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, 1997
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)
750 N. COMMONS DRIVE, AURORA, IL 60504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 898-2500
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 15,111,887 shares at October 31, 1997
Class B Common Stock, $0.01 Par Value 21,245,913 shares at October 31, 1997
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, 1997 and September 30, 1997 (unaudited)
Condensed Consolidated Statements of Operations (unaudited) 4
- Three months ended September 30, 1996 and 1997
- Six months ended September 30, 1996 and 1997
Condensed Consolidated Statements of Cash Flows (unaudited) 5
- Six months ended September 30, 1996 and 1997
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 4. Submission of Matters to Vote of Security Holders 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 Annual Report on Form 10-K under the "Risk Factors" section for the fiscal
year ended March 31, 1997, 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 ADSL systems 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 ADSL systems), 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,
1997 1997
(unaudited)
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 28,437 $ 39,305
Short term investments . . . . . . . . . . . . . . . . . . . . . 10,850 5,406
Accounts receivable (net of allowance of $521,000 and $601,000,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . 12,119 12,028
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,416 7,802
Prepaid expenses and deposits . . . . . . . . . . . . . . . . . . 1,177 1,192
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . 320 320
Deferred income tax asset . . . . . . . . . . . . . . . . . . . . 2,410 2,410
Land and building construction held for sale . . . . . . . . . . 16,203 -
Total current assets . . . . . . . . . . . . . . . . . . . . 81,932 68,463
Property and equipment:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . 10,703 11,760
Office, computer and research equipment . . . . . . . . . . . . . 17,951 18,860
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 1,277 1,411
29,931 32,031
Less accumulated depreciation and amortization . . . . . . . . . 15,293 18,191
Property and equipment, net . . . . . . . . . . . . . . . . . . 14,638 13,840
Deferred income tax asset and other assets . . . . . . . . . . . . 11,479 17,422
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 99,725 $108,049
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,111 $ 6,435
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 4,049 4,916
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . 3,133 3,428
Current portion of long-term debt . . . . . . . . . . . . . . . . 2,121 1,767
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . -- 550
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . 413 413
Total current liabilities . . . . . . . . . . . . . . . . . . . 16,827 17,509
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 4,366 3,633
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . 668 765
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . - -
Commitments and contingencies
Stockholders' equity:
Class A common stock, par $0.01 . . . . . . . . . . . . . . . . . . 150 151
Authorized - 43,500,000 shares
Issued and outstanding - 14,984,811 shares at March 31, 1997 and
15,111,807 shares at September 30, 1997
Class B common stock, par $0.01 . . . . . . . . . . . . . . . . . . 213 212
Authorized - 25,000,000 shares
Issued and outstanding - 21,335,913 shares at March 31, 1997 and
21,245,913 shares at September 30, 1997
Preferred stock, par $0.01 . . . . . . . . . . . . . . . . . . . . - -
Authorized - 1,000,000 shares
Issued and outstanding - none
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 96,285 96,740
Cumulative translation adjustment . . . . . . . . . . . . . . . . . (167) 45
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . (10,293) (19,330)
Total stockholders' equity . . . . . . . . . . . . . . . . . 86,188 77,818
Total liabilities and stockholders' equity . . . . . . . . $ 108,049 $ 99,725
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,
1996 1997 1996 1997
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Equipment sales . . . . . . . . . . . . . . $ 18,677 $ 18,439 $ 36,782 $ 34,774
Services . . . . . . . . . . . . . . . . . 2,375 3,251 4,529 6,253
Total revenues . . . . . . . . . . . . . 21,052 21,690 41,311 41,027
Cost of equipment sales . . . . . . . . . . 12,830 13,418 24,051 24,786
Cost of services . . . . . . . . . . . . . 1,251 1,436 3,030 2,994
Total cost of goods sold . . . . . . . . 14,081 14,854 27,081 27,780
Gross margin . . . . . . . . . . . . . . 6,971 6,836 14,230 13,247
Operating expenses:
Sales and marketing . . . . . . . . . . . 3,627 4,703 7,549 10,122
Research and development . . . . . . . . 4,737 6,680 8,959 12,766
General and administrative . . . . . . . 2,115 3,099 4,339 6,046
Total operating expenses . . . . . . . . 10,479 14,482 20,847 28,934
Operating loss from continuing operations . (3,508) (7,646) (6,617) (15,687)
Other income, net . . . . . . . . . . . . . 473 362 702 855
Interest expense . . . . . . . . . . . . . 100 62 197 125
Loss from continuing operations before taxes (3,135) (7,346) (6,112) (14,957)
Benefit for income taxes . . . . . . . . . (1,205) (2,830) (2,495) (5,920)
Loss from continuing operations . . . . . . (1,930) (4,516) (3,617) (9,037)
Income (loss) from discontinued operations
(net of tax benefit (expense) of ($2,000),
0, $3,000, 0, respectively) . . . . . . 3 -- (5) --
Net loss . . . . . . . . . . . . . . . . . $(1,927) $(4,516) $ (3,622) $ (9,037)
Loss per share:
Continuing operations . . . . . . . . . . . $ (0.05) $ (0.12) $ (0.10) $ (0.25)
Discontinued operations . . . . . . . . . . (0.00) (0.00) (0.00) (0.00)
Net loss per share . . . . . . . . . . . . $ (0.05) $ (0.12) $ (0.10) $ (0.25)
Average number of common shares
outstanding . . . . . . . . . . . . . . . 36,308 36,337 35,567 36,329
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,
1996 1997
(unaudited)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,622) $(9,037)
Reconciliation of net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,530 3,477
Stock awards 34 24
Deferred taxes (2,347) (5,920)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (2,829) 184
(Increase) decrease in inventory (1,489) 2,738
(Increase) decrease in prepaid expenses and deposits 375 (15)
Increase (decrease) in accounts payable and accrued expenses (2,321) 787
Increase (decrease) in accrued compensation (529) 295
Increase (decrease) in deferred revenues (1,815) -
Net cash used in operating activities . . . . . . . . . . . (12,013) (7,467)
Cash flows from investing activities:
Purchases of property and equipment (2,417) (2,678)
(Increase) decrease in other assets 4 (24)
Decrease in short term investments . . . . . . . . . . . . . -- 5,445
Land and building construction held for resale (8,522) 16,203
Net cash provided by (used in) investing activities (10,935) 18,946
Cash flows from financing activities:
Net repayment under revolving promissory notes -- 550
Repayment of long-term debt and leases payable (787) (1,087)
Cash distributed to Meridian LLC partner (500)
Proceeds from the issuance of common stock 61,787 430
Net cash provided by (used in) financing activities 61,000 (607)
Effect of exchange rate changes on cash 6 (3)
Net increase in cash 38,058 10,869
Cash and cash equivalents, beginning of period 21,789 28,436
Cash and cash equivalents, end of period $59,847 $39,305
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, 1997.
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, 1997, and
for all periods presented. The results of operations for the three and six month
period ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 1998.
NOTE 2. SALE AND LEASEBACK TRANSACTION
On September 29,1997, the Company realized $16.2 million upon the sale and
leaseback of the Aurora facility it now occupies. The Company advanced
construction funding for the Aurora facility which was shown in prior period
Balance Sheets as "Land and building construction held for sale" which was
repaid during the second quarter of fiscal 1998 upon completing the sale of the
facility to a third party. The Aurora facility was leased back in a related
transaction with the same third party, whereby, the Company entered into a 20
year lease of the facility that runs through 2017. In addition, the lease
requires the Company to pay utilities, insurance and real estate taxes on the
facility.
Total minimum future rental payments under the terms of the lease are as
follows (in thousands):
1998 (October 1, 1997 to March 31, 1998) $ 874
1999 1,748
2000 1,766
2001 1,783
2002 1,801
2003 1,819
Thereafter 28,494
NOTE 3. PROPOSED ACQUISITION
On September 30, 1997, the Company entered into a Agreement and Plan of
Merger with Amati Communications Corporation whereby Amati will become a wholly
owned subsidiary of Westell Technologies, Inc. Pursuant to the Agreement and
Plan of Merger, and subject to the approval of the transaction by the respective
stockholders of both companies and certain regulatory approval, holders of
outstanding Amati Common Stock will receive 0.9 shares of Westell Class A Common
Stock in exchange for each share of Amati Common Stock.
Following the announcement of the proposed Merger, Amati, each Amati
director and Westell were named as defendants in three substantially similar
actions filed in the Delaware Court of Chancery. Each of the actions is plead
as a class action on behalf of a purported class of Amati stockholders
and alleges that the directors of Amati breached their fiduciary duties in
connection with approving the Merger. Amati, each Amati director and Westell
believe that the actions are without merit and intends to defend themselves
vigorously.
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"), Rate adaptive Digital
Subscriber Line ("RADSL") 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
3.0% in the three months ended September 30, 1997, and decreased by 0.7% in the
six months ended September 30, 1997 when compared to the same periods of the
prior year. The revenue increase in the three month period was primarily a
result of increased DSL product shipments, as well as increased teleconferencing
service revenues which were partially offset by decreases in DS0 and DS1 sales.
The decrease in DS0 sales was anticipated as network providers transition to
digital based products while the decrease in DS1 sales was primarily due to a
change in sales mix. The decrease in revenue for the six month period was
primarily due to a decrease in DS0 revenue which was partially offset by
increases in DS1, DSL, and teleconferencing revenues. 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. Due
to the company's significant ongoing investment in DSL technology, the Company
anticipates losses in each of the fiscal 1998 quarters. 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 the current fiscal year, the majority of the DSL
revenue has been generated by shipments of ADSL systems used in trials for data
applications (i.e. Internet access and work at home etc.) due to the growth in
users accessing the World Wide Web through the Internet and the need to increase
transmission speed when accessing local area networks and downloading large text
graphics and video files. 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, 1997 compared to periods
ended September 30, 1996
Revenues. The Company's revenues increased 3.0% from $21.1 million in the three
months ended September 30, 1996 to $21.7 million in the three months ended
September 30, 1997. This revenue increase was primarily due to increases in DSL
revenue of $754,000 and teleconferencing revenue from the Company's Conference
Plus subsidiary of $876,000. Increased DSL revenue was due to overall unit
volume increases offset in part by lower average system sale prices resulting
from product integration efforts and aggressively marketing ADSL systems to
maintain market share. This increase was partially offset by a $547,000
decrease in DS0 revenue. The decrease in DS0 revenue was due to lower average
unit sale prices as a result of changes in product mix and continued competitive
pricing pressures on unit sales prices offset in part by slightly higher unit
sales. DS1 revenue also decreased by 4.7% from $13.0 million in the three months
ended September 30, 1996 to $12.4 million in the three months ended September
30, 1997. This decrease in DS1 revenue was due to lower average unit sales
prices and lower unit sales brought about by changes in product sales mix and
continued competitive pricing pressures.
The Company's revenues decreased 0.7% in the six months ended September 30,
1997, from $41.3 million to $41.0 million in the six month periods ended
September 30, 1996 and 1997, respectively. The revenue decrease was principally
due to a decrease in DS0 revenue of $1.9 million for the six months ended
September 30, 1997 when compared to the same period in the prior year. The
decrease in DS0 revenue was primarily due to a decline in analog equipment sales
as local service providers transition to digital based products for providing
service and lower average unit sale prices as a result of changes in product mix
and continued competitive pricing pressures. This decrease was offset by
increases in DS1 product revenue of $267,000, DSL product revenue of $116,000,
and teleconferencing service revenue of $1.7 million. The increase in DS1
revenue was caused by higher average unit sales prices as a result of changes in
product mix which was offset in part by slightly lower overall unit volume and
continued competitive pricing pressures on unit sales prices when compared to
the corresponding period in the preceding year. The increase in DSL sales was
caused by an increase in DSL unit shipments which was partly offset by decreases
in average system sales prices resulting from product integration efforts and
the Company aggressively marketing its systems to maintain market share. The
increase in teleconference service revenue by the Company's Conference Plus,
Inc. subsidiary was due primarily to increased audio conferencing volume from
the same period of the prior year.
Gross Margin. Gross margin as a percentage of revenue decreased from 33.1% in
the three months ended September 30, 1996 to 31.5% in the three months ended
September 30, 1997 and decreased from 34.4% in the six months ended September
30, 1996 to 32.3% for the six months ended September 30, 1997. These decreases
in gross profit margin were primarily due to continued pricing pressures and
product mix changes for the DS0 and DS1 products as well as aggressive pricing
of the DSL trial systems to capture and stimulate early market activity prior to
volume orders and further product cost integration.
Sales and Marketing. Sales and marketing expenses increased 29.7% from $3.6
million in the three months ended September 30, 1996 to $4.7 million in the
three months ended September 30, 1997, and increased 34.1% from $7.5 million in
the six months ended September 30, 1996 to $10.1 million in the six months ended
September 30, 1997. Sales and marketing expenses increased as a percentage of
revenues from 17.2% in the three months ended September 30, 1996 to 21.7% in the
three months ended September 30, 1997 and increased as a percentage of revenues
from 18.3% in the six month period ended September 30, 1996 to 24.7% for the six
month period ended September 30, 1997. The increases in sales and marketing
expenses during the periods were due to staff additions 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 globally. The Company anticipates that sales and marketing expenses
will continue to increase in absolute dollars.
Research and Development. Research and development expenses increased 41.0%,
from $4.7 million in the three months ended September 30, 1996 to $6.7 million
in the three months ended September 30, 1997 and increased 42.5%, from $9.0
million in the six months ended September 30, 1996 to $12.8 million in the six
months ended September 30, 1997. Research and development expenses increased as
a percentage of revenues from 22.5% in the three months ended September 30, 1996
to 30.8% in the three months ended September 30, 1997 and increased as a
percentage of revenues from 21.7% in the six months ended September 30, 1996
to 31.1% in the six months ended September 30, 1997. The increase in research
and development expenses for the three and six month periods were primarily
due to costs associated with additional personnel to support new product
developments such as the Access Multiplexer, RADSL and co-development of ADSL
for the DSC Lite-Span Digital Loop Carrier system and increased prototype
material costs to support development activities. 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 46.5%,
from $2.1 million in the three months ended September 30, 1996 to $3.1 million
in the three months ended September 30, 1997 and increased 39.3% from $4.3
million in the six months ended September 30, 1996 to $6.0 million in the six
months ended September 30, 1997. General and administrative expenses increased
as a percentage of revenues from 10.0% in the three months ended September 30,
1996 to 14.3% in the three months ended September 30, 1997 and increased from
10.5% in the six months ended September 30, 1996 to 14.7% in the six months
ended September 30, 1997. The increase in general and administrative expenses
was due to additional personnel to manage expanded corporate infrastructure
functions in both domestic and international operations and increased costs
related to the Company's new corporate facilities. The Company anticipates that
general and administrative costs will continue to increase in absolute dollars
as the Company hires additional personnel.
Other income, net. Other income, net decreased from $473,000 in the three months
ended September 30, 1996 to $362,000 in the three months ended September 30,
1997 and increased from $702,000 in the six months ended September 30, 1996 to
$855,000 in the six months ended September 30, 1997. The income for the three
and six month periods ended September 30, 1996 and September 30, 1997 was due to
interest income earned on temporary cash investments made as a result of
investing available funds generated in the Company's Class A Common Stock
offering made in late June 1996.
Interest expense. Interest expense decreased from $100,000 in the three months
ended September 30, 1996 to $62,000 in the three months ended September 30, 1997
and decreased from $197,000 in the six months ended September 30, 1996 to
$125,000 in the six months ended September 30, 1997. Interest expense decreased
as a result of reduced net obligations outstanding during the first and second
quarters of fiscal 1998 when compared to those outstanding during the first and
second quarters of fiscal 1997 under promissory notes, equipment borrowing and
construction loan facilities available to the Company.
Benefit for income taxes. Benefit for income taxes represents the tax benefit
generated by the loss before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
In June 1996 the Company completed a secondary public offering of Class A Common
Stock which generated $61.6 million in funds. As of September 30, 1997 the
Company had $44.7 million in cash and short term investments 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 $7.5 million in
the six months ended September 30, 1997, which resulted primarily from a loss
from continuing operations before income taxes of $11.5 million (net of
depreciation) and an increase in prepaid expenses and deposits. These uses were
partially offset by working capital generated by decreases in accounts
receivable and inventories and increases in accounts payable, accrued expenses
and accrued compensation.
Capital expenditures for the six month period ended September 30, 1997 were $2.7
million, all of which was funded by available cash. The Company expects to spend
approximately $4.0 million in the remainder of fiscal year 1998 for capital
equipment expenditures.
On September 29,1997, the Company realized $16.2 million upon the sale and
leaseback of the Aurora facility it now occupies. The Company advanced
construction funding for the Aurora facility which was shown in prior period
Balance Sheets as "Land and building construction held for sale" which was
repaid during the second quarter of fiscal 1998 upon completing the sale of the
facility to a third party. The Aurora facility was leased back in a related
transaction with the same third party, whereby, the Company entered into a 20
year lease of the facility that runs through 2017. This action was anticipated
and in line with management's intent as previously stated.
At September 30, 1997 the Company's principle sources of liquidity were $44.7
million of cash and short term investments, and $10.8 million and $4.8 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 $19.7 million at September
30, 1997. This deferred tax asset relates to (i) tax credit carryforwards of
approximately $3.2 million, (ii) a net operating loss carryforward tax benefit
of approximately $14.8 million and (iii) temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts measured by tax laws. Of such tax credit carryforwards, the first
$243,000 of credits expire in 2008 and $722,000 of credits may be carried
forward indefinitely. The net operating loss carryforward begins to expire in
2012. Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Although realization of the deferred tax assets is
not assured, management believes it is more likely than not that the deferred
tax assets will be realized through future taxable income or by using a tax
strategy currently available to the Company. On a quarterly basis, management
will assess whether it remains more likely than not that the deferred tax assets
will be realized. This assessment could be impacted by a combination of
continuing operating losses and a determination that the tax strategy is no
longer sufficient to realize some or all of the deferred tax assets. If
management determines that it is no longer more likely than not that the
deferred tax assets will be realized, a valuation allowance will be required
against some or all of the deferred tax assets. This would require a charge to
the income tax provision, and such charge could be material to the Company's
results of operations
To raise additional capital, The Company filed a S-3 "shelf" registration
statement on October 31, 1997 with the Securities and Exchange Commission which,
when effective with the Securities and Exchange Commission, will permit the
Company to sell up to $300 million of debt, equity or securities convertible in
to Class A Common Stock. As of the date hereof, the Company has not decided
when or if it will commence any offering of securities pursuant to this S-3
"shelf" registration statement.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On September 10, 1997 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 97,360,138:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Gary F. Seamans 97,313,007 47,131
Robert H. Gaynor 97,313,007 47,131
Melvin J. Simon 97,313,007 47,131
Stefan D. Abrams 97,313,007 47,131
Michael A. Brunner 97,313,007 47,131
Paul A. Dwyer 97,313,007 47,131
Ormand J Wade 97,313,007 47,131
</TABLE>
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 filed a report on Form 8-K dated October 2, 1997 (AMATI
acquisition).
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: November 13, 1997 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 44,711<F1>
<SECURITIES> 0
<RECEIVABLES> 12,028
<ALLOWANCES> (601)
<INVENTORY> 7,802
<CURRENT-ASSETS> 68,463
<PP&E> 32,031
<DEPRECIATION> 18,191
<TOTAL-ASSETS> 99,725
<CURRENT-LIABILITIES> 17,509
<BONDS> 0
0
0
<COMMON> 363
<OTHER-SE> 77,455
<TOTAL-LIABILITY-AND-EQUITY> 99,725
<SALES> 0
<TOTAL-REVENUES> 41,027
<CGS> 27,780
<TOTAL-COSTS> 28,934
<OTHER-EXPENSES> (855)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> (14,957)
<INCOME-TAX> (5,920)
<INCOME-CONTINUING> (9,037)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,037)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> 0
<FN>
<F1> $5,406 are short term investments
</FN>
</TABLE>
