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EXHIBIT 99.2
November 6, 2000
Dear Fellow Investor:
Approximately six months ago, I described in a letter to shareholders our
company's strengths and weaknesses and our plans to move forward. Today, I must
report that even though we have made very good progress toward the repositioning
of our company, we will not reach the financial goals we had earlier forecast
for 2000. In response, we are taking major steps -- painful but necessary -- to
further reduce operating costs and to accelerate the re-positioning of our
company that is already well underway.
We now expect revenues of $46 million for the current year -- down $7 million
from 1999. While we've made steady progress in our transition from the analog to
digital world, legacy products still exert a negative drag on revenues and gross
margins. The moves we are now announcing will accelerate that transition.
We have commenced a broad-based realignment of the EF Johnson product line,
which is planned to take our product group offerings from 42 to 20. The timing
of this will accommodate customer and distribution channel commitments and
optimize ending inventory balances. At the same time, we will increase the
outsourcing of our proprietary-product manufacturing requirements and curtail
OEM manufacturing for other organizations wherever achievable margins are less
than satisfactory. The objective: an improvement in EF Johnson gross margin
rates and a sharper focus of our manufacturing and engineering resources on the
higher-value products representing our most attractive growth opportunities.
As a result of these moves, EF Johnson will eliminate 69 positions (26% of its
total employment), effective today, for an estimated annual cost savings of $3
million. An associated special charge of approximately $300,000 will be taken in
the last quarter of 2000 to recognize severance costs. Excluding this special
adjustment, we believe our net loss will be between $8 million and $10 million
for fiscal 2000. Over coming months, we will apply the same stringent margin
analysis to identify any additional product realignment and outsourcing
opportunities at both EF Johnson and Transcrypt Secure Technologies. We would
expect this to result in further workforce reductions and other associated
restructuring charges.
In line with these cost reduction moves, we are redirecting our sales efforts to
de-emphasize EF Johnson's low-end commercial markets, where achievable margins
and growth are increasingly unattractive. Instead, we will further concentrate
our efforts on federal government, county and local government, and high-end
commercial markets, where more rewarding value-added profit and growth
opportunities exist.
In the federal government market, we are now selling to three agencies, and our
federal sales this year are up 370% compared to this time last year. As one of
only four companies offering products compatible with APCO 25, the mandated
standard for federal applications, we expect continued strong sales growth in
2001. Further, as the APCO 25 standard migrates to the state and local
government users, we look forward to additional sales gains in that area.
Our new target for Transcrypt International is $45 million in 2001 revenues. We
feel this is a target that realistically estimates the revenues achievable at a
resized EF Johnson. It also serves as the "must do" base against which any
additional cost reductions will be evaluated. At $45 million in revenues, we
expect a substantial reduction in our operating loss, but it is unlikely that we
will achieve profitability for the full year. However, by the fourth quarter of
2001, we should reach a run rate that returns us to profitability during that
quarter and sets the stage for a strong 2002.
With respect to other pending business, we are continuing, together with our
investment banking advisors, ING Barings, to evaluate and explore strategic
options to maximize shareholder value. We anticipate the pending SEC
investigation will be resolved shortly without the imposition of any financial
penalties against the Company. We also anticipate the final distribution of
shares called for by the settlement of the shareholder class action lawsuits to
be completed in early 2001.
As we approach the new year, I'm confident that the steps announced today will
move our company forward to the selected products and markets, to sustained
growth and profitability, and to an increasing shareholder value.
Sincerely,
Michael E. Jalbert
Chairman & CEO
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Certain matters discussed in this press release constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include statements relatinge to (1) our
restructuring and realignment of our product lines, markets, and manufacturing
arrangements; (2) our reduction in work force, (3) our expectations regarding
sales, revenues and operating results in 2000 and 2001, and (4) our expectations
regarding the resolution of the SEC investigation. These forward-looking
statements are subject to certain risks and uncertainties that could cause the
actual results, performance or achievements to differ materially from those
expressed, suggested or implied by the forward-looking statements due to the
number of risk factors. These factors include, but are not limited to, the
timing of the implementation and realization of the charges and savings of any
restructuring initiatives, the level and mix of product sales, price and product
competition, changes in technology, availability and sources of cash and
funding, and other risks detailed in the Company's reports filed with the
Securities & Exchange Commission, including its Annual Report on Form 10-K for
the year ended December 31, 1999.
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