SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-15761
GLENAYRE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 98-0085742
(State or other jurisdiction of ( I.R.S. Employer Identification No.)
incorporation or organization)
5935 CARNEGIE BOULEVARD, CHARLOTTE, NORTH CAROLINA 28209
(Address of principal executive offices) Zip Code
(704) 553-0038
(Registrant's telephone number, including area code)
4201 CONGRESS STREET, SUITE 455, CHARLOTTE, NC 28209
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
The number of shares outstanding of the Registrant's common stock,
par value $.02 per share, at October 24, 1995 was 39,914,246 shares.
<PAGE>
GLENAYRE TECHNOLOGIES, INC.
Index
<TABLE>
<CAPTION>
Part I - Financial Information:
Item 1. Financial Statements Page
<S> <C>
Independent Accountants' Review Report........................................ 3
Condensed Consolidated Balance Sheets as of
September 30,1995 (Unaudited) and December 31, 1994.................... 4
Condensed Consolidated Statements of Operations for the
nine months ended September 30, 1995 and 1994 (Unaudited).............. 5
Condensed Consolidated Statements of Operations for the
three months ended September 30, 1995 and 1994 (Uaudited).............. 6
Condensed Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 1995 (Unaudited).................. 7
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1995 and 1994 (Unaudited).............. 8
Notes to Condensed Consolidated Financial Statements (Unaudited).......... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 12
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K....................................... 16
</TABLE>
2
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Independent Accountants' Review Report
To the Board of Directors and Stockholders of
Glenayre Technologies, Inc.
Charlotte, North Carolina
We have reviewed the accompanying condensed consolidated balance
sheet of Glenayre Technologies, lnc. and subsidiaries as of
September 30, 1995, and the related condensed consolidated
statements of operations for the nine-month period and three-month
period ended September 30, 1995, the condensed consolidated
statement of stockholders' equity for the nine months ended
September 30, 1995 and the condensed consolidated statement of cash
flows for the nine-month period ended September 30, 1995. These
financial statements are the responsibility of the Company's
management. The condensed consolidated balance sheet of Glenayre
Technologies, Inc. and subsidiaries as of September 30, 1994, and
the related condensed consolidated statement of operations for the
nine-month period and three-month period ended September 30, 1994,
the condensed consolidated statement of stockholders' equity for the
nine months ended September 30, 1994 and the condensed consolidated
statement of cash flows for the nine-month period ended September
30, l994 were reviewed by other accountants whose report (dated
October 26, 1994) stated that they were not aware of any material
modifications that should be made to those statements for them to be
in conformity with generally accepted accounting principles.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated
financial statements at September 30, 1995, and for the three-month
and nine-month periods then ended for them to be in conformity with
generally accepted accounting principles.
The consolidated balance sheet of Glenayre Technologies, Inc. as of
December 31, 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then
ended (not presented herein) were previously audited, in accordance
with generally accepted auditing standards, by other auditors who
expressed an unqualified opinion dated February 3, 1995 on those
financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December
31, 1994, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Ernst & Young LLP
Charlotte North Carolina
October 19, 1995
3
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GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 60,886 $ 52,043
Short-term investments 53,869 39,462
Accounts receivable, net 72,903 33,707
Trade notes receivable, current 9,241 8,816
Inventories (Note 3) 51,554 24,261
Deferred income taxes 12,039 6,518
Prepaid expenses and other current assets 6,439 5,526
Total current assets 266,931 170,333
Trade notes receivable 14,416 12,480
Property, plant and equipment, net 36,871 17,707
Goodwill (Note 4) 81,096 61,436
Deferred income taxes 26,409 22,510
Other assets 305 495
TOTAL ASSETS $426,028 $284,961
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 17,198 $ 9,871
Accrued liabilities 41,425 25,035
Other current liabilities 1,279 218
Total current liabilities 59,902 35,124
Other liabilities 4,268 4,402
Stockholders' Equity (Note 6):
Preferred stock, $.01 par value; 5,000,000
shares authorized, no shares issued and outstanding -- --
Common stock, $.02 par value; authorized
50,000,000 shares; outstanding: September 30, 1995 -
39,900,896 shares; December 31, 1994 - 37,327,693 shares 798 747
Contributed capital 288,592 216,235
Retained earnings from February 1, 1988 72,468 28,453
Total stockholders' equity 361,858 245,435
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $426,028 $284,961
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from
the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
4
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
Nine Months Ended
September 30,
1995 1994
NET SALES (Notes 1 and 2) . . . . . . . . . . $222,945 $123,791
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . 96,067 52,906
Selling, general and administrative expense 39,657 29,016
Research and development expense . . . 17,084 11,620
Depreciation and amortization expense . 5,778 4,302
Total costs and expenses . . . . . . . . 158,586 97,844
INCOME FROM OPERATIONS . . . . . . . . . . . 64,359 25,947
OTHER INCOME (EXPENSES):
Interest income . . . . . . . . . . . . 6,100 3,239
Interest expense . . . . . . . . . . . . (138) (242)
Foreign exchange gain (loss) . . . . . . 248 (294)
Other, net . . . . . . . . . . . . . . (2) (116)
Total other income (expenses), net . . . 6,208 2,587
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . . . . . . . . 70,567 28,534
PROVISION FOR INCOME TAXES (Note 5) . . . . . 17,501 5,083
INCOME FROM CONTINUING OPERATIONS . . . . . . 53,066 23,451
DISCONTINUED OPERATIONS (Note 2) . . . . . . -- 388
NET INCOME . . . . . . . . . . . . . . . . . $53,066 $23,839
PRIMARY INCOME PER COMMON SHARE (Note 6):
Continuing operations . . . . . . . . . $ 1.28 $ .60
Discontinued operations . . . . . . . . -- .01
NET INCOME PER COMMON SHARE - PRIMARY. . . . . $ 1.28 .61
FULLY DILUTED INCOME PER COMMON SHARE (Note 6):
Continuing operations . . . . . . . . . $ 1.27 $ .60
Discontinued operations . . . . . . . . -- .01
NET INCOME PER COMMON SHARE - FULLY DILUTED . $ 1.27 $ .61
See notes to condensed consolidated financial statements.
5
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
Three Months Ended
September 30,
1995 1994
NET SALES (Notes 1 and 2) . . . . . . . . . . $ 88,104 $43,892
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . 37,886 18,459
Selling, general and administrative expense 15,432 10,555
Research and development expense . . . 6,440 4,452
Depreciation and amortization expense . 2,257 1,465
Total costs and expenses . . . . . . . . 62,015 34,931
INCOME FROM OPERATIONS . . . . . . . . . . . 26,089 8,961
OTHER INCOME (EXPENSES):
Interest income . . . . . . . . . . . . 2,033 1,339
Interest expense . . . . . . . . . . . . (54) (59)
Foreign exchange gain (loss) . . . . . . 151 23
Other, net . . . . . . . . . . . . . . 51 (38)
Total other income (expenses), net . . . 2,181 1,265
INCOME BEFORE INCOME TAXES . . . . . . . . . 28,270 10,226
PROVISION FOR INCOME TAXES (Note 5) . . . . . 7,209 1,841
NET INCOME . . . . . . . . . . . . . . . . . $21,061 $ 8,385
INCOME PER COMMON SHARE (Note 6):
Primary . . . . . . . . . . . . . . . . . $ .50 $ .21
Fully Diluted . . . . . . . . . . . . . . $ .50 $ .21
See notes to condensed consolidated financial statements.
6
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
(unaudited)
Total
Common Stock Contributed Retained Stockholder's
Shares Amount Capital Earnings Equity
Balances, December 31, 1994 37,328 $747 $216,235 $28,453 $245,435
Net income 53,066 53,066
Stock options exercised 1,783 35 12,448 12,483
Shares issued and options
assumed in connection with
business acquisition
(Note 1) 790 16 27,249 27,265
Utilization of net
operating loss carryforwards
(Note 5) 9,051 (9,051)
Tax benefit of stock options
exercised 23,609 23,609
Balances, September 30, 1995 39,901 $798 $288,592 $72,468 $361,858
See notes to condensed consolidated financial statements.
7
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months Ended September 30,
1995 1994
NET CASH PROVIDED BY OPERATING ACTIVITIES $32,162 $ 22,611
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (21,517) (5,432)
Proceeds from sale of equipment 14 8
Maturities of short-term investments 83,471 14,779
Purchases of short-term investments (97,878) (54,125)
Cash acquired net of acquisition costs (Note 1) 396 --
NET CASH USED IN INVESTING ACTIVITIES (35,514) (44,770)
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in other liabilities (288) (1,441)
Issuance of common stock 12,483 3,212
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,195 1,771
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,843 (20,388)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 52,043 66,099
CASH AND CASH EQUIVALENTS AT END OF PERIOD $60,886 $45,711
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 139 $ 153
Income taxes 1,323 1,738
SUPPLEMENTAL INFORMATION OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
On April 25, 1995, the Company acquired Western
Multiplex Corporation ("MUX"). In connection
with this acquisition the Company paid
$1,307,000 in cash and issued stock valued at
$27,260,000 for assets with a fair value of
$9,074,000 and assumed liabilities of
$3,186,000.
See notes to condensed consolidated financial statements.
8
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GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of dollars except per share data)
(unaudited)
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X .
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three-and nine-month periods ended September 30,
1995 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1995. The Company's
financial results in any quarter are highly dependent upon various
factors, including the timing and size of customer orders and the
shipment of products for large orders. Large orders from customers
can account for a significant portion of products shipped in any
quarter. Accordingly, the shipment of products in fulfillment of
such large orders can dramatically affect the results of operations
of any single quarter.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Glenayre
Technologies, Inc. annual report on Form 10-K for the year ended
December 31, 1994.
1. BUSINESS ACQUISITION
On April 25, 1995 the Company completed the acquisition of
Western Multiplex Corporation ("MUX"), located in Belmont,
California. MUX designs, manufactures and markets products for
use in point-to-point microwave communication systems. The
purchase price of approximately $28.6 million consisted of
1,124,955 shares of the Company's common stock (including
334,805 shares issuable upon exercise of stock options) valued
at approximately $27.3 million and approximately $1.3 million in
acquisition costs. The consolidated financial statements for
the nine-months ended September 30, 1995 include the operating
results of MUX for the period April 25, 1995 to September 30,
1995. The acquisition was accounted for as a purchase and the
purchase price was assigned to the net assets acquired based on
the fair values of such assets and liabilities at the date of
the acquisition, as follows:
Current assets $ 7,886
Property, plant and equipment 1,188
Goodwill 21,982
Deferred tax asset 704
Liabilities assumed (3,186)
$28,574
The following table summarizes, on an unaudited pro forma basis,
the estimated combined results of operations for the nine-month
periods ended September 30, 1995 and 1994 as if the acquisition
of MUX had occurred at January 1, 1994, after giving effect to
an adjustment to amortization of goodwill related to the
acquisition. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made on that
date.
Nine Months Ended
September 30,
1995 1994
Net Sales $228,197 $137,878
Income from continuing operations 53,218 24,795
Income from continuing operations per common share $ 1.27 $ .62
9
<PAGE>
2. DISCONTINUED OPERATIONS
Real Estate Operations
Following the November 1992 acquisition (the "Acquisition") of
the telecommunications equipment manufacturing and related
software business of Glentel Inc. of Vancouver, British
Columbia, Canada (the "GEMS Business") the Company restructured
its real estate operations. On July 6, 1993, the Company
adopted a formal plan which called for the disposal of its
remaining real estate assets (principally four parcels of
undeveloped land in the western United States).
The sales of the remaining parcels were completed as of June 30,
1994, with an aggregate recognized gain in the nine-months ended
September 30, 1994 of approximately $388,000, net of income
taxes of $248,000.
Net cash proceeds from the sales of real estate properties
amounted to approximately $4.9 million for the nine-months ended
September 30, 1994.
Oil and Gas Pipeline Construction Operations
In October 1993, the Company sold its interest in an oil and gas
pipeline construction business receiving approximately $3.3
million in cash and a $3.6 million promissory note (included in
other current assets at December 31, 1994.) The $3.6 million
note was paid in full in March 1995.
3. INVENTORIES
September 30, December 31,
Inventories consist of: 1995 1994
Raw materials $30,845 $10,999
Work-in-process:
Uncompleted contracts 937 762
Other 9,800 6,425
Finished goods 9,972 6,075
$51,554 $24,261
4. GOODWILL
Goodwill is shown net of accumulated amortization of $8.1
million and $5.8 million at September 30, 1995 and December 31,
1994, respectively.
5. INCOME TAXES
The Company's consolidated income tax provision was different
from the amount computed using the U.S. statutory income tax
rate for the following reasons:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Income tax provision at U.S. statutory rate $9,894 $3,580 $24,698 $9,987
Reduction in valuation allowance (2,595) (2,848) (9,051) (8,281)
Foreign taxes at rates other than U.S. statutory rate (1,391) 461 (1,259) 1,558
State taxes (net of federal benefit) 917 412 2,293 1,113
Non-deductible goodwill amortization 384 236 820 706
Income tax provision $7,209 $1,841 $17,501 $5,083
</TABLE>
10
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Subsequent to the quasi-reorganization completed on February 1,
1988, as described in Note 6, the benefits derived from the
utilization of tax net operating loss carryforwards are reported
in the statement of operations in the year such tax benefits are
realized and then reclassified from retained earnings to
contributed capital. The Company adopted the accounting method
for utilization of these tax net operating loss carryforwards
outlined above on February 1, 1988. On September 28, 1989, the
Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 86 ("SAB 86") which set forth the SEC
staff's position with respect to this accounting treatment.
According to the SEC staff's interpretation of Statement of
Financial Accounting Standards No. 96, "Accounting for Income
Taxes," contained in SAB 86, realized tax benefits should be
reported as a direct addition to contributed capital.
Subsequently, the Company consulted with the SEC staff and
determined that the SEC staff would not object to the accounting
method outlined above for companies which had adopted such
accounting methods prior to the issuance of SAB 86.
If the original guidance in SAB 86 had been applied, the
Company's net income for the nine months ended September 30,
1995 and 1994 would have been reduced by the amount of the
benefit from utilization of tax net operating loss
carryforwards. Such reduction in net income would have been
$2.6 million ($.06 per share) and $2.8 million ($.07 per share)
for the three months ended September 30, 1995 and 1994,
respectively. Additionally, the reduction in net income would
have been $9.1 million ($.22 per share) and $8.3 million ($.21
per share) for the nine months ended September 30, 1995 and
1994, respectively.
The Company believes that it is more likely than not that the
net deferred tax asset recorded at September 30, 1995 will be
fully realized.
6. STOCKHOLDERS' EQUITY
(a) Quasi-Reorganization
On February 1, 1988, the Company completed a
quasi-reorganization. After determining that the Company's
balance sheet reflected approximate fair value on that date and
that revaluation was not necessary, the accumulated deficit and
the cumulative translation adjustment were adjusted to zero by
reclassifying them to contributed capital. A new retained
earnings account was established as of February 1, 1988.
(b) Stock Split
On May 24, 1995, the Board of Directors of the Company adopted a
resolution authorizing a three for-two split of the Company's
common stock, effected in the form of a 50% stock dividend
distributed on June 19, 1995 to stockholders of record on June
5, 1995.
All share and per share amounts have been restated to reflect
this stock dividend.
(c) Income per Common Share
Primary income per common share was computed by dividing net
income by the weighted average number of shares of common stock
outstanding plus the shares that would be outstanding assuming
exercise of dilutive stock options which are considered to be
common stock equivalents. The number of common shares that
would be issued from the exercise of stock options has been
reduced by the number of common shares that could be purchased
from the proceeds at the average market price of the Company's
stock during the periods such options were outstanding. The
number of shares used to compute primary per share data for the
nine-month periods ended September 30, 1995 and 1994 was
41,389,024 and 38,965,853, respectively. The number of shares
used to compute primary per share data for the three-month
periods ended September 30, 1995 and 1994 was 42,357,381 and
39,126,159, respectively.
For purposes of the fully diluted income per share computations,
the number of shares that could be issued from the exercise of
stock options outstanding at the end of the period has been
reduced by the number of shares which could have been purchased
from the proceeds at the higher of the market price of the
Company's stock on September 30, 1995 and 1994 or the average
market prices during the periods such options were outstanding.
For those options exercised during the period, the computation
for the period prior to exercise is based on the market price
when the option was exercised. The number of shares used to
compute fully diluted per share data for the nine-month periods
ended September 30, 1995 and 1994 was 41,775,822 and 39,044,934,
respectively. The number of shares used to compute fully diluted
per share data for the three-month periods ended September 30,
1995 and 1994 was 42,471,761 and 39,182,150, respectively.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Background
On November 10, 1992, Glenayre Technologies, Inc. acquired the GEMS
Business. The GEMS Business designs, manufactures, markets and
services switches, transmitters, controls and related software used
in personal communications systems (including paging, voice
messaging, and message management and mobile data systems), transit
communications systems and radio telephone systems.
On July 6, 1993, the Company adopted formal plans to dispose of its
real estate operation. This operation is accounted for as a
discontinued operation and accordingly, its operating results are
reported in this manner and excluded from continuing operations in
the accompanying consolidated statements of operations for the nine
and three months ended September 30, 1994. In October 1993, the
Company sold its interest in an oil and gas pipeline construction
business. (See Note 2 to the Company Condensed Consolidated
Financial Statements).
On April 25, 1995, the Company completed the acquisition of Western
Multiplex Corporation ("MUX"), located in Belmont, California. MUX
designs, manufactures and markets products for use in point-to-point
microwave communication systems. The purchase price of
approximately $28.6 million consisted of 1,124,955 shares of the
Company's common stock (including 334,805 shares issuable upon
exercise of stock options) valued at approximately $27.3 million and
approximately $1.3 million in acquisition costs. The acquisition
was accounted for as a purchase. The Company does not expect the
MUX operations to require material financing commitments by the
Company for the foreseeable future. See Note 1 to the Company
Condensed Consolidated Financial Statements.
Set forth below are: (i) a comparison of the results of operations
of the Company for the nine months ended September 30, 1995 to the
results of operations for the nine months ended September 30, 1994
(ii) a comparison of the results of the operations of the Company
for the three months ended September 30, 1995 to the results of
operations for the three months ended September 30, 1994; (iii) a
discussion of the Company's discontinued operations; and (iv) a
discussion of the Company's financial condition and liquidity.
Nine Months Ended September 30, 1995
Compared with Nine Months Ended September 30, 1994
NET SALES
Net sales for the nine months ended September 30, 1995 increased to
approximately $222.9 million from net sales for the nine months
ended September 30, 1994 of approximately $123.8 million, an
increase of approximately $99.1 million, or 80.0%. Net sales of
paging systems and voice messaging systems for the nine months ended
September 30, 1995 increased to approximately $161.9 million and
$34.9 million, respectively, from approximately $89.9 million and
$18.5 million, respectively, for the prior period. The increase in
net sales was primarily a result of the sales of new systems and the
continued expansion and upgrading of existing systems within the
installed customer base. One customer accounted for approximately
19% and 14% of sales for the nine months ended September 30, 1995
and 1994, respectively.
GROSS PROFIT
Gross profit increased to approximately $126.9 million, or 56.9% of
net sales, for the nine months ended September 30, 1995, from
approximately $70.9 million, or 57.3% of net sales, for the nine
months ended September 30, 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased to
approximately $39.7 million, or 17.8% of net sales, for the nine
months ended September 30, 1995, from approximately $29.0 million,
or 23.4% of net sales, for the nine months ended September 30, 1994.
The $10.7 million increase primarily resulted from: (i) increased
selling and marketing expenses of approximately $5.3 million for
additional sales personnel, (ii) increase in commissions and
employee incentives of $2.7 million relating to increased orders and
overall business profitability, and (iii) $1.4 million of
promotional material, international expenses and increased travel.
12
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RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs increased to approximately $17.1
million, or 7.7% of net sales, for the nine months ended September
30, 1995, from approximately $11.6 million, or 9.4% of net sales,
for the nine months ended September 30, 1994, an increase of $5.5
million, or 47.0%. The increase of $5.5 million was primarily a
result of increased research and development manpower and product
development expenses. Both hardware and software development costs
are included in research and development costs. All research and
development costs are expensed as incurred.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased to $5.8 million for
the nine months ended September 30, 1995 from $4.3 million for the
nine months ended September 30, 1994. The increase is primarily
attributable to (i) higher incremental purchases of plant and
equipment in 1995 compared to 1994 and (ii) goodwill related to the
acquisition of MUX in April 1995.
INTEREST INCOME, NET
The Company realized net interest income of approximately $6.0
million for the nine months ended September 30, 1995 compared to net
interest income realized of approximately $3.0 million for the nine
months ended September 30, 1994. The increase is primarily
attributable to higher average balances in cash and cash equivalents
and short-term investments.
INCOME TAXES
The difference between the combined U.S. federal and state statutory
tax rate of approximately 40% and the effective tax rate of 24.8%
for the nine months ended September 30, 1995 and 17.8% for the nine
months ended September 30, 1994 is primarily the result of the
utilization of the Company's net operating losses and the
application of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," ("SFAS 109"), in computing the
Company's tax provision. The difference between the effective tax
rate of 24.8% in 1995 and 17.8% in 1994 is primarily the result of a
variance between the 1995 and 1994 adjustments for realization of
tax benefits for financial statement purposes in accordance with
SFAS 109 primarily due to revisions during each period to the
estimated future taxable income during the Company's loss
carryforward period. See Note 5 to the Company Condensed
Consolidated Financial Statements.
Three Months Ended September 30, 1995
Compared with Three Months Ended September 30, 1994
NET SALES
Net sales for the three months ended September 30, 1995, increased
to approximately $88.1 million from net sales for the three months
ended September 30, 1994 of approximately $43.9 million, an increase
of approximately $44.2 million, or 100.7%. Net sales of paging
systems and voice messaging systems for the three months ended
September 30, 1995 increased to approximately $62.5 million and
$14.2 million, respectively, from approximately $31.1 million and
$7.4 million, respectively, for the prior period. The increase in
net sales was primarily a result of the sales of new systems and the
continued expansion and upgrading of existing systems within the
installed customer base. One customer accounted for approximately
21% and 12% of sales for the three months ended September 30, 1995
and 1994, respectively.
GROSS PROFIT
Gross profit increased to approximately $50.2 million, or 57.0% of
net sales, for the three months ended September 30, 1995, from
approximately $25.4 million, or 57.9% of net sales, for the three
months ended September 30, 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased to
approximately $15.4 million, or 17.5% of net sales, for the three
months ended September 30, 1995 from approximately $10.6 million, or
24.0% of net sales, for the three months ended September 30, 1994.
The $4.8 million increase primarily resulted from: (i) increased
selling and marketing expenses of approximately $1.9 million for
additional sales personnel; (ii) increase in commissions and
employee incentives of $1.3 million related to increased orders and
overall business profitability and (iii) additional sales office
expenses of $1.3 million.
13
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs increased to approximately $6.4
million, or 7.3% of net sales, for the three months ended September
30, 1995, from approximately $4.5 million, or 10.1% of net sales,
for the three months ended September 30, 1994, an increase of $2.0
million, or 44.7%. The increase of $2.0 million was primarily a
result of increased research and development manpower and research
material purchased.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased to $2.3 million for
the three months ended September 30, 1995 from $1.5 million for the
nine months ended September 30, 1994. The increase is primarily
attributable to (i) higher incremental purchases of plant and
equipment in 1995 compared to 1994 and (ii) goodwill related to the
acquisition of MUX in April 1995.
INTEREST INCOME, NET
The Company realized net interest income of approximately $2.0
million for the three months ended September 30, 1995 compared to
net interest income realized of approximately $1.3 million for the
three months ended September 30, 1994. The increase is primarily
attributable to higher average balances in cash and cash equivalents
and short-term investments.
INCOME TAXES
The difference between the combined U.S. federal and state statutory
tax rate of approximately 40% and the effective tax rate of 25.5%
for the three months ended September 30, 1995 and 18.0% for the
three months ended September 30, 1994 is primarily the result of the
utilization of the Company's net operating losses and the
application of SFAS 109 in computing the Company's tax provision.
The difference between the effective tax rate of 25.5% in 1995 and
18.0% in 1994 is primarily the result of a variance between the 1995
and 1994 adjustments for realization of tax benefits for financial
statement purposes in accordance with SFAS 109 primarily due to
revisions during each period to the estimated future taxable income
during the Company's loss carryforward period. See Note 5 to the
Company Condensed Consolidated Financial Statements.
Discontinued Operations
Real Estate Operations
Following the Acquisition of the GEMS Business the Company
restructured its real estate operations. On July 6, 1993, the
Company adopted a formal plan which called for the disposal of its
remaining real estate assets (principally four parcels of
undeveloped land in the western United States).
The sales of remaining parcels were completed as of June 30, 1994,
with an aggregate recognized gain in the nine months ended September
30, 1994 of approximately $388,000, net of income taxes of $248,000.
Net cash proceeds from the sales of real estate properties amounted
to approximately $4.9 million for the nine months ended September
30, 1994.
Oil and Gas Pipeline Construction Operations
In October 1993, the Company sold its interest in an oil and gas
pipeline construction business receiving approximately $3.3 million
in cash and a $3.6 million promissory note (included in other
current assets at December 31, 1994.) The $3.6 million note was
paid in full in March 1995.
Financial Condition and Liquidity
The Company's working capital at September 30, 1995 was
approximately $207.0 million, including cash and cash equivalents
and short-term investments of approximately $114.8 million.
Accounts receivable, inventories, trade notes receivable, accounts
payable, and accrued liabilities at September 30, 1995 increased
from December 31, 1994 primarily as a result of increased levels of
operating activities during the first nine months of 1995. Goodwill
at September 30, 1995 increased from December 31, 1994 due to the
acquisition of MUX in April 1995. During the nine months ended
September 30, 1995 the Company received cash of approximately $12.5
million from the exercise of stock options and $3.6 million from the
payment in full of the note discussed above. During the nine months
ended September 30, 1995, the Company spent approximately $21.5
million for capital expenditures. These expenditures were necessary
in order to provide the equipment and capacity to meet the growth of
the business. Additionally, at September 30, 1995, the Company had
a commitment for expenditures of approximately $5.1 million to be
paid in the fourth quarter 1995 related to a building acquisition.
14
<PAGE>
The Company's cash and cash equivalents are placed in short-term
investments consisting of high-grade commercial paper, bank
certificates of deposit, U.S. Treasury bills and notes, and
repurchase agreements backed by U.S. Government securities with
original maturities of three months or less. The Company's
short-term investments are comprised of identical types of
investments with the exception that their original maturities are
greater than three months, but do not exceed one year. The Company
expects to use its cash, cash equivalents, and short-term
investments for working capital and other general corporate
purposes, including the expansion and development of its existing
products and markets and the possible expansion into complementary
businesses.
The Company believes that funds generated from continuing
operations, together with its current cash reserves, will be
sufficient to support its short-term and long-term liquidity
requirements for current operations (including capital
expenditures). Company management believes that, if needed, it can
establish appropriate borrowing arrangements with lending
institutions.
15
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5 are inapplicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 Computation of earnings per common share for
the nine-month and three-month periods ended
September 30, 1995 and 1994.
Exhibit 15 Letter regarding unaudited interim financial
information.
Exhibit 27 Financial Data Schedule. (Filed in electronic
format only. Pursuant to Rule 402 of
Regulation S-T, this schedule shall not be
deemed filed for purposes of Section 11 of the
Securities Act of 1933 or Section 18 of the
Securities Exchange Act of 1934.)
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Glenayre Technologies, Inc.
(Registrant)
/s/ Stanley Ciepcielinski
Stanley Ciepcielinski
Executive Vice President and
Chief Financial Officer
/s/ Billy C. Layton
Billy C. Layton
Controller and
Chief Accounting Officer
Date: October 25, 1995
17
<PAGE>
Exhibit 11
GLENAYRE TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
In Thousands Except Per Share Amounts
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<C> <C> <C> <C>
<S>
Income from continuing
operations $53,066 $23,451 $21,061 $ 8,385
Income from discontinued
operations -- 388 -- --
Net Income $53,066 $23,839 $21,061 $ 8,385
Primary Earnings Per Share:
Weighted average shares
outstanding during the
period 38,499 36,488 39,346 36,824
Common stock equivalents 2,890 2,478 3,011 2,302
41,389 38,966 42,357 39,126
Continuing operations $ 1.28 $ .60 $ .50 $ .21
Discontinued operations -- .01 -- --
Net income per share $ 1.28 $ .61 $ .50 $ .21
Fully Diluted Earnings Per Share:
Weighted average shares
outstanding during
the period 38,499 36,488 39,346 36,824
Common stock equivalents 3,277 2,557 3,126 2,358
41,776 39,045 42,472 39,182
Continuing operations $ 1.27 $ .60 $ .50 $ .21
Discontinued operations -- .01 -- --
Net income per share $ 1.27 $ .61 $ .50 $ .21
</TABLE>
Exhibit 15
October 19, l995
To the Board of Directors and Stockholders of
Glenayre Technologies, Inc.
Charlotte, North Carolina
We are aware of the incorporation by reference in the Registration
Statement Number 33-43797 on Form S-8 dated November 5, 1991, Registration
Statement Number 33-43798 on Form S-8 dated November 5, 1991 (amended
December 9, 1992), Registration Statement Number 33-68766 on Form S-8
dated September 14, 1993, and Registration Statement Number 33-80464 on
Form S-8 dated June 17, 1994, of our report dated October 19, 1995
relating to the unaudited condensed consolidated interim financial
statements of Glenayre Technologies, Inc. and subsidiaries which are
included in its Form 10-Q, for the quarter ended September 30, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a
part of the registration statement prepared or certified by accountants
within the meaning of Section 7 or 11 or the Securities Act of 1933.
Ernst & Young LLP
Charlotte, North Carolina
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 114,755
<SECURITIES> 0
<RECEIVABLES> 96,560
<ALLOWANCES> 0
<INVENTORY> 51,554
<CURRENT-ASSETS> 266,931
<PP&E> 36,871
<DEPRECIATION> 0
<TOTAL-ASSETS> 426,028
<CURRENT-LIABILITIES> 59,902
<BONDS> 0
<COMMON> 289,390
0
0
<OTHER-SE> 72,468
<TOTAL-LIABILITY-AND-EQUITY> 426,028
<SALES> 222,945
<TOTAL-REVENUES> 222,945
<CGS> 96,067
<TOTAL-COSTS> 96,067
<OTHER-EXPENSES> 62,519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> 70,567
<INCOME-TAX> 17,501
<INCOME-CONTINUING> 53,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,066
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.27
</TABLE>
