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 December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number 0-27266
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 15,337,094 shares at January 31, 1998
Class B Common Stock, $0.01 Par Value 21,033,413 shares at January 31, 1998
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 December 31, 1997 (unaudited)
Condensed Consolidated Statements of Operations (unaudited) 4
- Three months ended December 31, 1996 and 1997
- Nine months ended December 31, 1996 and 1997
Condensed Consolidated Statements of Cash Flows (unaudited) 5
- Nine months ended December 31, 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 5. Other events 11
Item 6. Exhibits and Reports on Form 8-K 11
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 for the fiscal year ended March 31, 1997 under
the "Risk Factors" section, 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 systems) 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, excess and obsolete inventory due to new 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). The Company undertakes no obligation to release publicly the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
<TABLE>
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
March 31, December 31,
1997 1997
(unaudited)
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,437 $ 36,795
Short term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,850 10,309
Accounts receivable (net of allowance of $521,000 and $664,000, respectively) .
12,119 13,532
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,416 8,782
Prepaid expenses and deposits . . . . . . . . . . . . . . . . . . . . . . . . . 1,177 182
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 72,330
Property and equipment:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,703 10,894
Office, computer and research equipment . . . . . . . . . . . . . . . . . . . . 17,951 20,553
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,277 1,351
29,931 32,798
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 15,293 19,714
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 14,638 13,084
Deferred income tax asset and other assets . . . . . . . . . . . . . . . . . . . 11,479 16,518
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 101,932
$ 108,049
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,111 $ 5,453
Accrued expenses 4,049 6,921
Accrued compensation 3,133 3,742
Current portion of long-term debt 2,121 1,597
Notes payable -- 550
Deferred revenue 413 429
Total current liabilities 16,827 18,692
Long-term debt 4,366 3,212
Other long-term liabilities 668 836
Commitments and contingencies
Stockholders' equity:
Class A common stock, par $0.01 150 152
Authorized - 43,500,000 shares
Issued and outstanding - 14,984,811 shares at March 31, 1997 and
15,236,838 shares at December 31, 1997
Class B common stock, par $0.01 213 211
Authorized - 25,000,000 shares
Issued and outstanding - 21,335,913 shares at March 31, 1997 and
21,128,413 shares at December 31, 1997
Preferred stock, par $0.01 - -
Authorized - 1,000,000 shares
Issued and outstanding - none
Additional paid-in capital 96,285 96,827
Cumulative translation adjustment (167) (101)
Accumulated deficit (10,293) (17,897)
Total stockholders' equity 86,188 79,192
Total liabilities and stockholders' equity $ 108,049 $ 101,932
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
</TABLE>
<TABLE>
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1997 1996 1997
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Equipment sales $ 15,670 $ 18,082 $ 52,451 $ 52,858
Services 2,387 3,540 6,916 9,792
Total revenues 18,057 21,622 59,367 62,650
Cost of equipment sales 15,386 13,154 40,061 37,940
Cost of services 1,534 2,004 3,939 4,999
Total cost of goods sold 16,920 15,158 44,000 42,939
Gross margin 1,137 6,464 15,367 19,711
Operating expenses:
Sales and marketing 4,200 5,052 11,750 15,174
Research and development 5,851 7,111 14,810 19,878
General and administrative 2,730 3,294 7,068 9,340
Restructuring charge -- 1,383 -- 1,383
Total operating expenses 12,781 16,840 33,628 45,775
Operating loss from continuing operations (11,644) (10,376) (18,261) (26,064)
Other income, net 631 12,714 1,332 13,570
Interest expense 30 122 226 247
Income (loss) from continuing operations
before taxes (11,043) 2,216 (17,155) (12,741)
Provision (benefit) for income taxes (4,295) 783 (6,790) (5,137)
Income (loss) from continuing operations (6,748) 1,433 (10,365) (7,604)
Loss from discontinued operations
(net of tax benefit of 0, 0, $3,000,
0, respectively) -- -- (5) --
Net income (loss) $(6,748) $ 1,433 $(10,370) $
(7,604)
Income (loss) per share (Basic and
Diluted):
Continuing operations $ (0.19) $ 0.04 $ (0.29) $ (0.21)
Discontinued operations (0.00) (0.00) (0.00) (0.00)
Net income (loss) per share $ (0.19) $ 0.04 $ (0.29) $ (0.21)
Average number of common shares
outstanding:
Basic: 36,310 36,358 35,815 36,339
Diluted: -- 36,745 -- --
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements
</TABLE>
<TABLE>
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
December 31,
1996 1997
(unaudited)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $(10,370) $(7,604)
Reconciliation of net income to net cash provided by
(used in) operating activities:
Depreciation and amortization................................. 4,166 5,273
Stock awards.................................................. 53 36
Deferred taxes................................................ (6,747) (5,137)
Changes in assets and liabilities:
(Increase) in accounts receivable............................. (752) (1,369)
Decrease in inventory......................................... 905 1,653
Decrease in prepaid expenses and deposits..................... 7 995
Increase (decrease) in accounts payable and accrued expenses.. (2,591) 1,882
Increase (decrease) in accrued compensation................... (581) 609
Increase (decrease) in deferred revenues...................... (1,810) 16
Net cash used in operating activities....................... (17,720) (3,646)
Cash flows from investing activities:
Purchases of property and equipment........................... (6,419) (3,719)
Decrease in other assets...................................... 4 97
Decrease in short term investments............................ 3,187 541
Land and building construction held for resale................ (13,081) 16,203
Net cash provided by (used in) investing activities......... (16,309) 13,122
Cash flows from financing activities:
Net borrowing under revolving promissory notes................ -- 550
Repayment of long-term debt and leases payable................ (1,187) (1,678)
Cash distributed to Meridian LLC partner...................... (500)
Proceeds from the issuance of common stock.................... 61,880 506
Net cash provided by (used in) financing activities......... 60,693 (1,122)
Effect of exchange rate changes on cash......................... 51 4
Net increase in cash........................................ 26,715 8,358
Cash and cash equivalents, beginning of period.................. 18,602 28,437
Cash and cash equivalents, end of period........................ $45,317 $36,795
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 December 31, 1997, and
for all periods presented. The results of operations for the three and nine
month periods ended December 31, 1997 are not necessarily indicative of the
results that may be expected for the fiscal year ending March 31, 1998.
NOTE 2. TERMINATION OF PROPOSED ACQUISITION
On September 30, 1997, the Company entered into an Agreement and Plan of
Merger with Amati Communications Corporation whereby Amati would have become a
wholly owned subsidiary of Westell Technologies, Inc. On November 19, 1997,
Texas Instruments, Inc. entered an agreement to acquire Amati via an all-cash
offer. As a result of this transaction, the Company's Agreement and Plan of
Merger with Amati Communications Corporation was terminated. This termination
required a payment from Texas Instruments to Westell of a break-up fee, under
the terms of the Agreement and Plan of Merger. A break-up fee of $12.0 million,
net of expenses, was recognized in the current quarter as non operating income
and is recorded as Other income, net in the Condensed Consolidated Statements of
Operations.
NOTE 3. EARNINGS PER SHARE PRESENTATION
The Financial Accounting Standards Board issued Standards No. 128 which
requires companies to present basic and diluted earnings per share effective for
financial statements issued for periods ending after December 15, 1997. The
computation of diluted earnings per share includes the number of additional
common shares that would have been outstanding if the dilutive potential common
shares had been issued. . The effect of this computation on the number of
outstanding shares is antidilutive for the three month period ended December 31,
1996 and for the nine month periods ended December 31, 1996 and 1997, and
therefore is not required.
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 telecommunications products that enable
telecommunications services over copper telephone wires. The Company's
telecommunications 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
19.7% in the three months ended December 31, 1997, and increased by 5.5% in the
nine months ended December 31, 1997 when compared to the same periods of the
prior year. The revenue increases in the three and nine month periods were
primarily a result of increased DSL and DS1 unit shipments as well as increased
teleconference service revenues, offset in part by lower DSL and DS1 average
unit selling prices. These increases were partially offset by decreases in DS0
sales, in the three and nine month periods, which were anticipated as network
providers transition to digital based products. 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 the fourth quarter of fiscal 1998 and each of the fiscal
1999 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 DSL 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 December 31, 1997 compared to periods
ended December 31, 1996
Revenues. The Company's revenues increased 19.7% from $18.1 million in the three
months ended December 31, 1996 to $21.6 million in the three months ended
December 31, 1997. This revenue increase was primarily due to increased DSL
revenue of $1.8 million, increased DS1 revenue of $1.3 million and increased
teleconference service revenue from the Company's Conference Plus, Inc.
subsidiary of $1.1 million when compared with the same period of the prior year.
The 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.
Increased DS1 revenue was due to overall unit volume increases offset in part by
lower average system sale prices resulting primarily from changes in product
mix. Increased teleconference service revenue reflects an increase in call
minutes at the Company's Conference Plus, Inc. subsidiary. These increases were
partially offset by a $694,000 decrease in DS0 revenue in the three months ended
December 31, 1997 when compared with the same period of the prior year. The
decrease in DS0 revenue was due to lower unit shipments and lower average unit
sale prices as a result of changes in product mix and continued competitive
pricing pressures.
The Company's revenues increased 5.5% from $59.4 in the nine month period ended
December 31, 1996 to $62.7 million in the nine month period ended December 31,
1997. This revenue increase was primarily due to increased DSL revenue of $1.9
million, increased DS1 revenue of $1.5 million and increased teleconference
service revenue from the Company's Conference Plus, Inc. subsidiary of $2.8
million for the nine months end December 31, 1997 when compared to the same
period in the prior year. The 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. Increased DS1 revenue was due to overall unit volume
increases offset in part by lower average system sale prices resulting primarily
from changes in product mix. Increased teleconference service revenue reflects
an increase in call minutes at the Company's Conference Plus, Inc. subsidiary.
These increases were partially offset by a $2.6 million decrease in DS0 revenue
in the nine months ended December 31, 1997 when compared with the same period of
the prior year. The decrease in DS0 revenue was due to lower unit shipments and
lower average unit sale prices as a result of changes in product mix and
continued competitive pricing pressures.
Gross Margin. Gross margin as a percentage of revenue increased from 6.3% in the
three months ended December 31, 1996 to 29.9% in the three months ended December
31, 1997 and increased from 25.9% in the nine months ended December 31, 1996 to
31.5% for the nine months ended December 31, 1997. Gross margin percentages
were impacted in both the current year and prior year periods due to charges
taken to increase the inventory reserves of $5.0 million and $400,000 in the
periods ended December 31, 1996 and 1997, respectively. Excluding the impact of
these inventory reserves, gross margin as a percentage of revenue decreased from
33.7% in the three months ended December 31, 1996 to 31.7% in the three months
ended December 31, 1997 and decreased from 34.2% in the nine months ended
December 31, 1996 to 32.1% for the nine months ended December 31, 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. The
gross margin decreases were offset in part by the margins on increased
teleconference service revenue from the Company's Conference Plus, Inc.
subsidiary.
Sales and Marketing. Sales and marketing expenses increased 20.3%, from $4.2
million in the three months ended December 31, 1996 to $5.1 million in the three
months ended December 31, 1997, and increased 29.1% from $11.8 million in the
nine months ended December 31, 1996 to $15.2 million in the nine months ended
December 31, 1997. Sales and marketing expenses increased as a percentage of
revenues from 23.3% in the three months ended December 31, 1996 to 23.4% in the
three months ended December 31, 1997, and increased as a percentage of revenues
from 19.8% in the nine month period ended December 31, 1996 to 24.2% for the
nine month period ended December 31, 1997. The increases in sales and marketing
expenses during the periods were primarily due to staff additions to support and
promote the Company's product lines, particularly the Company's DSL 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.
RESULTS OF OPERATIONS - continued
Research and Development. Research and development expenses increased 21.5%,
from $5.9 million in the three months ended December 31, 1996 to $7.1 million in
the three months ended December 31, 1997, and increased 34.2% from $14.8 million
in the nine months ended December 31, 1996 to $19.9 million in the nine months
ended December 31, 1997. Research and development expenses increased as a
percentage of revenues from 32.4% in the three months ended December 31, 1996 to
32.9% in the three months ended December 31, 1997 and increased as a percentage
of revenues from 24.9% in the nine months ended December 31, 1996 to 31.7% in
the nine months ended December 31, 1997. The increase in research and
development expenses for the three and nine month periods were primarily due to
costs associated with additional personnel and increased contract development
expenses to support new product developments such as the Access Multiplexer,
RADSL, ADSL functionality for the DSC Lite-Span and the Lucent SLC-5 and SLC-
2000 Digital Loop Carrier systems 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.
General and Administrative. General and administrative expenses increased 20.7%,
from $2.7 million in the three months ended December 31, 1996 to $3.3 million in
the three months ended December 31, 1997 and increased 32.1% from $7.1 million
in the nine months ended December 31, 1996 to $9.3 million in the nine months
ended December 31, 1997. General and administrative expenses increased as a
percentage of revenues from 15.1% in the three months ended December 31, 1996 to
15.2% in the three months ended December 31, 1997 and increased from 11.9% in
the nine months ended December 31, 1996 to 14.9% in the nine months ended
December 31, 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.
Restructuring charge. The company recognized a restructuring charge of $1.4
million in the three months ended December 1997. This restructuring charge
included personnel, facility, and certain development contract costs related to
global operations restructuring.
Other income, net. Other income, net increased from $631,000 in the three months
ended December 31, 1996 to $12.7 million in the three months ended December 31,
1997 and increased from $1.3 million in the nine months ended December 31, 1996
to $13.6 million in the nine months ended December 31, 1997. The December 1997
quarter and the corresponding year to date period includes income of $12.0
million, net of expenses, related to a one time fee received from Texas
Instruments for the break-up of the proposed Westell/Amati merger. Excluding
the effect of this one time benefit, Other income, net would have been $714,000
and $1.6 million in the three and nine month periods ended December 31, 1997.
The income for the three and nine month periods ended December 31, 1996 and
December 31, 1997 was due to interest income earned on temporary cash
investments made as a result of investing available funds.
Interest expense. Interest expense increased from $30,000 in the three months
ended December 31, 1996 to $122,000 in the three months ended December 31, 1997
and increased from $226,000 in the nine months ended December 31, 1996 to
$247,000 in the nine months ended December 31, 1997. Interest expense during the
current period is a result of interest incurred on net obligations outstanding
during the period under promissory notes and equipment borrowings. Prior year
amounts were lower in part due to the capitalization of interest related to the
construction of the Aurora facility.
Provision (benefit) for income taxes. The Provision (benefit) for income taxes
represents the taxes provided for or the tax benefit generated by the income or
loss from operations before income taxes for the applicable period.
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 December 31, 1997 the
Company had $47.1 million in cash and short term investments which is being
invested in short term investments consisting of federal government agency
instruments and the highest rated grade corporate commercial paper.
RESULTS OF OPERATIONS - continued
The Company's operating activities used cash of approximately $3.9 million in
the nine months ended December 31, 1997, which resulted primarily from a loss
from continuing operations before income taxes of $7.5 million (net of
depreciation) and an increase in accounts receivable. These uses were partially
offset by working capital generated by decreases in inventories, prepaid
expenses and deposits, and increases in accounts payable, accrued expenses and
accrued compensation.
Capital expenditures for the nine month period ended December 31, 1997 were $3.4
million, all of which was funded by available cash. The Company expects to spend
approximately $2.0 million for the remainder of fiscal year 1998 related to
capital equipment expenditures.
On September 29, 1997, the Company received $16.2 million upon the sale and
leaseback of the Aurora facility it now occupies. The Company had 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 September 1997 quarter 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 December 31, 1997 the Company's principle sources of liquidity were $47.1
million of cash and short term investments, and $12.9 million and $5.3 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 $18.9 million at December
31, 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 $14.0 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 recorded 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. The Company anticipates having to record a valuation
allowance against future tax assets generated beginning in the March 1998
quarter.
PART II. OTHER INFORMATION
ITEM 5. OTHER EVENTS
In December 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission registering $300 million of debt and / or
equity securities. Under this registration statement, the Company may from time
to time issue and sell Class A Common Stock or debt or preferred stock that is
convertible into Class A Common Stock. At the time of this Form 10-Q, the
Company has not decided whether or when it will commence any offering of debt or
equity pursuant to this shelf registration statement.
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
The registrant filed reports on Form 8-K dated:
November 20, 1997 - Press release dated November 19, 1997 announcing an
agreement with Texas Instruments, subject to the successful acquisition of
Amati Communications Corporation by Texas Instruments.
December 12, 1997 - Press release dated December 4, 1997 announcing a
temporary medical leave of absence by Gary F. Seamans, CEO.
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: February 17, 1998 By: ROBERT H. GAYNOR
ROBERT H. GAYNOR
(Acting) Chairman of the Board
and Chief Executive Officer
By: STEPHEN J. HAWRYSZ
STEPHEN J. HAWRYSZ
Chief Financial Officer, Vice
President, Secretary and Treasurer
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
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