===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997 Commission File No. 0-23742
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 Identification Number)
incorporation or organization)
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)
Not applicable
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of April 30, 1997, 5,260,322 shares of the Registrant's $0.01 par value
common stock were outstanding.
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
INDEX - FORM 10-Q
MARCH 31, 1997
PART I - FINANCIAL INFORMATION PAGE
Consolidated Balance Sheets.......................................3
Consolidated Statements of Income.................................4
Consolidated Statements of Cash Flows.............................5
Notes to Consolidated Financial Statements........................6
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... .......9
PART II - OTHER INFORMATION.............................................14
SIGNATURE...............................................................15
2
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30,
1997 1996
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $13,766 $10,286
Accounts receivable-
Nonaffiliates 6,799 8,148
Affiliates 6,438 5,068
Income tax receivable 104 720
Inventories 4,932 4,695
Deferred tax assets 1,423 1,079
Other current assets 490 349
---------- ---------
Total current assets 33,952 30,345
---------- ---------
Property and equipment, at cost:
Machinery and equipment 4,386 4,401
Furniture and fixtures 5,630 5,186
---------- ---------
10,016 9,587
Accumulated depreciation (6,959) (6,323)
---------- ---------
3,057 3,264
---------- ---------
Other assets 576 689
---------- ---------
$37,585 $34,298
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-
Nonaffiliates $ 1,837 $ 1,327
Affiliates 690 950
Accrued compensation 1,393 1,855
Other accrued liabilities 1,637 1,344
---------- ---------
Total current liabilities 5,557 5,476
---------- ---------
Shareholders' equity:
Preferred Stock, $0.01 par value, 2,000,000
shares authorized; no shares issued and
outstanding -- --
Common stock, $0.01 par value
50,000,000 shares authorized;
issued and outstanding - 5,259,622 at
March 31, 1997 and 5,169,052 at September
30, 1996 53 52
Additional paid-in capital 26,346 25,056
Retained earnings 5,629 3,714
---------- ---------
32,028 28,822
---------- ---------
$37,585 $34,298
========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------ ---------------
1997 1996 1997 1996
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Nonaffiliates $7,247 $8,154 $13,729 $15,326
Affiliates 7,095 6,342 16,068 12,633
--------- -------- -------- ---------
Total revenues 14,342 14,496 29,797 27,959
Cost of revenues 6,260 5,649 12,372 11,061
--------- --------- --------- ------
Gross profit 8,082 8,847 17,425 16,898
Selling, general and administrative expenses 4,673 4,667 9,807 9,298
Product development expenses 2,482 2,413 4,932 5,034
--------- --------- ---------- ---------
Operating income 927 1,767 2,686 2,566
Interest income 172 60 320 113
Foreign currency gains (losses) (263) (93) (270) (114)
--------- --------- ---------- -----------
Income before income taxes 836 1,734 2,736 2,565
Provision for income taxes 251 553 821 819
--------- --------- ---------- -----------
Net income $ 585 $1,181 $1,915 $1,746
========= ========= ========== ===========
Earnings per share $ 0.11 $ 0.23 $ 0.36 $ 0.34
Weighted average number of common shares
outstanding 5,427 5,155 5,391 5,178
========= ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
4
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED MARCH 31,
---------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 1,915 $ 1,746
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 829 925
Deferred tax provision (344) (195)
Increase in accounts receivable -
Nonaffiliates 1,349 (1,034)
Affiliates (1,370) (544)
Decrease in income tax receivable 616 1,464
Increase in inventories (237) (224)
Increase (decrease) in accounts payable-
Nonaffiliates 510 719
Affiliates (260) 501
Decrease in other current liabilities (169) (520)
Other, net (114) 24
-------- --------
Net cash provided by operating activities 2,725 2,862
-------- --------
Cash flows from investing activities:
Purchases of marketable securities (25,550) (5,550)
Proceeds from the sale of marketable securities 25,550 5,550
Acquisitions of property and equipment (504) (667)
Acquisition of intangible assets (32) (342)
-------- --------
Net cash used in investing activities (536) (1,009)
-------- --------
Cash flows from financing:
Repurchase of Common Stock -- (1,287)
Proceeds from issuance of Common Stock, net 1,291 250
-------- --------
Net cash provided by (used in) financing
activities 1,291 (1,037)
-------- --------
Increase (decrease) in cash and cash equivalents 3,480 816
Cash and cash equivalents, beginning of period 10,286 5,374
-------- --------
Cash and cash equivalents, end of period $ 13,766 $ 6,190
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Wandel & Goltermann Technologies, Inc. and its wholly-owned subsidiaries,
collectively referred to herein as "the Company." All significant intercompany
accounts and transactions have been eliminated. Certain amounts presented in the
financial statements of prior periods have been reclassified to conform to the
method of presentation in the current period. These reclassifications are not
material.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission for interim financial
statements. Certain information and footnote disclosures required for complete
financial statements have been condensed or omitted.
In the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments (which consist of normal recurring
adjustments) necessary to present fairly the financial position as of March 31,
1997 and the results of operations and cash flows for the six months ended March
31, 1997 and 1996. The results of operations for the three- and six-month
periods ended March 31, 1997 are not necessarily indicative of the results to be
expected for the full fiscal year.
Note 2 - Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market. The
components of inventories, which include materials, labor and manufacturing
overhead, consist of the following (in thousands);
MARCH 31, SEPTEMBER 30,
1997 1996
------------- ------------
Raw materials and supplies $1,571 $1,473
Work in process 1,044 760
Finished goods 2,317 2,462
------------- ----------
$4,932 $4,695
============== ==========
Note 3 - Foreign Currencies
Inventory purchases from affiliates, certain product sales to affiliates and
certain 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. The Company also purchases foreign currency exchange
contracts and collars relating to some of its future anticipated sales in DMs.
As of March 31, 1997, the Company has outstanding forward currency exchange rate
contracts as follows.
6
<PAGE>
MATURITY DATE NOTATIONAL AMOUNT CONTRACT RATE
------------------- ----------------- -----------------
June 26, 1997 DM 2,000,000 1.6806
September 26, 1997 DM 1,000,000 1.6701
In addition, the Company has outstanding currency exchange rate collars as
follows:
MATURITY DATE NOTATIONAL AMOUNT CONTRACT RATE
---------------- ------------------- ----------------
June 26, 1997 DM 2,000,000 1.6564 - 1.7100
September 26, 1997 DM 1,000,000 1.6349 - 1.7100
September 26, 1997 DM 1,000,000 1.5982 - 1.7500
Cash and accounts receivable denominated in DMs 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 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.
Note 4 - Major Customers and Consideration of Credit Risk
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.
The Company believes that its portfolio of receivables from nonaffiliated
customers is well diversified and the allowance for doubtful accounts ($155,000
at March 31, 1997 and $125,000 at September 30, 1996) is adequate. Accounts
receivable are not collateralized.
One nonaffiliate customer accounted for 18% of total revenues in the quarter
ended March 31, 1997 and 10% of total revenues for the six months ended March
31, 1997.
No nonaffiliated customer accounted for 10% or more of total revenues in the
quarter or six months ended March 31, 1996.
Note 5 - Effects of Recent Accounting Pronouncements
The financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings
Per Share," in February 1997. The Company is required to adopt SFAS No. 128 for
the quarter ended December 31, 1997. This statement establishes standards for
computing and presenting earnings per share (EPS) and makes them comparable to
international EPS standards. The statement requires dual presentation of basic
and diluted EPS on the face of the income statement and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS calculation. If the Company has
been required to report EPS under this statement, EPS for the quarters and six
months ended March 31, 1997 and 1996 would be as follows:
7
<PAGE>
QUARTER ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- ---------
Basic EPS Computation
Numerator $ 585 $1,181 $1,915 $1,746
Denominator:
Common Shares Outstanding 5,243 5,118 5,212 5,158
--------- ------ -------- ------
Basic EPS $ 0.11 $ 0.23 $ 0.37 $ 0.34
-------- -------- ------- ---------
Diluted EPS Computation
Numerator $ 585 $1,181 $1,915 $1,746
--------- ------- ------ -------
Denominator:
Common Shares Outstanding 5,243 5,118 5,212 5,158
Options 184 36 178 26
Employee Stock Purchase Plan -- 1 5 2
-------- ------- ------ -------
Total shares 5,427 5,155 5,395 5,186
-------- -------- ------- --------
Diluted EPS $ 0.11 $ 0.23 $ 0.35 $ 0.34
======== ======== ======= ========
8
<PAGE>
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 Operations expressed as a percentage of total
revenues:
QUARTER ENDED SIX MONTHS
MARCH 31, ENDED MARCH 31,
----------------- -------------
1997 1996 1997 1996
------ ----- ----- -----
Revenues:
Nonaffiliates 50.5% 56.3% 46.1% 54.8%
Affiliates 49.5 43.7 53.9 45.2
------- ------- ------ -----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues 43.6 39.0 41.5 39.6
------- ------- ----- -----
Gross profit 56.4 61.0 58.5 60.4
Selling, general and administrative expenses 32.6 32.2 32.9 33.2
Product development expenses 17.3 16.6 16.6 18.0
------- ------- ---- -----
Operating income 6.5 12.2 9.0 9.2
Interest income 1.2 0.4 1.1 0.4
Foreign currency gains (losses) (1.9) (0.6) (0.9) (0.4)
------- ------- ----- -----
Income before income taxes 5.8 12.0 9.2 9.2
Provision for income taxes 1.7 3.9 2.8 3.0
------- ------- ------- -----
Net income 4.1% 8.1% 6.4% 6.2%
======= ====== ==== ======
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>
QUARTER ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
-------------------------------------- ------------------------------------
1997 1996 1997 1996
------------------ ------------------ --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Internetwork analysis products:
DA-3x $ 4,715 32.9% $ 8,521 58.8% $11,727 39.4% $16,398 58.7%
Domino 5,208 36.3 3,064 21.1 10,356 34.7 5,881 21.0
Other 1,385 9.6 750 5.2 2,124 7.1 1,589 5.7
----------- ------- --------- ------- --------- ------- --------- --------
Total internetwork
analysis products 11,308 78.8 12,335 85.1 24,207 81.2 23,868 85.4
Complementary telecom-
munication products 3,034 21.2 2,161 14.9 5,590 18.8 4,091 14.6
----------- ------- --------- ------- --------- ------- ---------- --------
Total revenues $14,342 100.0% $14,496 100.0% $29,797 100.0% $27,959 100.0%
=========== ======= ========= ======= ========= ======= ========== ========
</TABLE>
9
<PAGE>
The following table presents, for the periods indicated, the Company's total
revenues from domestic and international sales and such revenues as a percentage
of total revenues:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
-------------------------------------------------- ---------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------- -------- --------- --------- ----------- ------------ ----------- -------
United States $ 7,508 52.4% $ 8,242 56.9% $14,226 47.7% $15,608 55.8%
Europe 4,381 30.6 3,094 21.3 8,808 29.5 6,932 24.8
Pacific Rim 1,722 12.0 2,514 17.3 3,414 11.5 3,587 12.8
Canada 409 2.8 461 3.2 999 3.4 1,075 3.8
Central and South America 305 2.1 185 1.3 2,283 7.7 717 2.7
Other 17 0.1 --- --- 67 0.2 40 0.1
----------- ---------- ---------- ---------- ----------- ----------- ----------- -----------
Total revenues $14,342 100.0 % $14,496 100.0 % $29,797 100.0 % $27,959 100.0%
=========== ========== ========== ========== =========== =========== =========== ===========
</TABLE>
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
TOTAL REVENUES. Total revenues decreased $154,000, or 1.1%, to $14.3
million in the quarter ended March 31, 1997 from $14.5 million in the quarter
ended March 31, 1996 due to decreased sales volume of the Company's DA-3x
product family partially offset by increased sales volume of the Domino product
family and complementary telecommunications products. Domestic revenues
decreased 8.9% to $7.5 million in the quarter ended March 31, 1997 compared to
$8.2 million in the quarter ended March 31, 1996 primarily due to decreased
DA-3x revenues and to a slow down in capital expenditures by some of the
Company's larger customers. International revenues increased 9.3% to $6.8
million in the quarter ended March 31, 1997 compared to $6.3 million in the
quarter ended March 31, 1996 primarily due to sales growth in Europe and Central
and South America.
Revenues from sales of the Company's DA-3x product family decreased
$3.8 million, or 44.7%, to $4.7 million in the quarter ended March 31, 1997 from
$8.5 million in the quarter ended March 31, 1996 due to decreased unit volumes.
Revenues in the quarter ended March 31, 1996 included significant volumes
related to the Company's ATM/OC-3 module which was introduced in September 1995
and reached full production in January 1996. DA-3x quarterly product revenues
may fluctuate significantly as a result of a number of factors including
announcements of new products, the capital spending patterns of the Company's
customers and the timing of large individual orders.
Revenues from sales of the Company's Domino product family increased
$2.1 million, or 70.0%, to $5.2 million in the quarter ended March 31, 1997
compared to $3.1 million in the quarter ended March 31, 1996. The Domino product
family is a newer generation of analyzers designed for network service providers
and operators. The Company introduced DominoLAN, DominoWAN and Domino FDDI in
fiscal 1995 followed by DominoWIZARD and DominoREMOTE in fiscal 1996 and
DominoFastEthernet in December 1996. Revenues have increased as the Company has
continued to expand product offerings and sales channels for this product
family.
Revenues of complementary telecommunication products increased by
$873,000, or 40.4%, to $3.0 million in the quarter ended March 31, 1997 from
$2.2 million in the quarter ended March 31, 1996 primarily due to an increase in
revenues from sales of new products purchased from international affiliates for
resale in the United States, including ANT-20, a physical layer test instrument
for SDH, SONET and ATM.
GROSS PROFIT. Gross profit decreased $765,000, or 8.6%, to $8.1 million
in the quarter ended March 31, 1997 from $8.8 million in the quarter ended March
31, 1996. Gross margin decreased to 56.4% in the quarter ended March 31, 1997
from 61.0% in the quarter ended March 31, 1996 primarily due to the increased
proportion of revenues from other network analysis products including the Domain
product family and complementary telecommunications products. These products are
primarily purchased for resale and carry lower margins than the DA-3x and Domino
product families which are developed, manufactured and distributed by the
Company.
10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained flat at $4.7 million in the quarter ended March
31, 1997 compared to the quarter ended March 31, 1996. Selling, general and
administrative expenses, as a percentage of revenues, increased to 32.6% in the
quarter ended March 31, 1997 from 32.2% in the quarter ended March 31, 1996.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased
$69,000 , or 2.9%, to $2.5 million in the quarter ended March 31, 1997 from $2.4
million in the quarter ended March 31, 1996. Product development expenses, as a
percentage of revenues, increased to 17.3% in the quarter ended March 31, 1997
from 16.6% in the quarter ended March 31, 1996. The Company's product
development activities are an important element of its growth strategy, and it
anticipates that it will invest increasing amounts in these areas in future
quarters.
FOREIGN CURRENCY GAINS (LOSSES). Foreign currency losses increased
$170,000 to $263,000 in the quarter ended March 31, 1997 from $93,000 in the
quarter ended March 31, 1996. In the quarter ended March 31, 1997, the Company
incurred losses on accounts receivable and cash denominated in DMs as the U.S.
dollar strengthened significantly against the DM.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
$251,000 in the quarter ended March 31, 1997 from $553,000 in the quarter ended
March 31, 1996. The Company's effective tax rate was 30% in the quarter ended
March 31, 1997 and 32% in the quarter ended March 31, 1996.
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
TOTAL REVENUES. Total revenues increased $1.8 million, or 6.6%, to
$29.8 million in the six months ended March 31, 1997 from $28.0 million in the
six months ended March 31, 1996 due to increased sales volume of the Domino
product family and complementary telecommunications products partially offset by
decreased sales volume of the Company's DA-3x product family. Domestic revenues
decreased 8.9% to $14.2 million in the six months ended March 31, 1997 compared
to $15.6 million in the six months ended March 31, 1996 primarily due to
decreased DA-3x revenues and to a slow down in capital expenditures by some of
the Company's larger customers. International revenues increased 26.1% to $15.6
million in the six months ended March 31, 1997 compared to $12.4 million in the
six months ended March 31, 1996 primarily due to sales growth in Europe and
Central and South America.
Revenues from sales of the Company's DA-3x product family decreased
$4.7 million, or 28.5%, to $11.7 million in the six months ended March 31, 1997
from $16.4 million in the six months ended March 31, 1996. Revenues in the six
months ended March 31, 1996 included significant volumes related to the
Company's ATM/OC-3 module which was introduced in September 1995. DA-3x
quarterly product revenues may fluctuate significantly as a result of a number
of factors including announcements of new products, the capital spending
patterns of the Company's customers and the timing of large individual orders.
Revenues from sales of the Company's Domino product family increased
$4.5 million, or 76.1% to $10.4 million in the six months ended March 31, 1997
from $5.9 million in the six months ended March 31, 1996. The Domino product
family is a newer generation of analyzers designed for network service providers
and operators. The Company introduced DominoLAN, DominoWAN and Domino FDDI in
fiscal 1995 followed by DominoWIZARD and DominoREMOTE in fiscal 1996 and
DominoFastEthernet in December 1996. Revenues have increased as the Company has
continued to expand product offerings and sales channels for this product
family.
Revenues of complementary telecommunication products increased $1.5
million, or 36.6%, to $5.6 million in the six months ended March 31, 1997 from
$4.1 million in the six months ended March 31, 1996 primarily due to an increase
in revenues from sales of new products purchased from international affiliates
for resale in the United States, including ANT-20, a physical layer test
instrument for SDH, SONET and ATM.
GROSS PROFIT. Gross profit increased $527,000, or 3.1%, to $17.4
million in the six months ended March 31, 1997 from $16.9 million in the six
months ended March 31, 1996. Gross margin decreased to 58.5% in the six months
ended March 31, 1997 from 60.4% in the six months ended March 31, 1996 primarily
due to the increased proportion of revenues from other network analysis products
including the Domain product family and complementary telecommunications
product. These products are primarily purchased for resale and carry lower
margins than the DA-3x and Domino product families which are developed,
manufactured and distributed by the Company.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $509,000, or 5.5%, to $9.8 million in the six
months ended March 31, 1997 from $9.3 million in the six months ended March 31,
1996. Selling, general and administrative expenses, as a percentage of revenues,
decreased to 32.9% in the six months ended March 31, 1997 from 33.2% in the six
months ended March 31, 1996.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses decreased
$102,000 , or 2.0%, to $4.9 million in the six months ended March 31, 1997 from
$5.0 million in the six months ended March 31, 1996. Product development
expense, as a percentage of revenues, decreased to 16.6% in the six months ended
March 31, 1997 from 18.0% in the six months ended March 31, 1996. The Company's
product development activities are an important element of its growth strategy
and it anticipates that it will invest increasing amounts in these areas in
future periods.
FOREIGN CURRENCY GAINS (LOSSES). The Company recorded foreign currency
losses of $270,000 in the six months ended March 31, 1997 compared to losses of
$114,000 in the six months ended March 31, 1996. In the six months ended March
31, 1997, the Company incurred losses on accounts receivable and cash
denominated in DMs as the U.S. dollar strengthened significantly against the DM.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$821,000 in the six months ended March 31, 1997 from $819,000 in the six months
ended March 31, 1996. The Company's effective tax rate was 30% in the six months
ended March 31, 1997 and 32% in the six months ended March 31, 1996.
12
<PAGE>
QUARTERLY OPERATING RESULTS
The results of operations for the three and six months ended March 31,
1997 are not necessarily indicative of the results to be expected for the full
fiscal year. Quarterly results have been affected by the timing of expenditures
for product development and marketing programs and by the hiring of product
development, marketing, sales and administrative personnel. Quarterly results
have also been affected by realized foreign currency gains or losses and by the
recording at the end of each period of unrealized foreign currency gains or
losses related to the revaluation of DM denominated receivables and payables and
any forward foreign currency exchange contracts related to such receivables and
some anticipated sales to affiliates. 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $3.5 million in the six months
ended March 31, 1997 primarily from income before depreciation and amortization
and from proceeds related to the issuance of Common Stock.
Net cash generated from operations was $2.7 million in the six months
ended March 31,1997. The primary source of these funds was net income before
depreciation and amortization. Accounts receivable at March 31, 1997 decreased
by $21,000, compared to September 30, 1996. Inventories increased to $4.9
million at March 31, 1997 from $4.7 million at September 30, 1996.
Net cash used in investing activities was $536,000 in the six months
ended March 31, 1997. 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 consist primarily of
financial, manufacturing, and product development software.
Net cash provided by financing activities was $1.3 million in the six
months ended March 31, 1997 and consisted of proceeds from the issuance of
Common Stock pursuant to the exercise of employee stock options and the Employee
Stock Purchase Plan.
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. Through March 31, 1997,
there have been no borrowings under this facility.
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.
13
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
PART II - OTHER INFORMATION
MARCH 31, 1997
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(b) Reports on Form 8-K:
No reports on Form 8-K were filed on behalf of the company for the
three month period ended March 31, 1997.
14
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
(Registrant)
Date: May 6, 1997 By: /s/ Adelbert Kuthe
------------------------
Adelbert Kuthe
Vice President, Finance and Secretary
(Principal Financial Officer)
15
<PAGE>
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