<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 December 31, 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 February 14, 2000,
Registrant had only one class of common stock, of which there were 13,308,323
shares outstanding.
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1999 and September 30, 1999
Consolidated Statements of Operations for the Three Months Ended December 31,
1999 and December 31, 1998
Consolidated Statements of Cash Flows for the Three Months Ended December 31, 1999
and December 31, 1998
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
</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>
DECEMBER 31, SEPTEMBER 30,
1999 1999
----------------- ---------------
(unaudited) (note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 13,530 $ 17,089
Accounts receivable (less allowance for doubtful accounts of $4,475 at
December 31, 1999 (unaudited) and $4,608 at September 30, 1999)....... 103,831 102,532
Inventories............................................................. 66,308 62,515
Deferred income taxes................................................... 2,820 8,922
Other current assets.................................................... 12,284 13,636
----------------- ---------------
Total current assets...................................................... 198,773 204,694
Property, plant and equipment, net........................................ 58,075 60,575
Intangible assets, net.................................................... 157,405 162,482
Other non-current assets.................................................. 6,146 6,982
----------------- ---------------
Total assets.............................................................. $ 420,399 $ 434,733
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks.................................................. $ 16,984 $ 17,510
Current portion of long-term obligations................................ 5,689 6,202
Current portion of long-term obligations to related parties............. 10,079 10,721
Trade payables.......................................................... 32,761 31,549
Accrued compensation.................................................... 19,052 26,626
Income taxes payable.................................................... 4,362 4,250
Other current liabilities............................................... 39,046 38,838
----------------- ---------------
Total current liabilities................................................. 127,973 135,696
Long-term obligations, net of current portion............................. 224,233 228,083
Pension liabilities....................................................... 34,552 35,671
Deferred income taxes..................................................... 2,060 7,957
Other non-current liabilities............................................. 9,114 9,389
----------------- ---------------
Total liabilities......................................................... 397,932 416,796
----------------- ---------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01, 50,000 shares authorized, 13,308 shares at
December 31, 1999 and 13,202 shares at September 30, 1999
issued and outstanding................................................ 133 132
Additional paid-in capital.............................................. 73,118 72,948
Accumulated deficit..................................................... (62,406) (65,641)
Other comprehensive income.............................................. 11,622 10,498
----------------- ---------------
Total stockholders' equity................................................ 22,467 17,937
----------------- ---------------
Total liabilities and stockholders' equity................................ $ 420,399 $ 434,733
================= ===============
</TABLE>
Note: The balance sheet at September 30, 1999 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 Notes to Consolidated Financial Statements.
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
DECEMBER 31,
-------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Net sales.................................................. $135,577 $126,465
Cost of goods sold......................................... 52,993 54,635
--------------- ---------------
Gross margin............................................... 82,584 71,830
Operating expenses:
Marketing and selling.................................... 37,068 35,522
Research and development................................. 17,777 17,844
General and administrative............................... 10,637 12,088
Amortization of intangible assets........................ 4,439 4,816
Provisions for restructuring operations and other
non-recurring charges.................................. 369 --
--------------- ---------------
Total operating expenses 70,290 70,270
--------------- ---------------
Operating income........................................... 12,294 1,560
Other (income) expense, net:
Interest income.......................................... (260) (233)
Interest expense......................................... 5,361 5,191
Other, net............................................... 1,312 (239)
--------------- ---------------
Other (income) expense, net 6,413 4,719
--------------- ---------------
Income (loss) before provision (benefit) for income 5,881 (3,159)
taxes..
Provision (benefit) for income taxes....................... 2,646 (2,022)
--------------- ---------------
Net income (loss).......................................... $ 3,235 $ (1,137)
=============== ===============
Basic net income (loss) per share.......................... $ 0.24 $ (0.09)
=============== ===============
Weighted average number of shares outstanding-basic........ 13,264 13,202
=============== ===============
Diluted net income (loss) per share........................ $ 0.24 $ (0.09)
=============== ===============
Weighted average number of shares outstanding-diluted...... 13,482 13,202
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------------
1999 1998
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....................................................... $ 3,235 $ (1,137)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization expense................................. 7,904 8,331
Restructuring and other non-recurring charges......................... 369 --
Deferred income taxes................................................. 248 (4,352)
Changes in operating assets and liabilities:
Accounts receivable................................................. (1,575) 1,232
Inventories......................................................... (4,595) 6,156
Other current assets................................................ 2,652 (2,356)
Accounts payable and accrued expenses............................... (8,156) (21,293)
Income taxes payable, net........................................... 134 2,137
Pension liabilities................................................. (1,356) 2,223
Other, net.......................................................... 3,692 155
------------ -------------
Net cash provided by (used in) operating activities..................... 2,552 (8,904)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment............................... (3,374) (2,709)
------------ -------------
Net cash used in investing activities................................... (3,374) (2,709)
FINANCING ACTIVITIES:
Proceeds from revolving lines of credit and long-term obligations....... 26,079 96,570
Principal payments on revolving lines of credit and long-term obligations (28,400) (103,949)
------------ -------------
Net cash used in financing activities................................... (2,321) (7,379)
Effect of exchange rate changes on cash and cash equivalents............ (416) 18
------------ -------------
Increase (decrease) in cash and cash equivalents........................ (3,559) (18,974)
Cash and cash equivalents at beginning of period........................ 17,089 35,544
------------ -------------
Cash and cash equivalents at end of period.............................. $ 13,530 $ 16,570
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest.................................................. $ 6,270 $ 7,318
============ =============
Cash paid for income taxes.............................................. $ 702 $ 460
============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
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 product 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). These products provide comprehensive testing
solutions to a wide range of end users. The Company's high-end instruments
are used during the product development phase to stress test product
functionality and performance. Other products are used during the production
process to verify conformance to manufacturing specifications, while the
Company's enhanced portable field service tools enable field technicians to
quickly install, repair and maintain complex network infrastructures, as well
as validate service levels. The Company also provides distributed remote test
systems to many of its service provider customers, which allow such customers
to more efficiently utilize their network engineers to monitor and test
service levels. 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, which include the operations
of the Company and its wholly-owned subsidiaries, and the financial information
included herein are unaudited, except for September 30, 1999. 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, 1999. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain items in the prior years have been
reclassified to conform to the current year 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 months ended December 31, 1998, 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 period. 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>
DECEMBER 31, SEPTEMBER 30,
1999 1999
--------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Materials........................................ $ 15,553 $ 13,997
Work-in-progress................................. 16,971 18,172
Finished goods................................... 33,784 30,346
--------------- --------------
$ 66,308 $ 62,515
=============== ==============
</TABLE>
4. OTHER COMPREHENSIVE INCOME (LOSS)
On October 1, 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME, 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 the three months
ended December 31, 1999 and 1998 is comprised solely of foreign currency
translation adjustments.
Comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER
31,
-------------------------------
1999 1998
--------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net income (loss)................................ $ 3,235 $ (1,137)
Foreign currency translation adjustments......... 1,124 (326)
--------------- --------------
Comprehensive income (loss)...................... $ 4,359 $ (1,463)
=============== ==============
</TABLE>
5. SEGMENT INFORMATION
Based on its organizational structure prior to January 2000, the Company
previously operated in two reportable segments: communications test and other
test products. The Company's communications test business includes Telecom
Networks, Enterprise Networks, Multimedia, Wireless and the Service business.
Other test products included Test Tools, Precision Measurement Instruments,
and electromagnetic measurement instruments.
The Company's chief operating decision makers utilize revenue and operating
income (loss) information, as defined below, in assessing performance and making
overall operating decisions and resource allocations.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
7
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Information about the Company's operating segments for the three months ended
December 31, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
COMMUNICATIONS OTHER TEST CORPORATE/
TEST PRODUCTS OTHER TOTAL
----------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
1999........................................... $ 125,975 $ 9,602 $ -- $ 135,577
1998........................................... $ 119,256 $ 7,209 $ -- $ 126,465
OPERATING INCOME (LOSS):
1999 (1)....................................... $ 16,090 $ 1,524 $ (512) $ 17,102
1998 (1)....................................... $ 11,938 $ 722 $ (6,284) $ 6,376
</TABLE>
Information about the Company's operating segments as of December 31, 1999 and
September 30, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
COMMUNICATIONS OTHER TEST CORPORATE/
TEST PRODUCTS OTHER (2) TOTAL
----------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
TOTAL ASSETS:
December 31, 1999.............................. $ 116,599 $ 6,998 $ 296,802 $ 420,399
September 30, 1999............................. $ 129,426 $ 6,749 $ 298,558 $ 434,733
</TABLE>
Notes:
(1) Operating income (loss) on reportable segments is defined by management as
operating income (loss), including intersegment profits, and excluding
amortization of intangible assets and restructuring and other non-recurring
charges.
(2) Corporate/Other assets include purchased intangible assets and investments
in subsidiaries at December 31, 1999 and September 30, 1999 totaling
$231,594 and $237,499, respectively.
6. SUBSEQUENT EVENTS
SALE OF PRECISION MEASUREMENT AND TEST TOOLS DIVISIONS
In January 2000 the Company completed the sale of its precision measurement
and test tools divisions to Fluke Electronics Corporation, a subsidiary of
Danaher Corporation. It was determined that these businesses were not a
strategic fit with the Company's core communications test business. Sales for
the three months ended December 31, 1999 amounted to $8.8 million and fiscal
year 1999 sales totaled $25.8 million. There were no significant gains or
losses realized on the sale of these two divisions.
MERGER WITH DYNATECH CORPORATION
On February 14, 2000, the Company, Dynatech corporation, a Delaware
corporation ("Dynatech"), and DWW Acquisition Corporation, a Delaware
corporation and indirect subsidiary of Dynatech ("Mergerco"), entered into an
Agreement and Plan of Merger pursuant to which Mergerco would merge with the
Company, with the Company as the surviving corporation. The merger is subject
to customary closing conditions, including obtaining applicable competition
law approvals. In the merger, at the election of holders of the Company's
common stock, such holders will be entitled to receive with respect to each
share of common stock of the Company (i) $25.00 or (ii) 4.49 shares of
common stock of Dynatech. The aggregate transaction value is approximately
$600 million, which includes approximately $245 million of the Company's
indebtedness.
The merger will constitute a change in control with respect to the Company's
10.125% Senior Subordinated Notes due June 14, 2007. As a result, the Company
will be obligated to send to the holders of the notes within ten days
following the closing of the merger an offer to purchase the notes at 101% of
their principal amount. Such offer must specify a day not less than 30 and
not more than 60 days from the date the Company's notice is mailed on which
the Company will purchase all notes tendered to the Company.
In connection with the merger, Dynatech intends to enter into a new
multi-currency senior credit facility with a syndicate of banks for an
aggregate principal amount of approximately $860 million including revolver
and term loans, and to sell newly-issued common stock to Clayton, Dubilier &
Rice Fund VI Limited Partnership ("Fund VI"), an affiliate of Dynatech's
controlling stockholder, at a price per share of $4.00. In addition, Dynatech
expects to make a rights offering to the company's other stockholders to
purchase newly issued shares at the same price offered to Fund VI. It is
anticipated that approximately $250 million of new equity will be raised
through the sale of Fund VI, the rights offering and the issuance of Dynatech
common stock in the merger.
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, Wandel & Goltermann ATE Systems, Inc., and
Wavetek U.S. Inc. and its subsidiary, Digital Transport Systems, Inc. are shown
as Subsidiary Guarantors for all periods presented. 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 DECEMBER 31, 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...................... $ (1,582) $ 3,895 $ 11,217 $ -- $ 13,530
Accounts receivable (less allowance for
doubtful accounts of $4,475)................. 43,168 56,098 93,921 (89,356) 103,831
Inventories.................................... - 16,780 53,835 (4,307) 66,308
Deferred income taxes.......................... 561 4,896 (3,135) 498 2,820
Other current assets........................... 27 972 11,285 -- 12,284
----------- ------------ ------------ ------------ ------------
Total current assets.............................. 42,174 82,641 167,123 (93,165) 198,773
Property, plant and equipment, net................ 1,276 7,765 49,034 -- 58,075
Intangible assets, net............................ 5,413 106,916 45,076 -- 157,405
Investment in subsidiaries........................ 173,818 -- -- (173,818) --
Other non-current assets.......................... 6 1,842 4,298 -- 6,146
----------- ------------ ------------ ------------ ------------
Total assets...................................... $ 222,687 $ 199,164 $ 265,531 $ (266,983) $ 420,399
=========== ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks......................... $ -- $ -- $ 16,984 $ -- $ 16,984
Current portion of long-term obligations....... -- 685 5,004 -- 5,689
Current portion of long-term obligations to
related parties.............................. -- -- 10,079 -- 10,079
Trade payables................................. 23,235 24,864 64,783 (80,121) 32,761
Accrued compensation........................... 655 3,877 14,520 -- 19,052
Income taxes payable........................... (21,718) 21,338 4,742 -- 4,362
Other current liabilities...................... 2,065 5,362 31,619 -- 39,046
----------- ------------ ------------ ------------ ------------
Total current liabilities......................... 4,237 56,126 147,731 (80,121) 127,973
Long-term obligations, net of current portion..... 196,493 7,696 29,276 (9,232) 224,233
Pension liabilities............................... -- 544 34,008 -- 34,552
Deferred income taxes............................. (519) 19,746 (17,167) -- 2,060
Other non-current liabilities..................... 9 3,730 5,375 -- 9,114
----------- ------------ ------------ ------------ ------------
Total liabilities................................. 200,220 87,842 199,223 (89,353) 397,932
----------- ------------ ------------ ------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock................................... 133 -- -- -- 133
Additional paid-in capital..................... 73,118 171,121 87,187 (258,308) 73,118
Accumulated deficit............................ (62,406) (59,771) (32,533) 92,304 (62,406)
Other comprehensive income (loss).............. 11,622 (28) 11,654 (11,626) 11,622
----------- ------------ ------------ ------------ ------------
Total stockholders' equity........................ 22,467 111,322 66,308 (177,630) 22,467
----------- ------------ ------------ ------------ ------------
Total liabilities and stockholders' equity........ $ 222,687 $ 199,164 $ 265,531 $ (266,983) $ 420,399
=========== ============ ============ ============ ============
</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, 1999
(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...................... $ 11 $ 4,578 $ 12,500 $ -- $ 17,089
Accounts receivable (less allowance for
doubtful accounts of $4,608)................. 42,956 46,715 87,312 (74,451) 102,532
Inventories.................................... -- 13,884 52,388 (3,757) 62,515
Deferred income taxes.......................... 561 4,482 3,879 -- 8,922
Other current assets........................... 156 1,917 11,563 -- 13,636
----------- ------------ ------------ ------------ ------------
Total current assets.............................. 43,684 71,576 167,642 (78,208) 204,694
Property, plant and equipment, net................ 1,361 8,013 51,201 -- 60,575
Intangible assets, net............................ 5,617 110,170 46,695 -- 162,482
Investment in subsidiaries........................ 167,992 -- -- (167,992) --
Other non-current assets.......................... 6 1,988 4,988 -- 6,982
----------- ------------ ------------ ------------ ------------
Total assets...................................... $ 218,660 $ 191,747 $ 270,526 $ (246,200) $ 434,733
=========== ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................. $ -- $ -- $ 17,510 $ -- $ 17,510
Current portion of long-term obligations ...... -- 685 5,517 -- 6,202
Current portion of long-term obligations to
related parties.............................. -- -- 10,721 -- 10,721
Trade payables................................. 17,236 17,322 61,873 (64,882) 31,549
Accrued compensation........................... 396 6,734 19,496 -- 26,626
Income taxes payable........................... (18,986) 18,978 4,258 -- 4,250
Other current liabilities...................... 4,516 5,786 28,536 -- 38,838
----------- ------------ ------------ ------------ ------------
Total current liabilities......................... 3,162 49,505 147,911 (64,882) 135,696
Long-term obligations, net of current portion..... 198,080 7,784 31,695 (9,476) 228,083
Pension liabilities............................... -- -- 35,671 -- 35,671
Deferred income taxes............................. (519) 19,953 (11,477) -- 7,957
Other non-current liabilities..................... -- 4,088 5,301 -- 9,389
----------- ------------ ------------ ------------ ------------
Total liabilities 200,723 81,330 209,101 (74,358) 416,796
----------- ------------ ------------ ------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock................................... 132 -- -- -- 132
Additional paid-in capital..................... 72,948 171,121 87,187 (258,308) 72,948
Accumulated deficit............................ (65,641) (60,682) (36,282) 96,964 (65,641)
Other comprehensive income (loss).............. 10,498 (22) 10,520 (10,498) 10,498
----------- ------------ ------------ ------------ ------------
Total stockholders' equity........................ 17,937 110,417 61,425 (171,842) 17,937
----------- ------------ ------------ ------------ ------------
Total liabilities and stockholders' equity........ $ 218,660 $ 191,747 $ 270,526 $ (246,200) $ 434,733
=========== ============ ============ ============ ============
</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 DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ -- $ 46,653 $ 108,610 $ (19,686) $ 135,577
Cost of goods sold................................ -- 21,679 50,451 (19,137) 52,993
----------- ------------ ------------ ------------ ------------
Gross margin...................................... -- 24,974 58,159 (549) 82,584
Operating expenses:
Marketing and selling.......................... 531 9,738 26,799 -- 37,068
Research and development....................... -- 5,685 12,092 -- 17,777
General and administrative..................... 289 3,350 6,998 -- 10,637
Amortization of intangible assets.............. (21) 3,087 1,373 -- 4,439
Provisions for restructuring operations and
other non-recurring charges.................. -- 4 365 -- 369
----------- ------------ ------------ ------------ ------------
Total operating expenses.................... 799 21,864 47,627 -- 70,290
----------- ------------ ------------ ------------ ------------
Operating income (loss)........................... (799) 3,110 10,532 (549) 12,294
Other (income) expense, net:
Interest income................................ (517) (25) (235) 517 (260)
Interest expense............................... 3,941 276 1,661 (517) 5,361
Equity in net (income) loss of subsidiaries.... (5,105) -- -- 5,105 --
Other, net..................................... 472 252 588 -- 1,312
----------- ------------ ------------ ------------ ------------
Other (income) expense, net................. (1,209) 503 2,014 5,105 6,413
----------- ------------ ------------ ------------ ------------
Income (loss) before provision (benefit) for
income taxes................................... 410 2,607 8,518 (5,654) 5,881
Provision (benefit) for income taxes.............. (2,825) 1,695 4,772 (996) 2,646
----------- ------------ ------------ ------------ ------------
Net income (loss)................................. $ 3,235 $ 912 $ 3,746 $ (4,658) $ 3,235
=========== ============ ============ ============ ============
</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 DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK
WANDEL
GOLTERMANN, SUBSIDIARY FOREIGN
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ -- $ 38,834 $ 104,481 $ (16,850) $ 126,465
Cost of goods sold................................ 28 20,758 48,707 (14,858) 54,635
----------- ------------ ------------ ------------ ------------
Gross margin...................................... (28) 18,076 55,774 (1,992) 71,830
Operating expenses:
Marketing and selling.......................... 1,025 9,060 25,437 -- 35,522
Research and development....................... -- 5,343 12,501 -- 17,844
General and administrative..................... 1,061 2,989 8,038 -- 12,088
Amortization of intangible assets.............. 36 3,008 1,772 -- 4,816
----------- ------------ ------------ ------------ ------------
Total operating expenses.................... 2,122 20,400 47,748 -- 70,270
----------- ------------ ------------ ------------ ------------
Operating income (loss)........................... (2,150) (2,324) 8,026 (1,992) 1,560
Other (income) expense, net:
Interest income................................ (34) (50) (149) -- (233)
Interest expense............................... 2,869 140 2,182 -- 5,191
Equity in net (income) loss of subsidiaries.... (2,012) -- 1,452 560 --
Other, net..................................... (135) (253) 149 -- (239)
----------- ------------ ------------ ------------ ------------
Other (income) expense, net................. 688 (163) 3,634 560 4,719
----------- ------------ ------------ ------------ ------------
Income (loss) before provision (benefit) for
income taxes................................... (2,838) (2,161) 4,392 (2,552) (3,159)
Provision (benefit) for income taxes.............. (1,701) 231 3,955 (4,507) (2,022)
----------- ------------ ------------ ------------ ------------
Net income (loss)................................. $ (1,137) $ (2,392) $ 437 $ 1,955 $ (1,137)
=========== ============ ============ ============ ============
</TABLE>
12
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 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................................... $ 3,338 $ (1,894) $ 1,108 $ -- $ 2,552
INVESTING ACTIVITIES
Purchase of property and equipment.............. (51) (426) (2,897) -- (3,374)
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities................................... (51) (426) (2,897) -- (3,374)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and
long-term obligations........................ 26,079 -- -- -- 26,079
Principal payments on revolving lines of credit
and long-term obligations.................... (28,400) (62) 62 -- (28,400)
Capital contribution from Wavetek Wandel
Goltermann, Inc. to subsidiary............... -- 650 (650) -- --
Loans to subsidiaries from Wavetek Wandel
Goltermann, Inc.............................. (1,461) -- 1,461 -- --
Repayment of loan from subsidiary to Wavetek
Wandel Goltermann, Inc....................... 297 (26) (271) -- --
Repayment of loans from subsidiaries............ (1,575) 1,575 -- --
Other, net...................................... 180 1,075 (1,255) -- --
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities................................... (4,880) 1,637 922 -- (2,321)
Effect of exchange rate changes on cash and
cash equivalents............................. -- -- (416) -- (416)
----------- ------------ ------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents.................................. (1,593) (683) (1,283) -- (3,559)
Cash and cash equivalents at beginning of
period....................................... 11 4,578 12,500 -- 17,089
----------- ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period...... $ (1,582) $ 3,895 $ 11,217 $ -- $ 13,530
=========== ============ ============ ============ ============
</TABLE>
13
<PAGE>
WAVETEK WANDEL GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 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................................... $ (11,223) $ 4,743 $ (2,424) $ -- $ (8,904)
INVESTING ACTIVITIES
Purchase of property and equipment.............. (455) (637) (1,617) -- (2,709)
Transfer of subsidiaries........................ (28,536) -- 28,536 -- --
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities................................... (28,991) (637) 26,919 -- (2,709)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and
long-term obligations........................ 77,889 1,402 17,279 -- 96,570
Principal payments on revolving lines of credit
and long-term obligations.................... (58,463) (1,775) (43,711) -- (103,949)
Capital contribution from Wavetek Wandel
Goltermann, Inc. to subsidiary............... (2,034) -- 2,034 -- --
Loans to subsidiaries........................... (5,832) (66) 5,898 -- --
Repayment of loans to subsidiaries.............. 28,996 (28,996) -- -- --
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities................................... 40,556 (29,435) (18,500) -- (7,379)
Effect of exchange rate changes on cash and
cash equivalents............................. -- -- 18 -- 18
----------- ------------ ------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 342 (25,329) 6,013 -- (18,974)
Cash and cash equivalents at beginning of
period....................................... 19 31,143 4,382 -- 35,544
----------- ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period...... $ 361 $ 5,814 $ 10,395 $ -- $ 16,570
=========== ============ ============ ============ ============
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements included in Item 1 herein.
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 product 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). These products provide comprehensive testing
solutions to a wide range of end users. The Company's high-end instruments
are used during the product development phase to stress test product
functionality and performance. Other products are used during the production
process to verify conformance to manufacturing specifications, while the
Company's enhanced portable field service tools enable field technicians to
quickly install, repair, and maintain complex network infrastructure, as well
as validate service levels. The Company also provides distributed remote test
systems to many of its service provider customers, which allow such customers
to more efficiently utilize their network engineers to monitor and test
service levels. In addition, the Company provides repair, upgrade, and
calibration services, as well as value-added professional services such as
consulting, training and rental services 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, 3Com, Cisco Systems, Ericsson, IBM, Lucent Technologies,
Motorola, NCR Corporation, Nokia, Nortel and Sicmens, (2) communications
service providers such as AT&T/TCI, Bell South, Continental Cablevision,
Deutsche Telekom Time Warner Cable, and (3) the information service
departments of corporations and governmental entities such as Boeing,
DaimlerChrysler and the U.S. Navy. 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, as well as 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, and its ability to continue to introduce new products that respond
to technological change and market demand in a timely manner.
15
<PAGE>
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
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Sales..................................................... 100.0% 100.0%
Cost of goods sold........................................ 39.1 43.2
------------ ------------
Gross margin.............................................. 60.9 56.8
Operating expenses........................................ 51.8 55.6
------------ ------------
Operating income.......................................... 9.1 1.2
Interest expense, net..................................... 3.8 3.9
Other (income) expense, net.............................. 0.9 (0.2)
------------ ------------
Income (loss) before provision (benefit) for income 4.4 (2.5)
taxes.
Provision (benefit) for income taxes..................... 2.0 (1.6)
------------ ------------
Net income (loss)......................................... 2.4% (0.9)%
============ ============
EBITDA (1)................................................ 15.2% 10.0%
============ ============
</TABLE>
The Company's ratio of earnings to fixed charges was as follows for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Ratio of earnings to fixed charges (2).................. 2.0x 0.5x
</TABLE>
- -----------
(1) EBITDA, as defined in the Indenture related to the Company's 10.125%
Senior Subordinated Notes due June 15, 2007 (the "Indenture"), is
operating income plus depreciation and amortization expense, acquired
in-process research and development and provisions for restructuring
operations and other non-recurring charges. 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 (benefit) 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.
16
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
NET SALES. Net sales in the three months ended December 31, 1999 increased
$9.1 million, or 7.2%, to $135.6 million from $126.5 million in the
comparable fiscal 1999 period. This increase is primarily due to an increase
in CATV product shipments as a result of strong infrastructure investments by
CATV operators and an increase in Transport test product shipments due to new
product features offered to the customer. As a result, there was an increase
in sales to customers in the United States of $7.3 million, or 26.2%, to
$35.1 million while international sales increased $1.8 million, or 1.8%, to
$100.5 million in comparison to the three months ended December 31, 1998. The
Company's sales to customers outside the United States decreased to 74.1% of
total sales in the three months ended December 31, 1999 from 78.0% in the
comparable fiscal 1999 period. Changes in certain foreign exchange rates had
an $8.9 million or 6.6% unfavorable impact on the United States dollar
equivalent of the Company's sales denominated in foreign currencies in the
three months ended December 31, 1999. Sales of the Company's communications
test products in the three months ended December 31, 1999 increased $6.7
million, or 5.6%, from the comparable fiscal 1999 period to $126.0 million
also primarily due to the increase in CATV product shipments and increase in
Transport test product shipments. Sales of the Company's Other Test products
increased $2.4 million, or 33.4%, from the comparable fiscal 1999 period to
$9.6 million.
GROSS MARGIN. The Company's gross margin in the three months ended December
31, 1999 increased $10.8 million, or 15.0%, to $82.6 million from $71.8
million in the comparable fiscal 1999 period primarily due to the impact of
change in product mix. Gross margin as a percentage of sales increased to
60.9% in the three months ended December 31, 1999 from 56.8% in the
comparable fiscal 1999 period. Changes in foreign exchange rates had a $4.8
million or 5.7% unfavorable impact on the United States dollar equivalent of
gross margins related to international sales denominated in foreign
currencies in the three months ended December 31, 1999.
OPERATING EXPENSES. Operating expenses in the three months ended December 31,
1999 remained flat in comparison to the three months ended December 31, 1998.
Operating expenses as a percentage of sales decreased to 51.8% in the three
months ended December 31, 1999 from 55.6% in the comparable fiscal 1999
period. Marketing and selling expenses increased $1.5 million, or 4.4%, to
$37.1 million in the three months ended December 31, 1999 from $35.5 million
in the comparable fiscal 1999 period due primarily to a one-time purchase
price reclassification between operating expense accounts at December 31,
1998 related to the exchange transaction between Wavetek Corporation and
Wandel & Goltermann Management Holding GmbH. General and administrative
expenses decreased $1.5 million, or 12.0%, to $10.6 million in the three
months ended December 31, 1999 from $12.1 million in the comparable fiscal
1999 period due primarily to a one-time purchase price reclassification
between operating expense accounts and non-recurring compensation expenses at
December 31, 1998 related to the exchange transaction between Wavetek
Corporation and Wandel & Goltermann Management Holding GmbH. Changes in
foreign exchange rates had a $1.5 million or 12.4% favorable impact on the
United States dollar equivalent of operating expenses denominated in foreign
currencies in the three months ended December 31, 1999.
OTHER (INCOME) EXPENSE, NET. Other (income) expense, net, in the three months
ended December 31, 1999 increased by $1.7 million over the comparable fiscal
1999 period to $6.4 million. The increase was primarily due to an increase in
foreign currency exchange losses during the three months ended December 31, 1999
from the comparable fiscal 1999 period.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company's effective tax rate decreased
to approximately 45% in the three months ended December 31, 1999, from
approximately 64% in the comparable fiscal 1999 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.
NET INCOME (LOSS). As a result of the above factors, net income (loss) was $3.2
million in the three months ended December 31, 1999 as compared to ($1.1)
million in the comparable fiscal 1999 period.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operating activities of $2.6 million for the
three months ended December 31, 1999 included net income of $3.2 million,
increased by non-cash charges of $7.9 million in depreciation and
amortization expense and $.2 million in deferred income taxes. In addition,
the changes in operating assets and liabilities between the three months
ended December 31, 1999 and the comparable fiscal 1999 period produced a
negative cash flow of $9.2 million. This was primarily due to a decrease in
accounts payable and accrued expenses.
The Company's net cash used in investing activities was $3.4 million for
capital expenditures during the three months ended December 31, 1999. The
Company's net cash used in financing activities was $2.3 million for the
three months ended December 31, 1999, which represented the net effect of
payments on borrowings of $28.4 million and new borrowings of $26.1 million
from its credit agreements and the multicurrency revolving credit facility
and bilateral ancillary facilities.
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 $161.9 million at December
31, 1999, including amounts borrowed for working capital requirements, of
which $17.0 million was classified as short-term. The Company also has
contingent obligations outstanding totaling approximately $7.1 million in the
form of letters of credit and bank guarantees. The Company's total credit
lines provide for total availability of $187.1 million. At December 31, 1999,
the Company had approximately $21.9 million available under these facilities.
The reduction in the funds available of $11.3 million from September 30, 1999
to December 31, 1999 is primarily due to the unfavorable changes in the
foreign exchange rates.
The Company believes that its cash and cash equivalents of $13.5 million,
cash flow from operations, as well as the remaining borrowings under its
existing credit agreements and the multicurrency revolving credit facility
and bilateral ancillary facilities will be sufficient to fund the Company's
debt service obligations and working capital requirements, as well as
implement the Company's growth strategy over the remaining fiscal year.
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 10.125% Senior Subordinated Notes due
June 15, 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
18
<PAGE>
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 believes most of the impact has been
absorbed in the company's pricing and currency policies.
PERIODIC FLUCTUATIONS
The Company's net sales occurred in the following percentages in each of
the last four quarters: 23% for the quarter ended March 31, 1999, 22% for the
quarter ended June 30, 1999, 28% for the quarter ended September 30, 1999 and
27% for the quarter ended December 31, 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.
IMPACT OF YEAR 2000
Many computer programs and applications define the applicable year using two
digits rather than four in order to save memory and enhance the speed of
repeated date-based calculations. The "Year 2000 Issue" refers to the inability
of these computer programs on and after January 1, 2000 to recognize that "00"
refers to "2000" rather than "1900." The term "Year 2000-compliant" means a
computer or a computer system that has been designed or modified to recognize
dates on and after January 1, 2000.
The Company established programs to coordinate its year 2000 ("Y2K")
compliance efforts across all business functions and geographic areas.
Starting in 1995, the Company began to evaluate their internal business and
information systems for Year 2000 compliance. The Company modified or
replaced existing hardware and software to mitigate the Year 2000 Issue and
there was no material impact on or interruption to the operations of the
Company subsequent to January 1, 2000 although certain significant Y2K issue
dates remain to pass, including the leap year date, February 29, 2000.
Since inception of its program through December 31, 1999, the costs related to
the Company's Y2K compliance efforts totaled approximately $2.2 million,
including costs associated with the implementation of certain new core
information systems. 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 were accelerated in order to comply with Year 2000
requirements.
19
<PAGE>
CAUTIONARY STATEMENTS
Certain of the information contained herein may contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995, as the same may be amended from time to time ("the Act") and in
releases made by the Securities and Exchange Commission ("SEC") from time to
time. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors, which may cause the actual results,
performance, or achievements expressed or implied by such forward-looking
statements. The words "estimate", "believes", "project", "intend", "expect"
and similar expressions when used in connection with the Company, are
intended to identify forward-looking statements. Any such forward-looking
statements are based on various factors and derived utilizing numerous
assumptions and other important factors that could cause actual results to
differ materially from those on the forward-looking statements. These
cautionary statements are being made pursuant to the Act, with the intention
of obtaining benefits of the "Safe Harbor" provisions of the Act. The Company
cautions investors that any forward-looking statements made by the Company
are not guarantees of future performance and that actual results may differ
materially from those in the forward-looking statements as a result of
various factors, including but not limited to those set forth below.
Important assumptions and other important factors that could cause actual
results to differ materially from those in the forward-looking statements
include, but are not limited to: (i) risks associated with leverage,
including cost increases due to rising interest rates; (ii) risks associated
with the possibility of the Company not meeting its debt covenant
requirements, including financial covenants, in accordance with various debt
agreements; (iii) risks associated with changes in domestic and/or foreign
laws and regulations, including changes in tax laws, accounting standards,
environmental laws, occupational, health and safety laws; (iv) risks
associated with access to foreign markets together with foreign economic
conditions, including currency fluctuations and trade, monetary and/or tax
policies; (v) uncertainty as to the effect of competition in existing and
potential future lines of business; (vi) economic uncertainty in various
countries throughout the world; (vii) changes in laws and regulations,
including changes in tax rates, accounting standards, environmental laws,
occupational, health and safety laws; (viii) access to foreign markets
together with foreign economic conditions, including currency fluctuations;
and (ix) the effect of, or changes in, general economic conditions. Other
factors and assumptions not identified above may also be involved in the
derivation of forward-looking statements, and the failure of such other
assumptions to be realized, as well as other factors may also cause actual
results to differ materially from those projected. The Company assumes no
obligation to update these forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting such
forward-looking statements.
20
<PAGE>
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 December 31, 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 other revolving bank credit
agreements, capital lease obligations, and notes payable to related parties are
not included in the table. 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
------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL
------------ ------------- ------------- ------------- ------------- ------------- -------------
(US$ EQUIVALENT IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term Obligations:
Fixed Rate (US$)........... $ 685 $ 633 $ 585 $ 541 $ 500 $85,000 $87,944
Average interest rate.... 8.2% 8.2% 8.2% 8.2% 8.2% 10.1% 10.1%
Fixed Rate (DM)............ $ 3,793 $4,004 $ 3,440 $3,390 $2,213 $ 9,801 $26,641
Average interest rate.... 6.0% 5.9% 5.9% 5.9% 5.5% 5.9% 5.9%
Fixed Rate (other)......... $ 305 $ 91 $ 94 $ 66 $ 69 $ 2,001 $ 2,626
Average interest rate.... 9.9% 6.0% 6.0% 6.4% 6.4% 5.5% 6.1%
</TABLE>
The carrying amounts of the Company's debt instruments approximate their fair
values. At December 31, 1999, the Company had interest rate cap agreements,
swap agreements and forward contracts in an aggregate notional amount of
$44.9 million to limit its exposure on interest rate changes related to
certain variable interest rate debt instruments. The carrying values of the
interest rate caps and swaps approximate fair value.
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 (income) expense,
net" in the accompanying consolidated statements of operations. At December 31,
1999, the Company had foreign exchange contracts outstanding in an aggregate
notional amount of $20.4 million. 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 at
December 31, 1999 would have resulted in a loss of $0.9 million. Due to the
volatility of currency exchange rates, these estimated results may or may not be
realized.
21
<PAGE>
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 affect on the
Company's results of operations, financial condition, cash flows or its ability
to develop new products.
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.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Schedule Re: Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule for the three months ended
December 31, 1999
(b) Reports on Form 8-K
None
22
<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.
WAVETEK WANDEL GOLTERMANN, INC.
(Registrant)
/s/KARL-HEINZ EISEMANN
----------------------------------------------------
Karl-Heinz Eisemann
Executive Vice President, Chief Financial Officer,
Treasurer and Secretary (principle financial officer
and principle accounting officer)
Dated: February 14, 2000
<PAGE>
EXHIBIT 12
SCHEDULE RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Income (loss) before provision (benefit) for income taxes.... $ 5,881 $ (3,159)
Interest expense............................................. 5,361 5,191
Interest portion of rental expense........................... 798 1,015
--------------- ---------------
Earnings..................................................... $ 12,040 $ 3,047
=============== ===============
Interest expense............................................. $ 5,361 $ 5,191
Interest portion of rental expense........................... 798 1,015
--------------- ---------------
Fixed charges................................................ $ 6,159 $ 6,206
=============== ===============
Ratio of earnings to fixed charges........................... 2.0x 0.5x
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 13,530
<SECURITIES> 0
<RECEIVABLES> 103,831
<ALLOWANCES> 4,475
<INVENTORY> 66,308
<CURRENT-ASSETS> 198,773
<PP&E> 151,258
<DEPRECIATION> 93,182
<TOTAL-ASSETS> 420,399
<CURRENT-LIABILITIES> 127,973
<BONDS> 224,233
0
0
<COMMON> 133
<OTHER-SE> 73,118
<TOTAL-LIABILITY-AND-EQUITY> 420,399
<SALES> 135,577
<TOTAL-REVENUES> 135,577
<CGS> 52,993
<TOTAL-COSTS> 123,283
<OTHER-EXPENSES> 6,413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,361
<INCOME-PRETAX> 5,881
<INCOME-TAX> 2,646
<INCOME-CONTINUING> 3,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,235
<EPS-BASIC> .24
<EPS-DILUTED> .24
</TABLE>
