<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended SEPTEMBER 30, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to _________ .
Commission File Number 23742
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 22-1867386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1030 SWABIA COURT, RESEARCH TRIANGLE PARK, NORTH CAROLINA 27709-3585
(Address of principal executive offices and zip code)
(919) 941-5730
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant computed using the closing price on the Nasdaq Stock Market
for the registrant's common stock as of December 2, 1996 was $115,320,682.
As of December 2, 1996, 5,182,952 shares of common stock were
outstanding.
The Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held February 5, 1997 is incorporated by reference in Part
III of this Form 10-K to the extent stated herein.
================================================================================
<PAGE>
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I
<S> <C> <C>
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 8
Item 3 Legal Proceedings................................................................ 8
Item 4 Submission of Matters to a Vote of Security Holders.............................. 8
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters....................................................................... 8
Item 6 Selected Financial Data.......................................................... 9
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 10
Item 8 Financial Statements and Supplementary Data...................................... 17
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................................... 29
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 29
Item 11 Executive Compensation........................................................... 29
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 29
Item 13 Certain Relationships and Related Transactions................................... 29
PART IV Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................................... 30
SIGNATURES ................................................................................. 32
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
The Company develops, manufactures, markets and supports test,
measurement, diagnostic and monitoring products (collectively, "internetwork
analysis products") for local and wide area data and telecommunication networks.
The Company's internetwork analysis products, which primarily consist of the
DA-3x and Domino(1) families, enable customers to analyze and solve
interoperability and performance problems across all the principal
configurations of network topologies and communication protocols. The Company
introduced its first DA-3x product in the fall of 1990. As new and more advanced
networks and communication methods have been developed, the Company has expanded
its DA-3x family through releases of new or enhanced hardware and software
modules.
In fiscal 1994, the Company began manufacturing and distributing its
Domino product family, a new generation of analyzers designed specifically for
use by field technicians who install and maintain large multi-site LANs and
WANs. DominoLAN(TM) and DominoWAN(TM) were both released for shipment to end
customers during the first quarter of fiscal 1995 followed by DominoFDDI(TM) in
the fourth quarter of fiscal 1995. In fiscal 1996, the Company continued to
develop and introduce additional products in the Domino family in fiscal 1996
including DominoWIZARD(TM), DominoREMOTE, and SNA Session Generator.
The Company also markets specialized test, measurement and monitoring
instruments primarily for use by operators of telecommunication and data
transmission systems.
The Company's major customers include Alcatel, AT&T, Cisco Systems,
Deutsche Telekom, GTE, MCI, Motorola, Sprint, U. S. government agencies and U.S.
West.
MARKET SEGMENTS
The Company classifies the market for network analysis products in
three principal segments as follows:
DEVELOPERS AND LABS. Developers of network systems consist primarily of
large companies that develop, manufacture and market data and telecommunication
networks and network interconnection products, such as routers, servers, hubs
and gateways. Users of the Company's products among these customers have
generally been highly sophisticated engineers who have an in-depth understanding
of LAN and WAN technologies.
SERVICE PROVIDERS. Service Providers generally consist of large
companies that provide installation and maintenance services for networks
supplied by them or provided by others, as well as companies that provide
installation and maintenance services for their particular network hardware or
software products. Users of the Company's products among these customers have
generally been technicians servicing networks in the field.
NETWORK OPERATORS. Network operators consist of users of large
multi-site LANs and WANs, such as telecommunications companies, major industrial
corporations, retail store chains, universities, insurance companies, large
financial institutions, U.S. government agencies and large government
contractors. Users of the Company's products among these customers have
typically been personnel responsible for managing local and wide area networks
to ensure the continuous flow and sharing of data and telecommunications among
the computing resources on mission critical networks.
NETWORK ANALYSIS PRODUCTS
DA-3X PRODUCT FAMILY
EXPANDABLE ARCHITECTURE. The Company's DA-3x product family, consisting
of the DA-30C and related interface modules, provides customers with the
analysis tools, in one instrument, to identify, analyze and resolve
(1) "Domino" is a trademark of Wandel & Goltermann Technologies, Inc. and is the
subject of an application for registration with the U.S. Patent and Trademark
Office.
3
<PAGE>
interoperability and performance problems across all the principal
configurations of local and wide area network topologies and protocols. This is
achieved through a modular hardware and software platform that accommodates up
to two analyzer modules and multiple network interface modules. The Company
currently offers customers a choice of more than 20 network interface modules.
The DA-30C can accommodate up to four of these interface modules. The Company's
network interface modules permit customers to generate and capture traffic on
all the principal local and wide area network topologies, including Ethernet,
Token Ring, FDDI, 100Base-T, 100VGAnyLAN, T1, E1, ISDN, HSSI, V and X series
WAN, and ATM interfaces for DS3, E3, OC-3/STM-1 and E1.
The DA-3x product family is expandable to accommodate new interface
modules as LAN and WAN technologies and applications change and evolve. As new
network technologies have been developed, the Company has developed new
interface modules and software applications that permit customers to analyze and
solve interoperability and performance problems associated with these new
technologies. Since the introduction of the DA-3x product family in fiscal 1990,
the Company has released new hardware and software products one to two times per
year. For example, in fiscal 1995, the Company introduced DS-3, HSSI, 100 Base-T
and OC-3/STM-1 interface modules. In fiscal 1996, the Company introduced 100
VG-AnyLAN and a new LAN module combining Ethernet and Token Ring.
PROTOCOL INTERPRETER SUITES AND SOFTWARE APPLICATIONS. The Company
provides protocol interpreter suites in the hardware and software platform that
decode network protocols, including the most widely used protocols in local and
wide area networks at all seven layers of the OSI Model. The protocol
interpreter suites support automatic and in-depth interpretation of over 80
protocols. In addition to standard protocol interpreter suites, the Company
offers additional suites to enable users to customize DA-3x products for their
particular protocol interpretation needs.
The DA-3x product family includes a series of the Company's proprietary
software applications for use with each of its network interface modules. These
applications enable users to perform a wide variety of network test, measurement
and diagnostic tasks, such as counting errors, filtering frames, generating
traffic and triggering alarms. They also permit network statistical data to be
displayed graphically on the DA-3x monitor or exported to personal computers for
use with popular spreadsheet programs. For highly advanced analysis of certain
network interconnection devices, the Company provides customers with a
programming language that permits them to develop DA-3x software applications
that address their specific analysis requirements.
DUAL SIMULTANEOUS ANALYSIS. The DA-3x uses two analyzer modules that
independently communicate with any two of the four network interface modules
installed in the platform. Through the multiple processor architecture, the
analyzer modules can simultaneously test, decode and analyze network traffic.
For example, by positioning the DA-30C at a point of interconnectivity between
two networks, such as a bridge, router, gateway or hub, the DA-30C
simultaneously tests, measures and analyzes network transmissions in real time
on both sides of the interconnective point. This real time analysis capability
enables customers to more accurately test and analyze the performance of network
connection devices and network traffic among LANs and WANs, including those with
the same or different topologies.
DOMINO NETWORK ANALYZERS
The Domino product family is designed for analyzing certain widely-used
network topologies and protocols. These products are being designed to perform
many of the same analysis functions performed by DA-3x products, but in a
smaller, easier to operate and lower-priced instrument, specifically for use by
field technicians who install and maintain large multi-site LANs and WANs. Sales
of Domino products accounted for 23.1% of the Company's total revenues in the
year ended September 30, 1996 and have increased as the Company has continued to
expand product offerings and sales channels.
The Domino product family is complemented in the network operators
market by WG's Domain products, a line of Rmon probes and network management
tools supplied under an OEM agreement by Frontier Software Development, Inc.
4
<PAGE>
COMPLEMENTARY TELECOMMUNICATIONS PRODUCTS
Under a five-year contract with its affiliate Wandel & Goltermann
Management Holding GmbH ("WGG") which expires October 1, 1998 subject to
renewal, the Company serves as the exclusive United States distributor and
servicer of products developed and produced by its European manufacturing
affiliates. These products are purchased by the Company at Deutch Mark ("DM")
prices established by the manufacturing affiliates and resold by the Company to
U.S. customers. Complementary telecommunications products consist primarily of
electronic test, measurement and monitoring instruments for telecommunications
companies. They include fiber optic test and measurement equipment, such as
optical power level meters and optical attenuators, level and distortion
measurement equipment, such as level meters, remote access switches and level
generators, and certain other network systems test instruments. The Company
markets and sells these products primarily to large network operators and
developers and manufacturers of communication equipment. Major customers for
these products include AT&T, DSC, Sprint and Motorola. Sales of complementary
telecommunication products accounted for 17% of the Company's total revenues in
fiscal 1994, 21% in fiscal 1995 and 19% in fiscal 1996.
PRODUCT DEVELOPMENT
Management believes that the Company's future success depends upon its
ability to continue to enhance its DA-3x and Domino products and to develop new
products that are technologically competitive and enable the Company to
penetrate other markets for internetwork analysis products. The Company invests
a significant portion of its revenues in product development.
The Company has actively sought to establish close relationships with
certain of its major customers to provide it with access to industry
developments and the requirements of these customers for network analysis
products. Through these relationships, the Company has developed specialized
products for use by a particular customer which the Company has successfully
marketed and sold to others.
In order to access information about new developments and standards
relating to internetworking and new product developments, the Company is an
active member of several international standards bodies, such as Internet
Engineering Task Force, Institute of Electrical and Electronic Engineers, Frame
Relay Forum, Asynchronous Transfer Mode Forum, and Switched Multi-Megabit Data
Service Interest Group.
As of September 30, 1996, the Company had 65 employees devoted to
product development activities, many of whom have advanced degrees in electrical
engineering, computer engineering or computer science. In fiscal 1994, 1995 and
1996, product development expenses totaled approximately $9.1 million, $10.5
million and $9.8 million, respectively. To date, all of the Company's
development expenses have been charged to operations as incurred.
MARKETING AND SALES
MARKETING
The Company markets its products through trade publications, sales
brochures, worldwide web, appearances at industry trade shows and the
publication of a quarterly newsletter for customers highlighting the Company's
products and industry trends. Through these activities, management believes that
the Company and its products have developed high visibility, including favorable
recognition in several significant trade publications.
Many of the Company's affiliates have had long-standing customer
relationships with telephone operating companies, particularly those in Europe,
many of which are users of the Company's products. The Company believes it has
gained significant brand recognition for its products among these companies and
that these relationships have provided it with a competitive advantage in
marketing its products to the European telecommunications market.
5
<PAGE>
UNITED STATES SALES
The Company has expanded its direct U.S. sales force which sells
products developed and manufactured by the Company and those produced by its
European manufacturing affiliates. No one customer accounted for more than 10%
of the Company's revenues in fiscal 1994, 1995 or 1996. At September 30, 1996,
the Company employed 22 sales people operating out of 14 sales locations in the
United States. The Company believes that, for certain key customers, direct
sales personnel (rather than manufacturers' representatives) are best suited to
differentiate the Company's products from those of its competitors, to work
closely with customers to provide testing and diagnostic solutions for complex
networks, and to obtain insights into customers' needs for future testing and
diagnostic requirements. However, the Company is expanding its utilization of
manufacturer's representatives for sales of certain products to a larger market.
The Company's sales to nonaffiliated U.S. customers, as a percentage of total
revenues, were approximately 54% in fiscal 1994, 52% in fiscal 1995, and 56% in
fiscal 1996.
INTERNATIONAL SALES
WGG's sales affiliates serve as the international marketers and
distributors of the Company's products. These distributors purchase the
Company's products at prices established by the Company and market and resell
them worldwide from offices in Canada, Mexico and over 60 countries in Europe,
the Middle East, Central and South America and the Pacific Rim. The Company's
export sales to affiliated distributors, as a percentage of total revenues, were
approximately 46% in fiscal 1994, 45% in fiscal 1995 and 43% in fiscal 1996.
Although these distributors have no contracts with the Company and are under no
obligation to market and sell the Company's products, they have historically
focused their marketing and sales activities primarily on products manufactured
by the Company and its manufacturing affiliates.
WARRANTY SERVICE; CUSTOMER SUPPORT
The Company services and supports its products and those of its
affiliates which it sells in the United States. These products are sold with a
one-year warranty included in the product price. The Company's overseas
affiliates service and support the Company's products sold to international
customers under the Company's one-year warranty. The warranty covers all
necessary services for product repair and all software fixes during the warranty
period. For U.S. customers, product repair services are available at the
Company's headquarters in Research Triangle Park, North Carolina. The Company
also offers an extended warranty on its products for an annual fee. Under the
extended warranty, customers receive continued repair services, all major
software fixes and new software releases during the extended warranty period. To
date, the cost of providing warranty service has not been significant.
The Company maintains a customer support department at its headquarters
that is accessible to customers through a toll free telephone number. When an
inquiry is received, technical assistance engineers assess the problem and
provide necessary corrective action advice. The customer support department also
responds to customer requests for additional hardware or software modules and
coordinates these requests with the Company's operations department in order to
ensure prompt delivery of the requested module.
To complement its support services, the Company has sponsored a number
of educational programs in various cities to assist its customers in the use of
its products. These programs not only provide product training but also serve as
a forum for user suggestions for product development and enhancements.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations consist of hardware and software
configuration, printed circuit board layout, and assembly and testing of its
products. Most mechanical components, software and documentation duplication,
and some printed circuit board assembly, are outsourced. The Company expects to
increase outsourcing to contain costs.
6
<PAGE>
The Company generally uses standard parts and components available from
a number of suppliers. However, some components are only available from a single
source, which may be either from manufacturers in the U.S. or from foreign
manufacturers. The Company has not experienced any significant problems in
obtaining sole-sourced components and typically carries extra inventory of
critical sole-sourced components. The Company is not presently aware of any
facts which would result in a reduction, interruption or termination in the
supply of its sole-sourced components except for certain parts used in certain
Domino and DA-3x family products which have been discontinued by the
manufacturer. The Company has purchased these parts in quantities that
management believes will be sufficient to meet the Company's future demands for
these parts through the lives of the related Domino and DA-3x products. The
inability to develop alternative sources, if required, or a reduction or
interruption in supply or a significant increase in the price of one or more
sole-sourced components would adversely affect the Company's business and
operating results.
QUALITY STANDARDS
In 1987, as part of the development of the European Community, member
countries initiated a series of standards to assure quality and consistency of
business practices. These standards, promulgated by the International
Organization for Standardization and known as the ISO 9000 standards, are
already in use in most major European countries and require businesses to
establish documented quality standards throughout their organizations, relating
to contract review, design, document, purchasing and processing controls,
inspection and testing, handling, storage, packaging, delivery, training and
customer service. Businesses which successfully and continuously pass
certification review are allowed to apply the ISO 9000 designation to shipping
packages and marketing literature. ISO 9000 certification is very important for
any business intending to compete in Europe.
In January 1994, the Company received certification under ISO 9001, the
highest available certification for a development and manufacturing company. The
Company continues to maintain its certification under ISO 9001. ISO 9001
certifies the Company's product development, manufacturing, installation and
maintenance practices as meeting certain predetermined standards.
COMPETITION
A substantial number of companies market products which compete with
the Company's products. The Company's principal competitors to date have been
Hewlett-Packard, Network General, Tekelec and Telecommunications Techniques, a
division of Dynatech. Some of the Company's competitors have greater name
recognition, more extensive engineering, manufacturing and marketing
capabilities, and substantially greater financial, technological and personnel
resources than those of the Company. The Company competes primarily on the basis
of product features that are important in its markets, including product
modularity and life cycle, hardware quality, the breadth of network topologies
and protocols its products support, and the Company's technology that allows its
DA-3x products to "bridge" two different interfaces to provide dual simultaneous
analysis in real time.
To date, price has not been a significant competitive factor in the
marketing and sale of the Company's DA-3x products. While the Company believes
the primary competitive factors for the Domino products will be the technologies
they employ, their performance capabilities and the technical service and
support provided by the Company, price is also expected to be a factor since
these products are offered in market segments that are anticipated to be more
price sensitive than the market for the Company's DA-3x products.
In addition to the Company's current competitors, competition is
expected from companies not presently providing network analysis products.
Advances in technology, new product introductions, changes in industry
standards, regulatory activities, an increasing number of competitors, and the
marketing activities of other market participants may all adversely affect the
Company's performance. There can be no assurance that the Company will be able
to compete successfully in the future with existing or new competitors. The
Company's ability to compete successfully will depend in large measure on its
ability to identify and anticipate the requirements of its existing and
potential customers, while continuing to develop and manufacture products that
are superior in both technology and quality.
7
<PAGE>
EMPLOYEES
As of September 30, 1996, the Company employed 239 people, of which 65
were engaged in product development activities, 63 in manufacturing operations
and quality control, 21 in marketing, 59 in sales and service, and the remainder
in management and administrative capacities. None of the Company's employees are
covered under a collective bargaining agreement. The Company believes that its
employee relations are good.
ITEM 2. PROPERTIES
The Company's corporate offices and manufacturing operations are
located in approximately 96,750 square feet of leased facilities located in
Research Triangle Park, North Carolina. The Company's leases extend through
September 2005 and 2010, with options to renew. The Company has a right of first
refusal to purchase the property in the event the lessor proposes to sell it
during the initial or any renewal term. In addition, the Company has short-term
leases for office space in South Barrington, Illinois, San Jose, California and
Richardson, Texas. Management believes its equipment and facilities are in good
condition and suitable for their present use.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. The Company believes that all such claims and
legal actions will not have a material adverse effect on the financial position
or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended September 30, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock first began trading in April 1994 on the
NASDAQ National Market System under the symbol "WGTI". The following table sets
forth the high and low sales prices as reported on the Nasdaq National Market
during the last two years. As of December 2, 1996, the Company had approximately
46 shareholders of record. WGTI has not paid cash dividends on its common stock.
Market Price Per Share
1996 1995
High Low High Low
--------- --------- ---------- ----------
First Quarter $13.25 9.00 $16.13 11.63
Second Quarter 16.88 9.00 17.38 12.00
Third Quarter 19.75 14.13 20.75 10.25
Fourth Quarter 19.75 13.25 13.50 9.75
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ----------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Nonaffiliates $33,186 $23,658 $21,785 $18,005 $14,438
Affiliates 25,900 21,604 18,387 15,080 12,768
------------ ----------- ----------- ------------ ------------
Total revenues 59,086 45,262 40,172 33,085 27,206
Cost of revenues 23,234 16,576 12,731 12,176 10,569
------------ ----------- ----------- ------------ ------------
Gross profit 35,852 28,686 27,441 20,909 16,637
Selling, general and administrative expenses 18,934 15,872 12,984 10,603 8,506
Product development expenses 9,804 10,469 9,059 6,545 5,033
Restructuring charges -- 1,279 -- -- --
------------ ----------- ----------- ------------ ------------
Operating income 7,114 1,066 5,398 3,761 3,098
Interest expense -- -- (460 ) (779 ) (688 )
Interest income 350 313 295 274 --
Foreign currency gains (losses) (104 ) (245 ) 213 498 34
------------ ----------- ----------- ------------ ------------
Income from continuing operations
before income taxes 7,360 1,134 5,446 3,754 2,444
Benefit from (provision for) income taxes (2,208 ) (98 ) (2,124 ) 867 1,103
------------ ----------- ----------- ------------ ------------
Income from continuing operations 5,152 1,036 3,322 4,621 3,547
Income (loss) from discontinued operations -- -- 204 135 (1,795 )
Net income $ 5,152 $ 1,036 $ 3,526 $ 4,756 $ 1,752
============ =========== =========== ============ ============
PER SHARE DATA:
Income from continuing operations $ 0.98 $ 0.20 $ 0.76 $ 1.23 $ 0.95
Income (loss) from discontinued operations -- -- 0.04 0.04 (0.48 )
------------ ----------- -----------
Net income $ 0.98 $ 0.20 $ 0.80 $ 1.27 $ 0.47
============ =========== =========== ============ ============
Weighted average number of common shares
outstanding 5,231 5,245 4,398 3,750 3,750
AS OF SEPTEMBER 30,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- ----------- ------------ ------------
(IN THOUSANDS)
FINANCIAL CONDITION:
Working capital $24,869 $20,117 $20,041 $ 6,569 $ 3,585
Total assets 34,298 29,344 28,272 20,381 19,678
Short-term debt, including current maturities of
long-term debt -- -- -- 5,978 9,849
Long-term debt -- -- -- 4,370 4,370
Shareholders' equity 28,822 24,354 23,113 5,303 827
</TABLE>
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
components of the Consolidated Statements of Income expressed as a percentage of
total revenues:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Nonaffiliates 56.2 % 52.3 % 54.2 %
Affiliates 43.8 47.7 45.8
------------- ------------- -------------
Total revenues 100.0 100.0 100.0
Cost of revenues 39.3 36.6 31.7
------------- ------------- -------------
Gross profit 60.7 63.4 68.3
Selling, general and administrative expenses 32.0 35.1 32.3
Product development expense 16.6 23.1 22.6
Restructuring charges -- 2.8 --
------------- ------------- -------------
Operating income 12.1 2.4 13.4
Interest expense -- -- (1.1 )
Interest income 0.6 0.7 0.8
Foreign currency gains (losses) (0.2 ) (0.6 ) 0.5
-- --
------------- ------------- -------------
Income from continuing operations
before income taxes 12.5 2.5 13.6
Provision for income taxes (3.8 ) (0.2 ) (5.3 )
-- --
------------- ------------- -------------
Income from continuing operations 8.7 2.3 8.3
Income from discontinued operations -- -- 0.5
------------ ------------- -------------
Net income 8.7 % 2.3 % 8.8 %
============= ============= =============
</TABLE>
The following table presents, for the periods indicated, the Company's
revenues from the sale of internetwork analysis products and complementary
telecommunication products and such revenues as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Internetwork analysis products:
DA-3x $31,716 53.7 % $26,570 58.7 % $31,200 77.7 %
Domino 13,665 23.1 6,638 14.7 321 0.8
Other 2,687 4.6 2,602 5.7 1,762 4.4
----------- ----------- ----------- ----------- ----------- -----------
Total internetwork
analysis products 48,068 81.4 35,810 79.1 33,283 82.9
Complementary telecom-
munication products 11,018 18.6 9,452 20.9 6,889 17.1
----------- ---------- ---------- ----------- ---------- -----------
Total revenues $59,086 100.0 % $45,262 100.0 % $40,172 100.0 %
=========== =========== =========== =========== =========== ===========
</TABLE>
10
<PAGE>
The following table presents the Company's total revenues from domestic
and international sales for each of the last three fiscal years and such
revenues as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1996 1995 1994
------------------------ ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $33,752 57.1 % $24,919 55.1 % $21,785 54.2 %
Europe 14,960 25.3 13,029 28.8 13,246 33.0
Pacific Rim 7,010 11.9 4,582 10.1 3,151 7.8
Canada 1,995 3.4 1,560 3.4 1,160 2.9
Central and South America 1,049 1.8 959 2.1 791 2.0
Other 320 0.5 213 0.5 39 0.1
----------- --------- --------- ---------- ------------ ----------
Total revenues $59,086 100.0 % $45,262 100.0 % $40,172 100.0 %
=========== ========== ========== ========== ============ ==========
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
TOTAL REVENUES. Revenues for the fiscal year ended September 30, 1996
were $59.1 million, an increase of 30.5% over revenues of $45.3 million reported
for fiscal year 1995, due to increased sales volume of both the Company's
internetwork analysis products and complementary telecommunication products.
Revenues have increased in each geographical territory due to increased demand
for the Company's products. Domestic revenues increased 35.4% to $33.8 million
in fiscal 1996 compared to $24.9 million in fiscal 1995. International revenues
increased 24.5% to $25.3 million in fiscal 1996 compared to $20.4 million in
fiscal 1995 primarily due to sales growth in the Pacific Rim, although European
revenue growth also contributed to the overall increase in international
revenues.
Revenues from sales of the Company's internetwork analysis products
increased $12.3 million, or 34.2%, to $48.1 million in fiscal 1996 from $35.8
million in fiscal 1995. The increasing complexity of computer networks,
continued strength in the data networking market as customers migrate to new
technologies and continued expansion of the Company's product lines have caused
greater demand for the Company's internetwork analysis products.
Revenues from sales of the Company's DA-3x product family increased
$5.1 million, or 19.4%, to $31.7 million in fiscal 1996 from $26.6 million in
fiscal 1995 primarily due to revenues associated with OC-3 and 100BaseT modules
introduced in September 1995. DA-3x product family revenues represented 53.7% of
total revenues in fiscal 1996 compared to 58.7% in fiscal 1995. DA-3x product
family revenues declined as a percentage of total revenues due to faster growth
in Domino product family revenues during fiscal 1996.
Revenues from sales of the Company's Domino product family increased
$7.0 million, or 105.9%, to $13.7 million in fiscal 1996 compared to $6.6
million in fiscal 1995. The Domino product family is a new
generation of analyzers designed for the network installation and
maintenance market. The DominoWAN(TM) and DominoLAN(TM) were both
released for customer shipment during the first quarter of fiscal 1995
followed by the DominoFDDI(TM) in the fourth quarter of
fiscal 1995. The Company continued to introduce new Domino products in fiscal
1996 including DominoWIZARD(TM) and DominoREMOTE. Revenues have increased as the
Company has continued to expand product offerings and sales channels for this
product family. In addition, the Company recorded Domino revenues of $2.8
million related to sales to a major U.S. manufacturer of network equipment which
utilizes the Domino product line for pre- and post-sales support.
Revenues of complementary telecommunications products increased by $1.5
million, or 16.6%, to $11.0 million in fiscal 1996 compared to $9.5 million in
fiscal 1995 primarily due to an increase in revenues from sales of new products
purchased from international affiliates for resale in the United States
including the ANT-20, a physical layer test instrument for SDH, SONET and ATM.
GROSS PROFIT. Gross profit increased $7.2 million, or 25.0%, to $35.9
million in fiscal 1996 from $28.7 million in fiscal 1995. Gross margin decreased
to 60.7% in fiscal 1996 from 63.4% in fiscal 1995 primarily due to higher
manufacturing costs on DA-30C units and other existing modules in order to meet
the operating requirements of the OC-3 module and new CE Mark requirements for
products sold into the European Common Market. Gross profit and gross profit
percent may vary as a result of a number of factors, including product mix and
the mix of international and domestic sales.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3.0 million, or 19.3%, to $18.9 million in
fiscal 1996 from $15.9 million in fiscal 1995. Selling, general and
administrative expenses, as a percentage of revenues, decreased to 32.0% in
fiscal 1996 from 35.1% in fiscal 1995. The dollar amount of these expenses
increased primarily as a result of personnel, facility and equipment increases
to support higher revenues. Selling, general and administrative expenses as a
percentage of revenues decreased in fiscal 1996 as the Company curtailed
marketing efforts on the Network Operations product family in September 1995.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses decreased
$665,000, or 6.4%, to $9.8 million in fiscal 1996 from $10.5 million in fiscal
1995. Product development expenses, as a percentage of total revenues, decreased
to 16.6% in fiscal 1996 from 23.1% in fiscal 1995. Product development expenses
decreased in fiscal 1996 as the Company curtailed development efforts on the
Network Operations product family in September 1995. Because the Company's
product development activities are an important element of its growth strategy
and because of the increasing complexity of network technologies and
applications, the Company's expenditures for product development are expected to
be higher in fiscal 1997 than they were in fiscal 1996 but decline as a
percentage of revenues.
RESTRUCTURING CHARGES. Revenue Restructuring charges were $1.3 million in
fiscal 1995, all of which were incurred in the fourth fiscal quarter. In
September 1995, the Company announced that it would curtail development and
marketing efforts on the Network Operations product family. As a result, the
Company recorded restructuring charges of $719,000, primarily related to the
write-down of related inventories and the expected costs of employee severances.
In addition, the Company recorded severance expenses of $560,000 associated with
changes in senior management which were effective in the quarter ended September
30, 1995. There were no restructuring charges for the fiscal year ended
September 30, 1996.
FOREIGN CURRENCY GAINS (LOSSES). The Company incurred foreign currency
losses of $104,000 in fiscal 1996 compared to foreign currency losses of
$245,000 in fiscal 1995. The Company incurred net losses in fiscal 1996 on
foreign currency exchange collars, accounts receivable and cash denominated in
DM's as the U.S. dollar fluctuated against the DM. In fiscal 1995, the Company
incurred losses on foreign currency exchange contracts and collars, partially
offset by gains on accounts receivable and cash denominated in DM's, as the U.S.
dollar weakened significantly against the DM.
PROVISION FOR INCOME TAXES. The provision for income taxes was 30% of
pretax income in fiscal 1996 compared to 8.6% in fiscal 1995. The increase in
the effective tax rate in fiscal 1996 compared to 1995 was primarily due to
decreased research and development tax credits generated during the fiscal year
as a percentage of income before income taxes. The Company expects the effective
tax rate for 1997 to be approximately 30%.
12
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
TOTAL REVENUES. Total revenues increased $5.1 million, or 12.7%, to
$45.3 million in fiscal 1995 from $40.2 million in fiscal 1994. Revenues from
sales of the Company's internetwork analysis products increased $2.5 million, or
7.6%, to $35.8 million in fiscal 1995 from $33.3 million in fiscal 1994.
Revenues from sales of the Company's DA-3x product family decreased
$4.6 million, or 14.8%, to $26.6 million in fiscal 1995 from $31.2 million in
fiscal 1994. Revenues for the DA-3x product family were below anticipated levels
primarily as a result of a number of delays in new product introductions. These
new products and applications were introduced late in fiscal 1995 but had
minimal positive impact on revenues for the year.
The decrease in DA-3x product family revenues was offset by $6.6
million of revenues from sales of the Domino product family in fiscal 1995
compared to $321,000 in fiscal 1994. The Domino product family is a new
generation of analyzers designed for the network installation and maintenance
market. The DominoWAN(TM) and DominoLAN(TM) were both released for customer
shipment during the first quarter of fiscal 1995 followed by the DominoFDDI(TM)
in the fourth quarter of fiscal 1995.
Revenues of complementary telecommunications products increased by $2.6
million, or 37.2%, to $9.5 million in fiscal 1995 compared to $6.9 million in
fiscal 1994 primarily due to contract manufacturing performed by the Company for
the ATE business unit. In 1994, activity related to the ATE business unit was
accounted for in income from discontinued operations. See "Discontinued
Operations." The Company also experienced an increase in revenues from sales of
fiber optic test instruments and other new products purchased from international
affiliates for resale in the United States.
GROSS PROFIT. Gross profit increased $1.3 million, or 4.5%, to $28.7
million in fiscal 1995 from $27.4 million in fiscal 1994. Gross margin decreased
to 63.4% in fiscal 1995 from 68.3% in fiscal 1994 due to the increased
proportion of complementary telecommunication product sales primarily due to
contract manufacturing performed by the Company for the ATE business unit. These
products have lower margins as compared to the products developed and
manufactured by the Company. In addition, the market for the Company's products
is characterized by rapidly changing technology and frequent introduction of new
products. The Company recorded write-downs in inventories in the fourth quarter
of fiscal 1995 related to inventories which were rendered obsolete as a result
of new products introduced during the quarter or planned for release in early
fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.9 million, or 22.2%, to $15.9 million in
fiscal 1995 from $13.0 million in fiscal 1994. Selling, general and
administrative expenses, as a percentage of revenues, increased to 35.1% in
fiscal 1995 from 32.3% in fiscal 1994. The dollar amount of these expenses
increased primarily as a result of personnel, facility and equipment increases
to support higher revenues and to provide marketing efforts for new products,
including the Company's Network Operations and Domino product family and new
DA-3x interface modules for ATM and other broadband transmission technologies.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased
$1.4 million, or 15.6%, to $10.5 million in fiscal 1995 from $9.1 million in
fiscal 1994. Product development expenses, as a percentage of total revenues,
increased to 23.1% in fiscal 1995 from 22.6% in fiscal 1994. These increases
were primarily as a result of personnel, facility and equipment increases
related to (i) the development of an improved user interface for the Company's
network analysis products, (ii) the development of new DA-3x interface modules
for Asynchronous Transfer Mode ("ATM") and other broadband transmission
technologies and (iii) the development of new products, including the Domino
product family.
RESTRUCTURING CHARGES. Restructuring charges were $1.3 million in
fiscal 1995, all of which were incurred in the fourth fiscal quarter. In
September 1995, the Company announced that it would curtail development and
marketing efforts on the Network Operations product family. As a result, the
Company recorded restructuring charges of $719,000, primarily related to the
write-down of related inventories and the expected costs of employee severances.
In addition, the Company recorded severance expenses of $560,000 associated with
changes in senior management which were effective in the quarter ended September
30, 1995. There were no restructuring charges for the fiscal year ended
September 30, 1994.
13
<PAGE>
INTEREST EXPENSE. Interest expense was $460,000 in fiscal 1994. No
interest expense was incurred in fiscal 1995 because the Company used a portion
of the proceeds from its initial public offering to repay all of its
indebtedness in April 1994.
FOREIGN CURRENCY GAINS (LOSSES). The Company incurred foreign currency
losses of $245,000 in fiscal 1995 compared to foreign currency gains of $213,000
in fiscal 1994. The Company incurred losses in fiscal 1995 on foreign currency
exchange contracts and collars, partially offset by gains on accounts receivable
and cash denominated in DM's, as the U.S. dollar weakened significantly against
the DM. In fiscal 1994, the Company recorded gains of $90,000 related to bank
indebtedness denominated in DM's resulting from the strengthening of the U.S.
dollar relative to the DM during the first half of the fiscal year. The
indebtedness denominated in DM's was repaid in April 1994.
PROVISION FOR INCOME TAXES. The provision for income taxes was 8.6% of
pretax income in fiscal 1995 compared to 39.0% in fiscal 1994. The decrease in
the effective tax rate in fiscal 1995 compared to 1994 was primarily due to
utilization of research and development tax credits generated during the fiscal
year. The Company expects the effective tax rate for 1996 to be approximately
32%.
DISCONTINUED OPERATIONS. The ATE business unit was sold to an affiliate
at the end of fiscal 1992 and was accounted for as a discontinued operation in
1994. The Company continues to manufacture certain component parts and to
provide certain services on a contract basis to the ATE business unit based on
cost plus an appropriate profit. In 1995, revenues related to these activities
are included in revenues from affiliates.
14
<PAGE>
QUARTERLY FINANCIAL DATA
The following table presents selected quarterly financial information
for fiscal 1996 and 1995. This information is unaudited, but in the opinion of
the Company's management, reflects all adjustments, consisting only of normal
recurring adjustments, that the Company considered necessary for a fair
presentation of this information in accordance with generally accepted
accounting principles. Such quarterly results are not necessarily indicative of
future results of operations.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
-------------------------------------------- ------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Nonaffiliates $7,172 $8,154 $ 8,895 $ 8,965 $6,420 $ 5,735 $5,278 $ 6,225
Affiliates 6,291 6,342 6,528 6,739 5,396 5,881 5,106 5,221
--------- --------- --------- --------- -------- --------- --------- ---------
Total revenues 13,463 14,496 15,423 15,704 11,816 11,616 10,384 11,446
Cost of revenues 5,412 5,649 6,243 5,930 3,683 3,451 3,995 5,447
--------- --------- --------- --------- -------- --------- --------- ---------
Gross profit 8,051 8,847 9,180 9,774 8,133 8,165 6,389 5,999
Selling, general and
administrative expenses 4,631 4,667 4,528 5,108 3,660 3,941 3,717 4,554
Product development expenses 2,621 2,413 2,445 2,325 2,379 2,519 2,642 2,929
Restructuring charges -- -- -- -- -- -- -- 1,279
--------- --------- --------- --------- -------- --------- --------- ---------
Operating income (loss) 799 1,767 2,207 2,341 2,094 1,705 30 (2,763)
Interest income 53 60 79 158 93 80 68 72
Foreign currency gains (losses) (21 ) (93 ) (46 ) 56 83 (338 ) (24 ) 34
--------- --------- --------- --------- -------- --------- --------- ---------
Income (loss) from operations 831 1,734 2,240 2,555 2,270 1,447 74 (2,657)
Benefit from (provision for)
income taxes (266 ) (553 ) (719 ) (670) (726 ) (463 ) (23 ) 1,114
--------- --------- --------- --------- -------- --------- --------- ---------
Net income (loss) $ 565 $ 1,181 $ 1,521 $ 1,885 $1,544 $ 984 $ 51 $ (1,543)
========= ========= ========= ========= ======== ======== ========= =========
Net income (loss) per share $0.11 $0.23 $0.29 $0.36 $0.30 $0.19 $0.01 $(0.29 )
Weighted average numbers of
common shares outstanding 5,218 5,155 5,275 5,273 5,226 5,243 5,260 5,237
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
In recent years, the Company's revenues and operating income have been
affected by the timing of new product introductions, expenditures for product
development and marketing programs and for the hiring of product development,
marketing, sales and administrative personnel. Quarterly results have also been
affected, and may continue to be affected, by realized and unrealized foreign
currency gains or losses. Further, the Company's expense levels have been based,
in part, on its expectations of future revenues. If expected revenue levels are
not achieved in the future in a particular quarter, quarterly results may be
adversely affected.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
1996 1995 1994
----------- ------------- ------------
(IN THOUSANDS)
Cash and cash equivalents $10,286 $ 5,374 $ 6,624
Working Capital $24,869 $ 20,117 $ 20,041
Cash and cash equivalents increased $4.9 million in 1996 and decreased
$1.3 million in 1995. The increase in 1996 resulted primarily from cash provided
by operations offset by the acquisition of equipment and the repurchase of
Common Stock. The decrease in 1995 resulted primarily from acquisitions of
equipment and intangible assets offset by cash provided by operations.
Net cash generated from operations was $7.3 million in 1996, $1.7
million in 1995 and $546,000 in 1994. The primary source of these funds was net
income before depreciation and amortization for all periods. The net increase in
1995 also reflects an increase in income tax receivable of $1.5 million related
to overpayment of estimated income taxes for the year. Cash provided by
operations in 1994 reflects increases of $3.1 million in inventories and $2.1
million in accounts receivable.
Net cash used in investing activities was $1.7 million in 1996, $3.3
million in 1995 and $1.5 million in 1994. All of the cash used in investing
activities was the result of acquisitions of property and equipment and
intangible assets. Acquisitions of property and equipment consist primarily of
computer hardware and test equipment. Acquisitions of intangible assets consists
primarily of financial, manufacturing, product and product development software.
Expenditures for property and equipment increased in 1995 as a result of
leasehold improvements and furnishings purchased in connection with the leasing
of additional space for conducting the Company's operations.
Net cash used in financing activities was $684,000 in 1996. The Company
used $1.3 million to repurchase 100,000 shares of Common Stock in December 1995
which was partially offset by proceeds from the sale of Common Stock under the
Company's Employee Stock Purchase Plan and pursuant to the exercise of stock
options. Net cash provided by financing activities was $369,000 in 1995 and $7.4
million in 1994. The primary sources of funds in 1995 were the proceeds from the
sale of common stock under the Company's Employee Stock Purchase Plan and
pursuant to the exercise of employee stock options. The primary source of funds
in 1994 was the proceeds from the Company's initial public offering. In April
and May 1994, the Company completed an initial public offering, receiving net
proceeds of $14.3 million. The Company used a portion of the proceeds to repay
all outstanding indebtedness.
In March 1995, the Company entered into a $5.0 million line of credit
facility with a U.S. bank which expires in January 1998. In September 1996,
availability under this line was reduced by $267,000 as a result of a standby
letter of credit issued by the bank to secure the Company's group medical
insurance plan. Through September 30, 1996, there have been no borrowings under
this facility.
Management estimates that capital expenditures will be approximately
$1.8 million in fiscal 1997. These amounts will be used primarily for the
purchase of equipment related to product development, information systems and
manufacturing operations.
The Company believes that cash generated from operations, together with
existing cash balances and borrowings available under the Company's U.S. bank
line of credit facility, will be sufficient to satisfy the Company's
requirements for working capital and capital expenditures in fiscal 1997.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wandel & Goltermann Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Wandel
& Goltermann Technologies, Inc. (a North Carolina corporation) and subsidiaries
as of September 30, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Wandel & Goltermann
Technologies, Inc. and subsidiaries as of September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Raleigh, North Carolina,
November 1, 1996.
17
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
SEPTEMBER 30,
------------------------------------------
1996 1995
-------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $10,286 $ 5,374
Accounts receivable-
Nonaffiliates 8,148 5,378
Affiliates 5,068 3,934
Income tax receivable 720 1,464
Inventories 4,695 6,616
Deferred tax assets 1,079 1,946
Other current assets 349 395
-------------------- --------------------
Total current assets 30,345 25,107
-------------------- --------------------
Property and Equipment, at cost:
Machinery and equipment 4,401 4,189
Furniture and fixtures 5,186 5,764
--------------------
--------------------
9,587 9,953
Accumulated depreciation (6,323 ) (6,213 )
-------------------- --------------------
3,264 3,740
-------------------- --------------------
Other assets 689 497
-------------------- --------------------
$34,298 $29,344
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-
Nonaffiliates $ 1,327 $ 1,579
Affiliates 950 258
Accrued compensation 1,855 1,683
Other accrued liabilities 1,344 1,470
-------------------- --------------------
Total current liabilities 5,476 4,990
-------------------- --------------------
Shareholders' Equity:
Preferred stock, $0.01 par value, 2,000,000 shares
authorized;
no shares issued and outstanding -- --
Common stock, $0.01 par value, 20,000,000 shares
authorized; shares issued and outstanding - 5,169,052 at
September 30, 1996 and 5,218,430 at September 30, 1995 52 52
Additional paid-in capital 25,056 25,740
Retained earnings (accumulated deficit) 3,714 (1,438 )
-------------------- --------------------
28,822 24,354
-------------------- --------------------
$34,298 $29,344
==================== ====================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
18
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
-------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------
1996 1995 1994
------------------ ------------------ -------------------
<S> <C> <C> <C>
Revenues:
Nonaffiliates $33,186 $23,658 $21,785
Affiliates 25,900 21,604 18,387
------------------ -------------------
------------------
Total revenues 59,086 45,262 40,172
Cost of revenues 23,234 16,576 12,731
------------------ -------------------
------------------
Gross profit 35,852 28,686 27,441
Selling, general and administrative expenses 18,934 15,872 12,984
Product development expenses 9,804 10,469 9,059
Restructuring charges -- 1,279 --
------------------ ------------------ -------------------
Operating income 7,114 1,066 5,398
Interest expense -- -- (460 )
Interest income 350 313 295
Foreign currency gains (losses) (104 ) (245 ) 213
------------------ ------------------ -------------------
Income from continuing operations
before income taxes 7,360 1,134 5,446
Provision for income taxes (2,208 ) (98 ) (2,124 )
------------------ ------------------ -------------------
Income from continuing operations 5,152 1,036 3,322
Income from discontinued operations -- -- 204
------------------ ------------------ -------------------
Net income $5,152 $ 1,036 $ 3,526
================== ================== ===================
Per Share Data:
Income from continuing operations $ 0.98 $ 0.20 $ 0.76
Income from discontinued operations -- -- 0.04
------------------ ------------------ -------------------
Net income $ 0.98 $ 0.20 $ 0.80
================== ================== ===================
Weighted average number of common
shares outstanding 5,231 5,245 4,398
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
19
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCK RETAINED
------------------------- ADDITIONAL EARNINGS
PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------------ ---------- ------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1993 3,750,000 $ 38 $11,265 $ (6,000 ) $ 5,303
Issuance of common stock, net of offering
expenses of $1,611 1,445,000 14 14,270 -- 14,284
Net income -- -- -- 3,526 3,526
------------ ---------- ------------- ---------------- ----------
Balance, September 30, 1994 5,195,000 52 25,535 (2,474 ) 23,113
Issuance of common stock, net of
expenses of $9 23,430 -- 205 -- 205
Net income -- -- -- 1,036 1,036
------------ ---------- ------------- ---------------- ----------
Balance, September 30, 1995 5,218,430 52 25,740 (1,438 ) 24,354
Repurchase of common stock (100,000 ) (1 ) (1,286 ) -- (1,287)
Issuance of common stock 50,622 1 602 -- 603
Net income -- -- -- 5,152 5,152
------------ ---------- ------------- ---------------- ----------
Balance, September 30, 1996 5,169,052 $ 52 $25,056 $ 3,714 $28,822
============ ========== ============= ================ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
20
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994
------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $5,152 $1,036 $ 3,526
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 1,957 1,933 1,276
Deferred tax asset 867 (289 ) 690
(Increase) decrease in accounts receivable -
Nonaffiliates (2,770 ) (581 ) (1,376 )
Affiliates (1,134 ) 795 (697 )
(Increase) decrease in income tax receivable 744 (1,464 ) --
(Increase) decrease in inventories 1,921 325 (3,070 )
Increase (decrease) in accounts payable-
Nonaffiliates (252 ) (161 ) 549
Affiliates 692 10 (315 )
Increase (decrease) in other current liabilities 46 (18 ) 195
Other, net 119 69 (232 )
------------- -------------- -------------
Net cash provided by operating activities 7,342 1,655 546
------------- -------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (23,560 ) (21,500 ) --
Proceeds from the sale of marketable securities 23,560 21,500 --
Acquisitions of property and equipment (1,285 ) (2,985 ) (1,261 )
Acquisitions of intangible assets (461 ) (289 ) (259 )
------------- -------------- -------------
Net cash used in investing activities (1,746 ) (3,274 ) (1,520 )
------------- -------------- -------------
Cash flows from financing activities:
Repurchase of Common Stock (1,287 ) -- --
Proceeds from issuance of common stock, net 603 205 14,284
Net payments under bank line of credit agreement -- -- (408 )
Net payments of short-term notes payable to nonaffiliates -- -- (1,071 )
Notes receivable from affiliates -- 38 3,367
Payments of debt -- -- (8,779 )
Other, net -- 126 --
-------------- -------------
------------- -------------- -------------
Net cash provided by (used in) financing activities (684 ) 369 7,393
------------- -------------- -------------
Increase (decrease) in cash and cash equivalents 4,912 (1,250 ) 6,419
Cash and cash equivalents, beginning of year 5,374 6,624 205
------------- -------------- -------------
Cash and cash equivalents, end of year $10,286 $5,374 $6,624
============= ============== =============
Other cash flow information:
Income taxes paid $ 1,342 $2,345 $1,037
Interest paid -- -- 650
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
21
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Wandel & Goltermann Technologies, Inc. and its wholly-owned subsidiaries
which are referred to collectively herein as the "Company."
DESCRIPTION OF BUSINESS
The Company develops, manufactures, markets and supports test,
measurement, diagnostic and monitoring products for local and wide area data and
telecommunication networks. The Company also markets specialized test,
measurement and monitoring instruments primarily for use by operators of
telecommunication and data transmission systems.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Wandel &
Goltermann Technologies, Inc. and its wholly-owned subsidiaries. All
intercompany balances and transactions are eliminated in consolidation.
CASH EQUIVALENTS
The Company considers short-term investments with original maturities
of three months or less to be cash equivalents.
REVENUES
The Company recognizes product revenues at the time of shipment to
nonaffiliated and affiliated customers. Service revenues are recognized as
services are performed. Maintenance contract revenues, including revenues
related to extended warranty contracts, are deferred and recognized over the
contract term. The Company accrues related product return reserves and warranty
expenses at the time of sale.
MAJOR CUSTOMERS, CONCENTRATION OF CREDIT RISK AND EXPORT SALES
Sales to affiliates accounted for approximately 44% of total revenues
in 1996, 48% in 1995 and 46% in 1994. The Company had accounts receivable from
affiliates of $5,068,000 at September 30, 1996, and $3,934,000 at September 30,
1995. Management believes that all amounts due from affiliates are fully
collectible. No nonaffiliated customer accounted for 10% or more of total
revenues in 1996, 1995 or 1994. In the normal course of business, the Company
extends credit to various nonaffiliated companies, primarily developers and
manufacturers of network systems in the United States. The Company manages its
exposure to credit risk from nonaffiliated customers through credit approval and
monitoring procedures. Further, the Company believes that its portfolio of
22
<PAGE>
receivables from nonaffiliated customers is well diversified and that the
allowance for doubtful accounts ($125,000 at September 30, 1996 and $90,000 at
September 30, 1995) is adequate. Accounts receivable are not collateralized.
The Company had export sales, through affiliates, to end users in the
following geographic regions (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994
--------------- -------------- --------------
<S> <C> <C> <C>
Europe $14,960 $13,029 $13,246
Pacific Rim 7,010 4,582 3,151
Canada 1,995 1,560 1,160
Central and South America 1,049 959 791
Other 320 213 39
--------------- -------------- --------------
$25,334 $20,343 $18,387
=============== ============== ==============
</TABLE>
MARKETABLE SECURITIES
As part of the Company's cash management program, the Company invests
in highly liquid preferred stock and municipal bonds. The interest and dividend
rates on these securities are reset on a frequent basis. Under Statement of
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", these securities are classified as "available-for-sale
securities." The Company did not hold any such securities at September 30, 1996
or 1995.
PER SHARE DATA
Income per share amounts are computed using the weighted average number
of common shares and common share equivalents outstanding and the dilutive
effects of stock options and the Employee Stock Purchase Plan, using the
treasury stock method. The primary and fully diluted income per share amounts
are the same for all annual periods presented.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and include material, labor and manufacturing overhead. As of September
30, inventories consist of (in thousands):
1996 1995
----------- ---------
Raw materials $1,473 $1,767
Work in process 760 1,406
Finished goods 2,462 3,443
----------- ---------
$4,695 $6,616
=========== =========
PROPERTY AND EQUIPMENT
Property and equipment is stated at original cost. Depreciation is
calculated using primarily accelerated methods. Machinery and equipment are
depreciated over three to ten years. Furniture and fixtures are depreciated over
five to seven years.
OTHER ASSETS
Other assets consist primarily of purchased software ($453,000 at
September 30, 1996 and $389,000 at September 30, 1995) used in the
administrative operations of the Company or resold or used in conjunction with
the Company's products. Such software is being amortized over three to five
years.
23
<PAGE>
OTHER ACCRUED LIABILITIES
As of September 30, other accrued liabilities consist of the following
(in thousands):
1996 1995
------------ -----------
Deferred revenues $ 485 $ 256
Warranty reserve 300 280
Trademark and license fees 33 336
Other 526 598
------------ -----------
$1,344 $1,470
============ ===========
FOREIGN CURRENCIES
Certain product sales to affiliates, inventory purchases from
affiliates, and other transactions with affiliates are denominated in German
Deutsche Marks ("DMs") and are translated into U.S. dollars at the exchange rate
in effect at the transaction date. Gains or losses resulting from changes in the
exchange rate subsequent to the transaction date are reflected in the
consolidated statements of income in the period in which they occur.
From time to time, the Company has sought to reduce its exposure to
increases in the U.S. dollar relative to the DM by purchasing forward foreign
currency exchange contracts and collars relating to cash and accounts receivable
denominated in DMs. In addition, the Company purchases foreign currency exchange
contracts and collars relating to some of its future anticipated sales in DMs.
As of September 30, 1996, the Company has no outstanding forward currency
exchange rate contracts or collars.
Cash and accounts receivable denominated in DM are revalued at each
balance sheet date at the then current exchange rate, and any unrealized gain or
loss is recognized in the consolidated statement of income. Any foreign currency
exchange collars or any contracts are revalued at each balance sheet date at the
then current exchange rate, and any unrealized gain or loss is recognized in the
consolidated statement of income.
PRODUCT DEVELOPMENT EXPENSES
All product development costs, including software development costs,
have been expensed as incurred. The Company anticipates capitalizing eligible
computer software development costs upon the establishment of technological
feasibility, which the Company has defined as completion of a working model.
Through September 30, 1996, such capitalizable costs were insignificant and,
thus, the Company has charged all software development costs to product
development expenses in the accompanying consolidated statements of income.
RESTRUCTURING CHARGES
In the fourth quarter of fiscal year 1995, the Company recorded
restructuring charges of $1,279,000. In September 1995, the Company announced
that it would curtail development and marketing efforts on the Network
Operations product family. As a result, the Company recorded restructuring
charges of $719,000, primarily related to the write-down of inventories and the
expected costs of employee severances. In addition, the Company recorded
severance expenses of $560,000 associated with changes in senior management
which were effective in the quarter ended September 30, 1995.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued SFAS No.
123, "Accounting for Stock-Based Compensation." The Company is required to adopt
SFAS 123 for the fiscal year beginning October 1, 1996. This statement
establishes accounting and disclosure requirements using a fair value based
method of accounting for stock-based employee compensation plans. Under SFAS
123, the Company may either adopt the new fair value based accounting method or
continue the intrinsic value based method and provide pro forma disclosures of
net
24
<PAGE>
income and earnings per share as if the accounting provisions of this statement
had been adopted. The Company plans to adopt only the disclosure requirements of
SFAS 123; therefore, such adoption will have no effect on the Company's
financial position or results of operations.
3. TRANSACTIONS WITH AFFILIATES
At September 30, 1996, Wandel & Goltermann Management Holding GmbH
("WGG") owns 2,961,000 shares of the Company's common stock. The Company has
engaged in various types of transactions with WGG and affiliates of WGG
(collectively "affiliates") as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1996 1995 1994
----------- ----------- --------------
<S> <C> <C> <C>
Revenues from affiliates $25,900 $21,604 $18,387
Product purchases from affiliates 7,207 7,898 5,605
Trademark license fees to affiliates and sales, product development and
administration support services provided to the Company by affiliates 1,570 1,167 1,053
Rent and reimbursement of employee costs to an affiliate for Swiss
marketing office 712 750 713
Product service fees paid to affiliates for items sold in the U.S. and
shipped to international customer locations 245 127 12
Commissions paid to an affiliate for services to Latin American customers 193 22 --
License fees to affiliates for products developed by affiliates and sold by
the Company 11 36 31
Interest income to the Company 11 35 165
Interest expense to the Company -- -- 35
=========== =========== ==============
</TABLE>
In addition, see Note 9 for transactions with an affiliate related to
discontinued operations, and Note 6 for lease commitments to an affiliate.
Certain of the above expenses have been allocated to the Company by
affiliates. The Company believes such allocation methods are reasonable and
would not be materially different from what the expenses would have been on a
stand-alone basis.
4. BANK LINE OF CREDIT
In March 1995, the Company entered into a $5,000,000 unsecured line of
credit facility with a U.S. bank. In September 1996, availability under this
line was reduced by $267,000 as a result of a standby letter of credit issued by
the bank to secure the Company's group medical insurance plan. There were no
amounts outstanding under this facility during 1996 and 1995. The line, if used,
is payable on January 30, 1998 and bears interest at the lower of the bank's
prime rate minus .50% or LIBOR plus 1.25%. Under the terms of the facility, the
Company has agreed to certain financial covenants, including the maintenance of
stipulated amounts of quick working capital and tangible net worth. As of
September 30, 1996, the Company was in compliance with these financial
covenants.
25
<PAGE>
5. INCOME TAXES
The provision for income taxes from continuing operations includes the
following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current tax provision:
Federal $1,100 $ 337 $1,250
State 241 50 184
------------ ------------ ------------
1,341 387 1,434
------------ ------------ ------------
Deferred tax provision:
Federal 780 (233 ) 602
State 87 (56 ) 88
------------ ------------ ------------
867 (289 ) 690
------------ ------------ ------------
Provision for income taxes $2,208 $ 98 $2,124
============ ============ ============
</TABLE>
As of September 30, 1996 and 1995, the components of the Company's net
deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Accrued expenses $ 452 $ 630
Deferred revenues 189 100
Inventory reserves 428 960
Research and development tax credit carryforwards -- 189
Other 10 67
----------- -----------
Total deferred tax assets $1,079 $1,946
=========== ===========
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory
income tax rate to income tax expense is:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Tax at U.S. statutory rate 34.0 % 34.0 % 34.0 %
State income taxes, net of federal benefit 4.5 -- 5.0
Research and development tax credits (2.8 ) (22.0 ) --
Foreign sales corporation (4.5 ) (2.2 ) --
Other, net (1.2 ) (1.1 ) --
------------- ------------ -----------
30.0 % 8.7 % 39.0 %
============ ============ ===========
</TABLE>
6. COMMITMENTS
The Company leases certain facilities under operating leases. The
corporate offices and manufacturing facilities of the Company are leased from a
partnership, the majority of which is owned by a beneficial shareholder of WGG.
Under these leases, which expire on September 30, 2005 and 2010, annual rent of
$1,046,000 (effective October 1, 1996) is payable in monthly installments. The
annual rent is adjusted each October 1 for changes in the consumer price index.
The aggregate future rental obligations disclosed below assume the 1997 rental
amount will
26
<PAGE>
not change for the duration of the lease. Rent expense under all leases was
approximately $1,153,000 in 1996, $939,000 in 1995 and $723,000 in 1994.
Aggregate rental obligations for future fiscal years under leases
having remaining terms of one year or more, including the leases for the
corporate offices and manufacturing facility, at September 30, 1996, are as
follows (in thousands):
1997 $ 1,162
1998 1,132
1999 1,068
2000 1,047
2001 1,046
Thereafter 6,848
--------------
$12,303
==============
7. EMPLOYEE SAVINGS PLAN
The Company has a defined contribution 401(k) plan that covers
substantially all employees. The plan provides for the Company to match
voluntary employee contributions. In 1996, the matching rate was 75% of the
employee contribution up to 6% of annual compensation. Such matching rate can be
changed at the Company's discretion. All contributions by the Company are funded
currently and vest over five years. All employee contributions are fully vested.
Total expenses related to this plan were $445,000 in 1996, $436,000 in 1995 and
$425,000 in 1994.
8. COMMON STOCK
SHARE REPURCHASE PROGRAM
In November 1995, the Company's Board of Directors authorized the
Company to repurchase up to 200,000 shares of its Common Stock on the open
market to satisfy commitments under its stock option and stock purchase plans.
As of September 30, 1996, the Company has repurchased 100,000 shares at an
aggregate cost of $1,287,000.
OMNIBUS STOCK PLAN
The Company has a stock plan (the "Omnibus Stock Plan") which provides
for the grant to selected employees and directors of incentive and non-qualified
options, stock appreciation rights, restricted stock, performance awards and
other stock-based awards. The purchase price for stock subject to these options
shall be no less than the fair market value of the common stock at the date of
the grant. The options outstanding under this plan vest over periods ranging up
to five years and expire over periods ranging up to ten years. In August 1996,
the Board of Directors authorized the increase of shares reserved for issuance
under the Omnibus Stock Plan from 775,000 to 1,175,000 subject to shareholder
approval.
<PAGE>
OUTSIDE DIRECTORS' STOCK OPTION PLAN
In January 1994, the Company adopted an Outside Directors' Stock Option
Plan and reserved 25,000 shares of the Company's common stock for issuance under
the plan. Under the plan, each outside director joining the Company's Board of
Directors will automatically be granted options to purchase 1,000 shares. In
February 1996, the Board of Directors authorized an increase in the number of
options granted to outside directors upon annual re-election from 1,000 to 2,000
shares. All options will be granted with an exercise price equal to the fair
market value of the Company's common stock at the date of the grant. The options
outstanding under this plan vest over three years and expire in 10 years.
27
The following table summarizes the activity under the Omnibus Stock Plan and the
Outside Directors' Stock Option Plan:
<TABLE>
<CAPTION>
SHARES
AVAILABLE FOR OPTIONS EXERCISE PRICE
GRANT OUTSTANDING RANGE
----------------- ---------------- ---------------------
<S> <C>
Balances at September 30, 1993 -- -- --
Authorized 400,000 -- --
Granted (114,000 ) 114,000 $10.00-$10.69
Forfeited 5,000 (5,000 ) $10.00
----------------- ---------------- ---------------------
Balances at September 30, 1994 291,000 109,000 $10.00-$10.69
Granted (97,000 ) 97,000 $12.94-$15.19
Exercised -- (9,900 ) $10.00
Forfeited 7,500 (7,500 ) $10.00-$15.19
----------------- ---------------- ---------------------
Balances at September 30, 1995 201,500 188,600 $10.00-$15.19
Authorized 400,000 -- --
Granted (521,900 ) 521,900 $9.25-$19.00
Exercised -- (22,990 ) $10.00-$15.19
Forfeited 51,210 (51,210 ) $9.25-$15.19
----------------- ---------------- ---------------------
Balances at September 30, 1996 130,810 636,300 $9.25-$15.19
================= ================ =====================
</TABLE>
Of the outstanding options, 36,173 were exercisable as of September 30, 1996.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan under which employees
may authorize payroll deductions of up to 6% of their base compensation to
purchase common stock at a price equal to 85% of the lower of the fair market
value of the common stock at the beginning or the end of each offering period.
In August 1996, the Board of Directors authorized the increase of shares
reserved for issuance under the Employee Stock Purchase Plan from 100,000 to
200,000 subject to shareholder approval. Through September 30, 1996, 41,162
shares have been issued under the plan. Under the current offering, which
expires December 31, 1996, the offering price at the beginning of the offering
period was $9.08.
9. DISCONTINUED OPERATION
In September 1992, the Company sold the net assets and liabilities of
its ATE business unit ("ATE") to an affiliate. In 1994, the Company provided
manufacturing and engineering services to ATE (revenues of $478,000), and
manufactured products for ATE (revenues of $1,953,000), both at the Company's
cost plus an appropriate profit. The revenues and expenses related to these
services have been reflected as income from discontinued operations of $334,000
($204,000 net of taxes). Revenues of $565,000 in 1996 and $1,261,000 in 1995
related to these activities are included in revenues from affiliates. In
addition, the Company has provided various administrative and other services to
ATE at the Company's approximate cost ($91,000 in 1996, $59,000 in 1995 and
$74,000 in 1994), which has been offset against selling, general and
administrative expenses.
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required hereunder relating to directors and executive
officers of the Company is incorporated by reference herein to the sections
captioned "Election of Directors;" "Management;" and "Compliance With Section
16(a) of the Securities Exchange Act of 1934" in the Company's definitive proxy
statement in connection with its Annual Meeting of Shareholders to be held on
February 5, 1997, which proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the close of the Company's
fiscal year ended September 30, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by
reference to the sections captioned "Election of Directors;" "Compensation
Committee Interlocks and Insider Participation;" and "Certain Transactions" in
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10K is incorporated by
reference to the section captioned "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by
reference to the section captioned "Certain Transactions" in the Proxy
Statement.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE NUMBER(S)
<S> <C>
(a) (1) FINANCIAL STATEMENTS
Report of Independent Public Accountants 17
Consolidated Balance Sheets as of September 30, 1996 and September 30, 1995 18
Consolidated Statements of Income for the three years ended
September 30, 1996 19
Consolidated Statements of Changes in Shareholders' Equity for the
three years ended September 30, 1996 20
Consolidated Statements of Cash Flows for the three years ended
September 30, 1996 21
Notes to Consolidated Financial Statements 22
(2) Financial Statement Schedules: Information required in financial statement schedules
has been included in the accompanying financial statements or is in amounts not
sufficient to require submission of schedules.
(3) See Index to Exhibits on page 30 of this Form 10-K.
(b) The Registrant did not file or amend any reports on Form 8-K during the last quarter of
the fiscal year ended September 30, 1996
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Document
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company. (1)
3.2 Restated Bylaws of the Company. (1)
4.1 Form of Common Stock Certificate. (1)
10.1 Order Processing Agreement effective as of October 1, 1993, by and between Wandel &
Goltermann GmbH & Co. Elektronische Me(beta)technik and the Company. (1)
10.2 Trademark Licensing Agreement effective as of February 1, 1992, as amended, by and between
WGG and the Company.(1)
10.3 Lease Agreement dated as of October 1, 1984, as amended, by and between Wandel &
Goltermann Associates and the Company. (1)
10.4 Distributor Agreement, effective as of October 1, 1993, by and between WGG and the
Company. (1)
10.5 Wandel & Goltermann Technologies, Inc. Omnibus Stock Plan. (1)(2)
10.6 Wandel & Goltermann Technologies, Inc. Employee Stock Purchase Plan. (1)(2)
10.7 Wandel & Goltermann Technologies, Inc. Outside Directors' Stock Option Plan. (1)(2)
10.8 Employment Agreement effective as of July 22, 1991, as amended October 1, 1993, between
the Company and Robert B. Davidson. (1)(2)
10.9 Asset Purchase Agreement dated as of September 30, 1992, by and between Wandel &
Goltermann GmbH & Co. Elektronische Me(beta)technik and the Company (sale of ATE business
unit). (1)
10.10 Amended and Restated Promissory Note dated as of January 24, 1994, by and between Wandel &
Goltermann GmbH & Co. Elektronische Me(beta)technik and the Company (sale of ATE business uNIt
to an affiliate). (1)
10.11 Agreement of Sale effective as of April 1, 1993, by and between Wandel & Goltermann Inc.
and the Company (purchase of U.S. sales and service operations of an affiliate). (1)
10.12 Note payable dated as of January 14, 1994, to German bank for Deutsche Mark ("DM")
2,000,000, due April 30, 1994. (1)
30
<PAGE>
10.13 Note payable dated as of January 14, 1994, to German bank for DM 2,000,000, due
April 30, 1994. (1)
10.14 Term loan dated as of February 7, 1991, with a German bank for $675,000, due
February 3, 1995. (1)
10.15 Note payable dated as of September 24, 1991, to German bank for $1,245,000, due November
30, 1994. (1)
10.16 Term loan dated as of February 18, 1992, with a German bank for $700,000, due
February 17, 1995. (1)
10.17 Term loan dated as of April 2, 1992, with a German bank for $1,750,000, due
March 1, 1996. (1)
10.18 Plan of Reorganization for Wandel & Goltermann effective February 7, 1994, by and between
the Company and Wandel & Goltermann (WGT), Inc. (1)
10.19 Lease Agreement dated as of May 18, 1994, by and between W&G Associates and the Company.
(3)
10.20 Loan Agreement and promissory note dated June 9, 1994, with a U.S. bank for up to
$2,000,000, due January 30, 1995. (3)
10.21 Loan Agreement and promissory note dated March 16, 1995, with a U.S. bank for up to
$5,000,000, due January 30, 1998. (4)
11.1 Statement of computation of earnings per share of common stock.
21.1 Subsidiaries of the Company. (1)
23.1 Consent of Arthur Andersen LLP.
</TABLE>
- --------------
(1) Incorporated by reference herein to the exhibit designated by the same
number in the Company's Registration Statement on Form S-1 (Registration No.
33-74564).
(2) Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(3) Incorporated by reference herein to the exhibit designated by the same
number in the Company's quarterly report on Form 10-Q for the quarterly period
ended June 30, 1994.
(4) Incorporated by reference herein to the exhibit designated by the same
number in the Company's quarterly report on Form 10-Q for the quarterly period
ended March 31, 1995.
- --------------
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Durham,
State of North Carolina, on December 20, 1996.
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
By:/s/ Gerry Chastelet
Gerry Chastelet
President and Chief Executive Officer
December 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Gerry Chastelet President and Chief Executive December 20, 1996
----- -----------------------------
Gerry Chastelet Officer and Director (principal
executive officer)
/s/ Adelbert Kuthe Vice President - Finance and Secretary December 20, 1996
----- -----------------------------
Adelbert Kuthe (principal financial and accounting
officer)
/s/ Herbert Bayer Chairman December 20, 1996
----- -----------------------------
Herbert Bayer
/s/ Richard Pospisil Vice Chairman December 20, 1996
----- -----------------------------
Richard Pospisil
/s/ Albrecht Wandel Director December 20, 1996
----- -----------------------------
Albrecht Wandel
/s/ Rolf Schmid Director December 20, 1996
----- -----------------------------
Rolf Schmid
/s/ Sidney Topol Director December 20, 1996
----- -----------------------------
Sidney Topol
/s/ Peter Wagner Director December 20, 1996
----- -----------------------------
Peter Wagner
</TABLE>
32
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED SEPTEMBER 30, 1996
(In thousands, except earnings per share)
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Net income used for primary and fully diluted per share amounts $5,152 $1,036 $3,526
============= ============= ==============
Primary
Weighted average number of common shares outstanding 5,168 5,209 4,396
Add - Shares of common stock assumed issued upon exercise of options and upon
purchase of shares with prepaid contributions to the Employee Stock
Purchase Plan using the "treasury stock" method as it applies to the
computation
of primary income per share 63 36 2
------------- ------------- --------------
Weighted average number of shares used in calculations
of primary income per share 5,231 5,245 4,398
============= ============= ==============
Primary net income per common share $ 0.98 $ 0.20 $ 0.80
============= ============= ==============
Fully Diluted
Weighted average number of common shares outstanding 5,168 5,209 4,396
Add - Shares of common stock assumed issued upon exercise of options and upon
purchase of shares with prepaid contributions to the Employee Stock
Purchase Plan using the "treasury stock" method as it applies to the
computation
of fully diluted income per share 63 29 (8 )
------------- ------------- ----------------
Weighted average number of shares used in calculations of fully
diluted income per share 5,231 5,238 4,388
============= ============= ================
Fully diluted net income per common share $ 0.98 $ 0.20 $ 0.80
============= ============= ================
</TABLE>
33
<PAGE>
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
use of our reports included in or made a part of this Form 10-K.
We also hereby consent to the incorporation of our reports included
in this Form 10-K into the Company's previously filed Registration Statement
(Form S-8 No. 33-81078) pertaining to the Omnibus Stock Plan, the Outside
Directors' Stock Option Plan and the Employee Stock Purchase Plan of Wandel &
Goltermann Technologies, Inc.
/s/ Arthur Andersen LLP
Raleigh, North Carolina
December 20, 1996
34
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.0
<CASH> 10,286
<SECURITIES> 0
<RECEIVABLES> 13,216
<ALLOWANCES> (125)
<INVENTORY> 4,675
<CURRENT-ASSETS> 30,345
<PP&E> 9,587
<DEPRECIATION> (6,323)
<TOTAL-ASSETS> 34,298
<CURRENT-LIABILITIES> 5,476
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 28,770
<TOTAL-LIABILITY-AND-EQUITY> 34,298
<SALES> 59,096
<TOTAL-REVENUES> 59,096
<CGS> 23,234
<TOTAL-COSTS> 28,738
<OTHER-EXPENSES> 104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,360
<INCOME-TAX> 2,208
<INCOME-CONTINUING> 5,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,152
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.99
</TABLE>
