SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No. 0-23866
September 30, 1999
VARI-L COMPANY, INC.
--------------------
(Exact name of Registrant as specified in its charter.)
Colorado 06-0679347
----------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer identification No.)
4895 Peoria Street
Denver, Colorado 80239
-----------------------
(Address of principal executive offices)
(303) 371-1560
--------------
(Registrant's telephone number, including area code)
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 each of the issuer's classes of
common stock, as of September 30, 1999:
Class of Securities Outstanding Securities
------------------- ----------------------
$0.01 par value 5,795,564 shares
Common shares
PART I--FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
VARI-L COMPANY, INC.
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(000's omitted)
<TABLE>
<CAPTION>
9/30/99 12/31/98
Assets (Unaudited) (Audited)
- ------ ----------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,656 $ 6,515
Trade receivables, less $23
allowance for doubtful accounts 5,031 4,417
Inventories 8,587 7,901
Prepaid expenses and other 1,715 1,235
--------- ---------
Total Current Assets 20,989 20,068
--------- ---------
Property and Equipment:
Machinery and equipment 26,341 22,299
Furniture and fixtures 1,680 1,499
Leasehold improvements 8,397 7,797
--------- ---------
36,418 31,595
Less accumulated depreciation
and amortization (5,677) (4,444)
--------- ---------
Net Property and Equipment 30,741 27,151
--------- ---------
Other Assets:
Long-term inventories 475 475
Covenant not to compete 8 33
Patents, net of accumulated
amortization of $225 and $141 1,852 1,173
ISO registration costs and other,
net of accumulated amortization
of $115 and $57 1,650 1,771
--------- ---------
Total Other Assets 3,985 3,452
--------- ---------
TOTAL ASSETS $ 55,715 $ 50,671
========= =========
</TABLE>
(Continued)
See Accompanying Notes to Financial Statements.
VARI-L COMPANY, INC.
BALANCE SHEETS, CONTINUED
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(000's omitted)
<TABLE>
<CAPTION>
9/30/99 12/31/98
Liabilities and Stockholders' Equity (Unaudited) (Audited)
- ------------------------------------ ----------- ---------
<S> <C> <C>
Current Liabilities:
Current installments of long-term debt $ 1,028 $ 832
Financed insurance premiums 63 22
Trade accounts payable 1,464 2,147
Accrued expenses 500 684
Income taxes payable 1,520 0
--------- ---------
Total Current Liabilities 4,575 3,685
Bank line of credit 3,816 4,756
Long-term debt 6,454 5,901
Deferred income taxes 3,506 3,904
--------- ---------
Total Liabilities 18,351 18,246
--------- ---------
Stockholders' Equity:
Common stock, $.01 par value,
50,000 shares authorized;
5,796 and 5,464 shares
outstanding, respectively 58 54
Paid-in capital 24,572 22,103
Retained earnings 12,752 10,286
Less loans for purchase of stock (18) (18)
--------- ---------
Total Stockholders' Equity 37,364 32,425
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 55,715 $ 50,671
- ---------------------- ========= =========
</TABLE>
See Accompanying Notes to Financial Statements.
VARI-L COMPANY, INC.
STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
AND
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(000'S omitted, except for per share amounts)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
9/30/99 9/30/98 9/30/99 9/30/98
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 6,594 $ 4,805 $17,367 $13,181
Cost of products sold 3,124 2,146 7,938 5,923
------- ------- ------- -------
Gross profit 3,470 2,659 9,429 7,258
------- ------- ------- -------
Other costs and expenses:
General and
administrative 606 492 1,668 1,461
Engineering 451 281 1,169 828
Selling 677 504 1,950 1,443
Interest expense 212 212 676 417
Interest income (57) (89) (174) (247)
Profit sharing plan
contribution 21 0 130 0
Other 0 10 24 54
------- ------- ------- -------
1,910 1,410 5,443 3,956
------- ------- ------- -------
Income before taxes 1,560 1,249 3,986 3,302
Income taxes 595 500 1,520 1,321
------- ------- ------- -------
NET INCOME $ 965 $ 749 $ 2,466 $ 1,981
======= ======= ======= =======
Basic earnings per share $ 0.17 $ 0.14 $ 0.44 $ 0.37
======= ======= ======= =======
Basic weighted average
shares outstanding 5,665 5,460 5,559 5,378
======= ======= ======= =======
Diluted earnings per share $ 0.16 $ 0.14 $ 0.44 $ 0.36
======= ======= ======= =======
Diluted weighted average
shares outstanding 6,096 5,529 5,664 5,563
======= ======= ======= =======
</TABLE>
See Accompanying Notes to Financial Statements.
VARI-L COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(000's omitted)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
9/30/99 9/30/98
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net cash provided by
operating activities (Note 8) $ 2,114 $ 1,581
--------- ---------
Cash flows from investing activities:
Net purchases of property and equipment (4,823) (6,319)
--------- ---------
Net cash used in investing
activities (4,823) (6,319)
--------- ---------
Cash flows from financing activities:
Increases in long-term debt 1,387 1,437
Repayments of long-term debt (638) (424)
Borrowings under bank line of credit 1,480 4,144
Repayments under bank line of credit (2,420) (1,350)
Net proceeds from insurance financing 41 110
Net proceeds from warrant conversions 76 807
Net proceeds from stock issuances, net of
income tax benefit 1,924 464
--------- ---------
Net cash provided by financing
activities 1,850 5,188
--------- ---------
Net (decrease) increase in cash (859) 450
Beginning cash 6,515 5,971
--------- ---------
Ending cash $ 5,656 $ 6,421
- ----------- ========= =========
Supplemental disclosure of cash flows
information:
Cash paid for interest $ 653 $ 392
========= =========
Cash paid for income taxes $ 0 $ 0
========= =========
</TABLE>
See Accompanying Notes to Financial Statements.
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Vari-L Company, Inc. (the Company) was founded in 1953 and is a
manufacturer of electronic components. The Company's products are used in
commercial and military communications systems where electrical processing
of radio frequency signals is required.
NOTE 1 - FINANCIAL PRESENTATION
- -------------------------------
These financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1998 and notes
thereto.
In the opinion of management, the accompanying interim, unaudited
financial statements contain all the adjustments necessary to present
fairly the financial position of the Company as of September 30, 1999, the
results of its operations for the three-month and nine-month periods ended
September 30, 1999 and September 30, 1998, and its cash flows for the nine-
month periods ended September 30, 1999 and September 30, 1998. All
adjustments made are of a normal recurring nature.
NOTE 2 - INVENTORIES
- --------------------
<TABLE>
<CAPTION>
Inventories consist of the following: (000's omitted)
-------------------------
9/30/99 12/31/98
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Finished goods $ 3,321 $ 2,174
Work in process 3,013 3,365
Raw materials 2,102 2,211
Gold bullion 151 151
--------- ---------
$ 8,587 $ 7,901
========= =========
Long-term inventories $ 475 $ 475
========= =========
</TABLE>
NOTE 3 - INCOME TAXES
- ---------------------
Income tax expense reflects effective tax rates of 38.13% for 1999 and 40%
for 1998.
NOTE 4 - CREDIT FACILITY
- ------------------------
The Company has two credit facilities. The first consists of a line of
credit. The second consists of a term loan and a revolving equipment term
loan.
On May 18, 1999, the Company renegotiated its line of credit. The line
now provides for borrowings of up to $6.0 million. Interest is payable
monthly, calculated at prime. The line of credit matures April 30,
2001. At September 30, 1999, the outstanding balance due under the line
of credit was approximately $3.8 million.
On August 21, 1998, the Company renegotiated its term loan and revolving
equipment term loan. The Company extended its term loan for an additional
year and converted the loan to a floating rate of Libor plus 1.50% and
received fixed rate protection by executing an interest rate swap which
results in an all-in fixed rate of 7.75% through the maturity date of
February 24, 2002. Monthly principal and interest payments of
approximately $65,000 are required. At September 30, 1999, the balance
due under the term loan was approximately $3.75 million.
The revolving equipment term loan provides for borrowings up to $4.0
million. Interest accrues on the outstanding principal balance of the
revolving equipment term loan at prime plus .25% when advances are made
under the revolver. These borrowings can be converted to term notes at
rates which adjust to the 3-year treasury note rate plus 1.95%. When
converted, the term debt requires monthly principal and interest payments
calculated on a seven-year amortization basis with a 42 month maturity.
The revolving loan, which matured on August 13, 1999, has been extended to
November 13, 1999. As of September 30, 1999, the balance of the
advances under the revolving loan that had been converted to term notes
totaled approximately $3.7 million. Interest accrues on the outstanding
principal balances of these term notes at rates ranging from 6.108% to
7.72% and monthly principal and interest payments totaling $57,486 are
required.
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 5 - SECURITIES PURCHASE AGREEMENT
- --------------------------------------
On March 4, 1997, the Company entered into an agreement to sell up to 75
units of debentures and warrants. The units consisted of an aggregate of
$7,500,000 in convertible debentures and 750,000 non-redeemable warrants
to purchase common stock at a price of $9.50 per share. All of the
debentures plus accrued interest were converted into common stock during
1997. 8,000 of these warrants were exercised during the current quarter.
As of September 30, 1999, 93,000 of the warrants had been exercised and
657,000 warrants remained outstanding.
NOTE 6 - STOCK COMPENSATION PLANS
- ---------------------------------
The Company has three stock-based compensation plans: a stock option plan,
an employee stock purchase plan, and a stock grant plan.
Stock Option Plan
- -----------------
The Company has reserved 3,270,000 shares of its common stock for issuance
upon exercise of rights and options under the stock option plan.
Typically, rights and options have been granted subject to a vesting
schedule, vesting at the rate of 20 percent per year, becoming fully
vested upon the change of control of the Company, and expiring 10 years
from the date of issuance. Certain options granted to senior management
are fully vested upon issuance.
In the three months ended September 30, 1999, 269,806 options were
exercised and 1,000 options were granted pursuant to the plan.
Employee Stock Purchase Plan
- ----------------------------
Under the Company's employee stock purchase plan, eligible employees may
contribute up to 10 percent of their earnings, through payroll deductions,
to purchase shares of the Company's common stock. The purchase price is
equal to 85 percent of the fair value of the stock on specified dates. A
total of 800,000 shares were reserved under the plan, 43,136 have been
issued under the plan, and the remaining maximum number of shares to be
issued is 189,216 per year. For the plan year 1998, a total of 12,851
shares were issued in January 1999 at $6.43 per share.
Stock Grant Plan
- ----------------
During 1996, the Company adopted a stock grant plan under which stock
grants can be made to the Company's officers, directors, employees,
consultants, and advisors. The Company reserved 100,000 shares of its
common stock for issuance under the stock grant plan. The plan provides
for automatic grants of 50 shares per month to non-management members of
the Company's Board of Directors. During the third quarter of 1999, those
members received grants for 450 shares. Compensation cost charged to
operations was measured by the fair market value of the stock on the date
of the grants.
In connection with certain executive employment agreements, the
Compensation Committee granted stock bonuses of 25,000 shares to each of
the Company's two senior officers. The grants are subject to a vesting
schedule whereby one-half of the shares were vested during 1997 and 1998.
Shares are granted only as earned pursuant to the vesting schedule in the
employment agreements. 6,250 shares vested in March 1999 and the
remaining shares are scheduled to vest in 2000. Additionally, the Company
is liable for income and payroll taxes attributable to the stock bonuses.
The grants are subject to forfeiture provisions related to fulfillment of
various terms of the employment agreements. Accordingly, the Company is
amortizing the cost of the stock bonuses over the term of the employment
agreements. As of September 30, 1999, the value of the vested stock
bonuses, and the related income and payroll taxes, totaled approximately
$698,000 and the unamortized, prepaid portion of this cost was
approximately $487,000.
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 7 - EARNINGS PER SHARE
- ---------------------------
The following is a reconciliation of the net income (numerator) and number
of shares (denominator) for the computations of basic and diluted earnings
per shares:
<TABLE>
<CAPTION>
(000's Omitted)
-----------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
For the quarter ended September 30, 1998
- ----------------------------------------
Basic earnings per share $ 749 5,460 $0.14
Effect of dilutive stock options
and warrants 0 69
------- -----
Diluted earnings per share $ 749 5,529 $0.14
======= =====
For the quarter ended September 30, 1999
- ----------------------------------------
Basic earnings per share $ 965 5,665 $0.17
Effect of dilutive stock options
and warrants 0 431
------- -----
Diluted earnings per share $ 965 6,096 $0.16
======= =====
For the nine months ended September 30, 1998
- --------------------------------------------
Basic earnings per share $ 1,981 5,378 $0.37
Effect of dilutive stock options
and warrants 0 185
------- -----
Diluted earnings per share $ 1,981 5,563 $0.36
======= =====
For the nine months ended September 30, 1999
- --------------------------------------------
Basic earnings per share $ 2,466 5,559 $0.44
Effect of dilutive stock options
and warrants 0 105
------- -----
Diluted earnings per share $ 2,466 5,664 $0.44
======= =====
</TABLE>
At September 30, 1999, the Company had 5,795,564 common shares
outstanding. During the nine months ended September 30, 1999, the Company
issued 335,280 shares and repurchased 3,850 shares. For purposes of
computing earnings per share, the shares issued during the period were
weighted for the period of time they were outstanding.
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 8 - RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
- -------------------------------------------------
The reconciliation of net income to net cash provided by operating
activities for the nine-month periods ended September 30, 1999 and
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
(000's omitted)
-------------------------
Nine Months Nine Months
Ended Ended
9/30/99 9/30/98
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net Income $ 2,466 $ 1,981
--------- ---------
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 1,376 868
Amortization of covenant
not to compete 25 25
Changes in assets and liabilities:
(Increase) in accounts receivable (614) (770)
(Increase) in inventories (686) (931)
(Increase) decrease in prepaid
expenses and other (405) 5
(Increase) in patents and
other assets (701) (101)
Decrease in accounts payable (683) (498)
Decrease in accrued expenses (184) (319)
Increase in income taxes payable 1,520 1,321
--------- ---------
Total adjustments (352) (400)
--------- ---------
Net cash provided by
operating activities $ 2,114 $ 1,581
- ---------------------- ========= =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
- -------------------------------------------------------------------------
Overview
- --------
The Company achieved record financial results in the three- and nine-month
periods ended September 30, 1999. In the quarter, net sales were up 37%,
to $6.6 million, over the same quarter last year. Net income was up 29%,
to $965,000, over the same quarter last year. Basic and diluted earnings
per share were 17 cents and 16 cents per share, respectively, versus 14
cents per basic and diluted earnings per share for the same quarter last
year. For the nine month period, net sales were up 32%, to $17.4 million
and net income was up 24%, to $2.5 million, over the same period last
year. Both basic and diluted earnings per share were 44 cents per share
for the first nine months of 1999, versus 37 cents and 36 cents per share,
respectively, for the same period last year.
The Company also achieved a record level of new firm customer orders for
the three- and nine-month periods ended September 30, 1999. In the
quarter, bookings of new orders were up 16%, to $5.3 million, compared to
$4.6 million for the same quarter in 1998. In the nine-month period,
bookings were up 23%, to $13.2 million, compared to $10.7 million for the
same period in 1998.
Results of Operations
- ---------------------
Three months ended
- ------------------
September 30, 1999 and September 30, 1998
- -----------------------------------------
and the nine months ended
- -------------------------
September 30, 1999 and September 30, 1998
- -----------------------------------------
Total Revenues
Sales revenue increased approximately $1,789,000 (37%) in the three months
ended September 30, 1999 as compared with the three months ended September
30, 1998, from $4,805,000 to $6,594,000. Sales revenue increased
approximately $4,186,000 (32%) in the nine months ended September 30, 1999
as compared with the nine months ended September 30, 1998, from
$13,181,000 to $17,367,000. The growth in sales revenue continues to
reflect the Company's ongoing success in selling to the commercial
infrastructure marketplace, and entry into the subscriber handset
marketplace, with its narrow-band VCOs and PLLs, while maintaining its
existing markets in military products.
The Company produces seven major product lines:
1. Signal Processing components for industrial, military and
aerospace (Military/Aerospace Signal Processing, or MSP).
2. Signal Source components, primarily wide-band VCOs, for
industrial, military and aerospace (Military/Aerospace Signal
Source, or MSS).
3. Special Assemblies that combine MSP and MSS components
(Military/Aerospace Special Assemblies, or MSA).
4. Commercial Signal Source components including PLLs and narrow-
band VCOs (Commercial Signal Source, or CSS).
5. Commercial Signal Processing components, including
optoelectronic components and subassemblies used in magnetic and
fiberoptic products for CATV applications (Commercial Signal
Processing, or CSP).
6. Subscriber product components used in hand-held telephone sets,
pagers and other consumer-oriented products (Subscriber Signal
Source, or SSS).
7. Commercial Special Assemblies (CSA).
In the first nine months of 1999, the composition of sales revenue was 8%
MSP, 9% MSS, less than 1% MSA, 70% CSS, 6% CSP, 5% SSS and 1% CSA. In the
first nine months of 1998, the composition of sales revenue was 12% MSP,
30% MSS, 0% MSA, 51% CSS, 7 % CSP, 0% SSS and 0% CSA.
Cost of Goods Sold
Cost of goods sold, as a percent of sales revenues, was 47% and 46%,
respectively in the three months and nine months ended September 30, 1999.
Cost of goods sold, as a percent of sales revenues, was 45% in the three
months and nine months ended September 30, 1998. In addition to the
impact on margins from increased depreciation and amortization of plant
and ISO costs, margins are anticipated to decrease as the subscriber
products sales increase, because of the lower, competitive pricing of
these high volume products, while earnings are expected to be stable or
improve from these types of sales.
Selling and Engineering Expense
Selling expenses increased approximately $173,000, or 34%, for the three
months ended September 30, 1999 as compared to the three months ended
September 30, 1998. Selling expenses increased approximately $507,000, or
35%, for the nine months ended September 30, 1999 as compared to the nine
months ended September 30, 1998. Sales commissions, a significant
component of selling expenses, increase ratably with the increase of sales
revenues, which increased 37% and 32% in the periods, respectively.
Additional increases in the periods reflect increased travel, personnel
expenses and other selling expenses.
Engineering expenses increased approximately $170,000, or 60%, for the
three months ended September 30, 1999 as compared to the three months
ended September 30, 1998. Engineering expenses increased approximately
$341,000, or 41%, for the nine months ended September 30, 1999 as compared
to the nine months ended September 30, 1998. These increases reflect
ongoing improvements to the engineering department, including costs to
hire and retain skilled personnel, and related equipment costs and
expenses to support new product development and expansion of existing
product lines.
General and Administrative and Other Expenses
General and administrative expenses increased approximately $114,000, or
23%, for the three months ended September 30, 1999 as compared to the
three months ended September 30, 1998. General and administrative
expenses increased approximately $207,000, or 14%, in the nine months
ended September 30, 1999 as compared with the nine months ended September
30, 1998. Increases to G&A primarily reflect higher management
compensation, increased shareholder relations expense and other similar
expenses.
Other expenses were approximately $0 in the three months ended September
30, 1999 and $11,000 in the three months ended September 30, 1998. Other
expenses decreased approximately $30,000 (56%) in the nine months ended
September 30, 1999 as compared with the nine months ended September 30,
1998.
Interest Income and Expense
The Company manages its credit facilities and money fund in tandem.
Interest income is earned on the Company's short-term investments in a
U.S. government securities money fund purchased with proceeds from its
March 1997 convertible debenture offering as well as subsequent exercises
of warrants and employee stock options. Interest income decreased
approximately $32,000, to approximately $57,000, in the three months ended
September 30, 1999 compared to the three months ended September 30, 1998.
Interest income decreased approximately $73,000, to approximately
$174,000, in the nine months ended September 30, 1999 compared to the nine
months ended September 30, 1998. These decreases reflect the Company's
use of a portion of its cash during these periods for expansion of its
production facilities.
Interest expense increased less than $1,000 for the three months ended
September 30, 1999 as compared with the three months ended September 30,
1998. Interest expense increased approximately $259,000 (62%) for the
nine months ended September 30, 1999 as compared with the nine months
ended September 30, 1998. The increases are attributable to interest on
increased borrowings during the year to support facilities improvements
and equipment for expanded and improved production facilities. In
addition, the first quarter of 1998 included an interest accrual
adjustment, which was not applicable to 1999.
Depreciation and Amortization
Depreciation and amortization increased approximately $508,000 (59%) for
the nine months ended September 30, 1999 as compared with the nine months
ended September 30, 1998. The increase reflects depreciation and
amortization on increased investments in property, equipment, leasehold
improvements, patents and ISO registrations. Depreciation and
amortization expense is expected to continue to increase as a result of
these and future capital investments.
Financial Condition
- -------------------
Liquidity
At September 30, 1999 and December 31, 1998, the Company's working capital
was $16.4 million. The Company's current ratio was 4.6 to 1 as of
September 30, 1999 and 5.4 to 1 at December 31, 1998. The reduction in
the Company's current ratio from December 31, 1998 to September 30, 1999
is primarily attributable to the consumption of cash for the expansion of
the Company's production facilities and the current provision in the
period for corporate income taxes, offset by increases in inventory and
prepaid expenses and decreases in trade payables.
Capital Resources
The Company has two credit facilities. The first consists of a line of
credit. The second consists of a term loan and a revolving equipment term
loan.
On May 18, 1999, the Company renegotiated its line of credit. The line
now provides for borrowings of up to $6.0 million. Interest is payable
monthly, calculated at prime. The line of credit matures April 30, 2001.
At September 30, 1999, the outstanding balance due under the line of
credit was approximately $3.8 million.
On August 21, 1998, the Company renegotiated its term loan and revolving
equipment term loan. The Company extended its term loan for an additional
year and converted the loan to a floating rate of Libor plus 1.50% and
obtained fixed rate protection by executing an interest rate swap which
resulted in an all-in fixed rate of 7.75% through the maturity date of
February 24, 2002. Monthly principal and interest payments of
approximately $65,000 are required. At September 30, 1999, the balance
due under the term loan was approximately $3.75 million.
The revolving equipment term loan provides for borrowings up to $4.0
million. Interest accrues on the outstanding principal balance of the
revolving equipment term loan at prime plus .25% when advances are made
under the revolver. These borrowings can be converted to term notes at
rates which adjust to the 3-year treasury note rate plus 1.95%. When
converted, the term debt requires monthly principal and interest payments
calculated on a seven-year amortization basis with a 42-month maturity.
The revolving loan, which matured on August 13, 1999, has been extended to
November 13, 1999. As of September 30, 1999, the balance of the
advances under the revolving loan that had been converted to term notes
totaled approximately $3.7 million. Interest accrues on the outstanding
principal balances of these term notes at rates ranging from 6.108% to
7.72% and monthly principal and interest payments totaling $57,486 are
required.
The Company finances certain of its annual insurance premiums through a
financing company. The amounts due under these loans totaled
approximately $63,000 as of September 30, 1999 and are paid in monthly
installments of $18,274 with interest rates ranging from 6.21% to 8.3%.
On March 4, 1997, the Company entered into an agreement to sell up to 75
units of debentures and warrants. The units consisted of an aggregate of
$7.5 million convertible debentures and 750,000 non-redeemable common
stock purchase warrants exercisable at $9.50 per share. All of the
debentures plus accrued interest were converted into common stock during
1997. 8,000 of the warrants were exercised during the current quarter.
As of September 30, 1999, 93,000 of the warrants had been exercised and
657,000 warrants remained outstanding.
The Company believes that it has sufficient financial resources available
to meet its short-term working capital needs through cash flows generated
by operating activities and through the management of its sources of
financing. The Company also believes that, as the result of the sales of
the convertible debentures and stock option exercises, it has adequate
capital resources to continue its growth plans.
Backlog
Total backlog of unfilled firm customer orders ("backlog") at September
30, 1999 was $13.9 million compared with $14.2 million at September 30,
1998. Backlog at December 31, 1998 was $18.1 million.
Year 2000 Issues
The Company has given serious attention to the potential problems that
could arise from the rollover of computer clocks with two-digit fields
when the year 2000 arrives. To ensure the Company's compliance we have
designated a Year 2000 task force that has investigated all manners of the
business and product lines. We are now pleased to announce the successful
completion of Year 2000 preparedness measures for all of our internal
systems.
The Year 2000 compliance task force addressed all internal functions of
the Company, including our business systems, computer systems,
manufacturing systems as well as the other systems necessary to maintain
our facilities and manufacturing capabilities. This task force has
inventoried, analyzed and tested all of the pertinent internal systems for
any potential issues related to the Year 2000 phenomenon and we feel
confident that the Company is prepared for a smooth transition into the
next millennium.
In addition, the Year 2000 compliance task force has evaluated all of our
products and services. The product lines that we ship are fully Year 2000
compliant and the devices manufactured by the Company have no date-reliant
components or internal software.
Furthermore, the Company has solicited its vendor roster for information
on their own preparations. The Company does not foresee any serious Year
2000 problems occurring with any of its important suppliers. The Company
has received a 100% response rate from its vendors and suppliers and
continues to actively investigate those vendors and suppliers who have
indicated that their Year 2000 compliance is in process, but not yet
complete. While the Company does not anticipate any disruption of
service, it is not possible to predict a minor Year 2000 issue arising
from a company with which the Company does business. The Company has
multiple sources for the vast majority of the raw materials and services
that it presently procures which, in conjunction with its intention to
increase its inventory of raw materials, will be sufficient to continue
production while the Company rectifies any issues that may arise.
While it is not possible to adequately compensate for regional, national
or global crises, the Company is confident that it is well prepared to
continue business as usual, now and into the next millennium.
To date, the costs that the Company has incurred which are specific to the
assessment and remediation of Year 2000 issues have not been material. No
special expenditures have been required in the area of software or
hardware. Some legal fees and educational expenses have been incurred to
heighten awareness and to help organize business activities to incorporate
assessment and remediation and the MIS staff was increased to perform and
manage compliance. For the most part, however, Year 2000 issues have been
incorporated into other management routines, thereby minimizing
extraordinary costs. It is presently anticipated that future, separately
identifiable costs of assessment and remediation will also be nominal, and
it is very likely that such costs will be less than $50,000 in 1999.
Forward looking statements
Some of the statements contained in this document are forward-looking
statements. The accuracy of these statements cannot be guaranteed as they
are subject to a variety of risks including, but not limited to the
success of the products into which the Company's products are integrated,
governmental action relating to wireless communications licensing and
regulation, internal projections as to the demand for certain types of
technological innovation, competitive products and pricing, the success of
new product development efforts, the timely release for production and the
delivery of products under existing contracts, future economic conditions
generally, as well as other factors, including any events that result from
the year 2000 computer clock rollover.
VARI-L COMPANY, INC.
PART II--OTHER INFORMATION
--------------------------
Item 1 Legal Proceedings
-----------------
None
Item 2 Changes in Securities
---------------------
None
Item 3 Defaults Upon Senior Securities
-------------------------------
None
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5 Other Information
-----------------
None
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VARI-L COMPANY, INC.
Date: November 8, 1999 By: /s/ Jon L. Clark
-----------------------------------
Jon L. Clark, V.P. Finance
and Principal Financial Officer
EXHIBIT INDEX
Exhibit Method of Filing
- ------- ----------------
27 Financial Data Schedule Filed electronically herewith
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VARI-L'S
UNAUDITED FINANCIAL STATEMENTS PREPARED AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE-MONTH PERIOD THEN ENDED, INCLUDED WITH ITS 10-KSB FILING WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE QUARTER ENDED SEPTMBER 30, 19999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,656
<SECURITIES> 0
<RECEIVABLES> 5,054
<ALLOWANCES> 23
<INVENTORY> 8,587
<CURRENT-ASSETS> 20,989
<PP&E> 36,418
<DEPRECIATION> 5,677
<TOTAL-ASSETS> 55,715
<CURRENT-LIABILITIES> 4,575
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 37,306
<TOTAL-LIABILITY-AND-EQUITY> 55,715
<SALES> 17,367
<TOTAL-REVENUES> 17,541
<CGS> 7,938
<TOTAL-COSTS> 7,938
<OTHER-EXPENSES> 4,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 676
<INCOME-PRETAX> 3,986
<INCOME-TAX> 1,520
<INCOME-CONTINUING> 2,466
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