<PAGE>
UNITED STATES
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, 1999.
[ ] 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 333-32195
WAVETEK WANDEL GOLTERMANN, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 33-0457664
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1030 SWABIA COURT
RESEARCH TRIANGLE PARK, NORTH CAROLINA 27709-3585
-------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(919) 941-5730
--------------
Registrant's Telephone Number, Including Area Code
NOT APPLICABLE
--------------
Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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. As of August 13, 1999,
Registrant had only one class of common stock, of which there were 13,202,323
shares outstanding.
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 and September 30, 1998...................3
Consolidated Statements of Operations for the Three and Nine Months Ended June 30,
1999 and June 30, 1998................................................................4
Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 1999
and June 30, 1998.....................................................................5
Notes to Consolidated Financial Statements...............................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................................................17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.............................................................................26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................27
ITEM 2. CHANGES IN SECURITIES...................................................................27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................................................27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................27
ITEM 5. OTHER INFORMATION.......................................................................28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................28
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WAVETEK WANDEL GOLTERMANN, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
-------------- --------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 12,393 $ 35,544
Accounts receivable (less allowance for doubtful accounts of $3,851 at
June 30, 1999 (unaudited) and $4,432 at September 30, 1998) ................ 82,853 92,281
Inventories .................................................................. 63,178 74,886
Deferred income taxes ........................................................ 26,043 17,095
Other current assets ......................................................... 16,434 12,736
-------------- --------------
Total current assets ........................................................... 200,901 232,542
Property and equipment, net .................................................... 60,081 66,597
Intangible assets, net ......................................................... 167,866 178,675
Other assets ................................................................... 5,774 6,710
-------------- --------------
Total assets ................................................................... $434,622 $ 484,524
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks ....................................................... $ 18,821 $ 113,085
Trade accounts payable ....................................................... 29,166 37,612
Accrued compensation ......................................................... 21,646 25,907
Income taxes payable ......................................................... 4,313 5,956
Other current liabilities .................................................... 37,144 41,848
Notes payable to related parties ............................................. 10,375 11,746
Current maturities of long-term obligations .................................. 6,057 30,222
-------------- --------------
Total current liabilities ...................................................... 127,522 266,376
Long-term obligations, less current maturities ................................. 225,288 121,595
Pension liabilities ............................................................ 38,579 39,991
Deferred income taxes .......................................................... 19,630 25,582
Other non-current liabilities .................................................. 5,386 5,566
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; authorized, 50,000 shares;
issued and outstanding, 13,202 shares ...................................... 132 132
Additional paid-in capital ................................................... 72,948 72,948
Accumulated deficit .......................................................... (64,278) (57,645)
Foreign currency translation adjustments ..................................... 9,415 9,979
-------------- --------------
Total stockholders' equity ..................................................... 18,217 25,414
-------------- --------------
Total liabilities and stockholders' equity ..................................... $434,622 $ 484,524
-------------- --------------
-------------- --------------
</TABLE>
Note: The balance sheet at September 30, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ................................................... $ 112,569 $ 78,501 $ 353,501 $ 240,014
Cost of goods sold .......................................... 43,890 29,700 146,453 95,508
------------- ------------- ------------- -------------
Gross margin ................................................ 68,679 48,801 207,048 144,506
Operating expenses:
Marketing and selling ..................................... 37,328 23,092 107,765 69,478
Research and development .................................. 17,462 12,808 54,077 34,731
General and administrative ................................ 9,227 6,203 32,853 18,780
Amortization of intangible assets ......................... 4,997 280 14,687 821
Acquired in-process research and development .............. - - - 6,714
Provisions for restructuring operations and other
non-recurring charges ................................... - 1,776 - 2,249
------------- ------------- ------------- -------------
69,014 44,159 209,382 132,773
------------- ------------- ------------- -------------
Operating income (loss) ..................................... (335) 4,642 (2,334) 11,733
Non-operating income (expense):
Interest income ........................................... 55 315 530 964
Interest expense .......................................... (4,949) (1,654) (15,384) (6,015)
Other, net ................................................ (1,104) 29 (1,236) (332)
------------- ------------- ------------- -------------
(5,998) (1,310) (16,090) (5,383)
------------- ------------- ------------- -------------
Income (loss) before provision (credit) for income taxes
and minority interest in loss ............................. (6,333) 3,332 (18,424) 6,350
Provision (credit) for income taxes ......................... (4,053) 3,112 (11,791) 11,047
Minority interest in loss ................................... - (1,163) - (3,945)
------------- ------------- ------------- -------------
Net income (loss) ........................................... $ (2,280) $ 1,383 $ (6,633) $ (752)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) per share ................................. $ (0.17) $ 0.17 $ (0.50) $ (0.09)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of shares outstanding ............... 13,202 8,317 13,202 8,317
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
4
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ...................................................................... $ (6,633) $ (752)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Minority interest in loss ................................................... - (3,945)
Depreciation and amortization expense ....................................... 26,155 7,865
Acquired in-process research and development ................................ - 6,714
Deferred income taxes ....................................................... (13,976) 7,193
Changes in operating assets and liabilities, net of effect of purchased
businesses:
Accounts receivable........................................................ 1,808 7,598
Inventories ............................................................... 5,710 (3,778)
Accounts payable and accrued expenses ..................................... (20,415) (5,103)
Income taxes payable, net ................................................. (1,425) 2,659
Pension liabilities ....................................................... 1,640 2,623
Other, net ................................................................ 2,922 (712)
------------- --------------
Net cash provided by (used in) operating activities ........................... (4,214) 20,362
INVESTING ACTIVITIES
Purchase of businesses, net of cash acquired .................................. - (12,073)
Purchase of property and equipment ............................................ (13,183) (7,039)
Proceeds from sale of property and equipment .................................. 1,782 -
Purchase of short-term investments, available for sale ........................ - (37,700)
Proceeds from sale of short-term investments, available for sale .............. - 37,700
Proceeds from sale of investments in affiliates ............................... - 1,705
Payment received for notes receivable from related parties .................... - 6,042
Increase in notes receivable from related parties ............................. - (1,081)
------------- --------------
Net cash used in investing activities ......................................... (11,401) (12,446)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and long-term obligations ............. 175,302 22,881
Principal payments on revolving lines of credit and long-term obligations ..... (181,404) (30,926)
Other, net .................................................................... (672) (501)
------------- --------------
Net cash used in financing activities ......................................... (6,774) (8,546)
Effect of exchange rate changes on cash and cash equivalents .................. (762) (107)
------------- --------------
Decrease in cash and cash equivalents ......................................... (23,151) (737)
Cash and cash equivalents at beginning of period .............................. 35,544 9,400
------------- --------------
Cash and cash equivalents at end of period .................................... $ 12,393 $ 8,663
------------- --------------
------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest ........................................................ $ 11,591 $ 5,122
------------- --------------
------------- --------------
Cash paid for income taxes .................................................... $ 4,815 $ 1,747
------------- --------------
------------- --------------
</TABLE>
See accompanying notes.
5
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
On September 30, 1998, Wavetek Corporation, a Delaware corporation
("Wavetek"), and Wandel & Goltermann Management Holding GmbH, a German limited
liability company ("WG"), consummated an exchange transaction whereby the
stockholders of WG became stockholders of Wavetek, and WG became a subsidiary of
Wavetek (the "Exchange Transaction"). Following the Exchange Transaction,
Wavetek was renamed Wavetek Wandel Goltermann, Inc. (the "Company"). The
Exchange Transaction was accounted for as a purchase of Wavetek by WG.
Accordingly, the financial statements of the Company included herein as of any
date or for any period prior to September 30, 1998, are the historical financial
statements of WG.
The Company is a leading global designer, manufacturer and marketer of a
broad range of communications test instruments used to develop, manufacture,
install and maintain communications networks and equipment. The Company conducts
its communications test business, which addresses most sectors of the
communications test market, in four principal business areas: (1) Telecom
Networks (traditional voice/data transmissions and new multi-service networks),
(2) Enterprise Networks (local and wide-area network infrastructures), (3)
Multimedia (cable television and digital video broadcast) and (4) Wireless
(mobile telephony and data). The Company also designs, manufactures and sells
precision measurement instruments, electromagnetic measurement instruments and
general-purpose handheld test tools. In addition, the Company provides repair,
upgrade and calibration services, as well as value-added professional services
such as consulting and training on a worldwide basis. The accompanying
consolidated financial statements include the operations of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying financial statements and the financial information
included herein are unaudited, except for September 30, 1998. However, such
information includes all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary to fairly state
the results of the interim periods. Interim results are not necessarily
indicative of results to be expected for the full year. It is suggested that
these consolidated financial statements be read in conjunction with the
Company's audited consolidated financial statements and notes thereto, included
in the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1998. Certain amounts reported in the accompanying balance sheet as of
September 30, 1998 have been reclassified to conform to the current
presentation.
2. NET INCOME (LOSS) PER SHARE
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE ("SFAS
128"). Basic net income (loss) per share is based only on average common shares
outstanding and excludes the dilutive effects of the Company's outstanding stock
options. Diluted net income (loss) per share includes the dilutive effect of the
Company's outstanding stock options. The Company has a simple capital structure
and, accordingly, the only difference in the Company's computations of basic and
diluted net income (loss) per share is the dilutive effect of outstanding stock
options. For the three and nine months ended June 30, 1999, the effect of
outstanding stock options would have been anti-dilutive and, therefore, was not
considered in the computation of diluted loss per share for such periods. There
were no outstanding stock options in the three or nine months ended June 30,
1998. All net income (loss) per share amounts for all periods have been
presented in accordance with the requirements of SFAS 128.
6
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. FINANCIAL STATEMENT DETAILS
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Materials........................................ $17,510 $19,217
Work-in-progress................................. 15,420 21,469
Finished goods................................... 30,248 34,200
------------- --------------
$63,178 $74,886
------------- --------------
------------- --------------
</TABLE>
4. COMPREHENSIVE INCOME (LOSS)
On October 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," ("SFAS 130") which established standards for reporting
and displaying comprehensive income (loss) and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income (loss) includes net income (loss) and other
comprehensive income (loss). The Company's current and accumulated other
comprehensive income (loss) as of and for the three and nine month periods ended
June 30, 1999 and 1998 is comprised solely of foreign currency translation
adjustments.
Components of comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Net income (loss)................................ $(2,280) $1,383 $(6,633) $ (752)
Foreign currency translation adjustments......... 107 346 (564) (367)
-------------- -------------- --------------- -------------
Comprehensive income (loss)...................... $(2,173) $1,729 $(7,197) $(1,119)
-------------- -------------- --------------- -------------
-------------- -------------- --------------- -------------
</TABLE>
5. MULTI-CURRENCY REVOLVING CREDIT FACILITY
In December 1998, the Company entered into a Facilities Agreement in
relation to a Multi-Currency Revolving Credit Facility and Bilateral Ancillary
Facilities (the "Credit Facility") with a syndicate of four German banks,
providing for revolving borrowings, letters of credit and bank guarantees
aggregating up to a maximum amount of 280 million Deutsche marks ($147.8 million
at June 30, 1999). The Credit Facility, as amended, has a two-year term and all
borrowings bear interest at LIBOR plus 0.9% through May 31, 1999 and at LIBOR
plus 1.5% thereafter. Borrowings under the Credit Facility are secured by the
pledge of 65% of the shares of Wavetek Wandel Goltermann GmbH, a subsidiary of
the Company. In addition, a $45 million tranche of the Credit Facility, which
refinanced and replaced the previously existing bank credit facility of Wavetek,
is guaranteed by a U.S. subsidiary of the Company. The Credit Facility requires
the Company to comply with certain covenants and maintain certain minimum
financial ratios. The Company was in compliance with all requirements, as
amended, at June 30, 1999.
7
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. SETTLEMENT OF CLAIMS
In July 1999, the Company and Trilithic, Inc. ("Trilithic") settled the
pending claims by Trilithic alleging unfair competition and patent infringement
with respect to the Company's manufacture and sale of certain cable networks
products. Under the terms of the settlement, the Company will pay Trilithic $4.5
million for a release of all claims related to alleged past infringement and
unfair competition, and $1.2 million for a license under the subject patents.
The total payments of $5.7 million are scheduled to be paid as follows: $900,000
was paid in July 1999, $900,000 in January 2000 and $650,000 annually for six
years commencing January 2001.
In May 1999, the Company resolved its dispute with certain beneficial
owners of the Company's 10 1/8% Senior Subordinated Notes due 2007 arising from
the Exchange Transaction. The Company made a cash payment to the holders of the
Notes and entered into a supplemental indenture with the Trustee providing for
amendments to the Indenture under which the Notes were issued. In connection
with such agreement, the Company could become obligated to pay an additional
amount to the holders of the Notes on June 30, 2000 if certain events do not
occur prior to that date. Management reasonably expects such events will occur
prior to June 30, 2000 and accordingly, no amounts have been provided in the
accompanying financial statements for this contingent obligation.
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA
The Company's payment obligations under its Notes are guaranteed by all
of the Company's current and future domestic subsidiaries (collectively, the
"Subsidiary Guarantors"). WGTI and Wandel Goltermann ATE Systems, Inc., which
became Subsidiary Guarantors upon completion of the Exchange Transaction, are
shown as Subsidiary Guarantors for all periods presented prior to September 30,
1998. Wavetek U.S. Inc. and its subsidiary, Digital Transport Systems, Inc., are
also included in the financial statements as of September 30, 1998 as a result
of the Exchange Transaction. Such guarantees are full and unconditional and
joint and several. Separate financial statements of the Subsidiary Guarantors
are not presented because the Company's management has deemed that they would
not be material to investors. The following supplemental condensed consolidating
financial data sets forth, on an unconsolidated basis, balance sheets,
statements of operations and statements of cash flows data for (i) the Company
(Wavetek Wandel Goltermann, Inc., formerly Wavetek Corporation, the issuer of
the Notes), (ii) the current Subsidiary Guarantors and (iii) the Company's
foreign subsidiaries (the "Foreign Subsidiaries"). The supplemental financial
data reflects the investments of the Company in the Subsidiary Guarantors and
the Foreign Subsidiaries using the equity method of accounting.
8
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 1999
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 6 $ 2,143 $ 10,244 $ - $ 12,393
Accounts receivable (less allowance for
doubtful accounts of $3,851) ......................... 37,500 42,083 69,613 (66,343) 82,853
Inventories ............................................ - 16,231 51,491 (4,544) 63,178
Deferred income taxes .................................. 3,592 6,543 (251) 16,159 26,043
Other current assets ................................... 1,352 2,036 13,046 - 16,434
-------------- ------------ ------------- ------------- -------------
Total current assets ...................................... 42,450 69,036 144,143 (54,728) 200,901
Property and equipment, net ............................... 1,444 8,572 50,065 - 60,081
Intangible assets, net .................................... 6,657 113,049 48,160 - 167,866
Investment in subsidiaries ................................ 162,428 - - (162,428) -
Other assets .............................................. 78 1,636 4,041 19 5,774
-------------- ------------ ------------- ------------- -------------
Total assets .............................................. $ 213,057 $ 192,293 $ 246,409 $(217,137) $ 434,622
-------------- ------------ ------------- ------------- -------------
-------------- ------------ ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks ................................. $ - $ - $ 18,821 $ - $ 18,821
Trade accounts payable ................................. 12,020 17,513 54,133 (54,500) 29,166
Accrued compensation ................................... 721 5,444 15,481 - 21,646
Income taxes payable ................................... (16,638) 15,796 5,155 - 4,313
Other current liabilities .............................. 3,370 6,434 27,340 - 37,144
Notes payable to related parties ....................... - - 10,375 - 10,375
Current maturities of long-term obligations ............ - 685 5,372 - 6,057
-------------- ------------ ------------- ------------- -------------
Total current liabilities ................................. (527) 45,872 136,677 (54,500) 127,522
Long-term obligations, less current maturities ............ 194,914 7,699 34,191 (11,516) 225,288
Pension liabilities ....................................... - 384 38,195 - 38,579
Deferred income taxes ..................................... 453 22,282 880 (3,985) 19,630
Other non-current liabilities ............................. - 3,795 1,591 - 5,386
Commitments and contingencies
Stockholders' equity:
Common stock ........................................... 132 - - - 132
Additional paid-in capital ............................. 72,948 169,621 87,187 (256,808) 72,948
Accumulated deficit .................................... (64,278) (57,341) (61,746) 119,087 (64,278)
Foreign currency translation adjustments ............... 9,415 (19) 9,434 (9,415) 9,415
-------------- ------------ ------------- ------------- -------------
Total stockholders' equity ................................ 18,217 112,261 34,875 (147,136) 18,217
-------------- ------------ ------------- ------------- -------------
Total liabilities and stockholders' equity ................ $ 213,057 $ 192,293 $ 246,409 $(217,137) $ 434,622
-------------- ------------ ------------- ------------- -------------
-------------- ------------ ------------- ------------- -------------
</TABLE>
9
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 19 $ 31,143 $ 4,382 $ - $ 35,544
Accounts receivable (less allowance for
doubtful accounts of $4,432) .......................... 8,710 27,364 81,907 (25,700) 92,281
Inventories ............................................. - 18,033 59,942 (3,089) 74,886
Deferred income taxes ................................... 3,592 4,408 9,095 - 17,095
Other current assets .................................... 1,244 1,884 9,608 - 12,736
-------------- ------------ ------------- ------------- -------------
Total current assets ....................................... 13,565 82,832 164,934 (28,789) 232,542
Property and equipment, net ................................ 1,611 8,015 56,971 - 66,597
Intangible assets, net ..................................... 7,953 120,428 50,294 - 178,675
Investment in subsidiaries ................................. 143,579 - 29,932 (173,511) -
Other assets ............................................... 213 2,763 3,794 (60) 6,710
-------------- ------------ ------------- ------------- -------------
Total assets ............................................... $ 166,921 $ 214,038 $ 305,925 $(202,360) $ 484,524
-------------- ------------ ------------- ------------- -------------
-------------- ------------ ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Notes payable to banks .................................. $ 34,463 $ 373 $ 78,249 $ - $ 113,085
Trade accounts payable .................................. 4,003 20,322 35,845 (22,558) 37,612
Accrued compensation .................................... 714 5,478 19,715 - 25,907
Income taxes payable .................................... (10,839) 9,978 6,817 - 5,956
Other current liabilities ............................... 3,683 8,967 30,986 (1,788) 41,848
Notes payable to related parties ........................ - - 11,746 - 11,746
Current maturities of long-term obligations ............. 24,000 741 5,481 - 30,222
-------------- ------------ ------------- ------------- -------------
Total current liabilities .................................. 56,024 45,859 188,839 (24,346) 266,376
Long-term obligations, less current maturities ............. 85,000 4,299 33,711 (1,415) 121,595
Pension liabilities ........................................ - - 39,991 - 39,991
Deferred income taxes ...................................... 238 25,156 188 - 25,582
Other non-current liabilities .............................. 245 2,142 3,179 - 5,566
Commitments and contingencies
Stockholders' equity:
Common stock ............................................ 132 - - - 132
Additional paid-in capital .............................. 72,948 168,071 85,153 (253,224) 72,948
Accumulated deficit ..................................... (57,645) (31,463) (55,115) 86,578 (57,645)
Foreign currency translation adjustments ................ 9,979 (26) 9,979 (9,953) 9,979
-------------- ------------ ------------- ------------- -------------
Total stockholders' equity ................................. 25,414 136,582 40,017 (176,599) 25,414
-------------- ------------ ------------- ------------- -------------
Total liabilities and stockholders' equity ................. $ 166,921 $ 214,038 $ 305,925 $(202,360) $ 484,524
-------------- ------------ ------------- ------------- -------------
-------------- ------------ ------------- ------------- -------------
</TABLE>
10
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales ........................................... $ - $ 39,095 $ 79,424 $ (5,950) $ 112,569
Cost of goods sold .................................. - 17,168 29,582 (2,860) 43,890
-------------- ------------ ------------- ------------- -------------
Gross margin ........................................ - 21,927 49,842 (3,090) 68,679
Operating expenses:
Marketing and selling ............................ (47) 9,763 27,612 - 37,328
Research and development ......................... (2) 5,706 11,758 - 17,462
General and administrative ....................... 1,883 2,535 4,809 - 9,227
Amortization of intangible assets ................ (18) 3,035 1,980 - 4,997
-------------- ------------ ------------- ------------- -------------
1,816 21,039 46,159 - 69,014
-------------- ------------ ------------- ------------- -------------
Operating income (loss) ............................. (1,816) 888 3,683 (3,090) (335)
Non-operating income (expense):
Interest income .................................. 414 46 43 (448) 55
Interest expense ................................. (3,788) (169) (1,440) 448 (4,949)
Equity in net income (loss) of subsidiaries ...... 475 - - (475) -
Other, net ....................................... (78) 173 (1,199) - (1,104)
-------------- ------------ ------------- ------------- -------------
(2,977) 50 (2,596) (475) (5,998)
-------------- ------------ ------------- ------------- -------------
Income (loss) before provision (credit) for income
taxes ............................................ (4,793) 938 1,087 (3,565) (6,333)
Provision (credit) for income taxes ................. (2,513) 774 2,137 (4,451) (4,053)
-------------- ------------ ------------- ------------- -------------
Net income (loss) ................................... $ (2,280) $ 164 $ (1,050) $ 886 $ (2,280)
-------------- ------------ ------------- ------------- -------------
-------------- ------------ ------------- ------------- -------------
</TABLE>
11
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ............................................ $ - $ 11,938 $ 73,892 $ (7,329) $ 78,501
Cost of goods sold ................................... - 6,313 30,990 (7,603) 29,700
----------- ----------- ------------- ------------ ------------
Gross margin ......................................... - 5,625 42,902 274 48,801
Operating expenses:
Marketing and selling ............................. - 4,367 18,725 - 23,092
Research and development .......................... - 3,703 9,105 - 12,808
General and administrative ........................ - 1,192 5,011 - 6,203
Amortization of intangible assets ................. - 70 210 - 280
Provisions for non-recurring charges .............. - 527 1,249 - 1,776
----------- ----------- ------------- ------------ ------------
- 9,859 34,300 - 44,159
----------- ----------- ------------- ------------ ------------
Operating income (loss) .............................. - (4,234) 8,602 274 4,642
Non-operating income (expense):
Interest income ................................... - 50 314 (49) 315
Interest expense .................................. - (49) (1,654) 49 (1,654)
Equity in net income (loss) of subsidiaries ....... - - (2,082) 2,082 -
Other, net ........................................ - (66) 95 - 29
----------- ----------- ------------- ------------ ------------
- (65) (3,327) 2,082 (1,310)
----------- ----------- ------------- ------------ ------------
Income (loss) before provision (credit) for
income taxes and minority interest in income
(loss) .......................................... - (4,299) 5,275 2,356 3,332
Provision (credit) for income taxes .................. - (780) 3,892 - 3,112
Minority interest in loss ............................ - - - (1,163) (1,163)
----------- ----------- ------------- ------------ ------------
Net income (loss) .................................... $ - $ (3,519) $ 1,383 $ 3,519 $ 1,383
----------- ----------- ------------- ------------ ------------
----------- ----------- ------------- ------------ ------------
</TABLE>
12
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ....................................... $ - $ 113,954 $ 278,289 $ (38,742) $ 353,501
Cost of goods sold .............................. 39 55,200 125,412 (34,198) 146,453
------------ ----------- -------------- ------------ ------------
Gross margin .................................... (39) 58,754 152,877 (4,544) 207,048
Operating expenses:
Marketing and selling ........................ 1,465 27,817 78,483 - 107,765
Research and development ..................... - 16,895 37,182 - 54,077
General and administrative ................... 4,768 7,912 20,173 - 32,853
Amortization of intangible assets ............ 103 9,051 5,533 - 14,687
------------ ----------- -------------- ------------ ------------
6,336 61,675 141,371 - 209,382
------------ ----------- -------------- ------------ ------------
Operating income (loss) ......................... (6,375) (2,921) 11,506 (4,544) (2,334)
Non-operating income (expense):
Interest income .............................. 753 181 349 (753) 530
Interest expense ............................. (10,352) (462) (5,323) 753 (15,384)
Equity in net income (loss) of subsidiaries .. 2,926 - (1,452) (1,474) -
Other, net ................................... 616 461 (2,313) - (1,236)
------------ ----------- -------------- ------------ ------------
(6,057) 180 (8,739) (1,474) (16,090)
------------ ----------- -------------- ------------ ------------
Income (loss) before provision (credit) for
income taxes ................................. (12,432) (2,741) 2,767 (6,018) (18,424)
Provision (credit) for income taxes ............. (5,799) 892 8,116 (15,000) (11,791)
------------ ----------- -------------- ------------ ------------
Net loss ........................................ $ (6,633) $ (3,633) $ (5,349) $ 8,982 $ (6,633)
------------ ----------- -------------- ------------ ------------
------------ ----------- -------------- ------------ ------------
</TABLE>
13
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ - $ 42,960 $ 224,652 $(27,598) $ 240,014
Cost of goods sold................................ - 22,143 101,237 (27,872) 95,508
------------ ----------- -------------- ------------ ------------
Gross margin...................................... - 20,817 123,415 274 144,506
Operating expenses:
Marketing and selling.......................... - 12,115 57,363 - 69,478
Research and development....................... - 10,327 24,404 - 34,731
General and administrative..................... - 3,775 15,005 - 18,780
Amortization of intangible assets.............. - 211 610 - 821
Acquired in-process research and development... - 5,353 1,361 - 6,714
Provisions for non-recurring charges........... - 1,000 1,249 - 2,249
------------ ----------- -------------- ------------ ------------
- 32,781 99,992 - 132,773
------------ ----------- -------------- ------------ ------------
Operating income (loss)........................... - (11,964) 23,423 274 11,733
Non-operating income (expense):
Interest income................................ - 335 777 (148) 964
Interest expense............................... - (148) (6,015) 148 (6,015)
Equity in net income (loss) of subsidiaries.... - - (6,031) 6,031 -
Other, net..................................... - (32) (300) - (332)
------------ ----------- -------------- ------------ ------------
- 155 (11,569) 6,031 (5,383)
------------ ----------- -------------- ------------ ------------
Income (loss) before provision (credit) for
income taxes and minority interest in loss..... - (11,809) 11,854 6,305 6,350
Provision (credit) for income taxes............... - (1,559) 12,606 - 11,047
Minority interest in loss......................... - - - (3,945) (3,945)
------------ ----------- -------------- ------------ ------------
Net loss.......................................... $ - $(10,250) $ (752) $ 10,250 $ (752)
------------ ----------- -------------- ------------ ------------
------------ ----------- -------------- ------------ ------------
</TABLE>
14
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating
activities ..................................... $ (26,870) $ 20,335 $ 2,321 $ - $ (4,214)
INVESTING ACTIVITIES
Purchase of property and equipment ................ (402) (3,051) (9,730) - (13,183)
Proceeds from sale of property and equipment ...... - - 1,782 - 1,782
Transfer of subsidiaries .......................... (28,536) - 28,536 - -
------------ ----------- -------------- ------------ ------------
Net cash provided by (used in) investing
activities ..................................... (28,938) (3,051) 20,588 - (11,401)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and
long-term obligations .......................... 116,674 5,258 53,370 - 175,302
Principal payments on revolving lines of credit
and long-term obligations ...................... (65,223) (5,631) (110,550) - (181,404)
Dividend from subsidiary to Wavetek Wandel
Goltermann, Inc. ............................... 22,000 (22,000) - - -
Capital contribution from Wavetek Wandel
Goltermann, Inc. to subsidiary ................. (2,034) - 2,034 - -
Loans to subsidiaries from Wavetek Wandel
Goltermann, Inc. ............................... (37,578) 6,903 30,675 - -
Repayment of loan from subsidiary to Wavetek
Wandel Goltermann, Inc. ........................ 30,128 (28,996) (1,132) - -
Repayment of loans from subsidiaries .............. (7,500) (1,818) 9,318 - -
Other, net ........................................ (672) - - - (672)
------------ ----------- -------------- ------------ ------------
Net cash provided by (used in) financing
activities ..................................... 55,795 (46,284) (16,285) - (6,774)
Effect of exchange rate changes on cash and
cash equivalents ............................... - - (762) - (762)
------------ ----------- -------------- ------------ ------------
Increase (decrease) in cash and cash
equivalents .................................... (13) (29,000) 5,862 - (23,151)
Cash and cash equivalents at beginning of
period ......................................... 19 31,143 4,382 - 35,544
------------ ----------- -------------- ------------ ------------
Cash and cash equivalents at end of period ........ $ 6 $ 2,143 $ 10,244 $ - $ 12,393
------------ ----------- -------------- ------------ ------------
------------ ----------- -------------- ------------ ------------
</TABLE>
15
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating
activities ..................................... $ - $ (2,566) $ 14,428 $ 8,500 $ 20,362
INVESTING ACTIVITIES
Purchase of businesses, net of cash acquired ...... - (6,888) (5,185) - (12,073)
Purchase of property and equipment ................ - (1,363) (5,676) - (7,039)
Purchase of short-term investments ................ - (37,700) - - (37,700)
Proceeds from sale of short-term investments ...... - 37,700 - - 37,700
Proceeds from sale of investments in affiliates ... - 319 1,386 - 1,705
Payments received for notes receivable from
related parties ................................ - - 6,042 - 6,042
Increase in notes receivable from related
parties ........................................ - - (1,081) - (1,081)
---------- ----------- ------------ ------------ ------------
Net cash used in investing activities ............. - (7,932) (4,514) - (12,446)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and
long-term obligations .......................... - 650 22,231 - 22,881
Principal payments on revolving lines of credit
and long-term obligations ...................... - (650) (30,276) - (30,926)
Other, net ........................................ - - (501) - (501)
---------- ----------- ------------ ------------ ------------
Net cash used in financing activities ............. - - (8,546) - (8,546)
Effect of exchange rate changes on cash and
cash equivalents ............................... - - (107) - (107)
---------- ----------- ------------ ------------ ------------
Increase (decrease) in cash and cash equivalents .. - (10,498) 1,261 8,500 (737)
Cash and cash equivalents at beginning of
period ......................................... - 13,401 4,499 (8,500) 9,400
---------- ----------- ------------ ------------ ------------
Cash and cash equivalents at end of period ........ $ - $ 2,903 $ 5,760 $ - $ 8,663
---------- ----------- ------------ ------------ ------------
---------- ----------- ------------ ------------ ------------
</TABLE>
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements contained in this Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Quarterly Report on Form 10-Q which are not historical facts may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected, including, but not limited to, those risks and special considerations
set forth in the Company's other SEC filings. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
On September 30, 1998, Wavetek Corporation, a Delaware corporation
("Wavetek"), and Wandel Goltermann Management Holding GmbH, a German limited
liability company ("WG"), consummated an exchange transaction whereby the
stockholders of WG became stockholders of Wavetek, and WG became a subsidiary of
Wavetek (the "Exchange Transaction"). Following the Exchange Transaction,
Wavetek was renamed Wavetek Wandel Goltermann, Inc. (the "Company"). Although WG
became a subsidiary of Wavetek, the Exchange Transaction was treated, for
accounting and reporting purposes, as a purchase of Wavetek by WG. Accordingly,
the consolidated financial statements of the Company included herein as of any
date or for any period prior to September 30, 1998 are the historical
consolidated financial statements of WG. The consolidated balance sheets of the
Company as of September 30, 1998 and June 30, 1999 and the consolidated
statement of operations for the three and nine months ended June 30, 1999,
included herein, reflect the Exchange Transaction and the related purchase
accounting adjustments. The Company's net sales, cost of goods sold, gross
margin, operating expenses and interest expense have increased significantly in
fiscal 1999 as a result of the Exchange Transaction. The Company's operating
expenses also have increased as a result of its acquisition of Tinwald
Networking Technologies Inc. in January 1998 and Wavetek's acquisition of
Digital Transport Systems, Inc. effective September 30, 1998. In the following
discussion, all references to "pro forma" financial information mean the
combined historical results of operations of Wavetek and WG for the period
indicated, as if the Exchange Transaction had been consummated as of October 1,
1997.
GENERAL
The Company is a leading global designer, manufacturer and marketer of a
broad range of communications test instruments used to develop, manufacture,
install and maintain communications networks and equipment. The Company conducts
its communications test business, which addresses most sectors of the
communications test market, in four principal business areas: (1) Telecom
Networks (traditional voice/data transmissions and new multi-service networks),
(2) Enterprise Networks (local and wide-area network infrastructures), (3)
Multimedia (cable television and digital video broadcast) and (4) Wireless
(mobile telephony and data). The Company also designs, manufactures and sells
precision measurement instruments, electromagnetic measurement instruments and
general-purpose handheld test tools. In addition, the Company provides repair,
upgrade and calibration services, as well as value-added professional services
such as consulting and training on a worldwide basis.
The Company sells its products to a broad base of over 5,000 customers
worldwide, including (1) global communications equipment manufacturers such as
Alcatel, Cisco Systems, Inc., L.M. Ericsson Telephon AB ("Ericsson"),
International Business Machines Corp. ("IBM"), Lucent Technologies, Inc.,
Motorola, Inc., Northern Telecom, Ltd. ("Nortel"), NCR Corporation and Siemens
AG, (2) communications service providers such as AT&T Corporation,
17
<PAGE>
TeleCommunications, Inc. ("TCI"), Deutsche Telekom AG, France Telecom, Embratel,
China Telecom and Time Warner Cable and (3) the information service departments
of corporations and governmental entities such as DaimlerChrysler and the U.S.
Navy. For fiscal 1998, no customer represented more than 5% of the Company's pro
forma sales. The Company's sales are also diversified geographically.
The Company sells and services its products through (1) its global sales
and service organization of over 800 employees in over 25 countries and (2) a
global network of over 250 distributors, resellers and independent
representatives, which together provide the Company with a sales and service
presence in over 85 countries. The Company has design and manufacturing
capabilities through 11 facilities located in the United States, Germany,
France, the United Kingdom, Switzerland and Brazil.
The Company's operating expenses are substantially impacted by marketing
and selling activities and by research and development activities. Marketing and
selling expenses are primarily driven by: (1) sales volume, with respect to
sales force expenses and commission expenses; (2) the extent of market research
activities for new product design efforts; (3) advertising and trade show
activities and (4) the number of new products launched in the period. In recent
periods, the Company has increased its spending on research and development
activities primarily to accelerate the timing of new product introductions.
General and administrative expenses primarily include costs associated with the
Company's administrative employees, facilities and functions. The Company incurs
expenses in foreign countries primarily in the functional currencies of such
locations. As a result of the Company's substantial international operations,
the United States dollar amount of its expenses is impacted by changes in
foreign currency exchange rates. The Company's ability to maintain and grow its
sales depends on a variety of factors including its ability to maintain its
competitive position in areas such as technology, performance, price, brand
identity, quality, reliability, distribution and customer service and support.
The Company's sales growth also depends on its ability to continue to introduce
new products that respond to technological change and market demand in a timely
manner.
RESULTS OF OPERATIONS
The following table sets forth selected financial information as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales..................................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................................ 39.0 37.8 41.4 39.8
-------- -------- -------- --------
Gross margin.............................................. 61.0 62.2 58.6 60.2
Operating expenses........................................ 61.3 56.3 59.2 55.3
-------- -------- -------- --------
Operating income (loss)................................... (0.3) 5.9 (0.6) 4.9
Interest expense, net..................................... (4.3) (1.7) (4.2) (2.1)
Other non-operating income (expense), net................. (1.0) - (0.4) (0.2)
-------- -------- -------- --------
Income (loss) before provision (credit) for income taxes
and minority interest in loss.......................... (5.6) 4.2 (5.2) 2.6
Provision (credit) for income taxes....................... (3.6) 3.9 (3.3) 4.6
Minority interest in loss................................. - (1.5) - (1.7)
-------- -------- -------- --------
Net income (loss)......................................... (2.0)% 1.8% (1.9)% (0.3)%
-------- -------- -------- --------
EBITDA (1)................................................ 7.6% 11.4% 7.5% 11.8%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
18
<PAGE>
The Company's ratio of earnings to fixed charges was as follows for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Ratio of earnings to fixed charges (2).................. (0.1)x 2.6x 0.0x 1.8x
</TABLE>
- -----------
(1) EBITDA is operating income plus depreciation and amortization expense,
acquired in-process research and development, provisions for
restructuring and other non-recurring charges and, for the three and nine
months ended June 30, 1999, the one-time non-cash increase in cost of
goods sold resulting from the adjustment of inventories to fair value in
connection with the Exchange Transaction. The Company's definition of
EBITDA is consistent with the definition of Consolidated Cash Flow in the
Indenture related to the Company's 10 1/8% Senior Subordinated Notes due
June 15, 2007 (the "Indenture"). While EBITDA should not be construed as
a substitute for income from operations, net income or cash flows from
operating activities in analyzing the Company's operating performance,
financial position or cash flows, the Company has included EBITDA because
it may be viewed as an indicator of compliance with certain covenants in
the Indenture and is commonly used by certain investors and analysts to
analyze and compare companies on the basis of operating performance,
leverage and liquidity and to determine a Company's ability to service
debt. EBITDA as presented by the Company herein may not be comparable to
similarly titled measures reported by other companies. In addition, the
amount reported by the Company as EBITDA may not be fully available for
management's discretionary use due to the Company's needs to conserve
funds for debt service, capital expenditures and other commitments.
(2) For purposes of computing this ratio, earnings consist of income (loss)
before provision (credit) for income taxes plus fixed charges. Fixed
charges consist of interest expense and one-third of the rent expense
from operating leases, which management believes is a reasonable
approximation of the interest factor of the rent.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales in the three months ended June 30, 1999 increased
$34.1 million, or 43.4%, to $112.6 million from $78.5 million in the comparable
fiscal 1998 period. This increase was primarily due to the addition of sales
from Wavetek following the Exchange Transaction. In addition, sales from the
historical WG portion of the Company in the three months ended June 30, 1999
increased $6.3 million, or 8.0%, from the comparable fiscal 1998 period. Sales
to international customers increased $11.6 million, or 16.3%, to $83.0 million
and sales to customers in the United States increased $22.4 million, or 313.0%,
to $29.6 million. The Company's sales to customers outside the United States
decreased to 73.7% of total sales in the three months ended June 30, 1999 from
90.9% in the comparable fiscal 1998 period. Changes in certain foreign exchange
rates had a small unfavorable impact on the United States dollar equivalent of
the Company's sales denominated in foreign currencies in the three months ended
June 30, 1999. Sales of the Company's Communications Test products in the three
months ended June 30, 1999 increased $27.1 million, or 37.6%, from the
comparable fiscal 1998 period to $99.4 million also primarily due to the
addition of sales from Wavetek following the Exchange Transaction. Sales in the
three months ended June 30, 1999 from repair, upgrade and calibration services
increased $3.4 million, or 107.2%, from the comparable fiscal 1998 period to
$6.5 million.
The Company's net sales in the three months ended June 30, 1999 decreased
$1.7 million, or 1.5%, to $112.6 million from pro forma net sales of $114.3
million in the comparable fiscal 1998 period.
19
<PAGE>
GROSS MARGIN. The Company's gross margin in the three months ended June
30, 1999 increased $19.9 million, or 40.7%, to $68.7 million from $48.8 million
in the comparable fiscal 1998 period due to the added gross margin on the
Wavetek sales following the Exchange Transaction. Gross margin as a percentage
of sales decreased to 61.0% in the three months ended June 30, 1999 from 62.2%
in the comparable fiscal 1998 period. The decrease in the gross margin
percentage during the three months ended June 30, 1999 resulted primarily from
increased price competition in certain markets in which the Company sells and
from the impact of the change in the mix of products sold following the Exchange
Transaction. Changes in foreign exchange rates had a small favorable impact on
the United States dollar equivalent of gross margins related to international
sales denominated in foreign currencies in the three months ended June 30, 1999.
The Company's gross margin in the three months ended June 30, 1999
increased $0.1 million, or 0.1%, to $68.7 million from pro forma gross margin of
$68.6 million in the comparable fiscal 1998 period. Gross margin as a percentage
of net sales increased to 61.0% in the three months ended June 30, 1999 from
60.0% on a pro forma basis in the comparable fiscal 1998 period.
OPERATING EXPENSES. Operating expenses in the three months ended June 30,
1999 increased $24.9 million, or 56.3%, to $69.0 million from $44.2 million in
the comparable fiscal 1998 period due primarily to the addition of expenses from
Wavetek following the Exchange Transaction. Operating expenses as a percentage
of sales increased to 61.3% in the three months ended June 30, 1999 from 56.3%
in the comparable fiscal 1998 period. Marketing and selling expenses increased
$14.2 million, or 61.6%, to $37.3 million in the three months ended June 30,
1999 from $23.1 million in the comparable fiscal 1998 period due primarily to
the addition of marketing and selling expenses from Wavetek following the
Exchange Transaction. In addition, the Company increased its spending related to
certain market development resources and fixed selling expenses. Marketing and
selling expenses as a percentage of sales increased to 33.2% for the three
months ended June 30, 1999 from 29.4% in the comparable fiscal 1998 period.
Spending for research and development activities increased $4.7 million, or
36.3%, to $17.5 million (15.5% of sales) in the three months ended June 30, 1999
from $12.8 million (16.3% of sales) in the comparable fiscal 1998 period due
primarily to the addition of research and development expenses from Wavetek
following the Exchange Transaction. General and administrative expenses
increased $3.0 million, or 48.8%, to $9.2 million (8.2% of sales) in the three
months ended June 30, 1999 from $6.2 million (7.9% of sales) in the comparable
fiscal 1998 period due to the addition of general and administrative expenses
from Wavetek following the Exchange Transaction and from other businesses
acquired by the Company during fiscal 1998. General and administrative expense
in the three months ended June 30, 1999 also includes certain retention expense
and other acquisition related compensation expense related to the Exchange
Transaction and other businesses acquired by the Company during fiscal 1998,
which did not occur in the comparable fiscal 1998 period. In addition, the
Company has increased its general and administrative spending related to its
management information systems and certain other fixed administrative costs in
relation to the comparable fiscal 1998 period. Operating expenses for the three
months ended June 30, 1999 also reflect a decrease in expenses for provisions
for non-recurring charges aggregating $1.8 million which occurred in the three
months ended June 30, 1998 and did not recur in the current period, offset by an
increase in amortization of intangible assets of $4.7 million, due primarily to
the Exchange Transaction. Changes in foreign exchange rates had a small
favorable impact on the United States dollar equivalent of operating expenses
denominated in foreign currencies in the three months ended June 30, 1999.
Operating expenses in the three months ended June 30, 1999 increased $3.5
million, or 5.3%, to $69.0 million from pro forma operating expenses of $65.6
million in the comparable fiscal 1998 period.
NON-OPERATING INCOME (EXPENSE). Non-operating expense, net, in the three
months ended June 30, 1999 increased by $4.7 million over the comparable fiscal
1998 period to $6.0 million. The increase was primarily due to an increase in
the
20
<PAGE>
Company's net interest expense to $4.9 million during the three months ended
June 30, 1999 from $1.3 million in the comparable fiscal 1998 period, reflecting
additional interest expense due to an increase in the Company's outstanding debt
following the Exchange Transaction. Other non-operating expenses increased by
$1.1 million during the three months ended June 30, 1999 over the comparable
fiscal 1998 period primarily due to unrealized losses on forward currency
exchange contracts.
Non-operating expense, net, in the three months ended June 30, 1999
increased by $1.7 million to $6.0 million from pro forma non-operating expense,
net, of $4.3 million in the comparable fiscal 1998 period.
PROVISION (CREDIT) FOR INCOME TAXES. The Company's effective tax rate
decreased to approximately 64% in the three months ended June 30, 1999, from
approximately 93% in the comparable fiscal 1998 period. The Company's effective
tax rate takes into account the expected annual mix of income and related tax
rates by geographical location. Such effective rate also reflects the
non-deductibility of the amortization expense related to certain intangible
assets and other expenses related to the Exchange Transaction and other
acquisitions which occurred during fiscal 1998.
NET INCOME (LOSS). As a result of the above factors, net income (loss)
was $(2.3) million in the three months ended June 30, 1999 as compared to $1.4
million in the comparable fiscal 1998 period.
The Company's net loss was $2.3 million in the three months ended June
30, 1999 as compared to pro forma net loss of $1.9 million in the comparable
fiscal 1998 period.
EBITDA. As a result of the above factors, EBITDA was $8.5 million in the
three months ended June 30, 1999 as compared to $8.9 million in the comparable
fiscal 1998 period. EBITDA as a percentage of sales decreased to 7.6% in the
three months ended June 30, 1999 from 11.4% in the comparable fiscal 1998
period.
The Company's EBITDA was $8.5 million in the three months ended June 30,
1999 as compared to pro forma EBITDA of $12.2 million in the comparable fiscal
1998 period.
RATIO OF EARNINGS TO FIXED CHARGES. As a result of the above factors, the
ratio of earnings to fixed charges was (0.1)x in the three months ended June 30,
1999 as compared to 2.6x in the comparable fiscal 1998 period.
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales in the nine months ended June 30, 1999 increased
$113.5 million, or 47.3%, to $353.5 million from $240.0 million in the
comparable fiscal 1998 period. This increase was primarily due to the addition
of sales from Wavetek following the Exchange Transaction. In addition, sales
from the historical WG part of the Company in the nine months ended June 30,
1999 increased $16.8 million, or 7.0%, from the comparable 1998 period. Sales to
international customers increased $56.0 million, or 26.1%, to $270.2 million and
sales to customers in the United States increased $57.5 million, or 222.4%, to
$83.3 million. The Company's sales to customers outside the United States
decreased to 76.4% of total sales in the nine months ended June 30, 1999 from
89.2% in the comparable fiscal 1998 period. Changes in certain foreign exchange
rates had a small unfavorable impact on the United States dollar equivalent of
the Company's sales denominated in foreign currencies in the nine months ended
June 30, 1999. Sales of the Company's Communications Test products in the nine
months ended June 30, 1999 increased $91.9 million, or 41.5%, from the
comparable fiscal 1998 period to $313.6 million also primarily due to the
addition of sales from Wavetek following the Exchange Transaction. Sales in the
nine months ended from repair, upgrade and calibration services increased $8.0
million, or 77.5%, from the comparable fiscal 1998 period to $18.3 million.
21
<PAGE>
The Company's net sales in the nine months ended June 30, 1999 increased
$6.5 million, or 1.9%, to $353.5 million from pro forma net sales of $347.0
million in the comparable fiscal 1998 period.
GROSS MARGIN. The Company's gross margin in the nine months ended June
30, 1999 increased $62.5 million, or 43.3%, to $207.0 million from $144.5
million in the comparable fiscal 1998 period due to the added gross margin on
the Wavetek sales following the Exchange Transaction. Gross margin as a
percentage of sales decreased to 58.6% in the nine months ended June 30, 1999
from 60.2% in the comparable fiscal 1998 period. The decrease in the gross
margin percentage during the nine months ended June 30, 1999 resulted primarily
from increased price competition in certain markets in which the Company sells
and from the impact of the change in the mix of products sold following the
Exchange Transaction. Gross margin in the nine months ended June 30, 1999 was
also impacted by a one-time increase in cost of goods sold resulting from the
adjustment of inventories to fair value in connection with the Exchange
Transaction. Changes in foreign exchange rates had a small unfavorable impact on
the United States dollar equivalent of gross margins related to international
sales denominated in foreign currencies in the nine months ended June 30, 1999.
The Company's gross margin in the nine months ended June 30, 1999
increased $4.7 million, or 2.3%, to $207.0 million from pro forma gross margin
of $202.3 million in the comparable fiscal 1998 period. Gross margin as a
percentage of net sales increased to 58.6% in the nine months ended June 30,
1999 from 58.3% on a pro forma basis in the comparable fiscal 1998 period.
OPERATING EXPENSES. Operating expenses in the nine months ended June 30,
1999 increased $76.6 million, or 57.7%, to $209.4 million from $132.8 million in
the comparable fiscal 1998 period due primarily to the addition of expenses from
Wavetek following the Exchange Transaction. Operating expenses as a percentage
of sales increased to 59.2% in the nine months ended June 30, 1999 from 55.3% in
the comparable fiscal 1998 period. Marketing and selling expenses increased
$38.3 million, or 55.1%, to $107.8 million (30.5% of sales) in the nine months
ended June 30, 1999 from $69.5 million (28.9% of sales) in the comparable fiscal
1998 period due primarily to the addition of marketing and selling expenses from
Wavetek following the Exchange Transaction. In addition, the Company incurred
certain costs during the nine months ended June 30, 1999 related to a biannual
international sales and marketing meeting and increased its spending related to
certain market development resources and fixed selling expenses. Spending for
research and development activities increased $19.3 million, or 55.7%, to $54.1
million (15.3% of sales) in the nine months ended June 30, 1999 from $34.7
million (14.5% of sales) in the comparable fiscal 1998 period due primarily to
the addition of research and development expenses from Wavetek following the
Exchange Transaction and from other businesses acquired by the Company during
fiscal 1998. The Company also increased research and development spending in
order to accelerate the timing and number of new product introductions. General
and administrative expenses increased $14.1 million, or 74.9%, to $32.9 million
(9.3% of sales) in the nine months ended June 30, 1999 from $18.8 million (7.8%
of sales) in the comparable fiscal 1998 period due to the addition of general
and administrative expenses from Wavetek following the Exchange Transaction and
from other businesses acquired by the Company during fiscal 1998. General and
administrative expense in the nine months ended June 30, 1999 also includes
certain retention expense and other acquisition related compensation expense
related to the Exchange Transaction and other businesses acquired by the Company
during fiscal 1998. In addition, the Company has increased its general and
administrative spending related to its management information systems and
certain other fixed administrative costs in relation to the comparable fiscal
1998 period. Operating expenses for the nine months ended June 30, 1999 also
reflect an increase in amortization of intangible assets of $13.9 million, due
primarily to the Exchange Transaction, partially offset by expenses for acquired
in-process research and development and provisions for non-recurring charges
aggregating $9.0 million which occurred in the nine months ended June 30, 1998
and did not recur in the current period. Changes in foreign exchange rates had a
small unfavorable impact on the United States dollar equivalent of operating
expenses denominated in foreign currencies in the nine months ended June 30,
1999.
22
<PAGE>
Operating expenses in the nine months ended June 30, 1999 increased $15.3
million, or 7.9%, to $209.4 million from pro forma operating expenses of $194.0
million in the comparable fiscal 1998 period.
NON-OPERATING INCOME (EXPENSE). Non-operating expense, net, in the nine
months ended June 30, 1999 increased by $10.7 million over the comparable fiscal
1998 period to $16.1 million. The increase was primarily due to an increase in
the Company's net interest expense to $14.9 million during the nine months ended
June 30, 1999 from $5.1 million in the comparable fiscal 1998 period, reflecting
additional interest expense due to an increase in the Company's outstanding debt
following the Exchange Transaction. Non-operating expense, net, was $16.1
million in the nine months ended June 30, 1999 as compared to pro forma
non-operating expense, net, of $14.4 million in the comparable fiscal 1998
period.
PROVISION (CREDIT) FOR INCOME TAXES. The Company's effective tax rate
decreased to approximately 64% in the nine months ended June 30, 1999, from
approximately 174% in the comparable fiscal 1998 period. The Company's effective
tax rate takes into account the expected annual mix of income and related tax
rates by geographical location. Such effective rate also reflects the
non-deductibility of the amortization expense related to certain intangible
assets and other expenses related to the Exchange Transaction and other
acquisitions which occurred during fiscal 1998.
NET INCOME (LOSS). As a result of the above factors, net loss was $6.6
million in the nine months ended June 30, 1999 as compared to $0.8 million in
the comparable fiscal 1998 period.
The Company's net loss was $6.6 million in the nine months ended June 30,
1999 as compared to pro forma net loss of $10.0 million in the comparable fiscal
1998 period.
EBITDA. As a result of the above factors, EBITDA was $26.5 million in the
nine months ended June 30, 1999 as compared to $28.6 million in the comparable
fiscal 1998 period. EBITDA as a percentage of sales decreased to 7.5% in the
nine months ended June 30, 1999 from 11.8% in the comparable fiscal 1998 period.
The Company's EBITDA was $26.5 million in the nine months ended June 30,
1999 as compared to pro forma EBITDA of $42.3 million in the comparable fiscal
1998 period.
RATIO OF EARNINGS TO FIXED CHARGES. As a result of the above factors, the
ratio of earnings to fixed charges was 0.0x in the nine months ended June 30,
1999 as compared to 1.8x in the comparable fiscal 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by (used in) operating activities was $(4.2)
million and $20.4 million in the nine months ended June 30, 1999 and 1998,
respectively. The Company had cash, cash equivalents and investments at June 30,
1999 of $12.4 million. The Company invests its excess cash in highly liquid
money market funds, U.S. Treasury obligations and investment grade commercial
paper. In recent years, the Company has funded its business through operating
cash flow, has not relied on sales of equity to provide cash and has used
short-term debt primarily for cash management purposes. The Company had
borrowings outstanding under revolving credit agreements of $125.2 million at
June 30, 1999, including amounts borrowed for working capital requirements, of
which $18.8 million was classified as short-term. The Company had additional
obligations outstanding totaling approximately $7.2 million in the form of
letters of credit and bank guarantees. The Company's revolving lines of credit
provide for total availability of $164.8 million. At June 30, 1999, the Company
had unused availability under these facilities of $32.4 million. Certain
provisions of the Indenture limit the Company's future borrowings if the Company
fails to meet a Fixed Charge Coverage Ratio, as defined in the Indenture.
Accordingly, the Company's future borrowings are currently limited to
approximately $10.3 million unless other conditions are met.
23
<PAGE>
The Company's primary cash needs have been for the funding of working
capital requirements (primarily inventory and accounts receivable) and capital
expenditures. The Company's net cash used in investing activities was $11.4
million and $12.4 million in the nine months ended June 30, 1999 and 1998,
respectively. The Company's recurring cash requirements for investing activities
are primarily for the purchase of businesses and capital expenditures. The
Company made capital expenditures in the nine months ended June 30, 1999 and
1998 of approximately $13.2 million and $7.0 million, respectively. The
Company's capital expenditures increased $3.9 million, or 41.9%, to $13.2
million from pro forma capital expenditures of $9.3 million in the comparable
fiscal 1998 period.
The Company's net cash used in financing activities was $6.8 million and
$8.5 million in the nine months ended June 30, 1999 and 1998, respectively. The
net cash used in financing activities substantially reflects the proceeds from
and repayments for borrowings used to finance the Company's operating and
investing activities, or as an application of the cash generated from these
activities.
The Company from time to time considers the sale of assets and other
financing transactions. The Company believes that its cash flow from operations,
combined with the remaining available and permitted borrowings under its
existing bank credit agreements, including the Credit Facility discussed in Note
5 to the Company's consolidated financial Statements included in Item 1 herein,
and its other financing transactions will be sufficient to fund its debt service
obligations, including its obligations under the Notes, and working capital
requirements.
FOREIGN OPERATIONS
As discussed above, a significant portion of the Company's sales and
expenses are denominated in currencies other than the United States dollar. In
order to maintain access to such foreign currencies, the Company and certain of
its foreign subsidiaries have credit facilities providing for borrowings in
local currency. Adjustments made in translating the balance sheet accounts of
the foreign subsidiaries from their respective functional currencies at
appropriate exchange rates are included as a separate component of stockholders'
equity. In addition, the Company periodically uses forward exchange contracts
and collars to hedge certain known foreign exchange exposures. Gains or losses
from such contracts are included in the Company's consolidated statements of
operations to offset gains and losses from the underlying foreign currency
transactions.
The Indenture under which the Company's 10 1/8% Senior Subordinated Notes
due 2007 were issued permits the Company and its subsidiaries to make
investments in, and intercompany loans to, its foreign subsidiaries. Payments to
the Company or its other subsidiaries by such foreign subsidiaries, including
the payment of dividends, redemption of capital stock or repayment of such
intercompany loans, may be restricted by the credit agreements of the foreign
subsidiaries.
On January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their existing
currencies and a new common currency (the "euro"). The participating countries
adopted the euro as their common legal currency on that date. The Company is
assessing the potential impact from the euro conversion in a number of areas,
including the competitive impact of cross-border price transparency, which may
make it more difficult for businesses to charge different prices for the same
products on a country-by-country basis, and the impact on currency exchange
costs and currency exchange rate risk. At this stage of its assessment, the
Company cannot yet predict the full impact of the euro conversion on the
Company.
24
<PAGE>
PERIODIC FLUCTUATIONS
The Company's net sales occurred in the following percentages in each of
the last four quarters: 20% for the quarter ended September 30, 1998, 29% for
the quarter ended December 31, 1998, 26% for the quarter ended March 31, 1999
and 25% for the quarter ended June 30, 1999. A variety of factors may cause
period-to-period fluctuations in the operating results of the Company. Such
factors include, but are not limited to, the purchase of businesses, product
mix, European summer holidays and other seasonal influences, competitive pricing
pressures, materials costs, currency fluctuations, revenues and expenses related
to new products and enhancements of existing products, as well as delays in
customer purchases in anticipation of the introduction of new products or
product enhancements by the Company or its competitors. The majority of the
Company's revenues in each quarter result from orders received in that quarter.
As a result, the Company establishes its production, inventory and operating
expenditure levels based on anticipated revenue levels. Thus, if sales do not
occur when expected, expenditure levels could be disproportionately high and
operating results for that quarter, and potentially future quarters, would be
adversely affected.
The Company's pro forma net sales occurred in the following percentages
in each of the last four quarters: 26% for the quarter ended September 30, 1998,
26% for the quarter ended December 31, 1998, 24% for the quarter ended March 31,
1999 and 24% for the quarter ended June 30, 1999.
RESTRUCTURING OF OPERATIONS AND SUBSIDIARIES
To improve the Company's competitive position in the marketplace, the
Company plans to implement a restructuring program in the fourth quarter of
fiscal 1999 to reduce costs and streamline operations. The restructuring
program will include a realignment of management and operations on a regional
basis. The Company's legal structure will also be simplified by reducing the
number of subsidiaries and establishing a more efficient tax structure. The
Company is currently evaluating the scope, cost and timing of such program,
and expects to incur a one time restructuring charge associated with such
program in the fourth quarter of fiscal 1999.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
Year 2000. This could result in a system failure or a miscalculation causing
disruption of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
WG and Wavetek, prior to the Exchange Transaction, independently
addressed the issues involved in the Year 2000 Issue. The Company determined
that it was required to modify or replace significant portions of its hardware
and software so that those systems will properly utilize dates beyond December
31, 1999.
The Company's plan to resolve the Year 2000 Issue involved the following
four phases: assessment, remediation, testing and implementation. Starting in
1995, both WG and Wavetek began to evaluate their internal business and
information systems for Year 2000 compliance. The Company has completed an
assessment of the impact of the Year 2000 Issue on its internal and external
operations, and is in the process of upgrading or replacing certain hardware,
embedded chips and software programs it employs in the normal course of
business, including its manufacturing, accounting applications and certain other
administrative hardware and software systems. As a result, the Company has
already addressed many of its Year
25
<PAGE>
2000 Issues and continues on schedule to complete this project before it will
have any material impact on the Company's ability to deliver products and
services.
The total cost of the year 2000 Issue project was approximately $2.2
million and has been substantially completed. Only non-critical systems remain
incomplete at certain locations and are expected to be compliant by September
30, 1999. Much of this expenditure would have been necessary in any case as part
of the regular process of maintaining and updating systems. In some instances,
the expenditures have been accelerated in order to comply with Year 2000
requirements.
In some cases, the Company is relying upon suppliers to provide Year 2000
compliant upgrades in a timely manner. The Company has a program in place to
assess the extent to which the Company's systems or business processes may be
vulnerable to third party non-compliance and the ability of its suppliers and
business partners to continue normal operations beyond Year 2000. Where
responses from suppliers or partners to the questions asked as part of this
formal assessment program are unsatisfactory, the Company will take steps to
seek alternative suppliers or partnerships. However, there can be no assurance
that the systems of other companies on which the Company's systems rely will be
timely converted and will not have an adverse effect on the Company's systems.
Since December 31, 1998, all Company products have been delivered Year
2000 compliant. Information has also been provided to address customer
inquiries concerning previously delivered products, including those no longer
manufactured. All expenditures for product correction have been incurred.
The Company has taken steps to minimize the risks for its business
processes and systems. Contingency plans for certain critical applications are
in place. The Company is, however, vulnerable to failures of major utilities or
service providers to become Year 2000 compliant. The Company's major facilities
include 11 discrete locations in six countries, thus mitigating any potential
impact upon the Company as a whole of any such material failures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses financial instruments, including fixed and variable rate
debt, to finance its operations. The information below summarizes the Company's
market risks associated with debt obligations outstanding as of June 30, 1999.
The following table presents principal cash flows and related weighted average
interest rates by fiscal year of maturity. Variable interest rate obligations
under the Credit Facility and other revolving bank credit agreements, capital
lease obligations and notes payable to related parties are not included in the
table. The Company has no long-term variable interest obligations other than
certain borrowings under the Credit Facility and a mortgage loan of a French
subsidiary, which have been classified as long-term. The information is
presented in U.S. dollar equivalents, which is the Company's reporting currency.
The actual cash flows of the instruments are denominated in U.S. dollars
("US$"), German Deutsche marks ("DM") and other currencies ("other") as
indicated.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
----------------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL
---------- --------- --------- --------- --------- ---------- ---------
(US$ EQUIVALENT IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term Obligations:
Fixed Rate (US$) ............ $ - $ 685 $ 633 $ 585 $ 541 $ 85,500 $ 87,944
Average interest rate ..... - 8.2% 8.2% 8.2% 8.2% 10.1% 10.1%
Fixed Rate (DM) ............. $ 1,246 $ 4,914 $ 4,018 $ 3,436 $ 3,438 $ 12,367 $ 29,419
Average interest rate ..... 6.4% 5.9% 5.9% 5.9% 5.9% 5.8% 5.9%
Fixed Rate (other) .......... $ 14 $ 357 $ 94 $ 97 $ 68 $ 2,132 $ 2,762
Average interest rate ..... 6.6% 9.4% 6.1% 6.2% 6.6% 5.6% 6.1%
</TABLE>
26
<PAGE>
The carrying amounts of the Company's debt instruments approximate their
fair values. At June 30, 1999, the Company had interest rate cap and swap
agreements in an aggregate notional amount of $10.6 million to limit its
exposure on interest rate changes related to certain short-term variable
interest rate debt instruments. The carrying values of these interest rate
agreements approximate fair value at June 30, 1999.
The Company uses forward exchange contracts and collars in the ordinary
course of business to mitigate its exposure to changes in foreign currency
exchange rates relating to cash, accounts receivable, accounts payable,
significant transactions and anticipated future sales denominated in foreign
currencies. The terms of these contracts are generally less than one year. The
Company's risk management policies do not provide for the utilization of
financial instruments for trading purposes. Gains and losses on financial
instruments that qualify as hedges of existing assets or liabilities or firm
commitments are recognized in income or as adjustments of carrying amounts when
the hedged transaction occurs. Financial instruments which are not designated as
hedges of specific assets, liabilities, firm commitments or anticipated
transactions are marked to market and any resulting unrealized gains or losses
are recorded in "Other, net" in the accompanying consolidated statements of
operations. The Company had foreign exchange contracts outstanding for the sale
or purchase of US dollars and German Marks at June 30, 1999 and September 30,
1998 in an aggregate notional amount of $32.0 million and $25.8 million,
respectively, which mature through May 2000. While it is not the Company's
intention to terminate any of these contracts, the estimated fair value of these
contracts indicated that termination of the forward currency exchange contracts
June 30, 1999 would have resulted in a loss of $1.1 million and termination at
September 30, 1998 would have resulted in a loss of $0.6 million. Due to the
volatility of currency exchange rates, these estimated results may or may not be
realized.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company from time to time is
subject to legal claims. The Company does not believe that the likely outcome of
any such claims or related lawsuits would have a material adverse effect on the
Company or its ability to develop new products.
In May 1999, the Company resolved its dispute with certain beneficial
owners of the Company's 10 1/8% Senior Subordinated Notes due 2007 arising from
the Exchange Transaction. The Company made a cash payment to the holders of the
Notes and entered into a supplemental indenture with the Trustee providing for
amendments to the Indenture under which the Notes were issued. In connection
with such agreement, the Company could become obligated to pay an additional
amount to the holders of the Notes on June 30, 2000 if certain events do not
occur prior to that date. Management reasonably expects such events will occur
prior to June 30, 2000 and accordingly, no amounts have been provided in the
accompanying financial statements for this contingent obligation.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
27
<PAGE>
ITEM 5. OTHER INFORMATION
On July 23, 1999, Karl-Heinz Eisemann was appointed Acting Chief
Financial Officer, Treasurer and Secretary of the Company replacing Vickie L.
Capps, who terminated her employment with the Company to pursue an outside
opportunity. Previously, Mr. Eisemann was Senior Vice President - Finance,
Controlling & Logistics and Assistant Secretary of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Third Supplemental Indenture, dated as of May 25, 1999, among
Wavetek Wandel Goltermann, Inc. and The Bank of New York
10.2 Amendment Agreement, dated May 28, 1999, to a DEM 280,000,000
Facilities Agreement in relation to a Multi-Currency Revolving
Credit Facility and Bilateral Ancillary Facilities, dated December
23, 1998, between Wavetek Wandel Goltermann, Inc. and Wandel &
Goltermann Technologies, Inc. and Commerzbank Aktiengesellschaft
and Deutsche Bank AG and Commerzbank International S.A. and Others
12.1 Schedule Re: Computation of Ratio of Earnings to Fixed Charges
27.1 Financial Data Schedule for the nine months ended June 30, 1999
(b) Reports on Form 8-K
None
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of the 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1999 WAVETEK WANDEL GOLTERMANN, INC.
(Registrant)
/s/KARL-HEINZ EISEMANN
-------------------------------------------------------
Karl-Heinz Eisemann
Senior Vice President-Controlling & Logistics,
Treasurer, Secretary and Acting Chief Financial Officer
29
<PAGE>
EXHIBIT 10.1
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE, dated as of May 25, 1999 (this "THIRD
SUPPLEMENTAL INDENTURE"), among Wavetek Wandel Goltermann, Inc. (the
"COMPANY") and The Bank of New York, as trustee (the "TRUSTEE").
W I T N E S S E T H:
WHEREAS, the Company, Wandel & Goltermann Technologies, Inc., Wandel
& Goltermann A.T.E. Systems, Inc., Wandel & Goltermann, Inc., W&G Equities,
Inc., Digital Transport Systems, Inc. and the Trustee are parties to an
Indenture, dated as of June 11, 1997 and supplemented as of September 30,
1998 and October 30, 1998 (the "INDENTURE"), providing for the issuance of
$85,000,000 of the Company's 10-1/8% Senior Subordinated Notes due June 15,
2007 (the "NOTES"); and
WHEREAS, the Company and the holders of Notes have agreed to make
certain amendments to the Indenture as set forth herein;
NOW, THEREFORE, each party agrees as follows for the benefit of each
other and for the equal ratable benefit of the holders of the Notes:
1. CHANGE OF CONTROL. The definitions of "Change of Control" and
"Principals" in the Indenture shall be amended to read in their entirety as
follows:
"Change of Control" means the occurrence of any of
the following: (i) the sale, lease, transfer, conveyance or
other disposition, in one or a series of related transactions,
of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole, to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act), (ii)
unless clause (iv) is applicable, any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act), other than
the Principals or their Related Parties, becoming the
beneficial owner (as determined by Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly, of more than
40% of the Voting Stock of the Company (measured by voting
power rather than number of shares), (iii) the first day on
which a majority of the members of the Board of Directors of
the Company are not Continuing Directors or (iv) (A) any
transaction (including one or a series or related
transactions),
<PAGE>
including, without limitation, a merger, consolidation,
recapitalization, exchange or reclassification,
the consummation of which would result in the shareholders of
the Company immediately before the occurrence of such
transaction owning, in the aggregate, less than 50% of the
Voting Stock of the surviving entity immediately following the
occurrence of such transaction and (B) on or after the date of
any transaction described in clause (A), any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act), other
than the Principals or their Related Parties, becoming the
beneficial owner (as determined by Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly, of more than
10% of the Voting Stock of the Company (measured by voting
power rather than number of shares).
"Principals" means Gooding, DLJMB Funding II, Inc.,
DLJ Merchant Banking Partners II, L.P., DLJ Diversified
Partners, L.P., UK Investment Plan 1997 Partners, DLJ First
ESC L.P., DLJ Offshore Partners II, C.V., DLJ EAB Partners,
L.P., DLJ Millennium Partners, L.P., DLJ Merchant Banking
Partners II- A, L.P., DLJ Diversified Partners-A, L.P., DLJ
Millennium Partners-A, L.P., Green Equity Investors II, L.P.,
Albrecht Wandel, Renate Wandel, Burkhard Goltermann, Frank
Goltermann, Ulrike Goltermann, Roberta Agosto Goltermann,
Peter Wagner, Yokogawa Electric Corporation, Schroder UK
Venture Fund III and Hannover Finanz W&G
Beteiligungsgessellschaft mbH.
2. INCURRENCE OF INDEBTEDNESS. The first paragraph of
Section 4.09 of the Indenture shall be amended by inserting before the phrase
"if the Fixed Charge Coverage Ratio" in the seventh line the following phase:
, and the Foreign Subsidiaries may incur Indebtedness
(including Acquired Debt) in an aggregate principal amount not
to exceed $40,000,000 less any amounts incurred pursuant to
paragraphs (iii) or (iv) below.
3. FOREIGN SUBSIDIARIES. Section 4.14 of the Indenture shall be
amended to read in its entirety as follows:
100% of the Capital Stock of all Foreign Subsidiaries
must be owned directly or indirectly by the Company.
4. CONFIRMATION OF INDENTURE. The Indenture, as supplemented
by this Third Supplemental Indenture, is in all respects ratified and
confirmed, and the Indenture, this Third Supplemental Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.
5. CONCERNING THE TRUSTEE. The Trustee assumes no duties,
responsibilities or liabilities by reason of this Third Supplemental Indenture
other than as set
-2-
<PAGE>
forth in the Indenture and, in carrying out its responsibilities hereunder,
shall have all of the rights, protections and immunities which it possesses
under the Indenture.
6. GOVERNING LAW. This Third Supplemental Indenture shall be
governed by and construed in accordance with the law of the State of New York.
7. COUNTERPARTS. This Third Supplemental Indenture may be
executed in any number of counterparts each of which shall be an original,
but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed as of the day and year first above
written.
WAVETEK WANDEL GOLTERMANN, INC.
By:_/s/ Vickie Capps________________________
Name: Vickie Capps
Title: Senior Vice President - Finance
Attest:
_/s/ Terence J. Gooding_____
Name: Terence J. Gooding
Title: Co-Chairman
THE BANK OF NEW YORK
By:_/s/ Thomas C. Knight______________
Name: Thomas C. Knight
Title: Assistant Vice President
-3-
<PAGE>
EXHIBIT 10.2
EXECUTION COPY
AMENDMENT AGREEMENT
to a
DEM 280,000,000
FACILITIES AGREEMENT
in relation to a
MULTI-CURRENCY REVOLVING CREDIT FACILITY
and
BILATERAL ANCILLARY FACILITIES
dated 23 December 1998
between
WAVETEK WANDEL GOLTERMANN, INC.
as Borrower
and
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
as Guarantor
and
COMERZBANK AKTIENGESELLSCHAFT
and
DEUTSCHE BANK AG
as Joint-Arrangers
and
COMMERZBANK INTERNATIONAL S.A.
as Agent
and
OTHERS
<PAGE>
2
THIS AMENDMENT AGREEMENT is made the 28th day of May, 1999
BETWEEN
(1) WAVETEK WANDEL GOLTERMANN, INC., a Delaware Corporation, Research Triangle
Park, North Carolina, USA as borrower (hereinafter referred to as the
"BORROWER"),
(2) WANDEL & GOLTERMANN TECHNOLOGIES, INC., a North Carolina Corporation,
Research Triangle Park, North Carolina, USA as guarantor (hereinafter
referred to as the "GUARANTOR"),
(3) COMMERZBANK INTERNATIONAL S.A. as Agent for the Banks (hereinafter referred
to as the "AGENT"),
(4) THE BANKS named in the First Schedule of the Agreement (hereinafter
referred to as the "BANKS" and each individually as a "BANK"),
(5) DEUTSCHE BANK AG, REUTLINGEN BRANCH as additional party under the Ancillary
Facilities to be made between Deutsche Bank AG, Reutlingen Branch and the
Borrower in accordance with the Agreement (hereinafter referred to as the
"ADDITIONAL LENDER").
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Agreement
"AGREEMENT" means the Facilities Agreement in relation to a Multi-Currency
Revolving Credit Facility and Bilateral Ancillary Facilities dated 23
December 1998 between the Borrower, the Guarantor, the Arrangers, the Agent
and Others.
"AMENDMENT AGREEMENT" means this Agreement.
"EFFECTIVE DATE" means the date on which the Agent confirms to the Banks
and the Borrower that it has received each of the documents listed in
Schedule A (CONDITION PRECEDENT DOCUMENTS) in form and substance
satisfactory to the Agent.
1.2 INCORPORATION OF DEFINED TERMS
Terms defined in the Agreement shall, unless otherwise defined herein, have
the same meaning herein and the principles of construction set out in the
Agreement shall have effect as if they were set out in full in this
Amendment Agreement.
1.3 CLAUSES
In this Amendment Agreement any reference to a "Clause" or "Schedule" is,
unless the context otherwise requires, a reference to a Clause or a
Schedule hereof. Clause headings are for ease of reference only.
<PAGE>
3
2. AMENDMENT OF THE AGREEMENT
With effect from the Effective Date the Agreement shall be amended in
accordance with this Amendment Agreement so that it shall be read and
construed for all purposes together with this Amendment Agreement as one
document.
3. AMENDMENTS
3.1 FINANCIAL COVENANT
Clause 20 (A) (2) of the Agreement shall be deleted and the following
provision shall be inserted as a new paragraph (A) (2) of this Clause 20.
"the Interest Coverage Ratio (to be tested on a Rolling Basis) in respect
of any Relevant Period calculated shall be not less than 1.7:1 for testing
at June 30, 1999 and thereafter not less than 2.0:1 for the fiscal year
ended September 30, 1999 and thereafter for testing at December 31, 1999
and thereafter not less than 2.1:1 for testing at March 31, 2000 and
thereafter not less than 2.3:1 for testing at June 30, 2000 and thereafter
not less than 2.5:1 for the fiscal year ended September 30, 2000 and
thereafter."
3.2 UTILISATION FEE AND PAYMENT
Clause 22 shall be amended by adding a new subparagraph (C) which shall
read as follows.
"For the period beginning at June 1, 1999 and ending September 30, 1999,
the Borrower shall pay a utilisation fee to the Agent for account of the
Banks (to be distributed by the Agent to the Banks pro rata according to
their commitments) of 0.6 per cent. of the average utilisation calculated
on a daily basis of the Facilities (for the avoidance of doubt including
the Ancillary Facilities) during the period. For this purpose each Bank
will make available the relevant data relating to the Ancillary Facilities
to the Agent not later than 5 Business Days after the end of such period.
The Borrower shall pay the utilisation fee on the earlier of (i) the date
which falls two Business Days after the Borrower has received the net
proceeds out of any events referred to in Clause 9 (D), first sentence and
(ii) the Final Maturity Date."
3.3 REPAYMENT AND PREPAYMENT
Clause 9 (D) of the Agreement shall be deleted and the following provision
shall be inserted as a new paragraph (D) of this Clause 9.
"To the extent the Revolving Loan exceeds the amount of DM 95,000,000 (the
"EXCEEDING AMOUNT") the Borrower shall apply any net proceeds (to the
extent such net proceeds are not to be applied towards the payment of the
utilisation fee pursuant to Clause 22 (C)) from any monies raised by the
Group in the national or international equity or capital markets (via an
IPO, a private equity placement, a public or private
<PAGE>
4
bond offering or otherwise) to prepay the Exceeding Amount. Any such
amounts to be applied towards the prepayment of the Revolving Loan shall
be paid to the Agent and the Agent shall deposit such amounts on behalf
of the Banks in an interest bearing account and shall (save to the
provisions of Article 10) be applied (including accrued interest thereon)
on the last day of the then relevant current Interest Period towards the
prepayment of any outstanding Advances PRO RATA."
4. REPRESENTATIONS
Each of the Obligors repeats the representations set out in Clause 18
(REPRESENTATIONS AND WARRANTIES) of the Agreement as if each reference
therein to "this Agreement" or "the Facility Documents" includes a
reference to this Amendment Agreement.
5. CONTINUITY AND FURTHER ASSURANCE
5.1 CONTINUING OBLIGATIONS
The provisions of the Agreement shall, save as amended hereby, continue in
full force and effect.
5.2 FURTHER ASSURANCE
Each of the Borrower and the Guarantor shall, at the request of the Agent
and at its own expense, do all such acts and things necessary or desirable
to give effect to the amendments effected or to be effected pursuant to
this Amendment Agreement.
6. FEES, COSTS AND EXPENSES
6.1 TRANSACTION EXPENSES
Each Obligor shall, on demand of the Agent, reimburse the Agent and the
Banks for all reasonable costs and expenses (including internal legal fees)
together with any VAT or similar tax thereon incurred by or in connection
with the negotiation, preparation and execution of this Amendment Agreement
and the completion of the transactions herein contemplated.
6.2 PRESERVATION AND ENFORCEMENT OF RIGHTS
The Obligors shall, from time to time on demand of the Agent, reimburse the
Agent and the Banks for all costs and expenses (including legal fees) on a
full indemnity basis together with any VAT or similar tax thereon incurred
by or in connection with the preservation and/or the enforcement of any of
the rights of the Agent and/or the Banks under this Amendment Agreement and
any other document referred to in this Amendment Agreement.
6.3 STAMP TAX
The Obligors shall pay all stamp, registration and other taxes to which
this Amendment Agreement, any other document referred to in this Amendment
Agreement or any judgement given in connection herewith is or at any time
may be subject and shall, from time to time on demand of the Agent,
indemnify the Agent and/or the Banks against any liabilities, costs, claims
and expenses resulting from any failure to pay or any delay in paying any
such tax.
<PAGE>
5
7. MISCELLANEOUS
7.1 INCORPORATION OF TERMS
The provisions of Clause 27 (PARTIAL INVALIDITY) and Clause 28 (AMENDMENTS
AND WAIVERS) of the Agreement shall be incorporated into this Amendment
Agreement as if set out in full herein and as if references therein to
"this Agreement" or "the Facility Documents" were references to this
Amendment Agreement.
7.2 COUNTERPARTS
This Amendment Agreement may be executed in any number of counterparts,
each of which shall constitute an original.
AS WITNESS the hands of duly authorised representatives of the parties hereto
the day and year first before written.
<PAGE>
6
SCHEDULE A
CONDITION PRECEDENT DOCUMENTS
1. In relation to each of the Obligors:
An Officer's Certificate executed by duly authorised officers of such
Obligor
(a) confirming that there have been no changes to the documents set out in
Section I (CORPORATE DOCUMENTS/AUTHORIZATIONS) and Section IV (OTHER
DOCUMENTS) of The Second Schedule to the Agreement provided by such
Obligor on or about 23 December 1998 in accordance with Clause 4
(Conditions Precedent, Notice of Borrowing and Determination of
Tranche B) thereof; and
(b) setting out the names and signatures of the persons authorised to sign
on behalf of such Obligor this Amendment Agreement and to sign or
dispatch all documents and notices to be signed and/or dispatched by
it under or in connection with this Amendment Agreement.
2. A legal opinion in form and substance satisfactory to the Agent of
(a) Sullivan & Cromwell relating to the Borrower confirming in particular
(i) that the Borrower has duly authorised, executed and delivered the
Amendment Agreement and that such action does not violate the laws of
the United States of America and the relevant States and (ii) there is
nothing in such laws pursuant to which the Amendment Agreement would
not constitute valid and binding obligations of the Borrower; and
(b) Moore van Allen relating to the Guarantor confirming in particular (i)
that the Guarantor has duly authorised, executed and delivered the
Amendment Agreement and that such action does not violate the laws of
the United Stated of America and the relevant States and (ii) there is
nothing in such laws pursuant to which the Amendment Agreement would
not constitute valid and binding obligations of the Guarantor.
<PAGE>
7
THE BORROWER
WAVETEK WANDEL GOLTERMANN, INC.
1030 Swabia Court
Research Triangle Park
North Carolina
USA
Tel.: 001 919 9415740
Fax: 001 919 9419361
By:
THE GUARANTOR
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
1030 Swabia Court
Research Triangle Park
North Carolina
USA
Tel.: 001 919 9415730
Fax: 001 919 9415751
By:
THE AGENT
COMMERZBANK INTERNATIONAL S.A.
11 Rue Notre Dame
L-2240 Luxembourg
Tel.: 00352 477911-1
Fax: 00352 477911-386
By:
<PAGE>
8
THE BANKS
COMMERZBANK AKTIENGESELLSCHAFT, REUTLINGEN BRANCH
Unter den Linden 1
D-72762 Reutlingen
Tel.: 0049 7121 304-0
Fax: 0049 7121 304-182
By:
DEUTSCHE BANK LUXEMBOURG S.A.
2, boulevard Konrad Adenauer
L-1115 Luxembourg
Tel.: 00352 42122-331 or -292
Fax: 00352 42122-287
By:
BADEN WURTTEMBERGISCHE BANK AG, REUTLINGEN BRANCH
Marktplatz 9
D-72764 Reutlingen
Tel.: 0049 7121 3195-50
Fax: 0049 7121 3195-93
By:
LANDESBANK BADEN-WURTTEMBERG
Kronenstrasse 20
D-70173 Stuttgart
Tel.: 0049 711 129-2693
Fax: 0049 711 129-3996
By:
<PAGE>
9
THE ADDITIONAL LENDER
DEUTSCHE BANK AG, REUTLINGEN BRANCH
Kaiserpassage 1
D-72764 Reutlingen
Tel.: 0049 7121 335-100
Fax: 0049 7121 335-112
By:
For the purpose of the Protocol annexed to the Convention on Jurisdiction and
the Enforcement in Civil and Commercial Matters signed in Brussels on 27
September 1968 (as amended) we hereby expressly and specially confirm our
agreement with the provisions of Article 33 (B) of the Facilities Agreement
which provides for our submission to the non-exclusive jurisdiction of the
Regional Court (LANDGERICHT) in Frankfurt am Main.
COMMERZBANK INTERNATIONAL S.A.
By:
DEUTSCHE BANK LUXEMBOURG S.A.
By:
<PAGE>
EXHIBIT 12.1
SCHEDULE RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------- --------
1999 1998 1999 1998
------- -------- ---------- --------
<S> <C> <C> <C> <C>
Income (loss) before provision for income taxes and minority
interest in income (loss)................................. $(6,333) $ 3,332 $ (18,424) $ 6,350
Interest expense............................................. 4,949 1,654 15,384 6,015
Interest portion of rental expense........................... 927 487 2,483 1,461
------- -------- ---------- --------
Earnings..................................................... $ (457) $ 5,473 $ (557) $ 13,826
------- -------- ---------- --------
------- -------- ---------- --------
Interest expense............................................. $ 4,949 $ 1,654 $ 15,384 $ 6,015
Interest portion of rental expense........................... 927 487 2,483 1,461
------- -------- ---------- --------
Fixed charges................................................ $ 5,876 $ 2,141 $ 17,867 $ 7,476
------- -------- ---------- --------
------- -------- ---------- --------
Ratio of earnings to fixed charges........................... (0.1)x 2.6x 0.0x 1.8x
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,393
<SECURITIES> 0
<RECEIVABLES> 86,704
<ALLOWANCES> 3,851
<INVENTORY> 63,178
<CURRENT-ASSETS> 200,901
<PP&E> 154,314
<DEPRECIATION> 94,233
<TOTAL-ASSETS> 434,622
<CURRENT-LIABILITIES> 127,522
<BONDS> 225,288
0
0
<COMMON> 132
<OTHER-SE> 72,948
<TOTAL-LIABILITY-AND-EQUITY> 434,622
<SALES> 353,501
<TOTAL-REVENUES> 353,501
<CGS> 146,453
<TOTAL-COSTS> 355,835
<OTHER-EXPENSES> 1,236
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,854
<INCOME-PRETAX> (18,424)
<INCOME-TAX> (11,791)
<INCOME-CONTINUING> (6,633)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,633)
<EPS-BASIC> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
