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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended DECEMBER 31, 1996
|_| 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 0-15761
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
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(Address of principal executive offices) Zip Code
(704) 553-0038
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
COMMON SHARES, $.02 PAR VALUE
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 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|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 7, 1997 was approximately $742 million. The number of shares
of the Registrant's common stock outstanding on March 7, 1997 was 60,196,882.
DOCUMENTS INCORPORATED BY REFERENCE:
Document Location in Form 10-K
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Proxy Statement for 1997 Annual Meeting of Stockholders Part III
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Glenayre Technologies, Inc. ("Glenayre" or the "Company") was incorporated
pursuant to the laws of the State of Delaware on September 21, 1987, and is the
successor to a corporation organized on April 7, 1945. The principal executive
offices of the Company are located at 5935 Carnegie Boulevard, Charlotte, NC
28209. The Company's telephone number is (704) 553-0038. The term "Glenayre" or
the "Company" as used hereinafter means Glenayre Technologies, Inc. or Glenayre
Technologies, Inc. and its subsidiaries.
Glenayre is a worldwide provider of telecommunications equipment and related
software used in the wireless personal communications service markets including
wireless messaging, voice processing, mobile data systems and point-to-point
wireless interconnection products. The Company designs, manufactures, markets
and services its products principally under the Glenayre name. These products
include switches, transmitters, receivers, controllers, software and other
equipment used in personal communications systems (including paging, voice
messaging, cellular, and message management and mobile data systems), microwave
communication systems and radio telephone systems.
On January 9, 1997, the Company completed the acquisition of CNET, Inc.
("CNET"), located in Plano, Texas. CNET develops and provides integrated
operational support systems, network management, traffic analysis and radio
frequency propagation software products and services for the global wireless
communications industry. CNET licenses its products to cellular, paging and
personal communications services operators and wireless equipment manufacturers
worldwide. The purchase price of approximately $7.7 million consists of 369,983
shares of the Company's common stock (including 56,620 shares issuable upon
exercise of stock options) valued at approximately $6.5 million, approximately
$1.0 million in cash and approximately $194,000 in acquisition costs. The
acquisition will be accounted for as a purchase business combination.
In the fourth quarter of 1996, the Company's products were realigned into three
groups: (i) Wireless Messaging, (ii) Integrated Network and (iii) Wireless
Interconnect. Additionally, Glenayre provides service and support for its
products.
WIRELESS MESSAGING
Glenayre's Wireless Messaging group accounted for approximately 87%, 89% and 90%
of net sales for 1996, 1995, and 1994, respectively. This group continues to be
responsible for products and services sold into the paging and Narrowband
Personal Communication Services ("NPCS") marketplace. Additionally, the
Company's major service and support groups are included in the Wireless
Messaging unit. Paging products include switches, transmitters, receivers,
controllers and related software. Glenayre believes it has the leading market
share in the United States and that it is a leading participant internationally
in the paging switch, controller and transmitter market.
Paging is a method of wireless telecommunication which uses an assigned radio
frequency to contact a paging subscriber anywhere within a service area. A
paging system is generally operated by a service provider which incurs the cost
of building and operating the system. Each service provider in the United States
licenses spectrum from the Federal Communications Commission ("FCC") and
elsewhere from the authorized government body to operate a paging frequency
within either a local, regional or national geographical area. Each paging
subscriber is assigned a distinct telephone number which a caller dials to
activate the subscriber's pager (a pocket-sized radio receiver carried by the
subscriber). Telephone calls for a subscriber are received by a paging switch. A
network of transmitters, which broadcasts a signal over a specific geographic
area, receives information from the paging switch through the controller and a
radio signal is then sent by the transmitters via antennae to the subscriber's
pager. The transmitters manufactured by Glenayre are specifically designed to
simulcast, which is the transmission of the same signal over two or more
transmitters on the same channel at the same time in an overlap area, resulting
in superior voice and data quality and coverage area. The radio signal causes
the pager to emit a beep or vibrate and provide the subscriber with information
from the caller in the form of a voice, tone, numeric or alphanumeric message.
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A pager has an advantage over a landline telephone in that the pager's reception
is not restricted to a single location and has an advantage over a cellular
portable telephone in that a pager is smaller, has a much longer battery life,
has excellent coverage and is less expensive to use.
The paging market continues to evolve with the expected commercial deployment in
1997 of NPCS. NPCS may provide such new services as pager location, two-way
acknowledgment paging, advanced voice paging and data services.
Glenayre's product offering to the NPCS market includes a systems approach
similar to its existing one-way paging product line. Glenayre offers its
customers an end-to-end solution for NPCS applications. The Company has
developed new technology-based products with enhanced architecture and
technology from its existing paging systems to accommodate the advanced services
available through NPCS. This systems approach includes full product lines of
radio frequency network controllers, linear transmitters, satellite receivers,
fixed receivers (to receive the response message from the end-user) and
switches.
The design of a paging system is customer specific and depends on: (i) the
number of paging subscribers the service provider desires to accommodate, (ii)
the operating radio frequency, (iii) the geography of the service area, (iv) the
expected system growth and (v) specific features desired by the customer. Paging
equipment hardware and software developed by the Company may be used with all
types of paging services, including voice, tone, numeric (telephone number
display) or alphanumeric messaging (words and numbers display).
SWITCHES. The smallest Glenayre switch, the GL3000ES, can serve as few as 100
subscribers and can be expanded incrementally to a capacity of 75,000
subscribers. Glenayre's large paging switches, the GL3000L and the GL3000XL,
support subscriber levels from 20,000 to over 1,000,000.
The GL3000 NPCS switch is capable of being upgraded to support new NPCS voice
and data services, while retaining support for existing one-way services such as
numeric and alphanumeric paging. Service providers can combine one-way and
two-way paging service on one switch.
The Company is involved at an early stage in the development of industry wide
technology standards and is familiar with developments in paging protocol
standards throughout the world. The Company works closely with its customers in
the design of large, complex paging networks. Glenayre believes that its
customers' purchasing decisions are based, in large part, on the quality and
technological capabilities of such networks, and has adopted networking
specifications developed by the Personal Communications Industry Association
("PCIA"). Glenayre believes that its switches have the most advanced networking
capability in the industry. This networking capability allows the
interconnection of multiple switches to offer a number of wide- area
capabilities (such as remote billing, roaming and database backup). Glenayre
believes that the advanced hardware and software features of its switches ensure
high reliability and high volume call processing.
Paging switches manufactured by the Company are constructed in modular fashion,
which permits expansion to accommodate growth and the addition of technological
enhancements. Paging switch enhancements and upgrades also require the purchase
of the Company's components and software. This results from the unique, and
proprietary software incorporated in Glenayre switches, which the Company
believes represents a significant technological competitive advantage.
RADIO FREQUENCY ("RF") EQUIPMENT - TRANSMITTERS AND RECEIVERS. Transmitters are
available in frequency ranges of 30MHz to 960MHz and in power levels of 4 watts
to 500 watts. Radio link receivers are available in frequency ranges of 66MHz to
960MHz. Satellite link receivers are available for integration directly with the
transmitters at both Ku- and C-band frequencies.
Glenayre's newly introduced GL-T8601(500 watts) and GL-T8501 (250 watts)
transmitters are designed to allow paging carriers to easily migrate their
networks to compete in the NPCS market by providing a straightforward field
upgrade to linear transmitters. For paging carriers, the transmitters' migration
path reduces the risk of obsolescence and the costs of investing in new linear
transmitter sites. The T8601 and T8501 transmitters complement the T8500/8600
900 MHz one-way transmitters which have been the Company's core RF products
since 1994.
Glenayre's GL-T9000 series of transmitters are designed to transmit both ReFLEX
and InFLEXion NPCS formats. The design of the GL-T9000 transmitter employs new
and advanced techniques including digital signal processing ("DSP") modulation
and linearization. With the T9000 a service provider can start at a low power
level and upgrade to a higher power level in the field. This minimizes initial
investment while still allowing the service provider to grow as the subscriber
base grows.
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The GL-R9000 series of receivers detects the responses sent back from the
two-way NPCS subscriber devices. The GL-R9000 series of receivers takes
advantage of innovative DSP demodulation techniques that maximize receiver
sensitivity. Available in a one-rack unit size, it can support spatial diversity
(enabling sensitivity gains from two separate receive antennas at a site).
Depending upon frequency, antenna height, topography and power, Glenayre
transmitter systems are designed to cover broadcast cells with a diameter from 3
to 100 miles. Typical simulcast systems have broadcast cells which vary from 3
to 15 miles in diameter. Glenayre transmitters are designed specifically for the
high performance and reliability required for high speed simulcast networks.
Current technology allows a transmitter that is manufactured by Glenayre or by
its competitors to be used with the Company's paging switches. However, within a
single geographic paging network (comprised of a switch, a control system and a
number of transmitters installed in a specific geography) where transmitters
simulcast on a single frequency, all transmitters must be of the same make in
order to avoid substantial and expensive modifications that would be necessary
to assure the integrity of the paging system. The Company believes its large
installed base of transmitter equipment provides it with a significant
competitive advantage in selling products for system expansions to existing
customers.
CONTROLLERS. The Company currently offers or supports four products for
transmitter control: (i) the GL5000 control system is a medium-feature
transmitter control system used primarily in international markets; (ii) the
QT1000 is a full-feature system providing automatic early notification of system
variances and automatic remote adjustment capabilities to ensure that all
transmitters in the system remain synchronized; (iii) the GL-C2000, supports all
existing digital paging formats and will support all currently proposed "high
speed" paging and messaging formats with data transmission rates from 200 to
6,400 bits per second when coupled with the appropriate Glenayre RF hardware;
and (iv) the GL-C9000, in combination with the GL3100 RF Director, is designed
to control NPCS transmitters, with high-speed voice and data capabilities.
Additionally, the GL3100 RF Director provides reverse channel traffic handling
for two-way NPCS networks.
Glenayre has extended the technology of its GL-C2000 transmitter controller to
control the Glenayre NPCS transmitter. The base station controller has voice and
high-speed data capabilities and flexible linking options. Additionally,
Glenayre's RF Director is the central control point for a two-way NPCS RF
network. The RF Director has been designed to manage a high volume of forward
and reverse channel traffic and is available with optional full redundancy.
MESSAGE MANAGEMENT SYSTEMS. Glenayre's message management systems and operator
assisted paging systems combine its paging switch hardware with its proprietary
software. Glenayre's GL3900S and GL3900A alphanumeric switches are fully
compatible with the Company's paging switches and allow extensive data entry by
as few as 2 to as many as 300 telephone operators. Glenayre's alphanumeric
messaging products allow an operator at a telephone answering service or at a
paging or cellular provider to input, store and transmit messages containing
words and numbers by utilizing a paging switch encoder. Alphanumeric messages
can be sent by telephone, facsimile or computer and can be received by pagers,
portable computers, electronic organizers, facsimile equipment and similar
personal communication devices. Due to the continuing demand for lengthier
messages and the impact of such demand on available radio frequencies, most
service providers are migrating to the more efficient, higher speed digital
format. Consequently, Glenayre believes its sophisticated high speed switches
and software are particularly well suited for alphanumeric applications.
SERVICE AND SUPPORT. Glenayre provides service to customers on a regular basis
including installation, project management of turnkey systems, training, service
or extended warranty contracts with the Company. The Company believes that it is
essential to provide reliable service to customers in order to solidify customer
relationships and to be the vendor of choice when new services or system
expansions are sought by a customer. This relationship is further developed as
customers come to depend upon the Company for installation, system optimization,
warranty and post-warranty services.
The Company has a warranty and maintenance program for both its hardware and
software products and maintains a large customer service network, known as the
Glenayre Care Group, throughout the world. Glenayre's standard warranty provides
its customers with repair or replacement of all defective Glenayre manufactured
equipment. The warranty is valid in the case of the majority of its transmitters
for two years, and in the case of all other products for one year from the later
of date of shipment or date of installation by a Glenayre qualified technician.
The major locations of the Glenayre Care Group are Vancouver, British Columbia;
Quincy, Illinois; Atlanta, Georgia; London, England; and Singapore. The Glenayre
Care Group, the majority of the employees of which are technical specialists,
maintains the Company's installed base of equipment and are equipped with an
automated field service management system to provide more responsive customer
service.
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INTEGRATED NETWORK
Glenayre's Integrated Network group accounted for approximately 6%, 7% and 10%
of net sales for 1996, 1995 and 1994, respectively. Comprised solely of the
Company's MVP system in prior years, in 1997 it will be joined by the network
management systems developed by CNET.
Glenayre's MVP(R) Modular Voice Processing System is an enhanced services
platform that enables cellular, PCS, wireline and paging network operators to
offer their subscribers value-added services that enhance and complement their
core communication products.
The MVP platform's flexibility allows service providers to choose the number and
combination of enhanced services to offer, including voice and fax messaging,
short message service, automatic call return, continuous calling and Constant
Touch(TM) Service, a single number service. With the MVP System, subscribers can
place calls by using a telephone keypad or by using the subscriber's voice
alone.
The MVP system's scaleable architecture provides service providers with an
efficient growth path for their subscriber base. The MVP system can start out
small and grow to handle over 1,000,000 subscribers. Additionally, the MVP
platform interfaces into the myriad of trunk interfaces provided by central
office switches, cellular switches, paging terminals, telephone answering
systems and inter exchange carrier ("IXC") switches, even integrating into
different telecommunication networks simultaneously.
The MVP system provides voice messaging with intelligent message notification.
Subscribers are notified, via their pager or phone handset, when they receive a
new message in their mailbox. The MVP system communicates the number and type of
message received, including urgent and fax messages.
The MVP system's Rapid Response feature allows the subscriber to return calls
with a keystroke. When the caller leaves a message, the MVP system captures the
caller's telephone number, either by Automatic Number Identification or by the
caller manually entering the caller's number. When the subscriber listens to the
message, the callback number plays as part of the voice message. At any time,
the subscriber can press a button and the caller's phone number is dialed by the
MVP system. After the call is completed, the subscriber is returned to the
subscriber's voice mailbox.
Fax messaging permits faxes to be sent directly to a subscriber's voice mailbox.
The subscriber is notified that a fax message has been received in the
subscriber's voice mailbox. The fax is stored in memory and can be printed from
any fax machine when the subscriber is ready to retrieve it.
Constant Touch, Glenayre's single number application, gives subscribers control
of their communications. With Constant Touch, subscribers combine all personal
and business telephone numbers (pager, home, office, cellular and fax) into a
single number that will reach them anywhere. By incorporating any or all of a
subscriber's telephone numbers, callers only have to use one number to reach the
subscriber.
When a caller dials the subscriber's Constant Touch number, the system prompts
them to speak their name and enter their telephone number. The MVP system then
calls a series of preprogrammed numbers to notify the subscriber that a caller
is holding. The MVP plays the caller's name, "introducing" the caller. The
subscriber can choose to connect with the subscriber's caller or forward the
caller to the subscriber's voice mailbox or assistant.
A major development project for the MVP system in the next few years is speech
recognition. Glenayre has developed a new voice dialing application allowing
subscribers to place calls using only their voice. The subscriber speaks a name
or telephone number and the MVP system places the call. Glenayre will develop
additional speech recognition products, as well as incorporate speech
recognition technology into the voice mailbox.
The Company believes that by providing multiple voice and data applications on a
single platform, the MVP system gives service providers a means to generate
additional revenue and increase subscriber loyalty.
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WIRELESS INTERCONNECT
Glenayre's Wireless Interconnect group accounted for approximately 7% and 4% of
net sales for 1996 and 1995, respectively. Included in this group are microwave
communications and the newly developed Wireless Line Extender for rural radio.
MICROWAVE COMMUNICATION
Through its 1995 acquisition of Western Multiplex Corporation ("MUX"), the
Company designs, manufactures and markets products for use in point-to-point
microwave communications systems. These products include the microwave radios
themselves, both in analog and digital transmission formats, and analog baseband
products. In 1994 and 1995, the FCC awarded a number of new PCS licenses for the
provision of enhanced services. Encumbants currently utilizing these frequencies
will be forced to relocate their existing systems thus providing MUX with
additional market opportunities. MUX also provides cellular and PCS operators
with wireless cell site and base station interconnect infrastructure. MUX's
products are sold to communications service providers, including cellular,
specialized mobile radio ("SMR") and inter-exchange common carriers; industrial
companies, including utilities, railroads and petroleum producers; federal,
state and local governmental entities; and users of wireless data
communications.
RURAL RADIO
The Wireless Line Extender (GL6880) is a digital point-to-multipoint radio link
that provides high quality, full-duplex voice and data operation on a single
frequency that is capable of operating at distances of up to approximately 40
miles. Potential markets include isolated remote farms, military bases, mining
operations, railroads and other sites located beyond telephone service access.
CUSTOMERS
Glenayre sells to a range of customers worldwide. In the United States,
customers include the regional Bell operating companies, public and private
radio common carriers, private carrier paging operators and cellular carriers.
Internationally, customers include public telephone and telegraph companies, as
well as private telecommunication service providers.
Sales to a single customer totaled approximately 15%, 16% and 13% of 1996, 1995
and 1994 net sales, respectively. Although a single customer accounted for more
than 10% of the Company's net sales in each of the prior three years, the
dependence on any one customer is mitigated by the large number of entities in
the Company's customer base. The amount of business with any customer in a
reporting period is determined by the timing of the development and expansion of
existing customers' and new customers' systems.
MARKETING AND SALES
The Company markets its products and services in the United States and
internationally primarily through a direct sales force. The Company also
utilizes external distributors and agents to sell its products in certain
countries and geographic regions to markets outside of the Company's core
markets. The Company maintains sales offices throughout the United States.
In an effort to better serve its international customers, Glenayre has
established sales offices in various locations worldwide, including:
Manila, Philippines Singapore
New Delhi, India Toronto, Canada
Vancouver, Canada Hong Kong
Mexico City, Mexico Milton Keynes, England
Guangzhou, China Beijing, China
Dubai, United Arab Emirates Prague, Czech Republic
Sao Paulo, Brazil Amsterdam, Netherlands
Seoul, Korea Taipei, Taiwan
Tokyo, Japan
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Glenayre has staffed each of these offices with either local or expatriate
multilingual personnel. The Company expects to add new offices and personnel
outside of the United States to meet the increasing demand for its products in
international markets. See Note 13 to the Company's Consolidated Financial
Statements for information relating to export sales.
As part of the Company's integrated marketing and sales efforts, Glenayre
encourages a philosophy of open communication between the Company and its
customers. Toward that end, the Company often invites customer representatives
to meet with Glenayre's engineers and marketing personnel to collaborate in the
development of new and enhanced products.
INTERNATIONAL BUSINESS RISKS
Approximately 40% of 1996 net sales 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 1996 international sales of the Company's
products and services 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.
RESEARCH AND DEVELOPMENT
The Company believes that a strong commitment to research and development is
essential to the continued growth of its business. Glenayre has consistently
developed innovative products and product improvements for the wireless personal
communications services industry and has often been the first to bring such
products to market. One of the key components of the Company's development
strategy is the promotion of a close relationship between its development staff,
internally with Glenayre's manufacturing and marketing personnel, and externally
with Glenayre's customers. This strategy has allowed Glenayre to develop and
bring to market customer-driven products in a timely manner.
The Company has extensive expertise in the technologies required to develop
wireless communications systems and products including digital signal processing
("DSP"), voice processing, real-time software, networking software, high-speed
digital logic, high and low power radio frequency, data network and system
design. The Company believes that by having a research and development staff
with expertise in these key areas, it is well positioned to develop enhancements
for its existing products as well as new personal communication products.
Investment in advanced computer-aided design tools for simulation and analysis
has allowed Glenayre to reduce the time for bringing new products to market.
The majority of the Company's research and development staff are engineers or
computer science professionals. Glenayre's research and development efforts are
located in its Vancouver, British Columbia, Canada; Quincy, Illinois; Atlanta,
Georgia and Sunnyvale, California facilities. Total research and development
costs for the Company were $29.0 million, $24.0 million and $16.0 million or
7.4%, 7.5% and 9.3% of net sales for 1996, 1995 and 1994, respectively. The
Company devotes substantial resources to research and development in order to
develop new products and improve existing products. The availability of research
and development funds depends upon the Company's revenues and profitability.
Reductions in such expenditures could impair the Company's ability to innovate
and compete.
NEW PRODUCTS AND UPGRADES
The principal new products and enhancements introduced by the Company in 1996
related to its Wireless Messaging group included the following:
(i) a DSP based high power linear transmitter to support NPCS protocols at
930-941 MHZ; (ii) a new control system and encoder for high-speed two-way NPCS
systems for data and voice; (iii) a high sensitivity base receiver; (iv)
advanced features for paging switches including SS7, InFlexion Voice, two-way
and improved encoding of FLEX; (v) advanced features for traditional pager
control including over-the-air alarming internet protocol ("IP") linking; (vi) a
new advanced, size reduced operator assisted paging system; and (vii) a new
underground multicarrier transmitter and distribution network for providing
paging coverage in subways.
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The principal new products and enhancements introduced by the Company in 1996
related to its Integrated Network group include the following:
(i) a digital network application allowing seamless voice messaging between MVP
systems on a wide area basis and (ii) a messaging demand application which
creates a virtual voice mailbox for subscribers without a voice mailbox.
Additionally, the Company's Wireless Interconnect group introduced the LYNX 2T6
and LYNX 2E6 5.8 GHz license - free radios which provide simultaneous T1 or E1
wireless connections for point-to-point communications.
MANUFACTURING
Glenayre currently manufactures its products at Company facilities in Quincy,
Illinois; Vancouver, British Columbia, Canada; and Sunnyvale, California. The
Company's manufacturing expertise resides in assembling sub-assemblies and final
systems that are configured to its customers' specifications. The components and
assemblies used in the Company's products include electronic components such as
resistors, capacitors, transistors and semiconductors such as field programmable
gate arrays, digital signal processors and microprocessors; mechanical materials
such as cabinets in which the systems are built; and peripherals, including disk
drives. The components and parts used in the Company's products are generally
available from multiple sources. Some components, especially those utilizing the
latest technology, may only be available from one source. In those instances
where components are purchased from a single source, the supplier and the
specific component are reviewed both prior to initial specification and then
frequently afterward for stability and performance. Although the Company
believes that single sourced components could either be obtained from another
source or redesigned, temporary delays or increased costs in obtaining these
materials may be experienced. Additionally, as necessary, the Company purchases
sufficient quantities of certain components which have long-lead requirements in
the world market. The Company ensures that all products are tested, tuned and
verified prior to shipment to the customer.
The Company believes in setting high standards of quality throughout all its
operations. The Company has certification to the ISO 9001 international standard
for quality assurance in areas including design, manufacture, assembly and
service for the Quincy, Illinois; Vancouver, British Columbia; and Atlanta,
Georgia facilities. ISO is a worldwide federation of national standards bodies
which have united to develop internationally accepted quality systems standards
so that customers and manufacturers have a system in place that provides a known
quality. The standards set by ISO cover every facet of quality from management
responsibility to service and delivery. Management believes that adhering to the
stringent ISO 9001 procedures not only creates efficiency in its operations, but
also positions Glenayre to meet the exacting standards required by its
customers.
The Company utilizes Materials Resource Planning ("MRP") systems for production
planning in its manufacturing locations and state-of-the-art workstations for
its engineering functions. The Company's present facilities are believed to be
adequate for current manufacturing needs, but the process of upgrading its
facilities is expected to continue.
PATENTS AND TRADEMARKS
The Company owns or licenses numerous patents used in its current operations.
The Company believes that while these patents are useful to the Company, they
are not critical or valuable on an individual basis, and that the collective
value of the intangible property of the Company is comprised of its patents,
blueprints, specifications, technical processes and cumulative employee
knowledge. Although the Company attempts to protect its proprietary technology
through a combination of trade secrets, patent law, non-disclosure agreements
and technical measures, such protection may not preclude competitors from
developing products with features similar to the Company's products. The laws of
certain foreign countries in which the Company sells or may sell its products,
including South Korea, People's Republic of China, Saudi Arabia, Thailand,
Dubai, India and Brazil, do not protect the Company's proprietary rights in the
products to the same extent as do the laws of the United States. Although the
Company believes that its products and technology do not infringe on the
proprietary rights of others, the Company is currently party to certain
infringement claims, and there can be no assurance that third parties will not
assert additional infringement claims against the Company in the future. If such
litigation resulted in the Company's inability to use the technology, the
Company might be required to expend substantial resources to develop alternative
technology or to license the prior technology. There can be no assurance that
the Company could successfully develop alternative technology or license the
prior technology on commercially reasonable terms. The Company does not believe,
however, that an adverse resolution of the pending claims would have a material
adverse effect on the Company.
The Company considers its trademark "Glenayre" to be a valuable asset. The
"Glenayre" trademark is protected through trademark registrations in the United
States and various countries throughout the world.
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BACKLOG
The Company's firm backlog at December 31, 1996 and 1995 was approximately $166
million and $102 million, respectively. The growth in backlog is primarily due
to sizable NPCS orders which were first booked in 1996. In general, the Company
expects to commence shipment of the orders in the backlog within six months of
their respective backlog dates. Approximately 75% of orders on hand at December
31, 1996 are expected to be shipped during 1997. The orders not being shipped in
1997 are primarily due to the nature and the size of the NPCS orders. This is a
forward looking estimate which is subject to substantial change based on the
timing of installation of NPCS systems by the Company's paging service provider
customers and the market acceptance of NPCS by the customers of such paging
service providers.
COMPETITION
The Company is a leading worldwide supplier of switches, transmitters,
receivers, controllers and software used in paging, voice messaging and message
management systems. While the services from the foregoing products represent a
significant portion of the wireless personal communications systems industry
today, the industry is expanding to include new services and new markets. The
wireless personal communications industry includes equipment manufacturers that
serve many of the same personal communications services markets served by the
Company. Certain of the Company's competitors have significantly greater
resources than the Company, and there can be no assurance that Glenayre 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.
Competition in Glenayre's markets is based upon quality, product features,
service and price. While equipment and systems of the type sold by Glenayre
represent less than one-half of a paging service provider's total capital
investment, such equipment and systems are nevertheless critical for the
operation of the pager devices and the paging network. Glenayre believes that it
compares favorably with its competitors due to its reputation for high-quality
products and service and its ability to offer complete turn-key systems
customized to specifications provided by the customer.
The Company's determination of its competitive market position is based upon its
knowledge of sales of products of the type sold by the Company in the segment of
the wireless personal communications industry in which the Company competes,
information derived from its close working relationship with large paging
service providers and market information obtained from industry trade
publications and sources.
UNITED STATES
The Company believes that its Wireless Messaging group has the leading market
share (based on the number of units sold) of the United States market for sales
of paging switches, paging transmitters and controllers. It is the Company's
belief that its leadership position with respect to the sale of paging switches
in the United States substantially exceeds that of its principal competitors in
this market, which are Motorola, Inc. ("Motorola") and L M Ericsson Telephone
Company ("Ericsson"). The Company believes that it captured the largest
percentage of sales of paging switches serving more than 10,000 subscribers in
each of the last three years.
The Company believes sales of transmitter and controller products by the
Company's Wireless Messaging group exceeded sales of such products by Motorola
in each of the last three years. The Company believes that Motorola remains a
substantial competitor with a significant market share in this market. Other
competitors in this market include Ericsson and smaller manufacturers that
primarily serve small local paging service providers.
For sales of voice messaging products, the Company's Integrated Network group
competes in the United States and internationally primarily with Boston
Technology, Inc., Centigram Communications Corporation, Comverse Technologies,
Inc., Octel Communications Corporation and Unisys Corporation.
For sales of microwave radio products, the Company's Wireless Interconnect group
competes in the United States and internationally primarily with Alcatel
Alsthom, California Microwave Corporation, Digital Microwave Corporation,
Ericsson, Harris Corporation, Philips N.V. and Siemens A.G.
9
<PAGE>
INTERNATIONAL
The Company believes that it is one of the leading participants in markets
outside of the United States in the sale of paging switches, paging transmitters
and controllers (based on the number of units sold). The Company believes that
it sold the most paging switches outside of the United States during each of the
last three years, exceeding sales by each of its two principal competitors in
this market, Motorola and Ericsson. Additionally, Tecnomen Oy is a competitor of
the Company in the international paging switch, transmitter and controller
market.
The Company believes that the Company and Motorola have the largest and
approximately equivalent shares of the international paging transmitter and
controller market. Ericsson also is a significant competitor in this market with
what the Company believes to be a substantially smaller share of the market than
either of Motorola or the Company.
The Company competes for sales of certain components of wide-area rural radio
telephone systems with companies such as Carlson Communications, Exicom
Corporation, Motorola, Tait, Inc. and Telemobile, Inc.
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 paging service provider
and other wireless 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 Federal Communications Commission ("FCC") in the United
States 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. In
February 1996, the FCC released a Notice of Proposed Rule Making (the "Notice")
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. In April 1996, the
FCC partially lifted this freeze to permit paging service providers to submit
expansion applications for paging transmitter sites within 40 miles of their
existing sites. In June 1996 the notice was modified to allow all applications
filed prior to October 1, 1995 to be used, upon grant, as expansion base sites.
Further, the FCC has indicated that all expansion applications filed prior to
July 31, 1996 will be processed to completion prior to adoption of auction
rules. As the issuance of new paging system licenses stimulates demand for the
Company's products, any delays in the issuances of licenses may adversely affect
sales and the timing of sales of the Company's products.
EMPLOYEES
At December 31, 1996, the Company and its subsidiaries employed approximately
2,150 persons. The Company believes its employee relations to be good.
10
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth certain information regarding the Company's
principal facilities:
<TABLE>
<CAPTION>
Size Owned or Lease
Location (Square Feet) Leased Expiration Date Uses
<S> <C> <C> <C> <C>
Vancouver, British Columbia 158,143 121,144 owned Manufacturing, service,
36,999 leased 1997-1998 accounting, purchasing and
training facilities,
research and development.
Quincy, Illinois 162,356 154,256 owned Manufacturing, service,
8,100 leased 1997 sales, accounting,
purchasing and training
facilities, research and
development.
Sunnyvale, California 45,709 leased 2006 Manufacturing, service,
sales, accounting,
purchasing, research and
development.
Atlanta, Georgia 75,000 owned Sales, service, research
and development, and
training facilities.
Charlotte, North Carolina 45,000 owned Corporate headquarters,
marketing, accounting and
finance, sales, service and
training facilities.
Singapore 42,000 owned Service, sales, accounting
and training facilities.
</TABLE>
In addition to its sales offices in Atlanta, Georgia; Sunnyvale, California;
Charlotte, North Carolina; Quincy, Illinois; and Singapore listed above, the
Company also maintains sales offices throughout the United States and
internationally. See "Business--Marketing and Sales." The Company's present
facilities are believed to be adequate for its current needs, although the
process of upgrading its facilities to meet technological and market
requirements is expected to continue.
ITEM 3. LEGAL PROCEEDINGS
On January 31, 1997 an amended class action complaint (the "Complaint") was
filed in the United States District Court for the Southern District of New York
against the Company and certain of its executive officers and directors alleging
the Company artificially inflated the value of its common stock during the
period February 6, 1996 to September 13, 1996 by making false and misleading
statements in its public disclosures. The Complaint consolidates two lawsuits
filed in the fourth quarter of 1996. The plaintiffs seek unspecified damages
based upon the decrease in market value of the shares of the Company's stock. On
February 20,1997, a shareholder's derivative complaint (the "Shareholder's
Complaint") was filed in the United States District Court for the Southern
District Court of New York against certain current and former directors and
against the Company, as a nominal defendant, alleging that the directors
breached their fiduciary obligations to the Company by subjecting the Company to
the class action referred to above. The plaintiff seeks unspecified damages on
behalf of the Company. Management intends to defend these actions vigorously and
believes that ultimate resolutions will not have a material adverse effect on
the Company's financial position or future results of operations.
Additionally, the Company is party to several intellectual property claims and
disputes related to its business operations. The Company believes that the
ultimate resolution of these claims and disputes will not have a material effect
on the Company's financial position or future results of operations. However, if
such litigation resulted in the Company's inability to use technology, the
Company might be required to expend substantial resources to develop alternative
technology or to license such technology on commercially reasonable terms.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the symbol
"GEMS." The table below sets forth the high and low sale prices for the
Company's common stock on The Nasdaq Stock Market for the periods indicated, as
adjusted to reflect a 3-for-2 stock split effected in the form of a 50% stock
dividend distributed on January 5, 1995 to stockholders of record on December
22, 1994, a 3-for-2 stock split effected in the form of a 50% stock dividend
distributed on June 19, 1995 to stockholders of record on June 5, 1995 and to
reflect a 3-for-2 stock split effected in the form of a 50% stock dividend
distributed on December 29, 1995 to stockholders of record on December 22, 1995.
<TABLE>
<CAPTION>
Price Range of
Common Stock
High Low
<S> <C> <C>
Year Ended December 31, 1995
First Quarter...................................................... $21.39 $16.06
Second Quarter..................................................... 36.17 18.89
Third Quarter...................................................... 49.00 32.67
Fourth Quarter..................................................... 49.17 33.00
Year Ended December 31, 1996
First Quarter...................................................... $48.75 $30.38
Second Quarter..................................................... 53.75 34.50
Third Quarter...................................................... 53.25 18.63
Fourth Quarter..................................................... 27.75 19.38
</TABLE>
At March 7, 1997 there were approximately 1,800 holders of record of the
Company's common stock.
The Company has not paid cash dividends since 1982 and does not anticipate
paying cash dividends in the foreseeable future. The Company expects to utilize
future earnings to finance the development and expansion of its business.
12
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
The following Selected Consolidated Financial Data of Glenayre presented below
for each of the five years in the period ended December 31, 1996 has been
derived from the Company's audited Consolidated Financial Statements. The
Company acquired the telecommunications equipment and related software business
(the "GEMS Business") on November 10, 1992 (the "Acquisition") from Glentel,
Inc., a Canadian corporation. Prior to the Acquisition, the Company had been in
the real estate development business and in oil and gas pipeline construction.
This Selected Consolidated Financial Data reflects the operating results of the
GEMS Business only from November 10, 1992, the date of the Acquisition, thus the
operating results for fiscal year 1992 are not comparable to the operating
results for subsequent years. The year ended December 31, 1992 reflects only 51
days of the operating results of the GEMS Business following the Acquisition.
The Company acquired Western Multiplex Corporation ("MUX"), a manufacturer of
microwave radio systems, on April 25, 1995. The results of MUX are included from
the date of its acquisition by the Company. The Selected Consolidated Financial
Data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and the other financial data included elsewhere
herein.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales....................................... $390,246 $321,404 $172,107 $136,139 $ 15,586
Income from continuing
operations before extraordinary
item(1)............ .......................... 70,444 76,448 33,095 23,700 865
Discontinued operations(2)...................... --- --- 388 100 (7,990)
Extraordinary item.............................. --- --- --- (1,695) ---
Net income (loss)............................... 70,444 76,448 33,483 22,105 (7,125)
PRIMARY PER SHARE DATA:
Income from continuing operations
before extraordinary item.................... 1.11 1.22 0.56 0.48 0.02
Net income (loss)............................... 1.11 1.22 0.57 0.45 (0.19)
At December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Working capital(3)............................... $279,031 $223,487 $135,209 $ 94,898 $ 20,217
Total assets..................................... 521,210 447,580 284,961 228,244 169,476
Long-term debt, including current portion........ 879 2,147 2,019 3,451 67,981
Minority interest in consolidated subsidiaries... --- --- --- --- 3,565
Put warrants..................................... --- --- --- --- 459
Stockholders' equity............................. 455,861 390,694 245,435 198,708 64,022
</TABLE>
(1) Income from continuing operations prior to November 10, 1992, resulted
primarily from interest income and gains (losses) related to the Company's
cash and marketable securities and other income and expenses unrelated to
the discontinued operations.
(2) Effective December 31, 1992 and July 6, 1993, the Company adopted formal
plans to dispose of its oil and gas pipeline construction and real estate
operations, respectively. These operations are accounted for as
discontinued for all periods presented.
(3) Working capital includes approximately $2.1 million attributable to the
Company's discontinued oil and gas pipeline construction operations at
December 31, 1992.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
Glenayre 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, (ii) Wireless Interconnect or (iii) Integrated Network.
Additionally, Glenayre provides service and support to its products.
In April 1995, the Company completed the acquisition of Western Multiplex
Corporation ("MUX"), now located in Sunnyvale, California. MUX designs,
manufactures and markets products (included in the Wireless Interconnect
marketing unit) for use in point-to-point microwave communication systems. The
purchase price of $28.6 million consisted of 1,687,432 shares of the Company's
common stock (including 502,206 shares issuable upon exercise of stock options)
valued at $27.3 million and $1.3 million in acquisition costs. The operating
results of MUX are included in the consolidated results of the Company since the
acquisition date.
Company management believes that the worldwide market for the wireless personal
communications industry continues to grow. The Company's diversified customer
base and technological competitive advantage should allow the Company to
capitalize on the overall industry growth. As the service providers expand their
systems to accommodate new subscribers, services and territories, domestically
and internationally there should be opportunities for sales of the Company's
expansion and enhancement products and related software. Additionally, the
Company expects to participate in the delivery of products supporting the
development of the more advanced Narrowband Personal Communication Services
("NPCS"). Although the Company began limited shipments of its NPCS products in
1996, the timing of sales of NPCS products in 1997 and subsequent years depends
on product development schedules, the installation schedules of the Company's
paging service provider customers and the market acceptance of NPCS by the
customers of such paging service providers.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes.
1996 COMPARED WITH 1995
NET SALES
Net sales in 1996 increased to $390.2 million from 1995 net sales of $321.4
million, an increase of $68.8 million, or 21%. This increase was primarily
attributable to greater sales of Wireless Messaging products of approximately
$52.3 million, or 18% over 1995, and increased sales of Wireless Interconnect
products of approximately $15.2 million, or 117% over 1995. The increase in
sales of Wireless Messaging products was primarily due to: (i) the continued
expansion and upgrading of existing systems within the installed customer base;
(ii) the continued expansion internationally into new markets; and (iii) the
sale of approximately $16.1 million of beta test and start up NPCS products. The
increase in sales of Wireless Interconnect products was due to: (i) increased
delivery of microwave radio products and (ii) the inclusion of the MUX
operations only since its April 1995 acquisition. Net sales to U.S. customers in
1996 increased by approximately 14% over 1995 while 1996 net sales to
international customers increased approximately 36% over 1995.
The Company believes that the slower growth experienced by its Wireless
Messaging group in the 1996 shipments to domestic customers compared to 1995
shipments resulted from the sizable buildout in the prior year of paging systems
with the latest technologies including faster protocols thus reducing paging
service provider requirements for new systems coupled with a more constrained
financing market for the U.S. paging industry. The slower growth as a result of
these issues is in contrast to the continuing reports of subscriber gains by
most of the U.S. public paging providers. This contradiction increases the
difficulty of projections; however, the Company expects shipments to the
domestic market of its one-way and NPCS products to grow by more than 15% in
1997 over 1996. The Company has made significant investments in international
opportunities and anticipates the continued strong growth of international sales
of its paging products in 1997.
Due to minimal international shipments, the Integrated Network's MVP product
line experienced a significant decrease in its growth rate. The Company expects
this group's sales growth to increase in 1997 as a more aggressive international
strategy is implemented.
14
<PAGE>
The growth rate of the Wireless Interconnect's microwave radio products when
comparing 1996 to a full year of 1995 was in excess of 50%. The Company expects
a return to a more modest growth rate in 1997 due to increased competition in
this group's market.
The foregoing paragraphs contain forward-looking statements and the Company's
actual results could differ materially due to rapid technological advances in
the wireless telecommunications industry, delays in the introduction and market
acceptance of NPCS products and systems, competition, limits on protection of
Glenayre's proprietary technology, changes in governmental regulation and
international business risks.
GROSS PROFIT
Gross profit increased to $209.8 million, or 53.8% of 1996 net sales, from
$182.6 million, or 56.8% of 1995 net sales. The decline in the gross profit
margin percentage was primarily due to: (i) a change in the product mix which
included a greater portion of sales of products with lower margins including
increased revenue from international turn-key projects; (ii) an increase in
fixed costs resulting from additional capacity brought on line during the latter
half of 1995 in anticipation of NPCS commercial product line shipments which
have been delayed by customers; and (iii) additional customer support costs.
The increased requests by the Company's international customers to provide
turn-key installation of paging systems allows greater opportunities for follow
on business. However, in addition to the Company's products, turn-key projects
include OEM equipment, project management and field services which typically
yield lower margins. The impact of the lower margins incurred from turn-key
projects varies in each period depending on the customers' demand for this
service.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased to $80.4 million, or 20.6%
of 1996 net sales, from $56.6 million, or 17.6% of 1995 net sales. Selling,
general and administrative expense increased by $23.8 million from 1995 to 1996.
The increase primarily resulted from: (i) increased selling and marketing
expenses of approximately $17.9 million (due to increased staffing, commissions,
travel expenses, promotional material and new international sales office
openings) required to achieve growth in net sales; (ii) approximately $5.8
million related to increased administrative staffing and travel expenses; and
(iii) general increases in employee costs and purchased services.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense increased to $29.0 million, or 7.4% of 1996 net
sales, from $24.0 million, or 7.5% of 1995 net sales. These research and
development costs were for enhancements to existing products and new product
development such as the NPCS products, from which increased revenue is expected
in 1997 and subsequent years. 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 $13.5 million for 1996 from
$8.6 million for 1995. The increase was primarily attributable to: (i)
significant purchases of plant and equipment in 1996 and the latter half of 1995
and (ii) goodwill related to the acquisition of MUX in April 1995. In order to
provide the equipment and capacity necessary to meet the growth of its business,
Glenayre spent $43.0 million and $34.6 million during 1996 and 1995,
respectively, for capital expenditures (including approximately $15.9 million in
1996 related to purchases of Atlanta and Singapore facilities and approximately
$18.0 million in 1995 related to expansion of the Quincy and Vancouver
facilities and purchase of the Charlotte facility).
INTEREST INCOME, NET
The Company realized net interest income of $9.7 million for 1996 compared to
net interest income of $8.3 million for 1995. The increase was primarily
attributable to higher average balances in cash and cash equivalents and
short-term investments.
15
<PAGE>
INCOME TAXES
The difference between the combined U.S. federal and state statutory tax rate of
approximately 40% and the effective tax rate of 27.1% for 1996 and 24.9% for
1995 was 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 27.1%
in 1996 and 24.9% in 1995 was 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 year to the estimated future taxable
income during the Company's loss carryforward period. See Note 8 to the
Company's Consolidated Financial Statements and "--Financial Condition and
Liquidity."
The Company has had a significantly lower book tax rate as compared with the
statutory tax rate in the last several years as a result of the reduction in the
valuation allowance attributable to the Company's NOLs. The Company does not
anticipate any sizable reductions in the valuation allowance for periods
beginning after December 31, 1996. As a result, the book tax rate is expected to
be approximately 35% to 36% for the reporting periods in 1997. However, the
actual book tax rate may be different from the Company's estimate due to various
issues including: (i) future tax legislation; (ii) the changes in the amount of
international business by the Company; (iii) the utilization of U.S. R&D tax
credits; (iv) changes in federal, state or international tax rates and (v) the
availability of foreign sales corporation benefits.
1995 COMPARED WITH 1994
NET SALES
Net sales in 1995 increased to $321.4 million from 1994 net sales of $172.1
million, an increase of $149.3 million, or 87%. This increase was primarily
attributable to: (i) greater sales of Wireless Messaging products of
approximately $129.9 million, or 84% over 1994; (ii) Integrated Network had
increased sales of $6.4 million or 37%; and (iii) the inclusion of the MUX
operations only since its April 1995 acquisition. The increase of Wireless
Messaging products was primarily due to: (i) the continued expansion and
upgrading of existing systems within the installed customer base; (ii) the
continued expansion internationally into new markets and (iii) growth in market
share. The increase in Integrated Network was primarily due to an increase in
voice messaging sales and related products. Net sales to U.S. customers in 1995
increased by approximately 80% over 1994 while 1995 net sales to international
customers increased approximately 100% over 1994.
GROSS PROFIT
Gross profit increased to $182.6 million, or 56.8% of 1995 net sales, from $99.2
million, or 57.6% of 1994 net sales. The minimal change in the gross profit
margin percentage was due to a change in the mix in products shipped and the
impact of increased fixed manufacturing costs incurred as additional
manufacturing capacity was brought on line during 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased to $56.6 million, or 17.6%
of 1995 net sales, from $41.1 million, or 23.9% of 1994 net sales. Selling,
general and administrative expense increased by $15.5 million from 1994 to 1995.
The increase primarily resulted from: (i) increased selling and marketing
expenses of approximately $10.8 million (due to increased staffing, commissions,
travel expenses, promotional material and new international sales office
openings) required to achieve growth in net sales; (ii) approximately $4.7
million related to increased administrative staffing and travel expenses; and
(iii) general increases in employee costs and purchased services.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense increased to $24.0 million, or 7.5% of 1995 net
sales, from $16.0 million, or 9.3% of 1994 net sales. These research and
development costs were for enhancements to existing products and new product
development.
16
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased to $8.6 million for 1995 from
$5.9 million for 1994. The increase was primarily attributable to: (i)
significantly 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 $8.3 million for 1995 compared to
net interest income of $4.5 million for 1994. The increase was primarily
attributable to: (i) higher average balances in cash and cash equivalents and
short-term investments and (ii) higher average rates earned.
INCOME TAXES
The difference between the combined U.S. federal and state statutory tax rate of
approximately 40% and the effective tax rate of 24.9% for 1995 and 17.9% for
1994 was primarily the result of the utilization of the Company's NOLs and the
application of SFAS 109, in computing the Company's tax provision. The
difference between the effective tax rate of 24.9% in 1995 and 17.9% in 1994 was
primarily the result of a significant variance between the 1995 and 1994
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 year to the estimated future taxable income during the
Company's loss carryforward period. See Note 8 to the Company's Consolidated
Financial Statements and "--Financial Condition and Liquidity."
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operations increased to $83.5 million in 1996 compared to
$39.0 million in 1995. The Company's working capital at December 31, 1996 was
$279.0 million, including cash and cash equivalents and short-term investments
of $131.8 million. Accounts payable and accrued liabilities at December 31, 1996
increased from December 31, 1995 primarily as a result of increased levels of
operating activities during 1996. In addition to increased levels of operating
activities, accounts receivables were higher due to increased domestic orders at
non- standard payment terms and more international turn-key projects which
typically have longer payment contract terms. During 1996 the Company received
cash of $14.2 million from the exercise of stock options. During 1996, the
Company spent $43.0 million for capital expenditures (including approximately
$15.9 million related to the purchase of the Atlanta and Singapore facilities).
These expenditures were necessary in order to provide the equipment and capacity
to meet business growth. During 1996 the Company repurchased 1,570,000 of its
common shares at an aggregate cost of $36.3 million, completing a repurchase
program established by the Board of Directors in December 1994. In September
1996, the Board of Directors authorized the purchase of an additional 2,500,000
shares of the Company's common stock. No shares were repurchased under the 1996
authorization in 1996.
The Company's cash and cash equivalents generally consist of high-grade
commercial paper, bank certificates of deposit, Treasury bills, notes or agency
securities guaranteed by the U.S. Government, 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.
Additionally, the competitive telecommunications market often requires customer
financing commitments. These commitments may be in the form of guarantees,
secured debt or lease financing. At December 31, 1996, the Company had
agreements to finance and arrange financing for approximately $20.7 million of
paging and voice mail products. Further, at December 31, 1996, the Company had
committed, subject to customers meeting certain conditions and requirements, to
finance approximately $105.9 million for similar systems. The Company cannot
currently predict the extent to which these commitments will be utilized, since
certain customers may be able to obtain more favorable terms using traditional
financing sources. From time to time, the Company also arranges for third-party
investors to assume a portion of its commitments. If exercised, the financing
arrangements will be secured by the equipment sold by Glenayre.
The Company believes that funds generated from continuing operations, together
with its current cash reserves and short-term investments, will be sufficient
to: (i) support the short-term and long-term liquidity requirements for current
operations
17
<PAGE>
(including annual capital expenditures and customer financing commitments) and
(ii) to repurchase shares as discussed above. Company management believes that,
if needed, it can establish appropriate borrowing arrangements with lending
institutions.
INCOME TAX MATTERS
The Company presently has a favorable income tax position principally because of
the existence of a significant amount of U.S. tax net operating loss
carryforwards. These tax loss carryforwards are available to shelter future U.S.
taxable income generated by the Company. Under the Company's current operating
and business structure, the Company expects that the majority of the worldwide
taxable income will be earned in the United States. Therefore, the Company's
actual cash outlay for income taxes for the next few years will be limited to
U.S. alternative minimum tax and foreign and state income taxes.
As described in Note 8 to the Company's Consolidated Financial Statements, the
Company at December 31, 1996 had U.S. NOLs aggregating $70.0 million. However,
the Company's favorable tax position could be mitigated, as there is no
assurance that the U.S. taxable income will be sufficient to fully use these
NOLs. Additionally, as the volume of international sales is expected to grow,
the percentage of worldwide income taxable in international jurisdictions may
increase in the future.
The Company has recorded a deferred tax asset of $29.7 million, net of a
valuation allowance of $5.9 million, at December 31, 1996, in accordance with
SFAS 109. This amount represents management's best estimate of the amount of
NOLs and other future deductions that are more likely than not to be realized as
offsets to future taxable income. The factors that affect the amount of U.S.
taxable income in the future, in relation to reported income before income
taxes, include primarily the amount of employee stock options exercised and the
portion of such income taxable in jurisdictions outside the U.S., both of which
reduce the amount of income subject to U.S. tax, and therefore reduce the
utilization of existing net operating loss carryforwards.
INFLATION
For the three fiscal years ended December 31, 1996, the Company does not believe
inflation has had a material effect on its results of operations.
FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-K, the Company's Summary Annual Report to Stockholders, any Form
10-Q or any Form 8-K of the Company or any other written or oral statements made
by or on behalf of the Company include forward-looking statements reflecting the
Company's current views with respect to future events and financial performance.
Although certain cautionary statements have been made in this Form 10-K related
to factors which may affect future operating results, a more detailed discussion
of these factors is set forth in Exhibit 99 of this Form 10-K.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries as of
December 31, 1996, 1995 and 1994 and for each of the three years in the period
ended December 31, 1996, as well as the independent auditors' reports thereon,
are set forth on the following pages. The index to such financial statements and
required financial statement schedules is set forth below and at Item 14(a) of
this Annual Report on Form 10-K.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
<TABLE>
<CAPTION>
(i) Financial Statements: Page
<S> <C>
Report of Ernst & Young LLP Independent Auditors ................................................ 20
Report of Deloitte & Touche LLP Independent Auditors............................................. 21
Consolidated Balance Sheets at December 31, 1996 and 1995........................................ 22
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994........... 23
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
1995 and 1994.................................................................................. 24
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994....... 25
Notes to Consolidated Financial Statements....................................................... 27
(ii) Supplemental Schedule:
(For the years ended December 31, 1996, 1995 and 1994)
Schedule II - Valuation and Qualifying Accounts ................................................. 46
All other schedules are omitted because they are not applicable or not required.
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders
Glenayre Technologies, Inc.
We have audited the consolidated balance sheets of Glenayre Technologies, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. Our audits also included the information for the years ended December 31,
1996 and 1995 included in the supplemental schedule listed in the Index of Item
14(a). These financial statements and the supplemental financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the supplemental
schedule based on our audits. The consolidated financial statements of Glenayre
Technologies, Inc. and subsidiaries for the year ended December 31, 1994, were
audited by other auditors whose report dated February 3, 1995, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 1996 and 1995 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Glenayre Technologies, Inc. and subsidiaries at December 31, 1996
and 1995, and the consolidated results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles. Also, in our opinion, the related supplemental financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein for the years ended December 31, 1996 and 1995.
ERNST & YOUNG LLP
Charlotte, North Carolina
January 28, 1997
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Glenayre Technologies, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of Glenayre Technologies, Inc. and
subsidiaries for the year ended December 31, 1994. Our audit also included the
information for the year ended December 31, 1994 on the supplemental schedule
listed in the Index at Item 14(a). These financial statements and the
supplemental schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
supplemental schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Glenayre Technologies, Inc. and subsidiaries for the year ended December 31,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, such supplemental schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein for the year ended December
31, 1994.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 3, 1995
21
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 53,785 $ 70,600
Short-term investments............................................. 78,016 44,054
Accounts receivable, net........................................... 119,851 89,265
Trade notes receivable, current.................................... 10,236 7,960
Inventories........................................................ 50,460 50,045
Deferred income taxes.............................................. 19,291 7,568
Prepaid expenses and other current assets.......................... 7,957 7,189
---------- -----------
Total current assets............................................. 339,596 276,681
Trade notes receivable................................................ 13,085 14,973
Property, plant and equipment, net.................................... 80,501 47,920
Goodwill.............................................................. 76,818 80,240
Deferred income taxes................................................. 10,372 27,487
Other assets......................................................... 838 279
---------- -----------
TOTAL ASSETS $521,210 $447,580
========- ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................... $ 19,614 $ 15,709
Accrued liabilities................................................. 40,781 36,162
Other current liabilities........................................... 170 1,323
---------- -----------
Total current liabilities......................................... 60,565 53,194
Other liabilities..................................................... 4,784 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: 1996-59,868,202 shares;
1995-60,044,752 shares............................................ 1,197 1,201
Contributed capital................................................. 301,771 297,017
Retained earnings................................................... 152,893 92,476
---------- -----------
Total stockholders' equity........................................ 455,861 390,694
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $521,210 $447,580
========= ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
NET SALES. ......................................................... $390,246 $321,404 $172,107
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales.................................................. 180,468 138,773 72,908
Selling, general and administrative expense.................... 80,428 56,579 41,079
Research and development expense .............................. 28,983 23,968 15,991
Depreciation and amortization expense.......................... 13,482 8,571 5,884
-------- -------- --------
Total costs and expenses....................................... 303,361 227,891 135,862
-------- -------- --------
INCOME FROM OPERATIONS.............................................. 86,885 93,513 36,245
-------- -------- --------
OTHER INCOME (EXPENSES):
Interest income................................................ 9,805 8,457 4,750
Interest expense .............................................. (151) (190) (300)
Other, net .................................................... 112 (35) (400)
-------- -------- --------
Total other income (expenses), net............................. 9,766 8,232 4,050
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.............................................. 96,651 101,745 40,295
PROVISION FOR INCOME TAXES.......................................... 26,207 25,297 7,200
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS................................... 70,444 76,448 33,095
GAIN FROM DISCONTINUED OPERATIONS................................... --- --- 388
-------- -------- --------
NET INCOME $ 70,444 $ 76,448 $ 33,483
======== ======== ========
PRIMARY INCOME PER COMMON SHARE:
Continuing operations.......................................... $ 1.11 $ 1.22 $ .56
Discontinued operations........................................ --- --- .01
-------- -------- --------
NET INCOME PER COMMON SHARE--PRIMARY $ 1.11 $ 1.22 $ .57
====== ======= ========
FULLY DILUTED INCOME PER COMMON SHARE:
Continuing operations.......................................... $ 1.11 $ 1.22 $ .56
Discontinued operations........................................ --- --- .01
-------- -------- --------
NET INCOME PER COMMON SHARE--FULLY DILUTED.......................... $ 1.11 $ 1.22 $ .57
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Unearned
Stock Total
Common Stock Contributed Retained Compen- Stockholders'
Shares Amount Capital Earnings sation Equity
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993.......... 53,791 $ 1,076 $ 192,826 $ 5,296 $ (490) $ 198,708
Net income........................... 33,483 33,483
Amortization of unearned
stock compensation................. 490 490
Utilization of net operating
loss carryforwards ................ 10,326 (10,326) ---
Stock options exercised.............. 2,284 45 4,271 4,316
Tax benefit of stock options
exercised ........................... 9,726 9,726
Repurchase of common stock........... (84) (1) (1,287) (1,288)
------- ------ -------- --------- ------- ---------
Balances, December 31, 1994.......... 55,991 1,120 215,862 28,453 --- 245,435
Net income........................... 76,448 76,448
Stock options exercised.............. 2,899 58 16,090 16,148
Shares issued and options assumed in
connection with business
acquisition........................ 1,185 24 27,244 27,268
Utilization of net operating loss
carryforwards...................... 12,425 (12,425)
Tax benefit of stock options
exercised............................ 26,433 26,433
Repurchase of common stock........... (30) (1) (1,037) (1,038)
------- ------- --------- --------- ------- ----------
Balances, December 31, 1995.......... 60,045 1,201 297,017 92,476 ---- 390,694
Net income........................... 70,444 70,444
Stock options exercised.............. 1,393 28 14,061 14,089
Utilization of net operating loss
carryforwards...................... 10,027 (10,027) --
Tax benefit of stock options
exercised.......................... 16,947 16,947
Repurchase of common stock........... (1,570) (32) (36,281) (36,313)
------- ------- --------- --------- ------- ----------
Balances, December 31, 1996.......... 59,868 $1,197 $301,771 $152,893 $ -0- $455,861
======== ======== ========= ======== ======= ==========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 70,444 $ 76,448 $ 33,483
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 13,482 8,571 5,884
Gain on disposal of discontinued operations............. --- --- (388)
Changes in deferred income taxes........................ 5,392 (4,998) (5,218)
Loss on disposal of equipment........................... 82 203 65
Tax benefit of stock options exercised.................. 16,947 26,433 9,726
Stock compensation expense.............................. --- 169 490
Other noncash expenses.................................. 121 73 222
Changes in operating assets and liabilities, net of
effects of business acquisitions and the sale of
discontinued operations:
Accounts receivable.................................. (30,586) (54,222) (6,622)
Notes receivable..................................... (388) (1,637) (13,174)
Inventories.......................................... (415) (23,152) (5,207)
Prepaids and other current assets.................... (768) 227 (802)
Real estate held for sale............................ --- --- 2,700
Other assets......................................... (559) (3,384) (143)
Accounts payable..................................... 3,905 5,406 5,085
Accrued liabilities.................................. 4,619 8,811 4,002
Other liabilities.................................... 1,207 93 2,337
----- -------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................................... 83,483 39,041 32,440
------ -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (43,017) (34,638) (8,627)
Proceeds from sale of equipment........................... 123 26 13
Net proceeds from sale of interest in oil and gas
pipeline construction business.......................... --- 3,600 ---
Maturities of short-term investments...................... 171,812 122,679 29,503
Purchases of short-term investments....................... (205,774) (127,271) (68,965)
Cash acquired, net of acquisition costs......................... --- 396 ---
------- -------- -------
NET CASH USED IN INVESTING ACTIVITIES..................... (76,856) (35,208) (48,076)
------- -------- -------
</TABLE>
25
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Repayments of long-term borrowings................................... (1,279) (325) (1,448)
Issuance of common stock............................................. 14,150 16,087 4,316
Common stock repurchases............................................. (36,313) (1,038) (1,288)
------- ------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................. (23,442) 14,724 1,580
------- ------ ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................................... (16,815) 18,557 (14,056)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................... 70,600 52,043 66,099
------- ------ -------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................. $53,785 $70,600 $52,043
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest........................................................... $ 140 $ 85 $ 144
Income taxes....................................................... 6,183 1,843 1,176
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 $1,323,000 in acquisition
costs and issued common stock valued at $27,260,000 for assets with a fair value
of $31,769,000 and assumed liabilities of $3,186,000.
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of dollars except per share amounts)
1. BUSINESS ACQUISITION
WESTERN MULTIPLEX ACQUISITION
On April 25, 1995 Glenayre Technologies, Inc. (the "Company") acquired Western
Multiplex Corporation ("MUX"), now located in Sunnyvale, California. MUX
designs, manufactures and markets products for use in point-to-point microwave
communication systems. The purchase price of $28.6 million consisted of
1,687,432 shares of the Company's common stock (including 502,206 shares
issuable upon exercise of stock options) valued at $27.3 million and $1.3
million in acquisition costs. The Company's consolidated financial statements
for the year ended December 31, 1995 include the operating results of MUX for
the period April 25, 1995 to December 31, 1995. The acquisition was accounted
for as a purchase and the purchase price was assigned to the net assets acquired
based on the fair values of such assets and liabilities at the date of the
acquisition, as follows:
Current assets.........................................$ 7,886
Property, plant and equipment............................1,188
Goodwill................................................21,991
Deferred tax asset.........................................704
Liabilities assumed ...................................(3,186)
-------
$28,583
=======
The following table summarizes, on an unaudited pro forma basis, the estimated
combined results of operations for the years ended December 31, 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
unaudited 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.
1995 1994
---- ----
Net sales.............................................$326,656 $190,920
Income from continuing operations..................... 76,600 34,550
Income from continuing operations per
common share......................................$ 1.22 $ .58
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company designs, manufactures, markets and services switches, transmitters,
receivers, controllers, software and other equipment used in personal
communications systems (including paging, voice messaging, cellular and message
management and mobile data systems), microwave communication systems and radio
telephone systems. The Company sells to a range of customers worldwide. In the
United States, customers include the regional Bell operating companies, public
and private radio common carriers and private carrier paging operators.
Internationally, customers include public telephone and telegraph companies, as
well as private telecommunication service providers.
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.
27
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
CONSOLIDATION
The consolidated financial statements include the accounts of Glenayre
Technologies, Inc. and its subsidiaries. All significant intercompany accounts
and transactions are eliminated in consolidation.
OPERATING CYCLE
Assets and liabilities related to long-term contracts are included in current
assets and current liabilities in the consolidated balance sheets, as they will
be liquidated in the normal course of contract completion.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. These investments
generally consist of high-grade commercial paper, bank certificates of deposits,
Treasury bills, notes or agency securities guaranteed by the U.S. Government and
repurchase agreements backed by U.S. Government securities.
INVENTORIES
Inventories are valued at the lower of average cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally using the straight-line method based on the
estimated useful lives of the related assets (buildings, 20-40 years; furniture,
fixtures and equipment, 3-7 years).
GOODWILL
Goodwill represents the excess of cost over assigned fair market value of net
assets acquired and is being amortized on a straight-line basis over estimated
useful lives not exceeding 30 years. Goodwill is shown net of accumulated
amortization of $12.4 million and $8.9 million at December 31, 1996 and 1995,
respectively. The carrying amount of goodwill is reviewed if facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the expected future
profitability of the entity acquired over the remaining amortization period, the
carrying amount of the goodwill is reduced by the estimated shortfall. In
addition, the Company assesses long-lived assets for impairment under FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Under those rules, goodwill associated
with assets acquired in a purchase business combination is included in
impairment evaluations when events or circumstances exist that indicate the
carrying amount of those assets may not be recoverable.
FOREIGN CURRENCY TRANSLATION
The accounts of foreign subsidiaries have been translated into U.S. dollars
using the current exchange rate in effect at the balance sheet date for monetary
assets and liabilities; and for non-monetary items, the exchange rates in effect
when acquired. Revenues and expenses are translated into U.S. dollars using
average exchange rates, except for depreciation, which is translated at the
exchange rate in effect when the related assets were acquired. The resulting
gains or losses on currency translations, which are not significant, are
included in the consolidated statements of income.
28
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
REVENUE RECOGNITION
The Company recognizes revenues at the time products are shipped (except for
certain long-term contracts described below) and collection of the resulting
receivable is deemed probable by the Company. Existing customers may purchase
product enhancements and upgrades after such enhancements or upgrades are
developed by the Company. The Company has no obligations to customers after the
date products, product enhancements and upgrades are shipped, except for product
warranties as described below.
The Company recognizes fees from installation and repair services when such
services are provided to customers. Revenues derived from contractual
postcontract support services are recognized ratably over the one-year contract
period of required support.
The Company uses the percentage-of-completion method to recognize revenues on
certain long-term telecommunications hardware and installation contracts.
Earnings are accrued based on the completion of key contract performance
requirements. As long-term contracts extend over one or more years, revisions in
cost and profit estimates are reflected in the accounting period in which the
facts that require the revision become known. At the time a loss on a contract
becomes known, the entire amount of the estimated ultimate loss is accrued.
COMPUTER SOFTWARE DEVELOPMENT COSTS
Product related computer software development costs are expensed as incurred.
Such costs are required to be expensed until the point of technological
feasibility is established. Costs which may otherwise be capitalized after such
point are generally not significant and are therefore expensed as incurred.
ESTIMATED WARRANTY COSTS
The Company warrants its telecommunications products other than certain
transmitters for one year after sale. The majority of the Company's transmitters
are warranted for two years after sale. A provision for estimated warranty costs
is recorded at the time of sale.
STOCK-BASED COMPENSATION
The Company grants stock options and issues shares under option plans and an
employee stock purchase plan as described in Note 11. The Company accounts for
stock option grants and shares sold under the employee stock purchase plan in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and, accordingly, records compensation expense for options granted and sales
made at prices that are less than fair market value at the date of grant or
sale. No compensation expense is recognized for options granted to employees
with an exercise price equal to the fair value of the shares at the date of
grant.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
SFAS 109, "Accounting for Income Taxes."
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, short-term investments, trade
accounts and notes receivable, and other current and long-term liabilities
approximates their respective fair values.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1996
financial statement presentation.
29
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
3. SHORT-TERM INVESTMENTS
Short-term investments amounting to $78.0 million and $44.1 million at December
31, 1996 and 1995, respectively, generally consist of highly liquid, high-grade
commercial paper, bank certificates of deposit, Treasury bills, notes or agency
securities guaranteed by the U.S. Government and repurchase agreements backed by
U.S. Government securities with original maturities greater than three months,
but not exceeding one year. Short-term investments are stated at cost which
approximates fair market value.
4. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1996 and 1995 consist of:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Trade receivables ....................................... $119,657 $89,372
Retainage receivable..................................... 1,407 1,364
Other.................................................... 3,314 2,586
---------- ---------
124,378 93,322
Less: allowance for doubtful accounts................... (4,527) ( 4,057)
----------- ---------
$119,851 $89,265
</TABLE>
Trade receivables at December 31, 1996 and 1995 included unbilled costs and
estimated earnings under contracts in the amount of approximately $17.9 million
and $10.7 million, respectively. Unbilled amounts are invoiced upon reaching
certain milestones.
5. INVENTORIES
Inventories at December 31, 1996 and 1995 consist of:
1996 1995
-------- ------
Raw materials........................ $25,656 $30,191
Work-in-process:
Uncompleted contracts............. 3,757 604
Other............................. 7,603 7,743
Finished goods....................... 13,444 11,507
------ ------
$50,460 $50,045
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 consist of:
1996 1995
---------- ---------
Land....................................... $ 3,737 $ 1,562
Buildings.................................. 36,987 21,376
Furniture, fixtures and equipment.......... 58,059 34,646
Leasehold improvements..................... 2,134 1,142
-------- --------
100,917 58,726
Less: Accumulated depreciation............. (20,416) (10,806)
-------- --------
$80,501 $47,920
======== ========
30
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
7. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 and 1995 consist of:
1996 1995
---------- ------
Accrued project costs................... $6,811 $3,310
Accrued warranty costs.................. 3,742 2,713
Accrued sales commissions............... 3,474 1,603
Accrued compensation and benefits....... 8,704 10,107
Accrued income taxes.................... 3,640 5,972
Other accruals.......................... 14,410 12,457
------- -------
$40,781 $36,162
======= =======
8. INCOME TAXES
The Company's income tax provision consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current provision:
United States Federal................................ $12,978 $6,398 $ ---
Charge equivalent to tax benefit of stock
option exercises................................... 16,947 26,433 9,726
Foreign.............................................. 2,432 2,658 2,653
State and local...................................... 3,032 962 40
------- ------ ------
Total current...................................... 35,389 36,451 12,419
------- ------ ------
Deferred provision (benefit):
Before valuation allowance adjustment................ 845 1,271 5,107
Adjustment to valuation allowance.................... (10,027) (12,425) (10,326)
------- ------- -------
Total deferred benefit............................. (9,182) (11,154) (5,219)
------- ------- -------
Total provision......................................... $26,207 $25,297 $ 7,200
======= ======= =======
</TABLE>
The sources of income from continuing operations before income taxes are
presented as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
United States.............................. $84,880 $ 87,919 $35,437
Foreign.................................... 11,771 13,826 4,858
------- -------- -------
Income from continuing operations.......... $96,651 $101,745 $40,295
======= ======== =======
</TABLE>
The consolidated income tax provision from continuing operations was different
from the amount computed using the U.S. statutory income tax rate for the
following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income tax provision at U.S. statutory rate.............. $33,828 $35,611 $14,104
Reduction in valuation allowance......................... (10,027) (12,425) (10,326)
Foreign taxes at rates other than U.S. statutory rate.... (1,201) (2,129) 1,997
U.S. research and experimentation credits................ (977) --- ---
State taxes (net of federal benefit)..................... 3,474 3,307 655
Non-deductible goodwill amortization..................... 1,110 933 770
------- ------- -------
Income tax provision .................................... $26,207 $25,297 $ 7,200
======= ======= =======
</TABLE>
31
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
The tax effect of temporary differences and net operating loss carryforwards
that gave rise to the Company's deferred tax assets and liabilities at December
31, 1996 and 1995 are as follows:
1996 1995
----- -----
Assets:
U.S. net operating loss carryforwards........... $24,507 $40,612
State net operating loss carryforwards.......... 1,559 3,495
U.S. capital loss carryforwards................. --- 439
Other........................................... 13,748 13,822
------ ------
39,814 58,368
Less: Valuation allowance....................... (5,902) (17,861)
------- -------
33,912 40,507
Liabilities....................................... (4,249) (5,452)
------- -------
Deferred tax asset, net........................... $29,663 $35,055
======= =======
The reduction in the valuation allowance of $11,959,000 during the year ended
December 31, 1996 related primarily to $10,027,000 from the recognition of tax
benefits which arose prior to the 1988 quasi-reorganization (see below). The
Company believes that it is more likely than not that the net deferred tax asset
recorded at December 31, 1996 will be fully realized.
At December 31, 1996, the Company has U.S. net operating loss carryforwards as
follows:
Operating
Year of Expiration Losses
1997........................................ $ ---
1998....................................... 19,783
1999....................................... ---
2000....................................... 3,521
2001....................................... 6,596
2002....................................... 28,502
2003....................................... 4,810
Thereafter................................. 6,809
--------
$70,021
The deferred tax asset is broken down between current and noncurrent amounts in
the accompanying 1996 consolidated balance sheet according to the classification
of the related asset and liability or, in the case of tax loss carryforwards,
based on their expected utilization date.
Subsequent to the quasi-reorganization completed on February 1, 1988, as
described in Note 11, the benefits derived from the utilization of these 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 SFAS 96 contained in SAB 86, realized tax benefits
should be reported as a direct addition to contributed capital. Subsequently,
the Company consulted with 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.
32
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
If the original guidance in SAB 86 had been applied, the Company's net income
for the years ended December 31, 1996, 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 $10,027,000 ($.16
per share) in 1996, $12,425,000 ($.20 per share) in 1995, and $10,326,000 ($.18
per share) in 1994.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $18.0 million at December 31, 1996. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. income tax liability is not practicable
because of the complexities associated with its hypothetical calculation;
however, unrecognized foreign tax credit carryforwards would be available to
reduce some portion of the U.S. liability. Withholding taxes of approximately
$900,000 would be payable upon remittance of all previously unremitted earnings
at December 31, 1996.
9. OPERATING LEASE COMMITMENTS
The Company leases office facilities and various equipment under noncancellable
operating leases. Future minimum lease payments under noncancellable operating
leases (with minimum or remaining lease terms in excess of one year) for
calendar years subsequent to December 31, 1996 are as follows:
1997............................. $2,276
1998............................. 2,401
1999............................. 1,918
2000............................. 1,214
2001............................. 925
Thereafter....................... 2,769
-------
$11,503
Rent expense for continuing operations amounted to $3,629,000, $2,184,000 and
$1,254,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
10. EMPLOYEE BENEFIT PLANS
(A) POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides its U.S. employees with certain health care benefits upon
retirement assuming the employees meet minimum age and service requirements. The
Company's policy is to fund benefits as they become due.
The Company accounts for retiree healthcare benefits in accordance with
Statement of Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"), which requires the
Company to accrue the estimated cost of retiree benefit payments during the
years the employee provides services.
The accumulated amortization of an initial obligation of approximately $1.0
million related to an acquisition in 1992 being amortized over twenty years was
$203,000 at December 31, 1996.
The Company's accumulated postretirement benefit obligation at December 31, 1996
and 1995 relate to:
1996 1995
------ -------
Retirees........................................ $ 527 $ 532
Fully eligible plan participants................ 227 379
Other active plan participants.................. 666 607
------ --------
$1,420 $ 1,518
====== ========
33
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
Net postretirement benefit costs for the years ended December 31, 1996, 1995 and
1994 consist of the following components:
1996 1995 1994
----- ----- -----
Service cost ............................. $190 $105 $ 84
Interest cost on accumulated
postretirement benefit obligation...... 109 84 87
Amortization of gain...................... --- (17) ---
Amortization of transition obligation .... 51 51 51
----- ----- ----
$350 $223 $222
==== ==== ====
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1996 was 10% for 1997,
decreasing linearly each successive year until it reaches 4.75% in 2004, after
which it remains constant. A one-percentage-point increase in the assumed health
care cost trend rate for each year would increase the accumulated postretirement
benefit obligation as of December 31, 1996 and the 1996 net postretirement
health care cost by approximately 14.8% and 18.3%, respectively. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1996 and 1995 was 7.25%.
(B) DEFINED CONTRIBUTION PLANS
The Company has defined contribution plans covering substantially all of its
full-time employees. Under the plans, the employees can contribute a certain
percentage of their compensation and the Company matches a portion of the
employees' contribution. The Company's contributions under these plans
attributable to continuing operations amounted to approximately $2,210,000,
$1,830,000 and $1,159,000 during the years ended December 31, 1996, 1995 and
1994, respectively.
11. 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 PROGRAMS
In September 1996, the Board of Directors authorized the purchase of up to
2,500,000 shares of the Company's common stock. No shares under this program
were repurchased in 1996. In December 1994, the Board of Directors authorized
the purchase of up to 1,687,500 shares of the Company's common stock. During
1996, 1995 and 1994, the Company repurchased 1,570,000 shares, 30,000 shares and
84,375 shares, respectively, at costs of $36.3 million, $1.0 million and $1.3
million, respectively (shown as a reduction of common stock and contributed
capital) under this repurchase program.
(C) STOCK OPTION PLANS
The Company maintains several stock option plans which are administered by a
committee of the Board of Directors (the "Committee") and are utilized to
promote the long-term financial interests and growth of the Company.
On May 22, 1996, the Company's stockholders approved the establishment of the
1996 Incentive Stock Plan (the "1996 Plan"), reserving 2,200,000 shares for
directors, certain key employees and other key persons providing services to the
Company and its subsidiaries.
34
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
The 1996 Plan provides for formula-based awards of stock options to the
non-employee directors of the Company based on their years of service. During
1996, the Committee granted options to purchase 18,000 shares of common stock at
the fair market value of $21.75 per share to one director pursuant to the
formula-based award provision of the 1996 Plan. In addition, at various dates
during 1996, the Committee granted options to purchase in the aggregate
1,155,250 shares of common stock at the fair market value at the date of grant
to certain officers and employees. All these options to purchase shares expire
ten years from the date of grant.
Activity and price information regarding the 1996 Plan is summarized as follows:
Price
Shares Range
Granted.............................. 1,173,250 $20.00---$48.38
Canceled............................. 6,700 23.88--- 48.38
--------- ---------------
Outstanding, December 31, 1996....... 1,166,550 $20.00---$46.88
========= ===============
Of the outstanding options under the 1996 Plan at December 31, 1996, 400,930 are
currently exercisable.
On May 14, 1991, the Company's stockholders approved the establishment of the
1991 Long-Term Incentive Plan (the "1991 Plan"), reserving 3,847,500 common
shares for directors, officers and other key employees of the Company and its
subsidiaries. On October 30, 1992, the Company's stockholders approved an
amendment to the 1991 Plan (i) to increase the number of shares of common stock
available for issuance pursuant to awards under the 1991 Plan from 3,847,500 to
8,100,000; (ii) to permit the Company to sell stock under the 1991 Plan at less
than fair market value; and (iii) to provide for formula-based awards of stock
options to the non-employee directors of the Company based on their years of
service. Further, on May 26, 1994, the Company's stockholders approved an
amendment to the 1991 Plan (i) to change the name to the Long-Term Incentive
Plan and (ii) to increase the number of shares of common stock available for
issuance pursuant to awards under the 1991 Plan from 8,100,000 to 11,475,000
shares.
During 1995 and 1994, the Committee granted options to purchase 81,000 and
60,750 shares of common stock at $43.59 and $11.11 per share, respectively, to
four directors pursuant to the formula-based award provision of the 1991 Plan.
In addition, at various dates during 1996, 1995 and 1994, the Committee granted
options to purchase in the aggregate 73,500, 1,547,723, and 2,051,663 shares,
respectively, of common stock at the fair market value at the date of grant to
certain officers and employees. All these options to purchase shares expire ten
years from the date of grant.
Activity and price information regarding the 1991 Plan is summarized as follows:
<TABLE>
<CAPTION>
Price
Shares Range
<S> <C> <C>
Outstanding, December 31, 1993............ 5,281,076 $1.27---$11.11
Granted................................... 2,112,413 11.11--- 17.26
Exercised................................. (1,989,646) 1.27--- 12.74
Canceled.................................. ( 33,750) 12.74
------------ --------------
Outstanding, December 31, 1994............ 5,370,093 1.27--- 17.26
Granted................................... 1,628,723 16.72--- 47.67
Exercised................................. (2,180,558) 1.27--- 28.22
Canceled.................................. ( 20,814) 12.74--- 22.44
------------ --------------
Outstanding, December 31, 1995 ........... 4,797,444 1.27--- 47.67
Granted................................... 73,500 23.88--- 47.67
Exercised................................. ( 844,007) 1.27--- 44.25
Canceled.................................. (25,601) 22.44--- 36.25
----------- --------------
Outstanding, December 31, 1996............ 4,001,336 $1.27---$47.67
=========== ==============
</TABLE>
Of the outstanding options under the 1991 Plan at December 31, 1996, 3,493,076
are currently exercisable.
35
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
On June 23, 1987, the Company's stockholders approved the establishment of the
1987 Stock Option Plan (the "1987 Plan"), reserving 3,847,500 common shares for
directors, officers and other key employees of the Company and its subsidiaries.
Effective July 15, 1992, the Board of Directors amended the 1987 Plan to reduce
the number of shares reserved to 1,751,625.
All options granted under the 1987 Plan expire ten years from the date of grant.
Activity and price information regarding the 1987 Plan is summarized as follows:
Price
Shares Range
Outstanding, December 31, 1993............ 911,270 $1.04---$1.26
Exercised................................. (256,500) 1.04--- 1.26
Canceled.................................. (20) 1.26
-------- -------------
Outstanding, December 31, 1994............ 654,750 1.04--- 1.26
Exercised................................. (459,000) 1.17--- 1.26
-------- -------------
Outstanding, December 31, 1995............ 195,750 1.04--- 1.26
Exercised................................. (195,750) 1.04--- 1.26
-------- -------------
Outstanding, December 31, 1996............ -0- $ ---
======== =============
In connection with the April 1995 acquisition of MUX, the Company agreed to
issue 502,206 shares of its common stock upon the exercise of certain
outstanding options which had previously been granted by MUX to certain of its
employees (the "MUX Options").
Activity and price information regarding the MUX Options is summarized as
follows:
Price
Shares Range
Outstanding, April 25, 1995............ 502,206 $1.84---$6.60
Exercised.............................. (188,084) 1.84--- 6.60
--------- -------------
Outstanding, December 31, 1995......... 314,122 1.98--- 6.60
Exercised.............................. (290,597) 1.98--- 6.60
--------- -------------
Outstanding, December 31, 1996......... 23,525 $1.98---$6.60
========= =============
All outstanding MUX options at December 31, 1996 are currently exercisable.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("FASB 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
FASB 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for 1996 and 1995: risk-free
interest rates of 5.77% to 6.16%; dividend yields of 0%; a volatility factor of
the expected market price of the Company's common stock of .53; and an expected
life of the option of 1.3 to 4 years.
36
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1996 1995
---- ----
Pro forma net income............. $59,090 $69,526
Pro forma earnings per share:
Primary........................ $.94 $1.12
Fully diluted.................. .94 1.11
Because FASB 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect will not be fully reflected until 1997.
In December 1996, due to a significant decline in the market price of the
Company's common stock, the Committee reduced the exercise price to $23.88 per
share on options to purchase 632,667 shares which had been awarded originally at
various dates during 1996 at $32.50 to $51.38 per share to employees of the
Company. The reduced price and the original grant price reflect the fair market
value of the Company's common stock on the date of modification and the date of
the original award, respectively. The award modifications resulted in a decrease
to 1996 pro forma net income of approximately $906,000 or $.01 per share.
Contributed capital was increased $16.9 million, $26.4 million and $ 9.7 million
in 1996, 1995 and 1994, respectively, which represents the income tax benefits
the Company realized from stock options exercised during these periods.
(D) EMPLOYEE STOCK PURCHASE PLAN
Effective July 1, 1993, the Company established the Glenayre Technologies, Inc.
Employee Stock Purchase Plan (the "ESP Plan") reserving 506,250 shares of common
stock. The purpose of the ESP Plan is to give employees an opportunity to
purchase common stock of the Company through payroll deductions, thereby
encouraging employees to share in the economic growth and success of the
Company.
All regular full-time employees of the Company are eligible to enter the ESP
Plan as of the first day of each six-month period beginning every January 1 and
July 1. The price for common stock offered under the ESP Plan for each six-month
period is equal to 90% of the average market price of the common stock for the
five trading days prior to the first day of the six-month period. For the
January 1, 1997 to June 30, 1997 period, the stock purchase price will be
$19.20. As of December 31, 1996, 172,587 shares had been issued at a purchase
price range of $5.60 to $37.07 with 333,663 shares reserved under the ESP Plan.
(E) 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.
37
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
The number of shares used to compute primary per share data for the years ended
December 31, 1996, 1995 and 1994 was 63,416,321; 62,479,480; and 58,703,468,
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 December 31, 1996, 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 years ended December 31, 1996, 1995
and 1994 was 63,443,175; 62,813,289; and 58,791,720, respectively.
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company issues bid and performance letters
of credit which in the aggregate amounted to approximately $20.3 million and
$6.1 million as of December 31, 1996 and 1995, respectively. These letters of
credit have terms from approximately 4 to 39 months. The fair value of these
letters of credit is estimated to be the same as the contract values based on
the nature of the fee arrangements with the issuing banks.
The competitive telecommunications market often requires customer financing
commitments. These commitments may be in the form of guarantees, secured debt or
lease financing. At December 31, 1996, the Company had agreements to finance and
arrange financing for approximately $20.7 million of paging and voice mail
products. Additionally, at December 31, 1996, the Company had committed, subject
to customers meeting certain conditions and requirements, to finance
approximately $105.9 million for similar systems. The Company cannot currently
predict the extent to which these commitments will be utilized, since certain
customers may be able to obtain more favorable terms using traditional financing
sources. From time to time, the Company also arranges for third-party investors
to assume a portion of its commitments. If exercised, the financing arrangements
will be secured by the equipment sold by Glenayre.
On January 31, 1997 an amended class action complaint (the "Complaint") was
filed in the United States District Court for the Southern District of New York
against the Company and certain of its executive officers and directors alleging
the Company artificially inflated the value of its common stock during the
period February 6, 1996 to September 13, 1996 by making false and misleading
statements in its public disclosures. The Complaint consolidates two lawsuits
filed in the fourth quarter of 1996. The plaintiffs seek unspecified damages
based upon the decrease in market value of the shares of the Company's stock. On
February 20,1997, a shareholder's derivative complaint (the "Shareholder's
Complaint") was filed in the United States District Court for the Southern
District Court of New York against certain current and former directors and
against the Company, as a nominal defendant, alleging that the directors
breached their fiduciary obligations to the Company by subjecting the Company to
the class action referred to above. The plaintiff seeks unspecified damages on
behalf of the Company. Management intends to defend these actions vigorously.
Additionally, the Company is currently involved in various other disputes and
legal actions related to its business operations. In the opinion of the Company,
the ultimate resolution of these actions will not have a material effect on the
Company's financial position, or future results of operations or cash flows.
13. LINE OF BUSINESS AND OPERATIONS BY GEOGRAPHIC AREAS
The Company's continuing operations involve one business segment: the
manufacture, sale and service of telecommunications equipment and related
software used by service providers and other wireless personal communications
markets. The Company markets and services its products in the United States,
Canada and other countries through its own direct sales organization or outside
distributors and agents. Sales to one customer amounted to approximately 15%,
16% and 13% of net sales for 1996, 1995 and 1994, respectively.
38
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
Sales and operating profits by geographical area are measured by the locale of
the revenue-producing operations and are as follows:
<TABLE>
<CAPTION>
Net Sales Operating Profit
------------------------------------ -------------------------------
Year ended December 31, 1996 1995 1994 1996 1995 1994
- - ----------------------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
United States.................................... $389,218 $321,184 $171,780 $80,093 $83,245 $36,564
Canada ......................................... 128,848 82,892 42,354 10,617 13,348 5,560
Other countries.................................. 15,424 8,761 5,294 1,271 774 828
Eliminations..................................... (143,244) (91,433) (47,321) --- --- ---
--------- -------- -------- -------- ------- ------
Geographic totals.............................. $390,246 $321,404 $172,107 91,981 97,367 42,952
======== ======== ========
Corporate, interest and other income (expenses)
and eliminations............................... 4,670 4,378 (2,657)
------- -------- ------
Income from continuing operations before
income taxes................................... $96,651 $101,745 $40,295
======= ======== =======
</TABLE>
Assets
----------------------
December 31, 1996 1995 1994
------- -------- --------
United States...................... $330,218 $298,323 $174,538
Canada ........................... 49,078 39,940 18,078
Other countries.................... 16,607 2,813 1,200
-------- -------- --------
Geographic totals................ 395,903 341,076 193,816
General corporate assets........... 125,307 106,504 91,145
-------- -------- --------
Consolidated totals................ $521,210 $447,580 $284,961
======== ======== ========
Net sales include product transfers and service revenues between geographic
areas and are generally priced to recover cost plus an appropriate markup for
profit. These are eliminated in consolidation as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- - ----------------------- -------- -------- -------
<S> <C> <C> <C>
Product transfers - Canada....................... $101,652 $65,703 $30,925
Service revenues:
Canada......................................... 27,196 17,189 11,429
Other countries................................ 14,396 8,541 4,967
-------- ------- -------
Total eliminations........................... $143,244 $91,433 $47,321
======== ======= =======
</TABLE>
Export sales from the United States by geographic areas to unaffiliated
customers are as follows:
Year ended December 31, 1996 1995 1994
- - ----------------------- -------- --------- ---------
Canada .......................... $ 16,270 $ 15,272 $ 5,189
Middle East...................... 7,617 16,930 612
Pacific Rim...................... 92,109 54,705 38,895
Europe........................... 16,354 17,793 8,306
Other ........................... 21,929 9,153 3,866
-------- -------- -------
Total export sales............. $154,279 $113,853 $56,868
======== ======== =======
39
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(tabular amounts in thousands of dollars except per share amounts)
14. RELATED PARTY TRANSACTION
During 1994, the Company paid $200,000 (included in selling, general and
administrative expense) for various financial advisory services from an
investment management firm, two of the principals of which served on the Board
of Directors of the Company.
15. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash and cash equivalents and short-term investments with
various financial institutions. These financial institutions are large
diversified entities with operations throughout the U.S. and Company policy is
designed to limit exposure to any one institution. The Company performs periodic
evaluations of the relative credit standing of those financial institutions that
are considered in the Company's investment strategy.
Concentrations of credit risk with respect to trade notes and accounts
receivable are limited due to the large number of entities comprising the
Company's customer base. However, as of December 31, 1996 principally all of the
Company's receivables are concentrated in the telecommunications industry.
Approximately 42% of notes receivable are from customers located in the U.S.
with the remaining balance predominately from customers located in the Pacific
Rim and South America. Principally all notes receivable are secured by the
related equipment.
16. INTERIM FINANCIAL DATA--UNAUDITED
<TABLE>
<CAPTION>
Quarters ended
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
1996
Net sales........................................ $89,378 $105,085 $91,572 $104,211
Net income....................................... 17,076 22,863 13,801 16,704
Primary income per common share.................. 0.27 0.36 0.22 0.27
Fully diluted per common share................... 0.27 0.36 0.22 0.27
1995
Net sales........................................ $59,862 $ 74,979 $88,104 $98,459
Net income....................................... 13,782 18,223 21,061 23,382
Primary income per common share.................. 0.23 0.29 0.33 0.37
Fully diluted per common share................... 0.23 0.29 0.33 0.37
</TABLE>
17. SUBSEQUENT EVENT - BUSINESS ACQUISITION
On January 9,1997, the Company completed the acquisition of CNET, Inc. ("CNET"),
located in Plano, Texas. CNET develops and provides integrated operational
support systems, network management, traffic analysis, and radio frequency
propagation software products and services for the global wireless
communications industry. CNET licenses its products to cellular, paging and
personal communications services operators and wireless equipment manufacturers
worldwide. The purchase price of approximately $7.7 million consisted of 369,983
shares of the Company's common stock (including 56,620 shares issuable upon
exercise of stock options) valued at approximately $6.5 million, approximately
$1.0 million in cash and approximately $194,000 in acquisition costs. The
acquisition will be accounted for as a purchase business combination.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10 through 13 are incorporated herein by reference to the sections
captioned "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,"
"ELECTION OF DIRECTORS," "COMPENSATION--Compensation of Directors,"
"COMPENSATION--Executive Compensation," "COMPENSATION--Employment Agreements,"
"COMPENSATION--Compensation Committee Interlocks and Insider Participation,"
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE" in the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held May 21, 1997.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
A. INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
<TABLE>
<CAPTION>
(i) Financial Statements Page
<S> <C>
Report of Ernst & Young LLP Independent Auditors................................................. 20
Report of Deloitte & Touche LLP Independent Auditors............................................. 21
Consolidated Balance Sheets at December 31, 1996 and 1995........................................ 22
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994........... 23
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
1995 and 1994................................................................................... 24
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994....... 25
Notes to Consolidated Financial Statements....................................................... 27
(ii) Supplemental Schedule:
(For the years ended December 31, 1996, 1995 and 1994)
Schedule II - Valuation and Qualifying Accounts.................................................. 46
</TABLE>
All other schedules are omitted because they are not applicable or not required.
B. REPORTS ON FORM 8-K
During the three months ended December 31, 1996, the Company filed a
Current Report on Form 8-K dated November 7, 1996. Under Item 5, the
Company reported that it issued a press release which announced that a
class action lawsuit had been filed against it and certain of its
officers and directors by two shareholders.
42
<PAGE>
C. EXHIBITS
Exhibit
Number Description
2.1 Purchase and Sale Agreement dated as of July 16, 1992 among Glenayre
Electronics Ltd. ("GEL"), as Seller and N-W Group, Inc. ("N-W"),
Nu-West, Inc. ("Nu-West") and N-W Group Canada Inc. ("N-W Canada"),
as Purchasers, was filed as Exhibit 2 to the Registrant's Current
Report on Form 8-K filed on July 27, 1992 and is incorporated herein
by reference.
2.2 Amendment to Purchase and Sale Agreement, dated November 10, 1992,
among GEL, N-W, Nu-West, Glenayre Manufacturing, Ltd. (formerly called
N-W Canada) ("Manufacturing"), and Glenayre R & D, Inc. ("R&D") was
filed as Exhibit 2(b) to the Registrant's Current Report on Form 8-K
filed November 25, 1992 and is incorporated herein by reference.
2.3 Second Amendment to Purchase and Sale Agreement, dated September 21,
1995, among GEL, N-W, Nu-West, Manufacturing, and R&D was filed as
Exhibit 2.3 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and is incorporated herein by reference.
3.1 Composite Certificate of Incorporation of Glenayre reflecting the
Certificate of Amendment filed December 8, 1995 was filed as Exhibit
3.1 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and is incorporated herein by reference.
3.2 Restated by-laws of Glenayre effective June 7, 1990, as amended
September 21, 1994 was filed as Exhibit 3.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and is
incorporated herein by reference.
10.1 Employment Agreement, dated December 3, 1990, between the Company and
Clarke H. Bailey was filed as Exhibit 10(i) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990 and is
incorporated herein by reference.*
10.2 Stock Option Agreement, dated December 3, 1990, between the Company and
Clarke H. Bailey which, in part, amends the Employment Agreement, dated
December 31, 1990, between the Company and Clarke H. Bailey was filed
as Exhibit 10(a)(1) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994 and is incorporated herein by
reference.*
10.3 First Amendment, dated April 15, 1994, to the Employment Agreement,
dated December 3, 1990, between the Company and Clarke H. Bailey was
filed as Exhibit 10(a)(2) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994 and is incorporated herein by
reference.*
10.4 Amendment Agreement, dated February 1, 1995, which in part, amends the
Employment Agreement dated December 3, 1990 and the Stock Option
agreement dated December 3, 1990 between the Company and Clarke H.
Bailey was filed as Exhibit 10.4 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated
herein by reference.*
10.5 Agreement, dated December 31, 1996, which terminates the Employment
Agreement, dated December 3, 1990 between the Company and Clarke H.
Bailey is filed herewith.*
43
<PAGE>
10.6 Employment Agreement, dated November 10, 1992, between N-W and Ramon D.
Ardizzone was filed as Exhibit 10(b) to the Registrant's Current Report
on Form 8-K filed November 25, 1992 and is incorporated herein by
reference.*
10.7 Amendment, dated March 9, 1995, to the Employment Agreement dated
November 10, 1992 between the Company and Ramon D. Ardizzone was filed
as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 and is incorporated herein by reference.*
10.8 Employment Agreement, dated June 21, 1995, between the Company and
Ramon D. Ardizzone was filed as Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and
is incorporated herein by reference.*
10.9 Amendment, dated December 8, 1995, to the Employment Agreement dated
June 21, 1995 between the Company and Ramon D. Ardizzone was filed as
Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 and is incorporated herein by reference.*
10.10 Second Amendment, dated December 12, 1996 to the Employment
Agreement dated June 21, 1995 between the Company and Ramon D.
Ardizzone is filed herewith.*
10.11 Employment Agreement, dated August 27, 1996 between the Company and
Gary B. Smith was filed as Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 and is
incorporated herein by reference.*
10.12 Amendment, dated December 12, 1996, to the Employment Agreement
dated August 27, 1996 between the Company and Gary B. Smith is filed
herewith.*
10.13 Executive Severance Benefit Agreement, dated February 1, 1995,
between the Company and Stan Ciepcielinski (the "Ciepcielinski
Agreement") was filed as Exhibit 10.9 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994 and is
incorporated herein by reference. Executive Severance Benefit
Agreements, dated February 1, 1995 between the Company and individually
with Russ K. Allen, Kenneth C. Thompson and Beverley W. Cox, and dated
December 16, 1996 between the Company and Eugene C. Pridgen are
identical, in all material respects, with the Ciepcielinski Agreement
and are not filed as exhibits. *
10.14 ET Securities Agreement, dated November 10, 1992, between N-W and seven
senior employees of the Company was filed as Exhibit 10(c) to the
Registrant's Current Report on Form 8-K filed November 25, 1992 and is
incorporated herein by reference.*
10.15 First Amendment to ET Securities Agreement, dated December 29, 1992,
between the Company and seven senior employees of the Company was filed
as Exhibit 25(a) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 and is incorporated herein by reference.*
10.16 Second Amendment to ET Securities Agreement, dated March 17, 1994,
between the Company and seven senior employees of the Company was filed
as Exhibit 10(f) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 and is incorporated herein by reference.*
10.17 Third Amendment to ET Securities Agreement, dated March 9, 1995,
between the Company and seven senior employees of the Company was filed
as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 and is incorporated herein by reference.*
44
<PAGE>
10.18 ET Securities Agreement Releases dated as of June 21, 1994 and August
31, 1994 was filed as Exhibit 10(a) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994 and is
incorporated herein by reference.*
10.19 Glenayre Electronics, Inc. Deferred Compensation Plan is filed
herewith.*
10.20 Glenayre Management By Objective Plan for the year ended December 31,
1994 was filed as Exhibit 10(h) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993 and is incorporated
herein by reference.*
10.21 Glenayre Management By Objective Plan for the year ended December 31,
1995 was filed as Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated
herein by reference.*
10.22 Glenayre Management By Objective Plan for the year ended December 31,
1996 was filed as Exhibit 10.17 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995 and is incorporated
herein by reference.*
10.23 Glenayre 1996 Incentive Stock Plan was filed as Exhibit 4 to the
Registrant's Form S-8 filed May 28, 1996 and is incorporated herein
by reference.*
10.24 Glenayre Long-Term Incentive Plan, as amended and restated effective
May 26, 1994, was filed as Exhibit 4 to the Registrant's Form S-8 filed
June 16, 1994 and is incorporated herein by reference.*
10.25 N-W 1987 Stock Option Plan (conformed to incorporate first amendment
effective as of January 12, 1990, second amendment effective as of May
1, 1991 and third amendment effective as of July 15, 1992) was filed as
Exhibit 10(v) to the Registrant's Current Report on Form 8-K filed
November 25, 1992 and is incorporated herein by reference.*
10.26 Investment Advisory Agreement, dated October 7, 1988, between
Nu-West, Inc. and Cramer Rosenthal McGlynn, Inc. was filed as
Exhibit 28(b) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989 and is incorporated herein by
reference.
11 Computation of Earnings per Common Share is filed herewith.
21 Subsidiaries of the Company is filed herewith.
23.1 Consent of Ernst & Young LLP is filed herewith.
23.2 Consent of Deloitte & Touche LLP is filed herewith.
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.)
99 Cautionary Statement under safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 is filed herewith.
*Management Contract
45
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS ON
ACCOUNTS AND NOTES RECEIVABLE:
Year ended December 31, 1996 $4,072 $878 $5 $428 $4,527
Year ended December 31, 1995 3,148 505 483 64 4,072
Year ended December 31, 1994 2,499 129 603 83 3,148
VALUATION ALLOWANCE ON
NOTES RECEIVABLE - FAIR
MARKET VALUE ADJUSTMENT:
Year ended December 31, 1996 394 (73) --- --- 322
Year ended December 31, 1995 442 (48) --- --- 394
Year ended December 31, 1994 --- 442 --- --- 442
VALUATION ALLOWANCE ON
INVENTORIES:
Year ended December 31, 1996 4,705 1,904 --- 2,244 4,365
Year ended December 31, 1995 3,153 2,270 (611) 107 4,705
Year ended December 31, 1994 1,481 2,687 --- 1,015(3) 3,153
VALUATION ALLOWANCE ON REAL
ESTATE HELD FOR SALE:
Year ended December 31, 1996 --- --- --- --- ---
Year ended December 31, 1995 --- --- --- --- ---
Year ended December 31, 1994 19,657 --- (1,844)(2) 17,813(1) ---
</TABLE>
(1)Reduction on real estate assets sold.
(2)Previously established reserves reclassified to accrued liabilities.
(3)Includes amounts written off ($700) or revalued ($315).
46
<PAGE>
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 on March 27, 1997.
GLENAYRE TECHNOLOGIES, INC.
By /s/ Gary B. Smith
Gary B. Smith
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
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 indicated on March 27, 1997:
/s/ Ramon D. Ardizzone /s/ Clarke H. Bailey
Ramon D. Ardizzone Clarke H. Bailey
CHAIRMAN OF THE BOARD AND DIRECTOR DIRECTOR
/s/ Gary B. Smith
Gary B. Smith Donald S. Bates
PRESIDENT, CHIEF EXECUTIVE OFFICER DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
AND DIRECTOR
Peter W. Gilson
/s/ Stan Ciepcielinski DIRECTOR
Stan Ciepcielinski
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER), AND TREASURER /s/ John J. Hurley
John J. Hurley
DIRECTOR
/s/ Billy C. Layton
Billy C. Layton
VICE PRESIDENT,
CONTROLLER AND CHIEF ACCOUNTING OFFICER Stephen P. Kelbley
(PRINCIPAL ACCOUNTING OFFICER) DIRECTOR
47
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2.1 Purchase and Sale Agreement dated as of July 16, 1992 among Glenayre
Electronics Ltd. ("GEL"), as Seller and N-W Group, Inc. ("N-W"),
Nu-West, Inc. ("Nu-West") and N-W Group Canada Inc. ("N-W Canada"),
as Purchasers, was filed as Exhibit 2 to the Registrant's Current
Report on Form 8-K filed on July 27, 1992 and is incorporated herein
by reference.
2.2 Amendment to Purchase and Sale Agreement, dated November 10, 1992,
among GEL, N-W, Nu-West, Glenayre Manufacturing, Ltd. (formerly called
N-W Canada) ("Manufacturing"), and Glenayre R & D, Inc. ("R&D") was
filed as Exhibit 2(b) to the Registrant's Current Report on Form 8-K
filed November 25, 1992 and is incorporated herein by reference.
2.3 Second Amendment to Purchase and Sale Agreement, dated September 21,
1995, among GEL, N-W, Nu-West, Manufacturing, and R&D was filed as
Exhibit 2.3 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and is incorporated herein by reference.
3.1 Composite Certificate of Incorporation of Glenayre reflecting the
Certificate of Amendment filed December 8, 1995 was filed as Exhibit
3.1 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and is incorporated herein by reference.
3.2 Restated by-laws of Glenayre effective June 7, 1990, as amended
September 21, 1994 was filed as Exhibit 3.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and is
incorporated herein by reference.
10.1 Employment Agreement, dated December 3, 1990, between the Company and
Clarke H. Bailey was filed as Exhibit 10(i) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990 and is
incorporated herein by reference.*
10.2 Stock Option Agreement, dated December 3, 1990, between the Company and
Clarke H. Bailey which, in part, amends the Employment Agreement, dated
December 31, 1990, between the Company and Clarke H. Bailey was filed
as Exhibit 10(a)(1) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994 and is incorporated herein by
reference.*
10.3 First Amendment, dated April 15, 1994, to the Employment Agreement,
dated December 3, 1990, between the Company and Clarke H. Bailey was
filed as Exhibit 10(a)(2) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994 and is incorporated herein by
reference.*
10.4 Amendment Agreement, dated February 1, 1995, which in part, amends the
Employment Agreement dated December 3, 1990 and the Stock Option
agreement dated December 3, 1990 between the Company and Clarke H.
Bailey was filed as Exhibit 10.4 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated
herein by reference.*
10.5 Agreement, dated December 31, 1996, which terminates the Employment
Agreement, dated December 3, 1990 between the Company and Clarke H.
Bailey is filed herewith.*
48
<PAGE>
10.6 Employment Agreement, dated November 10, 1992, between N-W and Ramon D.
Ardizzone was filed as Exhibit 10(b) to the Registrant's Current Report
on Form 8-K filed November 25, 1992 and is incorporated herein by
reference.*
10.7 Amendment, dated March 9, 1995, to the Employment Agreement dated
November 10, 1992 between the Company and Ramon D. Ardizzone was filed
as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 and is incorporated herein by reference.*
10.8 Employment Agreement, dated June 21, 1995, between the Company and
Ramon D. Ardizzone was filed as Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and
is incorporated herein by reference.*
10.9 Amendment, dated December 8, 1995, to the Employment Agreement dated
June 21, 1995 between the Company and Ramon D. Ardizzone was filed as
Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 and is incorporated herein by reference.*
10.10 Second Amendment, dated December 12, 1996 to the Employment
Agreement dated June 21, 1995 between the Company and Ramon D.
Ardizzone is filed herewith.*
10.11 Employment Agreement, dated August 27, 1996 between the Company and
Gary B. Smith was filed as Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 and is
incorporated herein by reference.*
10.12 Amendment, dated December 12, 1996, to the Employment Agreement
dated August 27, 1996 between the Company and Gary B. Smith is filed
herewith.*
10.13 Executive Severance Benefit Agreement, dated February 1, 1995,
between the Company and Stan Ciepcielinski (the "Ciepcielinski
Agreement") was filed as Exhibit 10.9 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994 and is
incorporated herein by reference. Executive Severance Benefit
Agreements, dated February 1, 1995 between the Company and individually
with Russ K. Allen, Kenneth C. Thompson and Beverley W. Cox, and dated
December 16, 1996 between the Company and Eugene C. Pridgen are
identical, in all material respects, with the Ciepcielinski Agreement
and are not filed as exhibits. *
10.14 ET Securities Agreement, dated November 10, 1992, between N-W and seven
senior employees of the Company was filed as Exhibit 10(c) to the
Registrant's Current Report on Form 8-K filed November 25, 1992 and is
incorporated herein by reference.*
10.15 First Amendment to ET Securities Agreement, dated December 29, 1992,
between the Company and seven senior employees of the Company was filed
as Exhibit 25(a) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 and is incorporated herein by reference.*
10.16 Second Amendment to ET Securities Agreement, dated March 17, 1994,
between the Company and seven senior employees of the Company was filed
as Exhibit 10(f) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 and is incorporated herein by reference.*
10.17 Third Amendment to ET Securities Agreement, dated March 9, 1995,
between the Company and seven senior employees of the Company was filed
as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 and is incorporated herein by reference.*
49
<PAGE>
10.18 ET Securities Agreement Releases dated as of June 21, 1994 and August
31, 1994 was filed as Exhibit 10(a) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994 and is
incorporated herein by reference.*
10.19 Glenayre Electronics, Inc. Deferred Compensation Plan is filed
herewith.*
10.20 Glenayre Management By Objective Plan for the year ended December 31,
1994 was filed as Exhibit 10(h) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993 and is incorporated
herein by reference.*
10.21 Glenayre Management By Objective Plan for the year ended December 31,
1995 was filed as Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated
herein by reference.*
10.22 Glenayre Management By Objective Plan for the year ended December 31,
1996 was filed as Exhibit 10.17 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995 and is incorporated
herein by reference.*
10.23 Glenayre 1996 Incentive Stock Plan was filed as Exhibit 4 to the
Registrant's Form S-8 filed May 28, 1996 and is incorporated herein
by reference.*
10.24 Glenayre Long-Term Incentive Plan, as amended and restated effective
May 26, 1994, was filed as Exhibit 4 to the Registrant's Form S-8 filed
June 16, 1994 and is incorporated herein by reference.*
10.25 N-W 1987 Stock Option Plan (conformed to incorporate first amendment
effective as of January 12, 1990, second amendment effective as of May
1, 1991 and third amendment effective as of July 15, 1992) was filed as
Exhibit 10(v) to the Registrant's Current Report on Form 8-K filed
November 25, 1992 and is incorporated herein by reference.*
10.26 Investment Advisory Agreement, dated October 7, 1988, between
Nu-West, Inc. and Cramer Rosenthal McGlynn, Inc. was filed as Exhibit
28(b) to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989 and is incorporated herein by reference.
11 Computation of Earnings per Common Share is filed herewith.
21 Subsidiaries of the Company is filed herewith.
23.1 Consent of Ernst & Young LLP is filed herewith.
23.2 Consent of Deloitte & Touche LLP is filed herewith.
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.)
99 Cautionary Statement under safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 is filed herewith.
*Management Contract
50
<PAGE>
EXHIBIT 10.5
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (this "Agreement") is made and entered into
as of the 31ST day of December, 1996 by and between GLENAYRE TECHNOLOGIES, INC.,
a Delaware corporation formerly known as "N-W Group, Inc." (the "Company"), and
CLARKE H. BAILEY ("Mr. Bailey").
Statement of Purpose
The Company and Mr. Bailey entered into an Employment Agreement dated
December 3, 1990, as amended by an Amendment Agreement dated as of February 1,
1995 (the "Employment Agreement"). The Company and Mr. Bailey desire to
terminate the Employment Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing Statement of Purpose
and the mutual covenants and agreements herein contained, the parties hereto
agree as follows:
1. The Employment Agreement is hereby terminated effective
as of December 31, 1996.
2. Mr. Bailey acknowledges and agrees no event has occurred
prior to the date hereof which constitutes "Good Reason" (as defined in Section
12(a) of the Employment Agreement) or a "Change in Control" of the Company (as
defined in Section 13(a) of the Employment Agreement), which in either case
would entitle Mr. Bailey to terminate his employment under the Employment
Agreement and to be paid certain payments under Section 12 or 13 of the
Employment Agreement, as applicable. The Company acknowledges and agrees that
the termination of the Employment Agreement does not affect in any manner
whatsoever any options to purchase the Company's common stock previously granted
by the Company to Mr. Bailey and that such options continue to be exercisable
for the applicable 10-year period.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year first above written.
GLENAYRE TECHNOLOGIES, INC.
By: s/Gary B. Smith
Gary B. Smith
President
s/Clarke H. Bailey
Clarke H. Bailey
<PAGE>
Exhibit 10.10
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is
made and entered into as of the 12th day of December, 1996 by and between
GLENAYRE TECHNOLOGIES, INC., a Delaware corporation (the "Corporation"), and
RAMON D. ARDIZZONE (the "Executive").
Statement of Purpose
The Corporation and the Executive entered into an Employment Agreement
dated as of June 21, 1995, as amended on December 8, 1995 (the "Employment
Agreement"). The Corporation and the Executive desire to further amend the
Employment Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing Statement of Purpose
and the terms and provisions of this Amendment, the parties hereto agree as
follows:
1. Effective January 1, 1997, Paragraph 1(a) of the Employment
Agreement shall be amended to read as follows:
"(a) Employment. The Corporation hereby employs the Executive,
and the Executive hereby agrees to serve, as Chairman of the Board of
Directors of the Corporation (the `Board')."
2. Paragraph 2(a) of the Employment Agreement is hereby amended to read
as follows"
"(a) Term. The initial term of the Executive's employment
hereunder shall commence on the Effective Date and shall continue until
December 31, 1997."
3. Paragraph 2(b)(5) of the Employment Agreement is hereby deleted in
its entirety.
4. Paragraph 2(c)(1) of the Employment Agreement is hereby amended to
read as follows:
"(1) the Executive's resignation from the office of Chairman
of the Board and Chief Executive Officer prior to January 1, 1997 or
the Executive's resignation from the office of Chairman of the Board
after December 31, 1996, in each case without the Corporation's prior
consent;"
5. Paragraph 2(e)(1) of the Employment Agreement is hereby amended to
read as follows:
<PAGE>
"(1) except where such failure or change is specifically
approved by the Executive (whether as a member of the Board or
individually), failure to elect or reelect or to appoint or reappoint
the Executive to the office of Chairman of the Board of the
Corporation, or any other material change by the Corporation of the
Executive's functions, duties or responsibilities which would cause the
ranking or level, dignity, responsibility, importance or scope of the
Executive's position with the Corporation to become of less dignity,
responsibility, importance or scope from the position and attributes
thereof described in Paragraph 1 above; provided, however, that the
Executive must first (i) provide the Board with written notice
specifying the particular failure of the Corporation under this
Paragraph 2(e)(1), and (ii) allow the Board 60 days from receipt of
notice to cure such failure;"
6. Paragraph 2(f)(2) of the Employment Agreement is hereby amended to
delete any reference to Paragraph 2(b)(5).
7.. Effective January 1, 1997, Paragraph 3(a) of the Employment
Agreement shall be amended to read as follows:
"(a) Base Salary. The Corporation shall pay to the Executive a
Base Salary of $250,000 per annum (the `Base Salary'). The Base Salary
shall be payable in equal monthly installments on the last business day
of each month, or in such other installments and at such other times as
the parties hereto may mutually agree upon. The Base Salary may be
increased (but not decreased) in the manner determined by the Board or
its Compensation Committee in its absolute discretion."
8. Paragraph 3(b) of the Employment Agreement is hereby amended to read
as follows:
"(b) Management by Objectives Bonus Plan. The Executive shall
participate at a 50% level in the Glenayre Management by Objectives
Bonus Plan as in effect from time to time (the `MBO Plan')."
9. Paragraph 3(c) of the Employment Agreement is hereby amended to read
as follows:
"(c) Stock Options. Within 30 days prior to January 1, 1996
and January 1, 1997, respectively, the Executive shall be awarded
options, under the Corporation's Incentive Stock Plan or any similar or
substitute option plan (the `Option Plan'), to purchase no fewer than
50,000 shares of the common stock of the Corporation. For each award,
the exercise price of such option shall be the `Closing Price' (as
defined in the Option Plan) on the day of such award. Each such option
shall be vested as follows: one-third of the shares subject to such
option shall be vested on the date of such award, an additional
one-third of the shares subject to such option shall be vested on the
first anniversary of such award
<PAGE>
and the remaining one-third of the shares subject to such option shall
be vested on the second anniversary of such award; provided, however,
that such stock options shall be fully vested (i) upon any termination
of the Executive's employment hereunder other than for Cause or (ii)
upon any `Change in Control' of the Corporation (as defined in the
Option Plan). Each such option shall expire, lapse and be of no further
legal force or effect upon the earlier of the following: (i) 10 years
from the date of award, irrespective of the Executive's employment
status with the Corporation or its subsidiaries or (ii) the date the
Executive's employment with the Corporation and its subsidiaries is
terminated for Cause."
10. The Executive acknowledges and agrees that no event has occurred
prior to the date hereof which constitutes "Good Reason" (as defined in
Paragraph 2(e) of the Employment Agreement), including without limitation a
"Change in Control", as defined in Paragraph 2(e)(6) of the Employment
Agreement), which would entitle the Executive to terminate his employment under
the Employment Agreement and to be paid certain payments under Paragraph 2(f) of
the Employment Agreement. The Executive and the Corporation also acknowledge and
agree that, by their mutual agreement, the Executive has continued to receive a
Base Salary of $350,000 per annum and participation in the Glenayre Management
by Objectives Bonus Plan at a 50% level after his election as Chairman of the
Board and Chief Executive Officer of the Corporation and will continue to do so
until otherwise provided pursuant to the Employment Agreement, as amended by
this Amendment.
11. Except as expressly amended hereby, the Employment Agreement shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
GLENAYRE TECHNOLOGIES, INC.
By: s/Gary B. Smith
Title: President & CEO
s/Ramon D. Ardizzone
Ramon D. Ardizzone
<PAGE>
<PAGE>
Exhibit 10.12
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made and
entered into as of the 12th day of December, 1996 by and between GLENAYRE
TECHNOLOGIES, INC., a Delaware corporation (the "Corporation"), and GARY B.
SMITH (the "Executive").
Statement of Purpose
The Corporation and the Executive entered into an Employment Agreement
dated as of August 27, 1996 (the "Employment Agreement"). The Corporation and
the Executive desire to amend the Employment Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing Statement of Purpose
and the terms and provisions of this Amendment, the parties hereto agree as
follows:
1. Effective as of January 1, 1997, Paragraph 1(a) of the
Employment Agreement shall be amended to read as follows:
"(a) Employment. The Corporation hereby employs the
Executive, and the Executive hereby agrees to serve, as
President and Chief Executive Officer of the Corpora-
tion."
2. Effective as of January 1, 1997, Paragraph 1(b) of the
Employment Agreement shall be amended to read as follows:
"(b) Duties. In such capacity, the Executive agrees to perform
such duties and exercise such powers commensurate with his office as
may from time to time be reasonably requested of him by the Board of
Directors of the Corporation (the "Board") or vested in him by the
bylaws of the Corporation, subject to the control and direction of the
Board. During the Term, the Executive shall:
(1) devote substantially all of his business time,
attention and abilities to the businesses of the Corporation
(including its subsidiaries or affiliates, when so required),
and in any case as much thereof as the Board may reasonably
deem to be necessary for such businesses;
(2) faithfully serve the Corporation and use his
best efforts to promote and develop the interests of the
Corporation; and
(3) not acquire, directly or indirectly, any
interest in any firm, partnership, association or corporation,
<PAGE>
the business operations of which in any manner, directly or
indirectly, compete with the trade or businesses of the
Corporation or any of its subsidiaries or affiliates, provided
that the Executive may beneficially own, directly or
indirectly, or exercise control or direction over, the voting
securities of a publicly traded company, on the condition that
the percentage of such securities owned, controlled or
directed by the Executive shall not exceed 5% of the voting
securities of the publicly traded company."
3. Paragraph 2(c)(1) of the Employment Agreement is hereby
amended to read as follows:
"(1) the Executive's resignation from the office of President
and Chief Executive Officer of the Corporation without the
Corporation's prior consent;"
4. Paragraph 2(e)(1) of the Employment Agreement is hereby
amended to read as follows:
"(1) except where such failure or change is specifically
approved by the Executive (whether as a member of the Board or
individually), failure to elect or reelect or to appoint or reappoint
the Executive to the office of President and Chief Executive Officer of
the Corporation, or any other material change by the Corporation of the
Executive's functions, duties or responsibilities which would cause the
ranking or level, dignity, responsibility, importance or scope of the
Executive's position with the Corporation to become of less dignity,
responsibility, importance or scope from the position and attributes
thereof described in Paragraph 1 above; provided, however, that the
Executive must first (i) provide the Board with written notice
specifying the particular failure of the Corporation under this
Paragraph 2(e)(1), and (ii) allow the Board 60 days from receipt of
notice to cure such failure;"
5. Effective as of January 1, 1997, Paragraph 3(b) of the
Employment Agreement is hereby amended to read as follows:
(b) Management by Objectives Bonus Plan. The Executive shall
participate at a 75% level in the Glenayre Management by Objectives
Bonus Plan, as in effect from time to time (the "MBO Plan"). The
Executive's level of participation in the MBO Plan may be increased
(but not decreased) from time to time as determined by the Board or its
Compensation Committee in its absolute discretion."
2
<PAGE>
6. The notice to the Corporation under Paragraph 11 of the
Employment Agreement shall be given to the Corporation as follows:
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Attention: Chairman of the Board
7. The Executive acknowledges and agrees that no event has occurred
prior to the date hereof which constitutes "Good Reason" (as defined in
Paragraph 2(e) of the Employment Agreement), including without limitation a
"Change in Control", as defined in Paragraph 2(e)(6) of the Employment
Agreement), which would entitle the Executive to terminate his employment under
the Employment Agreement and to be paid certain payments under Paragraph 2(f) of
the Employment Agreement.
8. Except as expressly amended hereby, the Employment
Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
GLENAYRE TECHNOLOGIES, INC.
By: s/Ramon D. Arizzone
Title: Chairman
s/Gary B. Smith
Gary B. Smith
3
EXHIBIT 10.19
GLENAYRE ELECTRONICS, INC.
DEFERRED COMPENSATION PLAN
SECTION 1. PURPOSE OF PLAN
The purpose of the Glenayre Electronics, Inc. Deferred Compensation Plan (the
"Plan") is to permit certain executives and managerial employees of Glenayre
Electronics, Inc. (the "Company") to elect to defer receipt of a portion of
their annual compensation, thereby giving them flexibility in their personal tax
and financial planning. In addition, amounts of compensation deferred hereunder
will provide additional death and retirement benefits for such participating
employees.
The Plan is intended to qualify as an unfunded, deferred compensation plan for a
select group of management or highly compensated employees under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
The obligation of the Company to make payments under this Plan constitutes
solely an unsecured (but legally enforceable) promise of the Company to make
such payments, and no person, including any employee, shall have any lien, prior
claim or other security interest in any property of the Company as a result of
this Plan. Rather, any employee participating in the Plan shall have the status
of a general unsecured creditor of the Company. It is the intention of the
parties hereunder that the Plan be unfunded for tax purposes and for purposes of
Title I of ERISA. The Company shall be the sole owner and beneficiary of any
account provided for herein and any property used to measure such account shall
remain the sole and exclusive property of the Company.
SECTION 2. ELIGIBLE EMPLOYEES
The employees eligible to participate in the Plan (the "Participants") shall be
the employees from time to time designated by the Company's Board of Directors
and enumerated under Schedule I annexed hereto.
SECTION 3. ELECTION TO DEFER
Each calendar year, a Participant may elect to reduce and defer a specified
percentage of his or her "Compensation" (as hereinafter defined) for the next
following calendar year. Any elections so made shall be binding for the next
following calendar year only, and must be renewed or revised on or before the
December 31 preceding any succeeding calendar year.
All elections made under this Section 3 shall be subject to such rules and
procedures as may be established by the Company's Board of Directors from time
to time.
<PAGE>
SECTION 4. COMPENSATION
Compensation shall mean the base compensation and any bonuses and/or commissions
to be paid to a Participant by the Company for the calendar year.
SECTION 5. MANNER OF ELECTION
A compensation reduction election made by a Participant pursuant to this plan
shall be made in writing by executing such form(s) as the Company's Board of
Directors shall from time to time prescribe. In this regard, each Participant
shall be required to make separate elections with respect to his or her base
compensation and any bonus to be paid on his or her behalf.
SECTION 6. PERIOD OF DEFERRAL
Amounts deferred pursuant to this Plan shall be paid to the Participant, in
accordance with Section 7 below, upon the first to occur of the following:
(i) Voluntary or involuntary termination of employment
with the Company; or
(ii) Determination of total disability pursuant to
Section 8 below; or
(iii) Retirement (on or after age 65); or
(iv) Such other date as may be elected by the Participant
prior to his or her initial date of participation in
the Plan
SECTION 7. MANNER OF PAYMENT
The amounts deferred by each Participant pursuant to Section 3 shall be invested
equally among the mutual funds selected by the Company and identified on
Schedule II annexed hereto. All dividends and capital gain distributions of any
such mutual funds shall also be reinvested in the applicable fund. The amount
payable to a Participant under this Plan shall be equal to the value of the
mutual funds in which such Participant's deferred amounts are invested as of the
distribution date(s) identified below.
The amount determined above shall be distributed to the Participant in annual
installments over a period elected by the Participant prior to his or her
initial date of participation in the Plan. The first annual installment shall be
made on the first day of the second calendar month following the date of the
Participant's retirement or other termination of employment, or on the date
otherwise elected by the Participant pursuant to Section 6 (iv) above. Each
subsequent annual installment, if any, shall be made on the twelve (12)-month
anniversary of that date. Distributions under the Plan shall be made
proportionately from the mutual funds in which the Participant's account is
invested as of the date of distribution.
Notwithstanding the foregoing provisions of this Section 7, if the total amount
payable to a Participant following his retirement or other termination of
employment (or on the date otherwise elected by the Participant pursuant to
Section 6 (iv) above) is $10,000 or less, distribution of such amount shall
automatically be made, in a single lump-sum payment, within thirty (30) days
<PAGE>
following the Participant's retirement or other termination of employment (or on
the date otherwise elected by the Participant pursuant to Section 6 (iv) above).
SECTION 8. TOTAL DISABILITY
For purposes of this Plan, a Participant shall be deemed totally disabled if the
Board of Directors of the Company shall find on the basis of medical evidence
satisfactory to the Board, that the Participant is totally disabled, mentally or
physically, so as to be prevented from reasonably performing the services
required of him or her in his or her then current position with the Company.
SECTION 9. BENEFICIARY DESIGNATION
A Participant may designate a beneficiary to receive any amount payable under
the Plan in the event of the Participant's death. In the absence of any such
designation, or if the designated beneficiary fails to survive the Participant,
the Participant's surviving spouse, if living, or, if none, the Participant's
estate shall be deemed to be the Participant's beneficiary.
In the event a Participant shall die while employed by the Company, or after his
or her retirement or other termination of employment, but prior to the date
distribution of any benefit hereunder shall have been made or commenced, the
amount determined under Section 7 above shall be distributed to the
Participant's beneficiary in a lump-sum payment. Distribution of such amount
shall be made within thirty (30) days following the Participant's death.
SECTION 10. VESTING
Subject to the claims of the creditors of the Company, a Participant shall at
times have a nonforteitable (vested) right to his or her account under this
Plan.
SECTION 11. AMENDMENT
The Company, by resolution of its Board of Directors, or any committee thereof
having responsibility for the Plan, shall have the right to amend, suspend, or
terminate this Plan at any time. The Company, by resolution of its Board of
Directors or any committee thereof having responsibility for the Plan, also has
the right at any time, and in its sole discretion, to change the mutual funds
identified on Schedule II.
SECTION 12. NO LIABILITY
No member of the Board of Directors of the Company and no officer or employee of
the Company shall be liable to any person for any action taken or omitted in
connection with the administration of this Plan unless attributable to his own
fraud or willful misconduct; nor shall the Company be liable to any person for
any such action unless attributable to fraud or willful misconduct on the part
of a director, officer or employee of the Company.
<PAGE>
SECTION 13. NO ASSIGNMENT
A Participant's right to benefit payments under the Plan are not subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment by creditors of the Participant or the
Participant's beneficiary.
SECTION 14. SUCCESSORS AND ASSIGNS
The provisions of this Plan are binding upon and inure to the benefit of the
Company, its successors and assigns, and the Participant, his or her
beneficiaries, heirs, legal representatives and assigns.
SECTION 15. NO CONTRACT OF EMPLOYMENT
Nothing contained herein shall be construed as a contract of employment between
a Participant and the Company, or as a right of the Participant to continue in
employment with the Company, or as a limitation of the right of the Company to
discharge the Participant at any time, with or without cause.
SECTION 16. GOVERNING LAW
This Plan shall be subject to and construed in accordance with the provisions of
ERISA, where applicable, and otherwise by the laws of the State of North
Carolina.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this
Plan to be executed as of the 31st day of December, 1995.
GLENAYRE ELECTRONICS, INC.
By s/Stanley Ciepcielinski
Authorized Officer
<PAGE>
SCHEDULE I
THE FOLLOWING EMPLOYEES OF THE COMPANY ARE ELIGIBLE TO PARTICIPATE IN THE PLAN
FOR THE 1997 CALENDAR YEAR:
MICHAEL J. GRESHAM
LEE M. ELLISON
KERRY L. HEAGLE
ERIC L. WHITE
BEVERLEY W. COX
DAN CASE
JAMES R. MECKSTROTH
STAN CIEPCIELINSKI
KEN THOMPSON
RAY ARDIZZONE
JOHN REYNOLDS
TOM ALLEN
WAYNE N. GREENBERG
JAMES W. MARION
EUGENE C. PRIDGEN
AMIR H. ZOUFONOUN
<PAGE>
SCHEDULE II
Pursuant to Section 7 hereof, effective January 1, 1996, each Participant's
account under the Plan shall be deemed to be invested equally among the
following mutual funds:
o MainStay Capital Appreciation Fund
o MainStay Value Fund
o MainStay Total Return Fund
o MainStay Convertible Fund
<PAGE>
<PAGE>
Exhibit 11
GLENAYRE TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income from continuing operations............ $ 70,444 $ 76,448 $ 33,095
Gain from discontinued operations............ --- --- 388
--------- --------- --------
Net income................................... $ 70,444 $ 76,448 $ 33,483
========= ========= =========
PRIMARY EARNINGS PER SHARE
Weighted average shares outstanding
during the period......................... 60,597 58,298 55,007
Common stock equivalents..................... 2,819 4,182 3,696
----- ------ ------
63,416 62,480 58,703
====== ====== ======
Continuing operations........................ $ 1.11 $ 1.22 $ 0.56
Discontinued operations...................... --- --- 0.01
Net income per share......................... ---------- --------- ----------
$ 1.11 $ 1.22 $ 0.57
========== ========== ===========
FULLY DILUTED EARNINGS PER SHARE
- - -------------------- -----------
Weighted average shares outstanding
during the period......................... 60,597 58,298 55,007
Common stock equivalents..................... 2,846 4,515 3,785
--------- ------ ------
63,443 62,813 58,792
========= ====== ======
Continuing operations........................ $ 1.11 $ 1.22 $ 0.56
Discontinued operations...................... --- --- 0.01
--------- --------- ------
Net income per share......................... $ 1.11 $ 1.22 $ 0.57
========= ========== ======
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF GLENAYRE
The following subsidiaries are wholly-owned, directly or indirectly through
wholly-owned subsidiaries of Glenayre as of March 1997.
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
<S> <C>
Glenayre Electronics, Inc. Colorado, U.S.A.
Glenayre Manufacturing Ltd. Canada
Glenayre R & D, Inc. Canada
Glenayre Electronics Singapore PTE Ltd. Singapore
Glenayre Electronics (U.K.) Limited United Kingdom
Glenayre Digital Systems, Inc. North Carolina, U.S.A.
Glenayre Services Ltd. Canada
Glenayre de Mexico SA de CV Mexico
Glenayre Administracion SA de CV Mexico
Glenayre Electronics South America Ltda. Brazil
Glenayre Electronics Europe B.V. Netherlands
Glenayre Electronics (Hong Kong) Limited Hong Kong
Glenayre Electronics Philippines, Inc. Philippines
Glenayre Electronics (Korea) Limited Korea
Glenayre Electronics Middle East LLC United Arab Emirates
GTI Acquisition Corporation Delaware, U.S.A.
Western Multiplex Corporation California, U.S.A.
CNET, Inc. Texas, U.S.A.
</TABLE>
The names of other subsidiaries have been omitted because, considered in
the aggregate as a single subsidiary, they would not constitute a
significant subsidiary.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Glenayre Technologies, Inc.'s
Registration Statements No. 33-43797 on Form S-8, No. 33-43798 on Form S-8, No.
33-68766 on Form S-8, No. 33-80464 on Form S-8, No. 33-88818 on Form S-4, as
amended by Post-Effective Amendment No. 1 on Form S-8, No. 333-04635 on Form S-8
and No. 333-15845 on Form S-4, as amended by Post-Effective Amendment No. 1 on
Form S-8, of our report dated January 28, 1997, with respect to the consolidated
financial statements and schedule of Glenayre Technologies, Inc. included in the
Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Charlotte, North Carolina
March 26, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-43797 on Form S-8, No. 33-43798 on Form S-8, No. 33-68766 on Form S-8, No.
33-80464 on Form S-8, No. 33-88818 on Form S-4, as amended by Post-Effective
Amendment No. 1 on Form S-8, No. 333-04635 on Form S-8 and No. 333-15845 on Form
S-4, as amended by Post-Effective Amendment No. 1 on Form S-8 of Glenayre
Technologies, Inc. of our report dated February 3, 1995, appearing in the Annual
Report on Form 10-K of Glenayre Technologies, Inc. for the year ended December
31, 1996.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 131,801
<SECURITIES> 0
<RECEIVABLES> 142,978
<ALLOWANCES> 4,527
<INVENTORY> 50,460
<CURRENT-ASSETS> 339,596
<PP&E> 100,917
<DEPRECIATION> 20,416
<TOTAL-ASSETS> 521,210
<CURRENT-LIABILITIES> 60,565
<BONDS> 0
0
0
<COMMON> 302,968
<OTHER-SE> 152,893
<TOTAL-LIABILITY-AND-EQUITY> 521,210
<SALES> 390,246
<TOTAL-REVENUES> 390,246
<CGS> 180,468
<TOTAL-COSTS> 180,468
<OTHER-EXPENSES> 122,893
<LOSS-PROVISION> 878
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> 96,651
<INCOME-TAX> 26,207
<INCOME-CONTINUING> 70,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,444
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
<PAGE>
EXHIBIT 99
CAUTIONARY STATEMENT UNDER SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Glenayre Technologies, Inc. ("Glenayre" or the "Company"), from time to
time, makes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements reflect the
expectations of management of the Company at the time such statements are made.
Glenayre is filing this cautionary statement to identify important factors that
could cause Glenayre's actual results to differ materially from those in any
forward-looking statements made by or on behalf of Glenayre.
POTENTIAL MARKET CHANGES RESULTING FROM RAPID TECHNOLOGICAL ADVANCES
Glenayre's business is primarily focused on paging and is subject to
competition from alternative forms of communication. In addition, Glenayre's
business is also focused on the wireless telecommunications industry. The
wireless telecommunications industry is characterized by rapid technological
change, including digital cellular telephone systems, which compete, directly or
indirectly, with Glenayre's products or the services provided by the Company's
customers. 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 systems and related software designed and sold by Glenayre.
INTRODUCTION AND ACCEPTANCE OF NPCS PRODUCTS
While certain of the Glenayre's customers have completed "beta testing"
of Glenayre's products used to provide narrowband personal communications
services ("NPCS"), the introduction of NPCS is just beginning on a commercial
basis. The timing of the installation of NPCS systems by Glenayre's paging
service provider customers may be delayed depending upon delays in installation,
difficulties in initial operation of NPCS systems, the availability of financing
for its paging service provider customers and the market acceptance of NPCS by
the customers of such paging service providers. The development of the NPCS
market will also be affected by other technological changes in wireless
messaging services, regulatory developments and general economic conditions.
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. The Company also faces indirect competition
from alternative wireless telecommunications technologies, including cellular
telephone services, mobile satellite systems, specialized and private mobile
radio systems, digital cellular telephone systems and broadband personal
communication services. Although these technologies are generally higher priced
than traditional paging services, technological improvements could result in
increased capacity and efficiency for wireless two-way communication and could
result in increased competition for the Company.
<PAGE>
VARIABILITY OF QUARTERLY RESULTS
The Company's financial results in any single quarter are highly
dependent upon 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. Although sales to one
customer totaled approximately 13%, 16% and 15% of 1994, 1995 and 1996 fiscal
year net sales, respectively, the customers with whom the Company does the
largest amount of business is generally subject to change from year to year as a
result of the timing for development and expansion of its 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.
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.
LIMITS ON PROTECTION OF PROPRIETARY TECHNOLOGY
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 certain 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.
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 paging service
provider and other wireless customers to operate Glenayre's products. 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 Federal Communications Commission ("FCC") in
the United States 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, the trend toward deregulation and
current regulatory developments favorable to the promotion of new and expanded
personal communications services may not continue
2
<PAGE>
and future regulatory changes may not have a positive impact on Glenayre. As the
issuance of paging system licenses stimulates demand for the Company's products,
delays in the issuance of licenses may adversely affect sales and the timing of
sales of the Company's products.
FINANCING CUSTOMER PURCHASES FOR DEVELOPMENT OF NPCS MARKET
The Company expects to continue financing customer purchases of its
products for development of the narrowband personal communications services
("NPCS") market for the build-out of NPCS networks by its customers who acquired
NPCS licenses auctioned by the FCC (the "NPCS License Holders"). Many of the
NPCS License Holders with whom the Company expects to enter into customer
financing arrangements have limited operating histories, significant debt
related to the acquisition of their NPCS licenses and start-up expenses,
negative cash flows from operations and some have never generated an operating
profit. The Company plans to retain a lien on any equipment for which it
provides financing.
INTERNATIONAL BUSINESS RISKS
Approximately 40% of 1996 fiscal year net sales 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 exchange rate fluctuations.
Although a substantial portion of the international sales of the Company's
products and services for fiscal year 1996 was negotiated in U.S. dollars, the
Company may not 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.
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