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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______________ to ________________
Commission file number ___________
WESTERN MULTIPLEX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-2198231
(State of Incorporation) (I.R.S. Employer
Identification No.)
1196 Borregas Avenue
Sunnyvale, California 94089
(408) 542-5200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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 [ ]
The number of shares outstanding of the registrant's Class A common stock as of
November 13, 2000 was 55,564,419.
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TABLE OF CONTENTS
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<CAPTION>
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Condensed Balance Sheets at September 29, 2000 (unaudited) and December 31, 1999 1
Condensed Income Statements for the three and nine months ended September 29, 2
2000 (unaudited) and September 30, 1999 (unaudited)
Condensed Statements of Cash Flows for the nine months ended September 29, 2000 3
(unaudited) and September 30, 1999 (unaudited)
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 9
Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
Exhibit Index 19
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTERN MULTIPLEX CORPORATION
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 29, December 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................... $ 59,364 $ 1,913
Accounts receivable, net........................................................... 26,022 8,830
Inventory.......................................................................... 11,495 5,543
Prepaid expenses and other......................................................... 1,703 301
Deferred tax assets................................................................ 1,057 1,057
-------- --------
Total current assets............................................................. 99,641 17,644
Equipment and leasehold improvements, net............................................ 4,093 2,496
Deferred tax assets.................................................................. 3,447 3,882
Deferred financing costs............................................................. - 748
Other long-term assets............................................................... 2,500 -
Goodwill and other intangible assets, net............................................ 23,641 18,552
-------- --------
Total assets..................................................................... $133,322 $ 43,322
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit........................................................... $ - $ 2,000
Long-term debt--current portion.................................................... - 2,847
Accounts payable................................................................... 8,924 3,059
Accrued liabilities................................................................ 6,660 3,848
Payable to parent company.......................................................... 106 1,409
-------- --------
Total current liabilities........................................................ 15,690 13,163
Long-term liabilities................................................................ 38 19,153
-------- --------
Total liabilities................................................................ 15,728 32,316
-------- --------
Stockholders' equity:
Common stock....................................................................... 975 800
Paid-in capital.................................................................... 141,466 31,433
Treasury stock..................................................................... (21,000) (21,000)
Deferred stock compensation........................................................ (5,469) -
Retained earnings (deficit)........................................................ 2,777 (227)
Employee stock subscription receivable............................................. (1,155) -
-------- --------
Total stockholders' equity....................................................... 117,594 11,006
-------- --------
Total liabilities and stockholders' equity....................................... $133,322 $ 43,322
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
1
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WESTERN MULTIPLEX CORPORATION
CONDENSED INCOME STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue.............................................. $ 29,909 $ 11,835 $ 67,873 $ 29,133
Cost of revenue...................................... 14,775 5,376 31,840 14,828
----------- ----------- ----------- -----------
Gross profit.................................. 15,134 6,459 36,033 14,305
----------- ----------- ----------- -----------
Operating expenses:
Research and development......................... 3,298 1,703 8,067 4,331
Sales and marketing.............................. 4,767 1,478 10,518 4,088
General and administrative....................... 1,545 498 4,097 1,390
Amortization of goodwill......................... 722 186 1,660 548
Amortization of deferred stock compensation...... 946 - 2,914 -
----------- ----------- ----------- -----------
Total operating expenses....................... 11,278 3,865 27,256 10,357
----------- ----------- ----------- -----------
Income from operations......................... 3,856 2,594 8,777 3,948
Interest income (expense)............................ 258 - (966) -
----------- ----------- ----------- -----------
Income before taxes............................ 4,114 2,594 7,811 3,948
Income tax provision................................. 2,030 1,121 4,413 1,635
----------- ----------- ----------- -----------
Income before extraordinary item............... 2,084 1,473 3,398 2,313
----------- ----------- ----------- -----------
Loss on early extinguishment of debt,
net of income tax benefit.......................... 394 - 394 -
----------- ----------- ----------- -----------
Net income..................................... $ 1,690 $ 1,473 $ 3,004 $ 2,313
=========== =========== =========== ===========
Basic earnings per share............................. $ .03 $ .02 $.07 $.03
=========== =========== =========== ===========
Diluted earnings per share........................... $ .03 $ .02 $.06 $.03
=========== =========== =========== ===========
Shares used to compute basic earnings per share...... 49,707,477 80,000,000 44,225,561 80,000,000
=========== =========== =========== ===========
Shares used to compute diluted earnings per
Share.............................................. 54,946,756 80,000,000 50,015,671 80,000,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
2
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WESTERN MULTIPLEX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 29, September 30,
2000 1999
---- ----
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Cash flows from operating activities:
Net income...................................................... $ 3,004 $ 2,313
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................ 5,390 981
Deferred financing costs amortization........................ 748 -
Provision for bad debt....................................... 149 -
Deferred taxes............................................... 435 (648)
Assets and liabilities:
Accounts receivable....................................... (17,341) (1,523)
Inventory................................................. (5,952) 2,492
Prepaid expenses and other................................ (1,402) (218)
Other long-term assets.................................... (2,500) -
Accounts payable and accrued liabilities.................. 8,677 (394)
Payable to parent company................................. (1,303) 3,686
Other long-term obligations............................... 38 (164)
-------- -------
Net cash provided by (used in)
operating activities................................. (10,057) 6,525
-------- -------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements............... (2,310) (544)
-------- -------
Net cash used in investing activities.................. (2,310) (544)
-------- -------
Cash flows from financing activities:
Net proceeds from issuance of shares............................ 94,973 -
Repayment of long-term debt.................................... (22,000) -
Borrowings on line of credit.................................... (2,000) -
Net cash transfers to Glenayre.................................. - (6,088)
Employee subscription receivable................................ (1,155) -
-------- -------
Net cash provided by (used in) financing
activities........................................... 69,818 (6,088)
-------- -------
Net increase (decrease) in cash................................... 57,451 (107)
Cash, beginning of period......................................... 1,913 1,377
-------- -------
Cash, end of period............................................... $ 59,364 $ 1,270
======== =======
Supplemental Disclosures:
Cash paid during the year for:
Interest..................................................... $ 1,514 $ -
======== =======
Income taxes................................................. $ 5,710 $ 65
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
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WESTERN MULTIPLEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Operations of the Company
Western Multiplex Corporation (the "Company") was founded in 1979 in
Sunnyvale, California. In 1992, the Company launched the Lynx broadband wireless
access systems, which are primarily used by wireless operators to connect their
base stations to other base stations and to existing wire line networks. In
1999, the Company introduced the Tsunami broadband wireless access systems,
which are primarily used by service providers, businesses and other enterprises
to expand or establish private networks carrying Internet traffic among multiple
facilities.
The Company was acquired by GTI Acquisition Corporation ("GTI") in 1995, a
wholly-owned subsidiary of Glenayre Technologies Inc. ("Glenayre").
Effective November 1, 1999, a recapitalization of the Company was executed
that included the following transactions, in accordance with the terms of the
Amended and Restated Acquisition Agreement by and among GTI Acquisition Corp.,
Glenayre, the Company and WMC Holding Corp. dated September 30, 1999 (the
"Agreement"):
. The Company borrowed $22.0 million under two term loan arrangements and
drew down $2.0 million on a $10.0 million revolving credit facility with
Credit Suisse First Boston.
. The Company redeemed 42 million shares of Class B common stock from GTI
for $21.0 million of the 80 million then outstanding shares.
. WMC Holding Corp. ("Purchaser") acquired approximately 36 million shares
of Class B common stock from GTI, or approximately 94.6% of the
remaining outstanding shares of the Company, for approximately $16.5
million.
. The Company incurred approximately $0.8 million in financing costs that
were capitalized and $3.1 million in transaction costs related to the
equity transactions that were classified as recapitalization costs in
the income statement for 1999.
On March 24, 2000, the Company acquired Ubiquity Communication, Inc.
("Ubiquity"), located in Petaluma, California. Ubiquity was a development stage
company, which designs and develops point-to-multipoint broadband wireless
systems. The Company issued 692,772 shares of Class A common stock in the
acquisition and reserved 137,727 shares for issuance upon the exercise of the
Ubiquity options assumed. The acquisition was accounted for as a purchase
transaction. The total purchase price was valued at $6.4 million. Purchased
intangibles and goodwill related to the acquisition totaled approximately $6.8
million and is being amortized on a straight-line basis over the estimated
useful life of three years. The Company subsequently granted to certain Ubiquity
employees an additional 350,000 options at an exercise price of $.50 under the
Western Multiplex Corporation 1999 Stock Incentive Plan. Additionally, certain
Ubiquity employees purchased 300,000 shares of WMC Holding Corp.
On August 4, 2000, the Company completed its initial public offering of
7,500,000 shares of Class A common stock at a public offering price of $12.00
per share. On August 31, 2000, the underwriters exercised their option to
purchase 1,125,000 additional shares of Class A common stock to cover over-
allotments. The initial public offering and subsequent exercise of 1,125,000
shares by the underwriters resulted in net proceeds to the Company of
approximately $91.3 million after payment of the underwriter's commission and
deduction of offering expenses. Simultaneously with the closing of the initial
public offering, all of the Company's then outstanding 38,000,000 shares of
Class B treasury stock and 42,000,000 shares of Class B stock were automatically
converted into 38,000,000 shares of Class A common stock and 42,000,000 shares
of Class A treasury stock, respectively.
In August 2000, the Company used a portion of the net proceeds from the
initial public offering to repay outstanding indebtedness. The Company made the
mandatory prepayment of its term notes to Credit Suisse First Boston and also
repaid all borrowings outstanding under the revolving credit facility. The
total repayment including accrued interest was $28.9 million. In connection
with the prepayment of its term notes, the Company wrote off deferred financing
costs of $394,000, net of income taxes, and recorded an extraordinary loss on
early extinguishment of debt.
4
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2. Basis of Presentation
In the opinion of management, the unaudited interim condensed financial
statements furnished in this report reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
of operations for the interim periods covered and of the Company's financial
position as of the interim balance sheet date. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
year. These condensed financial statements should be read in conjunction with
the Company's audited financial statements and the accompanying notes for the
year ended December 31, 1999 included in the Company's Registration Statement on
Form S-1, filed with the Securities and Exchange Commission. The condensed
balance sheet at December 31, 1999 is derived from audited financial statements
as of that date.
3. Summary of Significant Accounting Policies
Inventory
Inventory is stated at the lower of cost (first-in, first-out), consisting
of materials, labor and overhead or market and consists of the following (in
thousands):
<TABLE>
<CAPTION>
September 29, December 31,
2000 1999
---- ----
(unaudited)
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Raw materials................... $ 3,250 $1,327
Work-in-process................. 2,635 2,079
Finished goods.................. 5,610 2,137
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$11,495 $5,543
======= ======
</TABLE>
Goodwill and Other Intangible Assets
Goodwill represents the excess of cost over the fair market value of net
assets acquired. Goodwill pushed down from the 1995 acquisition of the Company
by GTI totals $22.0 million. This goodwill is being amortized on a straight-line
basis over its estimated useful life of 30 years, or $0.7 million per year.
Goodwill and other intangible assets related to the acquisition of Ubiquity (see
Note 1) total $6.8 million. Of the $6.8 million, $6.5 million has been allocated
to goodwill and $300,000 has been allocated to the patents acquired in the
transaction. These intangibles are related to the acquisition and are being
amortized on a straight-line basis over their estimated useful lives of three
years. The carrying amount of goodwill would be reviewed if facts and
circumstances suggest that it may be impaired. If the review indicates that
goodwill would not be recoverable, as determined based on the expected future
undiscounted cash flows of the Company over the remaining amortization period,
the carrying amount of the goodwill would be reduced by the estimated shortfall.
The Company has recorded no such write-downs of goodwill in any of the periods
presented.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers. The
Company is organized and operates as one operating segment: providing wireless
access products. Revenues by geographic area are attributed to the country from
which the sale is made. To date, all of the Company's transactions have
originated in one geographic location, the United States, even though many of
the Company's customers may operate in foreign as well as domestic markets.
Major Customers
Two customers accounted for 22.4% and 12.8% of total revenue for the third
quarter of 2000, and two customers accounted for 20.0% and 15.4% for the third
quarter of 1999. One customer accounted for 20.5% and 16.1% of total revenue
for the nine months ended September 29, 2000 and September 30, 1999,
respectively.
5
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Earnings Per Share of Common Stock
Basic and diluted net income per share are presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128). Basic earnings per share under SFAS 128 were computed using the
weighted average number of shares outstanding of 49,707,477 and 44,225,561 for
the three and nine months ended September 29, 2000, respectively, and 80,000,000
for the three and nine months ended September 30, 1999. Diluted earnings per
share is determined in the same manner as basic earnings per share except that
the number of shares is increased assuming dilutive stock options and warrants
using the treasury stock method. Diluted earnings per share were computed using
the weighted average number of shares outstanding of 54,946,756 and 50,015,671
for the three and nine months ended September 29, 2000, respectively. For the
three and nine months ended September 30, 1999, the treasury stock method
resulted in no dilutive securities and, accordingly, basic and dilutive earnings
per share were the same.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133), which establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. To date, the Company has not entered into any derivative
financial instrument contracts. Thus, the Company anticipates that SFAS No. 133
will not have a material impact on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition. SAB No. 101 provides guidance
on applying generally accepted accounting principles to revenue recognition in
financial statements. We believe that our current accounting policies are in
accordance with SAB No. 101.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation--an interpretation of APB No. 25. Interpretation No. 44 is
effective July 1, 2000. Interpretation No. 44 clarifies the application of APB
No. 25 for various issues, including:
. the definition of an employee;
. the criteria for determining whether a plan qualifies as a non-
compensatory plan; the accounting consequences of various
modifications to the terms of a previously fixed stock option or
award; and
. the accounting for an exchange of stock compensation awards in a
business combination.
Starting July 1, 2000, the Company adopted Interpretation No. 44, the
adoption of which did not result in a material impact on our financial position
or the results of the Company's operations through September 29, 2000.
4. Long-Term Debt
On November 1, 1999, the Company entered into a credit agreement with
Credit Suisse First Boston, as agent. The credit agreement included two term
notes and a $10 million revolving credit facility maturing in 2002. The Company
may prepay the term notes at any time upon adequate notice to the lender. The
term notes also call for mandatory prepayments in the event of an initial public
offering of the Company. In August 2000, subsequent to the Company having
completed its initial public offering, the Company repaid the term notes and all
borrowings outstanding under the revolving credit facility (see Note 1). The
total repayment including accrued interest was $28.9 million.
5. Commitment and Contingencies
In September 2000, the Company entered into a new noncancellable operating
lease agreement expiring in December 2010. As of September 29, 2000, no rent
expense for this operating lease had been incurred. Future minimum lease
payments under this operating lease agreement as of September 29, 2000 are
summarized as follows (in thousands):
6
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<TABLE>
<S> <C>
2000.................................................... $ 224
2001.................................................... 2,697
2002.................................................... 2,805
2003.................................................... 2,917
2004.................................................... 3,034
Thereafter.............................................. 20,596
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$32,272
=======
</TABLE>
In connection with this lease, the Company issued 25,000 warrants to the
lessor in November 2000. Each new warrant is convertible into one share of
Class A common stock of the Company at an exercise price of $14.01 per share.
These warrants are exercisable during the period beginning on December 1, 2000
and ending on December 1, 2005. The Company will estimate the fair value of the
warrants using the Black-Scholes option valuation model and will record
compensation expense accordingly throughout the life of the lease.
6. Income Taxes
The effective income tax rates were 49.3% and 43.2% for the three months
ended September 29, 2000 and September 30, 1999, respectively, and 56.5% and
41.4% for the nine months ended September 29, 2000 and September 30, 1999,
respectively. For the three and nine months ended September 29, 2000 and
September 30, 1999, the provision for income taxes differs from the amounts
which would result by applying the applicable Federal statutory income tax rate
to income before taxes by increases in taxes primarily resulting from
nondeductible amortization of deferred stock compensation of $946,000 and $2.9
million, respectively.
7. Stockholders' Equity
Common Stock
The Company's common stock consists of Class A and Class B common stock.
Holders of Class A common stock are entitled to one vote per share. Holders of
Class B common stock are entitled to ten votes per share. Each share of Class B
common stock is convertible into one share of Class A common stock at the
election of the shareholder or automatically in the event of an initial public
offering of the Company.
In conjunction with the recapitalization transaction discussed in Note 1,
the Company repurchased 42,000,000 shares of Class B common stock for $21.0
million from Glenayre and held these shares as treasury stock.
Simultaneously with the closing of the Company's initial public offering as
discussed in Note 1, all of the Company's then outstanding 38,000,000 shares of
Class B common stock and 42,000,000 shares of Class B treasury stock were
automatically converted into 38,000,000 shares of Class A common stock and
42,000,000 shares of Class A treasury stock, respectively. As of September 29,
2000, there were 55,529,123 shares of Class A common stock issued and
outstanding and 42,000,000 shares of Class A treasury stock.
Warrants
In connection with the recapitalization of the Company as discussed in
Note 1, the Company issued 4,370,000 warrants to a holding company, owned by the
Chief Executive Officer of the Company, and a trust, of which a director of the
Company is trustee and beneficiary. Each new warrant is convertible into one
share of Class A common stock of the Company at an exercise price of $.50 per
share. These warrants expire on the tenth anniversary from date of issuance. As
of September 29, 2000, all of the 4,370,000 warrants had been exercised.
1999 Stock Incentive Plan
In November 1999, the Company adopted the Western Multiplex Corporation
1999 Stock Incentive Plan (the "1999 Plan") for key employees, officers,
directors, and consultants. The Company has reserved for issuance 10,500,000
shares of Class A common stock under the 1999 Plan. The type of awards that may
be made under the 1999 Plan are incentive stock options, non-qualified options,
stock appreciation rights, and other stock-based awards.
7
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The exercise price for stock options may not be less than 100% of the fair
market value of the Company's common stock on the date of the grant (110% for
any option granted to any stockholder who owns more than 10% of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporation), as determined by the Compensation Committee. An option
may not vest at less than 20% per year over five years, as determined by the
Compensation Committee.
During 1999, the Company granted 3,372,000 options to employees at an
exercise price of $0.50 per share of which none were exercised.
During the first nine months of 2000, the Company granted 2,716,500 options
under the 1999 Plan at an exercise price ranging from $0.50 to $21.44.
As of September 29, 2000, 766,500 of the options granted under the 1999
Plan have vested.
Ubiquity Communication Plan
In connection with our organization of Ubiquity Communication, Inc. on
March 24, 2000, the Company assumed the obligations under Ubiquity
Communication's equity incentive plans. As a result, all options granted under
the Ubiquity Communication equity incentive plans became options to purchase
shares of the Company's common stock. As of September 29, 2000, the Company had
granted 137,727 options under the Ubiquity plans at an exercise price ranging
from $1.67 to $3.20 of which 63,277 have vested and none have been exercised.
Employee Stock Purchase Plan
In June 2000, the Company adopted the Western Multiplex Corporation
Employee Stock Purchase Plan, which is intended to qualify as an employee stock
purchase plan under Section 423 of the Internal Revenue Code of 1986. The
Company has initially reserved for issuance under the plan 1,000,000 shares. An
annual increase in shares reserved will occur on the first day of each of the
Company's fiscal years beginning in 2001, 2002, 2003, 2004 and 2005 as defined
in the plan.
In August 2000, subsequent to the completion of the initial public
offering, the Company began to administer the plan by enrolling participants in
the plan and processing payroll deductions. The first day of the offering
period was July 31, 2000.
2000 Stock Option Plan for Non-Employee Directors
In June 2000, the Company adopted the Western Multiplex Corporation 2000
Stock Option Plan for Non-Employee Directors. The Company has reserved for
issuance a maximum of 1,500,000 shares of common stock pursuant to the grant of
non-qualified stock options to newly elected members of the board of directors
who are not employees of our Company.
The exercise price of any option granted under this plan is the per share
fair market value of our common stock on the date the option is granted except
with respect to the initial grants made as of June 8, 2000 for which the
exercise price is $8.50. An individual who becomes a director will receive an
initial grant of an option to purchase 100,000 shares of our common stock, which
option will be immediately vested upon grant as to one-third of the shares
subject to the option. The option will then become vested as to one-third of
the shares on each of the first and second anniversaries of the date of the
initial grant, so long as the director continues to serve on our board of
directors on each vesting date. In addition, so long as a director continues to
serve on our board of directors, the director will, as of the third anniversary
of the date of the initial grant and triennially thereafter, receive an
additional option to purchase 15,000 shares, the terms of which will be the same
as those described above.
As of September 29, 2000, we had granted options for the purchase of
400,000 shares of our common stock under the Stock Option Plan for Non-Employee
Directors, of which 133,332 have vested and none have been exercised.
Stock Sales
During the three months ended March 31, 2000, certain Western Multiplex
employees and consultants entered into co-investment agreements with WMC Holding
Corp. Under the co-investment agreements, 3,830,351 shares were purchased of WMC
Holding at $0.50 per share and WMC Holding used the proceeds to purchase
3,830,351 shares of Class A common stock of
8
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the Company at $0.50 per share. In connection with the stock sales, the Company
granted subscription loans to a few employees. As a result, the Company had
$1.2 million of employee subscription receivable outstanding as of September 29,
2000.
Deferred Stock Compensation
In connection with the grant of certain stock options and sales of certain
stock to employees and directors during fiscal 2000, the Company recorded
deferred stock compensation within stockholders' equity of $8.1 million,
representing the difference between the estimated fair value of the common stock
for accounting purposes and the option exercise price of these options at the
date of grant or the stock sale price at the date of sale. Such amount is
presented as a reduction of stockholders' equity. The portion of deferred stock
compensation associated with the stock options will be amortized over the
vesting period of the applicable options using an accelerated method of
amortization. Under the accelerated method, each vested tranche of options is
accounted for as a separate option grant awarded for past services. Accordingly,
the compensation expense is recognized over the period during which the services
will be provided; however, the method results in a front-loading of the
compensation expense. For the portion of deferred stock compensation associated
with stock sales, the Company records the expense over the period the shares are
vested under the accelerated method. The Company recorded amortization of
deferred compensation of $946,000 and $2.9 million for the three and nine months
ended September 29, 2000, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contain forward-looking statements, which reflect our
current views with respect to future events and future financial performance.
These forward-looking statements are subject to certain risks and uncertainties.
Actual results may differ materially from those described in such forward-
looking statements or from historical results. Readers are cautioned not to
place undue reliance on these forward-looking statements.
The following discussion should be read together with our financial
statements, notes to those financial statements included elsewhere in this Form
10-Q, and Management's Discussion and Analysis of Financial Condition and
Results of Operations in our Registration Statement on Form S-1 declared
effective on July 31, 2000 by the Securities and Exchange Commission.
Overview
We were founded in 1979 in Sunnyvale, California as a vendor of radio
components and related services. In 1992, we changed our strategy, became a
designer and manufacturer of broadband wireless systems and launched our Lynx
broadband wireless systems. These point-to-point systems are primarily used by
wireless operators to connect their base stations to other base stations and to
existing wire line networks. In 1999, we introduced our Tsunami point-to-point
broadband wireless systems, which primarily enable service providers, businesses
and other enterprises to expand or establish private networks by bridging
Internet traffic among multiple facilities. Based on our core technologies and
the technology acquired through our purchase of Ubiquity Communication, Inc. in
March 2000, we are currently developing point-to-multipoint systems that will
enable service providers, businesses and other enterprises to connect multiple
facilities within a geographic area to a central hub.
On August 4, 2000, the Company completed its initial public offering of
7,500,000 shares of Class A common stock at a public offering price of $12.00
per share. On August 31, 2000, the underwriters exercised their option to
purchase 1,125,000 additional shares of Class A common stock to cover over-
allotments. The initial public offering and subsequent exercise of 1,125,000
shares by the underwriters resulted in net proceeds to the Company of
approximately $91.5 million after payment of the underwriter's commission and
deduction of offering expenses. Simultaneously with the closing of the initial
public offering, all of the Company's then outstanding 38,000,000 shares of
Class B common stock and 42,000,000 shares of Class B treasury stock were
automatically converted into 38,000,000 shares of Class A common stock and
42,000,000 shares of Class A treasury stock, respectively.
In August 2000, the Company used a portion of the net proceeds from the
initial public offering to repay outstanding indebtedness. The Company made the
mandatory prepayment of its term notes to Credit Suisse First Boston and also
repaid all borrowings outstanding under the revolving credit facility. The
total repayment including accrued interest was $28.9 million. In connection
with the prepayment of its term notes, the Company wrote off deferred financing
costs of $394,000, net of income
9
<PAGE>
taxes, and recorded an extraordinary loss on early extinguishment of debt.
Revenue. We primarily generate revenue from the sale of our Lynx and
Tsunami systems. We introduced the Tsunami product line at the end of the
fourth quarter of 1999. While our Tsunami products and Lynx products have
similar pricing for comparable models, our Lynx product line contributes the
largest part of our revenue. Our Ubiquity systems are still under development
and we expect to begin offering these systems for sale in 2001. We also
generate a small percentage of our revenue from the sale of services and parts
and rentals of our systems. We recognize revenue from the sale of our systems
and parts when all the following conditions are met: the system or part has been
shipped, we have the right to invoice the customer, the collection of the
receivable is probable, and we have no significant obligations remaining.
Revenue from services is recognized over the period for which the services are
performed, which is less than one month. Revenue from product rentals is
recognized over the period of the rental.
The majority of our direct sales are currently to wireless operators, and
we believe that the majority of the products that we sell through distributors
and value-added resellers are eventually sold to wireless operators.
We sell our products worldwide to service providers, businesses and other
enterprises directly through our sales force and indirectly through distributors
and value-added resellers. Our sales force focuses on key strategic accounts and
also develops relationships with end-users that purchase through distributors
and value-added resellers. Distributors sell our products, and value-added
resellers not only sell our products, but also assist end-users in network
design, installation and testing. We also market our products through strategic
relationships we have with systems integrators, which design and install
networks that incorporate our systems. Any significant decline in direct sales
to end-users or in sales to our distributors or value-added resellers, or the
loss of any of our distributors, or value-added resellers could materially
adversely affect our revenue.
For the nine months ended September 29, 2000 and September 30, 1999,
international sales as a percentage of total sales accounted for approximately
35% and 23%, respectively. We expect international sales to increase in the
future. Currently, all of our sales are denominated in U.S. dollars.
Accordingly, we are not exposed to currency exchange risks other than the risk
that exchange rate fluctuations may make our products more expensive for
customers outside the United States and, as a result, could decrease
international sales. In addition, we face risks inherent in conducting global
business. These risks include extended collection time for receivables, reduced
ability to enforce obligations and reduced protection for our intellectual
property.
As we have increased sales through our distributors and value-added
resellers, we have experienced a decline in the average selling price of our
products. This is because the prices of the products that we sell indirectly
through distributors and value-added resellers are lower than the prices of the
products we sell directly through our sales force to end-users. We have also
lowered our prices for older products as we introduce additional products that
provide faster data rates. These newer products have higher prices than our
older products. Our international sales also have lower average selling prices
when compared to our United States and Canadian sales. This is primarily due to
our reliance on distributors and value-added resellers for international sales,
and also because our lower speed products, with significantly lower prices, are
being sold in larger quantities internationally than domestically. As indirect
sales and sales in our international markets increase, we expect that our
average selling prices will further decrease.
Cost of revenue. Cost of revenue consists primarily of outsourced
manufacturing costs, component costs, labor and overhead costs, costs of
acquiring finished parts from original equipment manufacturers, customer service
and accrued warranty costs. We currently outsource the majority of our
manufacturing and supply chain management to a limited number of independent
contract manufacturers, who obtain components for our products from suppliers.
Accordingly, a significant portion of our cost of revenue consists of payments
to these contract manufacturers and component suppliers. The remainder of our
cost of revenue is related to our in-house manufacturing operations, which
consist primarily of quality control, final assembly, testing and product
integration. We expect to realize lower per unit product costs as we continue to
outsource more of our in-house manufacturing. However, we cannot assure you when
or if cost reductions will occur. The failure to achieve these cost reductions
could materially adversely affect our gross margins and operating results.
Gross profit. Our gross profit is affected by both the average selling
prices of our systems and our cost of revenue. Historically, decreases in our
average selling prices have generally been offset by reductions in our per unit
product cost. We cannot assure you, however, that we will achieve any
reductions in per unit product cost in the future or that any reductions will
offset a reduction in our average selling prices.
Research and development. Research and development expenses consist
primarily of salaries and related personnel expenses, prototype development
expenses, consultant fees and allocated overhead related to the design,
development, testing and enhancement of our products and underlying
technologies. We expense all research and development expenses as incurred. We
10
<PAGE>
expect to increase our research and development expenses as we continue to
develop new products and improve our core technologies. In particular, we
expect research and development expenses to increase in connection with our
acquisition of Ubiquity Communication Inc. and our development of point-to-
multipoint broadband wireless access systems.
Sales and marketing. Sales and marketing expenses consist of salaries,
commissions and related expenses for personnel engaged in sales, product
marketing, sales support functions, advertising, trade show and other
promotional expenses and allocated overhead. We intend to increase our sales and
marketing expenditures as we add sales and marketing personnel, increase the
number of distributors and value-added resellers that sell our products and
increase marketing programs. In particular, we expect sales and marketing
expenses to increase as we substantially expand our sales operations to support
and develop leads for our distributors and value-added resellers.
General and administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and
administrative personnel, professional fees, other general corporate expenses
and allocated overhead. We expect general and administrative expenses to
increase as we add personnel, increase spending on our information systems and
incur additional costs related to the growth of our business and operation as a
public company.
Stock option programs. We have implemented stock option programs for
employees and members of our board of directors to attract and retain business
and technical personnel. During the nine months ended September 29, 2000, we
recorded deferred stock compensation for the difference between the exercise
price and the deemed fair value of our common stock on the date the stock
options were granted. This amount is included as a reduction of stockholders'
equity and is being amortized by charges to operations over the vesting period.
The amortization expense relates to options awarded to employees in all
operating expense categories.
Acquisition of Ubiquity Communication, Inc.
On March 24, 2000, we acquired Ubiquity Communication, Inc., located in
Petaluma, California. Through the acquisition, we acquired technology that will
enable us to develop our point-to-multipoint systems. At the time of the
acquisition, Ubiquity Communication had seven employees, including six
engineers. In connection with our acquisition of Ubiquity Communication, we
issued 692,772 shares of our Class A common stock to its former owners and
reserved 137,727 shares of our Class A common stock for issuance upon the
exercise of the Ubiquity Communication options we assumed. We believe the value
of the consideration paid for the acquisition of Ubiquity Communication was $6.4
million. We accounted for the transaction using the purchase method of
accounting. Accordingly, we have recorded purchased intangibles and goodwill of
$6.8 million to be amortized over three years. We intend to treat the
acquisition of Ubiquity Communication as a tax-free reorganization.
Recapitalization
On November 1, 1999, Ripplewood Partners, L.P. and affiliates acquired
94.6% of our capital stock from Glenayre Technologies, Inc. through a wholly-
owned subsidiary, WMC Holding Corp., in a transaction accounted for as a
recapitalization. Prior to the recapitalization, we were an indirect wholly-
owned subsidiary of Glenayre Technologies, Inc., which had previously acquired
us in 1995. As part of Glenayre's acquisition of us, Glenayre recognized $21.6
million of goodwill, amortized over a 30-year useful life. This goodwill amount
is reflected on our historical financial statements. As of December 31, 1999,
there was $18.6 million to be amortized over the remaining 25-year term.
We intend to treat the recapitalization as an asset acquisition for federal
income tax purposes. As a result, we recorded a deferred tax asset in the amount
of $3.9 million which will offset future tax liabilities during the next 15
years, assuming that we have sufficient income to realize the full benefit of
this deduction.
11
<PAGE>
Results of Operations
The following table provides results of operations data as a percentage of
revenue for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................................. 49.4 45.4 46.9 50.9
----- ----- ----- -----
Gross profit................................................ 50.6 54.6 53.1 49.1
Operating expenses:
Research and development.................................. 11.0 14.4 11.9 14.9
Sales and marketing....................................... 15.9 12.5 15.5 14.0
General and administrative................................ 5.2 4.2 6.1 4.8
Amortization of goodwill.................................. 2.4 1.6 2.4 1.9
Amortization of deferred stock compensation............... 3.2 - 4.3 -
----- ----- ----- -----
Total operating expenses............................... 37.7 32.7 40.2 35.6
----- ----- ----- -----
Income from operations...................................... 12.9 21.9 12.9 13.5
Interest income (expense), net.............................. 0.9 - (1.4) -
----- ----- ----- -----
Income before taxes......................................... 13.8 21.9 11.5 13.5
Income tax provision........................................ 6.8 9.5 6.5 5.6
----- ----- ----- -----
Income before extraordinary item............................ 7.0 12.4 5.0 7.9
Loss on early extinguishment of debt
net of income tax benefit................................. 1.3 -- 0.6 -
----- ----- ----- -----
Net income.................................................. 5.7 12.4 4.4 7.9
===== ===== ===== =====
</TABLE>
Comparison of Three and Nine Months Ended September 29, 2000 and September 30,
1999
Revenue. Revenue increased 152.7% from $11.8 million in the third quarter
of 1999 to $29.9 million in the third quarter of 2000. Revenue increased
primarily due to a 153.4% increase in the volume of products shipped in the
third quarter of 2000 as compared to the third quarter of 1999, combined with an
increase of 1.3% in average selling price of our products in the third quarter
of 2000 as compared to the third quarter of 1999. Somera Communications Inc.
and Avant Telecoms, Inc., two of our distributors, accounted for 22.4% and
12.8%, respectively, of total revenue in the third quarter of 2000 and 20.0% and
15.4%, respectively, of total revenue in the third quarter of 1999.
Revenue increased 133.0% from $29.1 million in the nine months ended
September 29, 2000 to $67.9 million in the nine months ended September 30, 1999.
Revenue increased primarily due to a 132.0% increase in the volume of products
shipped in the nine months ended September 29, 2000 as compared to the nine
months ended September 30, 1999, combined with an increase of 2.3% in average
selling price of our products in the nine months ended September 29, 2000 as
compared to the nine months ended September 30, 1999. Somera Communications
Inc. accounted for 20.5% and 16.0% of total revenue for the nine months ended
September 29, 2000 and September 30, 1999, respectively.
Cost of revenue. Cost of revenue increased 174.8% from $5.4 million in the
third quarter of 1999 to $14.8 million in the third quarter of 2000. As a
percentage of revenue, cost of revenue increased from 45.4% in the third quarter
of 1999 to 49.4% in the third quarter of 2000. Cost of revenue increased 114.7%
from $14.8 million in the nine months ended September 30, 1999 to $31.8 million
in the nine months ended September 29, 2000. As a percentage of revenue, cost
of revenue decreased from 50.9% in the nine months ended September 30, 1999 to
46.9% in the nine months ended September 29, 2000. The increase in cost of
revenue for both comparable periods was primarily attributable to increased
sales. The increase in cost of revenue as a percentage of sales from the third
quarter of 1999 to the third quarter of 2000 was attributable to the higher
volume of lower speed, lower margin products sold in the third quarter of 2000
compared to a higher volume of higher speed, higher margin products sold in the
third quarter of 1999. The decrease in cost of revenue as a percentage of
revenue from the nine months ended September 30, 1999 to the nine months ended
September 29, 2000 was primarily due to lower costs of components and increased
reliance on outsourced manufacturing, which has lower costs relative to our in-
house manufacturing.
Research and development. Research and development expenses increased
93.7% from $1.7 million in the third quarter of 1999 to $3.3 million in the
third quarter of 2000. Research and development expenses increased 86.3% from
$4.3 million in the nine months ended September 30, 1999 to $8.1 million in the
nine months ended September 29, 2000. The increase in research and development
expenses for both comparable periods was primarily attributable to the cost of
increased personnel and prototype spending for the development of new products
and enhancements to existing products. As a percentage of revenue, research and
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<PAGE>
development expenses decreased from 14.4% in the third quarter of 1999 to 11.0%
in the third quarter of 2000. As a percentage of revenue, research and
development expenses decreased from 14.9% in the nine months ended September 30,
1999 to 11.9% in the nine months ended September 29, 2000.
Sales and marketing. Sales and marketing expenses increased 222.5% from
$1.5 million in the third quarter of 1999 to $4.8 million in the third quarter
of 2000. Sales and marketing expenses increased 157.3% from $4.1 million in the
nine months ended September 30, 1999 to $10.5 million in the nine months ended
September 29, 2000. The increase in sales and marketing expenses for both
comparable periods is primarily attributable to increased sales and marketing
personnel, advertising, tradeshow, and public relations expenses. As a
percentage of revenue, sales and marketing expenses increased from 12.5% in the
third quarter of 1999 to 15.9% in the third quarter of 2000. As a percentage of
revenue, sales and marketing expenses increased from 14.0% for the nine months
ended September 30, 1999 to 15.5% for the nine months ended September 29, 2000.
General and administrative. General and administrative expenses increased
210.2% from $498,000 in the third quarter of 1999 to $1.5 million in the third
quarter of 2000. General and administrative expenses increased 194.8% from $1.4
million in the nine months ended September 30, 1999 to $4.1 million in the nine
months ended September 29, 2000. The increase in general and administrative
expenses for both comparable periods is primarily due to increased personnel and
consulting expenses. As a percentage of revenue, general and administrative
expenses increased from 4.2% in the third quarter of 1999 to 5.2% in the third
quarter of 2000. As a percentage of revenue, general and administrative
expenses increased from 4.8% in the nine months ended September 30, 1999 to 6.0%
in the nine months ended September 29, 2000.
Amortization of goodwill. Amortization of goodwill increased from $186,000
in the third quarter of 1999 to $722,000 in the third quarter of 2000.
Amortization of goodwill increased from $548,000 in the nine months ended
September 30, 1999 to $1.7 million in the nine months ended September 29, 2000.
The increase in amortization of goodwill for both comparable periods is
attributable to goodwill and other intangible assets related to the Ubiquity
acquisition in March 2000.
Amortization of deferred stock compensation. Amortization of deferred
stock compensation was $946,000 in the third quarter of 2000 and $2.9 million
for the nine months ended September 30, 2000 in each case is a result of the
sale of stock and issuance of options at prices deemed to be below fair market
value.
Other income (expense), net. Other income (expense), net increased from $0
in the third quarter of 1999 to $258,000 in the third quarter of 2000. Other
income (expense), net decreased from $0 in the nine months ended September 30,
1999 to $(966,000) in the nine months ended September 29, 2000. The increase in
other income (expense) from the third quarter of 1999 to the third quarter of
2000 was attributable to interest income earned on our money market account.
The decrease in other income (expenses), net from the nine months ended
September 30, 1999 to the nine months ended September 29, 2000 was attributable
to the interest expense related to our debt.
Income tax provision. The income tax provision increased from $1.1 million
in the third quarter of 1999 to $2.0 million in the third quarter of 2000. Our
effective tax rate increased from 43.2% in the third quarter of 1999 to 49.3% in
the third quarter of 2000. The income tax provision increased from $1.6 million
in the nine months ended September 30, 1999 to $4.4 million in the nine months
ended September 29, 2000. Our effective tax rate increased from 41.4% in the
nine months ended September 30, 1999 to 56.5% in the nine months ended September
29, 2000. The increase in the effective tax rate for both comparable periods is
primarily attributable to increases in non-deductible expenses arising from the
amortization of deferred stock compensation in the third quarter and in the nine
months ended September 29, 2000.
Liquidity and Capital Resources
As discussed in the Overview above, the Company had net proceeds of
approximately $91.3 million from the initial public offering and in August 2000
used $28.9 million of the net proceeds to repay outstanding indebtedness under
its term notes along with the outstanding borrowings under its revolving credit
facility. In September 2000, the Company used $2.5 million of the net proceeds
to pay a security deposit and $224,000 to prepay rent in connection with a new
noncancellable operating lease. In addition, during August and September 2000,
the Company also used approximately $2.5 million to finance its operations and
working capital requirements.
As of the date of this Form 10-Q, we have not allocated the remaining net
proceeds of the offering for specific uses. We expect to use the remainder of
the net proceeds of the offering primarily for general corporate purposes,
including working capital, expansion of our engineering organization, product
development programs, sales and marketing capabilities, and general
administrative functions and capital expenditures. We may also use a portion of
the net proceeds to acquire complementary businesses, products and technologies
or to establish joint ventures that we believe will complement our current or
future business.
13
<PAGE>
However, we have no specific plans, agreements or commitments.
We have not identified the specific use of the remainder of the net
proceeds due to the flexible nature of our planning process. The amounts that we
actually expend for general corporate and other purposes will vary significantly
depending on a number of factors, including future sales growth and the amount
of cash we generate from operations, if any. Pending the use of the proceeds
described above, we will invest the remainder of the net proceeds in short-term,
interest-bearing, investment-grade securities.
Prior to our initial public offering, we had financed our operations and
working capital requirements primarily through cash generated by our business
and bank financing.
Cash increased by $57.5 million from $1.9 million at December 31, 1999 to
$59.4 million at September 29, 2000. Cash decreased by $107,000 from $1.4
million at December 31, 1998 to $1.3 million at September 30, 1999. Net cash
used in operating activities was $11.0 million in the nine months ended
September 29, 2000, and net cash provided by operating activities was $6.5
million in the nine months ended September 30, 1999.
Net cash used in investing activities increased from $544,000 in the nine
months ended September 29, 2000 to $2.3 million in the nine months ended
September 30, 1999 due to increases in capital spending.
Net cash provided by financing activities was $70.8 million in the nine
months ended September 29, 2000 resulting from net proceeds from issuance of
shares, repayment of debt and issuance of stock subscription loans to employees.
Net cash used in financing activities in the nine months ended September 30,
1999 was $6.1 million representing distributions to Glenayre.
We believe that the net proceeds from the public offering after repayment
of outstanding debt and our available borrowings will be sufficient to finance
our working capital and capital expenditure requirements for at least the next
12 months. Our management intends to invest any cash in excess of current
operating requirements in short-term, interest-bearing investment-grade
securities. Our future capital requirements will depend upon many factors,
including management of working capital, the success of marketing, sales and
distribution efforts, the timing of research and product development efforts and
expansion of our marketing efforts.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133), which establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. We do not have any derivative instruments or hedging activities.
In December 1999, the Commission issued Staff Accounting Bulletin No. 101,
Revenue Recognition. SAB No. 101 provides guidance on applying generally
accepted accounting principles to revenue recognition in financial statements.
We believe that our current accounting policies are in accordance with SAB No.
101.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation--an interpretation of APB No. 25. Interpretation No. 44 is
effective July 1, 2000. Interpretation No. 44 clarifies the application of APB
No. 25 for various issues, including:
. the definition of an employee;
. the criteria for determining whether a plan qualifies as a non-
compensatory plan;
. the accounting consequence of various modifications to the terms of a
previously fixed stock option or award; and
. the accounting for an exchange of stock compensation awards in a
business combination.
Starting July 1, 2000, we adopted Interpretation No. 44, the adoption of
which did not result in a material impact on our financial position or the
results of our operations through the date of this Form 10-Q.
14
<PAGE>
Seasonality
Historically, our revenues have been stronger in the last two quarters of
the fiscal year. This shift may primarily be attributed to the budgetary
constraints of the customers in our industry and weather conditions, which make
an outdoor installation more difficult during the winter. However, going
forward, we believe the impact of seasonal fluctuations on our business will
decrease because demand for our products is increasing at a rate that outpaces
any budget restrictions our customers may have. Moreover, our expansion into
international markets may minimize the impact that weather conditions may have
on our overall sales.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to the Company's investment portfolio. We place our investments with high
credit quality issuers and, by policy, limit the amount of the credit exposure
to any one issuer. Our general policy is to limit the risk of principal loss
and ensure the safety of invested funds by limiting market and credit risk.
Currently, all sales to international customers are denominated in U.S.
dollars and, accordingly, we are not currently exposed to foreign currency
exchange rate risks other than the risk that conversion to U.S. dollars at a
high cost may cause some customers to search for a lower priced competitive
product.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
From July 1, 2000 through September 29, 2000, the Registrant has issued and
sold the following unregistered securities:
1. On September 22, 2000, the Registrant issued and sold 1,778,400
shares of its Class A common stock to Seaview Holdings L.L.C. for an
aggregate price of $889,200 upon the exercise of warrants held by Seaview
Holdings.
2. On September 25, 2000, the Registrant issued and sold 881,600
shares of its Class A common stock to The Michael and Roberta Seedman
Revocable Trust for an aggregate price of $440,800 upon the exercise of
warrants held by such Trust.
There were no underwriters employed in connection with any of the issuances
set forth above and no payment of any selling commission was made to any person
in connection with such issuances.
All the issuances set forth above were private placements, did not involve
public solicitation and were issued pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
Use of Proceeds from Registered Offerings
On July 31, 2000, the Securities and Exchange Commission declared effective
a Form S-1 Registration Statement (File No. 333-35200) filed by the Registrant
in connection with an initial public offering of an aggregate of 8,625,000
shares of its Class A common stock. Such offering commenced on July 31, 2000
and closed on August 4, 2000 (with respect to 7,500,000 shares) and on August
31, 2000 (with respect to 1,125,000 shares as a result of the over-allotment
option exercised by the underwriters), with all of the 8,625,000 shares sold at
a price of $12.00 per share for an aggregate price of $103.5 million. The
Registrant sold all shares; there were no selling stockholders. Salomon Smith
Barney Inc., Lehman Brothers Inc. and CIBC World Markets Corp. were co-managers
of the offering.
The gross proceeds of the offering were $103.5 million. The Registrant
incurred approximately $12.2 million of expenses in connection with the
offering, of which approximately $7.2 million represented underwriting discounts
and commissions and approximately $5.0 million represented offering expenses,
including legal fees, accounting fees and printing expenses.
The Registrant received approximately $91.3 million of net proceeds form
the offering. The net proceeds will be used primarily for general corporate
purposes, including working capital, expansion of the registrant's engineering
organization, product development programs, sales and marketing capabilities,
and general administrative functions and capital expenditures. Pending such
uses, the net proceeds have been invested in short-term, interest-bearing
investment-grade securities. From the time of receipt through November 13,
2000, the Registrant used approximately $28.9 million of the net proceeds to
prepay term loans and repay revolving credit loans under its credit facilities,
$2.5 million of the net proceeds to pay a security deposit, $224,000 of the net
proceeds to prepay rent in connection with a new noncancellable operating lease
as discussed above in Item 1, Note 7 and approximately $2.5 million to finance
its operations and working capital requirements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
b. The Company filed no reports on Form 8-K during the three months ended
September 29, 2000.
17
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 2000 WESTERN MULTIPLEX CORPORATION
By: /s/ Nancy Huber
--------------------------------------------
Nancy Huber
Chief Financial Officer, Vice President,
Finance and Secretary
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
27.1 Financial Data Schedule
19
