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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 December 31, 1997 Commission File No. 33-74564
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
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(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
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(Address of principal executive offices and zip code)
(919) 941-5730
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(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 February 3, 1998, 5,287,778 shares of the Registrant's $0.01 par value
common stock were outstanding.
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<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
INDEX - FORM 10-Q
December 31, 1997
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
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
</TABLE>
2
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1997 September 30, 1997
-------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $13,395 $13,329
Accounts receivable-
Nonaffiliates 5,870 7,038
Affiliates 6,226 3,964
Income tax receivable 363 1,367
Inventories 5,630 5,596
Deferred tax assets 1,585 1,448
Other current assets 849 927
-------------------- ---------------------
Total current assets 33,918 33,669
-------------------- ---------------------
Property and equipment, at cost:
Machinery and equipment 4,667 4,614
Furniture and fixtures 6,151 5,993
-------------------- ---------------------
10,818 10,607
Accumulated depreciation (8,008 ) (7,721 )
-------------------- ---------------------
2,810 2,886
-------------------- ---------------------
Other assets 718 737
-------------------- ---------------------
$37,446 $37,292
==================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-
Nonaffiliates $ 1,085 $ 1,530
Affiliates 2,856 1,789
Accrued compensation 1,412 1,467
Other accrued liabilities 1,843 1,847
-------------------- ---------------------
Total current liabilities 7,196 6,633
-------------------- ---------------------
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-5,261,222 at December 31, 1997 and
5,261,022 at September 30, 1997 53 53
Additional paid-in capital 26,470 26,468
Retained earnings 3,727 4,138
-------------------- ---------------------
30,250 30,659
-------------------- ---------------------
$37,446 $37,292
==================== =====================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands except for per share amounts)
----------------------------------------------------------------------------------------------------
Three Months Ended December 31,
------------------------------------------------
1997 1996
-------------------- ------------------------
<S> <C> <C>
Revenues:
Nonaffiliates $7,809 $6,482
Affiliates 6,542 8,973
-------------------- ------------------------
Total revenues 14,351 15,455
Cost of revenues 7,477 6,112
-------------------- ------------------------
Gross profit 6,874 9,343
Selling, general and administrative expenses 4,998 5,134
Product development expenses 2,604 2,450
-------------------- ------------------------
Operating income (loss) (728) 1,759
Interest income 188 148
Foreign currency gains (losses) 26 (7)
-------------------- ------------------------
Income (loss) before income taxes (514) 1,900
Benefit from (provision for) income taxes 103 (570)
-------------------- ------------------------
Net income (loss) $ (411) $1,330
==================== ========================
Basic earnings per share $ (0.08) $ 0.26
Weighted average number of common shares
outstanding 5,261 5,181
==================== ========================
Diluted earnings per share $ (0.08) $ 0.25
Weighted average number of common shares
outstanding assuming dilution 5,261 5,361
==================== ========================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
4
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(dollars in thousands)
-------------------------------------------------------------------------------------------------------------------
Three Months Ended December 31,
------------------------------------------
1997 1996
-------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (411) $1,330
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities-
Depreciation and amortization 346 411
Deferred tax benefit (137) (239)
(Increase) decrease in accounts receivable -
Nonaffiliates 1,168 1,625
Affiliates (2,262) (4,627)
Decrease in income tax receivable 1,004 630
(Increase) decrease in inventories (34) 397
Increase (decrease) in accounts payable-
Nonaffiliates (445) 81
Affiliates 1,067 315
Decrease in other current liabilities (59) (207)
Other, net 92 8
-------------------- -------------------
Net cash provided by (used in) operating activities 329 (276)
-------------------- -------------------
Cash flows from investing activities:
Purchases of marketable securities (18,150) (11,450)
Proceeds from the sale of marketable securities 18,150 11,450
Acquisitions of property and equipment (211) (323)
Acquisition of intangible assets (54) (31)
-------------------- -------------------
Net cash used in investing activities (265) (354)
-------------------- -------------------
Cash flows from financing activities:
Repurchase of Common Stock -- --
Proceeds from issuance of Common Stock, net 2 571
-------------------- -------------------
Net cash provided by financing activities 2 571
-------------------- -------------------
Increase (decrease) in cash and cash equivalents 66 (59)
Cash and cash equivalents, beginning of period 13,329 10,286
-------------------- -------------------
Cash and cash equivalents, end of period $13,395 $10,227
==================== ===================
</TABLE>
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 December
31, 1997 and the results of operations and cash flows for the three months ended
December 31, 1997 and 1996. The results of operations for the quarter ended
December 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);
December 31, 1997 September 30, 1997
------------------- --------------------
Raw materials and supplies $1,611 $1,202
Work in process 826 933
Finished goods 3,193 3,461
------------------- --------------------
$5,630 $5,596
=================== ====================
Note 3 - Foreign Currencies
Certain product sales to 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 December 31, 1997 the Company has outstanding forward currency exchange
rate contracts or collars as follows:
Due Date Notational Amount Rate
- ------------------------ --------------------------- ------------------
March 27, 1998 DM 2,500,000 1.7704
June 26, 1998 DM 2,000,000 1.7223
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
6
<PAGE>
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.
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, manufacturers and service
providers 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 ($135,000 at December 31, 1997 and September 30, 1997) is adequate.
Accounts receivable are not collateralized.
No nonaffiliated customer accounted for 10% or more of total revenues in the
quarter ended December 31, 1997 or 1996.
Note 5 - Earnings per share
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 denomination of the basic EPS computation to
the numerator and denominator of the diluted EPS calculation as follows:
<TABLE>
<CAPTION>
Quarter Ended December 31,
------------------------------------------------
1997 1996
----------------------- -----------------------
<S> <C> <C>
Basic EPS Computation
Numerator $ (411) $1,330
Denominator:
Common Shares Outstanding 5,261 5,181
----------------------- -----------------------
Basic EPS $ (0.08) $ 0.26
----------------------- -----------------------
Diluted EPS Computation
Numerator $ (411) $1,330
----------------------- -----------------------
Denominator:
Common Shares Outstanding 5,261 5,181
Options -- 171
Employee Stock Purchase Plan -- 9
----------------------- -----------------------
Total shares 5,261 5,361
----------------------- -----------------------
Diluted EPS $ (0.08) $ 0.25
======================= =======================
</TABLE>
Note 6 - Subsequent Events
On January 9, 1998, the Company's majority shareholder, Wandel & Goltermann
Management Holding GmbH ("WG Holding"), made a proposal to acquire, through a
merger transaction, the approximately 38% of the Company's outstanding common
stock not already owned by WG Holding for $13.00 per share in cash. The
Company's Board of Directors has formed a Special Committee of its independent
directors to review and consider this proposal. In addition to the receipt of
the Special Committee's recommendation to proceed with the proposed merger
transaction, the consummation of the transaction, as proposed, would be subject
to, among other things, the negotiation of a mutually acceptable definitive
merger agreement and the approval of the merger agreement by the holders of a
majority of the outstanding shares of the Company's common stock. The Company
anticipates that it will take several weeks for the Special Committee to
complete its review and evaluation process.
7
<PAGE>
In connection with WG Holding's proposal, four actions have been filed in the
Superior Court of Durham County, North Carolina that allege breaches of
fiduciary duty by the Company, its directors and WG Holding. The Company
believes the claims made in those actions to be without merit, and the Company
intends to defend itself vigorously.
On January 27, 1998, the Company announced that it had acquired privately-held
Tinwald Networking Technologies, Inc. ("Tinwald"), an Ontario, Canada-based
developer of software analysis tools. Under the terms of the transaction, the
Company acquired all of the outstanding common stock of Tinwald for an initial
payment of $5 million, plus the possibility of contingent payments for up to
three years after the acquisition. The Company will account for the transaction
as a purchase and will record charges for in-process research and development
and related expenses in the quarter ending March 31, 1998.
Note 7 - Recently Issued Accounting Pronouncement
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition".
This SOP provides guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions. This SOP is
effective for transactions entered into in fiscal years beginning after
December 15, 1997; however, early application is encouraged. The Company
adopted this SOP during the quarter ended December 31, 1997. The adoption of
this SOP did not have a material impact on the Company's financial statements.
8
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within
the meaning of Section 27A of the Securities and Exchange Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
which reflect the Company's current judgment on those issues. Because such
statements apply to future events, they are subject to risks and uncertainties
that could cause actual results to differ materially. Important factors which
could cause actual results to differ materially are described in the following
paragraphs and are particularly noted under "Business Risks" and the Company's
reports on Forms 10-K and 10-Q on file with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Income Statement Highlights
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended December 31,
- -----------------------------------------------------------------------------------------------
1997 Change 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Revenues $14,351 (7%) $15,455
Gross profit 6,874 (26%) 9,343
Percentage of revenues 48% 60%
Operating expenses 7,602 -- 7,584
Percentage of revenues 53% 49%
Net income (loss) (411) (131%) 1,330
Earnings per share (0.08) (131%) 0.26
Revenues
(In thousands)
Quarter Ended December 31,
- -----------------------------------------------------------------------------------------------
1997 Change 1996
------------------ ----------------- -----------------
Domino $ 4,529 (12%) $ 5,148
DA-3x 3,183 (55%) 7,012
Other 1,237 67% 739
----------------- ------------------
Network analysis products $8,949 (31%) $12,899
Complementary
telecommunications products 5,402 111% 2,556
----------------- ------------------
$14,351 (7%) $15,455
================= ==================
(In thousands)
Quarter Ended December 31,
- -----------------------------------------------------------------------------------------------
1997 Change 1996
------------------ ----------------- -----------------
Domestic $ 8,050 20% $6,718
International 6,301 (28%) 8,737
----------------- ------------------
$14,351 (7%) $15,455
================= ==================
</TABLE>
Revenues for the quarter ended December 31, 1997 decreased 7% to $14.4
million compared to revenues of $15.5 million in the quarter ended December 31,
1996 primarily due to decreased sales volume of the Company's
9
<PAGE>
DA-3x and Domino product families partially offset by increased sales volume of
other network analysis products and complementary telecommunications products.
The Company's Domino product family revenues decreased 12% in the
quarter ended December 31, 1997 to $4.5 million from $5.1 million in the quarter
ended December 31, 1996. The Domino product family is a line of analyzers
designed for network service providers and operators. The Company introduced
DominoLAN, DominoWAN and DominoFDDI in fiscal 1995 followed by DominoWIZARD and
DominoREMOTE in fiscal 1996 and DominoFastEthernet in fiscal 1997 and Domino ATM
in fiscal 1998. Revenues decreased in the quarter ended December 31, 1997
compared to the quarter ended December 31, 1996 primarily due to a lack of
significant individual orders in the quarter ended December 31, 1997.
Revenues from sales of the Company's DA-3x product family decreased 55%
in the quarter ended December 31, 1997 to $3.2 million from $7.0 million in the
quarter ended December 31, 1996. The DA-3x product family was first introduced
in 1990. The Company introduced AMT/OC-3 and 100BaseT modules in September 1995
which resulted in increased sales volume in fiscal 1996 and the first quarter of
fiscal 1997. The Company has continued to improve and update the DA-3x product
family; however, the Company has not released any major new interface modules
since September 1995. While the Company plans to introduce improved ATM
functionality in fiscal 1998, DA-3x product family sales are expected to decline
over time as a proportion of total revenues.
The Company's complementary telecommunication product revenues
increased 111% in the quarter ended December 31, 1997 to $5.4 million from $2.6
million in the quarter ended December 31, 1996. Revenue growth was fueled by
increased sales of products purchased from international affiliates for resale
in the United States, including ANT-20, a physical layer test instrument for
SDH, SONET and ATM, and 8610 and 8620 cellular communications test systems.
Domestic revenues increased 20% to $8.1 million in the quarter ended
December 31, 1997 compared to $6.7 million in the quarter ended December 31,
1996 primarily due to increased sales volume of complementary products including
the ANT-20 and 8610 and 8620 cellular communications test systems. International
revenues decreased 28% to $6.3 million in the quarter ended December 31, 1997
compared to $8.7 million in the quarter ended December 31, 1996 primarily due to
declining sales of DA-3x products.
Gross Profit
Cost of revenues consists of manufacturing costs, cost of instruments
purchased for resale, costs of services and warranty expenses. Gross profit as a
percentage of revenues decreased to 48% in the quarter ended December 31, 1997
from 60% in the quarter ended December 31, 1996. The decrease resulted from an
increased proportion of revenues from other network analysis products and
complementary telecommunication products. These products are primarily purchased
for resale and carry lower margins as a percentage of revenues than the Domino
and DA-3x product families. Gross profit and gross profit as a percentage of
revenues may vary as a result of a number of factors, including product mix, the
mix of international and domestic sales and discounts on large sales
opportunities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 3% to $5.0
million in the quarter ended December 31, 1997 compared to $5.1 million in the
quarter ended December 31, 1996 primarily as a result of $300,000 of expenses
incurred in the quarter ended December 31, 1996 related to a trade show and
sales training held for the Company's international sales affiliates. As a
percentage of revenues, selling, general and administrative expenses were 35% in
the quarter ended December 31, 1997 and 33% in the quarter ended December 31,
1996.
Product Development Expenses
Product development expenses were $2.6 million in the quarter ended
December 31, 1997 compared to $2.5 million in the quarter ended December 31,
1996. As a percentage of revenues, product development expenses
10
<PAGE>
were 18% in the quarter ended December 31, 1997, and 16% in the quarter ended
December 31, 1996. The increase in actual spending and as a percentage of
revenues in fiscal 1998 was a result of increased staffing and expenses to
support growth in the Company's breadth of product offerings including new or
improved applications and capabilities of the Domino product family and
development of the Company's new NetForce product family. 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 Losses
The Company incurred foreign currency gains of $26,000 in the quarter
ended December 31, 1997 compared to foreign currency losses of $7,000 in the
quarter ended December 31, 1996. The Company incurred gains and losses in both
quarters on foreign currency exchange collars, accounts receivable, accounts
payable and cash denominated in DMs as the U.S. dollar fluctuated against the
DM.
Interest Income
Interest income increased 27% to $188,000 in the quarter ended December
31, 1997 compared to $148,000 in the quarter ended December 31 1996. The
increase in fiscal 1998 was due to a higher average cash balance compared to
fiscal 1997.
Benefit from (Provision for) Income Taxes
The benefit from income taxes as a percentage of income was 20% in the
quarter ended December 31, 1997 compared to a provision for income taxes of 30%
in the quarter ended December 31, 1996. The effective tax rate for the quarter
is based on the expected tax rate for the full fiscal year. The effective tax
rate is lower in fiscal 1998 than in fiscal 1997 primarily due to higher
anticipated research and development tax credits to be generated during the year
as a percentage of anticipated income before taxes.
BUSINESS RISKS
The following is a summary of risks affecting the business and results
of the Company and should be read in conjunction with the description of the
Company's business contained in other sections of the Company's Form 10-K for
the year ended September 30, 1997.
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards and frequent introductions of
new products. The Company believes that its future success will depend, in part,
on its ability to continue to develop, introduce and sell both new and enhanced
products on a timely basis. The Company is committed to continuing investments
in research and development; however, there is no assurance that these efforts
will result in the development of products for the appropriate platforms or
operating systems, or the timely release or market acceptance of new products.
The Company generally operates with very little backlog and most of its
revenues in each quarter result from orders booked in that quarter. The Company
plans its expenditures based on its expectations as to future revenues and, if
revenues should fail to meet expectations, this could cause expenses to be
disproportionately high. Accordingly, a decline in near term revenues could have
a material adverse effect on the Company's operating results. The Company's
operating results may also fluctuate significantly as a result of a number of
other factors, including the capital spending patterns of the Company's
customers, general economic and political conditions, the timing of domestic and
international orders, increased competition, variations in the mix of the
Company's sales and announcements of new products by the Company or its
competitors. During 1997, the Company generally experienced a trend toward
higher order receipts toward the end of each quarter, resulting in a higher
percentage of revenue shipments during the last month of a quarter. The
Company's ability to forecast achievement of market and internal expectations of
quarterly revenue levels and operating results is delayed and becomes more
difficult when orders are placed later in the quarter. If this trend continues
into the near future, there is more risk that the Company
11
<PAGE>
may not attain quarterly revenue objectives, and, therefore, could have a
material adverse effect on the Company's operating results.
Failure to achieve periodic revenue, earnings and other operating and
financial results as forecasted or anticipated by brokerage firms or industry
analysts could result in an immediate and adverse effect on the market price of
the Company's Common Stock. The Company may not discover, or be able to confirm,
revenue or earnings shortfalls until the end of a quarter, which could result in
a greater immediate and adverse effect on the Company's stock price.
The products offered by the Company may be considered to be capital
purchases by certain customers or prospective customers. Capital purchases are
often considered discretionary and, therefore, are canceled or delayed if the
customer experiences a downturn in its business or prospects or as a result of
economic conditions in general. Any such cancellation or delay could adversely
affect the Company's operating results.
The market for the Company's existing and planned new products is
highly competitive, and the Company expects competition to increase in the
future. The Company competes with an array of established and emerging computer,
communications, intelligent network wiring, network management and test
instrument companies. Some of the Company's competitors have greater name
recognition, more extensive engineering, manufacturing and marketing
capabilities, and significantly greater financial, technological and personnel
resources than the Company. There can be no assurance that the Company will be
able to compete successfully in the future with existing or new competitors.
Quarterly Operating Results
The results of operations for the three months ended December 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 $66,000 in the quarter ended
December 31, 1997 primarily due to cash provided by operations partially offset
by the acquisition of equipment and intangible assets.
Net cash generated from operations was $329,000 in the quarter ended
December 31,1997. Accounts receivable at December 31, 1997 increased by $1.1
million, or 9.9%, compared to September 30, 1997 primarily as a result of an
increase in international sales in the quarter ended December 31, 1997 compared
to the quarter ended September 30, 1997. International sales have terms of 60 to
90 days while United States sales typically have terms of 30 days. The increase
in accounts receivable was offset by a decrease in income tax receivable and an
increase in accounts payable.
Net cash used in investing activities was $265,000 in the quarter ended
December 31, 1997. All of the cash used in investing activities was for
acquisitions of property and equipment and intangible assets. Acquisitions of
property and equipment consisted primarily of computer hardware and test
equipment. Acquisitions of intangible assets consisted primarily of financial,
manufacturing, product and product development software.
Net cash provided by financing activities was $2,000 in the quarter
ended December 31, 1997 and consisted of proceeds from the issuance of Common
Stock pursuant to the exercise of employee stock options.
As of December 31, 1997, the Company's principal source of liquidity is
cash and cash equivalents of $13.4 million. The Company also has a $5.0 million
credit facility with a U.S. bank which expires in January 2000. Through December
31, 1997, there have been no borrowings on 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 through at least the next twelve months.
12
<PAGE>
Subsequent Events
On January 9, 1998, the Company's majority shareholder, Wandel & Goltermann
Management Holding GmbH ("WG Holding"), made a proposal to acquire, through a
merger transaction, the approximately 38% of the Company's outstanding common
stock not already owned by WG Holding for $13.00 per share in cash. The
Company's Board of Directors has formed a Special Committee of its independent
directors to review and consider this proposal. In addition to the receipt of
the Special Committee's recommendation to proceed with the proposed merger
transaction, the consummation of the transaction, as proposed, would be subject
to, among other things, the negotiation of a mutually acceptable definitive
merger agreement and the approval of the merger agreement by the holders of a
majority of the outstanding shares of the Company's common stock. The Company
anticipates that it will take several weeks for the Special Committee to
complete its review and evaluation process.
In connection with WG Holding's proposal, four actions have been filed in the
Superior Court of Durham County, North Carolina that allege breaches of
fiduciary duty by the Company, its directors and WG Holding. The Company
believes the claims made in those actions to be without merit, and the Company
intends to defend itself vigorously.
On January 27, 1998, the Company announced that it had acquired privately-held
Tinwald Networking Technologies, Inc. ("Tinwald"), an Ontario, Canada-based
developer of software analysis tools. Under the terms of the transaction, the
Company acquired all of the outstanding common stock of Tinwald for an initial
payment of $5 million, plus the possibility of contingent payments for up to
three years after the acquisition. The Company will account for the transaction
as a purchase and will record charges for in-process research and development
and related expenses in the quarter ending March 31, 1998.
13
<PAGE>
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
PART II - OTHER INFORMATION
December 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 December 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: February 3, 1998 By: /s/ Adelbert Kuthe
-----------------------
Adelbert Kuthe
Vice President, Finance and Secretary
(Principal Financial Officer)
15
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