- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 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 Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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 April 27, 1999 was 62,161,151 shares.
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<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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INDEX
<TABLE>
<CAPTION>
Part I - Financial Information:
Item 1. Financial Statements Page
<S> <C>
Independent Accountants' Review Report......................................3
Condensed Consolidated Balance Sheets as of
March 31, 1999 (Unaudited) and December 31, 1998.........................4
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 (Unaudited)...................5
Condensed Consolidated Statement of Stockholders' Equity
for the three months ended March 31, 1999 (Unaudited)....................6
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 (Unaudited)...................7
Notes to Condensed Consolidated Financial Statements (Unaudited)............8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................12
Part II - Other Information:
Item 6. Exhibits and Reports on Forms 8-K..........................................18
</TABLE>
2
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Stockholders of
Glenayre Technologies, Inc.
Charlotte, North Carolina
We have reviewed the accompanying condensed consolidated balance sheet of
Glenayre Technologies, Inc. and subsidiaries as of March 31, 1999, and the
related condensed consolidated statements of operations for the three-month
periods ended March 31, 1999 and 1998, the condensed consolidated statement of
stockholders' equity for the three months ended March 31, 1999 and the condensed
consolidated statements of cash flows for the three-month periods ended March
31, 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 operations,
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
April 22, 1999
3
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GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------------- --------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $23,596 $12,283
Accounts receivable, net........................... 120,140 153,773
Notes receivable................................... 22,210 12,810
Inventories........................................ 39,478 46,502
Deferred income taxes.............................. 17,885 15,906
Prepaid expenses and other current assets.......... 6,210 5,630
-------- --------
Total current assets....................... 229,519 246,904
Notes receivable, net.................................. 58,285 69,041
Property, plant and equipment, net..................... 107,854 109,661
Goodwill............................................... 116,677 119,626
Deferred income taxes.................................. 9,481 5,679
Other assets........................................... 10,494 10,884
-------- ---------
TOTAL ASSETS........................................... $532,310 $561,795
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $15,758 $31,968
Accrued liabilities................................ 48,476 60,258
Other current liabilities.......................... 170 206
-------- ---------
Total current liabilities..................... 64,404 92,432
Other liabilities...................................... 7,155 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: March 31, 1999 - 62,159,403
shares; December 31, 1998 - 62,064,290 shares..... 1,243 1,241
Contributed capital................................. 343,444 343,251
Retained earnings................................... 116,064 117,661
------- -------
Total stockholders' equity....................... 460,751 462,153
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $532,310 $561,795
======== ========
</TABLE>
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.
See notes to condensed consolidated financial statements.
4
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GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
1999 1998
<S> <C> <C>
------------------ -----------------
NET SALES.............................................. $70,021 $94,533
------- -------
COSTS AND EXPENSES:
Cost of sales.................................... 38,081 45,764
Selling, general and administrative expense...... 21,575 25,313
Research and development expense................. 11,663 14,193
Depreciation and amortization expense............ 8,614 9,377
----- -----
Total Costs and Expenses................... 79,933 94,647
------ ------
LOSS FROM OPERATIONS................................... (9,912) (114)
-------- --------
OTHER INCOME (EXPENSES):
Interest income................................. 2,603 2,357
Interest expense................................ (215) (166)
Other, net....................................... 37 (96)
-------- --------
Total Other Income (Expenses), net........ 2,425 2,095
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES...................... (7,487) 1,981
PROVISION (BENEFIT) FOR INCOME TAXES.................. (5,890) 1,860
--------- --------
NET INCOME (LOSS)...................................... $ (1,597) $ 121
========= =========
NET INCOME (LOSS) PER WEIGHTED AVERAGE
COMMON SHARE......................................... $ (0.03) $ 0.00
======== ======
NET INCOME (LOSS) PER COMMON SHARE -
ASSUMING DILUTION.................................... $ (0.03) $ 0.00
======== ======
</TABLE>
See notes to condensed consolidated financial statements
5
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GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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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........................... (1,597) (1,597)
Stock options exercised............ 95 2 161 163
Tax benefit of stock options
exercised....................... 32 32
-------- -------- --------- -------- --------
Balances, March 31, 1999....... 62,159 1,243 $343,444 $116,064 $460,751
======== ======== ========= ======== ========
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1999 1998
<S> <C> <C>
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. $14,976 $17,814
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.......... (3,791) (8,410)
Proceeds from sale of equipment..................... 25 149
------------- -------------
Net cash used in investing activities......... (3,766) (8,261)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in other liabilities........................ (60) (2,638)
Issuance of common stock............................ 163 1,649
------------- -------------
Net cash provided by (used in) financing
activities................................................ 103 (989)
------------- -------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS......................................... 11,313 8,564
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD........................................... 12,283 21,076
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $23,596 $29,640
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest............................................. $ 218 $ 99
Income taxes......................................... 1,392 1,909
</TABLE>
See notes to condensed consolidated financial statements
7
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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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 period ended March 31, 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. INVENTORIES
March 31, December 31,
Inventories consist of: 1999 1998
------------- --------------
Raw materials......................... $22,326 $26,046
Work-in-process....................... 10,963 11,818
Finished goods........................... 6,189 8,638
----- -----
$39,478 $46,502
======= =======
2. GOODWILL
Goodwill is shown net of accumulated amortization of $32.0 million and
$29.1 million at March 31, 1999 and December 31, 1998, respectively.
8
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
3. INCOME TAXES
The Company's consolidated income tax provision was different from the
amount computed using the U.S. statutory income tax rate for the following
reasons:
Three Months Ended March 31,
-------------------------------
1999 1998
-------------- -------------
Income tax provision at U.S. statutory rate.. $(2,620) $693
Reduction in valuation allowance of net
operating losses of acquired business...... (3,983) ---
Foreign taxes at rates other than U.S.
statutory rate............................ (133) (175)
State taxes (net of federal benefit)......... (239) (195)
U.S. Research and Experimentation Credits (80) (84)
Benefit from Foreign Sales Corporation....... (40) ---
Non-deductible goodwill amortization......... 1,205 1,621
----- -----
Income tax provision (benefit)............... $(5,890) $1,860
======== ======
The Company believes that it is more likely than not that the net deferred
tax asset recorded at March 31, 1999 will be fully realized.
4. INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of income per share:
Three Months Ended
March 31,
---------------------
1999 1998
---------- --------
Numerator:
Net income (loss)............................... $(1,597) $121
Denominator:
Denominator for basic income per share -
weighted average shares....................... 62,116 60,906
Effect of dilutive securities:
stock options................................... ___ 2,364
--------- -----
Denominator for diluted income per share-adjusted
weighted average shares and assumed conversions. 62,116 63,270
========== =========
Net income (loss) per weighted average common share. $ (0.03) $0.00
========= =========
Net income (loss) per common share - assuming
dilution....................................... $ (0.03) $0.00
========= =========
9
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GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
5. BUSINESS RESTRUCTURING
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, B.C., Charlotte, N.C. and Quincy,
IL. facilities, exiting costs from the Blaine, WA. leased facility and asset
impairment charges for leasehold improvements located at the Blaine, WA. leased
facility. Included in the first quarter charge are the following expenses: (i)
approximately $1.1 million for severance and outplacement of terminated
employees; (ii) approximately $330,000 for costs associated with exiting a
leased facility and (iii) approximately $170,000 for the write-off of leasehold
improvements.
The total pre-tax charge for the first quarter 1999 restructuring and the
exiting of the leased facility was recorded as approximately $180,000 to cost of
sales and approximately $1.4 million to selling, general and administrative
expenses.
During the first quarter ended March 31, 1999, the Company paid approximately
$800,000 of the first quarter 1999 restructuring charge in cash. The cash
payments relate primarily to employee termination costs.
Additionally, the Company recorded during the fourth quarter of 1998 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 of 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. This $350,000 pre-tax credit adjustment for the 1998
restructuring was recorded as approximately $10,000 to cost of sales, $140,000
to selling, general and administrative expenses and $200,000 to research and
development expenses.
As of March 31, 1999, the Company has paid a total of approximately $3.7 million
cash payments related to the fourth quarter 1998 restructuring ($2.6 million in
the first quarter of 1999) primarily for employee termination 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 of 1998.
As of March 31, 1999 the Company had approximately $600,000 and $1.4 million
accrued related to restructuring costs for the first quarter of 1999 and fourth
quarter of 1998, respectively. Management believes the remaining reserves for
business restructuring are adequate to complete its plan.
10
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GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
6. SEGMENT REPORTING
Three Months Ended
March 31,
-------------------------------
1999 1998
Segment Net Sales --------- --------
Paging.................................. $45,204 $72,144
Mobile and Fixed Networks............... 16,107 16,135
Microwave Communication................. 8,710 6,254
-------- ---------
Total................................... $70,021 $94,533
======= =======
Three Months Ended
March 31,
--------------------------------
1999 1998
Segment Income (loss) --------- ---------
Paging.................................. $(4,482) $9,790
Mobile and Fixed Network................ (1,464) (5,776)
Microwave Communication................. 590 (66)
Corporate activities.................... (4,556) (4,062)
Interest Income (Expense), net.......... 2,388 2,191
Other Income (Expense).................. 37 (96)
------- ---------
Income (loss) before income taxes....... $(7,487) $1,981
======== =======
11
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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 its Wireless Messaging Group ("WMG") and Wireless Access two-way
paging devices, (ii) mobile and fixed network products from its Integrated
Network Group ("ING") including voice mail systems and database management
systems providing applications for calling cards, and (iii) microwave
communications from its 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 April 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 Ended
March 31,
----------------------
1999 1998
---------- --------
Net sales....................................... 100.0% 100.0%
Cost of sales................................... 54.4 48.4
------ --------
Gross profit ............................... 45.6 51.6
Operating expenses:
Selling, general and administrative......... 30.8 26.8
Research and development.................... 16.7 15.0
Depreciation and amortization............... 12.3 9.9
--------- ---------
Total operating expenses................ 59.2 51.7
---------- --------
Loss from operations ........................... (14.2) (0.1)
Interest, net................................... 3.4 2.3
Other, net...................................... 0.1 0.1
------- --------
Income (loss) before income taxes............... (10.7) 2.1
Provision (benefit) for income taxes........... (8.4) 2.0
------- ---------
Net income (loss)............................... (2.3)% 0.1%
========== =========
12
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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 Ended
March 31,
-----------------------
1999 1998
--------- --------
(IN THOUSANDS)
Paging products .......................... $45,204 $72,144
Mobile and fixed network products ........ 16,107 16,135
Microwave communication................... 8,710 6,254
------- --------
$70,021 $94,533
========== ==========
(PERCENTAGE OF NET SALES)
Paging products .......................... 65% 76%
Mobile and fixed network products ........ 23 17
Microwave communication................... 12 7
------- --------
100% 100%
=========== ===========
THREE-MONTH PERIOD ENDED MARCH 31, 1999 AND 1998
NET SALES. Net sales for the three months ended March 31, 1999 decreased 25.9%
to $70.0 million as compared to $94.5 million for the three months ended March
31, 1998. International sales were approximately $29.9 million for the three
months ended March 31, 1999 as compared to approximately $44.6 million for the
three months ended March 31, 1998 and accounted for 43% and 47% of net sales for
the three months ended March 31 1999 and 1998, respectively. The decline in
paging infrastructure sales can be attributed to several factors including the
continued weakness in world financial markets (Asian economies and Brazil
devaluation) and the Company's major customers reevaluation of their plans to
raise capital for paging infrastructure buildout.
Sales to separate single customers totaled approximately 10% and 14% of net
sales for the three-month periods ended March 31, 1999 and 1998, respectively.
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 46% and 52% for the three-month periods ended
March 31, 1999 and 1998, respectively. The decline in margins for 1999 is
primarily due to a lower sales volume of paging infrastructure equipment and
significant charges for rework through mid February 1999 on the Company's paging
devices produced. 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 $21.6 million and $25.3 million for the three-month periods ended
March 31, 1999 and 1998, respectively. The decline in selling, general and
administrative expenses is due primarily to the following: (i) reduction in the
accruals for management and employee incentive bonus programs due to less than
anticipated operating results in the first quarter of 1999, (ii) reduction in
direct employee expenses due to the fourth quarter 1998 restructuring which
included a reduction of approximately 140 employees, (iii) reduction in other
employee related costs including hiring, moving and travel expenses due to
13
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GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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reduced headcount and a reduction in the expense level of international travel
and (iv) reduction in expenses due to the sale of the Company's network
management business in the fourth quarter of 1998. These reductions are being
partially offset by restructuring charges incurred in the first quarter of 1999
for additional employee termination benefits, asset impairment charges and
exiting costs of a leased facility and integration costs incurred for the
transition of operations related to the Company's database management system
products to its Atlanta facility.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expenses were $11.7
million and $14.2 million for the three months ended March 31, 1999 and 1998,
respectively. The decline in research and development expenses is due primarily
to restructuring charges recorded in the first quarter of 1998 for the
consolidation of the Company's paging research and development efforts into one
location, the reduction in management and employee incentive plan bonus program
expenses due to less than anticipated operating results in the first quarter of
1999 and a reduction of direct employee related expenses due to the fourth
quarter 1998 restructuring reduction of headcount. These decreases are being
offset partially by integration costs incurred for the transition of operations
related to the Company's database management system products to its Atlanta
facility. 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
$8.6 million and $9.4 million for the three months ended March 31, 1999 and
1998, respectively. The decrease in expenses for the three-month periods ended
March 31, 1999 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, partially offset by a new
operating business system becoming operational in April 1998.
INTEREST INCOME, NET. Interest income, net was $2.4 million and $2.2 million for
the three-month periods ended March 31, 1999 and 1998, respectively. 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 months ended
March 31, 1999 and 1998 differed from the combined U.S. federal and state
statutory tax rate of approximately 40% due primarily to (i) the reduction in
the valuation allowance related to net operating losses ("NOLs") of an acquired
business, (ii) nondeductible goodwill, (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 nondeductible goodwill amortization 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 March 31, 1999, Glenayre's principal sources
of liquidity included $23.6 million of cash and cash equivalents and a $50
million bank line of credit that expires on October 30, 1999. Borrowings under
the line of credit during the three months ended March 31, 1999 ranged from
$10.0 million to $17.5 million with no borrowings as of March 31, 1999. The
Company was not in compliance with certain debt covenants related to the bank
line of credit as of March 31, 1999,
14
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GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
which make the line unavailable at thatdate. The Company is currently
requesting, and expects to receive, waivers ofthese events of noncompliance.
However, there can be no assurance that thelending banks will grant the waivers.
Accounts receivable decreased $33.6 million from year end 1998 primarily due to
lower sales volume for the three months ended March 31, 1999.
Approximately $49 million or 57% of the gross notes receivable balance of $86
million as of March 31, 1999 consisted of receivables from one customer which
has a limited operating history, is highly leveraged and is engaged in the
buildout of a major narrowband personal communications services network in the
newly introduced market of advanced voice and text paging. This customer is
privately owned and is in weak financial condition due to continued operating
losses. This customer's ability to complete its network buildout and continue
ongoing operations is dependent on continued financing support from its vendors
and financial institutions and its ability to access other capital markets. As
of March 31, 1999, the principal due dates of the amounts owing from this
customer range from March 2000 to December 2002. A March 1999 industry
publication article stated that this customer confirmed it had recently
conducted a series of layoffs as part of a "strategic refocus". The article
further stated that the layoffs have raised questions regarding this customer's
financial condition. An estimate of the range of possible losses related to the
collectibility of the receivables from this customer cannot currently be made by
the Company. Due to the factors cited, it is at least reasonably possible that a
change in the estimate of the collectibility of receivables from this customer
could occur in the near term which would have a significant impact on the
Company's results of operations.
Accounts payable decreased at March 31, 1999 compared to December 31, 1998
primarily as a result of payment cycle, timing differences, and decreased
inventory purchases. Accrued expenses at March 31, 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)
employee incentive and management bonus programs.
In 1996, the Board of Directors of the Company authorized a repurchase program
to buy back 2.5 million shares of the Company's common stock. As of March 31,
1999, no shares had been repurchased under the 1996 program.
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 to
promote the global market for two-way paging. This fund is in addition to each
company's independent research and development activities.
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 in Quincy, Illinois, and to
assume responsibility for the manufacture of Glenayre's one- and two-way RF
paging infrastructure equipment. Terms of the agreement are expected to be
negotiated over the next several months.
The Company expects to use its cash and cash equivalents and bank line of credit
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 March 31, 1999,
the Company had agreements to finance and arrange financing for approximately
$82 million of paging and voice mail
15
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
products. Further, at March 31, 1999, the Company had committed, subject to
customers meeting certain conditions and requirements, to finance approximately
$6 million for similar systems. The Company cannot currently predict the extent
to which these commitments will be utilized, since certain customers may be able
to obtain more favorable terms using traditional financing sources. From time to
time, the Company also arranges for third-party investors to assume a portion of
its commitments. If 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 $11.7 million. Approximately $6.3 million and $1.8 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 period ended March 31, 1999, respectively. Commitments of approximately $1.8
million relating to the termination of the construction contract are included in
the estimated $2.7 million total costs to complete.
The Company believes that funds generated from continuing operations, together
with its current cash reserves and bank line of credit, will be sufficient to
(i) support the short-term and long-term liquidity requirements for current
operations (including annual capital expenditures and customer financing
commitments) and (ii) to repurchase shares as discussed above. Company
management believes that, if needed, it can establish additional borrowing
arrangements with lending institutions.
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. Additionally, as the volume
of international sales grows, the percentage of worldwide income taxable in
international jurisdictions may increase in the future. As a result, the cash
tax rate may be significantly higher in 1999 compared to 1998 and recent years.
As of March 31, 1999, the Company has U.S. tax net operating loss carryforwards
("NOLs") aggregating $33 million related to the 1997 acquisitions of ODC and
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 $27 million, net of a valuation
allowance of $13 million, at March 31, 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
16
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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. The total
expenditures as of March 31, 1999 to remediate the Company's Year 2000 issues,
inclusive of its ongoing systems initiatives is approximately $300,000 and is
related primarily to product Year 2000 readiness assessments and minor
infrastructure upgrades. 1999 expenditures are not expected to exceed $500,000.
The 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 fluctuation experienced in the normal course of business.
However, the Company has determined that its exposure to such market risks is
not material.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's Form 10-K, Annual Report to Stockholders, Form 10-Q's and Form
8-K's and other written or oral statements made by or on behalf of the Company
may include forward-looking statements reflecting the Company's current views
with respect to future events and financial performance.
Although certain cautionary statements have been made in this Form 10-Q relating
to factors which may affect future operating results, a more detailed discussion
of these factors is set forth in Exhibit 99 to this Form 10-Q.
17
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
ITEMS 1 THROUGH 5 ARE INAPPLICABLE AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 Services Agreement, dated February 15, 1999, between the
Company and Ramon D. Ardizzone.
Exhibit 10.2 Severance Agreement, dated February, 15, 1999,
between the Company and Eugene C. Pridgen.
Exhibit 10.3 Glenayre Technologies Management By Objective Plan -
Corporate Plan for the year ending December 31, 1999.
Exhibit 10.4 Glenayre Technologies Management By Objective Plan -
Business Segment Plan for the year ending December 31, 1999.
Exhibit 10.5 Glenayre Technologies Management By Objective Plan -
Glenayre Western Multiplex Plan for the year ending
December 31, 1999.
Exhibit 15 Letter regarding unaudited interim financial
information.
Exhibit 27 Financial Data Schedule. (Filed in electronic
format only. Pursuant to Rule 402 of Regulation
S-T, this schedule shall not be deemed filed fo
purposes of Section 11 of the Securities Act of
1933 or Section 18 of the Securities Exchange Act
of 1934.)
Exhibit 99 Cautionary statement under safe harbor
provisions of the Private Securities Litigation
Reform Act of 1995.
(b) Reports on Form 8-K
During the three months ended March 31, 1999, the Company filed a
Current Report on Form 8-K dated January 14, 1999. Under Item 5 the
Company reported that the Preferred Shares Rights Agreement dated
May 21, 1997 (the "Rights Agreement") had been amended to provide
special provisions with respect to the State of Wisconsin
Investment Board ("SWIB"). This special provision excludes SWIB
from the definition of Acquiring Person under the Rights Agreement
until such time as SWIB becomes the Beneficial Owner of a
percentage of the Common Shares of the Company then outstanding
which equals or exceeds 20%.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Glenayre Technologies, Inc.
-----------------------------
(Registrant)
/s/ Stanley Ciepcielinski
-----------------------------
Stanley Ciepcielinski
Executive Vice President,
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: April 30, 1999
EXHIBIT 10.1
February 15, 1999
Mr. Ramon D. Ardizzone
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Dear Ray:
At the request of the Board of Directors of Glenayre Technologies, Inc.
("Glenayre"), you have agreed to accept the position of President and Chief
Executive Officer, in addition to your current position as Chairman of the
Board, of Glenayre, until a new President and Chief Executive Officer can be
hired and begin his employment.
The Board of Directors believes that it is desirable and in the best
interests of Glenayre to provide appropriate incentives to you to initiate or
complete the difficult tasks that lie ahead for Glenayre before a new President
and Chief Executive Officer can be hired. Accordingly, on behalf of the Board of
Directors, I offer you the following:
(1) Glenayre and you agree that you will serve as President and
Chief Executive Officer of Glenayre, regardless of whether you remain a
member of the Board of Directors of Glenayre, until the earlier of (i)
December 31, 1999 or (ii) such time as a new President and Chief
Executive Officer of Glenayre shall begin his employment as such, except
that the Board retains the right to terminate that relationship for
"Cause". If a new President and Chief Executive Officer is not employed
by December 31, 1999, any extension of your tenure as President and
Chief Executive Officer beyond that date will be subject to our mutual
agreement. For this purpose, "Cause" is defined in your former
Employment Agreement dated June 21, 1995, as amended on December 8, 1995
and December 12, 1996 ("your Former Employment Agreement").
(2) For your services as President and Chief Executive Officer,
you will continue to be paid at the rate of $150,000 per year, which is
the current pay for your services as Chairman of the Board. This pay
shall continue so long as you are either Chairman of the Board or
President and Chief Executive Officer and will be unaffected by whether
you remain a member of the Board of Directors of Glenayre.
<PAGE>
Mr. Ramond D. Ardizzone
February 15, 1999
Page 2
(3) In order to provide further incentive for you, Glenayre
agrees to pay you a lump sum payment of $150,000 at the earlier of (i)
December 31, 1999 or (ii) the date that a new President and Chief
Executive Officer begins his employment as such.
(4) Effective immediately and regardless of whether your services
as President and Chief Executive Officer, Chairman of the Board, a
member of the Board of Directors or in any other position with Glenayre
are terminated for any reason, Glenayre agrees that you (and your
spouse) shall be entitled to participate in Glenayre's Retiree Medical
Plan, at no cost or expense to you or your spouse, for the remainder of
your life and the life of your spouse. This provision amends and
modifies Paragraph 3(ii) of your Termination Agreement dated as of
September 30, 1997 and Paragraph 2(f)(6) of your Former Employment
Agreement.
If the foregoing terms are acceptable to you, please sign in the space
provided below.
GLENAYRE TECHNOLOGIES, INC.
By: /s/ Stanly Ciepcielinski
------------------------
Name: Stanly Ciepcielinski
Title: EVP & COO
ACCEPTED AND AGREED TO:
/s/ Ramon D. Ardizzone
----------------------
Ramon D. Ardizzone
Ray 7
EXHIBIT 10.2
February 15, 1999
Mr. Gene Pridgen
Glenayre Electronics, Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Dear Gene:
This letter is written confirmation of our discussion regarding your resignation
from your position as Executive Vice President - Corporate Development, General
Counsel and Secretary to return to Kennedy Covington Lobdell & Hickman. We have
agreed that your resignation will be effective February 26, 1999 (the
"Resignation Date"), and I am prepared to offer you the following severance
package contingent on your acceptance of the terms and conditions of this
agreement.
1. Accrued Salary and Benefits. You will be paid all salary and benefits to
which you are entitled through the Resignation Date, including your 1998
MBO bonus. (You will not, of course, be eligible for any portion of your
1999 MBO bonus.) You will be paid for your accrued but unused vacation
as of such date. You will also be paid your deferred compensation
distribution in accordance with the plan document and your Election
Deferral Forms.
2. Severance Payments. You will be paid a lump sum severance payment of
$100,000 on or about the Resignation Date. The foregoing payment shall
be made in accordance with Glenayre's payroll practices and shall be
subject to all applicable withholding as an employee.
3. Benefits Following the Resignation Date.
a) I will recommend to the Plan Administration Committee of the
Board of Directors of Glenayre Technologies, Inc. that all of
your options for Glenayre Technologies, Inc. common stock be
fully vested, effective February 26, 1999. Additionally, I will
recommend that you also be permitted to exercise your options
within two years after February 26, 1999. If approved by the Plan
Administration Committee, you will receive written confirmation
of this accelerated vesting schedule and extended exercise
period.
b) You will be given, at no cost to you, the large bookcase in your
office. Glenayre will pay to move the office furniture which
belongs
<PAGE>
to you, together with the bookcase, to the offices of Kennedy
Covington Lobdell& Hickman here in Charlotte.
c) After the Resignation Date, if you desire, you may continue your
individual and dependent coverage through COBRA at rates which
are evaluated annually.
d) After the Resignation Date, you shall cease to be covered by all
vacation and holiday leave programs, the Employee Stock Purchase
Plan, short and long-term disability, and AD&D, and you shall
cease to be entitled to any perquisites or benefit rights not
expressly covered by this agreement.
4. No Recruitment of Employees.
-----------------------------
a) You agree not to recruit, provide information on any personnel of
the Glenayre Companies, or assist another employer in the
recruitment of any employee of the Glenayre Companies within one
year after the Resignation Date. For purposes of this agreement,
the term "Glenayre Companies" means Glenayre Technologies, Inc.,
Glenayre Electronics, Inc., Western Multiplex Corporation and all
other subsidiaries and affiliates of, and successors to, the
foregoing corporations.
5. Waiver of Employment Rights or Claims.
-------------------------------------
a) You acknowledge that there are laws and regulations prohibiting
employment practices pursuant to which you may have rights or
claims. These include Title VII of the Civil Rights Act of 1964,
as amended, the Age Discrimination in Employment Act, as amended,
and as well as other federal and state executive orders, statutes
and regulations. You also acknowledge that there are other common
law theories, including laws of contract and tort, which may
relate to your employment rights.
b) You hereby waive and release any rights or claims that you may
have arising out of your employment with the Glenayre Companies
or the termination of that employment, including those described
in Paragraph 5(a), and under any other laws, whether with respect
to the Glenayre Companies or any of their employees, officers,
directors or agents, provided that you do not waive any rights or
claims which may arise after the date you sign this agreement.
c) It is agreed and you acknowledge that (i) you have had at least
21 days toconsider the terms and conditions of this agreement;
(ii) you have been advisedto consult with an attorney before
signing this agreement; (iii) theconsideration provided to you
in Paragraphs 2 and 3 above is consideration that you were
not entitled to receive before signing
2
<PAGE>
this agreement; (iv) you willhave 7 days from the date you sign
this agreement and deliver it to me to revokethis agreement by
notifying me of such revocation; and (v) this agreement shallnot
become effective or enforceable until after the aforesaid 7 days
revocationperiod has expired.
6. Confidential Information. You agree that you will keep strictl
confidential and will not disclose, directly or indirectly, any
document or information (including all proprietary, confidential,
or trade secret information of the Glenayre Companies, that you
have had in your possession or of which you were/are aware)
relating to your employment with Glenayre or to the business and
operations of any of the Glenayre Companies. You further agree
that you will not make any statement nor take any action which
might adversely reflect upon any of the Glenayre Companies, or
any of their officers, directors or employees. Likewise, Glenayre
and its directors and officers will not make any statement nor
take any action which might adversely reflect upon you.
7. Remedies for Breach. You acknowledge and agree that in the event of a
breach by you of the provisions of Paragraphs 4 and 6 hereof, Glenayre
may, in addition to whatever other rights and remedies it may have at
law or in equity, withhold any amounts or benefits otherwise payable or
due under Paragraph 2 and 3 of this agreement.
8. Acknowledgement of Understanding and Voluntariness. You acknowledge that
you understand completely everything set forth in this agreement, that
you have had ample opportunity to review this agreement and all its
ramifications with an attorney of your own choosing, and that you have
entered into this agreement voluntarily, without any coercion
whatsoever, of your own free will, and that you intend legally to be
bound by this agreement.
9. Entire Agreement. This agreement constitutes the entire agreement
between Glenayre and you with respect to the subject matter hereof and
will not be construed as an admission of liability, wrongdoing, or
discrimination by any of the Glenayre Companies or any of their
officers, directors, employees or agents.
10. Severability. If any provision hereof shall be determined to be
unenforceable, such fact shall not invalidate or render unenforceable
any other provision hereof.
3
<PAGE>
11. Binding Effect. This agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns, as the case may be.
12. Governing Laws. This agreement shall be deemed to have been made in the
State of North Carolina and shall be interpreted, construed, and
enforced in accordance with the laws of the State of North Carolina.
If the foregoing terms and conditions are acceptable to you, please sign in the
space indicated below.
Sincerely, Accepted and agreed to:
/s/ Ramon D. Ardizzone /s/ Eugene C. Pridgen
- ---------------------- -----------------------
Ramon D. Ardizzone Eugene C. Pridgen
Chairman of the Board,
President and CEO Date: 2/17/99
---------
cc: Beverley Cox
Virginia Hall
4
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
CORPORATE PLAN
EXHIBIT 10.3
The Glenayre Technologies, Inc. Management By Objective Plan was created to
motivate and provide incentive to the key managers of Glenayre Technologies,
Inc. and its wholly-owned subsidiaries around the world and to maximize profits.
The plan is based on the Targeted Performance of the Company and on the
Participant's Individual Retention component.
Your MBO Level is a percentage of your Annual Base Earnings approved each year
by the Chief Executive Officer, and/or Sr. Vice President, Human Resources, as
applicable. In addition, Executive Officer MBO levels are approved each year by
the Board of Directors.
Your Target MBO Bonus is comprised of two components: Company Performance and
Individual Component. You can achieve up to 200% of your Target MBO Bonus if the
Company achieves certain earnings targets.
Target MBO Bonus :
This is your Annual Base Earnings X your MBO Level at 100% of target for each
component.
Example:
If your Annual Base Earnings is $50,000 and your MBO Level is 20%, your Target
MBO Bonus would be as follows: Target MBO Bonus = $10,000 (Annual Base Earnings
X Target MBO Bonus ($50,000 X .2))
Target MBO Bonus $10,000
Individual 30% $3,000 (Target MBO Bonus X Individual % ( $10,000 X .3)
Company 70% $7,000 (Target MBO Bonus X Company % ($10,000 X .7)
Note: There are additional examples following the Individual Retention Component
section that illustrate potential MBO bonus payments at various levels of
performance for each component.
COMPANY PERFORMANCE
Company Performance Component = 70% of Target MBO Bonus (except for Participants
in the Business Sector MBO Bonus Plan, where it comprises 20% of Target MBO
Bonus).
Company Performance is based on Income from Operations which is defined below.
Annual Company Performance targets are established in support of the Company's
business plan.
If the actual annual Company Performance is below the Compensation Plan Minimum
Target, no bonus will be paid for this component of the plan.
If the actual annual Company Performance meets Compensation Plan Minimum Target,
an MBO payment will be made proportionate to Company Performance (actual
/target) up to the maximum Compensation Plan Stretch Target of the Targeted
Earnings Performance. The Company MBO bonus payment is independent of Business
Sector Performance results.
MBO 1/1/99
1/99
1
<PAGE>
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
CORPORATE PLAN
Example:
Annual Company Target Bonus = $7,000 ( Annual Base Earnings X Target MBO Bonus X
Company Performance Portion ( $50,000 X 20% X 70%)).
Total Company Performance Portion at 100% of Target = $7,000
If the actual Company performance is proportionate to 110% of your Target MBO
Bonus, as a Participant, you will receive 110% of your target Company
Performance bonus opportunity.
EXAMPLE: Actual % Target Target MBO Actual MBO
MBO Bonus Bonus Bonus
Performance at Minimum 70% $7,000 $4,900
Performance at target 100% $7,000 $7,000
Performance above target 110% $7,000 $7,700
INDIVIDUAL RETENTION COMPONENT
- ------------------------------
Individual Retention Component = 30%
At the end of each plan year an individual retention bonus will be paid to all
employees who are actively employed on December 31 and have satisfactory
performance, (i.e. not on a performance improvement plan). The Individual
Retention component of the Plan is paid annually as part of the annual MBO Bonus
Plan payment. This MBO bonus payment is independent of the Company Performance
bonus unless the Company Performance exceeds the target, in which case the
Individual Retention bonus will be paid proportionate to Company Performance.
Example:
Individual Retention Component Formula:
Individual Retention Bonus = Annual Base Earnings X Target MBO Bonus
X 30% ( Individual Retention Portion) X Company
Performance (if actual Company Performance exceeds
target) ($50,000 X .2 X .3))
Individual Retention Component Target Bonus = $3,000
Example: Company Performance Actual % of Target MBO Bonus Amount
MBO Bonus
60% 100% $3,000
100% 100% $3,000
125% 125% $3,750
Examples of Annual MBO Bonus Payment at different Performance Levels
Annual Earnings $50,000
MBO Level 20%
Target MBO Bonus $10,000
MBO 1/1/99
1/99
2
<PAGE>
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
CORPORATE PLAN
Component Weights Target MBO Bonus
Individual 30% $3,000
Company 70% $7,000
Example #1
Actual % of Target MBO Bonus Amount
MBO Bonus
Individual 110% $3,300
Company 110% $7,700
Total $11,000
Example #2
Actual % of Target MBO Bonus Amount
MBO Bonus
Individual 100% $3,000
Company 90% $6,300
Total $9,300
Example #3
Actual % of Target MBO Bonus Amount
MBO Bonus
Individual 100% $3,000
Company 65% $0
Total $3,000
PAYMENTS
- ---------
1. Annual bonus payment paid within 45 days of the completion of the year
end audit.
2. All MBO payments are made through special payroll check or direct
deposit with all applicable taxes and contributions withheld.
Participation or eligibility to participate in the Plan is not a guarantee of
employment or of continued payment. The Plan is subject to change or revocation
at the discretion of the Board of Directors or the Chief Executive Officer of
the Company.
DEFINITIONS
- -------------
o Company -- Glenayre Technologies, Inc. and its subsidiaries.
o Currency Exchange Rate -- Average internal exchange rate for the Plan
Year.
MBO 1/1/99
1/99
3
<PAGE>
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
CORPORATE PLAN
o Income From Operations -- Income from the operations of the Company less
allocations and indirect costs, excluding the impact of interest income
or expense, exchange gain/(loss), other income/(loss), income taxes or
investment tax credits, any real estate transactions and expenses, and
business unit disposal or acquisition costs.
o Eligibility Requirements--
a. Annual MBO bonus payment - Participants who remain employed for the
Full Plan Year.
c. Participants must maintain a satisfactory level of performance
through the Plan period.
Periods of paid or unpaid leave of absence in excess of 30 days per year
will not be considered for MBO eligibility. Annual Base Earnings will be
prorated according to the length of disability. Payment of earned MBO
bonuses will be paid upon return to work from a leave of absence.
o Annual Base Earnings - Total base salary earned during the plan year,
(prior to deductions for contributions to the 401(k) Plan, for health
care coverage, to flexible spending accounts, or to any other Company
sponsored pre-tax or deferred compensation plans) received by a
Participant from the Company while participating in the Plan.
o Individual Retention Component - Paid based solely on active employment
on 12/31 and satisfactory performance.
o Participant -- A full time, regular employee of the Company who is
approved by the Chief Executive Officer to be a Participant in the Plan.
Plan participation will be prorated based on the length of time a
Participant is eligible. No employee of the Company may participate in
more than one incentive, bonus or commission plan.
o Participant's MBO Level -- The percentage of pay that the Participant
could receive from the Plan if the targeted Company Performance,
Business Sector Performance and Individual Retention requirements are
achieved at the 100% level. If the Company exceeds its targeted
performance goal, the bonus amount will increase proportionately. The
MBO Level for each Participant is recommended to and approved by the
Chief Executive Officer and/or Sr. Vice President, Human Resources, as
applicable. In addition, Executive Officer MBO levels are approved each
year by the Board of Directors.
o Payment Date -- Forty-five (45) days after the audit completion by the
independent auditors and Board of Directors approval of the Company's
fiscal year-end financial statements.
o Payout Percentage -- Percentage of Target MBO Bonus for Company and/or
Business Unit achieving specific earnings targets. Participants are
eligible to receive 70% of their bonus eligibility when the Compensation
Plan Minimum Targets for the Company and the Business Units are
achieved, and up to 200% of eligibility if Compensation Plan Stretch
Targets for the Company and Business Units are achieved.
MBO1/1/99
1/99
4
<PAGE>
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
CORPORATE PLAN
Example of Annual Payment with all components at 100% of goals.
Annual Base Earnings = $50,000
MBO Level = 20%
Target MBO = $7,000
Individual Retention = $3,000
Total Annual MBO = $10,000
Assume 100% of Goals at year end
o Plan -- Glenayre Technologies, Inc. Management By Objective Plan (MBO)
o Plan Year -- January 1 through December 31.
o Targeted Performance -- The Company Performance Target and Business
Sector Performance Target as approved by the Board of Directors. Stretch
targets are established by the President and Chief Executive Officer and
Chief Financial Officer and approved by the Board of Directors. Targeted
Performance comprises 70% of the Participant's Target MBO Bonus.
MBO 1/1/99
1/99
5
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
BUSINESS SEGMENT PLAN
EXHIBIT 10.4
The Glenayre Technologies, Inc. Management By Objective Plan was created to
motivate and provide incentive to the key managers of Glenayre Technologies,
Inc. and its wholly-owned subsidiaries around the world and to maximize profits.
The plan is based on the Targeted Performance of the Company and each Business
Segment and on the Participant's Individual Retention component.
Your MBO Level is a percentage of your Annual Base Earnings approved each year
by the Chief Executive Officer, and/or Sr. Vice President, Human Resources, as
applicable. In addition, Executive Officer MBO levels are approved each year by
the Board of Directors.
Your Target MBO Bonus is comprised of three components: Business Segment
Performance, Company Performance and Individual Component. You can achieve up to
200% of your Target MBO Bonus if your Business Segment and the Company achieve
certain earnings targets.
Target MBO Bonus :
This is your Annual Base Earnings X your MBO Level at 100% of target for each
component.
Example:
If your Annual Base Earnings is $50,000 and your MBO Level is 20%, your Target
MBO Bonus would be as follows: Target MBO Bonus = $10,000 (Annual Base Earnings
X Target MBO Bonus ($50,000 X .2))
Target MBO Bonus $10,000
Individual 30% $3,000 (Target MBO Bonus X Individual % ( $10,000 X .3)
Business Segment 50% $5,000 (Target MBO Bonus X Segment % ($10,000 X .5)
Company 20% $2,000 (Target MBO Bonus X Company % ($10,000 X .2)
Note: There are additional examples following the Individual Retention Component
section that illustrate potential MBO bonus payments at various levels of
performance for each component.
BUSINESS SEGMENT PERFORMANCE
- ----------------------------
Business Segment Performance Component = 50% of Target MBO Bonus (except for
Participants in the Corporate MBO Bonus Plan where it is not applicable).
Business Segment Performance is based on the Business Segment's Income from
Operations, which is defined in the Definitions section of this document.
If a Participant transfers from one Business Segment to another, the annual MBO
bonus will be calculated based upon which Segment he or she was in for the
majority of the plan period. (Majority is defined as greater than 1/2 of the
period.)
Annual Business Segment Performance targets are established in support of the
Company's business plan.
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GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
BUSINESS SEGMENT PLAN
If actual annual Business Segment Performance is below the Plan's Minimum
Target, no bonus will be paid for this component of the plan.
If the actual annual Business Segment Performance meets Compensation Plan
Minimum Target, an MBO payment will be made proportionate to Business Segment
Performance (actual / target) up to the maximum Compensation Plan Stretch Target
of the Targeted Earnings Performance. The Business Segment MBO bonus payment is
independent of the Company Performance Bonus.
Example:
Annual Business Segment Target Bonus = $5,000 ( Annual Base Earnings X Target
MBO Bonus X Business Segment Performance Portion ($50,000 X 20% X 50%)).
If the actual performance for your Business Segment is proportionate to 110% of
your Target MBO Bonus, as a Participant, you will receive 110% of your target
Business Segment Performance bonus opportunity.
EXAMPLE: Actual % of Target Target MBO Actual MBO
MBO Bonus Bonus Bonus
Performance above min. 75% $5,000 $3,750
Performance at target 100% $5,000 $5,000
Performance above target 110% $5,000 $5,500
COMPANY PERFORMANCE
- -------------------
Company Performance Component = 20% of Target MBO Bonus (except for Participants
in the Corporate MBO Bonus Plan, where it comprises 70% of Target MBO Bonus).
Company Performance is based on Income from Operations, which is defined in the
Definitions section of this document.
Annual Company Performance targets are established in support of the Company's
business plan.
If the actual annual Company Performance is below the Compensation Plan Minimum
Target, no bonus will be paid for this component of the plan.
If the actual annual Company Performance meets Compensation Plan Minimum Target,
an MBO payment will be made proportionate to Company Performance (actual
/target) up to the maximum Compensation Plan Stretch Target of the Targeted
Earnings Performance. The Company MBO bonus payment is independent of the
Business Segment Performance Bonus.
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<PAGE>
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
BUSINESS SEGMENT PLAN
Example:
Annual Company Target Bonus = $2,000 ( Annual Base Earnings X Target MBO Bonus X
Company Performance Portion ( $50,000 X 20% X 20%)).
Total Company Performance Portion at 100% of Target = $2,000
If the actual Company performance is proportionate to 110% of your Target MBO
Bonus, as a Participant, you will receive 110% of your target Company
Performance bonus opportunitty.
EXAMPLE: Actual % Target Target MBO Actual MBO
MBO Bonus Bonus Bonus
Performance at Minimum 70% $2,000 $1,400
Performance at target 100% $2,000 $2,000
Performance above target 110% $2,000 $2,200
INDIVIDUAL RETENTION COMPONENT
- -------------------------------
Individual Retention Component = 30%
At the end of each plan year an individual retention bonus will be paid to all
employees who are actively employed on December 31 and have satisfactory
performance (i.e. not on a performance improvement plan). The Individual
Retention component of the Plan is paid annually as part of the annual MBO Bonus
Plan payment. This MBO bonus payment is independent of the Company Performance
bonus unless the Company Performance exceeds the target, in which case the
Individual Retention bonus will be paid proportionate to Company Performance.
Example:
Individual Retention Component Formula:
Individual Retention Bonus = Annual Base Earnings X Target MBO Bonus
X 30% ( Individual Retention Portion) X Company
Performance (if actual Company Performance exceeds
target)($50,000 X .2 X .3)
Individual Retention Component Target Bonus = $3,000
Example: Company Performance Actual % of Target MBO Bonus Amount
MBO Bonus
60% 100% $3,000
100% 100% $3,000
125% 125% $3,750
Examples of Annual MBO Bonus Payment at different Performance Levels
Annual Earnings $50,000
MBO Level 20%
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<PAGE>
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
BUSINESS SEGMENT PLAN
Target MBO Bonus $10,000
Component Weights Target MBO Bonus
Company 20% $2,000
Business Segment 50% $5,000
Individual 30% $3,000
Example #1
Actual % of Target MBO Bonus Amount
MBO Bonus
Individual 100% $3,000
Business Segment 60% $0
Company 80% $1,600
Total $4,600
Example #2
Actual % of Target MBO Bonus Amount
MBO Bonus
Individual 100% $3,000
Business Segment 105% $5,250
Company 100% $2,000
Total $10,250
Example #3
Actual % of Target MBO Bonus Amount
MBO Bonus
Individual 100% $3,000
Business Segment 100% $5,000
Company 65% $0
Total $8,000
PAYMENTS
- ----------
1. Annual bonus payment paid within 45 days of the completion of the year
end audit.
2. All MBO payments are made through special payroll check or direct
deposit with all applicable taxes and contributions withheld.
Participation or eligibility to participate in the Plan is not a guarantee of
employment or of continued payment. The Plan is subject to change or revocation
at the discretion of the Board of Directors or the Chief Executive Officer of
the Company.
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<PAGE>
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
BUSINESS SEGMENT PLAN
DEFINITIONS
- ------------
o Company -- Glenayre Technologies, Inc. and its subsidiaries.
o Currency Exchange Rate -- Average internal exchange rate for the Plan
Year.
o Income From Operations - Net Sales less Cost of Goods Sold and Operating
Expenses including Depreciation/Amortization and Allocated Costs. Income
From Operations does not include the impact of interest income or
expense, exchange gain/(loss), other income/(loss), income taxes,
investment tax credits, real estate transaction costs, or business
segment disposal or acquisition costs.
o Eligibility Requirements--
a. Annual MBO bonus payment - Participants who remain employed for the
Full Plan Year.
c. Participants must maintain a satisfactory level of performance
through the Plan period.
Periods of paid or unpaid leave of absence in excess of 30 days per year
will not be considered for MBO eligibility. Annual Base Earnings will be
prorated according to the length of disability. Payment of earned MBO
bonuses will be paid upon return to work from a leave of absence.
o Annual Base Earnings - Total base salary earned during the plan year,
(prior to deductions for contributions to the 401(k) Plan, for health
care coverage, to flexible spending accounts, or to any other Company
sponsored pre-tax or deferred compensation plans) received by a
Participant from the Company while participating in the Plan.
o Individual Retention Component - Paid based solely on active employment
on 12/31 and satisfactory performance.
o Participant -- A full time, regular employee of the Company who is
approved by the Chief Executive Officer to be a Participant in the Plan.
Plan participation will be prorated based on the length of time a
Participant is eligible. No employee of the Company may participate in
more than one incentive, bonus or commission plan.
o Participant's MBO Level -- The percentage of pay that the Participant
could receive from the Plan if the targeted Company Performance,
Business Segment Performance and Individual Retention requirements are
achieved at the 100% level. If the Company exceeds its targeted
performance goal, the bonus amount will increase proportionately. The
MBO Level for each Participant is recommended to and approved by the
Chief Executive Officer and/or Sr. Vice President, Human Resources, as
applicable. In addition, Executive Officer MBO levels are approved each
year by the Board of Directors.
o Payment Date -- Forty-five (45) days after the audit completion by the
independent auditors and Board of Directors approval of the Company's
fiscal year-end financial statements.
o Payout Percentage -- Percentage of Target MBO Bonus for Company and/or
Business Segment achieving specific earnings targets. Participants are
eligible to receive 70% of their bonus eligibility when the Compensation
Plan Minimum Targets for the Company
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<PAGE>
GLENAYRE TECHNOLOGIES, INC. MANAGEMENT BY OBJECTIVE PLAN
BUSINESS SEGMENT PLAN
and the Business Segments are achieved, and up to 200% of eligibility if
Compensation Plan Stretch Targets for the Company and Business Segments
are achieved.
Example of Annual Payment with all components at 100% of goals.
Annual Base Earnings = $50,000
MBO Level = 20%
Target MBO = $7,000
Individual Retention = $3,000
Total Annual MBO = $10,000
Assume 100% of Goals at year end
o Plan -- Glenayre Technologies, Inc. Management By Objective Plan (MBO)
o Plan Year -- January 1 through December 31.
o Targeted Performance -- The Company Performance Target and Business
Segment Performance Target as approved by the Board of Directors.
Stretch targets are established by the President and Chief Executive
Officer and Chief Financial Officer and approved by the Board of
Directors. Targeted Performance comprises 70% of the Participant's
Target MBO Bonus.
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GLENAYRE WESTERN MULTIPLEX
1999 OPERATING BONUS PLAN
EXHIBIT 10.5
Purpose
- --------
The Glenayre Western Multiplex 1999 Operating Bonus Plan (the "Plan") is
intended to motivate employees to maximize the profits of Glenayre Western
Multiplex.
Calculation of Bonus
- --------------------
You will be entitled to receive a cash bonus for 1999 based on your annual base
salary and Income of Glenayre Western Multiplex for the 1st, 2nd, 3rd and 4th
quarters of 1999.
At the Target Income level, your total 1999 bonus will equal:
Your Bonus Percentage TIMES your Annual Base Salary
For example, if your annual base salary is $30,000 and your Bonus Percentage is
6%, you would be paid a 1999 bonus of $1,800 if Glenayre Western Multiplex
achieves the total Target Income for the 1st, 2nd, 3rd and 4th quarters of 1999.
If Glenayre Western Multiplex's actual Income is equal or more than the Minimum
Income but less than the Target Income, your bonus would be decreased
proportionately. If Glenayre Western Multiplex achieves only the Minimum Income
level, you would receive 70% of the bonus at the Target Income level. No bonus
will be paid if Glenayre Western Multiplex does not achieve at least the Minimum
Income.
Likewise, if the actual Income is more than the Target Income, your bonus will
be increased proportionately (up to the Maximum Income). If Glenayre Western
Multiplex achieves the Maximum Income level, you would receive 200% of the bonus
at the Target Income level.
Income targets (as well as cumulative Income targets) have been set for Glenayre
Western Multiplex for the 1st, 2nd, 3rd and 4th quarters. You would receive a
bonus for a particular quarter if Glenayre Western Multiplex achieves either the
quarterly Target Income or the cumulative Target Income for that quarter.
For purposes of this Plan, "Income" is defined as net sales LESS cost of sales,
research & development and selling, general and administrative expenses,
EXCLUDING deductions for interest expense and income tax and EXCLUDING interest
income and other income not from operations (all as determined under Glenayre's
normal accounting methods).
<PAGE>
GLENAYRE WESTERN MULTIPLEX
1999 OPERATING BONUS PLAN
Page 2
Payment of Bonus
- ----------------
Bonus payments will be made quarterly based on the achievement of the Income
targets.
You must be a Glenayre Western Multiplex employee on the last day of the
applicable quarter to receive a bonus payment for that quarter. All payments are
made through a special payroll check with all applicable taxes and contributions
withheld. Payment will be made within 45 days after the first, second and third
quarters and after the completion of the Glenayre 1999 financial statements for
the fourth quarter.
Miscellaneous
- --------------
You must be a full time regular employee of Glenayre Western Multiplex to
participate in this Plan. No employee of Glenayre Western Multiplex who
participates in Glenayre Western Multiplex's sales plan is eligible to
participate in the Plan also. Participation in the Plan is not a guarantee of
employment. The Plan is subject to change or revocation at the discretion of the
Board of Directors or the Chief Executive Officer of Glenayre Technologies, Inc.
In the event that Glenayre Western Multiplex is sold during 1999, the Plan will
be terminated and you will be paid the bonus you earn through the closing date
of the sale based on Glenayre Western Multiplex's pro rata Income through that
date.
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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 and Registration Statement
Number 333-56375 on Form S-8 dated June 9, 1998 of our report dated April 22,
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 March 31, 1999.
Ernst & Young LLP
Charlotte, North Carolina
April 22, 1999
<TABLE> <S> <C>
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 23,596
<SECURITIES> 0
<RECEIVABLES> 200,635
<ALLOWANCES> 0
<INVENTORY> 39,478
<CURRENT-ASSETS> 229,519
<PP&E> 107,854
<DEPRECIATION> 0
<TOTAL-ASSETS> 532,310
<CURRENT-LIABILITIES> 64,404
<BONDS> 0
0
0
<COMMON> 1,243
<OTHER-SE> 459,508
<TOTAL-LIABILITY-AND-EQUITY> 532,310
<SALES> 70,021
<TOTAL-REVENUES> 70,021
<CGS> 38,081
<TOTAL-COSTS> 38,081
<OTHER-EXPENSES> 41,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215
<INCOME-PRETAX> (7,487)
<INCOME-TAX> (5,890)
<INCOME-CONTINUING> (1,597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,597)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</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.
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
<PAGE>
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 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.
<PAGE>
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, negative cash flows from operations and some have never
generated an operating profit. 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.
