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 MARCH 31, 1996
|_| 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)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The number of shares outstanding of the Registrant's common stock, par
value $.02 per share, at April 22, 1996 was 60,614,422 shares.
<PAGE>
GLENAYRE TECHNOLOGIES, INC.
INDEX
Part I - Financial Information:
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
<S> <C>
Independent Accountants' Review Report...................................................3
Condensed Consolidated Balance Sheets as of March 31,
1996 (Unaudited) and December 31, 1995...............................................4
Condensed Consolidated Statements of Income for the three
months ended March 31, 1996 and 1995 (Unaudited).....................................5
Condensed Consolidated Statement of Stockholders' Equity for
the three months ended March 31, 1996 (Unaudited)....................................6
Condensed Consolidated Statement of Cash Flows for the
three months ended March 31, 1996 and 1995 (Unaudited)...............................7
Notes to Condensed Consolidated Financial Statements (Unaudited).........................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................10
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K........................................................12
</TABLE>
2
<PAGE>
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 March 31, 1996, and the
related condensed consolidated statement of income, the condensed consolidated
statement of stockholders' equity and the condensed consolidated statement of
cash flows for the three-month period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. We did not make a
similar review of the condensed consolidated balance sheet of Glenayre
Technologies, Inc. and subsidiaries as of March 31, 1995 and the related
condensed consolidated statement of income, the condensed consolidated statement
of stockholders' equity and the condensed consolidated statement of cash flows
for the three-month period ended March 31, 1995.
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 March
31, 1996, and for the three month period then ended for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Glenayre Technologies, Inc. as of
December 31, 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated January 31, 1996, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1995, 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
April 18, 1996
3
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................................... $ 78,669 $ 70,600
Short-term investments............................................. 54,038 44,054
Accounts receivable, net........................................... 89,787 89,265
Trade notes receivable, current.................................... 8,295 7,960
Inventories ....................................................... 54,453 50,045
Deferred income taxes.............................................. 14,054 7,568
Prepaid expenses and other current assets.......................... 5,428 7,189
------- -------
Total current assets............................................. 304,724 276,681
Trade notes receivable................................................ 13,613 14,973
Property, plant and equipment, net.................................... 49,904 47,920
Goodwill.............................................................. 79,385 80,240
Deferred income taxes................................................. 20,828 27,487
Other assets ........................................................ 460 279
-------- -------
TOTAL ASSETS $468,914 $447,580
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................... $ 14,441 $ 15,709
Accrued liabilities................................................. 32,714 36,162
Other current liabilities........................................... 1,324 1,323
-------- --------
Total current liabilities......................................... 48,479 53,194
Other liabilities..................................................... 3,654 3,692
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding....................... -- --
Common stock, $.02 par value; authorized 200,000,000 shares;
outstanding: March 31, 1996 - 60,614,422 shares;
December 31, 1995 - 60,044,752 shares............................. 1,212 1,201
Contributed capital................................................. 307,859 297,017
Retained earnings .................................................. 107,710 92,476
-------- --------
Total stockholders' equity........................................ 416,781 390,694
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $468,914 $447,580
======== ========
</TABLE>
Note: The balance sheet at December 31, 1995 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 INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1995
---------- --------
<S> <C> <C>
NET SALES $89,378 $59,862
-------- -------
COSTS AND EXPENSES:
Cost of sales.................................................. 39,767 25,859
Selling, general and administrative expense.................... 18,014 11,951
Research and development expense .............................. 6,353 4,699
Depreciation and amortization expense.......................... 3,096 1,592
------- -------
Total costs and expenses....................................... 67,230 44,101
------- -------
INCOME FROM OPERATIONS.............................................. 22,148 15,761
------- -------
OTHER INCOME (EXPENSES):
Interest income................................................ 2,279 1,981
Interest expense............................................... (53) (45)
Other, net .................................................... 20 (27)
------- -------
Total other income (expenses), net............................. 2,246 1,909
------- -------
INCOME BEFORE INCOME TAXES ......................................... 24,394 17,670
PROVISION FOR INCOME TAXES ......................................... 7,318 3,888
------- -------
NET INCOME.......................................................... $17,076 $13,782
======= =======
NET INCOME PER COMMON SHARE - PRIMARY............................... $ .27 $ .23
======= =======
NET INCOME PER COMMON SHARE - FULLY DILUTED......................... $ .27 $ .23
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Common Stock Contributed Retained Stockholders'
Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995.......... 60,045 $1,201 $297,017 $92,476 $390,694
Net income........................... 17,076 17,076
Stock options exercised.............. 644 13 5,286 5,299
Utilization of net operating
loss carryforwards ................ 1,842 (1,842) ---
Tax benefit of stock options
exercised......................... 6,141 6,141
Repurchase of common stock........... (75) (2) (2,427) (2,429)
------ ------ -------- ------- -------
Balances, March 31, 1996............. 60,614 $1,212 $307,859 $107,710 $416,781
====== ====== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES........................... $19,416 $ 6,556
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment............................................. (4,269) (3,848)
Proceeds from sale of equipment.................................... 19 14
Net proceeds from 1993 sale of interest in oil and gas pipeline
construction business............................................ --- 3,600
Maturities of short-term investments............................... 29,394 29,465
Purchases of short-term investments................................ (39,378) (29,294)
------- -------
NET CASH USED IN INVESTING ACTIVITIES.............................. (14,234) (63)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in other liabilities....................................... (44) (15)
Issuance of common stock........................................... 5,360 1,826
Common stock repurchases........................................... (2,429) ---
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......................... 2,887 1,811
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 8,069 8,304
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.............................................. 70,600 52,043
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................... $78,669 $60,347
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest........................................................ $ 41 $ 39
Income taxes.................................................... 2,337 412
See notes to condensed consolidated financial statements.
7
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS)
(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-month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. 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.
In April 1995, the Company completed the acquisition of Western Multiplex
Corporation ("MUX"). The operating results of MUX are included in the operating
results of the Company since the acquisition date.
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, 1995.
1. INVENTORIES
March 31, December 31,
Inventories consist of: 1996 1995
-------- -----------
Raw materials $34,045 $30,191
Work-in-process:
Uncompleted contracts 290 604
Other 8,381 7,743
Finished goods 11,737 11,507
------- -------
$54,453 $50,045
======= =======
2. GOODWILL
Goodwill is shown net of accumulated amortization of $9.8 million and
$8.9 million at March 31, 1996 and December 31, 1995, respectively.
3. 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:
Three Months Ended
March 31,
--------------------
1996 1995
---- ----
Income tax provision at U.S. statutory
rate.................................... $8,538 $6,184
Reduction in valuation
allowance............................... (1,842) (3,195)
Foreign taxes at rates other than U.S.
statutory rate....................... (238) 132
State taxes (net of federal benefit).... 793 574
Non-deductible goodwill amortization.... 300 193
U.S. research and experimentation
credits.............................. (233) ---
------ ------
Income tax provision.................... $7,318 $3,888
====== ======
8
<PAGE>
Subsequent to the quasi-reorganization completed on February 1, 1988, as
described in Note 4, 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 three months ended March 31, 1996 and 1995 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 $1.8 million ($.03 per share) and $3.2 million ($.05 per share) for
the three months ended March 31, 1996 and 1995, respectively.
The Company believes that it is more likely than not that the net
deferred tax asset recorded at March 31, 1996 will be fully realized.
4. 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 REPURCHASE
Pursuant to a stock repurchase plan approved in 1994 by the Board of
Directors, the Company repurchased 75,000 shares of its common stock at a
cost of $2.4 million (shown as a reduction of common stock and
contributed capital) in March 1996.
(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 three-month periods ended
March 31, 1996 and 1995 was 63,727,518 and 59,921,939, 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 March 31, 1996 and 1995 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 three-month periods ended March 31, 1996 and 1995 was
63,734,640 and 60,002,791, respectively.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
Glenayre Technologies, Inc. ("Glenayre" or the "Company") designs, manufactures,
markets and services telecommunications equipment and software used in wireless
personal communications systems throughout the world. The Company's product
families are grouped in either (i) Wireless Messaging (paging and narrow band
personal communication service ("NPCS") products), or (ii) Voice and Data
Technologies (voice messaging, microwave communication and radio telephone
products) categories. Additionally, Glenayre provides service and support to its
products. In April 1995, the Company completed the acquisition of Western
Multiplex Corporation ("MUX"). The operating results of MUX are included in the
operating results of the Company since the acquisition date.
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and related Notes.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1995
NET SALES
Net sales for the three months ended March 31, 1996 increased to $89.4 million
from net sales for the three months ended March 31, 1995 of $59.9 million, an
increase of $29.5 million, or 49.3%. Net sales of Wireless Messaging products
and Voice and Data products for the three months ended March 31, 1996 increased
to approximately $71.9 million and $9.7 million, respectively, from
approximately $50.6 million and $4.6 million, respectively, for the prior
period. The increase in 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. In the 1996 period, service revenue including
maintenance contracts, installation, project management and training revenue
increased to approximately $7.8 million from $4.7 million for the 1995 period.
Sales to a single customer totaled approximately 17% and 28% of net sales for
the three months ended March 31, 1996 and 1995, respectively.
GROSS PROFIT
Gross profit increased to $49.6 million, or 55.5% of net sales, for the three
months ended March 31, 1996, from $34.0 million, or 56.8% of net sales, for the
three months ended March 31, 1995. The minimal change in the gross profit margin
percentage is due to a change in the mix in products shipped and the increase in
fixed manufacturing costs incurred as additional manufacturing capacity was
brought on line during the latter half of 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased to $18.0 million, or 20.1%
of net sales, for the three months ended March 31, 1996, from $12.0 million, or
20.0% of net sales, for the three months ended March 31, 1995. The $6.0 million
increase primarily resulted from (i) increased selling and marketing expenses
for additional sales personnel including new international sales offices and
associated travel and support costs and (ii) for additional administrative
expense in the 1996 period.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs increased to $6.4 million, or 7.1% of net sales,
for the three months ended March 31, 1996, from $4.7 million, or 7.8% of net
sales, for the three months ended March 31, 1995, an increase of $1.7 million,
or 35.2%. The increase of $1.7 million was primarily a result of additional
personnel and component materials to work on product development (including NPCS
and wireline extender products) and enhancements to existing products. Both
hardware and software development costs are included in research and development
costs. All research and development costs are expensed as incurred.
10
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased to $3.1 million for the three
months ended March 31, 1996 from $1.6 million for the three months ended March
31, 1995. The increase is primarily attributable to (i) the significant
purchases of plant and equipment during the calendar year 1995 and (ii) goodwill
related to the acquisition of MUX in April 1995.
INTEREST INCOME, NET
The Company realized net interest income of $2.2 million for the three months
ended March 31, 1996 compared to net interest income realized of $1.9 million
for the three months ended March 31, 1995. 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 30.0% for the three months ended
March 31, 1996 and 22.0% for the three months ended March 31, 1995 is primarily
the result of the utilization of the Company's net operating losses ("NOLs") 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 30.0% in 1996 and
22.0% in 1995 is primarily the result of a variance between the 1996 and 1995
adjustments for realization of tax benefits of net operating loss carryforwards
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 3 to the Condensed Consolidated
Financial Statements.
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital at March 31, 1996 was $256.2 million, including
cash and cash equivalents and short-term investments of $132.7 million. During
the three months ended March 31, 1996, the Company received cash of $5.4 million
from the exercise of stock options. Additionally, during the three months ended
March 31, 1996, the Company spent $4.3 million for capital expenditures. These
expenditures were necessary in order to provide the equipment and capacity to
meet the growth of the business. In April 1996, the Company completed
negotiations to build a 75,000 square foot facility in Atlanta, Georgia to
replace the current leased Atlanta facilities used for sales, service, research
and development, and training. The full cost of building the new facility,
approximately $6.5 million, is expected to be paid by the Company periodically
from April through November 1996.
The Company's cash and cash equivalents consist 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 expansion into complementary
businesses.
The Company believes that funds generated from operations, together with its
current cash reserves and short-term investments, will be sufficient to support
the 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.
11
<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 three-
month periods ended March 31, 1996 and 1995.
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.)
Exhibit 99 Cautionary statement under safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.
(b) Reports on Form 8-K
During the three months ended March 31, 1996, the
Company filed a Current Report on Form 8-K dated March
5, 1996. Under Item 5, the Company reported that it
issued a press release which announced the possible
negative impact on its first quarter 1996 net sales as
a result of the licensing freeze imposed by the
February 9, 1996 Federal Communications Commission
Notice of Proposed Rulemaking.
12
<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
(Principal Financial Officer)
/s/ Billy C. Layton
---------------------------------------------
Billy C. Layton
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
Date: April 23, 1996
13
</TABLE>
<PAGE>
Exhibit 11
GLENAYRE TECHNOLOGIES, INC.
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
------- -------
Net income.. ............................. $17,076 $13,782
======= =======
PRIMARY EARNINGS PER SHARE:
Weighted average shares outstanding during
the period............................ 60,392 56,349
Common stock equivalents.................. 3,336 3,573
------ ------
63,728 59,922
====== ======
Net income per share...................... $ .27 $ .23
====== ======
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding during
the period............................ 60,392 56,349
Common stock equivalents.................. 3,343 3,654
------ ------
63,735 60,003
====== ======
Net income per share...................... $ .27 $ .23
====== ======
14
<PAGE>
Exhibit 15
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,
Registration Statement Number 33-80464 on Form S-8 dated June 17, 1994, and
Registration Statement Number 33-88818 on Form S-4, dated March 24, 1995
(amended by Post-Effective Amendment Number 1 on Form S-8 dated March 25, 1996)
of our report dated April 18, 1996 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 March
31, 1996.
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
April 18, 1996
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 132,707
<SECURITIES> 0
<RECEIVABLES> 111,695
<ALLOWANCES> 0
<INVENTORY> 54,453
<CURRENT-ASSETS> 304,724
<PP&E> 49,904
<DEPRECIATION> 0
<TOTAL-ASSETS> 468,914
<CURRENT-LIABILITIES> 48,479
<BONDS> 0
<COMMON> 309,071
0
0
<OTHER-SE> 107,710
<TOTAL-LIABILITY-AND-EQUITY> 468,914
<SALES> 89,378
<TOTAL-REVENUES> 89,378
<CGS> 39,767
<TOTAL-COSTS> 39,767
<OTHER-EXPENSES> 27,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 24,394
<INCOME-TAX> 7,318
<INCOME-CONTINUING> 17,076
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<PAGE>
</TABLE>
Exhibit 99
CAUTIONARY STATEMENT UNDER SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Glenayre Technologies, Inc. ("Glenayre" or the "Company") sets forth
below the following cautionary statement identifying important factors that
could cause the Company's actual results to differ materially from those
projected in any forward looking statements made by or on behalf of the Company.
These cautionary statements are made pursuant to Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both enacted
pursuant to the Private Securities Litigation Reform Act of 1995.
POTENTIAL MARKET CHANGES RESULTING FROM TECHNOLOGICAL ADVANCES
The paging industry and Glenayre's business are subject to competition
from alternative forms of data communication. In addition, Glenayre's business
is focused entirely upon the wireless telecommunications industry. Future
technological advances in the wireless telecommunications industry, including
digital-based cellular telephone systems, could result in new products which are
competitive with Glenayre's products. There can be no assurance that Glenayre
will not be adversely affected in the event of such technological advances.
While the introduction of more advanced forms of telecommunication may provide
opportunities to Glenayre for the development of new products, these advanced
forms of telecommunication may reduce the demand for pagers and thus the type of
paging transmission systems and related software designed and sold by Glenayre.
In addition, there can be no assurance that Glenayre will be able to develop
successfully these new products or to provide additional enhancements to its
existing products.
COMPETITION
The Company currently faces competition from a number of other
equipment manufacturers, certain of which are larger and have significantly
greater resources than the Company, and there can be no assurance that the
Company will be able to compete successfully in the future. In addition,
manufacturers of wireless telecommunications equipment, including those in the
cellular telephone industry, certain of which are larger and have significantly
greater resources than the Company, could elect to enter into the Company's
markets and compete with Glenayre's products.
VARIABILITY OF QUARTERLY RESULTS
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. Sales to one customer totalled
approximately 16% and 13% of net sales for the fiscal years ended December 31,
1995 and 1994, respectively. The customers with whom the Company does the
largest amount of business generally change from year to year. This results from
the timing for development and expansion of its customers' and new customers'
systems. Furthermore, if a customer delays or accelerates its delivery
requirements or a product's completion is delayed or accelerated, revenues
expected in a given quarter may be deferred or accelerated into subsequent or
earlier quarters. Therefore, annual financial results are more indicative of the
Company's performance than quarterly results, and results of operations in any
quarterly period may not be indicative of results likely to be realized in the
following quarterly periods. In addition, comparisons to the Company's prior
quarterly periods may not be appropriate indicators of future quarterly period
results.
VOLATILITY OF STOCK PRICE
The market price of Glenayre Common Stock is volatile. The market price
of Glenayre Common Stock could be subject to significant fluctuations in
response to variations in Glenayre's quarterly operating results and other
factors such as announcements of technological developments or new products by
Glenayre, developments in Glenayre's relationships with its customers,
technological advances by existing and new competitors, general market
conditions in the industry and changes in government regulations. In addition,
in recent years conditions in the stock market in general and shares of
technology companies in particular have experienced significant price and volume
fluctuations which have often been unrelated to the operating performance of
these specific companies. Such market fluctuations and economic conditions
unrelated to Glenayre may adversely affect the market price of Glenayre's Common
Stock.
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<PAGE>
LIMITS ON PROTECTION OF PROPRIETARY TECHNOLOGY AND INFRINGEMENT CLAIMS
Glenayre owns or licenses numerous patents used in its operations.
Glenayre believes that while these patents are useful to Glenayre, they are not
critical or valuable on an individual basis. The collective value of the
intellectual property of Glenayre is comprised of its patents, blueprints,
specifications, technical processes and cumulative employee knowledge. Although
Glenayre attempts to protect its proprietary technology through a combination of
trade secrets, patent law, nondisclosure agreements and technical measures, such
protection may not preclude competitors from developing products with features
similar to Glenayre's products. The laws of some foreign countries in which
Glenayre sells or may sell its products, including The Republic of Korea, The
People's Republic of China, Saudi Arabia, Thailand, Dubai, India and Brazil, do
not protect Glenayre's proprietary rights in the products to the same extent as
do the laws of the United States. Although Glenayre believes that its products
and technology do not infringe on the proprietary rights of others, Glenayre is
currently party to certain infringement claims, and there can be no assurance
that third parties will not assert additional infringement claims against
Glenayre in the future. If such litigation resulted in Glenayre's inability to
use technology, Glenayre might be required to expend substantial resources to
develop alternative technology or to license the prior technology. There can be
no assurance that Glenayre could successfully develop alternative technology or
license the prior technology on commercially reasonable terms. Glenayre does not
believe, however, that an adverse resolution of the pending claims would have a
material adverse effect on Glenayre.
POTENTIAL CHANGES IN GOVERNMENT REGULATION
Many of Glenayre's products operate on radio frequencies. Radio
frequency transmissions and emissions, and certain equipment used in connection
therewith, are regulated in the United States, Canada and internationally.
Regulatory approvals generally must be obtained by Glenayre in connection with
the manufacture and sale of its products, and by Glenayre's customers to operate
Glenayre's products. There can be no assurance that appropriate regulatory
approvals will continue to be obtained, or that approvals required with respect
to products being developed for the personal communications services market will
be obtained. The enactment by federal, state, local or international governments
of new laws or regulations or a change in the interpretation of existing
regulations could affect the market for Glenayre's products. Although recent
deregulation of international telecommunications industries along with recent
radio frequency spectrum allocations made by the FCC have increased the demand
for Glenayre's products by providing users of those products with opportunities
to establish new paging and other wireless personal communications services,
there can be no assurance that the trend toward deregulation and current
regulatory developments favorable to the promotion of new and expanded personal
communications services will continue or that other future regulatory changes
will have a positive impact on Glenayre. On February 9, 1996, the FCC released a
notice of proposed rule making covering a licensing rule and procedure change on
the 929 MHz and 931 MHz as well as certain other paging frequencies which
included a freeze on its acceptance of new applications for paging system
licenses. As the issuance of new paging system licenses stimulates demand for
the Company's products, this freeze may adversely affect sales and the timing of
sales of the Company's products.
INTERNATIONAL BUSINESS RISKS
Approximately 35% of net sales for the fiscal year ended December 31,
1995 were generated in markets outside of the United States. International sales
are subject to the customary risks associated with international transactions,
including political risks, local laws and taxes, the potential imposition of
trade or currency exchange restrictions, tariff increases, transportation
delays, difficulties or delays in collecting accounts receivable, and, to a
lesser extent, exchange rate fluctuations. Although a substantial portion of
international sales of the Company's products and services for fiscal year ended
December 31, 1995 were negotiated in U.S. dollars, there can be no assurance
that the Company will be able to maintain such a high percentage of U.S. dollar
denominated international sales. The Company seeks to mitigate its currency
exchange fluctuation risk by entering into currency hedging transactions. The
Company also acts to mitigate certain risks associated with international
transactions through the purchase of political risk insurance and the use of
letters of credit.
17
