resulted primarily from a loss
from continuing operations before income taxes of $3.6 million and working
capital required by an increase in accounts receivable and inventories and
decreases in accounts payable, accrued compensation and deferred revenue.
Capital expenditures for the six month period ended September 30, 1996 were $2.4
million, all of which was funded by available cash. The Company expects to spend
approximately $3.9 million in the remainder of fiscal year 1997 for capital
equipment expenditures.
The Company has a 60% ownership interest in an LLC with a real estate developer
for the purpose of developing a 16.4 acre site in Aurora, Illinois into a
173,000 square foot facility to house manufacturing, engineering, sales,
marketing and administration. During fiscal 1996, the LLC began construction of
a new facility estimated to be completed in December 1996. As of September 30,
1996, approximately $10.0 million of construction costs were incurred. The
construction costs incurred are currently being funded by the Company and as
such are presented as Land and building construction held for sale in the
Company's condensed consolidated financial statements. Pursuant to terms of the
LLC, the Company will have the option to buy out the other investor in the LLC
and thereby purchase the facility being developed or sell its interest in the
LLC. The Company currently anticipates that it will sell its interest in the
LLC and lease the facility. The construction funding will be refunded upon
building completion and placement of permanent financing.
At September 30, 1996, the Company's principal sources of liquidity were $59.8
million of cash and cash equivalents, and $13.5 million and $2.9 million
available under its secured revolving promissory notes and equipment borrowing
facilities, respectively. Cash and cash equivalents, anticipated funds from
operations, refunding of building construction costs, along with available
credit lines and other resources, are expected to be sufficient to meet cash
requirements for the next twelve months. Cash in excess of operating
requirements will continue to be invested on a short-term basis in federal
government agency instruments and the highest rated grade commercial paper.
The Company had a deferred tax asset of approximately $4.6 million at September
30, 1996. Management has not recorded a valuation allowance and believes that
the deferred tax asset will be fully realized based upon current estimates of
future taxable income, future reversals of existing taxable temporary
differences or available tax planning strategies.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 1996, the Company entered into a net out of court settlement
of $400,000 to resolve a claim for wrongful termination and breach of contract
alleged in January 1995 as disclosed in Note 9 of the Company's March 31,1996
fiscal year end consolidated financial statements. While management continues
to believe that the claims alleged were without merit, the net out of court
settlement was prudent given the likelihood of even higher costs to continue the
litigation defense.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On September 11, 1996 the Company held its annual shareholders meeting. The
only matter put before vote of the security holders was the election of
directors. The results of the election of directors was as follows based upon
total votes cast of 97,082,074:
For Withheld
Gary F. Seamans 97,076,774 5,300
Robert H. Gaynor 97,076,894 5,180
Melvin J. Simon 96,941,968 140,106
Stefan D. Abrams 97,064,494 17,580
Michael A. Brunner 97,074,118 7,956
Paul A. Dwyer 97,074,318 7,756
Ormand J Wade 97,074,318 7,756
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following documents are furnished as an exhibit and numbered
pursuant to Item 601 of regulation S-K:
Exhibit 27: Financial Data Schedule
b) The registrant was not required to file any reports on Form 8-K for
the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WESTELL TECHNOLOGIES, INC.
(Registrant)
/s/ Gary F. Seamans
DATE: November 13, 1996 By: GARY F. SEAMANS
GARY F. SEAMANS
Chairman of the Board
and Chief Executive Officer
/s/ Stephen J. Hawrysz
By: STEPHEN J. HAWRYSZ
STEPHEN J. HAWRYSZ
Chief Financial Officer, Vice
President, Secretary and Treasurer
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