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
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 -- 14,691,099 shares at July 31, 1996
Class B Common Stock, $0.01 Par Value -- 21,838,376 shares at July 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 June 30, 1996 (unaudited)
Condensed Consolidated Statements of Operations (unaudited)4
- Three months ended June 30, 1995 and 1996
Condensed Consolidated Statements of Cash Flows (unaudited)5
- Three months ended June 30, 1995 and 1996
Notes to the Condensed Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II OTHER INFORMATION
Item 5. Other Information
Capital Transactions 10
Item 6. Exhibits and Reports on Form 8-K 10
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, June 30,
1996 1996
(unaudited)
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $21,789 $ 73,014
Accounts receivable (net of allowance of $462,000
and $480,000, respectively)..................... 10,217 12,153
Inventories....................................... 10,684 11,283
Prepaid expenses and deposits..................... 745 114
Refundable income taxes........................... 444 444
Deferred income tax asset......................... 1,868 3,166
Land and building construction held for sale...... 4,431 6,193
Total current assets........................... 50,178 106,367
Property and equipment:
Machinery and equipment........................... 9,933 10,117
Office, computer and research equipment........... 11,520 12,511
Leasehold improvements............................ 1,387 1,391
22,840 24,019
Less accumulated depreciation and amortization.... 11,188 12,365
Property and equipment, net.................... 11,652 11,654
Deferred income tax asset and other assets.......... 2,618 2,615
Total assets.................................. $64,448 $120,636
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 7,643 $ 6,466
Accrued expenses.................................. 3,899 2,913
Accrued compensation.............................. 2,995 1,855
Current portion of long-term debt................. 1,591 1,591
Construction financing............................ 2,968 4,730
Deferred revenue.................................. 2,341 476
Total current liabilities...................... 21,437 18,031
Long-term debt...................................... 2,836 2,363
Other long-term liabilities......................... 1,040 1,079
Deferred income taxes............................... 150 150
Commitments and contingencies
Stockholders' equity:
Class A common stock, par $0.01................... 128 147
Authorized - 43,500,000 shares
Issued and outstanding - 12,801,606 shares
at March 31, 1996 and 14,691,099 shares
at June 30, 1996
Class B common stock, par $0.01................... 218 216
Authorized - 25,000,000 shares
Issued and outstanding - 21,838,376 shares
at March 31, 1996 and 21,617,134 shares
at June 30, 1996
Preferred stock, par $0.01........................ - -
Authorized - 1,000,000 shares
Issued and outstanding - none
Additional paid-in capital........................ 34,285 95,997
Cumulative translation adjustment................. (59) (65)
Retained earnings................................. 4,413 2,718
Total stockholders' equity...................... 38,985 99,013
Total liabilities and stockholders' equity.... $64,448 $120,636
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
June 30,
1995 1996
(unaudited)
(in thousands, except per share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 22,487 $ 20,258
Cost of goods sold . . . . . . . . . . . . . . . . . . 12,822 12,999
Gross margin . . . . . . . . . . . . . . . . . . . . . 9,665 7,259
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . 3,685 3,922
Research and development . . . . . . . . . . . . . . . 3,024 4,222
General and administrative . . . . . . . . . . . . . . 2,021 2,224
Total operating expenses . . . . . . . . . . . . . . 8,730 10,368
Operating income (loss) from continuing 935 (3,109)
operations . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . (258) 228
Interest expense . . . . . . . . . . . . . . . . . . . 260 97
Income (loss) from continuing operating 417 (2,978)
before taxes . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . 28 (1,290)
Income (loss) from continuing operations . . . . . . . 389 (1,688)
Loss from discontinued operations
(net of tax benefits of $41,000
and $5,000, respectively) (65) (7)
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 324 $ (1,695)
Income (loss) per share:
Continuing operations . . . . . . . . . . . . . . . . . $ 0.01 $ (0.05)
Discontinued operations . . . . . . . . . . . . . . . . (0.00) (0.00)
Net Income (loss) per share . . . . . . . . . . . . . . $ 0.01 $ (0.05)
Average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . 28,952 34,825
The accompanying notes are an integral part of these Consolidated Financial
Statements
</TABLE>
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1996
(unaudited)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . $ 324 $ (1,695)
Reconciliation of net income to net
cash provided by
(used in) operating activities:
Depreciation and amortization . . . . 926 1,269
Stock awards . . . . . . . . . . . . - 17
Deferred taxes . . . . . . . . . . . - (1,298)
Changes in assets and liabilities:
(Increase) in accounts receivable . . (2,802) (1,941)
(Increase) in inventory . . . . . . . (1,034) (607)
Decrease in prepaid expenses and 280 631
deposits . . . . . . . . . . . . . .
Increase (decrease) in accounts
payable and 1,846 (2,124)
accrued expenses . . . . . . . . . .
(Decrease) in accrued compensation . (1,513) (1,140)
Increase (decrease) in deferred 6,442 (1,865)
revenues . . . . . . . . . . . . . .
Net cash provided by (used in)
operating 4,469 (8,753)
activities . . . . . . . . . . . .
Cash flows from investing activities:
Purchases of property and equipment . (1,143) (1,271)
Decrease in other assets . . . . . . 36 3
Net cash used in investing activities (1,107) (1,268)
Cash flows from financing activities:
Net borrowings (repayment) under
revolving (2,189) -
promissory notes . . . . . . . . .
Repayment of long-term debt and (325) (473)
leases payable . . . . . . . . . . .
Proceeds from the issuance of common - 61,712
stock . . . . . . . . . . . . . . . .
Net cash provided by financing (2,514) 61,239
activities . . . . . . . . . . . . .
Effect of exchange rate changes on - 7
cash . . . . . . . . . . . . . . . .
Net increase in cash . . . . . . . . 848 51,225
Cash and cash equivalents, beginning 450 21,789
of period . . . . . . . . . . . . . .
Cash and cash equivalents, end of $ 1,298 $ 73,014
period . . . . . . . . . . . . . . .
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 June 30, 1996, and for
all periods presented. The results of operations for the three month period
ended June 30, 1996 is not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 1997.
NOTE 2 COMMON STOCK ISSUANCE
On June 20, 1996, the Company sold 1,665,000 shares of Class A Common Stock
in a public stock offering. Net proceeds to the Company from the sale of the
Class A Common Stock were approximately $61.6 million and will be used to fund
capital equipment purchases and for general corporate purposes including working
capital funding.
NOTE 3 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.
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 decreased 9.9% in the three months ended June 30, 1996 when compared to
the same period of the prior year. This decrease in revenue was primarily a
result of an anticipated decrease in ADSL revenues which were partially offset
by increased DS0 and DS1 product shipments, as well as increased
teleconferencing service and videoconference equipment sales revenues.
Historically, revenues from DS1 and DS0 products provided most of the Company's
revenues.
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 is expected to adversely affect short-term results of
operations. Due to the Company's significant ongoing investment in ADSL
technology, the Company anticipates a loss in the second quarter of fiscal 1997.
The Company believes that its future revenue growth and profitability will
principally depend on its success on 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 - Period ended June 30, 1996 compared to period ended June
30, 1995
Revenues. The Company's revenues decreased 9.9%, from $22.5 million in the three
months ended June 30, 1995 to $20.3 million in the three months ended June 30,
1996. The revenue decrease was due to a decrease in DSL revenue of $5.1 million
for the three months ended June 30, 1996 when compared to the same period in the
prior year. This revenue decrease was due to the absence of $6.5 million of
revenue recorded in the June 1995 quarter related to ADSL video dial tone trial
shipments to an international customer. DSL shipments were $2.1 million for the
three months ended June 30, 1996 and consisted primarily of data dial tone
product shipments for ADSL field and market trials. This decrease was somewhat
offset by increases in DS1 and DS0 product sales of $1.7 million and $120,000,
respectively in the three month period ended June 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 which was offset in part by continued competitive pricing
pressures on unit sales prices when compared to the corresponding period in the
preceding year. The increase in DS0 revenues was due primarily to increased unit
sales which was partially offset by lower average unit sales prices brought
about by continued competitive pricing pressures and changes in product sales
mix. Other revenue increased by $1.1 million in the three month period ended
June 30, 1996 when compare to the corresponding three month period of the
preceding year due to an increase of $921,000 related to teleconference service
revenues and videoteleconference equipment sales from the Company's Conference
Plus subsidiary.
Gross Margin. Gross margin as a percentage of revenues decreased from 43.0% to
35.8% for the three months ended June 30, 1996 when compared to the same period
in the prior year. This decrease was due to higher margins received on DSL trial
shipments in the comparable prior quarter. The current quarter was also impacted
by a large video equipment OEM sale with small margins, as well as the impact of
the investment in manufacturing infrastructure for anticipated DSL production.
Sales and Marketing. Sales and marketing expenses increased 6.4%, from $3.7
million in the three months ended June 30, 1995 to $3.9 million in the three
months ended June 30, 1996. Sales and marketing expenses increased as a
percentage of revenues from 16.4% in the three months ended June 30, 1995 to
19.4% in the three months ended June 30, 1996. The increase in sales and
marketing expenses for the three month period was due to staff additions,
primarily in international 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 39.6%,
from $3.0 million in the three months ended June 30, 1995 to $4.2 million in the
three months ended June 30, 1996. Research and development expenses increased as
a percentage of revenues from 13.4% in the three months ended June 30, 1995 to
20.8% in the three months ended June 30, 1996. The increase in research and
development expenses for the three month period was due primarily 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 in the three
months ended June 30, 1995 for a customer-sponsored research and development
project that was not present in the three months ended June 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 10.0%,
from $2.0 million in the three months ended June 30, 1995 to $2.2 million in the
three months ended June 30, 1996. General and administrative expenses increased
as a percentage of revenues from 9.0% in the three months ended June 30, 1995 to
11.0% in the three months ended June 30, 1996. The 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 expense
of $258,000 in the three months ended June 30, 1995 to income of $228,000 in the
three months ended June 30, 1996. The expense for the three month period ended
June 30, 1995 was due to a reserve of $270,000 established for fluctuations in
foreign currency rate on receivables. Income of $228,000 for the three months
ended June 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 additional public offering of Class A Common Stock sold in late June
1996.
Interest expense. Interest expense decreased from $260,000 in the three months
ended June 30, 1995 to $97,000 in the three months ended June 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 June 30, 1996 the Company had $73.0 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 $8.8 million in
the three months ended June 30, 1996, which resulted primarily from a loss from
continuing operations before income taxes of $3.0 million and working capital
required by an increase in accounts receivable and decreases in accounts
payable, accrued compensation and deferred revenues.
Capital expenditures for the three month period ended June 30, 1996 were $1.3
million, all of which was funded by available cash. The Company expects to spend
approximately $5.0 million in the remainder of fiscal year 1997 for capital
equipment expenditures.
At June 30,1996, the Company's principal sources of liquidity were $73.0 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,
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 $5.7 million at June 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 5. OTHER INFORMATION
CAPITAL TRANSACTIONS
On May 8, 1996, the Board of Directors authorized a two-for-one stock split in
the form of a dividend distributed on June 7, 1996, to stockholders of record on
May 20, 1996.
On June 20, 1996, the Company sold 1,665,000 shares of Class A Common Stock in a
public stock offering. Net proceeds to the Company from the sale of the Class A
Common Stock were approximately $61.6 million and will be used to fund capital
equipment purchases and for general corporate purposes including working capital
funding.
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)
DATE: August 13, 1996 By: GARY F. SEAMANS
GARY F. SEAMANS
Chairman of the Board
and Chief Executive Officer
By: STEPHEN J. HAWRYSZ
STEPHEN J. HAWRYSZ
Chief Financial Officer, Vice
President, Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 73,014
<SECURITIES> 0
<RECEIVABLES> 12,153
<ALLOWANCES> (480)
<INVENTORY> 11,283
<CURRENT-ASSETS> 106,367
<PP&E> 24,019
<DEPRECIATION> (12,365)
<TOTAL-ASSETS> 120,636
<CURRENT-LIABILITIES> 18,031
<BONDS> 0
0
0
<COMMON> 363
<OTHER-SE> 98,650
<TOTAL-LIABILITY-AND-EQUITY> 120,636
<SALES> 0<F1>
<TOTAL-REVENUES> 20,258
<CGS> 12,999
<TOTAL-COSTS> 10,368
<OTHER-EXPENSES> (228)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97
<INCOME-PRETAX> (2,978)
<INCOME-TAX> (1,290)
<INCOME-CONTINUING> (1,688)
<DISCONTINUED> (7)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,695)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
<FN>
<F1>Not applicable.
</FN>
</TABLE>
