- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- -----------
Commission File Number 0-15761
GLENAYRE TECHNOLOGIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its
Charter)
DELAWARE 98-0085742
------------------------ ------------------
(State or Other (I.R.S. Employer
Jurisdiction of Identification
Incorporation or No.)
Organization)
5935 Carnegie Blvd., Charlotte, North Carolina 28209
------------------------------------------------ -------
(Address of principal executive offices) Zip Code
(704) 553-0038
----------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
-----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports, and (2) has been
subject to such filing requirements for the past 90 days. Yes[X] No[ ]
The number of shares outstanding of the Registrant's common stock, par value
$.02 per share, at July 28, 1999 was 62,189,438 shares.
- --------------------------------------------------------------------------------
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information:
Item 1. Financial Statements
Page
----
<S> <C> <C>
Independent Accountant's Review Report................................3
Condensed Consolidated Balance Sheets as of
June 30, 1999 (Unaudited) and December 31, 1998....................4
Condensed Consolidated Statements of Operations for the three
months ended June 30, 1999 and 1998 (Unaudited)....................5
Condensed Consolidated Statements of Operations for the
six months ended June 30, 1999 and 1998 (Unaudited)...............6
Condensed Consolidated Statement of Stockholders' Equity
for the six months ended June 30, 1999 (Unaudited).................7
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 1998 (Unaudited)................8
Notes to Condensed Consolidated Financial Statements (Unaudited)......9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................15
Part II - Other Information:
Item 4. Submission of Matters to a Vote of Security Holders...............22
Item 6. Exhibits and Reports on Forms 8-K.................................22
</TABLE>
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2
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Independent Accountants' Review Report
To the Board of Directors and Stockholders of
Glenayre Technologies, Inc.
Charlotte, North Carolina
We have reviewed the accompanying condensed consolidated balance sheet of
Glenayre Technologies, Inc. and subsidiaries as of June 30, 1999, and the
related condensed consolidated statements of operations for the three-month
periods and six-month periods ended June 30, 1999 and 1998, the condensed
consolidated statement of stockholders' equity for the six months ended June 30,
1999 and the condensed consolidated statements of cash flows for the six-month
periods ended June 30, 1999 and 1998. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Glenayre Technologies, Inc. as of
December 31, 1998, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated February 15, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1998, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Ernst & Young LLP
Charlotte, North Carolina
July 20, 1999
- --------------------------------------------------------------------------------
3
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
June 30, 1999 1998
-------------- -----------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents................. $21,413 $12,283
Restricted cash........................... 4,996 ---
Accounts receivable, net.................. 101,993 153,773
Notes receivable.......................... 11,381 12,810
Inventories............................... 30,973 46,502
Deferred income taxes..................... 22,089 15,906
Prepaid expenses and other current assets. 5,149 5,630
-------- -------
Total current assets................. 197,994 246,904
Notes receivable, net......................... 3,639 58,724
Property, plant and equipment, net............ 105,288 109,661
Goodwill...................................... 113,703 119,626
Deferred income taxes......................... 35,396 5,679
Other assets.................................. 11,324 21,201
--------- --------
TOTAL ASSETS.................................. $467,344 $561,795
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................... $16,201 $31,968
Accrued liabilities....................... 44,604 60,258
Other current liabilities................. 123 206
-------- --------
Total current liabilities............ 60,928 92,432
Other liabilities............................. 6,937 7,210
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:
June 30, 1999 - 62,180,506 shares;
December 31, 1998 - 62,064,290
shares............................... 1,243 1,241
Contributed capital........................ 343,513 343,251
Retained earnings.......................... 54,723 117,661
-------- ---------
Total stockholders' equity........... 399,479 462,153
------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $467,344 $561,795
======== =========
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Certain December 31, 1998
amounts have been reclassified to conform with the June 30, 1999
presentation.
See notes to condensed consolidated financial statements.
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4
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
Three Months Ended
June 30,
--------------------------------
1999 1998
-------------- ---------------
NET SALES..................................... $62,065 $81,881
-------- --------
COSTS AND EXPENSES:
Cost of sales........................... 38,280 40,255
Selling, general and administrative
expense............................. 21,684 25,051
Provision for doubtful receivables...... 64,855 (1,405)
Research and development expense........ 11,820 11,864
Depreciation and amortization expense... 8,455 10,060
Unrealized loss on subordinated notes... 8,100 583
-------- --------
Total Costs and Expenses............. 153,194 86,408
-------- --------
LOSS FROM OPERATIONS.......................... (91,129) (4,527)
-------- --------
OTHER INCOME (EXPENSES):
Interest income........................ 958 1,859
Interest expense....................... (51) (79)
Other, net............................. (495) (215)
-------- --------
Total Other Income (Expenses), net... 412 1,565
-------- --------
LOSS BEFORE INCOME TAXES...................... (90,717) (2,962)
PROVISION (BENEFIT) FOR INCOME TAXES.......... (29,376) 43
-------- --------
NET LOSS...................................... $(61,341) $(3,005)
========= =========
NET LOSS PER WEIGHTED AVERAGE
COMMON SHARE............................... $ (0.99) $ (0.05)
========== =========
NET LOSS PER COMMON SHARE -
ASSUMING DILUTION....................... $ (0.99) $ (0.05)
========== =========
See notes to condensed consolidated financial statements
- --------------------------------------------------------------------------------
5
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
Six Months Ended
June 30,
---------------------------------
1999 1998
--------------- ---------------
NET SALES..................................... $132,086 $176,414
-------- --------
COSTS AND EXPENSES:
Cost of sales........................... 76,361 86,019
Selling, general and administrative
expense.............................. 42,870 50,376
Provision for doubtful receivables...... 65,244 (1,417)
Research and development expense........ 23,483 26,057
Depreciation and amortization expense... 17,069 19,437
Unrealized loss on subordinated notes... 8,100 583
--------- ---------
Total Costs and Expenses............. 233,127 181,055
--------- ---------
LOSS FROM OPERATIONS.......................... (101,041) (4,641)
--------- ---------
OTHER INCOME (EXPENSES):
Interest income........................ 3,561 4,216
Interest expense....................... (266) (245)
Other, net............................. (458) (311)
--------- ---------
Total Other Income (Expenses), net... 2,837 3,660
--------- ---------
LOSS BEFORE INCOME TAXES...................... (98,204) (981)
PROVISION (BENEFIT) FOR INCOME TAXES.......... (35,266) 1,903
--------- ---------
NET LOSS...................................... $(62,938) $(2,884)
========= =========
NET LOSS PER WEIGHTED AVERAGE
COMMON SHARE............................... $ (1.01) $ (0.05)
========== =========
NET LOSS PER COMMON SHARE -
ASSUMING DILUTION.......................... $ (1.01) $ (0.05)
========== ========
See notes to condensed consolidated financial statements
- --------------------------------------------------------------------------------
6
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
(unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Contributed Retained Stockholders'
Shares Amount Capital Earnings Equity
<S> ------- ------- ------------ --------- -------------
<C> <C> <C> <C> <C>
Balances, December 31, 1998.............. 62,064 $1,241 $343,251 $117,661 $462,153
Net Loss................................. (62,938) (62,938)
Stock options exercised.................. 117 2 193 195
Tax benefit of stock options exercised... 69 69
------- ------ -------- --------- ---------
Balances, June 30, 1999................. 62,181 $1,243 $343,513 $54,723 $399,479
======= ======= ======== ========= =========
</TABLE>
See notes to condensed consolidated financial statements
- --------------------------------------------------------------------------------
7
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(tabular amounts in thousands of dollars)
(unaudited)
Six Months Ended June 30,
----------------------------
1999 1998
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ $16,276 $26,434
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subordinated notes............. --- (11,667)
Purchases of property, plant and equipment. (7,292) (16,376)
Proceeds from sale of equipment........... 66 163
--------- ----------
Net cash used in investing activities (7,226) (27,880)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in other liabilities.............. (115) (2,724)
Issuance of common stock.................. 195 4,524
--------- ----------
Net cash provided by financing
activities....................... 80 1,800
--------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS....... 9,130 354
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD................................. 12,283 21,076
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $21,413 $21,430
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest................................... $271 $119
Income taxes............................... 2,315 2,596
See notes to condensed consolidated financial statements
- --------------------------------------------------------------------------------
8
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share data)
(unaudited)
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month periods ended
June 30, 1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999. The Company's financial results in any
quarter are highly dependent upon various factors, including the timing and size
of customer orders and the shipment of products for large orders. Large orders
from customers can account for a significant portion of products shipped in any
quarter. Accordingly, the shipment of products in fulfillment of such large
orders can dramatically affect the results of operations of any single quarter.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Glenayre Technologies, Inc. Annual Report
on Form 10-K for the year ended December 31, 1998.
1. Restricted Cash
Restricted cash at June 30, 1999 consisted of term deposits pledged as
collateral to secure letters of credit with expiration dates currently from
August 1999 through September 2000.
2. Accounts and Notes Receivables
Accounts receivable consist of:
June 30, December 31,
1999 1998
-------- -----------
Trade receivables.................. $114,720 $154,342
Retainage receivables.............. 261 1,256
Other.............................. 2,811 4,005
------ ----- -----------
117,792 159,603
Less: allowance for doubtful
accounts.......................... (15,799) (5,830)
----------- -----------
$101,993 $153,773
=========== ===========
Trade receivables at June 30, 1999 and December 31, 1998 included unbilled costs
and estimated earnings under contracts in the amount of approximately $28
million and $31 million, respectively. Unbilled amounts are invoiced upon
reaching certain milestones.
Notes receivable consist of:
June 30, December 31,
1999 1998
-------- -----------
Current.......................... $11,381 $12,810
Non-current...................... 60,049 62,851
-------- ------------
71,430 75,661
Less: reserves................... (56,410) (4,127)
---------- ------------
$15,020 $71,534
========== ============
- --------------------------------------------------------------------------------
9
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share data)
(unaudited)
The Company's receivables are principally concentrated in the telecommunications
industry. Historically, the Company had not experienced any significant issues
related to the collection of receivables from its customers. However, during the
second quarter 1999 several customers either (i) sought bankruptcy protection,
(ii) sought debt restructuring from the Company, or (iii) delayed scheduled note
payments. Amounts owed on notes, which as of June 30, 1999 were considered
impaired, from these customers were approximately $51 million and $52 million at
June 30, 1999 and December 31, 1998, respectively. The average amounts of
impaired notes during the three-month and six-month periods ended June 30, 1999
was approximately $51 million. The allowance for doubtful accounts on these
notes was approximately $51 million and $2.8 million at June 30, 1999 and
December 31, 1998, respectively. The increase in the allowance of $48 million
was recorded as a charge to operations during the three-month period ended June
30, 1999. Interest income recorded on these notes was $219,000 and $1.7 million
during the three-month and six-month periods ended June 30, 1999, respectively.
Interest receivable from these notes of approximately $2.3 million was fully
reserved as of June 30, 1999. In future periods, interest income on these notes
will be recognized only as cash is received. Additionally, during the second
quarter 1999, the Company experienced pressures from international customers to
extend normal trade receivables payment terms. As a result of all of these
occurrences, the Company changed its estimates used to calculate appropriate
reserves resulting in additional allowance for doubtful account reserves for
accounts and notes receivables of approximately $14 million. These changes in
the estimates increased the net loss for the three-month and six-month periods
ended June 30, 1999 approximately $42 million, net of tax benefit ($0.67 per
share).
3. Inventories
June 30, December 31,
Inventories consist of: 1999 1998
------------ ------------
Raw materials................... $16,982 $26,046
Work-in-process................. 8,034 11,818
Finished goods.................. 5,957 8,638
----------- ----------
$30,973 $46,502
========== =========
4. Goodwill
Goodwill is shown net of accumulated amortization of $35 million and $29
million at June 30, 1999 and December 31, 1998, respectively.
5. Other Assets
Included in Other Assets are 9% convertible subordinated notes ("subordinated
notes") purchased at a cost of $11.7 million from a customer, in May 1998, as
part of an overall financing program. Based on the weak financial condition of
the customer, the Company recorded an other than temporary unrealized loss on
the subordinated notes in its results of operations for the second quarter 1998
and third quarter 1998 of $583,000 and $767,000, respectively. In the second
quarter 1999, the customer filed for bankruptcy protection. As a result, the
Company included in its results of operations a further write down of $8.1
million to reflect the expected amount to be realized of $2.2 million upon the
conclusion of the bankruptcy proceedings.
- --------------------------------------------------------------------------------
10
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share data)
(unaudited)
6. Income Taxes
The Company's consolidated income tax provision was different from the amount
computed using the U.S. statutory income tax rate for the following reasons:
Three Months Six Months Ended
Ended June 30, June 30,
------------------- ------------------
1999 1998 1999 1998
-------- ------- ------- -------
Income tax provision at U.S. statutory
rate............................. $(31,752) $(1,036) $(34,372) $(343)
Change in valuation allowance......... 1,502 --- (2,481) ---
Foreign taxes at rates other than U.S.
statutory rate..................... (203) (197) (336) (372)
State taxes (net of federal benefit).. --- (361) (239) (556)
U.S. Research and Experimentation
Credits......................... (80) --- (160) (84)
Benefit from foreign sales
corporation...................... (40) --- (80) ---
Non-deductible goodwill
amortization.................... 1,197 1,637 2,402 3,258
--------- -------- ------- -------
Income tax provision (benefit)...... $(29,376) $43 $(35,266) $1,903
========= ======== ======== =======
The Company believes that it is more likely than not that the net deferred tax
asset recorded at June 30, 1999 will be fully realized.
7. Loss per Common Share
The following table sets forth the computation of loss per share:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net loss........................... $(61,341) $(3,005) $(62,938) $(2,844)
Denominator:
Denominator for basic loss per share-
weighted average shares........... 62,168 61,332 62,142 61,120
Effect of dilutive securities:
stock options..................... --- --- --- ---
------ ------- ------- -------
Denominator for diluted loss per share-
adjusted weighted average shares
and assumed conversions........... 62,168 61,332 62,142 61,120
======= ====== ====== =======
Net loss per weighted average common
share............................. $(0.99) $(0.05) $(1.01) $(0.05)
======== ======= ======= ========
Net loss per common share-assuming
dilution.......................... $(0.99) $(0.05) $(1.01) $(0.05)
======= ======== ======== ========
8. Business Restructuring
During the second quarter 1999, the Company recorded a pre-tax charge for
severance of approximately $1.7 million, of which approximately $1.5
million was paid before June 30, 1999, for a workforce reduction of
approximately 200 employees at its Vancouver and Quincy manufacturing
facilities. The total pre-tax charge was recorded to cost of sales.
- --------------------------------------------------------------------------------
11
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share data)
(unaudited)
During the first quarter 1999, the Company recorded a pre-tax charge of
approximately $1.6 million related to a reduction of the Company's
workforce by approximately 70 employees from the Vancouver, Charlotte and
Quincy facilities, exiting costs from the Blaine, Washington leased
facility and asset impairment charges for leasehold improvements located at
the Blaine, Washington leased facility. As of June 30, 1999 the Company has
paid approximately $900,000 of the first quarter 1999 restructuring charge
($200,000 in the second quarter 1999) primarily for employee termination
costs. The reserve balance at June 30, 1999 is approximately $440,000.
During the fourth quarter 1998, the Company recorded a pre-tax charge of
approximately $6.8 million related to a 10% reduction of its global
workforce, the exiting of two leased facilities and impairment of
associated long-lived assets, primarily leasehold improvements. During the
first quarter 1999, the Company reduced the fourth quarter 1998
restructuring charges by approximately $350,000 due to less than
anticipated terminated employee outplacement fees and severance costs at
its Norwood, Massachusetts facility offset partially by more than
anticipated severance costs at other locations. As of June 30, 1999 the
Company has paid a total of approximately $4.9 million of the fourth
quarter 1998 restructuring charge ($1.2 million in the second quarter 1999)
primarily for employee termination costs, operating facility costs and
early termination fees for the Norwood, Massachusetts leased facility.
Additionally, the Company recorded a non-cash charge of approximately $1.4
million related to an asset write-down and other adjustments in the fourth
quarter 1998. As of June 30, 1999 the Company has approximately $250,000
accrued for the fourth quarter 1998 restructuring costs.
Management believes the remaining reserves for business restructuring are
adequate to complete the above plans.
9. Segment Reporting
During the second quarter 1999, the Company made changes to its expense
allocations. These changes allocate previously classified corporate
activities operating expenses (including depreciation expense) to its
Paging, Mobile and Fixed Network and Microwave Communication operating
segments. These operating expenses include credit and collections, legal,
and information technology services that after further review the Company
believes are more directly related to the business segments rather than
Corporate activities. Additionally, assets and capital expenditures for
property, plant and equipment previously included under Corporate
activities for information technology services have been reclassified to
the Paging operating segment. The amounts below for segment income (loss),
segment assets (and the related depreciation and amortization) and
expenditures for property, plant, and equipment have been restated where
applicable and presented below to include these changes in operating
segment reporting.
Three Months Ended Six Months Ended
Segment net sales June 30, June 30,
---------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
Paging......................... $32,318 $63,590 $77,522 $135,734
Mobile and Fixed Network....... 21,159 11,600 37,267 27,735
Microwave Communication........ 8,588 6,691 17,297 12,945
------- -------- -------- ----------
Total.......................... $62,065 $81,881 $132,086 $176,414
======== ======== ========= ==========
- --------------------------------------------------------------------------------
12
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Segment income (loss)
Paging........................... $(91,536) $7,795 $(98,079) $15,901
Mobile and Fixed Network......... 1,674 (10,523) (444) (16,708)
Microwave Communication......... 773 218 1,349 133
Corporate activities............ (2,040) (2,017) (3,867) (3,966)
Interest income (expense), net.. 907 1,780 3,295 3,971
Other income (expense).......... (495) (215) (458) (312)
--------- ------- -------- --------
Income (loss) before income
taxes.......................... $(90,717) $(2,962) $(98,204) $(981)
========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Twelve Months Ended
Ended March 31, December 31,
------------------ ------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(Restated) (Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
Segment income (loss)
Paging......................... $(6,543) $8,106 $26,798 $74,288 $89,587
Mobile and Fixed Network...... (2,118) (6,185) (29,931) 2,954 (3,212)
Microwave Communication....... 576 (85) 1,893 4,317 6,402
Corporate activities.......... (1,827) (1,949) (9,364) (11,085) (5,892)
Charge for purchased research
and development.............. --- --- --- (38,700) ---
Loss on sale of business....... --- --- (7,858) --- ---
Write-off of goodwill and
other intangibles............ --- --- (26,705) (5,183) ---
Interest income (expense), net. 2,388 2,191 8,189 10,350 9,654
Other income(expense), net...... 37 (97) (180) (2,147) 112
------ -------- -------- ------- --------
Income (loss) before income taxes
and cumulative effect of changes
in accounting principle........ $(7,487) $1,981 $(37,158) $34,794 $96,651
======== ====== ========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 1997 1996
------- ---- ---- ----
(Restated) (Restated) (Restated)
<S> <C> <C> <C> <C>
Segment assets
Paging........................... $337,829 $471,743 $457,190 $321,634
Mobile and Fixed Network......... 14,428 21,577 60,694 10,010
Microwave Communication.......... 33,794 34,451 35,563 34,596
Deferred Income Taxes............ 57,485 21,585 15,031 29,663
Corporate assets................. 23,808 12,439 21,683 125,307
--------- ---------- --------- ----------
Total............................ $467,344 $561,795 $590,161 $521,210
========== =========== =========== ==========
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
June 30, June 30,
--------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Depreciation and amortization expense
- --------------------------------------
Paging............................ $13,598 $13,252 $6,765 $6,858
Mobile and Fixed Network.......... 2,560 5,197 1,233 2,705
Microwave Communication........... 651 737 325 368
Corporate activities.............. 260 251 132 129
------- -------- ------ ------
Total............................ $17,069 $19,437 $8,455 $ 10,060
======== ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
(Restated) (Restated) (Restated)
<S> <C> <C> <C>
Depreciation and amortization expense
--------------------------------------
Paging................................. $27,602 $15,300 $8,309
Mobile and Fixed Network............... 10,613 5,080 3,664
Microwave Communication................ 1,441 1,598 1,398
Corporate activities................... 430 390 111
------- -------- ------
Total.................................. $40,086 $22,368 $13,482
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Twelve Months Ended
June 30, December 31,
---------------- ----------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
Expenditures for property, plant and (Restated) (Restated) (Restated)
equipment
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Paging....................................... $5,304 $12,220 $23,415 $26,954 $31,789
Mobile and Fixed Network..................... 1,665 3,598 4,991 4,311 9,322
Microwave Communication..................... 276 332 860 901 1,522
Corporate activities........................ 47 226 683 723 384
--------- ------ ------- -------- ---------
Total....................................... $7,292 $16,376 $29,949 $32,889 $43,017
========== ======== ======= ======= =========
</TABLE>
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14
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Glenayre Technologies, Inc. and Subsidiaries
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Glenayre Technologies, Inc. ("Glenayre" or the "Company") designs, manufactures,
markets and services telecommunications equipment and software used in wireless
personal communication systems throughout the world specifically focused in
three primary marketing areas: (i) paging products including infrastructure
equipment from the Wireless Messaging Group ("WMG") and Wireless Access two-way
paging devices, (ii) mobile and fixed network products from the Integrated
Network Group ("ING") including voice mail systems, software applications for
network management and data management systems including applications for
calling cards, and (iii) microwave communications products from the Western
Multiplex Group.
In September 1997, the Company announced plans to consider divesting Western
Multiplex Corporation ("MUX") allowing Glenayre to focus on its core markets of
paging and enhanced messaging. MUX markets products for use in point-to-point
microwave communication systems and was acquired by Glenayre in April 1995. As
of July 1999, an acceptable purchase agreement had not been negotiated. However,
the Company expects to pursue divesting this business over time.
Results of Operations
The following table sets forth for the periods indicated the percentage of net
sales represented by certain line items from Glenayre's consolidated statements
of operations:
Three Months Six Months Ended
Ended June 30, June 30,
------------------- -----------------
1999 1998 1999 1998
--------- ------- -------- -------
Net sales............................... 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 61.7 49.2 57.8 48.8
---- ---- ---- ----
Gross profit ....................... 38.3 50.8 42.2 51.2
Operating expenses:
Selling, general and administrative. 34.9 30.6 32.5 28.6
Provision for doubtful
receivables..................... 104.5 (1.7) 49.4 (0.8)
Research and development............ 19.0 14.5 17.8 14.8
Depreciation and amortization....... 13.6 12.3 12.9 11.0
Unrealized loss on subordinated
notes........................... 13.1 0.7 6.1 *
----- ---- ----- -----
Total operating expenses........ 185.2 56.4 118.7 53.9
----- ----- ----- -----
Loss from operations ...................(146.8) (5.5) (76.5) (2.6)
Interest, net........................... 1.5 2.2 2.5 2.3
Other, net.............................. (0.8) * * *
----- ----- ------ -----
Loss before income taxes................(146.2) (3.6) (74.3) (0.6)
Provision (benefit) for income taxes.... (47.3) * (26.7) 1.1
------ ------ ------ -------
Net loss................................ (98.8)% (3.7)% (47.6)% (1.6)%
======= ====== ======= =======
- ------------------
* less than 0.5%
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15
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Glenayre Technologies, Inc. and Subsidiaries
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The following table sets forth for the periods indicated net sales represented
by the Company's primary marketing areas:
Three Months Six Months Ended
Ended June 30, June 30,
------------------- ------------------
1999 1998 1999 1998
-------- ------- ------- --------
(in thousands)
Paging products ................... $32,318 $63,590 $77,522 $135,734
Mobile and fixed network products . 21,159 11,600 37,267 27,735
Microwave communication............ 8,588 6,691 17,297 12,945
------ -------- ------ ------
$62,065 $81,881 $132,086 $176,414
======= ======= ======== ========
(percentage of net sales)
Paging products ................... 52% 78% 59% 77%
Mobile and fixed network products . 34 14 28 16
Microwave communication............ 14 8 13 7
---- ----- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
Three-Month and Six-Month Periods Ended June 30, 1999 and 1998
Net Sales. Net sales for the three months ended June 30, 1999 decreased 24% to
$62 million as compared to $82 million for the three months ended June 30, 1998.
Net sales for the six months ended June 30, 1999 decreased 25% to $132 million
as compared to $176 million for the six months ended June 30, 1998.
International sales (sales outside the United States) were approximately $29
million for the three months ended June 30, 1999 as compared to approximately
$34 million for the three months ended June 30, 1998 and accounted for 46% and
42% of net sales for the three months ended 1999 and 1998. International sales
were approximately $59 million for the six months ended June 30, 1999 as
compared to approximately $79 million for the six months ended June 30, 1998 and
accounted for 44% and 45% of net sales for the six months ended June 30, 1999
and 1998, respectively.
The decline in net sales for the 1999 periods is due to the weakness in the
overall paging market. There has been a slowdown in paging infrastructure
purchases as the domestic paging providers continue to seek capital financing
through the normal channels or are being acquired by other telecommunication
companies. International customers are experiencing similar concerns in the
management of capital resources. Additionally, sales of the Company's two-way
paging devices are being negatively impacted by a slower than expected roll out
of the two-way market and recent intense price competition against its lower end
product. Further, domestic paging infrastructure revenues for the three months
ended June 30, 1999 were impacted by joint re-seller agreements entered into by
several large domestic paging carriers.
The Company expects that net sales growth for its mobile and fixed network and
its microwave communication segments will be offset by decreases in paging
infrastructure and device sales so that overall Company net sales for the third
quarter 1999, fourth quarter 1999, and first quarter 2000 are projected to be
approximately level with the second quarter 1999. In the latter half of 1999,
the Company will implement a global restructuring in an effort to realize sales
growth and a return to profitabilty during the year 2000 by repositioning its
resources to the appropriate strategic markets. These are forward looking
statements which are subject to the factors discussed in the cautionary
statement attached as Exhibit 99 to this 10-Q. There can be no assurance that
the Company's sales levels or growth will remain at or exceed historical levels
in any future period.
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Glenayre Technologies, Inc. and Subsidiaries
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No one single customer accounted for 10% of net sales for the three-month and
six-month periods ended June 30, 1999. Sales to a single customer accounted for
approximately 20% and 17% of net sales for the three-month and six-month periods
ended June 30, 1998. The Company believes that the dependence on any one
customer is mitigated by the large number of companies in the Company's customer
base and the timing for development and expansions of their systems.
Gross Profit. Gross profit was 38% and 51% for three-month periods ended June
30, 1999 and 1998, respectively. Gross profit was 42% and 51% for the six-month
periods ended June 30, 1999 and 1998. The decline in margins for the 1999
periods is primarily due to (i) lower overall paging infrastructure sales during
the periods, (ii) additional slow moving inventory reserves as result of lower
forecasted infrastructure sales and bankruptcy filing of a customer in the
second quarter 1999 for which certain inventory parts had been purchased and
(iii) lower than expected margins realized on paging devices. Glenayre's gross
profit margins may be affected by several factors including (i) the mix of
products sold, (ii) the price of products sold and (iii) increases in material
costs and other components of cost of sales.
Selling, General and Administrative Expense. Selling, general and administrative
expenses were $22 million and $25 million for the three-month periods ended June
30, 1999 and 1998, respectively and $43 million and $50 million for the
six-month periods ended June 30, 1999 and 1998, respectively. The decreases in
the 1999 periods are primarily attributable to employee reductions as a result
of the first quarter 1999 and fourth quarter 1998 restructurings. The decrease
for the six-month period ended June 30, 1999 was offset by the $1.6 million
restructuring charge recorded in the first quarter 1999. (See Note 8 to the
Condensed Consolidated Financial Statements)
Provision for Doubtful Receivables. The provision for doubtful receivables was
$65 million for the three-month and six-month periods ended June 30, 1999
compared to a credit of $1.4 million for the three-month and six-month periods
ended June 30, 1998. Historically, the Company's bad debt write offs have not
been significant. However, the risk inherent in the Company's portfolio of
receivables has increased due to financial difficulties, including bankruptcy,
being experienced by several of the Company's customers in the second quarter
1999 coupled with pressure by customers for extended payment terms. Accordingly,
significant increases in the Company's allowances for doubtful accounts were
recognized. (See (i) Financial Condition and Liquidity-Liquidity and Capital
Resources and (ii) Note 2 to the Condensed Consolidated Financial Statements).
Credit amounts in the 1998 periods reflect adjustments to the allowance for
doubful account reserves based on expected collectibility at June 30, 1998 and
due to the collection of $850,000 in the second quarter 1998 of a receivable
written off prior to 1998.
Research and Development Expense. Research and development expenses were $12
million for each of the three-month periods ended June 30, 1999 and 1998 and $23
million and $26 million for the six months ended June 30, 1999 and 1998,
respectively. The decreases in the 1999 periods are primarily attributable to
employee reductions as a result of the fourth quarter 1998 restructuring (See
Note 8 to the Condensed Consolidated Financial Statements). The Company relies
on its research and development programs for new products and the improvement of
existing products for the continued growth in net sales. Research and
development costs are expensed as incurred.
Depreciation and Amortization Expense. Depreciation and amortization expense was
$8.5 million and $10.1 million for the three months ended June 30, 1999 and
1998, respectively, and $17 million and $19 million for the six months ended
June 30, 1999 and 1998, respectively. The decreases in expenses for the
three-month and six-month periods are a result of (i) the sale of the Company's
network management business in the fourth quarter of 1998 and (ii) the write-off
of goodwill related to the 1997 acquisition of Open Development Corporation and
other fixed and intangible assets in the fourth quarter of 1998.
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Glenayre Technologies, Inc. and Subsidiaries
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Unrealized loss on subordinated notes. In May 1998, as part of an overall
financing program with the customer, the Company purchased $11.7 million in 9%
convertible subordinated senior notes ("subordinated notes") from Conxus
Communications, Inc. ("Conxus") which are included in Other Assets as an
available-for-sale debt security. Based on the weak financial condition of
Conxus, the Company recorded other than temporary unrealized losses on the
subordinated notes in its results of operations for second quarter 1998 and
third quarter 1998 of $583,000 and $767,000, respectively. On May 18, 1999,
Conxus filed for protection under Chapter 11 with the United States Bankruptcy
Court for the District of Deleware. As a result, the Company included in its
results of operations a further write down of $8.1 million to reflect the
expected amount to be realized of $2.2 million upon the conclusion of the
bankruptcy proceedings.
Interest Income, Net. Interest income, net was $907,000 and $1.8 million for the
three-month periods ended June 30, 1999 and 1998, respectively and $3.3 million
and $4.0 million for the six-month periods ended June 30, 1999 and 1998,
respectively. Interest earned in the 1999 periods was lower due to the cessation
of interest earned on certain notes receivables with customers experiencing
financial difficulties. The Company expects that the level of interest income,
net in 1999 will vary in accordance with the level of secured debt financing
commitments issued by Glenayre and used by its customers.
Provision for Income Taxes. The effective tax rates for the three-month and
six-month periods ended June 30, 1999 and 1998 differed from the combined U.S.
federal and state statutory tax rate of approximately 40% due primarily to (i)
the change in the valuation allowance, (ii) nondeductible goodwill amortization,
(iii) lower tax rates on earnings indefinitely reinvested in certain non-U.S.
jurisdictions and (iv) 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 rates in 1999
compared to 1998 is primarily the result of the change in the valuation
allowance as well as a variance between the adjustments in each year for
realization of tax benefits of net operating loss carryforwards for financial
statement purposes in accordance with SFAS 109.
Financial Condition and Liquidity
Liquidity and Capital Resources. At June 30, 1999, Glenayre's principal source
of liquidity included $21 million of cash and cash equivalents. Borrowings under
a $50 million line of credit established in October 1998 (the "1998 credit
line") during the three months ended March 31, 1999 ranged from $10 million to
$17.5 million. There were no borrowings under the 1998 credit line during the
three months ended June 30, 1999. On June 30, 1999, the Company terminated the
1998 credit line and is currently pursuing other credit facilities.
Approximately $3 million of trade accounts and interest receivables and $36
million or 50% of the gross notes receivable balance of $71 million as of June
30, 1999 were due from Conxus, which has had a limited operating history, is
highly leveraged and has been engaged in the buildout of a major narrowband
personal communications services network in the newly introduced market of
advance voice and text paging. On May 18, 1999, Conxus filed for protection
under Chapter 11 with the United States Bankruptcy Court for the District of
Delaware. The Company expects that substantially all of the receivables from
Conxus will not be collectible and as a result recorded additional bad debt
reserves of approximately $38 million as of June 30, 1999. As discussed earlier,
the Company also holds $11.7 million in subordinated notes from Conxus which
have a reserve of $9.5 million.
Historically, the Company's bad debt write offs have not been significant as a
result of favorable collection experiences from its customers. However, in
addition to the Conxus bankruptcy, several other events occurred or continued
with more intensity during the second quarter 1999 including (i) a
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18
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
bankruptcy filing by another U.S. customer, (ii) a South American customer
seeking debt restructuring, and (iii) increased resource requirements to collect
receivables from customers in certain international countries where currency
valuation issues could also affect the Company's ability to collect its notes
and accounts receivable. As a result of these, as well as other deteriorations
in the paging infrastructure market the Company changed its estimates for the
allowance for doubtful receivables as discussed in Note 2 to the Condensed
Consolidated Financial Statements. The Company recorded an increase to the
Accounts Receivable and Notes Receivable reserves of approximately $65 million
in the aggregate as of June 30, 1999. Decreases in the gross amounts of Accounts
Receivable, from $160 million at December 31, 1998 to $118 million at June 30,
1999 is due primarily to lower sales during the period.
Accounts payable decreased at June 30, 1999 compared to December 31, 1998
primarily as a result of payment cycle, timing differences, and decreased
inventory purchases. Accrued expenses at June 30, 1999 decreased from year-end
1998 primarily due to accrual reductions in (i) customer deposits, (ii)
restructuring, (iii) long-term projects, (iv) income taxes payable and (v)
payroll accruals.
On April 20, 1999, the Company and Motorola Inc. ("Motorola") announced the
signing of a Memorandum of Understanding ("MOU") with the intent to enter into a
definitive license agreement that would enable Glenayre to manufacture and sell
all or part of Motorola's paging infrastructure products. Both companies are
expected to contribute to an initial joint development fund of $5 million over a
two-year period to promote the global market for two-way paging. This fund is in
addition to each company's independent research and development activities.
Negotiations regarding the scope and terms of the license agreement are
continuing as of July 1999.
On April 21, 1999, the Company and Solectron Corporation jointly announced the
signing of a letter of intent for Solectron to acquire Glenayre's radio
frequency ("RF") design and manufacturing assets and certain inventories at the
Quincy facility and to assume responsibility for the manufacture of Glenayre's
one- and two-way RF paging infrastructure equipment. The sale of the assets is
expected to be for cash. Negotiations have not yet progressed to the point at
which the Company can determine (i) that a mutual agreement will be reached or
(ii) whether there will be a gain or loss on the sale of assets.
The Company expects to use its cash and cash equivalents 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 June 30, 1999, the Company had agreements to
finance and arrange financing for approximately $32 million of paging and voice
mail products. The Company cannot currently predict the extent to which these
agreements 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 used, the financing arrangements will be secured by the
equipment sold by Glenayre.
During 1997, Glenayre began the construction phase for a 110,000 square foot
expansion of its Vancouver facility to be used primarily for research and
development and service. The total cost of the expansion was expected to be
approximately $19 million and was to be paid throughout the construction period
in 1998 and 1999. However, during the first quarter 1999, the Company halted the
construction in progress on the facility and revised plans to complete only a
parking facility and a 16,000 square foot first level at an estimated total cost
of approximately $12 million. Approximately $6.3 million and $2.9 million paid
toward architecture, engineering and construction costs related to the new
expansion are included in capital expenditures for the year ended December 31,
1998 and the six-month period ended June 30, 1999, respectively. The estimated
costs to complete are approximately $1.8 million as of June 30, 1999.
- --------------------------------------------------------------------------------
19
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Glenayre Technologies, Inc. and Subsidiaries
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The Company believes that funds generated from continuing operations, together
with its current cash reserves, will be sufficient to support the short-term and
long-term liquidity requirements for current operations (including annual
capital expenditures and customer financing commitments). Company management
believes that, if needed, it can establish borrowing arrangements with lending
institutions, however, no assurance can be given that such borrowing
arrangements will be established.
Income Tax Matters. For 1998, Glenayre's actual cash outlay for taxes was
limited to U.S. alternative minimum tax and foreign and state income taxes
primarily due to the availability of foreign sales corporation benefits and the
utilization of research and development tax credits. The Company's cash outlay
for taxes is not expected to be significant in 1999 due to net operating losses.
As of June 30, 1999, the Company has U.S. tax net operating loss carryforwards
("NOLs") aggregating $33 million related to the 1997 acquisitions of Open
Development Corporation and Wireless Access, Inc. ("WAI"). However, the ability
to utilize WAI's acquired NOLs to offset future taxable income is subject to
restrictions and there can be no assurance that it will be utilized in 1999 or
future periods.
The Company has recorded a deferred tax asset of $57 million, net of a valuation
allowance of $14 million, at June 30, 1999, 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.
Year 2000 Compliance. Until recently, computer programs were generally written
using two digits rather than four to define the applicable year. Accordingly,
such programs may be unable to distinguish properly between the Year 1900 and
Year 2000. This could result in system failures or data corruption for the
Company, its customers or suppliers which could cause disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in business activities or to receive information, services, raw materials
and supplies, or payment from suppliers, customers or business partners or any
other companies with which the Company conducts business.
The Company has developed a comprehensive plan intended to address Year 2000
issues. As part of the plan, the Company has selected a team to identify,
evaluate and implement remediation efforts aimed at making the Company's
information technology, non-information technology systems and products Year
2000 ready prior to December 31, 1999. During 1998, the team completed its
assessment of the Company's information technology, non-technology systems, and
products and established milestones and detailed plans so that the Company's
research programs, products and internal infrastructure are reviewed and the
necessary changes made.
The Company's information technology remediation efforts related to internal
operating systems is complete for the Charlotte, Quincy, Vancouver, Atlanta and
Santa Clara facilities. The Company has also prioritized and completed the
significant steps of its non-information technology systems plan. The Company's
remaining remediation efforts relate to non-information technology systems and
products which are expected to be completed during fiscal 1999. If the Company's
remaining remediation efforts are not completed on a timely basis, the Year 2000
issue could have an adverse effect on the Company's operations and customers.
Based upon the remediation efforts completed, the Company does not believe a
formal contingency plan will be required. Individual locations or business units
will develop informal contingency plans in the event that they do not expect to
be fully Year 2000 compliant within the current time estimates. To date, the
cost of the Company's Year 2000 assessment and remediation efforts has not been
material to the Company's results of operations or liquidity. Expenditures in
1999 related primarily to product Year 2000 readiness assessments and minor
infrastructure upgrades are not expected to exceed $500,000. The
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20
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Glenayre Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Company is funding the expenditures related to the Year 2000 plan with cash
flows from operations. The capitalization or expense of the foregoing
expenditures will be determined using current authoritative guidance.
The Company is also communicating with its significant suppliers, customers and
business partners to coordinate Year 2000 conversion efforts. Currently, the
Company is unaware of any material exposures or contingencies in regards to
these parties. However, the Company cannot reasonably estimate the potential
impact on its financial position, results of operations or cash flows in the
event these parties do not become Year 2000 compliant on a timely basis.
Market Risks. The Company is subject to market risk from interest rate and
foreign currency exchange rate fluctuations experienced in the normal course of
business. However, the Company has determined that its exposure to such market
risks is not material.
Third Quarter 1999 restructuring charges and intangible write offs. Paging
infrastructure revenues are expected to be negatively impacted by the following
recent events: (i) several large domestic paging carriers entering into joint
re-seller agreements enabling the carriers to delay current build outs of
infrastructure; (ii) reorganizations within Chinese telecommunication companies
causing delays in capital purchases; and (iii) increased local competition in
China subsequent to Motorola's announcement to license the Company to
manufacture and sell all or part of Motorola's paging infrastructure equipment.
Due to the expected continued decline in paging infrastructure sales, Company
management is currently reviewing the positioning of its resources related to
appropriate strategic markets in order to realize overall sales growth and
profitability. This repositioning is expected to result in significant third
quarter 1999 restructuring charges.
In 1997 the Company acquired WAI, a developer of two-way paging devices. The
purchase price was negotiated based on projections of revenues from sales of the
paging devices and future applications. 1998 sales of the paging devices were
negatively affected by manufacturing start-up problems in the second quarter
1998. Design issues caused further delays in sales in the latter part of 1998
and in the first quarter of 1999. Additionally, as of June 30, 1999, the two-way
paging market has not progressed as rapidly as expected and the Company's lower
end device is experiencing price competition. Company management is currently
revising projections for the WAI two-way applications as part of its overall
restructuring mentioned above. This analysis may indicate that future cash flows
will not be sufficient to recover the remaining carrying value of the WAI
assets. The carrying value of WAI's long-lived assets which are principally
intangibles, is approximately $56 million at June 30, 1999.
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21
<PAGE>
Glenayre Technologies, Inc. and Subsidiaries
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Part II - OTHER INFORMATION
ITEMS 1 through 3 are inapplicable and have been omitted.
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held on May 25, 1999, the
following matters were submitted to a vote of the stockholders of the
Company.
The results of the voting were as follows:
(i) The election of three directors each to serve a three-year
term expiring in 2002:
Shares
Voted in Shares
Nominees Favor Withheld
---------- --------
Ramon D. Ardizzone 53,967,785 1,181,599
Stanley Ciepcielinski 52,352,214 2,797,170
Stephen P. Kelbley 52,370,391 2,778,993
(ii) The amendment to the Company's Employee Stock Purchase Plan
was approved by a vote of 41,209,636 in favor and 13,567,270
against, with 372,478 abstaining. There were no broker
non-votes.
(iii) The amendment to the Company's 1996 Incentive Stock Plan was
approved by a vote of 37,223,441 in favor and 17,482,732
against, with 443,211 shares abstaining. There were no broker
non-votes.
(iv) The ratification of the selection of Ernst & Young LLP as
auditors for the year ending December 31, 1999 was approved by
a vote of 52,972,269 in favor and 1,808,788 against, with
368,327 share abstaining.
ITEM 5 is inapplicable and has been omitted.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Services Agreement dated April 18, 1999
between the Company and Ramon D. Ardizzone.
Exhibit 10.2 Services Agreement dated April 18, 1999
between the Company and Clarke H. Bailey.
Exhibit 10.3 Employment Agreement dated June 18, 1999
between the Company and Eric L. Doggett.
Exhibit 15 Letter regarding unaudited interim financial
information.
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Glenayre Technologies, Inc. and Subsidiaries
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Exhibit 27 Financial Data Schedule. (Filed in electronic format
only. Pursuant to Rule 402 of Regulation S-T, this
schedule shall not be deemed filed for purposes of
Section 11 of the Securities Act of 1933 or Section 18
of the Securities Exchange Act of 1934.)
Exhibit 99 Cautionary statement under safe harbor
provisions of the Private Securities Litigation
Reform Act of 1995.
(b) Reports on Form 8-K
During the three months ended June 30, 1999, the Company filed
a Current Report on Form 8-K dated May 19, 1999. Under Item 5
the Company reported that it held approximately $49 million in
receivables from CONXUS Communications, Inc. which filed for
Chapter 11 Bankruptcy on May 18, 1999.
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23
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Glenayre Technologies, Inc. and Subsidiaries
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Glenayre Technologies, Inc.
----------------------------
(Registrant)
/s/ Stanley Ciepcielinski
----------------------------
Stanley Ciepcielinski
Executive Vice President,
Chief Operating Officer, and
Chief Financial Officer
(Principal Financial Officer)
/s/ Billy C. Layton
----------------------------
Billy C. Layton
Vice President, Controller,
Secretary and Chief Accounting
Officer
(Principal Accounting Officer)
Date: July 30, 1999
- --------------------------------------------------------------------------------
Glenayre Logo Corporate Headquarters
5935 Carnegie Boulevard
Charlotte, NC 28209 USA
tel 704 553 0038
EXHIBIT 10.1
April 18, 1999
Confidential
Mr. Ramon D. Ardizzone
Glenayre Electronics, Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Dear Ray,
At the request of the Board of Directors of Glenayre Technologies, Inc.
("Glenayre"), you have been serving as interim President and Chief Executive
Officer of Glenayre, in addition to your duties as Chairman of the Board of
Glenayre, until such time as a new President and Chief Executive Officer can be
hired and begin his employment.
The Board of Directors believes that, in view of the substantial amount of time
and effort that these additional duties require, your compensation should be
appropriately adjusted. Accordingly, on behalf of the Board of Directors, I
offer you the following:
1. Beginning April 18, 1999, you will be paid a fee of $20,000 per
month to serve as interim President and Chief Executive Officer of
Glenayre, not to exceed six (6) months.
2. You will also be paid a bonus equal to $5,000 per month from
April 18, 1999 to the termination of your services as interim
President and Chief Executive Officer of Glenayre, provided
that at least on of the following transactions closes during
the period: (i) the sale of Western Multiplex Corporation,
(ii) a merger of Glenayre with, or acquisition of Glenayre or
(iii) the sale of the Integrated Network Group. This bonus will
be paid in one lump sum upon the termination of your services.
Communication Innovations. TM
<PAGE>
Glenayre Logo
Mr. Ramon Ardizzone
April 18, 1999
Page 2
3. A recommendation will be made to the Plan Administration Committee of the
Board of Directors of Glenayre that you be awarded options to purchase
50,000 shares of Glenayre common stock at an exercise price equal to the
closing sale price as of the date of such approval by the Plan
Administration Committee and on such other terms and conditions as the
Plan Administration Committee shall approve.
The terms set forth in this letter are in addition to, and shall not affect in
any way, the terms and conditions set forth in the letter agreement dated
February 15, 1999 between Glenayre and you in regard to certain compensation
matters.
If the foregoing terms are acceptable to you, please sign in the space provided
below.
GLENAYRE TECHNOLOGIES, INC.
By: /s/ Stanley Ciepcielinski
--------------------------
Name Stanley Ciepcielinski
---------------------
Title: C.O.O.
------
Accepted and Agreed To:
/s/ Ramon D. Ardizzone
- ----------------------
Ramon D. Ardizzone
Communication Innovations. TM
Glenayre Logo Corporate Headquarters
5935 Carnegie Boulevard
Charlotte, NC 28209 USA
tel 704 553 0038
EXHIBIT 10.2
April 18, 1999
Confidential
Mr. Clarke H. Bailey
Hudson River Capital, LLC
667 Madison Avenue, 25th Floor
New York, NY 10021
Dear Clarke,
At the request of the Board of Directors of Glenayre Technologies, Inc.
("Glenayre"), you have agreed to provide specific services designed to assist
Glenayre in its efforts to explore a variety of strategic alliances for
Glenayre, including the possibility of selling all or part of the company.
In an effort to compensate you for these specific services, the Board of
Directors has authorized that I offer you the following:
1. Beginning April 18, 1999, you will be paid a fee of $20,000 per
month until such time as the board ceases to require these special
services, not to exceed six (6) months.
2. You will also be paid a bonus equal to $5,000 per month from April
18, 1999 to the termination of your services under this letter,
provided that at least one of the following transactions closes
during the period: (i) the sale of Western Multiplex Corporation,
(ii) a merger of Glenayre with, or acquisition of Glenayre or
(iii) the sale of the Integrated Network Group. This bonus will be
paid in one lump sum upon the termination of your services.
3. A recommendation will be made to the Plan Administration Committee
of the Board of Directors of Glenayre that you be awarded options
to purchase 50,000 shares of Glenayre common stock at an exercise
price equal to the closing sale price as of the date of such
approval by the Plan Administration Committee and on such other
terms and conditions as the Plan Administration Committee shall
approve.
Communication Innovations. TM
<PAGE>
Glenayre Logo
Mr. Clarke Bailey
April 18, 1999
Page 2
If the foregoing terms are acceptable to you, please sign in the space provided
below.
GLENAYRE TECHNOLOGIES, INC.
By: /s/Stanley Ciepcielinski
------------------------
Name Stanley Ciepcielinski
Title: C.O.O.
------
Accepted and Agreed To:
/s/ C H Bailey
- --------------
Clarke Bailey
Communication Innovations. TM
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as
of the 18th day of June, 1999 by and between GLENAYRE TECHNOLOGIES, INC., a
Delaware corporation (the "Corporation"), and ERIC L. DOGGETT (the "Executive").
Statement of Purpose
The Corporation desires to retain the services of the Executive, and the
Executive desires to provide services to the Corporation, on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing Statement of Purpose and
the terms and provisions of this Agreement, the parties hereto agree as follows:
1. Employment and Duties.
(a) Employment. The Corporation hereby employs the Executive, and the
Executive hereby agrees to serve, as the President and Chief Executive Officer
of the Corporation pursuant to the terms of this Agreement.
(b) Duties. The Executive shall have the duties and authority and exercise
such powers as are customary for his office and such other duties commensurate
with his position 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. The Executive shall report to the Board, any
applicable Committee of the Board and the Chairman 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), provided, that the Executive may engage
in personal investment, charitable or community activities and, with the
consent of the Board (which will not unreasonably be withheld) serve on
the boards of directors of for-profit entities so long as such activities
do not materially interfere with the performance of the Executive's duties
hereunder;
(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 form,
partnership, association or corporation, the business operations of which
may in any material manner, directly or indirectly, compete with the trade
or businesses conducted by the Corporation or any of its subsidiaries, or
affiliates, that (i) the Executive may beneficially own, directly or
indirectly, or exercise control or direction over, the voting securities
or publicly traded debt of a publicly traded company which is engaged in
any of the foregoing trade or
<PAGE>
businesses, on the condition that the percentage of such securities owned,
controlled or directed by the Executive shall not exceed 5% of the voting
securities or 5% of the principal amount of publicly traded debt (as the
case may be) of the publicly traded company and (ii) the Executive may own
less than 5% of investment partnerships or similar entities so long as
they are blind pools.
2. Term of Employment.
(a) Term. The initial term of the Executive's employment hereunder shall
be for a period of two years, commencing as of the effective date of this
Agreement. The term of the Executive's employment hereunder shall be
automatically renewed for successive two-year renewal terms thereafter unless
written notice is given by either party to the other party not later than 180
days prior to the expiration of the initial term or any renewal term. The
initial term and each renewal term are referred to collectively in this
Agreement as the "Term." After a notice of nonrenewal by the Corporation, the
Executive, on 30 days prior written notice, may accelerate the end of the Term
and be treated as if the Term ended as a result of the notice of nonrenewal by
the Corporation as of the end of such 30-day period.
(b) Earlier Termination. Notwithstanding the provisions of Paragraph 2(a)
above, the Executive's employment hereunder may be terminated prior to the
expiration of the Term as follows:
(1) The Corporation may terminate the Executive's employment
hereunder for "Cause" (as defined in Paragraph 2(c) below), provided that
the Corporation complies with the provisions of Paragraph 3(a)(1) below;
(2) The Corporation may terminate the Executive's employment
hereunder upon the Executive's "Total and Permanent Disability" (as
defined in Paragraph 2(d) below), provided that the Corporation complies
with the provisions of Paragraphs 3(a)(1), 3(a)(2), 3(b) and 3(c) below;
(3) The Executive may terminate his employment hereunder for "Good
Reason" (as defined in Paragraph 2(e) below) or without "Good Reason" on
30 days prior written notice at any time after the first anniversary of
this Agreement;
(4) The Executive's employment hereunder shall terminate
automatically upon his death;
(5) The Corporation may terminate the Executive's employment
hereunder at any time without "Cause" (as defined in Paragraph 2(c)
below), provided that the Corporation complies with the provisions of
Paragraphs 3(a)(1), 3(a)(2), 3(a)(3) (if applicable), 3(a)(4) (if
applicable), 3(b) and 3(c) below.
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<PAGE>
(c) Definition of "Cause". As used herein, "Cause" shall mean the
occurrence of any of the following:
(1) acts of dishonesty or fraud on the part of the Executive with
regard to the Corporation which are intended to result in his substantial
personal enrichment at the expense of the Corporation or its affiliates,
provided, however, that this Paragraph 2(c)(1) shall not apply to good
faith disputes over the Executive's expense reimbursements;
(2) the conviction after the exhaustion of all appeals by the
Executive of a felony involving moral turpitude or the entry of a plea of
nolo contendere for such a felony; or
(3) material violation of the Executive's responsibilities as set
forth herein which are willful and deliberate; provided, however, that
prior to the determination by the Board that "Cause" under this Paragraph
2(c)(3) has occurred, the Board shall (A) provide to the Executive in
writing, in reasonable detail, the reasons for the Board's determination
that such "Cause" exists, (B) afford the Executive a reasonable
opportunity to remedy any such breach, (C) provide the Executive an
opportunity to be heard at the Board meeting where the final decision to
terminate the Executive's employment hereunder for such "Cause" is to be
considered, and (D) make any decision that such "Cause" exists in good
faith.
(d) Definition of "Total and Permanent Disability." The Executive shall be
considered to have a "Total and Permanent Disability" if he is unable to
perform, in all material respects, his duties because of illness or injury for
six consecutive months. The Corporation may terminate the Executive for Total
and Permanent Disability only by written notice given after the end of such
six-month period while the Executive continues to have a Total and Permanent
Disability.
(e) Definition of "Good Reason." As used herein, "Good Reason" shall mean
the occurrence of any of the following:
(1) except where such failure or change is specifically approved by
the Executive in writing, failure to elect or reelect or to appoint or
reappoint the Executive to the offices of President and Chief Executive
Officer of the Corporation, or any other material diminution by the
Corporation of the Executive's functions, authority, duties or
responsibilities; 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 10
days from receipt of notice to cure such failure;
(2) the liquidation or dissolution of the Corporation;
3
<PAGE>
(3) any failure by the Corporation to pay to the Executive the Base
Salary or other compensation and benefits provided for herein; 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)(3) and (ii) allow the Board 15 days from receipt of notice
to cure such failure;
(4) any other material breach of this Agreement by the Corporation;
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)(4) and (ii) allow the Board 30 days from receipt
of notice to cure such failure;
(5) any "Change in Control," which shall mean any of the following:
(A) the acquisition, directly or indirectly after the date of
this Agreement, in one or a series of transactions, of 25% or more
of the Corporation's voting common stock by any "person" as that
term is defined in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended (including any amounts owned as of the date
hereof);
(B) the consummation of a merger, consolidation, share
exchange or similar transaction of the Corporation with any other
corporation, entity or group, as a result of which the holders of
the voting capital stock of the Corporation as a group would receive
less than 50% of the voting capital stock of the surviving or
resulting corporation and Paragraph 2(e)(5)(A) above is not
violated;
(C) the consummation of an agreement providing for the sale or
transfer (other than as security for obligations of the Corporation)
of all or substantially all the assets of the Corporation;
(D) a material change in the composition or character of the
Board as follows: (i) whether in one or more actions or elections,
the replacement of a majority of directors on the effective date of
this Agreement by directors opposed by the Executive and a majority
of the members of the Executive Committee of the Board (or, in the
absence of the existence of an Executive Committee, a majority of
the members of the Board) or (ii) at any meeting or aggregate series
of meetings of the Corporation's shareholders, the election of a
majority of directors standing for election who are opposed by the
Executive and a majority of the members of the Executive Committee
of the Board (or, in the absence of the existence of an Executive
Committee, a majority of the members of the Board).
4
<PAGE>
(6) Any change in the principal office of the Corporation to a
location which is more than 30 miles from its current principal office at
5935 Carnegie Boulevard, Charlotte, North Carolina 28209.
3. Payments to the Executive Upon Termination of Employment.
(a) Compensation. In the event that the Executive's employment with the
Corporation is terminated, whether upon the expiration of the Term as a result
of a notice of nonrenewal or upon the earlier termination of the Term as
provided in Paragraph 2(b) above, then the Corporation shall pay to the
Executive the following amounts on the date of such termination and shall
provide to the Executive the following benefits, as applicable:
(1) In the event that the Executive's employment hereunder is
terminated for any reason whatsoever, the Corporation shall pay to the
Executive an amount equal to the sum of (i) his accrued but unpaid Base
Salary, plus (ii) his accrued but unpaid vacation pay, plus (iii) any
earned but unpaid bonus for any completed prior fiscal year, plus (iv) any
other compensation payments or benefits which have accrued and are payable
in connection with such termination under any prior plan, program or
practice.
(2) In the event that the Executive's employment hereunder is
terminated (i) by the Corporation because of the Executive's "Total and
Permanent Disability" pursuant to Paragraph 2(b)(2) above, (ii) because of
the Executive's death pursuant to Paragraph 2(b)(4) above, (iii) by the
Executive for "Good Reason" pursuant to Paragraph 2(b)(3) above or (iv) by
the Corporation pursuant to Paragraph 2(b)(5) above, then and in any such
event, the Corporation shall pay to the Executive, in addition to the
payments described in Paragraph 3(a)(1), a pro rata share of the Projected
Bonus for the fiscal year of the Corporation in which such termination
occurs. The "Projected Bonus" shall mean the Executive's bonus under the
Management by Objectives Bonus Plan described in Paragraph 4(b) below for
the applicable fiscal year of the Corporation, calculated, for purposes of
determining whether the targets contained therein have been met, under the
assumption that the results of operations and financial condition of the
Corporation (or any applicable subsidiary) as of the Executive's
termination date shall continue on the same basis through the end of such
fiscal year.
(3) In the event that the Executive's employment hereunder is
terminated (i) by the Corporation without "Cause" pursuant to Paragraph
2(b)(5) above (except in the event of a "Change in Control") or (ii) by
the Executive for "Good Reason" (except in the event of a "Change in
Control") pursuant to Paragraph 2(b)(3) above, then and in any such event,
the Corporation shall pay to the Executive, in addition to the payments
described in Paragraphs 3(a)(1) and 3(a)(2), an amount equal to two times
the annual rate of Base Salary being paid to the Executive at the time of
such termination.
5
<PAGE>
(4) In the event that the Executive's employment hereunder is
terminated (i) by the Executive for "Good Reason" because of a "Change in
Control" pursuant to Paragraph 2(b)(3) above, (ii) by the Corporation
under Paragraph 2(b)(5) above following a "Change in Control" or (iii) by
the Corporation under Paragraph 2(b)(5) in Contemplation of a Change in
Control or the Executive for "Good Reason" in Contemplation of a Change in
Control, then the Corporation shall pay to the Executive, in addition to
the payments described in Paragraphs 3(a)(1) and 3(a)(2), an amount equal
to two and one-half times the annual rate of Base Salary being paid to the
Executive at the time of such termination (or if the Executive's Base
Salary was then greater, on the date immediately preceding the date of the
Change in Control). For this purpose, "Contemplation of a Change in
Control" shall mean that the Corporation has received an offer, or is
engaging in other formal discussions, with respect to events which
subsequently result in a Change in Control.
(5) In the event that the Executive's employment hereunder is
terminated upon expiration of the Term (unless the Executive refused to
negotiate with the Corporation for an employment agreement with terms
substantially similar to this Agreement), then the Corporation shall pay
to the Executive an amount equal to the annual rate of Base Salary being
paid the Executive at the time of such termination.
(b) Stock Options. The Executive has been awarded options to purchase
shares of the Corporation's common stock under the Glenayre Technologies, Inc.
1996 Incentive Stock Plan and may in the future be awarded additional options to
purchase shares of the Corporation's or a successor corporation's common stock
under the Glenayre Technologies, Inc. 1996 Incentive Stock Plan or other option
plans (collectively, the "Options"), such Options having been granted, or to be
granted, for the number of shares and at a price per share specified in the
agreements between the Corporation (or a successor corporation) and the
Executive granted the Options. Notwithstanding any terms to the contrary
contained in such stock option agreements, upon the Executive's termination of
employment for any reason other than "Cause" (as that term is defined in
Paragraph 2(c) above) or his resignation without Good Reason other than at the
end of a Term, (i) all Options shall become fully vested in the Executive and
(ii) all Options shall become immediately exercisable and shall remain
exercisable for a period of 12 months following the date of the Executive's
termination of employment.
(c) Welfare Benefits. In the event that the Executive's employment
hereunder is terminated (i) by the Corporation because of the Executive's "Total
and Permanent Disability" pursuant to Paragraph 2(b)(2) above, (ii) because of
the Executive's death pursuant to Paragraph 2(b)(4) above, (iii) by the
Executive for "Good Reason" pursuant to Paragraph 2(b)(3) above, (iv) by the
Corporation under Paragraph 2(b)(5) above or (v) upon expiration of the Term
(unless the Executive refused to negotiate with the Corporation for an
employment agreement with terms substantially similar to this Agreement), then
and in any such event, Corporation shall provide medical and dental to the
Executive (and the Executive's dependents) for a period of 12
6
<PAGE>
months following such termination of employment at the Corporation's full
expense and at the same levels of coverage as such benefits are provided to
active employees of the Corporation. The Executive's right to continued medical
and dental coverage required under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") shall begin at the expiration of the one
year period described in this Paragraph 3(c).
4. Compensation and Benefits. Subject to the terms of this Agreement and
until the termination of the Term as provided in Paragraph 2 above, the
Corporation shall pay compensation and provide benefits to the Executive as
follows:
(a) Base Salary. The Corporation shall pay to the Executive an initial
salary of $400,000 per annum. Such base salary, as increased from time to time,
is referred to herein as the "Base Salary." The Base Salary shall be payable in
approximately 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 shall be increased (but not decreased)
effective on January 1, 2000 and on each January 1 thereafter during the Term in
the manner determined by the Board or its Compensation Committee in its absolute
discretion.
(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.
(c) 401(k) Plan. During the Term, the Executive shall be eligible to
participate in the Corporation's 401(k) voluntary deferred compensation program
(the "401(k) Plan") up to the maximum amount permitted by the terms of the
401(k) Plan, and the Corporation agrees to match the amounts of compensation
deferred up to the maximum amount permitted under the provisions of the 401(k)
Plan.
(d) Automobile or Automobile Allowance. The Corporation shall furnish an
automobile or, at the Corporation's election, an automobile allowance to the
Executive. Such automobile or automobile allowance (which shall not be less than
$900 per month) shall be commensurate with the Executive's senior position, and,
if the Executive is furnished an automobile, the Corporation shall pay all
reasonable expenses for the operation, insurance and maintenance of such
automobile.
(e) Vacation and Holidays. The Executive shall be entitled to take four
weeks of vacation (or, if more, the vacation provided under the Corporation's
standard vacation policy for senior executives) in each successive 12-month
period during the Term at such times as shall be mutually convenient to the
Executive and the Corporation. The Executive shall be entitled to all paid
holidays in accordance with the Corporation's policies.
7
<PAGE>
(f) Other Benefits. In addition to participation in all of the
compensation and incentive programs as described in this Agreement, the
Executive shall be entitled to participate in all bonus, compensation, savings,
stock option, and other incentive plans and programs and in all qualified and
non-qualified retirement plans, life, medical/dental insurance plans and
short-and long-term disability insurance plans of the Corporation, generally
available to senior executives of the Corporation at a level commensurate with
his position, subject to the eligibility requirements of the respective plan or
program.
(g) Reimbursement of Expenses. In addition to automobile expenses, the
Corporation shall reimburse the Executive for all reasonable expenses incurred
personally by him in performing his duties, including travel and entertainment.
5. Location of Office. The Executive's principal place of employment shall
be in Charlotte, North Carolina and he shall not be required to change such
principal place of employment.
6. Confidential Information.
(a) Covenant. The Executive shall not divulge, during the Term or at any
time thereafter, to any person not employed by the Corporation or its
subsidiaries or affiliates or otherwise engaged to render services to the
Corporation, its subsidiaries or affiliates, any material Confidential
Information except, during the Term only, as he in good faith believes desirable
and in the best interest of the Corporation.
(b) Definition of "Confidential Information." As used herein,
"Confidential Information" means:
(1) except to the extent generally known in the industry, the name,
address or requirements of any customer of the Corporation; or
(2) any other secret or confidential information relating to any
activity, invention or discovery of the Corporation not already in the
public domain that the Executive has or shall have acquired during his
employment by the Corporation or its subsidiaries or affiliates,
Provided, however, that this provision shall not preclude the Executive from
disclosing such Confidential Information as may be required by any applicable
law, regulation or directive or any governmental agency, court or other
authority having jurisdiction in the matter, or in the proper course of conduct
of the Corporation's business. In the event that any person seeks legally to
compel the Executive to disclose Confidential Information, the Executive shall
promptly provide the Corporation with notice so that the Corporation may have
opportunity to seek a protective order or other appropriate remedy.
8
<PAGE>
7. Indemnification. The Corporation agrees (i) to indemnify, defend and
hold harmless the Executive from and against any and all liabilities to which he
may be subject as a result of his employment hereunder (as a result of his
service as an officer or director of the Corporation or as an officer or
director of any of the Corporation's subsidiaries or affiliates) to the fullest
extent permitted by law, and (ii) to indemnify the Executive for all costs,
including attorney's fees and other professional fees and disbursements, of (A)
any legal action brought or threatened against him as a result of such
employment, or (B) any legal action in which the Executive is compelled to give
testimony as a result of his employment hereunder, to the fullest extent
permitted by, and subject to the limitations of, the laws of the State of
Delaware.
8. Reimbursement of Legal and Related Expenses. In the event that any
dispute shall arise between the Executive and the Corporation relating to his
rights under this Agreement, any other agreement between the Corporation and the
Executive, under any plan or program of the Corporation or with regard to his
employment with the Corporation or its termination, and the Executive has been
substantially successful in his claim, then the reasonable legal fees and
disbursements of the Executive in connection with such dispute shall be paid by
the Corporation. The Corporation shall pay the Executive's reasonable legal fees
in connection with entering into this Agreement.
9. Assignment. The Executive may not assign this Agreement or any of his
rights, benefits, obligations or duties hereunder to any other person, firm,
corporation or other entity. The Corporation may not assign this Agreement
except with all or substantially all of its assets and then only if the
assignees promptly deliver to Executive an assumption of this Agreement in a
form reasonably acceptable to Executive.
10. Excise Tax Gross-Up. The Executive shall be entitled to a gross-up of
any excise tax payable pursuant to Internal Revenue Code Section 280G in
accordance with Exhibit A hereto.
11. Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or on the fourth business day after being placed in the
United States mail by certified mail, return receipt requested, postage prepaid,
addressed to the parties hereto as follows (provided that notice of change of
address shall be deemed given only when actually received):
As to the Corporation: Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Attention: Chairman of the Board
9
<PAGE>
As to the Executive: Eric L. Doggett
3402 Hampton Road
Raleigh, North Carolina 27607
The address of any of the parties may be changed from time to time by such party
serving notice upon the other parties.
12. Law Applicable. This Agreement is made and executed with the intention
that the construction, interpretation and validity hereof shall be determined in
accordance with and governed by the laws of the State of North Carolina.
13. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Corporation, its successors and assigns. This Agreement shall be
binding upon and inure to the benefit of the Executive, his heirs and personal
representatives.
14. Entire Agreement; Modification. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes and cancels all prior or contemporaneous oral or written agreements
and understandings between them with respect to the subject matter hereof. This
Agreement may not be changed or modified orally but only by an instrument in
writing signed by the parties hereto, which instrument states that it is an
amendment to this Agreement.
15. Severability. Should any provision of this Agreement or any part
thereof be held invalid or unenforceable, the same shall not affect or impair
any other provision of this Agreement and shall not have any effect on or impair
the obligation of the Corporation or the Executive.
16. Execution. This Agreement is hereby executed in multiple
counterparts, each of which shall be deemed an original hereof.
10
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be signed
by its officers and its corporate seal to be hereunto affixed, and the Executive
has hereunto set his hand and seal, all as of the day and year first above
written.
GLENAYRE TECHNOLOGIES, INC.
[CORPORATE SEAL)
By /s/ Ramon D. Ardizzone
---------------------------
ATTEST: Chairman of the Board
/s/ Billy C. Layton
- -------------------
Secretary
/s/ Eric L. Doggett (SEAL)
--------------------------
Eric L. Doggett
11
<PAGE>
Exhibit A
Parachute Gross Up
(a) In the event that the Executive shall become entitled to
payments and/or benefits provided by this Agreement or any other amounts in the
"nature of compensation" (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Corporation, any person whose
actions result in a change of ownership or effective control covered by Section
280G(b)(2) of the Internal Revenue of 1986, as amended (the "Code") or any
person affiliated with the Corporation or such person) as a result of such
change in ownership or effective control (collectively the "Corporation
Payments"), and such Corporation Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may
hereafter be imposed by any taxing authority), the Corporation shall pay to the
Executive at the time specified in subsection (d) below an additional amount
(the "Gross-up Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Corporation Payments and any U.S.
federal, state, and for local income or payroll tax upon the Gross-up Payment
provided for by this paragraph (a), but before deduction for any U.S. federal,
state, and local income or payroll tax on the Corporation Payments, shall be
equal to the Corporation Payments.
(b) For purposes of determining whether any of the Corporation
Payments and Gross-up Payments (collectively the "Total Payments") will be
subject to the Excise Tax and the amount of such Excise Tax, (x) the Total
Payments shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless and except to the extent that, in the
opinion of the Corporation's independent certified public accountants appointed
prior to any change in ownership (as defined under Code Section 280G(b)(2)) or
tax counsel selected by such accountants (the "Accountants"), such Total
Payments (in whole or in part) either do not constitute "parachute payments,"
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the "base amount" or are
otherwise not subject to the Excise Tax, and (y) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Accountants in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Gross-up Payment,
the Executive shall be deemed to pay U.S. federal income taxes at the highest
marginal rate of U.S. federal income taxation in the calendar year in which the
Gross-up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's residence
for the calendar year in which the Corporation Payment is to be made, net of the
maximum reduction in U.S. federal income taxes which could be obtained from
deduction of such state and local taxes if paid in such year. In the event that
the Excise Tax is subsequently determined by the Accountants to be less than the
amount taken into account hereunder at the time the Gross-up Payment is made,
the Executive shall repay to the Corporation, at the time that the amount of
such reduction in Excise Tax is finally determined, the portion of the prior
Gross-up Payment attributable to such reduction (plus the portion
12
<PAGE>
of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state
and local income tax imposed on the portion of the Gross-up Payment being repaid
by the Executive if such repayment results in a reduction in Excise Tax or a
U.S. federal, state and local income tax deduction), plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the foregoing, in the event any portion of the Gross-up Payment
to be refunded to the Corporation has been paid to any U.S. federal, state and
local tax authority, repayment thereof (and related amounts) shall not be
required until actual refund or credit of such portion has been made to the
Executive, and interest payable to the Corporation shall not exceed the interest
received or credited to the Executive by such tax authority for the period it
held such portion. The Executive and the Corporation shall mutually agree upon
the course of action to be pursued (and the method of allocating the expense
thereof) if the Executive's claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountant or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Gross-up Payment is made (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Corporation shall make an additional Gross-up
Payment in respect of such excess (plus any interest or penalties payable with
respect to such excess) at the time that the amount of such excess is finally
determined.
(d) The Gross-up Payment or portion thereof provided for in
subsection (c) above shall be paid not later than the thirtieth (30th) day
following an event occurring which subjects the Executive to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or portion
thereof cannot be finally determined on or before such day, the Corporation
shall pay to the Executive on such day an estimate, as determined in good faith
by the Accountant, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to
subsection (c) hereof, as soon as the amount thereof can reasonably be
determined, but in no event later than the ninetieth day after the occurrence of
the event subjecting the Executive to the Excise Tax. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Corporation to the
Executive, payable on the fifth day after demand by the Corporation (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code).
13
<PAGE>
(e) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) with regard to the Excise Tax, the Executive
shall permit the Corporation to control issues related to the Excise Tax (at its
expense), provided that such issues do not potentially materially adversely
affect the Executive, but the Executive shall control any other issues. In the
event the issues are interrelated, the Executive and the Corporation shall in
good faith cooperate so as not to jeopardize resolution of either issue, but if
the parties cannot agree the Executive shall make the final determination with
regard to the issues. In the event of any conference with any taxing authority
as to the Excise Tax or associated income taxes, the Executive shall permit the
representative of the Corporation to accompany the Executive, and the Executive
and the Executive's representative shall cooperate with the Corporation and its
representative.
(f) The Corporation shall be responsible for all charges of the
Accountant.
(g) The Corporation and the Executive shall promptly deliver to each
other copies of any written communications, and summaries of any verbal
communications, with any taxing authority regarding the Excise Tax covered by
this Exhibit A.
14
EXHIBIT 15
To the Board of Directors and Stockholders of
Glenayre Technologies, Inc.
Charlotte, North Carolina
We are aware of the incorporation by reference in the Registration Statement
Number 33-43797 on Form S-8 dated November 5, 1991, Registration Statement
Number 33-68766 on Form S-8 dated September 14, 1993, Registration Statement
Number 33-80464 on Form S-8 dated June 17, 1994, Registration Statement Number
33-88818 on Form S-4, dated March 24, 1995 (amended by Post-Effective Amendment
Number 1 on Form S-8 dated March 25, 1996), Registration Statement Number
333-04635 on Form S-8 dated May 28, 1996 (amended by Post-Effective Amendment
Number 1 on Form S-8 dated May 22, 1998), Registration Statement Number
333-15845 on Form S-4 dated November 8, 1996 (amended by Post-Effective
Amendment Number 1 on Form S-8 dated January 30, 1997), Registration Statement
Number 333-38169 on Form S-8 dated October 17, 1997, Registration Statement
Number 333-39717 on Form S-8 dated November 7, 1997, Registration Statement
Number 333-56375 on Form S-8 dated June 9, 1998, Registration Statement number
333-81161 on Form S-8 dated June 21, 1999 and Registration Statement number
333-81155 on Form S-8 dated June 21, 1999 of our report dated July 20, 1999
relating to the unaudited condensed consolidated interim financial statements of
Glenayre Technologies, Inc. and subsidiaries which are included in its Form 10-Q
for the quarter ended June 30, 1999.
Ernst & Young LLP
Charlotte, North Carolina
July 20, 1999
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000808918
<NAME> GLENAYRE TECHNOLOGIES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> $26,409
<SECURITIES> 0
<RECEIVABLES> 189,222
<ALLOWANCES> 72,209
<INVENTORY> 30,973
<CURRENT-ASSETS> 203,576
<PP&E> 105,288
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<CURRENT-LIABILITIES> 60,928
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0
0
<COMMON> 1,243
<OTHER-SE> 398,236
<TOTAL-LIABILITY-AND-EQUITY> 467,344
<SALES> 132,086
<TOTAL-REVENUES> 132,086
<CGS> 76,361
<TOTAL-COSTS> 76,361
<OTHER-EXPENSES> 91,522
<LOSS-PROVISION> 65,244
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (98,204)
<INCOME-TAX> (35,266)
<INCOME-CONTINUING> (62,938)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,938)
<EPS-BASIC> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
EXHIBIT 99
CAUTIONARY STATEMENT UNDER SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Glenayre Technologies, Inc. ("Glenayre" or the "Company"), 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.
Acceptance of Two-Way Paging Communication Products
While certain of Glenayre's customers have installed Glenayre's products
used to provide two-way communications services, these services are
available only in certain areas. The growth and installation of two-way
paging systems by Glenayre's paging service provider customers may be
delayed depending upon delays in installation, difficulties in initial
operation of two-way systems, the availability of financing for its paging
service provider customers and the market acceptance of two-way paging by
the customers of such paging service providers. The development of the
two-way 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 communications 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. Sales to a single
customer, which has a significant United States market presence, totaled
approximately 10%, 11% and 15% of 1998, 1997 and 1996 fiscal year net
sales, respectively. An additional US customer accounted for 12% of net
sales in 1998. Beyond 1998, the customers with whom the Company does the
largest amount of business are expected to vary from year to year as a
result of the timing for development and expansion of customers' paging
systems, the expansion into international markets and changes in the
proportion of revenues generated by the products and services of
Glenayre's newly acquired companies. 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
<PAGE>
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 and future
regulatory changes may not have a positive impact on Glenayre. The
issuance of paging system licenses stimulates demand for the Company's
products, however, 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 the Two-Way
Communications Market
The Company finances customer purchases of its products for development of
the two-way communications market for the build-out of two-way networks by
its customers who acquired two-way licenses auctioned by the FCC (the
"Two-Way License Holders"). Many of the Two-Way License Holders with whom
the Company has or expects to enter into customer financing arrangements
have limited operating histories, significant debt related to the
acquisition of their two-way licenses and start-up expenses, and negative
cash flows from operations; additionally, some have never generated an
operating profit and may not have sufficient resources to maintain the
development and operation of their two-way network. The Company generally
retains a security interest in equipment for which it provides financing.
International Business Risks
Approximately 37% of 1998 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, exchange
rate fluctuations and the effects of prolonged currency destabilization in
major international markets. Although a substantial portion of the
international sales of the Company's products and services for fiscal year
1998 was negotiated in United States dollars, the Company may not be able
to maintain such a high percentage of United States 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.
