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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
for the transition period from __________ to __________
Commission File Number 0-13981
ELECTRONIC TELE-COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1357760
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1915 MacArthur Road Waukesha, Wisconsin 53188
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 542-5600
Securities registered pursuant to section 12(b) of the Act:
None.
Securities registered pursuant to section 12(g) of the Act:
Class A Common Stock, Par Value $.01 per share.
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of March 1, 1996, there were outstanding 2,003,949 shares of Class A common
stock and 500,000 shares of Class B common stock. The Class B common stock is
the only voting stock. 79.5% of the Class B common stock is owned by
affiliates. There is no market for the Class B common stock.
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In this report, Electronic Tele-Communications, Inc. is also referred to as
Electronic Tele-Communications, ETC, and the Company.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV incorporate by reference portions of Electronic
Tele-Communications' 1995 Annual Report to Shareholders. Part IV incorporates
by reference certain exhibits previously filed with Electronic
Tele-Communications' S-1 Registration Statement (No. 2-99175) dated July 24,
1985, and subsequent reports under the Securities Exchange Act of 1934.
PART I
ITEM 1. BUSINESS.
(a) General Development of Business
Electronic Tele-Communications, Inc. is a Wisconsin corporation, incorporated
in 1980. The Company designs, manufactures, programs, markets and leases
digital voice information platforms, call processing systems, and related
computer software and services. ETC is one of the leading domestic
manufacturers of digital voice information systems for the telephone industry.
Substantially all of the Company's products are proprietary and have been
developed since 1980. Research and development activities have been and will
continue to be important to the development of new products and markets.
ETC has executive offices, manufacturing, engineering, technical services,
marketing, and a regional sales office in Waukesha, Wisconsin. In addition,
engineering, technical services, and corporate sales staff are located in
Atlanta, Georgia, and engineering, technical services, repair services, and a
regional sales office are located in Pleasanton, California. ETC also has six
sales representatives in various other locations in the United States.
(b) Financial Information About Industry Segments
Not applicable. The Company operates in one industry segment.
(c) Narrative Description of Business
GENERAL
Electronic Tele-Communications designs, manufactures, markets and leases
digital voice and call processing systems and related software. It also
provides comprehensive services in support of these systems, including
installation, training, 24-hour technical support, voice recording and weather
forecasting. Its equipment, compatible with most telephone systems, provides a
wide range of audio information and call handling capabilities via the
telephone network. The Company's products are utilized by a variety of
customers, including: (1) telephone companies which use the products to provide
information to callers regarding misdialed or changed numbers, sources of
assistance or calling instructions, enhanced services such as call forwarding,
and automated pay phone
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interaction; (2) public and private providers of informational announcements
such as news, sports, weather, time, stock reports, or advertisements; (3)
large and small businesses which use call handling products for applications
such as voice mail, call sequencing and automated attendant; and (4) private
reporting and information services through pay-per-call services, commonly
referred to as "900 Services." The Company's systems are generally priced from
$500 to $200,000.
The Company's products are microprocessor controlled with digital voice
storage. Having no moving parts or audio tape, these systems are not prone to
the deterioration and failure common to electromechanical tape recorder
systems. Digital storage provides for the instant and unlimited playback of
voice messages. Voice recordings are digitized, or encoded as data, and stored
in memory in the Company's equipment. This data may then be decoded and
delivered as voice messages via the telephone network.
The Company's products provide 100% non-blocking operation, so that the caller
always receives the announcement service without any delay, regardless of the
number of telephone lines simultaneously accessing the service. This provides
greater caller acceptance of the service and reduces telephone traffic by
eliminating long waits for announcements and repeated calls to a busy
announcement service.
In addition to an extensive line of standard digital announcer equipment, ETC
designs and manufactures interactive voice platforms which provide callers with
a spoken menu from which to choose informational topics of interest. ETC also
offers voice mail systems that provide prompt telephone answering and
message-taking capabilities, eliminating annoying and time-consuming telephone
tag. Automated attendant products offered by the Company provide cost savings
and increased efficiencies by automatically answering and routing calls,
reducing the personal handling of most calls. The Company also offers call
sequencing products which ensure that calls to heavily-used phone centers are
maintained in the proper order until a service representative is available to
speak with the caller, playing music and informational messages while on hold.
Finally, ETC provides a variety of special function and customized products,
meeting the varied needs of telephone service providers world-wide.
TECHNOLOGY AND PRODUCT DEVELOPMENT
Most of Electronic Tele-Communications' products consist of electronic
components assembled on printed circuit boards and programmed with proprietary
software. The electronic components include computer memory chips,
microprocessors, integrated circuits, resistors, capacitors, transformers, and
switches. The Company's technologies involve the design of electronic systems,
including printed circuit boards and the arrangement of electronic components
thereon, and the development of the application software necessary to access
and control the messages and their formats.
The Company designs printed circuit boards using computer aided design
equipment and software. This equipment permits the design of complex
multi-layered printed circuit boards which not only have wiring on the top and
bottom surfaces, but also incorporate six or more inside layers of circuitry.
Printed circuit boards,
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when equipped with the electronic components required to perform specified
functions, are called cards.
Development of application software to operate the Company's products involves
the formulation of specialized computer programs. The Company's proprietary
software provides the operating equipment with the instructions necessary to
access and control the messages and their format, permit diagnostic tests, and
allow monitoring by reading, translating and acting upon commands and
information. The Company is currently developing most of its own software
programs.
ETC's products employ the concept of distributed processing. This means that
each printed circuit card contains its own microprocessor which controls the
functions of that particular card. When properly configured, these cards form
a network providing a custom designed announcement system. Distributed
processing permits the system to be modularly expanded, allows for a variety of
configurations of the systems, and increases system reliability.
All of ETC's products are equipped with self-diagnostic features that
automatically alert the user to equipment malfunctions or external problems
which must be corrected to maintain proper system operation.
New product and software development and product improvements are significant
to ETC's business. The Company spent approximately $2,533,000, $2,537,000, and
$2,470,000 in 1995, 1994, and 1993, respectively, on research and development
activities, all of which were exclusively Company sponsored and supported.
Electronic Tele-Communications owns some patents, and seeks to obtain
copyright protection on all of its proprietary computer software and printed
material. The Company has registered its corporate logo and the Audichron(R),
Digicept(R), Aris(R), and USA TIME(R) trademarks to protect its products. The
Company believes that its patents, trademarks, and copyrights are a
significant factor in maintaining its market position, but does not believe
that its business is dependent upon any single patent, copyright or trademark.
PRODUCTS
Digital Recorder/Announcers
The basic unit of the Company's Digicept(R) system is the Digicept(R)
recorder/announcer, which stores a single announcement for playback to the
telephone network. The Digicept(R) line also includes the Extended Memory
recorder/announcer and Memory Expansion Card, providing extended-length,
single-channel messages. Calls to the recorder/announcers are generally grouped
through multiple interface circuits, also manufactured by the Company, allowing
simultaneous access to the recorder/announcer by hundreds of phone lines. T1
interfaces are available to connect large recorder/announcer systems directly
to a 24-channel digital T1 network. The Digicept(R) recorder/announcers are
most often found in telephone company central offices, providing informational
announcements regarding incorrectly dialed or changed numbers, telephone
services and weather conditions. These announcers are also used by businesses
to provide information
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on finance, transportation, public service and education. The Aris(R) and
Messenger(TM) 612 single-channel announcers, housed in self-contained packages,
provide similar functionality in a business office environment.
The Company's Digicept(R), Aris(R) and Messenger(TM) product lines include
multi-channel recorder/announcers designed for applications requiring the
simultaneous playback of multiple messages. These multi-channel announcers
provide informational announcements similar to those of the single-channel
recorder/announcers. The Digicept(R) line offers two multi-channel
recorder/announcers, which are typically rack mounted in telephone company
central offices or other large business applications. The Aris(R) and
Messenger(TM) announcers are housed in self-contained packages, ideal for use
in office environments. The Aris(R) line offers one multi-channel announcer, in
several configurations, while the Messenger(TM) line offers two multi-channel
announcers.
Interactive Voice Platforms
The Company produces the Digicept(R) 2000, 2002 and Intr-Act systems, as well
as the Audichron(R) IIS System 3 and System 3 Jr. These products constitute a
comprehensive line of interactive voice platforms, providing multi-message,
user selectable voice announcements. All five systems feature Automatic
Intercept Service, Changed Number Announcement and Automatic Number
Announcement. These applications intercept erroneously dialed numbers,
informing the caller of changed numbers or other dialing instructions. Each
system also provides prompts and messages in support of enhanced telephone
services, providing instructions for custom calling services and automated pay
phone operation. In addition, the interactive voice platforms may be used to
provide user selectable information regarding entertainment or transportation
schedules, medical, financial and insurance data, news and sports updates, and
other public information. Beyond these applications, the Digicept(R) 2000 and
2002 systems serve as processing platforms to meet the expanding service
requirements of the intelligent network.
Voice Mail/Automated Attendant Systems
The Company's MAX(TM) family of products meet the call routing and answering
needs of the business marketplace. These automated attendant products answer
incoming phone calls and route calls to the proper destination. Additionally,
the MAX(TM) line can deliver informational messages, gather caller data and
generate system usage and call management reports. The MAX(TM) family
enclosures are well suited for use in the office environment.
The Audichron(R) 410 combines voice mail, audiotex, and
time/weather/temperature functions in a single system. Flexible, industry
standard hardware and software allows for the continued development of
additional features required by the business user or service provider. Both
rack-mount and tower enclosures are available, designed to meet the varied
needs of both the telephone company and business office environments.
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Call Sequencing Systems
The Company's CMS(TM) Sr and CMS(TM) Jr automatic call sequencers place
incoming calls in a queue, assuring that each caller is serviced in the proper
order by an available service representative. While on hold, the caller may
hear music and informational messages. These systems process 2 to 60 phone
lines and can play as many as 16 different informational messages, up to a
total of 68 minutes in length. These call sequencers also serve as call
management systems, providing a variety of statistical and graphical reports.
These reports allow the telephone system administrator to evaluate system usage
including answered and abandoned calls, total number of calls, average caller
holding times and service representative staffing requirements.
The Company has also introduced the CMS(TM) Sr 9-1-1 Auxiliary Unit. This
product adds customized fail-safe features, meeting the specialized
requirements of a public safety answering point in the 9-1-1 emergency response
telephone network.
Time/Weather/Temperature Systems
The Company manufactures the Audichron(R) line of time, weather and temperature
announcers. These announcers provide professionally recorded voice
announcements, available with synchronous entry so that every caller hears the
entire announcement from the beginning. Up to six promotional announcements, in
rotating or fixed time slots, may be added for additional revenue generation.
All maintenance for weather forecast updates, message changes and time
adjustment is provided remotely. Monthly call rate reporting is provided to the
customer to document system usage.
The Audichron(R) 410 provides similar functionality, while allowing for
expanded weather and promotional announcement features. The flexible design of
the Audichron(R) 410 allows additional call processing capabilities to be
added, increasing its versatility.
The Digicept(R) Time & Temperature II announcer provides a low-cost
alternative, announcing the current time and temperature. Digicept(R)
multi-channel announcers may be included as part of the system to provide
rotating promotional messages.
Common Equipment
Interface and trunk circuits combine hardware and software to provide the
connection between the telephone central office, the calling party and the
Company's announcement systems. The Company has developed interface circuits
for its Digicept(R), Audichron(R) and AEC product lines. By providing both the
interface circuits and the announcement systems, the Company offers integrated
solutions designed to meet customers' needs while providing for the modular
expansion of the systems. The Company provides interface circuits that can
perform a wide variety of functions and are compatible with most telephone
circuitry, including T1 interfaces for direct connection to the digital
telephone network.
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SERVICES
Leasing Services
The Company's Audichron subsidiary leases announcement systems in the United
States and internationally. These systems form the USA TIME(R) network of
time/weather/temperature announcers. These systems primarily serve financial
institutions and telephone companies.
Recording Services
A professional staff is available from ETC's recording studio in Atlanta,
Georgia to provide high quality recordings of commercial announcements and
customized messages in a variety of formats. These announcements include
interactive system vocabularies, call processing system prompts,
information-on-hold announcements and commercial announcements for telemedia.
Recordings may be provided on cassette or reel-to-reel tapes, or may be
digitized and stored on floppy diskettes.
Meteorological Services
A staff of degreed meteorologists, using state-of-the-art information services
and equipment, update weather forecasts at least four times daily from ETC's
weather center in Atlanta, Georgia. When severe weather conditions warrant,
updates are provided as often as necessary. A rigid quality control program
ensures that forecasts are accurate and timely. These forecasts serve
approximately 500 USA TIME(R) sites, and are downloaded to the Company's
time/weather/temperature systems via the telephone network, using
computer-generated calling. Additionally, all maintenance, call rate reports,
promotional messages, time adjustment and daylight savings time changes are
provided remotely from the weather center.
Technical Services
The Company offers equipment installation, training, and 24-hour technical
support of its various products. Maintenance and installation services include
customer premise support and software and documentation updates. Classes are
held in ETC's training centers, and at customer sites, to instruct employees
and customers on the operation and use of ETC's products.
Miscellaneous Services
In addition to its manufactured products, the Company offers engineering and
product services to the telephone companies and other equipment customers. The
company can design call processing and voice announcement systems to a
customer's specifications. This includes determining equipment requirements
based on the Company's standard offerings and interconnecting the cards and
systems to the exact size and capability needed by the customer.
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MANUFACTURING PROCESSES
ETC's manufacturing processes involve the fabrication of products from
components manufactured to specification by others or purchased as stock items
from independent suppliers. Items such as memory chips, computers, disk
drives, microprocessing units, integrated circuits, resistors, capacitors,
transformers, switches, wire and related items are purchased as stock items
from a variety of manufacturers and distributors. The Company is not dependent
upon any single supplier for such material. Some components are manufactured
by a single producer, but the Company believes suitable replacement components
would be available from a variety of sources should the product of any producer
become unavailable. The Company's printed circuit boards and product
enclosures are manufactured by outside suppliers to the Company's
specifications. The Company believes these products would be available from a
variety of sources and that the loss of any single source of supply would not
materially affect the Company's business.
The products manufactured by ETC generally require a high degree of precision
and dexterity in the assembly stage and multiple testing and quality assurance
checks prior to shipment. By stressing quality and maintaining rigid testing
and quality assurance procedures, the Company has been able to achieve a low
product return-for-service rate.
The Company purchases computers, monitors, printers, disk drives, and other
computer related accessories. These components are assembled into systems and
packaged with proprietary and purchased software and sold to the customer.
In addition to hardware manufactured by the Company, computer software is an
intregal component of the Company's announcement systems. Computer software is
designed and generated internally by the Company's engineers. The software
programs are then loaded into the voice announcement systems in a variety of
methods, including "burning" the programs into microprocessors, or using floppy
disks to transfer the programs into memory chips or computer hard drives.
These software programs dictate how the voice announcement systems perform, and
give the products flexibility to meet many different customer specifications
and needs.
SALES, MARKETING AND CUSTOMERS
ETC's manufactured products are marketed through independent distributors,
telecommunications dealers, and Company sales personnel. Leases of the
Company's time/weather/temperature machines and related information update
services are performed through the Company's sales personnel. The Company's
largest distributors include GTE Supply, Inc., North Supply, Inc., and Graybar
Electric Company, Inc. These distributors comprised approximately 2% of the
Company's 1995 sales. Telecommunications dealers comprised approximately 3% of
the Company's 1995 sales. Approximately 94% of the Company's 1995 sales were
in the United States, and 6% were to international customers.
During 1995, ETC's manufactured products and related services were sold to
approximately 701 customers, primarily operating telephone companies,
telephone
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equipment manufactures, telecommunication dealers, telephone service
providers, and other businesses. The Company's time/weather/temperature
equipment and related services were leased to approximately 889 customers in
1995, primarily financial institutions and operating telephone companies.
Siemens Stromberg-Carlson accounted for 23% of the Company's 1995 sales, and
Northern Telecom, Inc. accounted for 14% of 1995 sales.
ETC engages in direct advertising through trade publications and direct mail
communications. The Company participates in a number of trade shows each year
and is a member of many national and state telephone associations. The
Company's corporate sales staff and a regional sales office are located in
Atlanta, Georgia. The Company's marketing staff are headquartered in Waukesha,
Wisconsin. In addition regional sales offices are located in Waukesha,
Wisconsin and Pleasanton, California, and six sales representatives are at
various other locations in the United States. Technical service departments
exist within all three regional sales offices to provide assistance to customer
questions and custom application requirements.
BACKLOG
As of December 31, 1995, the amount of the Company's backlog orders believed to
be firm was $850,000. This compares with $1,202,000 of backlog orders as of
December 31, 1994. Two customers comprised 33% and 10%, respectively, of the
1995 backlog. The top 1995 backlog customer comprised 18% of the 1994 backlog,
and another customer comprised 11%. The Company typically experiences
variations in product sales that have no seasonal pattern and are caused by the
timing of major equipment purchases by the operating telephone companies and
telephone equipment manufacturers.
COMPETITION
The market as a whole for telecommunications equipment sold to operating
telephone companies and telephone equipment manufacturers is highly
competitive, primarily on the basis of quality, price, availability for
delivery, and capabilities. The segment of the operating telephone company and
equipment manufacturing market in which the Company's products are sold is
competitive, primarily on the basis of product capabilities and quality, and to
a lesser extent on the basis of price and availability for delivery. Product
capability is determined by the ability to provide the type of service required
by the customer. The sale of call processing equipment to telecommunications
dealers is primarily competitive on the basis of price and delivery time, and
the Company believes it is competitive in these two areas. Product quality is
determined by factors such as product consistency, durability, workmanship and
reliability.
Based on comparisons with competitors' products, the Company believes it offers
comparable products with more features at lower prices. Some of the Company's
competitors are larger than the Company and have substantially greater
financial resources.
The Company's time/weather/temperature systems compete indirectly with other
sources of time, weather and temperature information such as radio stations,
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television, and cable TV, where these services are provided to listeners and
viewers free of charge on a regular basis.
EMPLOYEES
As of December 31, 1995, ETC employed 158 persons. Approximately 22% of the
Company's employees are engaged in product development, 20% in sales and
marketing, 12% in management and office support, 18% in service and support,
and 28% in manufacturing. The Company has never experienced a work stoppage
due to a labor dispute, is not a party to any labor contract, and considers its
relations with employees to be excellent. The Company believes that there is
an adequate supply of professional and manufacturing personnel available in the
metropolitan areas where it has facilities to meet its anticipated personnel
requirements.
ITEM 2. PROPERTIES.
The Company's executive offices, manufacturing and engineering facilities,
technical services, marketing, and a regional sales office are located at 1915
MacArthur Road, Waukesha, Wisconsin 53188. This facility contains
approximately 29,000 square feet of space. The Company believes that its
equipment and facilities at its Waukesha location are modern, well maintained,
and adequate for its anticipated needs.
The Company leases 87,300 square feet in seven buildings located in Atlanta,
Georgia. These facilities include corporate sales, a regional sales office,
engineering, technical services, and accounting. The leases expire in the year
2000, and the Company is currently subleasing 58,500 square feet of unused
space to other tenants. The properties are modern and well maintained, and
include adequate space for anticipated needs.
The Company leases 12,277 square feet at 6689 Owens Drive, Suite B, Pleasanton,
California 94588. This lease expires in 1999, with an option to extend to
2004. This facility contains a regional sales office, repair services,
engineering, and technical services. The Company believes that its equipment
and facilities at its California location are modern, well maintained, and
adequate for its anticipated needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending material legal proceedings not
arising in the normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information
The Company's Class A common stock trades on the NASDAQ Stock Market under the
symbol ETCIA. There is no market for the Company's Class B common stock.
See the caption "Quarterly Financial Data" on page 20 in ETC's 1995 Annual
Report to Shareholders incorporated herein by reference.
(b) Holders
As of February 28, 1996, there were approximately 990 shareholders of record
and beneficial shareholders owning Class A common stock and 9 shareholders of
record of Class B common stock.
(c) Dividends
For 1995 and 1994, the Company each year paid a cash dividend of $.12 per share
on Class A common stock and $.04 per share on Class B common stock. For 1993,
the Company paid a cash dividend of $.10 per share on Class A common stock and
$.02 per share on Class B common stock.
On February 16, 1996, the Board of Directors of the Company declared an annual
cash dividend of $.12 per share on Class A common stock, the first $.06 per
share payable on March 29, 1996, to shareholders of record on March 1, 1996,
and the second $.06 per share payable on September 30, 1996, to shareholders of
record on September 2, 1996.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Eleven Year Review of Selected Financial
Data" on pages 18 and 19 in ETC's 1995 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information on pages 5, 6 and 7 in ETC's 1995 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information on pages 8 through 20 in ETC's 1995 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
George W. Danner 76 Chairman of the Board
and Director
Dean W. Danner 45 President, Chief Executive
Officer and Director
Bonita M. Danner 44 Vice President Engineering
and Director
Hazel Danner 75 Corporate Secretary
and Director
Jeffrey M. Nigl 37 Vice President, Treasurer
and Chief Financial Officer
R.W. Johns, Jr. 47 Vice President Sales
Robert R. Spiering 51 Vice President
Technical Services
Cynthia K. Carlson 51 Vice President Contracts
Joanne B. Huelsman 57 Director
A. William Huelsman 58 Director
Peter J. Lettenberger 58 Director
Richard A. Gabriel 63 Director
</TABLE>
GEORGE W. DANNER - Mr. Danner retired as the Company's Chief Executive Officer
in May 1993. He has served as Chairman of the Board and Director since May
1993. Prior thereto, he served as Chairman of the Board, Chief Executive
Officer and a Director since May 1989. Prior thereto he served as President,
Chief Executive Officer and a Director of the Company since its incorporation
in 1980. Prior thereto he was Vice President of GTE Automatic Electric
Corporation (a diversified manufacturer of telecommunications equipment), a
subsidiary of GTE Corporation. Mr. Danner is a registered Professional
Engineer, and has been actively involved in the telephone industry since 1949,
when he founded Electronic Secretary Industries, Inc., a manufacturer of
electronic telephone answering and recording equipment, which was merged into
GTE Corporation in 1957.
DEAN W. DANNER - Mr. Danner was elected the Company's Chief Executive Officer
in May 1993. Mr. Danner has served as a Director of the Company since
incorporation in 1980. Prior to his election as CEO, he was elected President
in May 1989 and has served as Chief Operating Officer since 1987. Prior
thereto he served as Executive Vice President since 1985. He was Vice
President and Director of Engineering prior thereto since the Company's
incorporation in 1980. Prior thereto he was a Manager of Engineering of GTE
Automatic Electric Corporation. He is a registered Professional Engineer and
holds five United States patents.
BONITA M. DANNER - Ms. Danner has served as a Director of the Company since
incorporation in 1980. She was appointed Assistant Vice President in 1983,
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Director of Engineering in 1988, and Vice President Engineering in May 1989.
Prior thereto, she was a project engineer since 1980. She has been a member of
the Company's Audit Committee since 1993. She is a registered Professional
Engineer.
HAZEL DANNER - Ms. Danner has served as a Director of the Company and has been
employed as its Administrative Coordinator since its incorporation in 1980.
She was elected Corporate Secretary in 1983.
JEFFREY M. NIGL - Mr. Nigl, a certified public accountant, was elected Vice
President in May 1990 and Treasurer in May 1993. He has been Chief Financial
Officer since 1988 and prior thereto he was Controller since joining the
Company in 1985. Prior thereto he was employed for two years as Controller of
SportsVue Cable Network of Milwaukee, Wisconsin, and prior thereto for more
than three years as a senior accountant for Arthur Andersen & Co.
R.W. JOHNS, JR. - Mr. Johns was elected Vice President Sales in May 1995.
Prior thereto, he was Vice President of the Company and General Manager of its
Atlanta operations since May 1989. Prior thereto he was employed by Audichron
for 17 years where he served as Vice President, Chief Financial Officer,
Corporate Secretary, and Treasurer from 1984 to May 1989.
ROBERT R. SPIERING - Mr. Spiering was elected Vice President Technical Services
in May 1994. Prior thereto he was Director of Technical Services since 1990.
Prior thereto he was Engineering Supervisor since 1988 and Project Engineer
since joining the Company in 1985.
CYNTHIA K. CARLSON - Ms. Carlson was elected Vice President Contracts in May
1994, and has been General Manager of its Pleasanton operations since 1991.
Prior thereto she was Western Regional Sales Manager and a member of the sales
department since joining the Company in 1986.
JOANNE B. HUELSMAN - Ms. Huelsman has served as a Director of the Company since
its incorporation in 1980. Ms. Huelsman has been a member of the Company's
Audit Committee since its creation in 1985. She served as Secretary of the
Company from 1980 to 1983 and has served as its Treasurer from 1983 to May
1993. Ms. Huelsman has been the owner of Berg Management Company since 1980,
has been an elected member of the Wisconsin State Legislature since 1983 and
has been engaged in the practice of law since 1980.
A. WILLIAM HUELSMAN - Mr. Huelsman has served as a Director of the Company
since its incorporation in 1980. He has been a member of the Company's
Compensation Committee since its creation in 1985. Mr. Huelsman is a
registered Professional Engineer and, prior to 1996 was Chairman and Chief
Executive Officer of Intelligraphics, Inc., a digital mapping firm.
PETER J. LETTENBERGER - Mr. Lettenberger has served as a Director of the
Company and a member of its Compensation Committee since 1985. He is a partner
of Quarles & Brady, which firm he joined in 1964, and is a director of
W.H.Brady Co.
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<PAGE> 14
RICHARD A. GABRIEL - Mr. Gabriel was elected to the Board of Directors in
December 1993. He is also a member of the Company's Audit Committee and
Compensation Committee. He is Executive Vice President of Stolper Fabralloy
Company of Waukesha, Wisconsin, a manufacturer of precision aircraft and ground
turbine sheet metal components. Prior thereto he was Manufacturing Manager of
Kieffer Company from 1992 to 1993, and Executive Vice President of
Intelligraphics, Inc. from 1989 to 1992.
All of the Directors serve until their respective successors are elected at the
next annual meeting of shareholders. Officers serve at the discretion of the
Board of Directors. George W. Danner and Hazel Danner are the parents of Dean
W. Danner, who is the husband of Bonita M. Danner, and are the parents of
Cynthia K. Carlson, who is the sister of Dean W. Danner. A. William Huelsman
is the husband of Joanne B. Huelsman. Other than as noted, none of the
Company's Directors or executive officers has any family relationship with any
other Director or executive officer.
-13-
<PAGE> 15
ITEM 11. EXECUTIVE COMPENSATION.
The Company is a "small business issuer" as defined in Item 10(a)(1) of
Regulation S-B and has elected to provide information in response to this Item
11 in accordance with the provisions of Item 402(a)(1)(i).
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation for the
Company's Chief Executive Officer and the highest-paid executive officers, as
well as the total compensation paid to each individual during the Company's
last three fiscal years. Columns (e) in the table related to Other Annual
Compensation, (f) related to Restricted Stock Awards, and (h) related to LTIP
Payouts have been omitted as there is no compensation to report.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
(a) (b) (c) (d) (g) (i)
Securities
Name Under- All Other
and lying Compen-
Principal Options/ sation
Position Year Salary($) Bonus($) SARs(#) ($)
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dean W. Danner 1995 130,600 1,000 5,500(1)
President and 1994 125,000 14,500 5,000 8,100(1)
CEO 1993 102,700 20,400 6,900(1)
R.W. Johns, Jr. 1995 96,000 1,000 2,200(2)
Vice President 1994 93,400 7,300 4,300(2)
1993 89,800 10,200 500 2,400(2)
</TABLE>
- ------------------------------
(1) Consists of directors' fees of $2,500 in each year, with the remainder
being profit sharing (in 1994 and 1993), and Company matching
contributions pursuant to the Company's 401(k) retirement savings plan.
(2) Consists of profit sharing (in 1994 and 1993), and Company matching
contributions pursuant to the Company's 401(k) retirement savings plan.
-14-
<PAGE> 16
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options/SARs
granted during 1995 to the named executives:
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation
Individual Grants for Option Term
- -------------------------------------------------------------- ----------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options/SARs
Securities Granted to Exercise
Underlying Employees or Base
Options/SARs in Fiscal Price Expiration
Name Granted(#) Year ($/Share) Date 5%($) 10%($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dean W. Danner 1,000 6.29% 2.875 7/21/2005 1,800 4,600
R.W. Johns, Jr. 1,000 6.29% 2.875 7/21/2005 1,800 4,600
</TABLE>
The stock options included in the table above were granted in accordance with
the Company's Nonqualified Stock Option Plan. Under the Plan, options granted
may be exercised not more than 20% each year from the date of grant, and expire
10 years from the date of grant. The exercise price is the average of the
highest and lowest transaction prices of the stock on the date of the grant.
Options are canceled upon termination of employment.
AGGREGATED OPTIONS/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
The following table summarizes options and SARs exercised during 1995 and the
value of unexercised options and SARs held by the named executives at fiscal
year-end:
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities
Underlying
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at Fiscal at Fiscal
Acquired Value Year-End(#) Year-End($)
on Exercise Realized Exercisable(E)/ Exercisable(E)/
Name (#) ($) Unexercisable(U) Unexercisable(U)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dean W. Danner 0 0 1,000(E) 0(E)
5,000(U) 0(U)
R.W. Johns, Jr. 0 0 11,000(E) 0(E)
2,500(U) 400(U)
</TABLE>
-15-
<PAGE> 17
The Company does not have any information to report and has therefore omitted
disclosures related to S-B Item 402(e) Long-Term Incentive Plan ("LTIP") Awards
Table, and S-B Item 402(i) Report on Repricing of Options/SARs.
COMPENSATION OF DIRECTORS
Each Director of the Company is entitled to receive $500 for each Directors'
meeting attended, except for the Chairman of the Board, who receives $1,000 per
Directors' meeting attended. In addition, each outside Director receives an
annual retainer of $2,500 upon reelection at each Annual Shareholders Meeting.
These amounts are included in the preceding Summary Compensation Table.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of each class of the Company's Common Stock by each Director,
Executive Officer, or person known by the Company to own beneficially more than
5% of either class of Common Stock, and all Directors and Executive Officers as
a group as of February 8, 1996:
<TABLE>
<CAPTION>
Class A Common Stock(1) Class B Common Stock(1)
--------------------------- ---------------------------
Shares Percentage Shares Percentage
Beneficially of Shares Beneficially of Shares
Owned Outstanding Owned Outstanding
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Hazel Danner 175,151(3) 8.7% 67,880 13.6%
Bonita M. Danner 171,701(3) 8.6% 67,880 13.6%
Dean W. Danner 163,187(3) 8.1% 64,635 12.9%
George W. Danner 158,837 7.9% 64,635 12.9%
Joanne B. Huelsman 139,701 7.0% 67,880 13.6%
A. William Huelsman 114,187 5.7% 64,635 12.9%
Georgia Barre(2) 104,959 5.2% 41,984 8.4%
Loren D. Barre(2) 78,500 3.9% 41,984 8.4%
R.W. Johns, Jr. 11,000(3) 0.5% - 0.0%
Peter J. Lettenberger 5,500(3) 0.3% - 0.0%
Richard Gabriel 1,500(3) 0.1% - 0.0%
All Executive Officers
and Directors as a
group (12 persons) 958,421(3) 47.8% 397,545 79.5%
</TABLE>
- -----------------
(1) George W. Danner and Hazel Danner are the parents of Dean W. Danner
(the husband of Bonita M. Danner). A. William Huelsman is the husband of
Joanne B. Huelsman. All spouses disclaim beneficial ownership of one
another's shares, and the owners hold the shares directly and have sole
voting and investment power over the shares beneficially held, except
that Bonita M. and Dean W. Danner share voting and investment power with
respect to 6,400 shares of Class A Common Stock owned by their children.
(2) Loren Barre and Georgia Barre are not officers or directors of the
Company.
-16-
<PAGE> 18
(3) Class A common shares beneficially owned include the right to acquire
shares of Class A common stock upon exercise of stock options as follows:
Hazel Danner, 200 shares; Bonita Danner, 200 shares; Dean Danner, 1,000
shares; R.W. Johns, Jr., 11,000 shares; Peter Lettenberger, 5,000 shares;
and Richard Gabriel, 1,000 shares. Shares beneficially owned by all
officers and directors as a group include 3 additional officers with the
right to acquire a total of 18,880 shares of Class A common stock upon
exercise of stock options.
The address for Bonita M. Danner, Hazel B. Danner, George W. Danner, and Dean
W. Danner is 1915 MacArthur Road, Waukesha, WI 53188. The address for Joanne
B. Huelsman is 235 West Broadway, Suite 30, Waukesha, WI 53186. The address
for A. William Huelsman is 235 West Broadway, Suite 40, Waukesha, WI 53186.
The address for Loren D. Barre is 1901 Bay Road #304, Vero Beach, FL 32963.
The address for Georgia Barre is 1110 Belmont Drive, Waukesha, WI 53186. The
address for Peter J. Lettenberger is 411 East Wisconsin Avenue, Milwaukee, WI
53202-4497. The address for Richard Gabriel is 115 North Janacek Road,
Waukesha, WI 53186.
All of the outstanding Class B common stock is subject to a cross purchase
agreement among the owners thereof (the "Parties") pursuant to which the shares
generally may not be transferred except to a spouse, descendant or certain
other permitted transferees unless they have first been offered to the other
Parties.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial statements
The Financial Statements, Notes to Financial Statements,
Independent Auditors' Report, Eleven Year Review, and Quarterly
Financial Data on pages 8 through 20 in ETC's 1995 Annual Report to
Shareholders are incorporated herein by reference.
2. Financial statement schedules
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
II Valuation and Qualifying Accounts 22
The Independent Auditors' Report on Financial Statement Schedules
appear on page 21 of this report.
-17-
<PAGE> 19
All other financial statement schedules are omitted as they are not
required, or the required information is shown in the Financial
Statements and Notes to Financial Statements on pages 8 through 20
in ETC's 1995 Annual Report to Shareholders incorporated herein by
reference.
3. Exhibits
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
3.1 Restated Articles of Incorporation of Electronic
Tele-Communications, Inc. - July 2, 1985 was
filed as Exhibit 3.1 to Form S-1 (No. 2-99175)
and is incorporated herein by reference.
3.2 Amended Bylaws of Electronic Tele-Communications,
Inc. adopted June 28, 1985 was filed as Exhibit
3.2 to Form S-1 (No. 2-99175) and is incorporated
herein by reference.
10.1 Electronic Tele-Communications, Inc. Tuition
Reimbursement Plan effective January 1, 1985 was
filed as Exhibit 10.1 to Form S-1 (No. 2-99175)
and is incorporated herein by reference.
10.2 Executive Incentive Compensation Plan effective
January 1, 1989 was filed as Exhibit 10.2 to
the 1988 Form 10-K and is incorporated herein
by reference.
10.3 Electronic Tele-Communications, Inc.
1989 Nonqualified Stock Option Plan effective
April 21, 1989 was filed as Form S-8 and is
incorporated herein by reference.
10.4 First Amendment to Credit Agreement dated April 4,
1991, by and between Electronic Tele-
Communications, Inc. and Bank One, Milwaukee, NA
(the original Credit Agreement dated May 17, 1989
was filed as Exhibit 10.1 to the Registrant's Form
8-K dated May 31, 1989) was filed as Exhibit 10.1
to Form 8-K dated April 17, 1991 and is
incorporated herein by reference.
-18-
<PAGE> 20
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
10.5 Letters of amendment, dated March 6, 1992 and
February 18, 1993, to First Amendment to Credit
Agreement dated April 4, 1991 by and between
Electronic Tele-Communications, Inc. and Bank One,
Milwaukee, NA was filed as Exhibit 10.5 to the
1992 Form 10-K and is incorporated herein by
reference.
11 Computation of Per Share Earnings 23
13 1995 Annual Report to Shareholders. 25
24.1 Consent of Ernst & Young LLP, Independent Auditors 21
27 Financial Data Schedule 24
28 Cross Purchase Agreement dated June 28, 1985 was
filed as Exhibit 28.1 to Form S-1 (No. 2-99175) and
is incorporated herein by reference.
(b) Reports on Form 8-K:
None.
-19-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ELECTRONIC TELE-COMMUNICATIONS, INC.
By: /s/ Dean W. Danner
-----------------------------------
Dean W. Danner
President and
Date: March 20, 1996 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
/s/ Dean W. Danner President, Chief Executive March 20, 1996
------------------------------
Dean W. Danner Officer and Director
/s/ Jeffrey M. Nigl Vice President, Treasurer, March 20, 1996
------------------------------
Jeffrey M. Nigl Chief Financial Officer,
and Principal Accounting
Officer
/s/ Bonita M. Danner Vice President Engineering March 20, 1996
------------------------------
Bonita M. Danner and Director
/s/ Hazel Danner Secretary and Director March 20, 1996
------------------------------
Hazel Danner
/s/ George W. Danner Director March 20, 1996
------------------------------
George W. Danner
/s/ Joanne B. Huelsman Director March 20, 1996
------------------------------
Joanne B. Huelsman
/s/ A. William Huelsman Director March 20, 1996
------------------------------
A. William Huelsman
/s/ Peter J. Lettenberger Director March 20, 1996
------------------------------
Peter J. Lettenberger
/s/ Richard A. Gabriel Director March 20, 1996
------------------------------
Richard A. Gabriel
-20-
<PAGE> 22
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual Report (Form 10-K)
of Electronic Tele-Communications, Inc. of our report dated February 8, 1996
included in the 1995 Annual Report to Shareholders of Electronic
Tele-Communications, Inc.
Our audits also included the financial statement schedules of Electronic
Tele-Communications, Inc. listed in Item 14(a). These schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-30746) pertaining to the Electronic Tele-Communications, Inc.
1989 Nonqualified Stock Option Plan of our report dated February 8, 1996, with
respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedules included in this Annual Report (Form 10-K) of
Electronic Tele-Communications, Inc.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 20, 1996
-21-
<PAGE> 23
Schedule II
ELECTRONIC TELE-COMMUNICATIONS, INC.
-----------------
VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- ----------------------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for
Doubtful Accounts:
Year Ended
December 31, 1993 $250,500 $202,246 $236,946 $215,800
Year Ended
December 31, 1994 $215,800 $ (7,249) $ 43,751 $164,800
Year Ended
December 31, 1995 $164,800 $(15,000) $ 12,000 $137,800
Allowance for
Inventory Obsolescence:
Year Ended
December 31, 1993 $585,628 $243,192 $268,803 $560,017
Year Ended
December 31, 1994 $560,017 $353,400 $138,297 $775,120
Year Ended
December 31, 1995 $775,120 $ 86,000 $500,530 $360,590
</TABLE>
-22-
<PAGE> 1
Exhibit 11
ELECTRONIC TELE-COMMUNICATIONS, INC.
------------------
COMPUTATION OF EARNINGS PER SHARE
Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common
shares outstanding:
Class A common 2,003,949 2,003,515 2,002,149
Class B common 500,000 500,000 500,000
Net effect of dilutive stock options -
based on the treasury stock method
using average market price:
Class A common - 4,528 10,125
---------- ---------- ----------
Total shares:
Class A common 2,003,949 2,008,043 2,012,274
========== ========== ==========
Class B common 500,000 500,000 500,000
========== ========== ==========
Net earnings (loss) $(230,716) $ 961,942 $1,128,710
Less dividends paid:
Class A common 240,474 240,384 200,215
Class B common 20,000 20,000 10,000
---------- ---------- ----------
Undistributed earnings (loss) $ (491,190) $ 701,558 $ 918,495
========== ========== ==========
Allocation of undistributed
earnings (loss):
Class A common $ (393,107) $ 561,696 $ 735,693
Class B common (98,083) 139,862 182,802
Calculation of earnings (loss) per share:
Class A common:
Dividends paid $ 0.12 $ 0.12 $ 0.10
Allocation of undistributed
earnings (loss) (0.20) 0.28 0.37
---------- ---------- ----------
Earnings (loss) per Class A common share $ (0.08) $ 0.40 $ 0.47
========== ========== ==========
Class B common:
Dividends paid $ 0.04 $ 0.04 $ 0.02
Allocation of undistributed
earnings (loss) (0.20) 0.28 0.37
---------- ---------- ----------
Earnings (loss) per Class B common share $ (0.16) $ 0.32 $ 0.39
========== ========== ==========
</TABLE>
-23-
<PAGE> 1
1995
annual
report
ELECTRONIC
TELE-COMMUNICATIONS, INC.
Our voices
mean business
<PAGE> 2
MISSION STATEMENT
"Electronic Tele-Communications, Inc. is committed to being one of the top
Business-to-Business Equipment Suppliers in the Voice
Information/Telecommunications industry, providing Business Solutions to our
Customers."
TABLE OF CONTENTS
A Letter to Our Shareholders 1
Corporate Profile 2-3
Markets 3
Services 4
Products 21-24
Shareholder Information 25
Officers & Directors 25
Financial Section:
Management's Discussion 5-7
Report of Independent Auditors 8
Consolidated Financial Statements 9-12
Notes to Consolidated Financial Statements 13-17
Eleven Year Review 18-19
Quarterly Financial Data 20
<PAGE> 3
A Letter To Our Shareholders
As our financial results indicate, 1995 was a difficult year. For only the
second time in the eleven years since ETC went public, there was a net
operating loss. We believe this loss is unacceptable and we are working hard to
return the Company to profitability. The past year brought a significant drop
in gross sales levels of our oldest interactive voice information systems to
original equipment manufacturers and several operating telephone companies. The
sales of these products have now stabilized at lower levels, but the aging
technology in the products will prevent their sales from returning to former
levels.
Sales in 1995 of $12,902,268 resulted in a loss of $230,716 or $.08 per Class A
share. This compared to 1994 sales of $16,262,639, which yielded earnings of
$961,942 or $.40 per Class A share. For the 1995 fourth quarter, ETC reported
earnings of $122,006 or $.05 per Class A share on sales of $3,203,366, compared
to fourth quarter 1994 earnings of $393,378 or $.16 per Class A share on sales
of $4,173,239. In other parts of this annual report are detailed breakdowns of
all the financial information. As you will see, losses in the first and third
quarters couldn't be offset by profits in the second and fourth quarters.
More important than the 1995 results are the things we are doing in 1996 to
improve ETC. First, we are evaluating the profitability of all our product
lines and will be discontinuing those products which are no longer competitive.
One of the products ETC is discontinuing is the MAX Receptionist line of small
business voice mail systems, which has not contributed significantly to the
Company's revenues in past years.
A second area we are addressing is the longer product introduction times for
some of our new more advanced products. Such longer introduction times are due
to extended evaluation cycles by our customers, necessitated by the increasing
complexity of both our products and the telecommunications infrastructure. To
encourage faster migration to newer technology, we have established upgrade
trade-in programs for our customers and longer warranties on new products. We
are also standardizing the operating system software between several different
sizes of systems to minimize our customers' cost of growth with our products.
A third strategy is to market our Application Processing Platforms in
additional sectors of the telephone industry, such as the Cellular Telephone
market. Some of these markets have a much higher growth potential than
traditional telephone markets, especially in the United States where the
recently passed Telecommunications Reform Act has opened up competition. This
should lead to an increased demand for our products as the customers of these
new providers demand higher levels of service. Preliminary results of these
efforts are encouraging and we anticipate increased sales in these markets as
1996 progresses.
We believe the slow start in 1996 will give way to improved results as the year
progresses. Our Board of Directors has declared a dividend for the eleventh
straight year since ETC's initial public offering. The 1996 dividend will be
$.12 per Class A share payable in two $.06 installments.
Dean W. Danner
Dean W. Danner
President and Chief Executive Officer
February 20, 1996
<PAGE> 4
CORPORATE PROFILE
Since 1933, Electronic Tele-Communications, Inc. (ETC) products have provided
the finest technology in the telephony industry. Starting with the
Audichron(R) Time of Day Telephone System and the first telephone answering
system, ETC has become a worldwide leader in the design, manufacture, service,
lease and marketing of central office multi-application voice platforms as
well as customer premise voice messaging platforms including automated
attendants, voice mail, digital announcers, time/weather/temperature
announcers, and call sequencers.
VALUE ETC provides powerful business communication tools that increase
productivity, facilitate efficient service, enhance corporate image and save
time as well as money.
SERVICE ETC is committed to exceeding our customers' needs with a
comprehensive array of services. These include: designing software and
systems, installing equipment, training, providing 24-hour technical support,
recording professional announcements, developing professional announcement
vocabulary, and forecasting weather.
QUALITY ETC is dedicated to achieving the ISO 9000 standards and implementing
Total Quality Management principles in the manufacture and warranty of the
finest products in the business.
ACCESSIBILITY ETC is headquartered in Waukesha, Wisconsin with branch
offices in Atlanta, Georgia and Pleasanton, California.
2
<PAGE> 5
ETC PRODUCT
INNOVATION TIMELINE
1933 Audichron Time of Day by Telephone Systems introduced, becoming the
world's first voice response system.
1946 Audichron automatic intercept system installed, becoming the world's first
intercept announcement system.
1949 George Danner and Joseph Zimmerman of Electronic Secretary Industries
manufacture the first telephone answering machine.
1957 Electronic Secretary Industries merges with General Telephone and
Electronics (GTE). George Danner is president of the subsidiary which
manufactures Electronic Secretary and GTE product lines.
1963 Electronic Secretary merges into GTE Automatic Electric with George Danner
as Vice President.
1974 Automation Electronics Corporation (AEC) introduces the industry's first
automated call sequencer.
1978 AEC introduces the first stand-alone system that generates comprehensive
call management reports.
1980 Electronic Tele-Communications, Inc. (ETC) is formed. ETC introduces
Digicept digital voice announcers to the telecommunications industry.
1985 ETC goes public and begins trading on the NASDAQ Stock Market.
1989 ETC acquires The Audichron Company.
1991 ETC acquires Automation Electronics Corporation.
[US MAP]
MARKETS SERVED
Electronic Tele-Communications, Inc. is committed to providing
business solutions in the voice information/telecommunications industry. Our
focus is addressing the needs of the Central Office (CO) and the Customer
Premise Equipment (CPE) markets by being a business-to-business equipment
supplier. Marketing efforts include a multi-faceted approach incorporating
advertising, publicity, promotion and personal sales through several
distribution channels.
The evolving CO market consists of Local Exchange Carriers (LECs), Regional
Bell Operating Companies (RBOCs), Independent Operating Companies (IOCs), Long
Distance Carriers and Wireless (Cellular & PCS) Carriers. ETC serves both large
RBOCs as well as smaller LECs. The CO market is expected to continue to grow
and spur equipment demands. Increased competition due to industry
deregulation, entrance of new multiple systems operators, and the proliferation
of wireless technologies in the consumer end-user market are all positive
environmental forces for suppliers like ETC.
Growth in the CPE market and the demand for voice processing equipment also is
forecasted to remain strong. ETC's Time/Weather/Temperature services continue
to be a principal component offered to this market.
In addition to the domestic market, the global market affords challenges and
opportunities. ETC supplies products and services to countries seeking to
modernize or develop telecommunication infrastructures with state-of-the-art
equipment. The Company's voice products can be found in COs from Argentina to
South Africa. Across all markets, ETC provides telecommunication solutions.
3
<PAGE> 6
QUALITY INITIATIVE
In 1995, ETC began developing and implementing a quality system modeled after
the requirements of ISO-9001 Quality Systems Model for Quality Assurance in
Design, Development, Production, Installation, and Servicing. In addition to
meeting the requirements of this model, it was decided to apply the general
philosophy of a quality system to all aspects of the Company, including
departments and areas not normally within ISO guidelines. The Company's goal
is to meet the requirements of the ISO specification and be in full compliance
by the end of 1996.
CUSTOMER SERVICES
The customer is linked to ETC through the Customer Services Department.
Customers, dealers, contractors, manufacturing representatives, and telephone
company personnel are assisted with their orders. Product information,
equipment configurations, coordination of installations, order entry, and
status of orders are some of the services offered. Information is received
from the customer through telemarketing, customer satisfaction surveys, and
uploads to ETC's customer relationship management system (STAR) from sales
personnel.
TECHNICAL SERVICES
ETC efficiently and continuously supports all products 24 hours a day, every
day of the year. All customer technical calls are received at the Dispatch
Center located in Waukesha, Wisconsin and are quickly forwarded to the closest
Technical Services facility. Service is enhanced with facilities in three
locations spanning four time-zones. Technicians pick up the dispatch, research
the problem and call the customer back with the solution in an average of five
to six minutes.
Customer training is provided in the Training Center where classes are held
throughout the year to instruct employees and customers in the operation and
use of ETC products. In addition, Technical Services offers maintenance and
installation services including customer premise support, on-site setup of
equipment/software and documentation updates.
4
<PAGE> 7
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements, Notes to Consolidated Financial Statements,
and Eleven Year Review of Selected Financial Data, all of which appear later in
this report.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's Consolidated
Statements of Operations, expressed as percentages of net sales, together with
the percentage changes in such items from the prior period.
<TABLE>
<CAPTION>
Percent Change
Increase
(Decrease)
1995 1994
Percentage of Net Sales VS. vs.
1995 1994 1993 1994 1993
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% -20.7% -3.5%
Cost of products sold 47.7 47.2 45.8 -19.7 -0.6
Gross profit 52.3 52.8 54.2 -21.5 -5.9
General and administrative expenses 13.1 11.4 12.4 -8.4 -11.6
Marketing and selling expenses 21.6 16.9 17.3 1.1 -5.7
Research and development expenses 19.6 15.6 14.7 -0.1 2.7
Other income (expense) -0.3 -0.5 -0.9 -53.3 -43.2
Earnings (loss) before income taxes -2.4 8.4 8.9 * -8.9
Income taxes (benefit) -0.6 2.5 2.2 * 9.0
Net earnings (loss) -1.8 5.9 6.7 * -14.8
- ----------------------------------------------------------------------------------
</TABLE>
*Not meaningful to presentation
1995 VS. 1994
REVENUES
Net sales decreased by 20.7% from $16,263,000 in 1994 to $12,902,000 in 1995.
The decrease in net sales in 1995 was due primarily to lower sales of the
Company's interactive voice information systems. Demand slowed in 1995 for the
Company's interactive voice information systems from large, original equipment
manufacturers and several operating telephone companies. Sales of interactive
voice information systems decreased $2,871,000 in 1995 and represented 52%,
59%, and 48% of sales in 1995, 1994 and 1993, respectively. Sales of basic
recorder/announcer equipment and call processing equipment remained relatively
constant between years. Lease revenue remained relatively constant between
periods, but as a percentage of sales increased from 23% in 1994 to 28% in 1995
due to comparing lease revenue with lower total revenue in 1995. Product
pricing remained relatively constant between years.
GROSS PROFIT
Gross profit was 52.3% of net sales in 1995 versus 52.8% in 1994. The decrease
was due primarily to lower sales volume over which to spread fixed
manufacturing costs, partially offset by more efficient manufacturing
operations and improved management of inventory levels.
5
<PAGE> 8
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING EXPENSES
Operating expenses were $7,009,000 in 1995, or 54.3% of net sales, compared to
$7,138,000 in 1994, or 43.9% of net sales. The decrease in operating expenses
in 1995 was due primarily to lower general and administrative expenses.
Marketing and selling expenses increased marginally and research and
development expenses were maintained at levels the Company considers important
to support future product development. As a percentage of net sales, operating
expenses increased in 1995 due to spreading costs over lower sales volume.
OTHER INCOME AND EXPENSE
Net other expense in 1995 was $41,000, compared to $88,000 in 1994. The
decrease was related primarily to losses on sales of equipment in 1994, which
did not reoccur in 1995.
INCOME TAXES
Income tax benefit was $77,000 in 1995, or an effective tax rate of (24.9%),
compared to income tax expense of $401,000 in 1994, or an effective tax rate of
29.4%. The 1995 tax benefit was the result of the net loss, partially reduced
by the effect of goodwill amortization and state income tax expense.
NET EARNINGS AND EARNINGS PER SHARE
Net loss was $231,000 in 1995 versus net earnings of $962,000 in 1994. The
decrease in net earnings between years was due primarily to lower sales volume,
partially offset by lower operating expenses. Loss per Class A common share
was $.08 in 1995, versus earnings of $.40 in 1994.
1994 VS. 1993
REVENUES
Net sales decreased by 3.5% from $16,855,000 in 1993 to $16,263,000 in 1994.
The decrease in net sales in 1994 was due primarily to lower sales of basic
recorder/announcer equipment, voice mail, and equipment maintenance, partially
offset by higher sales of the Company's interactive voice information systems.
Demand was strong for interactive voice information systems from several large,
original equipment manufacturers and many operating telephone companies as they
continued to upgrade the technology in their central office telephone switches.
Sales of interactive voice information systems increased $822,300 in 1994 and
represented 59%, 48%, and 34% of sales in 1994, 1993, and 1992, respectively.
Increased sales of interactive voice information systems were partially offset
by continued soft sales of call handling and processing equipment for the
business market. Lower sales in this market were caused by strong competition
and aggressive pricing strategies. It is expected that the Company's product
mix will continue to progress toward sophisticated interactive voice
information systems. Lease revenue as a percentage of sales remained
relatively constant between years. Product pricing remained relatively
constant between years.
GROSS PROFIT
Gross profit was 52.8% of net sales in 1994 versus 54.2% in 1993. The decrease
was due primarily to lower sales volume over which to spread fixed
manufacturing costs.
OPERATING EXPENSES
Operating expenses were $7,138,000 in 1994, or 43.9% of net sales, compared to
$7,480,000 in 1993, or 44.4% of net sales. The decrease in operating expenses
in 1994 was due primarily to lower selling expenses resulting from continued
streamlining of the sales organization, and lower general and administrative
expenses. The decreases in operating expenses were partially offset by
increased research and development costs related to filling engineering
positions that were vacant in the prior year, and increased expenditures and
efforts in building the Company's marketing capabilities.
6
<PAGE> 9
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER INCOME AND EXPENSE
Net other expense in 1994 was $88,000 compared to $154,000 in 1993. The
decrease was related primarily to lower interest expense due to lower loan
balances.
INCOME TAXES
Income tax expense was $401,000 in 1994, or an effective tax rate of 29.4%,
compared to $368,000 in 1993, or an effective tax rate of 24.6%. The lower tax
rate in 1993 was due to the reversals of timing differences between book and
tax income and the resultant tax benefit in 1993.
NET EARNINGS AND EARNINGS PER SHARE
Net earnings were $962,000 in 1994 versus $1,129,000 in 1993. The decrease in
net earnings between years was due primarily to lower sales volume partially
offset by lower operating expenses. Earnings per Class A common share were
$.40 in 1994 versus $.47 in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $3,614,000 at December 31, 1995, compared to $3,940,000 for
1994 and $2,929,000 for 1993. The decrease in working capital in 1995 was due
primarily to payments made for equipment and dividends. The increase in
working capital in 1994 was due primarily to net earnings. Cash provided by
operating activities decreased $732,000 in 1995 from 1994. The decrease was a
function of the net loss in 1995 compared to 1994 earnings, coupled with a
reduction in accounts payable and accrued expenses in 1995.
In 1995, payments made for dividends and purchases of equipment were funded
primarily by reductions of accounts receivable and inventories. In 1994,
payments made on the revolving credit facility and purchases of capital assets
were funded primarily by net earnings. In 1993, payments made on the revolving
credit facility and purchases of capital assets were funded primarily by net
earnings, reductions in accounts receivable, and refunds of income taxes.
Accounts receivable decreased in 1995 due to the timing of shipments to a few
major customers in late 1994 that did not repeat in 1995. In 1995 and 1994,
inventories decreased primarily due to the continued use of inventory
management programs by the Company and further consolidation of purchasing and
manufacturing in Waukesha, Wisconsin.
Capital expenditures were $431,000 in 1995, $397,000 in 1994, and $505,000 in
1993. Capital expenditures in 1995 consisted primarily of additions to
demonstration equipment, together with purchases of equipment used in research
and development and purchases of additional personal computers. Capital
expenditures in 1994 consisted primarily of upgrades to the Company's computer
equipment, updated equipment for research and development, and test equipment
for manufacturing. Capital expenditures in 1993 consisted primarily of updated
equipment for research and development, personal computer and related software
additions, and test equipment for manufacturing.
As of December 31, 1995, the Company had no borrowings on a $3,500,000
revolving credit facility.
At current operating levels, management believes that cash generated from
operations, together with the available revolving credit facility, will provide
adequate funds to meet the Company's operating needs for the foreseeable
future.
7
<PAGE> 10
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
ELECTRONIC TELE-COMMUNICATIONS, INC.
We have audited the consolidated balance sheets of Electronic
Tele-Communications, Inc. and subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Electronic
Tele-Communications, Inc. and subsidiary at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 8, 1996
8
<PAGE> 11
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (Note 14) $12,902,268 $16,262,639 $16,854,708
COST OF PRODUCTS SOLD 6,159,220 7,674,331 7,723,430
--------------------------------------------
GROSS PROFIT 6,743,048 8,588,308 9,131,278
OPERATING EXPENSES:
General and administrative 1,691,228 1,847,018 2,090,129
Marketing and selling 2,784,829 2,753,570 2,920,257
Research and development 2,533,422 2,537,056 2,469,730
--------------------------------------------
7,009,479 7,137,644 7,480,116
--------------------------------------------
EARNINGS (LOSS) FROM OPERATIONS (266,431) 1,450,664 1,651,162
OTHER INCOME (EXPENSE):
Interest expense (11,052) (20,114) (94,723)
Interest and dividend income 1,191 12,978 8,064
Miscellaneous (31,124) (80,586) (67,793)
--------------------------------------------
(40,985) (87,722) (154,452)
--------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (307,416) 1,362,942 1,496,710
Income taxes (benefit) (Note 9) (76,700) 401,000 368,000
--------------------------------------------
NET EARNINGS (LOSS) $ (230,716) $ 961,942 $ 1,128,710
============================================
EARNINGS (LOSS) PER SHARE (Notes 11, 12 and 13):
Class A common $ (0.08) $ 0.40 $ 0.47
============================================
Class B common $ (0.16) $ 0.32 $ 0.39
============================================
Weighted average common shares
outstanding (Notes 11 and 13) 2,503,949 2,508,043 2,512,274
============================================
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE> 12
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 497,971 $ 627,045
Trade accounts receivable, less allowance for doubtful
accounts of $137,800 in 1995 and $164,800 in 1994 (Note 6) 1,280,955 1,836,679
Inventories (Notes 2 and 6) 2,230,000 2,429,979
Refundable income taxes 201,072 --
Deferred income tax benefits (Note 9) 320,402 387,540
Prepaid expenses and other current assets 63,271 152,659
----------------------------
Total current assets 4,593,671 5,433,902
LEASED SERVICE EQUIPMENT (Notes 3 and 6) 37,993 59,123
PROPERTY, PLANT AND EQUIPMENT (Notes 4 and 6) 2,319,304 2,420,569
DEFERRED INCOME TAX BENEFITS (Note 9) 46,998 141,160
EXCESS COST OVER NET ASSETS ACQUIRED, less accumulated amortization
of $275,536 in 1995 and $234,952 in 1994 (Note 9) 1,126,285 1,166,869
----------------------------
Total Assets $8,124,251 $9,221,623
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 238,608 $ 384,511
Accrued expenses (Note 10) 639,851 853,332
Income taxes payable -- 50,426
Deferred revenue 100,937 205,296
----------------------------
Total current liabilities 979,396 1,493,565
OTHER LONG-TERM LIABILITIES (Note 5) 324,479 416,492
----------------------------
Total liabilities 1,303,875 1,910,057
----------------------------
STOCKHOLDERS' EQUITY (Notes 11 and 12):
Preferred stock, authorized 5,000,000 shares,
none issued -- --
Class A common stock, authorized 10,000,000 shares,
par value $.01, issued and outstanding 2,003,949 shares 20,039 20,039
Class B common stock, authorized 10,000,000 shares,
par value $.01, issued and outstanding 500,000 shares 5,000 5,000
Additional paid-in capital 3,323,528 3,323,528
Retained earnings 3,471,809 3,962,999
----------------------------
Total stockholders' equity 6,820,376 7,311,566
----------------------------
Total Liabilities and Stockholders' Equity $8,124,251 $9,221,623
============================
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE> 13
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(230,716) $ 961,942 $1,128,710
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 592,403 628,255 700,625
Deferred income taxes 161,300 3,729 940
(Gain) loss from sale of equipment (8,984) 23,727 (58,991)
Changes in operating assets and liabilities:
Accounts receivable 555,724 (821,725) 838,348
Inventories 199,979 492,628 339,211
Prepaid expenses and other current assets 89,388 (20,866) (25,055)
Accounts payable and accrued expenses (451,397) 39,405 (208,893)
Income taxes (251,498) (26,323) 452,075
Deferred revenue (104,359) 3,465 (405,361)
-------------------------------------------
Total adjustments 782,556 322,295 1,632,899
-------------------------------------------
Net cash provided by operating activities 551,840 1,284,237 2,761,609
===========================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (430,735) (397,121) (504,749)
Proceeds from sale of equipment 10,295 17,940 142,065
-------------------------------------------
Net cash used in investing activities (420,440) (379,181) (362,684)
===========================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (260,474) (260,385) (210,215)
Repayment of revolving credit facility -- (650,000) (1,980,000)
Proceeds from issuance of common stock -- 8,775 --
-------------------------------------------
Net cash used in financing activities (260,474) (901,610) (2,190,215)
===========================================
Net increase (decrease) in cash and cash equivalents (129,074) 3,446 208,710
Cash and cash equivalents at beginning of year 627,045 623,599 414,889
-------------------------------------------
Cash and cash equivalents at end of year $ 497,971 $ 627,045 $ 623,599
===========================================
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 13,498 $ 423,594 $ 339,770
Cash received from income tax refunds -- -- 424,785
Cash paid for interest expense 11,052 26,851 95,823
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE> 14
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock (Note 11)
-------------------------------------------------
Class A Class B Total
------- ------- Additional Stock-
Number Number Paid-in Retained holders'
of Shares Amount of Shares Amount Capital Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 2,002,149 $20,021 500,000 $5,000 $3,314,771 $2,342,947 $5,682,739
Net earnings -- -- -- -- -- 1,128,710 1,128,710
Cash dividends paid:
$.10 per Class A common share -- -- -- -- -- (200,215) (200,215)
$.02 per Class B common share -- -- -- -- -- (10,000) (10,000)
---------------------------------------------------------------------------------------------
Balances at December 31, 1993 2,002,149 20,021 500,000 5,000 3,314,771 3,261,442 6,601,234
Net earnings -- -- -- -- -- 961,942 961,942
Stock options exercised 1,800 18 -- -- 8,757 -- 8,775
Cash dividends paid:
$.12 per Class A common share -- -- -- -- -- (240,385) (240,385)
$.04 per Class B common share -- -- -- -- -- (20,000) (20,000)
---------------------------------------------------------------------------------------------
Balances at December 31, 1994 2,003,949 20,039 500,000 5,000 3,323,528 3,962,999 7,311,566
NET LOSS -- -- -- -- -- (230,716) (230,716)
CASH DIVIDENDS PAID:
$.12 PER CLASS A COMMON SHARE -- -- -- -- -- (240,474) (240,474)
$.04 PER CLASS B COMMON SHARE -- -- -- -- -- (20,000) (20,000)
---------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 2,003,949 $20,039 500,000 $5,000 $3,323,528 $3,471,809 $6,820,376
=============================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE> 15
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND CONCENTRATION OF CREDIT RISK
The Company designs, manufactures, programs, markets and leases digital
voice information and call processing systems and related computer software and
services. The Company's equipment, compatible with most telephone systems,
provides a wide range of audio information and call handling capabilities via
the telephone network. The Company's systems interface with customer computer
systems to provide voice access to computerized information. Examples of these
voice information capabilities include time, temperature, road conditions,
stock prices, repair status, and many others. Examples of the call processing
capabilities include voice mail, call sequencing, and automated attendant
functions. The Company's systems can also announce new and old telephone
numbers, flexible pay telephone charges, class of service announcements, and
service specific customer dialing information.
The Company was incorporated in Wisconsin in 1980. The Company's
executive offices, together with manufacturing, engineering, marketing, sales,
and technical services are located in Waukesha, Wisconsin. Engineering, sales,
technical services, and limited manufacturing are located in Atlanta, Georgia
and Pleasanton, California.
The Company's sales are concentrated primarily in the domestic
telecommunications industry. The Company performs periodic credit evaluations
of its customers' financial condition and does not require collateral.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary, The Audichron Company. All intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
LEASED SERVICE EQUIPMENT
Leased service equipment is stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the equipment.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation
and amortization. For financial reporting purposes, depreciation and
amortization is provided using the straight-line method over estimated useful
lives of 3 to 20 years.
EXCESS COST OVER NET ASSETS ACQUIRED
Excess cost over net assets acquired are recorded at cost and amortized by the
straight-line method over periods between 25 and 40 years.
REVENUE RECOGNITION
Revenue from equipment sales is recognized at the time of shipment. Lease and
service revenue, approximating 28%, 23%, and 22% of total revenue in
1995, 1994 and 1993, respectively, is recognized when the related service is
provided. Revenue from the sale of maintenance contracts is deferred and
recognized over the term of the contract.
RESEARCH AND DEVELOPMENT
Research and development costs related to the design and development of new
products are expensed as incurred.
PENDING ACCOUNTING CHANGES
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets where disposal is expected. The Company
will adopt SFAS No. 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the adoption will have a material effect.
RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to conform to the 1995
classifications.
13
<PAGE> 16
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
2. INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $1,218,365 $1,733,826
Work-in-process and
finished goods 1,013,766 1,153,383
Maintenance parts 358,459 317,890
Reserve for obsolescence (360,590) (775,120)
-----------------------
Total inventories $2,230,000 $2,429,979
===========================================================
</TABLE>
3. LEASED SERVICE EQUIPMENT
The Company leases its voice announcement equipment and related
computer software for terms of one month to three years with
renewal options on a month-to-month basis. All such leases are
treated as operating leases. Leased service equipment consists of
the following:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Leased service equipment $ 689,375 $ 692,937
Accumulated depreciation
and amortization (651,382) (633,814)
----------------------
Net leased service equipment $ 37,993 $ 59,123
==========================================================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Land $ 289,290 $ 289,290
Buildings and improvements 1,618,306 1,612,585
Equipment and furniture 3,947,287 3,564,120
----------------------
5,854,883 5,465,995
Accumulated depreciation
and amortization (3,535,579) (3,045,426)
----------------------
Net property, plant
and equipment $2,319,304 $2,420,569
==========================================================
</TABLE>
5. PLANT, OFFICE AND EQUIPMENT LEASES
The Company leases its plant and office facilities in Atlanta,
Georgia and Pleasanton, California under long-term operating leases
extending to the years 2000 and 1999, respectively. Future minimum
lease payments, which for the Atlanta facility increase with the
consumer price index, as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Rental Sublease Net Rental
Year Payments Rentals Payments
- -------------------------------------------------------------------
<S> <C> <C> <C>
1996 $ 680,500 $ 222,500 $ 458,000
1997 684,200 222,500 461,700
1998 684,200 154,300 529,900
1999 539,500 109,700 429,800
2000 274,300 109,700 164,600
----------------------------------------------------
Total minimum
lease
payments $2,862,700 $ 818,700 $2,044,000
===================================================================
</TABLE>
Included in minimum lease payments are certain payments for
abandoned leases. A liability of $299,700 and $356,300 at December
31, 1995 and 1994, respectively, for those payments is included in
accrued expenses and other long-term liabilities (see Note 10).
Rent expense consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------
<S> <C> <C> <C>
Total rent expense $ 585,657 $ 531,533 $ 601,572
Amounts received under
sublease rentals (222,110) (211,413) (170,914)
------------------------------------
Net rent expense $ 363,547 $ 320,120 $ 430,658
===============================================================
</TABLE>
6. REVOLVING CREDIT FACILITY
The Company has a $3,500,000 revolving credit facility available
with interest at the announced reference rate of the bank (8.5% at
December 31, 1995). No compensating balances or committment fees
are required under the revolving credit facility. There were no
borrowings under the revolving credit facility at December 31,
1995, which expires on May 15, 1997.
The revolving credit facility is secured by a credit agreement with
the bank listing certain assets as collateral. The provisions of
the credit agreement restrict security interests in Company assets,
require maintenance of minimum current ratios, tangible net worth,
and debt ratios, and limit capital expenditures and restricted
payments.
14
<PAGE> 17
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
7. PROFIT SHARING PLAN
The Company has a profit sharing plan pursuant to Section 401(k) of the
Internal Revenue Code, whereby participants may contribute a percentage of
compensation, but not in excess of the maximum allowed under the Code.
Substantially all employees are eligible to participate. The plan provides
for, and the Company expenses, Company matching contibutions and additional
discretionery contributions determined by the Board of Directors which, in the
aggregate, amounted to $96,200 in 1995, $200,000 in 1994, and $197,900 in 1993.
8. STOCK OPTION PLAN
The Company has a Nonqualified Stock Option Plan whereby 175,000 shares
of Class A common stock are authorized for granting of options to key employees
of the Company as determined by the Stock Option Committee of the Board of
Directors. At December 31, 1995, 28,400 shares are available for future
grants. Options granted may be exercised not more than 20% each year from date
of grant, and expire ten years from date of grant. The exercise price is the
average of the highest and lowest transaction prices of the stock on the date
of grant. Options are cancelled upon termination of employment and that stock
becomes available for future option grants.
Transactions with respect to the Company's stock option plan were as follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
- ---------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1992 134,800 $4.25 to $8.50
Granted 10,900 $6.50
Cancelled or expired (9,400) $4.25 to $8.50
---------------------------------
Balance at December 31, 1993 136,300 $4.25 to $8.50
Granted 20,200 $5.38
Exercised (1,800) $4.88
Cancelled or expired (5,000) $4.25 to $8.50
---------------------------------
Balance at December 31, 1994 149,700 $4.25 to $8.50
Granted 15,900 $2.88
Cancelled or expired (26,000) $2.88 TO $8.50
---------------------------------
Balance at December 31, 1995 139,600 $2.88 TO $8.50
=================================
Exercisable at
December 31, 1995 96,320 $4.25 TO $8.50
=====================================================================
</TABLE>
The Company has applied Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its stock options granted.
No decision has been reached as to how the Company will apply, beginning in
1996, recently issued Statement of Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," which permits the Company to continue accounting
for stock options in the same manner with fair value disclosures or measure
compensation cost by the fair value of stock options granted.
9. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $(288,000) $ 383,271 $ 345,060
State 50,000 14,000 22,000
-------------------------------------
Total current (238,000) 397,271 367,060
Deferred 161,300 81,203 114,965
Change in valuation
reserve - (77,474) (114,025)
-------------------------------------
Income tax expense
(benefit) $ (76,700) $ 401,000 $ 368,000
===============================================================
</TABLE>
A reconciliation of income taxes at the United States statutory rate to the
effective tax rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate (34.0)% 34.0% 34.0%
State income taxes net
of Federal benefit 10.7 0.7 1.0
State net operating
losses generated,
not utilized (11.8) - -
Amortization of goodwill
and acquisition costs 4.5 0.7 1.2
Reduction in valuation
allowance excluding use
of acquired loss
carryforwards - (5.7) (7.6)
Other 5.7 (0.3) (4.0)
----------------------------------
Effective tax rate (24.9)% 29.4% 24.6%
================================================================
</TABLE>
For 1995, the current state income tax expense is related to the profitable
operations of the Company's subsidiary.
15
<PAGE> 18
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
At December 31, 1995, the Company had net operating loss carryforwards
of approximately $935,000 available to offset future federal taxable income.
The utilization of the net operating loss carryforwards is subject to an annual
limitation of approximately $155,000 and expires in the year 2005. The
carryforwards resulted from the Company's acquisition of Automation
Electronics Corporation (AEC) in 1991. For financial reporting purposes, a
valuation reserve of $317,754 as of December 31, 1995 and 1994, was provided to
offset the deferred tax assets related to those carryforwards. When realized,
the tax benefit related to the acquired net operating loss carryforwards will
be applied to reduce goodwill related to the acquisition of AEC.
The additional valuation reserve of $96,591 at December 31, 1995 and
1994, was provided because of uncertainty, based on the Company's financial
results in the current and prior years, whether a portion of the net deferred
tax asset would be realized. As the Company has primarily been profitable in
prior years and, if profitable in future years, this portion of the valuation
reserve will be reduced and used to offset income tax expense.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Excess of tax over
book depreciation $(158,597) $(173,014)
Deferred tax assets:
Acquired net operating loss
carryforwards 317,754 317,754
Inventories 281,846 460,146
Allowance for doubtful
accounts 52,370 62,641
Restructuring charge 113,877 139,187
Accrued charges and other 174,495 136,331
----------------------
Total deferred tax assets 940,342 1,116,059
----------------------
781,745 943,045
Valuation reserve (414,345) (414,345)
----------------------
Net deferred tax asset $ 367,400 $ 528,700
==========================================================
</TABLE>
10. ACCRUED EXPENSES
Accrued expenses consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Accrued wages and benefits $ 303,271 $ 473,722
Accrued restructuring charge 58,619 66,605
Product warranty reserve 107,111 108,043
Other accrued expenses 170,850 204,962
----------------------
Total accrued expenses $ 639,851 $ 853,332
==========================================================
</TABLE>
11. CAPITAL STOCK
The Company has two classes of common stock and has also authorized 5,000,000
shares of preferred stock.
In the event of liquidation, holders of Class A common stock are
entitled to receive, after distribution of amounts due to holders of preferred
stock, $3 per share (subject to adjustments for stock splits, stock dividends
or similar events involving Class A common stock) before any distribution to
holders of Class B common stock. After the payment of $3 per share to Class A
common stock holders, the Class B common stock holders are entitled to receive
$3 per share. Thereafter, the Class A and Class B common stock holders share
equally in any further distributions.
The Company's Board of Directors has the authority and responsibility to
determine the rate of dividend, liquidation value, and other preferences of the
preferred stock upon issuance. No shares of preferred stock have been issued to
date.
16
<PAGE> 19
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
12. DIVIDENDS
The holders of Class A common stock, which is non-voting, are entitled to
receive a non-cumulative annual cash dividend of $.08 per share before any
dividends may be paid to the holders of Class B common stock. Thereafter, any
additional dividend in a fiscal year must be paid on the two classes of common
stock on an equal basis. If the preferential dividend is omitted for three
consecutive years, the Class A common stock is entitled to vote in the
following year.
13. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per Class A and Class B common share were computed, as
shown in the table below, by adding dividends paid per Class A and Class B
common share (distributed earnings) to earnings (loss) net of dividends paid
(undistributed earnings). Undistributed earnings are allocated equally per
share to weighted average Class A shares, as adjusted for the dilutive effect
of stock options using the treasury stock method, and weighted average Class B
shares outstanding during the year.
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
1995 1994 1993 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Distributed
earnings $ .12 $ .12 $ .10 $ .04 $ .04 $ .02
Undistributed
earnings (.20) .28 .37 (.20) .28 .37
-----------------------------------------
Total $(.08) $ .40 $ .47 $(.16) $ .32 $ .39
=============================================================
</TABLE>
14. MAJOR CUSTOMERS
One customer accounted for 23%, 41%, and 39% of sales in 1995, 1994, and 1993,
respectively. Amounts due from the customer were approximately $375,500 and
$756,800 at December 31, 1995 and 1994, respectively. Another customer
accounted for 14% of sales in 1995.
17
<PAGE> 20
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
ELEVEN YEAR REVIEW OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales $12,902,268 $16,262,639 $16,854,708 $16,314,790 $17,897,351
Cost of products sold 6,159,220 7,674,331 7,723,430 8,076,399 8,542,136
-----------------------------------------------------------------------------------
Gross profit 6,743,048 8,588,308 9,131,278 8,238,391 9,355,215
General and administrative 1,691,228 1,847,018 2,090,129 2,041,188 2,342,440
Marketing and selling (1) 2,784,829 2,753,570 2,920,257 3,414,824 3,673,246
Research and development 2,533,422 2,537,056 2,469,730 2,577,943 2,473,116
Other income (expense) (40,985) (87,722) (154,452) (1,709,390)(2) (566,674)
-----------------------------------------------------------------------------------
Earnings (loss) before income taxes (307,416) 1,362,942 1,496,710 (1,504,954) 299,739
Income taxes (76,700) 401,000 368,000 (728,800)(3) 95,000
-----------------------------------------------------------------------------------
Net earnings (loss) $ (230,716) $ 961,942 $ 1,128,710 $ (776,154) $ 204,739
===================================================================================
PER SHARE DATA:
Weighted average
shares outstanding 2,503,949 2,508,043 2,512,274 2,530,195 2,508,189
Earnings (loss) per share:
Class A common $ (0.08) $ 0.40 $ 0.47 $ (0.29) $ 0.10
Class B common $ (0.16) $ 0.32 $ 0.39 $ (0.37) $ 0.02
Shares outstanding at year end 2,503,949 2,503,949 2,502,149 2,502,149 2,563,238
Book value per share $ 2.72 $ 2.92 $ 2.64 $ 2.27 $ 2.71
Cash dividends paid per share $ 0.12 $ 0.12 $ 0.10 $ 0.10 $ 0.10
OTHER DATA:
Working capital $ 3,614,275 $ 3,940,337 $ 2,928,946 $ 3,350,661 $ 5,982,277
Current ratio 4.7 3.6 2.4 2.1 3.2
Total assets $ 8,124,251 $ 9,221,623 $ 9,144,744 $10,743,754 $13,321,905
Total long-term obligations $ - $ - $ - $ 1,650,000 $ 3,600,000
Stockholders' equity $ 6,820,376 $ 7,311,566 $ 6,601,234 $ 5,682,739 $ 6,950,118
After tax return on sales -1.8% 5.9% 6.7% -4.8% 1.1%
Return on equity -3.4% 13.2% 17.1% -13.7% 2.9%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Prior to 1987, general, administrative, marketing and selling expenses were
combined into general and administrative expenses.
(2) Includes restructuring charge of $1,375,000 for estimated costs associated
with severance payments, discontinuance of certain product lines,
consolidation of facilities, and related matters.
(3) Includes gain of $187,000 from adoption of Statement of Financial
Accounting Standards No. 109 titled "Accounting For Income Taxes."
18
<PAGE> 21
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13,102,637 $9,869,107 $3,269,866 $3,101,746 $5,605,536 $4,696,324
5,352,084 5,179,304 1,754,464 1,507,552 2,206,906 1,929,249
- ----------------------------------------------------------------------------------------------------------
7,750,553 4,689,803 1,515,402 1,594,194 3,398,630 2,767,075
1,728,570 1,214,545 442,202 392,576 631,064 521,220
2,229,056 1,641,898 580,527 400,625 - -
2,087,500 1,234,041 638,602 769,781 627,436 517,215
(309,269) (232,140) 181,876 68,407 191,582 902
- ----------------------------------------------------------------------------------------------------------
1,396,158 367,179 35,947 99,619 2,331,712 1,729,542
492,000 168,700 (1,200) (36,600) 1,096,800 809,100
- ----------------------------------------------------------------------------------------------------------
$ 904,158 $ 198,479 $ 37,147 $ 136,219 $1,234,912 $ 920,442
==========================================================================================================
2,296,726 2,295,000 2,295,000 2,295,000 2,295,000 2,085,452
$ 0.41 $ 0.10 $ 0.03 $ 0.08 $ 0.56 $ 0.44
$ 0.33 $ 0.02 $ (0.05) $ - $ 0.48 $ 0.44
2,300,000 2,295,000 2,295,000 2,295,000 2,295,000 2,295,000
$ 2.50 $ 2.18 $ 2.18 $ 2.23 $ 2.23 $ 1.75
$ 0.10 $ 0.10 $ 0.08 $ 0.08 $ 0.08 $ -
$2,813,104 $2,380,702 $4,329,206 $4,335,924 $4,304,520 $3,402,894
2.0 2.5 28.0 20.7 17.4 6.2
$ 9,261,853 $8,646,024 $5,220,946 $5,371,481 $5,402,727 $4,698,443
$ 766,667 $2,066,667 $ -- $ -- $ -- $ --
$ 5,751,300 $5,012,517 $5,003,538 $5,109,991 $5,117,372 $4,026,060
6.9% 2.0% 1.1% 4.4% 22.0% 19.6%
15.7% 4.0% 0.7% 2.7% 24.1% 22.9%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 22
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 QUARTERS
---------------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $2,963,568 $3,776,796 $2,958,538 $3,203,366 $12,902,268
GROSS PROFIT 1,534,133 2,066,108 1,388,612 1,754,195 6,743,048
NET EARNINGS (277,371) 187,599 (262,950) 122,006 (230,716)
EARNINGS PER SHARE:
CLASS A COMMON (0.10) 0.08 (0.10) 0.05 (0.08)
CLASS B COMMON (0.16) 0.08 (0.12) 0.05 (0.16)
DIVIDENDS PER CLASS A COMMON SHARE 0.06 0.00 0.06 0.00 0.12
STOCK PRICE FOR CLASS A COMMON:
HIGH 5 4 3 3/4 4
LOW 3 2 3/4 2 3/4 2 3/4
</TABLE>
<TABLE>
<CAPTION>
1994 Quarters
---------------------------------------------------------------------
First Second Third Fourth Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $3,926,096 $3,918,547 $4,244,757 $4,173,239 $16,262,639
Gross profit 2,067,429 2,152,107 2,118,611 2,250,161 8,588,308
Net earnings 172,302 181,571 214,691 393,378 961,942
Earnings per share:
Class A common 0.08 0.07 0.09 0.16 0.40
Class B common 0.02 0.07 0.07 0.16 0.32
Dividends per Class A common share 0.06 0.00 0.06 0.00 0.12
Stock price for Class A common:
High 8 1/2 6 5 1/2 5 1/4
Low 5 1/2 4 1/4 3 3/4 3 3/4
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
Our Products
MULTI-APPLICATION
VOICE PLATFORMS
Serving the announcement needs of the Central Office market are ETC's line of
voice platforms. Through the provision of interactive voice announcements,
these products enhance call completion and revenues for our customers.
Announcements are offered for changed number, CLASS, FLEX, vanity 800/888, 900,
split referral, automatic number and standard (POTS) intercept announcements.
Voice platforms known worldwide include: Digicept(R) 2000, Digicept(R) 2002,
Digicept(R) Intr-Act, and Audichron(R) System 3 and System 3 Jr.
21
<PAGE> 24
VOICE MESSAGING
PLATFORMS
ETC's voice messaging platforms meet the on-premise needs of the business
marketplace. As telephone system peripherals, these products provide prompt,
courteous telephone answering. Fast, accurate, call-routing and message-taking
capabilities ensure caller satisfaction. MAX products improve the users'
productivity while enhancing corporate image. MAX(TM) 370 and Audichron(R) 410
are offered in this line of equipment.
CALL SEQUENCERS
The CMS family of products provides discriminating call management functions
for the service-oriented business. Businesses can simultaneously increase
customer service levels and personal productivity with ETC's CMS products.
Prompt call answering reduces lost calls while ensuring that calls are
processed in queue. The comprehensive telephone management reports produced by
CMS products provide valuable evaluation of both personnel and equipment
requirements. CMS product offerings include CMS Sr(TM), CMS Sr(TM) 9-1-1
Auxiliary Unit and CMS Jr (TM).
22
<PAGE> 25
Find your solutions on our
Communication Spectrum
DIGITAL ANNOUNCERS
ETC's digital announcers provide critical voice announcements any time,
anywhere. Clear digitally-recorded messages are provided for business and
telephone operations around the world. With no mechanical components to wear
out, instant unlimited playback of messages is possible. Whatever the
announcement need, ETC's digital announcers meet the requirement. The
extensive digital announcer family consists of ARIS(R), ARIS(R) Multi-Channel,
Digicept(R) 1000, Digicept(R) FML/MOR, Messenger(TM) 212-Plus, Messenger(TM)
612 and Messenger(TM) 712.
SPECIAL FUNCTION PRODUCTS
Special function products meet specialized needs of telephone service providers
world-wide. Visual information displays, disconnect units and specialized
trunk interfaces comprise a few of the offerings. Customization of existing
products and development of new products assure that ETC can provide
customer-specific telephony solutions.
23
<PAGE> 26
TIME/WEATHER/
TEMPERATURE SYSTEMS &
USA TIME(R) SERVICES
ETC's time, temperature and weather announcement systems, known as USA Time(R)
Services, are among the most popular telephone information services in the
world. Millions of people call daily to hear the correct time, current
temperature and weather forecast in their community. USA Time(R) Services are
initiated at the ETC Weather Center, which operates 24 hours a day with a staff
of degreed meteorologists. Three weather forecasting options are available:
Weathertel(R) III, Weathertel(R) IV and Weathertel(R) V. Dependable operation
for over 20 years has earned ETC's Weather Center a reputation for credibility
and professionalism in forecasting. A private, customized computer network
interfaces with ETC products at subscriber sites across the country, checking
for the correct time, updating forecasts, and collecting call counts at each
location. Subscribers may purchase or lease the Digicept(R) Time & Temperature
II or Audichron(R) 410 products to provide time, temperature and weather
announcements while serving as an advertising, promotional or employee
communication system.
RECORDING SERVICES
A professional staff is available from ETC's Recording Studio in Atlanta to
provide high-quality recordings of commercial announcements and customized
messages in a variety of formats and languages for any product. Known as the
"Time Lady", Jane Barbe supplies her voice talent for time and temperature
announcements, heard around the world.
METEOROLOGICAL
SERVICES
Using state-of-the-art data services and equipment, Weather Center
meteorologists in Atlanta, Georgia investigate and update weather forecasts
four times daily or more often when severe weather conditions warrant.
Current weather forecasts, along with the time and temperature, are given to
callers automatically, 24 hours a day, every day of the year. In addition, the
Weather Center and Customer Services Department remotely handle all
maintenance, call rate reports, promotional messages, weather updates, time
setting and changes to/from daylight savings time.
24
<PAGE> 27
CORPORATE
OFFICERS
Dean W. Danner, P.E.
President and
Chief Executive Officer
Jeffrey M. Nigl, C.P.A.
Vice President, Treasurer and
Chief Financial Officer
Hazel Danner
Corporate Secretary and
Director Human Resources
R.W. Johns, Jr., C.P.A.
Vice President Sales
Bonita M. Danner, P.E.
Vice President Engineering
Robert R. Spiering
Vice President Technical Services
Cynthia K. Carlson
Vice President Contracts
Elaine McTyre
Assistant Corporate Secretary
OUTSIDE DIRECTORS
George W. Danner, P.E. - 3
Chairman of the Board
Richard A. Gabriel - 1, 2
Executive Vice President
Stolper Fabralloy Products
A. William Huelsman - 2, 4
Joanne B. Huelsman, Esq. - 1
Wisconsin State Senator
Peter J. Lettenberger, Esq. - 2
Partner, Quarles & Brady
INSIDE DIRECTORS
Bonita M. Danner - 1, 3
Vice President Engineering
Dean W. Danner - 3, 4
President and
Chief Executive Officer
Hazel Danner - 3, 4
Corporate Secretary and
Director Human Resources
COMMITTEE ASSIGNMENTS
1. Audit Committee
2. Compensation Committee
3. Executive Committee
4. Building and Grounds Committee
SHAREHOLDER
INFORMATION
ANNUAL MEETING OF SHAREHOLDERS
2:00 P.M., Friday, May 3, 1996
Merrill Hills Country Club
W270 S3425 Merrill Hills Road
Waukesha, Wisconsin 53188
10-K REPORT AND
INVESTOR RELATIONS
Electronic Tele-Communications, Inc. Form 10-K annual report may be obtained
without charge by writing to Jeffrey M. Nigl, Vice President, Electronic
Tele-Communications, Inc., 1915 MacArthur Road, Waukesha, Wisconsin 53188.
Investor relations inquiries may be made to Mr. Nigl in writing or by
telephone, (414) 542-5600.
STOCK HELD IN
"STREET NAME"
Electronic Tele-Communications, Inc. maintains a direct mailing list to ensure
that shareholders whose stock is held in broker accounts receive shareholder
information on a timely basis. Shareholders may add their names to this list
by writing or calling our Investor Relations Department.
STOCK LISTING
Electronic Tele-Communications, Inc. Class A common stock trades on The NASDAQ
Stock Market under the symbol ETCIA (ElecTel).
SHAREHOLDERS OF RECORD
As of February 28, 1996, there were approximately 990 shareholders of record
and beneficial shareholders owning Class A common stock.
TRANSFER AGENT AND REGISTRAR
For address changes or questions regarding your shares or dividend checks,
please contact:
Firstar Trust Company
615 East Michigan Avenue
Milwaukee, Wisconsin 53202
Telephone (414) 287-3900
INDEPENDENT AUDITORS
Ernst & Young LLP
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4497
25
<PAGE> 28
Our voices
[ETC LOGO] mean business
Electronic Tele-Communications, Inc. http://www.etcia.com
<TABLE>
<S> <C> <C>
CORPORATE OFFICE GEORGIA OFFICE CALIFORNIA OFFICE
Electronic Tele-Communications, Inc. Electronic Tele-Communications, Inc. Electronic Tele-Communications, Inc.
1915 MacArthur Road 3605 Clearview Place 6689 Owens Drive, Suite B
Waukesha, Wisconsin 53188 Atlanta, Georgia 30340 Pleasanton, California 94588
Telephone (414) 542-5600 Telephone (770) 457-5600 Telephone (510) 463-3393
FAX (414) 542-1524 FAX (770) 455-3822 FAX (510) 463-3737
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1995 and the Consolidated Statement
of Operations for the Year Ended December 31, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 497,971
<SECURITIES> 0
<RECEIVABLES> 1,418,755
<ALLOWANCES> 137,800
<INVENTORY> 2,230,000
<CURRENT-ASSETS> 4,593,671
<PP&E> 6,544,258
<DEPRECIATION> 4,186,961
<TOTAL-ASSETS> 8,124,251
<CURRENT-LIABILITIES> 979,396
<BONDS> 0
0
0
<COMMON> 25,039
<OTHER-SE> 6,795,337
<TOTAL-LIABILITY-AND-EQUITY> 8,124,251
<SALES> 12,902,268
<TOTAL-REVENUES> 12,902,268
<CGS> 6,159,220
<TOTAL-COSTS> 6,159,220
<OTHER-EXPENSES> 7,054,412
<LOSS-PROVISION> (15,000)
<INTEREST-EXPENSE> 11,052
<INCOME-PRETAX> (307,416)
<INCOME-TAX> (76,700)
<INCOME-CONTINUING> (230,716)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (230,716)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
