SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File Number 0-15761
GLENAYRE TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 98-0085742
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5935 CARNEGIE BOULEVARD, SUITE 300, CHARLOTTE, NORTH CAROLINA 28209
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(Address of principal executive offices) Zip Code
(704) 553-0038
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, $.02 par value
Rights to Purchase Series A Junior Participating Preferred Stock, $.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___
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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 on March 2, 2001 was approximately $237 million. The number of
shares of the Registrant's common stock outstanding on March 2, 2001 was
64,648,744.
DOCUMENTS INCORPORATED BY REFERENCE:
Document Location in Form 10-K
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Proxy Statement for 2001 Annual Meeting of Stockholders Part III
PART I
Item 1. BUSINESS
Glenayre Technologies, Inc. ("Glenayre" or the "Company") was incorporated in
Delaware on September 21, 1987, and is the successor to a corporation organized
on April 7, 1945. The principal executive offices of the Company are located at
5935 Carnegie Boulevard, Suite 300, Charlotte, NC 28209. The Company's
telephone number is (704) 553-0038. The term "Glenayre" or the "Company" as used
hereinafter means Glenayre Technologies, Inc. or Glenayre Technologies, Inc. and
its subsidiaries.
Glenayre is a worldwide provider of communication solutions for mobile and
active subscribers. The Company designs, manufactures, markets and services its
products principally under the Glenayre name. These products include enhanced
services, unified messaging, advanced messaging services and devices, and
prepaid wireless and card services as well as networking infrastructure used to
deliver these services. Glenayre's products are used in cellular, Personal
Communications Service ("PCS"), wireless, data, messaging and Internet protocol
("IP") networks.
SOLUTIONS FOCUS: GLENAYRE EVOLVES TO SERVE A CHANGING COMMUNICATIONS MARKET
The year 2000 has been characterized by continued rapid change in the
communications industry. Growth in the wireless industry has continued to
overshadow that of wireline carriers, and there are strong signs that the
convergence of wireless communications with unified messaging applications and
the Internet is on the horizon.
Carriers, both wireless and wireline, are faced with continued customer churn
and intense price competition. To meet the challenges of this market
environment, carriers are driving the evolution of full service solutions for
consumers and enterprise customers. This is an ideal environment for the
emergence of integrated services that deliver utility, convenience and ease of
use to consumers, while giving carriers the sticky services that significantly
reduce the likelihood of consumers changing carriers.
As wireless communications, unified messaging and the Internet converge,
Glenayre believes carriers and end-users will look for a broad range of
integrated services and modules that incorporate both voice and data
capabilities for wireless communications. Glenayre is leveraging its strengths
in data messaging infrastructure, wireless devices, and enhanced services
platforms and software to pursue these market opportunities.
Key trends in the current market include rapid development of new devices and
applications, integration of technologies and devices, and shorter product
lifecycles. The growth of instant messaging indicates a potential for consumer
acceptance of new methods of communications with significant value for end-users
in speed and productivity. Unified messaging is in demand by consumers and
enterprises seeking to increase personal productivity and reduce operational
costs. Glenayre's end-to-end solutions, from unified messaging applications to
device modules, will give carriers the opportunity to differentiate their
service offerings, which is a major factor in their success.
The Company is focused on delivering products and services that are intended to
enable the Company to lead the convergence of unified messaging, wireless and
the Internet. Glenayre recognizes that success in this area requires the company
to adopt a network agnostic approach, developing solutions that work with a
variety of network technologies. The increase in 2000 of Glenayre's Enhanced
Services platform/Unified Messaging revenues to approximately 49% of total
revenues is evidence of this. The Company is working to establish partnerships
that will enable this approach to succeed with wireless messaging devices as
well, beginning with a license agreement with Qualcomm for use of Code Division
Multiple Access ("CDMA") technology that was signed in 2000.
An essential part of Glenayre's strategy is establishing partnerships to develop
applications. These partnerships facilitate a shorter time-to-market, ensure the
Company's ability to deliver complete end-to-end services and shift development
focus from a complete internal inception-to-market approach to a co-development
effort for certain products. Examples of these relationships include Glenayre's
strategic partnership with Infowave for the Symmetry(TM) product, which allows
users to interact with Microsoft Outlook on their personal computer.
Additionally, the Company has partnered with JP Systems to deliver wireless e-
mail and wireless Internet services to the Company's AccessLink(TM) II and
@ctiveLink(TM) devices as well as a range of other mobile devices and wireless
networks.
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These strategic relationships are designed to bring new interactive wireless
applications to end-users. The Company believes that the success of these
applications will have a positive impact on demand for the Company's Enhanced
Services platform and devices, as well as unified messaging applications.
With the successful product introductions in 2000 and the reorganization and
repositioning of the company, Glenayre now has an opportunity to build brand
value in the wireless communications marketplace. The tagline, "Solutions for
an @ctive World(TM)," establishes that Glenayre has evolved from a traditional
infrastructure provider to a supplier of integrated communications solutions.
These solutions bridge the gap between traditional voice and messaging networks
to new and growing markets for unified messaging, wireless communications and
the Internet. The Company believes the breadth of its offerings is unique in
the marketplace, giving Glenayre the ability to provide complete end-to-end
solutions for carriers around the globe.
The Company's operating activities are currently focused in two marketing areas:
wireless messaging products and the Enhanced Services platform ("ESP").
WIRELESS MESSAGING PRODUCTS
Glenayre's wireless messaging products accounted for approximately 51%, 65% and
82% of net sales for 2000, 1999 and 1998, respectively, and are sold into the
one-way and two-way messaging marketplace. Wireless messaging products include
switches, transmitters, receivers, controllers and related software and two-way
messaging devices. Glenayre believes that it has the leading market share in the
United States and that it is a leading participant internationally in the ReFLEX
messaging switch, controller and transmitter market.
Messaging is a method of wireless telecommunication that uses an assigned radio
frequency to contact a messaging subscriber anywhere within a service area. A
messaging system is generally operated by a service provider which incurs the
cost of building and operating the system. Each service provider in the United
States licenses spectrum from the Federal Communications Commission ("FCC") and
elsewhere from the authorized government body to operate a messaging frequency
within either a local, regional or national geographical area. Each messaging
subscriber is assigned a distinct telephone number which a caller dials (either
directly or via the Internet) to activate the subscriber's personal messaging
device.
A messaging system is comprised of four general elements: (i) the "Control
Point", (ii) the "Link Medium", (iii) the messaging Radio Frequency ("RF")
Network and (iv) the End User Device. Information for a subscriber is received
(typically via the public service telephone network or via Internet/e-mail) by a
messaging switch located at the Control Point. The message (numeric or
alphanumeric) is forwarded to the Link Medium via a data network. The
information is then forwarded to the messaging RF Network via means determined
by the type of Link Medium deployed by the messaging operator (examples include
satellite distribution, RF terrestrial, wireline, microwave, etc.). This RF
Network consists of a network of transmitter base stations and controllers. The
message is reformatted and converted to a radio signal, which is then sent by
the transmitters via antennae to the subscriber's End User Device. The
transmitters manufactured by Glenayre are specifically designed to simulcast, or
transmit the same signal by two or more transmitters on the same channel
frequency at the same time in an overlap area (a geographical region accessible
by more than one transmitter). The Company's equipment exhibits exceptional
accuracy in simulcasting performance, resulting in superior data quality and
coverage area, and in superior reliability and exactitude of message reception.
The radio signal is received by the End User Device which causes the personal
messaging device to emit a beep, vibrate or otherwise notify the subscriber that
a message has been received and stored in the device. The device then provides
the subscriber with information from the caller in the form of a voice, tone,
numeric or alphanumeric message. This is typically termed "one-way" messaging
because the initiator does not receive notification of message received or any
response from the target subscriber.
A two-way messaging system is similar to one-way messaging systems. The
difference is that two-way messaging systems close the loop from End User Device
back into the infrastructure equipment and/or back to the initiator of the
message. To effect this reverse path communications: (i) the End User Device
must have an internal transmitter, (ii) the messaging provider must deploy a
receiver network to obtain and transfer the data back into the system and (iii)
there must be a reconciliation device which handles the traffic flow. Glenayre
provides (i) personal messaging devices which have both receiver and
transmitter, (ii) the industry standard receiver network equipment and (iii) a
scaleable, network flexible, reconciliation device. Once the End User Device
receives the radio signal from the transmitters via antennae, the two-way End
User Device then transmits information to the receiver RF Network. The
information is reformatted and sent back into the two-way system via
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means determined by the media deployed (typically high speed data networks).
This information path is unique to two-way messaging and can be used to locate
the end user, acknowledge receipt of message and initiate messaging from the
user.
Two-way systems provide such services as device location, two-way
acknowledgment, machine control and feedback and interactive end-user services
such as customer response messaging, remote mobile wireless e-mail, subscriber
initiated messaging, subscriber-to-subscriber messaging, advanced voice
messaging and other data services.
Glenayre offers its customers an end-to-end solution for two-way applications.
The Company has developed new technology-based products with state-of-the-art
architecture and technology which accommodates the advanced services expected to
be available through two-way service offerings. This systems approach includes
full product lines of radio frequency linear transmitters, advanced network
controllers, the fixed receiver network (to receive messaging from the end-
user), switch equipment, and network management tools.
A personal messaging device has an advantage over a landline telephone in that
its reception is not restricted to a single location. A personal messaging
device also has advantages over a portable cellular telephone in that it is
smaller, has a much longer battery life, has excellent coverage and roaming
capability, is more robust and durable, is more reliable (the device as well as
the service) and is less expensive to use.
The design of a messaging system is customer specific and depends on (i) the
number of messaging subscribers the service provider desires to accommodate,
(ii) the operating radio frequency, (iii) the geography of the service area,
(iv) the expected system growth and (v) specific features desired by the
customer. Messaging equipment hardware and software developed by the Company
may be used with all types of messaging services, including voice, tone, numeric
(telephone number display) or alphanumeric messaging (words and numbers
display).
Wireless Messaging Products and Services
Infrastructure:
The Company's GL3000 two-way switch is capable of being upgraded to support new
two-way voice and data services, while retaining support for existing one-way
services such as numeric and alphanumeric messaging. Service providers can
combine one-way and two-way messaging service on one switch. Glenayre believes
that its switches have the most advanced networking capability in the industry
and that the advanced hardware and software features of its switches ensure high
reliability and high volume call processing.
The transmitters are available in frequency ranges of 137MHz to 960MHz.
Satellite link receivers are available for integration directly with the
transmitters. The GL-R9000 series of receivers, which detect the responses
returned from the two-way subscriber devices, takes advantage of innovative
digital signal processing ("DSP") demodulation techniques that maximize receiver
sensitivity. The Company also offers or supports four products for transmitter
control as well as the GL3100 RF Director, which provides reverse channel
traffic handling for two-way systems. The Company believes its large installed
base of transmitter, receiver and control equipment provides it with a
significant competitive advantage in selling products for system expansions to
existing customers.
Service and Support. Glenayre provides service to customers on a regular basis
including installation, project management of turnkey systems, training, service
and extended warranty contracts. The Company believes that it is essential to
provide reliable service to customers in order to solidify customer
relationships and to be the vendor of choice when new services or system
expansions are sought by a customer. This relationship is further developed as
customers come to depend upon the Company for installation, system optimization,
warranty and post-warranty services.
The Company has a warranty and maintenance program for both its hardware and
software products and maintains a large customer service network, known as the
Glenayre Care Group, throughout the world.
Competition. The Company is a leading worldwide supplier of switches,
transmitters, receivers, controllers and software, used in wireless messaging,
voice messaging and message management systems. While the services from the
foregoing products represent a significant portion of the wireless personal
communications systems industry today, the industry is expanding to include new
enhanced services and new markets. Messaging like services are being offered
using alternative messaging technologies such as PCS. There can be no assurance
that the Company will obtain market acceptance of its products in the face of
competing technologies or be successful in introducing new products. In
addition, manufacturers of wireless telecommunications equipment, including
those in the cellular telephone and PCS industries, certain of which are larger
and
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have significantly greater resources than the Company, could attempt to enter
into the Company's markets and compete with Glenayre's products and systems.
The following description of the Company's competitive market position is based
upon its knowledge of sales of products of the type sold by the Company in the
segment of the wireless personal communications industry in which the Company
competes, information derived from its close working relationship with large
messaging service providers and market information obtained from industry trade
publications and sources.
. United States. The Company believes that it is the largest
provider to the United States market (based on the number of units
sold) of one-way and two-way switches and related equipment and
software, and one-way and two-way transmitters and controllers.
Traditionally, the principal competitor in this market was
Motorola, Inc. ("Motorola"). Since Motorola has effectively exited
this market, it is the Company's belief that its leadership
position with respect to the sale of messaging switches in the
United States has substantially exceeded that of any other wireless
messaging switch manufacturer. The Company believes that it
captured the largest percentage of sales of messaging switches
serving more than 10,000 subscribers in each of the last three
years.
The Company believes sales of its transmitter and controller
products exceeded sales of such products by competitors in this
market, principally smaller manufacturers that primarily serve
small local messaging service providers which represents a small
segment of the total domestic infrastructure market.
. International. Since Motorola has effectively exited this market,
the Company believes that its leadership position (based on the
number of units sold) of messaging switches, transmitter and
controller products outside of the United States has substantially
exceeded that of any other messaging infrastructure manufacturer,
which currently consist primarily of small manufacturers that serve
small local messaging service providers, which represent a small
segment of the total international infrastructure market.
Wireless Messaging Devices:
The Company's Consumer Products Group designs, develops and markets innovative,
low power, two-way wireless data messaging devices. The Company's products are
based on Motorola's family of FLEX two-way wireless messaging protocols which
the Company believes will become the industry's standard two-way wireless data
messaging protocols. The two-way wireless data messaging capability of the
Company's devices will allow service providers to reuse their RF spectrum and
thereby offer expanded two-way alphanumeric wireless data messaging services to
significantly more users than would be possible with a traditional one-way
alphanumeric messaging network.
@ctiveLink(TM). In 2000, the Company commercially released the @ctiveLink, a
wireless two-way module that is designed to snap into the Handspring(TM)
Visor(TM) Handheld computer. With the @ctiveLink customers can wirelessly send
and receive messages, query the Internet and access their desktop computer
information. This allows Glenayre customers to keep their handheld and desktop
Personal Information Manager updated even when they are far from the office. The
@ctiveLink also allows application developers to create their own unique
applications utilizing the PalmOS. The device stores approximately 150,000
characters of messages on a stand alone basis and has up to four weeks of
battery life from 2 AAA batteries. The @ctiveLink is available for both the
ReFLEX25 and the ReFLEX50 protocols. Key product enhancements and features in
the @ctiveLink include the following:
. Mobile e-mail and information management
@ctiveLink comes complete with bundled software for e-mail and Internet
information access.
BeamLink. BeamLink is the e-mail management program for the
@ctiveLink. When the @ctiveLink module is inserted, BeamLink
automatically checks for messages that may have arrived while the
module was removed from the handheld device. E-mail is organized in
convenient, manageable folders. Preprogrammed messages like "call
me" or "traffic delay" can be sent with one tap. Customers can tap
on a name to address a message, then compose with the on-screen
keyboard.
InfoBeam. InfoBeam is the wireless information resource for the
@ctiveLink. With InfoBeam, up-to-date information from a broad
selection of information sources is a simple tap away. Customers
can save time and energy and wirelessly get stock quotes, find
flight arrival and departure information, query for business or
personal phone numbers and get weather updates.
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. Superior coverage
Glenayre's wireless technology offers broad coverage, superior in-
building reception and guaranteed message delivery.
. Always @ctive(TM)
Never miss a message. The @ctiveLink module receives and stores e-mail
even when removed. The @ctiveLink allows a service provider to ensure
guaranteed message receipt by storing and re-sending a message when the
recipient's device is turned off or is out of the service area.
AccessLink(TM) II. The AccessLink II, which was commercially released in 1998,
allows wireless data messaging service providers to offer customers full two-way
wireless messaging service capabilities in a device approximately the same size
as one-way alphanumeric messaging devices with a four-line LCD display and more
than 30 days of battery life. The AccessLink II allows a service provider to
ensure guaranteed message receipt by storing and re-sending a message when the
recipient's device is turned off or is out of the service area. In addition,
the AccessLink II provides users with the ability to create custom replies and
to originate messages to another wireless messaging device or to an e-mail
address. The AccessLink II also utilizes the Company's proprietary integrated
chipset. The AccessLink II is available for both the ReFLEX25 and the ReFLEX50
protocols. Key AccessLink II features include: (i) message origination which
allows a user to create and send custom messages from the device, (ii) Internet
Connectivity where the user can exchange messages with Internet e-mail users,
(iii) easy-to-manipulate omni-directional keypad and innovative user interface
provide the user with an easy means of creating, storing and sending messages,
(iv) Computer Connectivity which provides an infra-red, IRDA compatible port for
wireless connection to personal or palm top computers and (v) High-Performance
Transmitter which transmits at a level that allows for creating and sending long
custom messages.
Competition. Motorola is the only other company that currently offers a product
that operates in a ReFLEX based two-way wireless data messaging network.
Motorola and other potential producers of devices for the two-way wireless data
messaging market, such as Uniden, Sony and Casio, have longer operating
histories, significantly greater financial, technological, management and
marketing resources, greater name recognition and larger installed customer
bases than Glenayre. These other potential competitors do not currently offer
devices for ReFlex networks. However, each of these companies can devote
greater resources to developing, marketing and selling their products than
Glenayre and may be able to respond more quickly to new or emerging technologies
and changes in customer needs. Other two-way wireless network providers are
BSWD/Mobitex and American Mobile Satellite Corp/Ardis. Additional competition
from device manufacturers on these networks include Research in Motion ("RIM").
Additionally, wireless messaging-like services are being offered using
alternative messaging technologies such as PCS. There can be no assurance that
the Company will obtain market acceptance of its products in the face of
competing technologies or be successful in introducing new products. The
failure of Glenayre to compete effectively could result in lower prices, reduced
margins or loss of market share, any of which could have an adverse effect on
the Company.
Competition in the Company's End User Device markets is based upon quality,
product features, services, technical performance, capabilities, service and
price, in addition to battery life, size, ease of use, appearance, durability,
and reliability. End User Devices represent a much more significant portion of a
wireless messaging provider's total capital investment than does infrastructure
investment.
Marketing and Sales, Customers. The Company markets to wireless messaging
carriers primarily in the United States through a direct sales force. To date,
the Company's primary customers for two-way and guaranteed message delivery
devices revenues have been SkyTel, WebLink Wireless, Metrocall, Arch and
Verizon.
Sales territories in Mexico, China and Canada with PageNet Canada/Madison
Communications and sales channels such as Office Depot are expected to grow in
2001. Additionally, the Company intends to expand sales channels with its own
e-commerce initiatives and its alliances with third party partners such as
Handspring and JP Systems.
ENHANCED SERVICES PLATFORM PRODUCTS (ESP)
Enhanced Services platform products comprised of the Company's Intelligis
product line, which includes the Modular Voice Processing ("MVP(R)") system and
the prepaid wireless platform, accounted for approximately 49%, 35% and 18% of
net sales
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for 2000, 1999 and 1998, respectively. By integrating these two platforms as a
part of the Unified Communications Architecture, the Company believes it will be
in a strong position to serve both wireline and wireless service provider needs
for revenue generation. The MVP(R) System and the prepaid platform provide
network operators with the enhanced services, prepaid wireless and calling card
products needed to increase revenues from the current customer base and to
acquire new subscribers. The Intelligis product family enables carriers to
compliment and enhance their core service offering with additional communication
or billing services.
MVP(R) System. Glenayre's Enhanced Services platform, MVP(R) system enables
cellular, PCS, wireline and wireless messaging network operators to offer their
subscribers value-added services that enhance and complement their core
communication products. The MVP(R) system's scaleable architecture provides
service providers with an efficient growth path for their subscriber base. The
system can start out small and grow to handle up to 1,000,000 subscribers. Its
modular architecture allows service providers the ability to add additional
capacity as their subscriber base grows. This protects their capital investment
and allows service providers an elegant growth path. Additionally, it
interfaces into the myriad of trunk interfaces provided by central office
switches, cellular switches, terminals, telephone answering systems and inter
exchange carrier ("IXC") switches, even integrating into different
telecommunication networks simultaneously. It also has the capability of
integrating into various Intelligent Networks around the world.
Intelligis Large Solutions Platform ("Intelligis LSP") is the answer to the
very large installations for service providers. Because the Intelligis LSP is
an evolution of the MVP 4240, it utilizes virtually all of its components.
Intelligis LSP allows carriers to grow their systems to very large subscriber
numbers and still protect their capital investment in the MVP product family.
Enhanced Services Applications. The platform's flexibility allows service
providers to choose the number and combination of enhanced services to offer,
including voice, fax, and data messaging, short message service, one touch call
return, continuous calling, voice activated dialing, unified messaging, and
CONSTANT TOUCH Service, a single number service. These services are in great
demand by telecommunication carriers as they try to offer applications that
differentiate their service offerings and provide value to help retain
subscribers in an increasingly competitive environment. In addition, Glenayre
provides effective management of deployed systems through a network management
product.
Glenayre's enhanced services system provides many voice messaging applications
with intelligent message notification. Subscribers are notified, via their
messaging device or phone handset, when they receive a new message in their
mailbox. The system alerts subscribers to the number and type of message
received, including urgent and fax messages.
Glenayre's One Touch Call Return feature allows the subscriber to return calls
with a keystroke. When the caller leaves a message, the system captures the
caller's telephone number, either by Automatic Number Identification or by the
caller manually entering the caller's number. When the subscriber listens to the
message, the callback number plays as part of the voice message. At any time,
the subscriber can press a button and the caller's phone number is dialed by the
system. After the call is completed, the subscriber is returned to the
subscriber's voice mailbox.
Fax messaging permits faxes to be sent directly to a subscriber's voice mailbox.
The subscriber is notified that a fax message has been received in the
subscriber's voice mailbox. The fax is stored in memory and can be printed from
any fax machine when the subscriber is ready to retrieve it. The fax can also be
distributed to other fax machines or other subscribers as part of a fax
broadcast or distribution list.
CONSTANT TOUCH, Glenayre's single number application, gives subscribers control
of their communications. With CONSTANT TOUCH, subscribers combine all personal
and business telephone numbers (messaging device, home, office, cellular and
fax) into a single number that will reach them anywhere. By incorporating any or
all of a subscriber's telephone numbers, callers only have to use one number to
reach the subscriber.
When a caller dials the subscriber's CONSTANT TOUCH number, the system prompts
the caller to speak their name and enter their telephone number. The system then
calls a series of preprogrammed numbers to notify the subscriber that a caller
is holding. The system plays the caller's name, "introducing" the caller. The
subscriber can choose to connect with the subscriber's caller or forward the
caller to the subscriber's voice mailbox or assistant.
Glenayre continued to deploy Unified Messaging applications in 2000. With
Unified Messaging, carriers can offer their subscribers a centralized center for
their voice, fax, data and e-mail messages. Unified Messaging provides carriers
the ability to integrate fixed and wireless networks. Unified Messaging allows
subscribers an "inbox" on their computer that consolidates
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all of their messages. Instead of calling their voice mailbox, and then logging
onto a computer, all of their messages are in one place. Subscribers simply
point and click to access all of their messages. With text-to-speech, a
subscriber's e-mail messages can be read to them over the telephone.
A continued focus project for the Glenayre ESP system is speech recognition.
Glenayre has developed a new voice dialing application allowing subscribers to
place calls using only their voice. The subscriber speaks a name or telephone
number and the system places the call. Glenayre expects to continue to develop
additional speech recognition products for the voice mailbox.
The Company believes that by providing many multi-media applications on a single
platform, carriers will derive value. The Intelligis product family is designed
to provide a great return on investment by providing multiple applications and
revenue streams on a single platform. This gives service providers a means to
generate additional revenue and increase subscriber continuity.
Prepaid and Card Services. Glenayre's Intelligis Prepaid Wireless platform
offers a powerful feature set specifically designed for wireless operators
throughout the world. The prepaid product is a business solution that provides
customer care, provisioning, audit trails and call detail records for wireless
operator's prepaid subscribers. The Prepaid Wireless application allows
carriers the ability to offer their core wireless service in a network based
prepaid offering. With Prepaid Wireless, carriers can sell their service
offering before customers use it. This reduces the risk of fraud and allows
carriers to tap into large markets of potential new subscribers. The Company is
developing new releases of its Prepaid Wireless application to include advanced
features such as Web-based administration, Voice over IP ("VOIP"), inbound call
screening, advanced cellular-to-cellular call rating, nationwide cellular
roaming and Intelligent Network Solutions.
Glenayre's platform is a client/server-based software platform from which
multiple telecommunications applications can be run across shared network and
database resources. The platform provides an interface between telephony and
computing resources, including switches, voice response units ("VRUs"),
databases, billing systems and network management software. The platform
facilitates the generation of call flows and insulates application developers
from low-level programming of hardware components. Glenayre's modular,
client/server architecture permits the replacement and interchangeability of
network hardware components and ensures the reusability of common software
modules as Glenayre develops new applications. The platform provides the
following key features: rapid service creation, modularity, high volume and
scalability, network connectivity and fast call setup, real-time call
management, external interfaces and disaster recovery and reliability.
Competition. The market for ESP systems is highly competitive, and includes
numerous products offering a broad range of features and capacities. The primary
direct competitors in the US and internationally are manufacturers of stand-
alone messaging systems, including, among others, Comverse, ADC
Telecommunications, Inc., InterVoice-Brite, Inc., the Octel Messaging division
of Lucent Technologies, Inc., Unisys Corporation and Openwave. Many of the
Company's present and potential competitors are considerably larger than the
Company, are more established, have a larger installed base of customers and
have greater financial, technical, marketing and other resources.
The Company believes that competition in the sale of ESP systems is based on a
number of factors, the most important of which are product features and
functionality, system capacity and reliability, marketing and distribution
capability and price. Other important competitive factors include service and
support and the capability to integrate systems with a variety of central office
and cellular switches, IP networks and other communications systems. The Company
believes that the range of features provided by, and the ease of use of, its
systems compare favorably with other platforms currently being marketed, and
that its ESP systems are the leading systems designed specifically for telephone
network operators.
For sales of Prepaid Wireless products and services, the Company competes in the
United States and internationally primarily with InterVoice-Brite, Inc.,
Comverse Technologies, Inc., Precision Systems, Inc., Logica-Aldiscon (formerly
Aethos), LHS (formerly Priority Call Management), Sixbell (Chilean Company),
Nortel, Ericsson, Nokia, Alcatel-DSC and Lucent.
Marketing and Sales. The Company markets to cellular, PCS, wireline, prepaid
wireless and wireless messaging network operators primarily in the United States
through a direct sales force. Glenayre has also entered into several Original
Equipment Manufacturing ("OEM") agreements with companies that will market and
distribute the Intelligis product line throughout the world.
8
Service and Support. Glenayre provides service to customers on a regular basis
including installation, project management of turnkey systems, training, service
or extended warranty contracts with the Company. The Company believes that it is
essential to provide reliable service to customers in order to solidify customer
relationships and to be the vendor of choice when new services or system
expansions are sought by a customer. This relationship is further developed as
customers come to depend upon the Company for installation, system optimization,
warranty and post-warranty services.
The Company has a warranty and maintenance program for both its hardware and
software products and maintains a large customer service network, known as the
Glenayre Care Group, throughout the world.
CUSTOMERS
Glenayre sells to a range of customers worldwide. In the United States,
customers include the regional Bell operating companies, public and private
radio common carriers, private carrier wireless messaging operators, PCS
carriers and cellular carriers. Internationally, customers include public
telephone and telegraph companies, wireless messaging and cellular carriers as
well as private telecommunication service providers servicing cellular, PCS and
wireless messaging.
There was one customer that accounted for approximately 10% of net sales during
2000. There was no customer that accounted for 10% or greater of sales during
1999. Sales to one customer amounted to approximately 11% of net sales for
1998. An additional customer accounted for approximately 13% of net sales in
1998. Although a single customer accounted for more than 10% of the Company's
net sales in 2000 and 1998, the dependence on any one customer is mitigated by
the large number of entities in the Company's customer base. The amount of
business with any customer in a reporting period is determined by the timing of
the development and expansion of existing customers' and new customers' systems.
RESEARCH AND DEVELOPMENT
The Company believes that a strong commitment to research and development is
essential to the continued growth of its business. Glenayre has consistently
developed innovative products and product improvements for the
telecommunications industry, and has often been the first to bring such products
to market. One of the key components of the Company's development strategy is
the promotion of a close relationship between its product development staff,
internally with Glenayre's manufacturing and marketing personnel, and externally
with Glenayre's customers. Utilizing this strategy, Glenayre expects to develop
and bring to market customer-driven products in a timely manner.
The Company believes it is in a much better position to gain significant
efficiencies from research and development. Because of the integration between
the Company's two business units, the research and development organization is
also integrated. This assures the Company that there is no wasted effort or
redundant development. It allows a cross-functional group to drive all of the
products forward.
The Company has extensive expertise in the technologies required to develop
wireless communications systems and products including digital signal processing
("DSP"), voice processing (both frequency modulation ("FM") and linear), real-
time software, networking and network management software, high-speed digital
logic, high and low power radio frequency, protocol development, data network
and system design. Additionally, the Company has a core competency in devices,
packaging, ease of use, integration and implementation. The Company believes
that by having a research and development staff with expertise in these key
areas, it is well positioned to develop enhancements for its existing products
as well as new personal communication products. Investment in advanced computer-
aided design tools for simulation and analysis has allowed Glenayre to reduce
the time for bringing new products to market.
Glenayre's research and development efforts are located in its Vancouver,
British Columbia, Canada; Atlanta, Georgia; and Santa Clara, California
facilities. Total research and development costs for the Company were $39
million, $41 million and $47 million or 16%, 17% and 13% of net sales for 2000,
1999 and 1998, respectively. The Company devotes substantial resources to
research and development in order to develop new products, improve existing
products and support ongoing custom feature and enhancement development. The
availability of research and development funds depends upon the Company's
revenues and profitability. Reductions in such expenditures could impair the
Company's ability to innovate and compete.
New Products and Upgrades. The principal new products and enhancements by the
Company in 2000 related to its Enhanced Services products include the following:
(i) commercial launch of the 1200 port Intelligis Large System, (ii) launch of
UMS 2.0 Unified Messaging product including HTML/Java client access for voice
mail along with the launch of OpenUMS, a licensed API for third party
applications development on top of the UMS 2.0 server and (iii) development of
the next ESP core
9
software release X.9 which dramatically improved reliability. The primary new
product and enhancement by the Company in 2000 related to its wireless messaging
product segment was the commercial launch of the @ctiveLink device, which is
designed to snap into the Handspring Visor handheld computer.
STRATEGIC ALLIANCES
The Company believes that strategic alliances are important in order to leverage
research and development efforts. The Company uses strategic alliances to
develop end-to-end solutions for our customers through co-marketing agreements
and product interoperability programs. The Company's strategic alliances are
carefully researched and utilized to bring subscriber applications using
Glenayre infrastructure and devices as the foundation for the application. The
Company realizes that there are other companies that have more product expertise
in certain areas, and by leveraging these companies' strengths, Glenayre should
be able to provide a wider range of products. This strategic initiative is an
integral part of Glenayre's strategy to bring comprehensive communication
solutions to the Company's customers.
During 2000, the Company entered into several strategic agreements, aligning
with a number of companies that provide (i) wireless interconnection enabling
middleware technology (infrastructure software that allows wireless connections
to back-end data and content), (ii) wireless connection services (Wireless
Application Service Provider) or (iii) wireless applications and access to
content. These agreements include new or continuing relationships with
AnyDevice.com, Inc.; DataLink.net, Inc.; Galileo International. L.L.C.;
GoSMS.com, Ltd.; HandSignal, Inc.; HiddenMind Technology, Inc.; JP Systems,
Inc.; MobileSys, Inc.; Notify Technology Corporation; OfficeDomain, Inc.; PCS
Innovations, Inc.; Phone Online, Inc.; Vast Solutions, Inc; Veriprise Wireless
Corp.; WirelessMD, Inc.; w-Trade Technologies, Inc.; and Wysdom, Inc.
In 2000, the Company continued joint efforts with the following companies: (i)
Locate Networks (formally Loc8.net), which provides a location based technology
that utilizes Global Positioning System ("GPS") technology to help locate people
and assets; in 2000 the Company worked closely on developing the first location
based device which is expected to be available in 2001, (ii) InfoWave, which
developed Symmetry, a client based wireless integration with Microsoft Outlook
and the wireless messaging device, (iii) Handspring, which launched in 2000 a
new personal digital assistant ("PDA") that markets its product under the
product name Visor; in 2000, the Company developed a wireless module to attach
onto Handspring's Visor model to allow wireless data messaging between a
customer's PDA and other data devices and (iv) JP Systems, which delivers mobile
Internet services to the AccessLink(TM) II and @ctiveLink(TM) messaging platform
utilizing the InfoBeam web-to-wireless technology application, a new level of
Internet content access available for a range of mobile devices and wireless
networks.
Further, the Company uses strategic partnerships to expand its distribution of
products. In 2000, the Company entered into distribution agreements with
Gateway Computer, Amazon.com and Palmgear providing distribution of its wireless
devices through additional channels. Also, the Company continues its original
equipment manufacturer ("OEM") strategy for distribution of Enhanced Services
platform products.
In 2001, the Company plans to continue with this strategy of identifying
technical needs and entering into relationships with the strongest providers in
the market. The Company will look for companies with strong Internet and Web-
based applications as well as companies with strong technological expertise.
All of these alliances are designed to drive the Company's infrastructure and
device revenues as the usage of Internet and Web-based applications increases.
MARKETING AND SALES
The Company markets its products and services in the United States and
internationally primarily through a direct sales force. Glenayre also utilizes
distributors and agents to sell its products in certain countries and geographic
regions to markets outside of the Company's core markets. Glenayre maintains
sales offices throughout the United States.
10
In an effort to better serve its international customers, Glenayre has
established sales offices outside of the United States in various locations
worldwide, including:
Manila, Philippines Singapore
Vancouver, Canada Milton Keynes, England
Mexico City, Mexico Beijing, China
Dubai, United Arab Emirates Amsterdam, Netherlands
Sao Paulo, Brazil Taipei, Taiwan
Tokyo, Japan Shanghai, China
Glenayre has staffed each of these offices with either local or expatriate
multilingual personnel. The Company may need to add personnel and offices in
some of the international markets should the growth in those markets justify
these additional expenditures. See Note 10 to the Company's Consolidated
Financial Statements for information relating to export sales.
As part of the Company's integrated marketing and sales efforts, Glenayre
encourages and facilitates a philosophy of open communication between the
Company and its customers. Toward that end, the Company often invites customer
representatives to meet with Glenayre's engineers and marketing personnel to
collaborate in the development of new and enhanced products.
The competitive telecommunications market often requires customer financing
commitments. These commitments may be in the form of guarantees, secured debt
or lease financing. However, since June 30, 1999, it has been the Company's
policy not to offer customer financing or guarantees. See Note 16 to the
Company's Consolidated Financial Statements.
INTERNATIONAL BUSINESS RISKS
Approximately 34% of 2000 net sales were generated in markets outside of the
United States. International sales are subject to the customary risks associated
with international transactions, including political risks, local laws and
taxes, the potential imposition of trade or currency exchange restrictions,
tariff increases, transportation delays, difficulties or delays in collecting
accounts receivable, and, to a lesser extent, exchange rate fluctuations.
Although a substantial portion of 2000 international sales of the Company's
products and services were negotiated in U.S. dollars, there can be no assurance
that the Company will be able to maintain such a high percentage of U.S. dollar-
denominated international sales. Accordingly, the Company may seek to mitigate
its currency exchange fluctuation risk by entering into currency hedging
transactions. The Company also acts to mitigate certain risks associated with
international transactions through the purchase of political risk insurance and
the use of letters of credit. However, there can be no assurance that these
efforts will successfully limit the Company's currency exchange fluctuation
risk.
MANUFACTURING
Glenayre currently manufactures its wireless messaging products at Company
facilities in Quincy, Illinois except for its two-way wireless messaging
devices, which are assembled by a third-party manufacturer. The MVP Enhanced
Services platform and Open Media prepaid services Platform are also manufactured
at the Quincy facility. This represents a change from years prior to 2000 where
the MVP Enhanced Services platform and Open Media product were built in the
Vancouver, BC facility. Analysis of production facilities suggested that
consolidating the manufacturing of these products with product already being
built in the Quincy facility was the most efficient approach. As a result of
this manufacturing consolidation, the Company has experienced synergy and
leverage which have enhanced operating margins on both the transferred product
lines and the Quincy product lines. The Company's believes that its present
facilities are adequate for current and immediate future manufacturing needs.
The Company's manufacturing capabilities include assembling sub-assemblies and
final systems that are configured to its customers' specifications. The
components and assemblies used in the Company's products include (i) electronic
components such as resistors, capacitors, transistors and semiconductors such as
field programmable gate arrays, digital signal processors and microprocessors,
(ii) mechanical materials such as cabinets in which the systems are housed, and
(iii) peripherals, including disk drives. The components and parts used in the
Company's products are generally available from multiple sources. Some
components, especially those utilizing the latest technology, may only be
available from one source. In those instances where components are purchased
from a single source, the supplier and the specific component are reviewed both
prior to initial specification and then frequently afterward for stability and
performance. Although the Company believes that single source components could
either be obtained from another source or redesigned, temporary delays or
increased costs in obtaining these materials may be experienced. Additionally,
as necessary, the Company purchases sufficient quantities of
11
certain components that have long-lead requirements in the world market. The
Company performs standard procedures to test, tune and verify products prior to
shipment to the customer.
The Company believes in setting high standards of quality throughout all its
operations. The Company has certification to the ISO 9001 international standard
for quality assurance in areas including design, manufacture, assembly and
service for the Quincy, Illinois, Vancouver B.C. and Atlanta, Georgia
facilities. ISO is a worldwide federation of national standards bodies, which
have united to develop internationally, accepted quality systems standards so
that customers and manufacturers have a system in place that provides a known
quality. The standards set by ISO cover every facet of quality from management
responsibility to service and delivery. Management believes that adhering to the
stringent ISO 9001 procedures not only creates efficiency in its operations, but
also positions Glenayre to meet the exacting standards required by its
customers.
The Company utilizes Materials Resource Planning ("MRP") systems for production
planning in its manufacturing and state-of-the-art workstations for its
engineering functions. In 1998, Glenayre implemented a new business operating
system linking a significant portion of the Company's business functions.
INTELLECTUAL PROPERTY ASSETS
The Company's Intellectual Property portfolio consists of its patents,
copyrights, registered and common-law marks, Internet domains, collective
employee knowledge, blueprints, technical specifications, manufacturing
processes and other trade secrets ("Intellectual Property"). The Company
protects its Intellectual Property through a combination of methods, including
maintenance of trade secrets through appropriate corporate policies and
procedures; registration of patents, copyrights, trademarks and service marks;
and implementation of appropriate technical security measures.
The Company owns or has a license under numerous patents. While the Company's
aggregate patent portfolio is important for competitive and operational reasons,
the Company does not believe that any one patent is of material importance to
the Company's continued operations or market competitiveness.
The Company's registered marks are also valued corporate assets. The Company
protects its most important marks through registrations in the United States and
various foreign countries. The Company's registered marks include "GLENAYRE"
and "ACCESSLINK". In addition, Glenayre has applied for registrations for
"@ctiveLink", "Solutions for an @ctive World" and "Always @ctive".
Despite the Company's efforts, it is possible that the Company's control of
certain Intellectual Property could be compromised. For example, the laws of
certain foreign countries in which the Company does business do not provide the
same level of protection for intellectual property, as do the laws of the United
States. In addition, with respect to trade secrets, it is possible that
competitors, without access to Glenayre's Intellectual Property, could develop
and market products with similar functionality.
The Company believes its technology does not infringe any third party rights;
however, there can be no assurance that third parties will not assert future
infringement claims. An adverse decision in an infringement claim asserted
against the Company could result in the Company being prohibited from using the
allegedly infringing technology. In such an instance, the Company might need to
expend substantial resources to develop alternative technology or to license the
allegedly infringing technology. There can be no assurance that these efforts
would be successful.
BACKLOG
The Company's firm backlog from continuing operations at December 31, 2000 and
1999 was approximately $31 million and $57 million, respectively. The Company
expects to commence shipment on substantially all of the orders in the backlog
within twelve months of their respective backlog dates. Approximately all
orders on hand are expected to be shipped during 2001. This is a forward-looking
estimate that is subject to substantial change based on the timing of
installation of systems by the Company's wireless messaging service provider
customers and the market acceptance of personal communication products by the
customers of such wireless messaging service providers.
GOVERNMENT REGULATION
Many of Glenayre's products operate on radio frequencies or connect to public
telecommunications networks. National, regional and/or local governments
regulate radio frequency and telecommunications networks, as well as the
operations of telecommunication service providers in most domestic and
international markets. In some instances, regulatory requirements
12
give the Company an opportunity to supply additional product solutions to our
customers. However, in introducing products to a market, there is no assurance
that the Company or its customers will obtain regulatory approval. In addition,
it is always possible that a new regulation, changing political climates, or a
change in the interpretation of existing regulations could adversely affect the
Company's ability to sell products in that market. Were this to occur, the
Company believes it has appropriate technical, administrative, professional
personnel, and consultants to address issues in an efficient and timely manner
to minimize the long-term impact on the Company and its customers.
EMPLOYEES
At December 31, 2000, the Company and its subsidiaries employed approximately
1,300 persons. The Company believes its employee relations to be good.
ITEM 2. PROPERTIES
The following table sets forth certain information regarding the Company's
principal facilities:
Size Owned Or Lease
Location (Square Feet) Leased Expiration Date Uses
-------- ----------------- ------ --------------- ----
Vancouver, 197,668 156,534 owned Research and development,
British Columbia 41,134 leased 2001-2002 product management,
service, accounting and
training facilities.
Quincy, Illinois 154,256 owned Manufacturing, service,
accounting, purchasing and
training facilities.
Santa Clara, California 24,631 leased 2005 Service, sales, accounting,
purchasing, research and
development, and
administration.
Atlanta, Georgia 100,000 75,000 owned Sales, service, marketing,
25,000 leased 2005 research and development, and
training facilities.
Charlotte, North Carolina 17,309 leased 2004 Corporate headquarters,
legal services, information
services, accounting and finance.
Singapore 42,000 owned Service, sales, accounting
and training facilities.
In addition to its sales offices listed above, Glenayre also maintains sales
offices throughout the United States and internationally. See "Business--
Marketing and Sales."
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in a legal proceeding in connection
with its business operations. The Company is not aware of any current claims or
disputes for which an adverse result would have a material effect on the
Company's financial position or future results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the symbol
"GEMS." The table below sets forth the high and low sale prices for the
Company's common stock on The Nasdaq Stock Market for the periods indicated.
Price Range of
Common Stock
------------
High Low
---- ---
Year Ended December 31, 2000
----------------------------
First Quarter..................................................... $30.000 $9.438
Second Quarter.................................................... 17.375 7.281
Third Quarter..................................................... 13.750 8.375
Fourth Quarter.................................................... 11.125 2.563
Year Ended December 31, 1999
----------------------------
First Quarter..................................................... $ 6.094 $3.375
Second Quarter.................................................... 4.813 3.125
Third Quarter..................................................... 6.063 2.688
Fourth Quarter.................................................... 13.000 2.281
At March 2, 2001 there were approximately 1,900 holders of record of the
Company's common stock.
The Company has not paid cash dividends since 1982 and does not anticipate
paying cash dividends in the foreseeable future. The Company expects to utilize
future earnings to finance the development and expansion of its business.
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data of Glenayre presented below
for each of the five years in the period ended December 31, 2000 has been
derived from the Company's audited Consolidated Financial Statements. The
Company acquired Western Multiplex Corporation ("MUX"), a manufacturer of
microwave radio systems, on April 25, 1995. MUX was sold on November 1, 1999.
The Company made three acquisitions in 1997: (i) CNET, Inc., a developer of
software including network management tools on January 9, 1997, (ii) Open
Development Corporation ("ODC"), a developer of database management platforms
providing applications for calling cards on October 15, 1997, and (iii) Wireless
Access, Inc. ("WAI"), a developer and marketer of two-way wireless messaging
devices on November 3, 1997. The results of the acquired companies are included
from the dates of acquisition by the Company except for MUX which is shown as
discontinued operations in years 1996-1999. The Selected Consolidated Financial
Data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and the other financial data included elsewhere
herein.
14
(In thousands, except per share data)
Year Ended December 31,
-------------------------------------------------------------------
2000 * 1999 * 1998 * 1997 * 1996
---------- --------- -------- -------- --------
Operating Data:
Net sales.............................................. $251,585 $ 238,089 $367,039 $419,570 $362,234
Income (loss) from continuing operations before
change in accounting principle....................... 14,102 (127,748) (40,724) 3,697 65,840
Discontinued operations................................ -- (780) 954 3,242 4,604
Change in accounting principle......................... -- -- -- (688) --
Net income (loss)...................................... 14,102 (128,528) (39,770) 6,251 70,444
Per Share Data
Per Weighted Average Common Share:
Income (loss) from continuing operations before
change in accounting principle....................... 0.22 (2.06) (0.66) 0.06 1.09
Net income (loss)...................................... 0.22 (2.07) (0.65) 0.10 1.16
Per Common Share-Assuming Dilution:
Income (loss) from continuing operations before
change in accounting principle....................... 0.21 (2.06) (0.66) 0.06 1.04
Net income (loss)...................................... 0.21 (2.07) (0.65) 0.10 1.11
At December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Balance Sheet Data:
Working capital................................. $185,076 $158,035 $154,472 $161,454 $279,031
Total assets.................................... 446,086 413,558 561,795 590,161 521,210
Long-term debt, including current portion....... 628 669 823 3,747 879
Stockholders' equity............................ 370,927 335,478 462,153 492,359 455,861
___________________________
* The results for 2000 were impacted by $10.9 million in net proceeds received
from the WAI escrow settlement agreement. See Note 14 to the Company's
Consolidated Financial Statements. The results for 1999 were impacted by a $50.9
million write-off of goodwill and other intangibles related to the WAI
acquisition, restructuring charges of $14.6 million and $8.2 million write-off
of uncollectible subordinated notes. The results for 1998 were impacted by a
$26.7 million write-off of goodwill and other intangibles related to the ODC
scquisition, restructuring charges of $6.8 million and a $7.9 million loss on
sale of the Company's network management business. The results for 1997 were
impacted by a $38.7 million charge for purchased research and development
related to the ODC and WAI acquisitions and a $5.2 million write-off of goodwill
related to the CNET acquisition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Glenayre is a worldwide provider of communication solutions for mobile and
active subscribers. The Company designs, manufactures, markets and services its
products principally under the Glenayre name. These products include enhanced
services, unified messaging, advance messaging services and devices, and prepaid
wireless and card services as well as networking infrastructure used to deliver
these services. Glenayre's products are used in cellular, PCS, wireless, data,
wireless messaging, and IP networks.
In September 1999, the Company wrote-off goodwill and other intangibles related
to the November 1997 acquisition of Wireless Access, Inc. ("WAI"). (See Write-
off of Goodwill and Other Intangibles and Escrow Settlements). Glenayre acquired
Open Development Corporation ("ODC"), a developer of database management systems
providing applications for calling cards in October 1997. In December 1998, the
Company wrote-off goodwill and other intangibles related to the October 1997
acquisition of ODC. (See Write-off of Goodwill and Other Intangibles and Escrow
Settlements). In January
15
1997, the Company acquired CNET, Inc., a developer of software including network
management tools. In December 1998, the Company sold this network management
business. The operating results of the three acquired companies are included in
the consolidated results of Glenayre since the acquisition dates. In September
1997, the Company announced plans to consider divesting MUX, allowing Glenayre
to focus on its core markets of wireless messaging and enhanced messaging. See
Note 2 to the Company's Consolidated Financial Statements. MUX markets products
for use in point-to-point microwave communication systems and was acquired by
Glenayre in April 1995. On November 1, 1999 the Company completed the sale of
MUX and the operating results of MUX have been classified as discontinued
operations for 1998 and 1999.
Results of Continuing Operations
The following table sets forth for the periods indicated the percentage of net
sales represented by certain line items from Glenayre's consolidated statements
of operations from continuing operations:
Year Ended December 31,
-----------------------------
2000 1999 1998
---- ---- ----
Net sales......................................................... 100% 100% 100%
Cost of sales..................................................... 47 57 52
---- ---- ----
Gross profit.................................................... 53 43 48
Operating expenses................................................
Selling, general and administrative............................. 29 34 27
Provision for doubtful receivables.............................. 1 28 *
Research and development........................................ 16 17 13
Depreciation and amortization................................... 8 13 11
Write-off of goodwill and other intangibles..................... -- 21 7
Unrealized loss on uncollectible subordinated notes............. -- 3 *
Loss (adjustment to loss) on sale of business................... * * 2
---- ---- ----
Total operating expenses.......................................... 53 117 60
---- ---- ----
Income (loss) from operations..................................... * (74) (13)
Interest, net..................................................... 3 2 2
Gain (loss) on disposal of assets................................. * (2) *
Escrow Settlement................................................. 5 -- --
Gain on sale of available-for-sale securities..................... 1 -- --
Other, net........................................................ * * *
---- ---- ----
Income (loss) from continuing operations before income taxes...... 8 (73) (11)
Provision (benefit) for income taxes.............................. 2 (19) *
---- ---- ----
Income (loss) from continuing operations.......................... 6% (54%) (11%)
==== ==== ====
______________________________
* less than 0.5%
The following table sets forth for the periods indicated net sales represented
by the Company's primary marketing areas:
Year Ended December 31,
------------------------------------------
2000 1999 1998
-------- -------- --------
(dollars in thousands)
Wireless messaging products....................................... $129,223 $153,913 $299,315
Enhanced Services platform products............................... 122,362 84,176 67,724
-------- -------- --------
$251,585 $238,089 $367,039
======== ======== ========
(percentage of net sales)
Wireless messaging products....................................... 51% 65% 82%
Enhanced Services platform products............................... 49 35 18
-------- -------- --------
100% 100% 100%
======== ======== ========
Years Ended December 31, 2000, 1999, and 1998
Net Sales. Net sales for 2000 increased 6% to $252 million as compared to $238
million in 1999, which decreased 35% from $367 million in 1998. International
sales decreased to $85 million in 2000 as compared to $112 million in 1999 and
$143 million in 1998 and accounted for 34%, 47% and 39% of net sales for 2000,
1999 and 1998, respectively.
16
The increase in net sales in 2000 was due to a continued robust market demand in
North America for the Company's Enhanced Services platform MVP(TM) product and
wireless messaging devices which was partially offset by a decline in net sales
of the Company's traditional wireless messaging infrastructure products.
The Company anticipates sales growth in 2001 will be driven by the Company's ESP
product and increased sales of the Company's wireless data devices as the
Company expects in 2001 an increase in the demand of its new Reflex product
devices and the introduction of the Company's first CDMA module which provides
integrated voice and data connectivity to popular handheld computers. Offsetting
these increases in 2001, the Company anticipates wireless messaging
infrastructure revenue will decline as a result of certain Reflex operators
experiencing an accelerated loss of one-way paging subscribers in the fourth
quarter 2000 and the delay in 2001 of capital spending of other wireless
operators.
These are forward-looking statements that are subject to
the factors discussed in the cautionary statement attached as Exhibit 99 to this
Form 10-K. There can be no assurance that the Company's sales levels or growth
will remain at, reach or exceed historical levels in any future period.
The decline in net sales in 1999 was due to the contraction in the overall
wireless messaging market. There was a slowdown in wireless messaging
infrastructure purchases as the domestic wireless messaging providers sought
capital financing through normal channels or were acquired by other
telecommunication companies. International customers experienced similar
constraints of available capital resources. Additionally, sales of the Company's
two-way wireless messaging devices were negatively impacted by a slower than
expected roll out of the two-way market and intense price competition against
its lower end product.
Gross Profit. Gross profit was 53% in 2000 compared to 43% in 1999 and 48% in
1998. The increase in gross profit percentage in 2000 was due primarily to
higher sales of Enhanced Services platform products which yield higher gross
margins than the Company's other products. Additionally, the increase in gross
margins in 2000 and the decline of margins in 1999 as compared to 1998 can be
attributed to charges incurred in 1999 for: (i) restructuring severance expenses
incurred for employee terminations in the Company's Quincy, IL and Vancouver, BC
manufacturing facilities, (ii) additional slow moving inventory reserves
recorded as a result of lower forecasted infrastructure sales and (iii) the
bankruptcy filing of a customer for which certain inventory parts had been
purchased. These are offset partially by (i) increased sales of the Company's
lower margin wireless messaging devices, (ii) decreased sales of the Company's
higher margin wireless messaging infrastructure products and (iii) charges
incurred in 2000 to revalue the Company's wireless messaging device inventory to
market as a result of technological advances in the device market.
The Company anticipates its gross profit percentage will be in the range of
approximately 45 - 50% in 2001. However, Glenayre's gross profit margins may be
affected by several factors including (i) the mix of products sold, (ii) the
price of products sold and (iii) increases in material costs and other
components of cost of sales. This is a forward-looking statement that is subject
to the factors discussed in the cautionary statement attached as Exhibit 99 to
this Form 10-K.
Selling, General and Administrative Expense. Selling, general and administrative
expenses were $72 million, $81 million, and $97 million for 2000, 1999 and 1998,
respectively. The decreases in 2000 and 1999 are primarily attributable to a net
decrease in employee related costs and lower facility lease expense as a result
of the third quarter 1999 and first quarter 1999 restructurings. This decrease
in 2000 is offset partially by higher marketing related expenses as the Company
began to implement programs in 2000 to develop and enhance the Company's
strategic market position, marketing focus and channel management. The 1999
decrease is partially offset by restructuring charges recorded in the first and
third quarter 1999 restructuring plans. See Note 9 to the Company's Consolidated
Financial Statements. Additionally, a portion of the 1999 decrease in expenses
is due to the sale of the Company's network management business in 1998. See
Note 13 to the Company's Consolidated Financial Statements.
Business Restructuring. During the third quarter 1999, the Company recorded a
pre-tax charge of approximately $8.7 million related to a 27% reduction in the
Company's global workforce. This headcount reduction impacted all functional
areas of the Company but the majority of the positions impacted, approximately
50% or 200, were associated with consolidating the Company's Vancouver
manufacturing operations to its Quincy, Illinois facility. During the fourth
quarter 1999, the Company expensed approximately $280,000 of additional
severance adjustments. Furthermore, during the fourth quarter 1999 and 2000, the
Company expensed retention bonuses earned related to the third quarter 1999
restructuring of approximately $320,000 and $60,000, respectively. Severance and
payments for outplacement services of approximately $8.95 million were paid
prior to December 31, 2000. Additionally, during 2000, the Company reversed
approximately $230,000 of accrued severance benefits related to this reduction
of workforce.
17
Additionally during the third quarter 1999, the Company recorded a pre-tax
charge of approximately $670,000 of which approximately $310,000 was paid before
December 31, 2000, for consolidation and exit costs from its Vancouver, BC,
Charlotte, NC, Hong Kong, Guangzhou, China, New Delhi, India, and Torrance, CA
facilities and a pre-tax charge of approximately $2.0 million for the impairment
of long-lived assets. The consolidation and exit process was completed for all
of the above facilities by the end of 1999 with the exception of the Vancouver
manufacturing facility, which was completed in the first quarter 2000. During
the fourth quarter 1999, the Company expensed approximately $150,000 for
additional lease termination costs and asset impairments at its Vancouver
facility related to the third quarter 1999 restructuring. During 2000, the
Company reversed approximately $680,000 of accrued lease termination costs and
asset impairment charges related to the third quarter 1999 restructuring. This
reversal was due to: (i) assets previously determined as excess being utilized
at the Quincy manufacturing facility, (ii) greater than anticipated proceeds
from the disposal of assets in the Vancouver facility and (iii) a change in the
estimated timing of the exit of the leased portion of the Vancouver facility.
For the year ended December 31, 1999, the total pre-tax charge for the third
quarter 1999 restructuring and exiting of leased facilities was recorded as
approximately $4.9 million to cost of sales, $1.0 million to research and
development, $2.0 million to loss on sale of assets, and $4.2 million to
selling, general and administrative expenses.
During the year ended December 31, 2000, the total pre-tax impact of charges
against the accrual for the third quarter 1999 restructuring was recorded as a
reduction of approximately $180,000 to loss on sale of assets, $110,000 to
selling, general and administrative expenses, $120,000 to research and
development expenses and $440,000 to cost of sales for changes in estimates. The
reserve balance for the third quarter 1999 restructuring was approximately
$175,000 at December 31, 2000. Management believes the remaining reserves for
the third quarter 1999 business restructuring are adequate to complete this
plan.
During the second quarter 1999, the Company recorded a pre-tax charge for
severance of approximately $1.7 million, of which approximately $1.6 million was
paid before December 31, 2000, for a workforce reduction of approximately 200
employees at its Vancouver and Quincy manufacturing facilities. During the
third quarter of 1999, the Company reduced this pre-tax charge by approximately
$80,000 for lower than expected actual severance expenses incurred. As of
December 31, 1999 and 2000, the reserve balance was approximately $20,000 and
$0, respectively.
During the first quarter 1999, the Company recorded a pre-tax charge of
approximately $1.6 million related to a reduction of the Company's workforce by
approximately 70 employees at the Vancouver, Charlotte, and Quincy facilities,
exiting costs from the Blaine, Washington leased facility and asset impairment
charges for leasehold improvements located at the Blaine, Washington facility
(noncash charge of approximately $170,000). During 1999, the Company paid
approximately $1.3 million of the first quarter 1999 restructuring costs
primarily for employee termination costs and wrote-off approximately $170,000 in
leasehold improvements. Additionally, during the remainder of 1999, the Company
reversed charges of approximately $90,000 for less than anticipated exit costs
and severance costs. As of December 31, 1999 and 2000 the reserve balance was
approximately $40,000 and $0, respectively.
During the fourth quarter 1998, the Company recorded a pre-tax charge of
approximately $6.8 million related to a 10% reduction of its global workforce,
the exiting of two leased facilities and impairment of associated long-lived
assets, primarily leasehold improvements. At December 31, 1998 the reserve
balance was approximately $4.3 million. During 1999, the Company reduced the
fourth quarter 1998 restructuring charges by approximately $620,000 due to lower
than anticipated employee outplacement fees and severance costs at its Norwood,
Massachusetts facility and lower facility exit costs offset partially by more
than anticipated severance costs at other locations. During 1999 the Company
paid a total of approximately $3.7 million of the fourth quarter 1998
restructuring charge primarily for employee termination costs, operating
facility costs and early termination fees for the Norwood, Massachusetts leased
facility. As of December 31, 1999 and 2000 the reserve balance was
approximately $5,000 and $0, respectively.
Provision for Doubtful Receivables. The provision for doubtful receivables was
$2 million, $67 million, and $1 million in 2000, 1999 and 1998, respectively.
This increase in 1999 compared to 2000 and 1998 was due primarily to the risk
inherent in the Company's portfolio of receivables due to financial
difficulties, including bankruptcy, which was experienced by several of the
Company's customers in the second and third quarters of 1999. Bankruptcy of one
customer, Conxus, accounted for approximately $38 million of the increase from
1998 to 1999. Accordingly, significant increases in the Company's allowance for
doubtful accounts were recognized during 1999. (See Financial Condition and
Liquidity - Liquidity and Capital Resources and Note 3 to the Company's
Consolidated Financial Statements). Prior to the second quarter 1999, the
Company's bad debt write-offs had not been significant.
18
Research and Development Expense. Research and development expenses decreased
to $39 million in 2000 compared to $41 million in 1999 and $47 million in 1998.
The decrease in 2000 is primarily attributable to a reduction in employee
related expenses due to the third quarter 1999 restructuring and additional
employee severance expenses incurred in 1999 for this restructuring. The
decrease is offset by higher employee incentive bonuses accrued as a result of
meeting incentive plan targets in 2000 as well as higher subcontracting expenses
incurred for the Company's enhanced service platform products. The decrease for
1999 was primarily related to a reduction in employee related costs attributable
to the first and fourth quarter 1998 restructurings. See Note 9 to the
Company's Consolidated Financial Statements. The Company relies on its research
and development programs related to new products and the improvement of existing
products for the continued growth in net sales. Research and development costs
are expensed as incurred. Research and development expenses as a percentage of
net sales decreased to 16% in 2000 from 17% in 1999 and 13% in 1998. Glenayre
expects spending for research and development in 2001 to decrease as a
percentage of net sales to approximately 15% with absolute dollars changing in
relation to net sales reflecting the Company's continued focus on the
development and timely introduction of new products.
Depreciation and Amortization Expense. Depreciation and amortization expense
decreased to $20 million in 2000 compared to $30 million in 1999 and $39 million
in 1998. The decrease in expense for 2000 is a result of (i) the write-off of
goodwill related to the 1997 acquisition of WAI and other fixed and intangible
assets in the third quarter 1999, (ii) older assets becoming fully depreciated
in 2000 and (iii) disposal of capital assets related to the third quarter 1999
restructuring. The Company spent $19 million, $11 million and $30 million in
2000, 1999 and 1998, respectively, in order to provide the equipment and
capacity necessary to meet the Company's ongoing operations. Glenayre
anticipates property, plant and equipment purchases in 2001 to be approximately
$29 million and expects depreciation expense to remain approximately the same as
2000. Glenayre anticipates amortization expense for 2001 to be approximately the
same amount as 2000.
Write-off of Goodwill and Other Intangibles and Escrow Settlements. In the third
quarter 1999, the Company wrote off approximately $43 million of goodwill and
approximately $8 million of other intangibles related to the acquisition of WAI.
In November 1997 the Company acquired WAI, a developer of two-way messaging
devices, located in Santa Clara, California. WAI develops and markets two-way
wireless messaging devices.
The purchase price was negotiated based on projections of revenues from sales of
the wireless messaging devices and future applications (the "acquired WAI
products"). Actual WAI revenues from November 1997 to September 1999 were
considerably less than the projected sales used in the purchase price
calculations. Sales of wireless messaging devices for 1998 were negatively
affected by manufacturing start-up problems in the second quarter 1998. Design
issues caused further delays in sales in the latter part of 1998 and in the
first half of 1999. Additionally, the two-way wireless messaging market had not
developed as rapidly as expected and the Company's lower end device began to
experience price competition in the second quarter 1999. In the third quarter
1999, after incurring significant operating losses related to the WAI business,
management decided to restructure the WAI operations.
Management made this strategic change due to the following reasons which were
not readily apparent during the acquisition process: (i) performance issues with
the wireless messaging devices causing delays in timing of product delivery and
product acceptance; (ii) slower than expected development of the two-way
messaging market; (iii) a reduction in the overall expected market size for two-
way wireless messaging devices; and (iv) the speed and cost to adapt the product
for future applications has been competitively hindered by the current
architecture.
Given this strategic change, the Company concluded that the future forecasted
results for the acquired WAI products will be significantly less than had been
anticipated at the time of the Company's acquisition of WAI. As a result of
this strategic change, the WAI workforce was significantly decreased and future
WAI requirements for sales and engineering development are expected to be
contracted from elsewhere within the Company. After making these changes, the
Company evaluated the ongoing value of the non-current assets of WAI. Based on
this evaluation, the Company determined that assets, principally goodwill and
other intangibles, with a carrying value of approximately $51 million at
September 30, 1999 were impaired and wrote them down by the remaining balance.
Fair value was based on estimates of discounted future cash flows to be
generated by the acquired WAI products.
During the third quarter 2000, the Company entered into an escrow settlement
with the former WAI shareholders. The Acquisition Agreement ("the Agreement")
between the Company and the former WAI shareholders provided that approximately
$12 million of the purchase price would be placed in escrow for the purpose of
satisfying any claims of indemnity that the Company might make. The Agreement
contained representations and warranties by the former shareholders of WAI that
its AccessMate and AccessLink II pager products, which at the time of the
acquisition were under development,
19
would be manufactured in specified quantities and by dates set forth in the
Agreement. The Agreement further provided that the WAI shareholders would
indemnify the Company in the event that these pager products did not comply with
the manufacture dates and products specifications. In February 1999, the Company
made an indemnity claim against the former WAI shareholders for the entire
amount of the escrow on the ground that WAI failed to comply with or was late in
complying with the manufacture dates and product specifications. In January
2000, the representative of the former shareholders of WAI filed an answering
statement to this claim denying the allegations of the Company and asserting
that the former shareholders of WAI were entitled to all funds accumulated in
escrow. In August 2000, the Company and the former shareholders entered into a
settlement agreement that disbursed approximately $11.5 million of the escrow
funds to the Company. As part of this settlement the former WAI shareholders
were disbursed approximately $2.1 million of the funds. The Company incurred
approximately $600,000 of costs which have been netted against the proceeds
received. As all of the goodwill and other intangibles related to the WAI
acquisition were determined to be impaired and were written off in the third
quarter 1999, the net proceeds from the escrow settlement of $10.9 million are
included in the Company's consolidated statement of operations for the year
ended December 31, 2000. Additionally, the settlement agreement released all
claims by both parties to the Agreement.
On October 15, 1997, the Company completed the acquisition of ODC located in
Norwood, Massachusetts. ODC was a developer of database management platforms and
products for telecommunications providers. Actual 1998 revenue and earnings from
ODC's products were significantly lower than anticipated at the date of
acquisition, which significantly impacted the Company's 1998 results. These
lower than anticipated results were primarily attributed to a strategic change
in market strategy during 1998 for ODC's products. This strategic change was
from a multiple market approach for the prepaid wireless, prepaid wireline, and
postpaid calling markets to a single market approach focused solely on the
prepaid wireless market, thus eliminating two markets in which the products were
expected to be sold. Operating projections prepared prior to the acquisition
included revenue related to all three of these markets. Management believes that
its future concentration for the ODC products should continue to be primarily in
the prepaid wireless market. Given this strategic change, the Company concluded
that the future forecasted results for the ODC products will be significantly
less than had been anticipated at the time of the Company's acquisition of ODC.
After making this change, the Company evaluated the ongoing value of the
noncurrent assets of ODC. Based on this evaluation, the Company determined that
assets, principally goodwill and other intangibles, with a carrying value of
$30.9 million were impaired and wrote them down by $26.7 million in 1998 to
their fair value. Fair value was based on estimated future discounted cash flows
to be generated by ODC. The ODC Norwood, Massachusetts operating facility was
closed in the first quarter 1999 with research and development and
administrative functions relocating to the Company's Atlanta facility.
The ODC Acquisition Agreement ("ODC Agreement") between the Company and the
former ODC shareholders provided that approximately $5 million of the purchase
price would be placed in escrow for the purpose of satisfying any claims of
indemnity that the Company might make. In December 2000, the Company entered
into an escrow settlement with the former ODC shareholders concerning the
disbursement of the remaining funds held in escrow since the acquisition in
October 1997. In this settlement the Company received $300,000 for certain third
party software licensing infringements existing prior to the acquisition.
Additionally, the settlement agreement released all claims by both parties to
the Agreement.
The write-off of WAI goodwill and other intangibles reduced amortization expense
in 1999 by approximately $2.4 million. The write-off of ODC goodwill and other
intangibles reduced amortization expense in 1999 as compared to 1998 by
approximately $4.9 million.
Loss (adjustment to loss) on Sale of Business. In December 1998, Glenayre sold
its network management business, which it had been operating since January 1997.
For the year ended December 31, 1998, a loss on disposal of $7.9 million was
reported in loss from operations before income taxes in connection with the
sale. The loss on sale consists of the write-offs of assets, facility closing
costs, severance payments to employees, certain transition costs associated with
training employees of the buyer and other charges related to the sale. During
2000 and 1999, the Company reversed approximately $520,000 and $550,000,
respectively, of expenses previously included in the $7.9 million loss on sale
of the Company's network management business. See Note 13 to the Company's
Consolidated Financial Statements.
Write-off of Uncollectible Subordinated Notes. In May 1998, as part of an
overall financing program with the customer, the Company purchased $11.7 million
in 9% convertible subordinated senior notes ("subordinated notes") from Conxus
Communications, Inc. ("Conxus") which were included in Other Assets as an
available-for-sale debt security. Based on the weak financial condition of
Conxus, the Company recorded other than temporary unrealized losses on the
subordinated notes in its results of operations for the second quarter 1998 and
the third quarter 1998 of $583,000 and $767,000, respectively. In August 1999,
Conxus filed for bankruptcy liquidation under Chapter 7 with the United States
Bankruptcy Court for the District
20
of Delaware. As a result, in 1999, the Company included in its results of
operations a further write-down of $8.1 million to reflect the expected amount
to be realized. In October 1999, the Company collected approximately $2.1
million related to the subordinated notes.
Interest Income, Net. Interest income, net was $6 million, $5 million and $8
million for the years ended December 31, 2000, 1999 and 1998, respectively.
Interest earned in 2000 was higher due to an increase in cash and cash
equivalents generating short-term investment income offset partially by interest
income only being recognized as received, on certain notes where customers have
experienced financial difficulties. Interest earned in 1999 was lower due to
interest income only being recorded as received on certain notes receivables
with customers experiencing financial difficulties partially offset by
additional interest earned on higher cash investments.
Gain (Loss) on Disposal of Assets. The Company recorded a gain of $400,000 for
2000 and a loss on disposal of assets of $4 million and $200,000 for 1999 and
1998, respectively. The $400,000 net gain is related primarily to a reversal of
approximately $180,000 of asset impairment charges related to the Company's
third quarter 1999 restructuring (See Note 9 to the Company's Consolidated
Financial Statements) and proceeds received in excess of book value on the sale
or trade-in of manufacturing, research and development and computer equipment.
In 1999, the Company incurred significant charges primarily attributable to
asset write-offs and impairment charges associated with the third quarter 1999
restructuring. Additionally, during 1999 the Company recorded significant write-
offs due to (i) changes in processes, (ii) assets not identified as part of
ongoing and specific physical reviews and (iii) assets identified as abandoned
during the process of consolidating manufacturing facilities.
Provision for Income Taxes. The 2000 effective tax rate differed from the
combined US federal and state statutory tax rate of approximately 40% due
primarily to (i) the change in valuation allowance, (ii) taxation of a deemed
dividend from a foreign subsidiary, (iii) nondeductible goodwill amortization,
(iv) higher tax rates on earnings indefinitely reinvested in certain non-US
jurisdictions, and (v) the receipt of previously escrowed funds related to the
1997 acquisition of Wireless Access that is treated as a purchase price
adjustment for tax purposes. The difference between the 1999 and 1998 effective
tax rates and the combined U.S. federal and state statutory rate is due
primarily to (i) nondeductible goodwill amortization, (ii) the write-off of the
goodwill related to the companies acquired in 1997 and (iii) the application of
Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes,
("SFAS 109"), in computing the Company's tax provision. The difference between
the effective tax rates in each of the years is primarily due to changes in
operating results, nondeductible goodwill amortization and the write-off of the
goodwill related to the companies acquired in 1997. See Note 8 to the Company's
Consolidated Financial Statements.
At December 31, 1998, the Company had approximately $33 million of net operating
loss carryforwards ("NOLs") related to the acquisition of WAI and ODC in 1997
(collectively referred to as "acquired NOLs"). These NOLs will begin to expire
in 2005. However, due to certain restrictions limiting the Company's future use
of WAI's acquired NOLs, the potential benefit related to a portion of the NOLs,
approximately $22.5 million, has been fully reserved. At December 31, 1999 and
December 31, 2000, the NOLs increased to approximately $65 and $115 million,
respectively, as a result of current tax losses.
The maximum quarterly book tax rate is expected to be approximately 43% in 2001.
This rate is expected to vary from quarter to quarter depending on the
profitability of the Company. This variance is primarily due to nondeductible
goodwill amortization and the benefit of the foreign sales corporation. However,
the actual book tax rate may be different from the Company's estimate due to
various issues including (i) future tax legislation, (ii) the changes in the
amount of international business by the Company, (iii) changes in federal, state
or international tax rates, (iv) the availability of foreign sales corporation
tax benefits and (v) the actual utilization of the acquired NOLs.
Financial Condition and Liquidity
Liquidity and Capital Resources. At December 31, 2000 the Company had cash and
cash equivalents and restricted cash totaling $89 million. The restricted cash
consists of time deposits pledged as collateral to secure letters of credit
substantially all of which expire during 2001. At December 31, 2000, Glenayre's
principal source of liquidity is $72 million of cash and cash equivalents.
The decrease in cash and cash equivalents of $2 million for 2000 is due
principally to cash generated from operations of $5 million and the exercise of
stock options of $14 million (net), offset by purchases of capital assets
amounting to $19 million and net cash used for the purchase and sale of
available-for-sale securities of $2 million. The cash provided by operating
21
activities was due primarily to net income plus noncash items offset by
increases in restricted cash of $7 million, inventories of $12 million and
accounts receivable of $6 million and a decrease of accrued liabilities of $9
million.
Inventories increased at December 31, 2000 compared to December 31, 1999
primarily as a result of the Company's strategy to efficiently meet anticipated
future customer demand on inventory parts that traditionally have required
longer lead times.
Accounts payable increased at December 31, 2000 compared to December 31, 1999
primarily as a result of increased inventory purchases. Accrued expenses at
December 31, 2000 decreased from year-end 1999 primarily due to reductions in
(i) restructuring reserves, (ii) accrued international project costs and (iii)
state sales tax partially offset by an increase in employee incentive plan
accruals and income taxes payable.
The Company signed an agreement as of September 30, 1999 for the sale of 95% of
the equity interest in its microwave radio business, MUX. The transaction
closed on November 1, 1999 and the Company received cash of approximately $37
million. The transaction is recorded as the disposal of a segment of business
in the fourth quarter 1999. Accordingly, the operating results of MUX have been
classified as discontinued operations for the years ended December 31, 1999 and
1998 in the consolidated statements of operations. Additionally, the Company is
contingently liable for MUX's building lease payments should the buyer not be
able to meet these lease obligations. The maximum contingent liability as of
December 31, 2000 related to these obligations is approximately $3.4 million.
Additionally, MUX completed its initial public offering in August 2000. The
Company became eligible to begin selling its remaining shares of MUX subject to
certain regulatory restrictions after November 1, 2000. As of December 31,
2000, the Company had sold 152,000 shares at a pre-tax gain of $1.1 million
generating cash proceeds of approximately $700,000 and other receivables of
$490,000. Further through February 5, 2001, the Company has sold an additional
898,000 shares at a pre-tax gain of approximately $9.6 million generating cash
proceeds of approximately $10.3 million. Given appropriate market conditions
and subject to regulatory restrictions, the Company may continue to sell its
shares in MUX during 2001 or in future periods.
The Company incurred restructuring charges in both 1998 and 1999. See Note 9 to
the Company's Consolidated Financial Statements. As a result of these charges,
subsequent to December 31, 2000, the Company expects to make cash payments from
operating cash flows for employee termination costs of approximately $175,000 in
2001.
Deferred income taxes decreased $3.1 million due primarily to the deferred tax
liability recorded on the unrealized gains from available-for-sale investments.
In December 2000, the Board of Directors of the Company rescinded its dormant
stock repurchase program authorized in September 1996 and authorized the
repurchase of up to 3 million shares of the Company's common stock. As of
December 31, 2000, the Company had repurchased 12,500 shares at a total cost of
approximately $40,000.
The Company's cash generally consists of money market demand deposits and the
Company's cash equivalents generally consist of high-grade commercial paper,
bank certificates of deposit, treasury bills, notes or agency securities
guaranteed by the U.S. government, and repurchase agreements backed by U.S.
government securities with original maturities of three months or less. The
Company expects to use its cash and cash equivalents for working capital and
other general corporate purposes, including the expansion and development of its
existing products and markets and the expansion into complementary businesses.
Additionally, the competitive telecommunications market may require customer
financing commitments. These commitments may be in the form of guarantees,
secured debt or lease financing. Since June 30, 1999, it has been the Company's
policy not to offer customer financing or guarantees. During the third quarter
2000, the Company renegotiated its only prior financing commitment for wireless
messaging infrastructure and voicemail products reducing the commitment from
approximately $30 million to approximately $10 million. This commitment, which
expires in 2001, has a remaining financing commitment of approximately $500,000
at December 31, 2000. Amounts outstanding under this financing arrangement as
of December 31, 2000 were approximately $9.3 million.
In 1999, the Company significantly reduced its manufacturing facility
requirements as the Company consolidated its manufacturing activities in Quincy,
Illinois and ceased manufacturing activities in its Vancouver, B.C. facility.
See Note 9 to the Company's Financial Statements. In anticipation of these
changes in the first quarter 1999, the Company halted the construction in
progress on its 110,000 square feet expansion of its Vancouver facilities,
completing only a parking facility. The total cost of this initial plan of
expansion through December 31, 1999, which included architecture, engineering
and construction costs, was approximately $12 million. The Company is currently
exploring opportunities that will satisfy the requirements of its Vancouver
operations. This includes the development, subsequent sale and partial lease
back of an office tower to meet the Company's operational needs for the
engineering, marketing and customer service groups located in Vancouver, B.C.
In 2000, the
22
Company spent approximately $7.9 million related to the office tower
development. The total remaining cost to complete the construction is estimated
at approximately $9.4 million.
The Company believes that funds generated from continuing operations, together
with its current cash reserves, will be sufficient to (i) support the short-term
and long-term liquidity requirements for current operations (including annual
capital expenditures) and (ii) to repurchase common stock as discussed above.
Company management believes that, if needed, it can establish borrowing
arrangements with lending institutions.
Income Tax Matters. For 2000 and 1999, Glenayre's actual cash outlay for taxes
was limited to foreign income taxes primarily due to current losses and foreign
sales corporation benefits.
As described in Note 8 to the Company's Consolidated Financial Statements, at
December 31, 2000, the Company had U.S. NOLs aggregating approximately $115
million, of which approximately $33 million related to the 1997 acquisitions of
ODC and WAI. However, the ability to utilize WAI's acquired NOL's to offset
future income is subject to restrictions and there can be no assurance that they
will be utilized in 2001 or future periods. Additionally, as the volume of
international sales grows, the percentage of worldwide income taxable in
international jurisdictions may increase as well. As a result, the cash tax
rate may be significantly higher in 2001 compared to 2000 and recent years.
The Company has recorded a deferred tax asset of $54 million, net of a valuation
allowance of $16 million, at December 31, 2000, in accordance with SFAS 109.
This amount represents management's best estimate of the amount of NOLs and
other future deductions that are more likely than not to be realized as offsets
to future taxable income. The factors that affect the amount of U.S. taxable
income in the future, in relation to reported income before income taxes,
include primarily the amount of employee stock options exercised and the portion
of such income taxable in jurisdictions outside of the U.S., both of which
reduce the amount of income subject to U.S. tax, and therefore reduce the
utilization of existing net operating loss carryforwards.
At December 31, 2000 and 1999, the valuation allowance was $16 million and $15
million, respectively. This change is primarily due to management's
reconsideration of the Company's ability to utilize state net operating losses
and research and development credit carryforwards.
Pursuant to SFAS 109, a valuation allowance should be recognized to reduce the
deferred tax asset to the amount that is more likely than not to be realized.
In assessing the likelihood of realization of the NOL carryforwards, management
considered estimates of future taxable income from ordinary and recurring
operations. These estimates were made by considering past financial
information, adjusted for nonrecurring items including the write-off of goodwill
related to the WAI and ODC acquisitions, restructuring charges, customer
bankruptcies, loss on sale of subsidiary and the operating losses associated
with acquired companies. In addition to management's consideration of future
taxable income from ordinary and recurring operations, tax planning strategies
were also identified which would generate sufficient future taxable income if
the NOL's are ultimately determined to be at risk of expiration.
Inflation. For the three fiscal years ended December 31, 2000, the Company does
not believe inflation has had a material effect on its results of operations.
OUTLOOK
Glenayre believes that the communications market will continue to experience
dramatic growth, particularly in the number of wireless subscribers worldwide
and the demand for unified messaging solutions. Providers of communications
services for enterprises and consumers will continue to seek to differentiate
themselves in increasingly competitive markets with high-demand solutions. The
Company believes that it is well positioned to provide these solutions.
Additionally, the new products and solutions being developed by the Company
should expand the uses and applications in this growing market.
The Company believes that there will be strong growth in mobile communications
services, including two-way messaging devices and unified messaging. This growth
is expected to accelerate over the next two to three years with the availability
of 3G technology. Increased demand for two-way messaging devices will be driven
by the improved utility delivered through new applications available via the
Internet. The Company also believes that there will be continued growth in
wireless infrastructure in specific markets, including China.
23
The Company believes demand for wireless devices similar to the @ctiveLink
module two-way messaging device will increase in 2001. The Company has
established marketing and distribution agreements with carriers and strategic
partners to promote these offerings and develop new modules for introduction in
2001. These relationships will help the Company capture the opportunity
presented by this growing market and will enable the Company to continue
deploying new products as technology evolves.
The ESP/Unified Messaging market is also expected to continue to grow,
especially for larger wireless communications system networks. New applications
that provide the Company's customers with revenue generating opportunities as
well as reduce consumer churn will further enhance its competitive position.
This Outlook section contains forward-looking statements that are subject to the
risks described under the Factors Affecting Future Operating Results immediately
below.
FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-K, the Company's Summary Annual Report to Stockholders, any Form
10-Q or any Form 8-K of the Company or any other written or oral statements made
by or on behalf of the Company may include forward-looking statements reflecting
the Company's current views with respect to future events and financial
performance.
Although certain cautionary statements have been made in this Form 10-K relating
to factors which may affect future operating results, a more detailed discussion
of these factors is set forth in Exhibit 99 to this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk arising from adverse changes in interest
rates and foreign currency exchange rates. The Company's investment policy
requires investment of surplus cash in high-grade commercial paper, bank
certificates of deposits, Treasury bills, notes or agency securities guaranteed
by the U.S. Government and repurchase agreements backed by U.S Government
securities. The Company typically invests its surplus cash in these types of
securities for periods of relatively short duration. Although the Company is
exposed to market risk related to changes in short-term interest rates on these
investments, the Company manages these risks by closely monitoring market
interest rates and the duration of its investments. Due to the short-term
duration and the limited dollar amounts exposed to market interest rates,
management believes that fluctuations in short-term interest rates will not have
a material adverse effect on the Company's results of operations. Additionally,
the competitive telecommunications market has historically required customer
financing commitments. These commitments may be in the forms of guarantees,
secured debt or lease financing and are subject to fair market value adjustments
based on prevailing market interest rates. The Company does not believe that
future exposure to adjustments in interest rates related to customer financing
will have a material impact on the Company's results of operations. Although a
substantial portion of the Company's annual sales are negotiated in United
States dollars, certain contracts in the normal course of business are
negotiated in a foreign currency. When appropriate, the Company may seek to
mitigate its currency exchange fluctuation risk by entering into currency
hedging transactions. Due to the limited amount of such hedging transactions,
management believes that fluctuations in currency exchange rates will not have a
material adverse effect on the Company's results of operations. The Company does
not enter into financial investments for speculation or trading purposes and is
not a party to any financial or commodity derivatives.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated financial statements of the Company and its subsidiaries as of
December 31, 2000, 1999 and 1998 and for each of the three years in the period
ended December 31, 2000, as well as the report of independent auditors thereon,
are set forth on the following pages. The index to such financial statements
and required financial statement schedules is set forth below and at Item 14(a)
of this Annual Report on Form 10-K.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
(i) Financial Statements: Page
----
Report of Ernst & Young LLP Independent Auditors.................................................. 26
Consolidated Balance Sheets at December 31, 2000 and 1999......................................... 27
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998........ 28
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000,
1999 and 1998.................................................................................. 29
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998........ 30
Notes to Consolidated Financial Statements....................................................... 32
(ii) Supplemental Schedule:
(For the years ended December 31, 2000, 1999 and 1998)
Schedule II - Valuation and Qualifying Accounts.................................................... 58
All other schedules are omitted because they are not applicable or not required.
25
REPORT OF INDEPENDENT AUDITORS
Stockholders
Glenayre Technologies, Inc.
We have audited the consolidated balance sheets of Glenayre Technologies, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2000. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Glenayre Technologies, Inc. and subsidiaries at December 31, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Charlotte, North Carolina
February 5, 2001
26
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
-------------------------------
2000 1999
-------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents................................................ $71,866 $73,513
Restricted cash.......................................................... 16,893 10,355
Accounts receivable, net................................................. 94,977 88,736
Notes receivable......................................................... 4,434 7,083
Inventories.............................................................. 40,104 28,130
Deferred income taxes.................................................... 19,140 16,668
Prepaid expenses and other current assets................................ 6,177 4,249
-------------- -------------
Total current assets.................................................... 253,591 228,734
Notes receivable, net..................................................... 7,224 4,707
Property, plant and equipment, net........................................ 89,055 88,654
Goodwill, net............................................................ 45,311 47,999
Deferred income taxes.................................................... 34,917 40,507
Other assets............................................................. 15,988 2,957
-------------- -------------
TOTAL ASSETS............................................................. $446,086 $413,558
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................................... $25,150 $18,073
Accrued liabilities...................................................... 43,299 52,534
Other current liabilities................................................ 66 92
-------------- -------------
Total current liabilities................................................ 68,515 70,699
Other liabilities........................................................ 6,644 7,381
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding.............................
Common stock, $.02 par value; authorized: 200,000,000 shares; --- ---
outstanding: 2000-64,446,012 shares; 1999-62,430,153 shares.............. 1,288 1,248
Contributed capital...................................................... 359,181 345,097
Retained earnings (deficit).............................................. 3,235 (10,867)
Accumulated other comprehensive income................................... 7,223 ---
-------------- -------------
Total stockholders' equity............................................... 370,927 335,478
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................... $446,086 $413,558
============== =============
See notes to consolidated financial statements.
27
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
Year Ended December 31,
-----------------------------------------------
2000 1999 1998
----------- ----------- -----------
NET SALES............................................................ $251,585 $238,089 $367,039
COSTS AND EXPENSES: ----------- ---------- -----------
Cost of sales..................................................... 117,180 135,597 192,686
Selling, general and administrative expense....................... 72,430 81,334 97,320
Provision for doubtful receivables................................ 2,433 66,999 1,187
Research and development expense.................................. 39,450 40,831 47,438
Depreciation and amortization expense............................. 20,461 29,860 38,645
Write-off of goodwill and other intangibles....................... --- 50,919 26,705
Loss (adjustment to loss) on sale of business..................... (524) (554) 7,858
Unrealized loss on subordinated notes............................. --- 8,172 1,350
----------- ---------- -----------
Total costs and expenses.......................................... 251,430 413,158 413,189
----------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS........................................ 155 (175,069) (46,150)
----------- ---------- -----------
OTHER INCOME (EXPENSES):
Interest income................................................... 6,504 5,699 8,780
Interest expense.................................................. (60) (397) (571)
Gain (loss) on disposal of assets................................. 366 (4,431) (171)
Escrow settlement................................................. 11,177 --- ---
Gain on sale of available-for-sale securities..................... 1,142 --- ---
Other, net........................................................ (509) 483 (1,004)
----------- ---------- -----------
Total other income................................................ 18,620 1,354 7,034
----------- ---------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES......... 18,775 (173,715) (39,116)
PROVISION (BENEFIT) FOR INCOME TAXES................................. 4,673 (45,967) 1,608
----------- ---------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS............................. 14,102 (127,748) (40,724)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
(NET OF INCOME TAX)............................................... --- (780) 954
----------- ---------- -----------
NET INCOME (LOSS).................................................... $14,102 $(128,528) $(39,770)
=========== ========== ============
INCOME (LOSS) PER WEIGHTED AVERAGE COMMON SHARE:
Income (loss) from continuing operations............................. $0.22 $(2.06) $(0.66)
Discontinued operations.............................................. --- (0.01) (0.01)
----------- ---------- -----------
Net income (loss) per weighted average common share.................. $0.22 $(2.07) $(0.65)
=========== ========== ============
INCOME (LOSS) PER COMMON SHARE--ASSUMING DILUTION:
Income (loss) from continuing operations ............................ $0.21 $(2.06) $(0.66)
Discontinued operations.............................................. --- (0.01) 0.01
----------- ---------- ------------
Net income (loss) per common share--assuming dilution................ $0.21 $(2.07) $(0.65)
=========== ========== ============
See notes to consolidated financial statements.
28
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
Accumulated
Retained Other Total
Common Stock Contributed Earnings Comprehensive Stockholders'
------------
Shares Amount Capital (Deficit) Income Equity
------ ------ --------- ------------ -------- ----------
Balances, December 31, 1997......... 60,651 $1,213 $333,715 $157,431 $--- $492,359
Net loss............................ (39,770) (39,770)
Stock options exercised............. 1,413 28 7,328 7,356
Tax benefit of stock options
exercised.......................... 2,208 2,208
--------- --------- ---------- ---------- --------- ----------
Balances, December 31, 1998......... 62,064 1,241 343,251 117,661 --- 462,153
Net loss............................ (128,528) (128,528)
Stock options exercised............. 366 7 1,717 1,724
Tax benefit of stock options
exercised.......................... 129 129
--------- --------- ---------- ---------- --------- ----------
Balances, December 31, 1999......... 62,430 1,248 345,097 (10,867) --- 335,478
Net income.......................... 14,102 14,102
Other Comprehensive Income:
Net unrealized gain (loss) on
securities available-for-sale,
net of tax........................ 7,223 7,223
----------
Comprehensive Income................. 21,325
Stock options exercised.............. 2,028 40 14,124 14,164
Repurchase of common stock........... (12) --- (40) (40)
--------- --------- ---------- ---------- --------- ----------
Balances, December 31, 2000.......... 64,446 $1,288 $359,181 $3,235 $7,223 $370,927
========= ========= ========== ========== ========= ==========
See notes to consolidated financial statements.
29
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(tabular amounts in thousands of dollars)
Year Ended December 31,
---------------------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. $ 14,102 $(128,528) $(39,770)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization..................................... 20,461 30,948 40,086
Changes in deferred income taxes.................................. 3,118 (36,757) (6,554)
(Gain) loss on disposal of equipment.............................. (275) 3,473 1,166
Loss on disposal of microwave communication business.............. --- 3,235 ---
Loss (adjustment to loss) on sale of network management
business......................................................... (524) (554) 7,858
Write-off of goodwill and other intangibles....................... --- 50,919 26,705
Tax benefit of stock options exercised............................ --- 129 2,208
Write-off of uncollectible subordinated notes..................... --- 8,172 1,350
Repurchase of common stock........................................ 40 --- ---
Gain on sale of available-for-sale securities..................... (1,142) --- ---
Other noncash charges............................................. 11 --- ---
Changes in operating assets and liabilities, net of
effects of business dispositions and acquisitions:
Restricted cash................................................... (6,538) (10,355) ---
Accounts receivable............................................... (5,751) 58,295 (2,892)
Notes receivable.................................................. 131 59,744 (8,760)
Inventories....................................................... (11,974) 14,174 2,800
Prepaids and other current assets................................. (1,928) 1,492 1,140
Other assets...................................................... (3,277) 885 (966)
Accounts payable.................................................. 7,036 (11,681) 4,842
Accrued liabilities............................................... (7,542) (17,591) (2,923)
Other liabilities................................................. (722) 334 1,878
-------- --------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......................... 5,226 26,334 28,168
-------- --------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment......................... (19,303) (10,872) (29,949)
Proceeds from sale of building and equipment....................... 250 6,210 180
Proceeds from (purchases of) subordinated notes.................... --- 2,145 (11,667)
Investments in available-for-sale securities....................... (2,650) --- ---
Proceeds from sale of available-for-sale securities................ 707 --- ---
Net proceeds from sale of microwave communication
business......................................................... --- 35,843 ---
-------- --------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................ (20,996) 33,326 (41,436)
-------- --------- -------------
30
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(tabular amounts in thousands of dollars)
Year Ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term borrowings................................... (41) (154) (2,881)
Issuance of common stock............................................. 14,164 1,724 7,356
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................ 14,123 1,570 4,475
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................................ (1,647) 61,230 (8,793)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................... 73,513 12,283 21,076
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................. $71,866 $73,513 $12,283
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest........................................................... $ 61 $ 388 $ 606
Income taxes....................................................... 2,922 3,824 5,277
See notes to consolidated financial statements.
31
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
1. Summary of Significant Accounting Policies
Description of Business
Glenayre is a worldwide provider of communication solutions for mobile and
active subscribers. The Company designs, manufactures, markets and services its
products principally under the Glenayre name. These products include enhanced
services, unified messaging, advanced messaging services and devices, and
prepaid wireless and card services as well as networking infrastructure used to
deliver these services. Glenayre's products are deployed in cellular, personal
communications services, wireless, data and internet protocol networks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts of Glenayre
Technologies, Inc. and its subsidiaries. All significant intercompany accounts
and transactions are eliminated in consolidation.
Operating Cycle
Assets and liabilities related to long-term contracts are included in current
assets and current liabilities in the consolidated balance sheets, as they will
be liquidated in the normal course of contract completion.
Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. These investments
generally consist of high-grade commercial paper, bank certificates of deposits,
Treasury bills, notes or agency securities guaranteed by the U.S. Government and
repurchase agreements backed by U.S. Government securities.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are large diversified entities with
operations throughout the U.S. and Company policy is designed to limit exposure
to any one institution. The Company performs periodic evaluations of the
relative credit standing of those financial institutions that are considered in
the Company's investment strategy.
Restricted Cash at December 31, 2000 consisted of time deposits pledged as
collateral to secure letters of credit, substantially all of which expire in
less than one year.
Inventories
Inventories are valued at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally using the straight-line method based on the
estimated useful lives of the related assets (buildings, 20-40 years; furniture,
fixtures and equipment, 3-7 years).
32
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
Goodwill
Goodwill represents the excess of cost over assigned fair market value of net
assets acquired. Goodwill at December 31, 2000 is being amortized on a
straight-line basis over an estimated useful life of 25 years. Goodwill is
shown net of accumulated amortization of $21.9 million and $19.2 million at
December 31, 2000 and 1999, respectively. The carrying amount of goodwill is
reviewed if facts and circumstances suggest that it may be impaired. If this
review indicates that goodwill will not be recoverable, as determined based on
the expected future undiscounted cash flow of the entity acquired over the
remaining amortization period, the carrying amount of the goodwill is reduced by
the estimated shortfall. In addition, the Company assesses long-lived assets
for impairment under FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under those
rules, goodwill associated with assets acquired in a purchase business
combination is included in impairment evaluations when events or circumstances
exist that indicate the carrying amount of those assets may not be recoverable.
Available-for-sale securities
The Company's marketable securities are classified as available-for-sale and
recorded at current market value. Net unrealized gains and losses on marketable
securities available-for-sale are recorded to shareholder's equity as a
component of Other Comprehensive Income, net of tax. Any realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included as a separate component of Other
Income (Expense) in the Company's Consolidated Statement of Operations. The
cost of securities sold is based on the specific identification method.
Foreign Currency Translation
The accounts of foreign subsidiaries have been translated into U.S. dollars
using the current exchange rate in effect at the balance sheet date for monetary
assets and liabilities; and for non-monetary items, the exchange rates in effect
when acquired. Revenues and expenses are translated into U.S. dollars using
average exchange rates, except for depreciation, which is translated at the
exchange rate in effect when the related assets were acquired. The resulting
gains or losses on currency translations, which are not significant, are
included in the consolidated statements of operations.
Revenue Recognition
The Company recognizes revenues at the time products are shipped (except for
certain long-term contracts described below) and collection of the resulting
receivable is deemed probable by the Company. Existing customers may purchase
product enhancements and upgrades after such enhancements or upgrades are
developed by the Company. The Company has no significant performance
obligations to customers after the date products, product enhancements and
upgrades are shipped, except for product warranties as described below.
The Company recognizes fees from installation and repair services when such
services are provided to customers. Revenues derived from contractual
postcontract support services are recognized ratably over the one-year contract
period of required support.
The Company uses the percentage-of-completion method to recognize revenues on
certain long-term telecommunications hardware and installation contracts.
Earnings are accrued based on the completion of key contract performance
requirements. As long-term contracts extend over one or more years, revisions in
cost and profit estimates are reflected in the accounting period in which the
facts that require the revision become known. At the time a loss on a contract
becomes known, the entire amount of the estimated ultimate loss is accrued.
33
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
Software Costs
Product related computer software development costs are expensed as incurred.
Such costs are required to be expensed until the point of technological
feasibility is established. Costs which may otherwise be capitalized after such
point are generally not significant and are therefore expensed as incurred.
Estimated Warranty Costs
The Company generally warrants its telecommunications products other than
certain transmitters and messaging devices for one year after sale. The majority
of the Company's transmitters and messaging devices are warranted for two years
after sale. A provision for estimated warranty costs is recorded at the time of
sale.
Stock-Based Compensation
The Company grants stock options and issues shares under option plans and an
employee stock purchase plan as described in Note 15 to the Company's
Consolidated Financial Statements. The Company accounts for stock option grants
and shares sold under the employee stock purchase plan in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
records compensation expense for options granted and sales made at prices that
are less than fair market value at the date of grant or sale. No compensation
expense is recognized for options granted to employees with an exercise price
equal to the fair value of the shares at the date of grant.
Income Taxes
Income taxes have been provided using the liability method in accordance with
SFAS 109, Accounting for Income Taxes.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, trade accounts and notes
receivable, and other current and long-term liabilities approximates their
respective fair values.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 2000. The Company expects to adopt the new Statement
effective January 1, 2001. The Statement will require the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. Because of the Company's minimal use of derivatives,
the adoption of this new Statement will not have a significant effect on
earnings or the financial position of the Company.
In December 1999 the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). The
provisions of the statement are effective beginning in the fourth quarter 2000.
The Company believes its current revenue recognition policies comply with the
provisions of SAB 101. Accordingly, SAB 101 has not effected the Company's
revenue, earnings or financial position.
34
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
2. Discontinued Operations
On November 1, 1999 the Company sold 95% of the equity interest in its microwave
radio business, Western Multiplex Corporation ("MUX") and received cash of
approximately $37 million. MUX markets products for use in point-to-point
microwave communication systems and was acquired by the Company in April 1995.
The transaction is recorded as the disposal of a segment of business in the
fourth quarter 1999. Accordingly, the operating results of MUX have been
classified as discontinued operations for the years ended December 31, 1999 and
1998 in the consolidated statements of operations. Additionally, the Company is
contingently liable for MUX's building lease payments. The maximum contingent
liability as of December 31, 2000 for these obligations is approximately $3.4
million. MUX has expanded the scope of its business to include
point-to-multi-point products, a greater international presence and a focus on
new market segments. In connection with these changes in strategy, MUX
completed its initial public offering in August 2000. The Company became
eligible to begin selling its shares of MUX, subject to certain regulatory
restrictions, after November 1, 2000. As of December 31, 2000 the Company had
sold 152,000 shares of MUX stock at a pre-tax gain of $1.1 million. Further, as
of February 5, 2000, the Company had sold an additional 898,000 shares of MUX
stock at a pre-tax gain of $9.6 million.
Results for discontinued operations consists of the following:
1999 1998
------ ------
Net Sales.......................................... $33,195 $32,903
======= =======
Income (Loss) from Discontinued Operations:
Income from operations before income tax........... 4,266 1,958
Provision for income taxes......................... 1,811 1,004
------- -------
Net income from operations......................... 2,455 954
------- -------
Gain on disposal before income taxes............... 6,500 ---
Provision for income taxes......................... 9,735 ---
------- -------
Net loss from sale of discontinued operations...... (3,235) ---
------- -------
$ (780) $ 954
======= =======
3. Accounts and Notes Receivable
Accounts receivable at December 31, 2000 and 1999 consist of:
2000 1999
-------- --------
Trade receivables............................. $108,453 $104,206
Retainage receivables......................... 261 319
Other......................................... 4,121 1,883
-------- --------
112,835 106,408
Less: allowance for doubtful accounts......... (17,858) (17,672)
-------- --------
$ 94,977 $ 88,736
======== ========
Trade receivables at December 31, 2000 and December 31, 1999 included unbilled
costs and estimated earnings under contracts in the amount of approximately $16
million and $25 million, respectively. Unbilled amounts are invoiced upon
reaching certain milestones.
35
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
Notes receivable at December 31, 2000 and 1999 consist of:
2000 1999
------- ------
Current............................................ $4,434 $7,083
Non-current....................................... 16,073 57,724
------- --------
20,506 64,807
Less: reserves.................................... (8,849) (53,017)
-------- -------
$11,658 $11,790
======= ========
The Company's notes receivables are principally concentrated in the
telecommunications industry. Historically, the Company had not experienced any
significant issues related to the collection of receivables from its customers.
However, during the second quarter and third quarter 1999 several customers
either (i) sought bankruptcy protection, (ii) sought debt restructuring from the
Company, (iii) delayed scheduled note payments, or (iv) experienced a
deterioration in financial condition. As a result, in 1999 amounts owed on notes
from these customers of approximately $62 million were considered impaired.
During the third quarter 2000, the Company determined that nearly all of these
impaired notes would not be collected and wrote off $43 million of the
previously reserved impaired balances. The remaining amounts owed on notes from
these customers totaled approximately $9 million and $62 million at December 31,
2000 and December 31, 1999, respectively. The average amount of impaired notes
during the twelve-month periods ended December 31, 2000 and December 31, 1999
was approximately $43 million and $67 million, respectively. The reserves on
these notes were approximately $8 million at December 31, 2000 and $53 million
at December 31, 1999. Reserve activity during 2000 included an addition to the
reserves of approximately $500,000. Interest income recorded on these notes was
approximately $250,000 during 2000 and $2.7 million during 1999. Interest
receivable from these notes of approximately $2.3 million was fully reserved as
of December 31, 1999. Subsequent to September 30, 1999, interest income on these
notes is recognized only as cash is received.
In addition to the collection issues described above in 1999, the Company
experienced pressures from international customers to extend normal trade
receivables payment terms. As a result of all of these occurrences, the Company
changed its estimates used to determine reserves for uncollectible accounts and
notes receivable. These changes in the estimates increased the net loss for the
year ended December 31, 1999 by approximately $42 million ($(0.67) per share).
4. Inventories
Inventories at December 31, 2000 and 1999 consist of:
2000 1999
------- -------
Raw materials..................................... $26,290 $14,742
Work in process................................... 7,590 8,452
Finished goods.................................... 6,224 4,936
------- -------
$40,104 $28,130
======= =======
36
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
5. Property, Plant and Equipment
Property, plant and equipment at December 31, 2000 and 1999 consist of:
2000 1999
-------- --------
Land............................................... $ 3,493 $ 3,493
Buildings.......................................... 52,857 45,008
Equipment.......................................... 101,748 94,376
Leasehold improvements............................. 1,890 1,701
-------- --------
159,988 144,578
Less: Accumulated depreciation..................... (70,933) (55,924)
-------- --------
$ 89,055 $ 88,654
======== ========
6. Other Assets
Included in Other Assets is the Company's remaining investment in MUX. See Note
2. During the third quarter of 2000, MUX successfully completed its initial
public offering. As of December 31, 2000 the market value of the Company's
remaining interest in MUX has appreciated. Accordingly, as of December 31, 2000,
the Company had recorded an unrealized holding gain, of approximately $7.8
million, net of tax of $3.7 million, on this available-for-sale security.
On June 30, 2000 as part of the Company's strategy to expand into new markets
for its Enhanced Services platform business the Company entered into a stock
purchase agreement with Multi-Link Telecommunications, Inc. ("Multi-Link"), a
Colorado corporation, and a shareholder, to acquire in the aggregate 264,439
shares of common stock for $2.1 million representing approximately 6.5%
ownership in Multi-Link. The Company also acquired warrants to purchase 100,000
shares of Multi-Link common stock. The Company recorded the purchase, which
occurred on July 3, 2000, as an investment in available-for-sale securities. As
of December 31, 2000, the market value of Multi-Link common stock has decreased.
As a result, the Company has recorded an unrealized holding loss of
approximately $600,000, net of a tax benefit of $370,000, on this available-for-
sale security.
Available-for-sale Securities
-------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
Marketable equity securities as of December 31, 2000:
Marketable equity securities.................... $3,634 $11,578 $976 $14,236
The estimated fair value of the Company's remaining available-for-sale
marketable equity securities at February 5, 2001 totaled approximately $14.5
million.
37
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
7. Accrued Liabilities
Accrued liabilities at December 31, 2000 and 1999 consist of:
2000 1999
------- -------
Accrued project costs.......................... $ 4,362 $ 9,441
Accrued warranty costs......................... 4,237 5,375
Accrued payroll costs.......................... 13,601 11,414
Accrued restructuring costs.................... 180 8,259
Accrued income taxes .......................... 6,596 4,033
Other accruals................................. 14,323 14,012
------- -------
$43,299 $52,534
======= =======
8. Income Taxes
The Company's income tax provision consists of the following:
2000 1999 1998
------- -------- -------
Current provision:
United States Federal...................................... $ --- $ --- $ (698)
Charge equivalent to tax benefit of stock --- 129 2,208
option exercises .........................................
Foreign.................................................... 1,993 2,920 4,006
State and local............................................ --- --- (96)
------- -------- -------
Total current............................................. 1,993 3,049 5,420
------- -------- -------
Deferred:
Primarily United States federal and state.................. 1,250 (47,438) (3,612)
Adjustment to federal net operating loss carryforward...... --- --- 664
Adjustment to state net operating loss carryforward........ --- --- 1,422
Adjustment to valuation allowance.......................... 1,430 (1,578) (2,286)
------- -------- -------
Total deferred............................................. 2,680 (49,016) (3,812)
------- -------- -------
Total provision (benefit)................................... $ 4,673 $(45,967) $ 1,608
======= ======== =======
The sources of income (loss) from continuing operations before income taxes are
presented as follows:
2000 1999 1998
------- --------- --------
United States............................ $14,254 $(185,235) $(51,007)
Foreign.................................. 4,521 11,520 11,891
------- --------- --------
$18,775 $(173,715) $(39,116)
======= ========= ========
38
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
The consolidated income tax provision was different from the amount computed
using the U.S. statutory income tax rate for the following reasons:
2000 1999 1998
-------- --------- --------
Income tax provision at U.S. statutory rate.................... $ 6,570 $ (60,800) $ (13,691)
Increase (Reduction) in valuation allowance.................... 1,430 (1,578) (2,286)
Deemed dividend of foreign earnings............................ 978 --- ---
Repatriation of foreign earnings of merged subsidiary.......... --- 1,098 ---
Purchase price adjustment of acquired subsidiaries resulting
from Escrow Settlements ...................................... (4,598) --- ---
Reduction in federal net operating loss carryforwards
due to sale of business....................................... --- --- 664
Reduction in state net operating loss carryforwards........... --- --- 1,422
Foreign taxes at rates other than U.S. statutory rate.......... (155) (1,430) 716
U.S. research and experimentation credits...................... (700) (480) (905)
Foreign tax credits --- --- (639)
State taxes (net of federal benefit)........................... 586 (6,187) 325
Benefit from Foreign Sales Corporation......................... (200) (61) (1,060)
Non-deductible loss on sale of business....................... --- --- 1,374
Non-deductible charge for purchased research and
development.................................................... --- --- ---
Write-off of non-deductible goodwill and other intangibles. --- 19,522 9,141
Non-deductible goodwill........................................ 762 3,949 6,547
-------- --------- ---------
Income tax provision (benefit)................................. $ 4,673 $ (45,967) $ 1,608
======== ========= =========
The tax effect of temporary differences and net operating loss carryforwards
("NOLs") that gave rise to the Company's deferred tax assets and liabilities at
December 31, 2000 and 1999 are as follows:
2000 1999
-------- --------
Assets:
U.S. net operating loss carryforwards....................... $ 40,262 $ 22,713
State net operating loss carryforwards...................... 7,201 3,819
Other....................................................... 36,882 52,854
-------- --------
84,345 79,386
Less: Valuation allowance................................... (16,067) (14,637)
-------- --------
68,278 64,749
Liabilities................................................... (14,221) (7,574)
-------- --------
Deferred tax asset, net....................................... $ 54,057 $ 57,175
======== ========
The deferred tax asset is broken down between current and noncurrent amounts in
the accompanying 2000 consolidated balance sheet according to the classification
of the related asset and liability or, in the case of tax loss carryforwards,
based on their expected utilization date.
Other deferred tax assets for 2000 and 1999 primarily reflect reserves not yet
deducted for tax purposes of $27 million and $43 million, respectively, and
research and experimentation credit carryforwards of $6 million and $5 million,
respectively. Deferred tax liabilities for 2000 and 1999 are mainly comprised of
accelerated depreciation of $7.9 million and $3.4 million, respectively, and
unrealized gains from available-for-sale investments of $3.4 million at December
31, 2000.
39
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
The increase in the valuation allowance of $1.4 million during the year ended
December 31, 2000 is related primarily to the Company's reassessment of its
ability to utilize state net operating losses and research and development
credit carryforwards. The remaining valuation allowance related specifically to
all carryforwards, including various credits of acquired companies, is $11.2
million. The Company believes that it is more likely than not that the net
deferred tax asset recorded at December 31, 2000 will be fully realized.
At December 31, 2000 and December 31, 1999, the Company has U.S. NOLs of $115
million and $65 million, respectively, which expire beginning in 2005. At
December 31, 2000, of the $115 million of U.S. NOLs, $50 million were generated
during 2000 and $32 million were generated in 1999. The remaining $33 million of
U.S. NOLs at both December 31, 2000 and December 31, 1999, are related to the
1997 acquisitions of ODC and WAI. However, the Company's ability to offset
future income with WAI's acquired NOLs is subject to restrictions enacted in the
United States Internal Revenue Code of 1986 as amended (the "Code"). These
restrictions limit the Company's future use of the NOLs. As a result, the
potential tax benefit of WAI's acquired NOLs has been reserved for as part of
the deferred tax asset valuation allowance.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $41.8 million at December 31, 2000. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. income tax liability is not practicable
because of the complexities associated with its hypothetical calculation;
however, foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability. Withholding taxes of approximately $1.8 million
would be payable upon remittance of all previously unremitted earnings at
December 31, 2000.
9. Business Restructurings
During the third quarter 1999, the Company recorded a pre-tax charge of
approximately $8.7 million related to a 27% reduction in the Company's global
workforce. This headcount reduction impacted all functional areas of the Company
but the majority of the positions impacted, approximately 50% or 200, were
associated with consolidating the Company's Vancouver manufacturing operations
to its Quincy, Illinois facility. During the fourth quarter 1999, the Company
expensed an additional $280,000 of severance adjustments. Furthermore, during
the fourth quarter 1999 and 2000, the Company expensed retention bonuses earned
related to the third quarter 1999 restructuring of approximately $320,000 and
$60,000, respectively. Severance and payments for outplacement services of
approximately $8.95 million were paid prior to December 31, 2000. Additionally,
during 2000, the Company reversed approximately $230,000 of accrued severance
benefits related to this reduction of the Company's workforce.
Additionally during the third quarter 1999, the Company recorded a pre-tax
charge of approximately $670,000 of which approximately $310,000 was paid before
December 31, 2000, for consolidation and exit costs from its Vancouver, BC,
Charlotte, NC, Hong Kong, Guangzhou, China, New Delhi, India, and Torrance, CA
facilities and a pre-tax charge of approximately $2.0 million for the impairment
of long-lived assets. The consolidation and exit process was completed for all
of the above facilities by the end of 1999 with the exception of the Vancouver
manufacturing facility, which was completed in the first quarter 2000. During
the fourth quarter 1999, the Company expensed approximately $150,000 for
additional lease termination costs and asset impairments at its Vancouver
facility related to the third quarter 1999 restructuring. During 2000, the
Company reversed approximately $680,000 of accrued lease termination costs and
asset impairment charges related to the third quarter 1999 restructuring. This
reversal was due to: (i) assets previously determined as excess being utilized
at the Quincy manufacturing facility, (ii) greater than anticipated proceeds
from the disposal of assets in the Vancouver facility and (iii) a change in the
estimated timing of the exit of the leased portion of the Vancouver facility.
40
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
For the year ended December 31, 1999, the total pre-tax charge for the third
quarter 1999 restructuring and exiting of leased facilities was recorded as
approximately $4.9 million to cost of sales, $1.0 million to research and
development, $2.0 million to loss on sale of assets, and $4.2 million to
selling, general and administrative expenses.
During the year ended December 31, 2000, the total pre-tax impact of charges
against the accrual for the third quarter 1999 restructuring was recorded as a
reduction of approximately $180,000 to loss on sale of assets, $110,000 to
selling, general and administrative expenses, $120,000 to research and
development expenses and $440,000 to cost of sales for changes in estimates. The
reserve balance for the third quarter 1999 restructuring was approximately
$175,000 at December 31, 2000. Management believes the remaining reserves for
the third quarter 1999 business restructuring are adequate to complete this
plan.
During the second quarter 1999, the Company recorded a pre-tax charge for
severance of approximately $1.7 million, of which approximately $1.6 million was
paid before December 31, 1999, for a workforce reduction of approximately 200
employees at its Vancouver and Quincy manufacturing facilities. During the third
quarter of 1999 the Company reduced this pre-tax charge by approximately $80,000
for lower than expected actual severance expenses incurred. As of December 31,
1999 and 2000 the reserve balance was approximately $20,000 and $0,
respectively.
During the first quarter 1999, the Company recorded a pre-tax charge of
approximately $1.6 million related to a reduction of the Company's workforce by
approximately 70 employees at the Vancouver, Charlotte, and Quincy facilities,
exiting costs from the Blaine, Washington leased facility and asset impairment
charges for leasehold improvements located at the Blaine, Washington facility
(noncash charge of approximately $170,000). During 1999, the Company paid
approximately $1.3 million of the first quarter 1999 restructuring costs
primarily for employee termination costs and wrote-off approximately $170,000 in
leasehold improvements. Additionally, during the remainder of 1999, the Company
reversed charges of approximately $90,000 for less than anticipated exit costs
and severance costs. As of December 31, 1999 and 2000 the reserve balance was
approximately $40,000 and $0, respectively.
During the fourth quarter 1998, the Company recorded a pre-tax charge of
approximately $6.8 million related to a 10% reduction of its global workforce,
the exiting of two leased facilities and impairment of associated long-lived
assets, primarily leasehold improvements. At December 31, 1998 the reserve
balance was $4.3 million. During 1999, the Company reduced the fourth quarter
1998 restructuring charges by approximately $620,000 due to lower than
anticipated employee outplacement fees and severance costs at its Norwood,
Massachusetts facility and lower facility exit costs offset partially by more
than anticipated severance costs at other locations. During 1999 the Company
paid a total of approximately $3.7 million of the fourth quarter 1998
restructuring charge primarily for employee termination costs, operating
facility costs and early termination fees for the Norwood, Massachusetts leased
facility. As of December 31, 1999 and 2000 the reserve balance was approximately
$5,000 and $0, respectively.
41
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
The following is a summary of activity in the 2000, 1999 and 1998 restructuring
reserves:
Severance and Lease Cancellation and
Benefits Other Exit Costs Total
------------- ---------------------- --------
Balance at December 31, 1997.......... $ --- $ --- $ ---
Expense accrued....................... 4,523 2,100 6,623
Expenditures.......................... (2,300) --- (2,300)
------- ------- --------
Balance at December 31, 1998.......... 2,223 2,100 4,323
Expense accrued....................... 12,277 3,113 15,390
Expenditures.......................... (7,399) (3,265) (10,664)
Change in estimate.................... (588) (202) (790)
------- ------- --------
Balance at December 31, 1999.......... 6,513 1,746 8,259
Expense accrued....................... 57 --- 57
Expenditures.......................... (6,173) (1,066) (7,239)
Change in Estimate.................... (222) (680) (902)
------- ------- --------
Balance at December 31, 2000.......... $ 175 $ --- $ 175
======= ======= ========
10. Segment Reporting
Glenayre is a worldwide provider of telecommunications equipment and related
software used in the wireless personal communications service markets including
messaging, voice processing and mobile data systems. Glenayre has two principal
product segments: wireless messaging and Enhanced Services platform.
In the wireless messaging segment there was one customer that accounted for 10%
of the Company's net sales during 2000 and no one customer that accounted for
10% or greater of the Company's net sales in 1999. Sales to one wireless
messaging segment customer amounted to approximately 11% of net sales for 1998.
An additional customer, in the wireless messaging segment, accounted for
approximately 13% of the Company's net sales in 1998. In 2000, 1999 and 1998
there were no customers in the Company's Enhanced Services platform segment that
accounted for 10% or greater of the Company's net sales.
Prior to 2000, the support functions related to the Company's two product
segments functioned as stand alone operating units and the Company evaluated
performance and allocated resources based on income from continuing operations
before income taxes, interest income (expense) and other (income) expense which
included support costs. However, beginning in the first quarter 2000, these
support functions which include research and development, customer service,
administration and non-direct manufacturing costs are positioned so that they
support both of the Company's product segments in order to improve financial
results and capital utilization. Due to this change, the costs associated with
these functions are no longer specific to one product segment. Therefore, the
Company currently measures segment results only to the contribution margin level
(sales less direct manufacturing costs) in conjunction with the Company's
consolidated results of operations in measuring that segment's performance and
allocating resources. This represents a change in the Company's segment
reporting and the Company accordingly has restated its segment information where
applicable to reflect this change.
Additionally, the Company previously included the Enhanced Services platform
trade receivables and inventories in the wireless messaging segment assets, as
historically, no efficient and timely process existed to determine these
amounts. However, for 2000, the Company has established processes to determine
these amounts for Enhanced Services platform and, therefore, is reporting these
assets as a component of Enhanced Services platform assets. Further, the Company
previously reported its demand deposit money market cash in the wireless
messaging segment assets. The Company believes this cash should be stated as a
corporate asset as it is controlled, monitored, and allocated for business
purposes by the corporate treasury function. Accordingly, the Company has
restated its
42
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
segment assets where applicable, to reflect this change. Lastly, product segment
assets which are separately identifiable are included in that segment's
computation of product segment assets. For 1999 and 1998, any common assets are
included in the Company's wireless messaging segment as this segment represented
the majority of the Company's revenues for those years. However, in 2000, as a
result of the Enhanced Services platform revenues becoming a more significant
portion of the Company's total revenues, the Company has allocated common assets
based on a percentage of total product revenues.
Segment net sales 2000 1999 1998
----------------- ---- ---- ----
Wireless messaging......................................... $129,223 $ 153,913 $299,315
Enhanced Services platform................................. 122,362 84,176 67,724
-------- --------- --------
Total...................................................... $251,585 $ 238,089 $367,039
======== ========= ========
2000 1999 1998
---- ---- ----
(Restated) (Restated)
Wireless messaging......................................... $ 78,874 $ 104,022 $180,349
Enhanced Services platform................................. 93,702 60,864 47,944
-------- --------- --------
Total Contribution Margin................................ 172,576 164,886 228,293
Segment support costs...................................... (145,256) (166,232) (183,243)
Corporate activities....................................... (7,228) (93,498) (17,992)
Depreciation and amortization.............................. (20,461) (29,860) (38,645)
Write-off of goodwill and other intangibles................ --- (50,919) (26,705)
(Loss) adjustment to loss on sale of business.............. 524 554 (7,858)
Interest income (expense), net............................. 6,444 5,302 8,209
(Loss) adjustment to loss on disposal of assets............ 366 (4,431) (171)
Escrow Settlement.......................................... 11,177 --- ---
Gain on sale of available-for-sale securities.............. 1,142 --- ---
Other income (expense)..................................... (509) 483 (1,004)
-------- --------- --------
Income (loss) from continuing operations before
income taxes............................................. $ 18,775 $(173,715) $(39,116)
======== ========= ========
2000 1999 1998
---- ---- ----
(Restated)
Segment Assets
--------------
Wireless messaging......................................... $214,744 $ 232,295 $471,743
Enhanced Services platform................................. 97,285 57,457 21,577
Discontinued Operations.................................... --- --- 34,451
Deferred Income Taxes...................................... 54,057 57,175 21,585
Corporate Assets........................................... 80,000 66,631 12,439
-------- --------- --------
Total...................................................... $446,086 $ 413,558 $561,795
======== ========= ========
43
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
The following geographic area data represents property, plant and equipment by
location and trade revenues based on product shipment destination.
Property, Plant and Equipment: 2000 1999 1998
----------------------------- ---- ---- ----
United States............................................ $ 41,482 $ 43,832 $ 63,622
Canada................................................... 33,613 29,568 29,597
NE Asia.................................................. 30 96 134
SE Asia.................................................. 11,691 12,481 12,987
China.................................................... 1,145 1,258 1,226
Europe, Middle East and Africa........................... 723 1,038 1,593
Latin America............................................ 371 381 502
-------- -------- --------
Total.................................................... $ 89,055 $ 88,654 $109,661
======== ======== ========
Net sales 2000 1999 1998
--------- ---- ---- ----
United States............................................ $166,692 $125,995 $224,136
Canada................................................... 14,485 9,069 6,457
NE Asia.................................................. 7,236 2,073 1,427
SE Asia.................................................. 19,849 27,286 25,282
China.................................................... 6,535 29,122 67,870
Europe, Middle East and Africa........................... 17,768 27,941 24,578
Latin America............................................ 19,020 16,603 17,173
Other Countries.......................................... --- --- 117
-------- -------- --------
Total.................................................... $251,585 $238,089 $367,039
======== ======== ========
11. Operating Lease Commitments
The Company leases office facilities and various equipment under non-cancelable
operating leases. Future minimum lease payments under non-cancelable operating
leases (with minimum or remaining lease terms in excess of one year) for
calendar years subsequent to December 31, 2000 are as follows:
2001........................ $3,666
2002........................ 2,697
2003........................ 1,936
2004........................ 1,603
2005........................ 1,326
Thereafter.................. ---
Rent expense for continuing operations amounted to approximately $2.8 million,
$5.2 million, and $6.3 million for the years ended December 31, 2000, 1999 and
1998, respectively. A net reversal of lease exit costs of approximately
$490,000 and additional expenses of approximately $780,000 related to the
closing and consolidation costs incurred for various offices are included in
rent expense for the years ended December 31, 2000 and 1999, respectively. See
Note 9. Exit costs of approximately $2.8 million in the aggregate related to
the ODC facility closing and the sale of the network management business are
included in rent expense for the year ended December 31, 1998.
44
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
12. Employee Benefit Plans
(a) Postretirement Health Care Benefits
The Company provides its U.S. employees with certain health care benefits upon
retirement assuming the employees meet minimum age and service requirements.
The Company's policy is to fund benefits as they become due.
The actuarial present value of accumulated postretirement benefit obligations at
December 31, 2000 and 1999 is as follows:
2000 1999
---- ----
Retirees............................................................. $1,259 $1,252
Fully eligible plan participants..................................... 192 111
Other active plan participants....................................... 1,123 816
------ ------
Accumulated postretirement benefit obligation........................ 2,574 2,179
Unrecognized loss.................................................... (226) (42)
Unrecognized transition obligation................................... (611) (661)
------ ------
Postretirement benefit liability recognized in balance sheet......... $1,737 $1,476
====== ======
The change in Accumulated Postretirement Benefit Obligation ("APBO") from year
to year is as follows:
2000 1999
---- ----
APBO at the beginning of the year......................................... $2,179 $2,195
Service cost.............................................................. 229 261
Interest cost............................................................. 165 143
Actuarial loss............................................................ 185 9
Plan participants contributions........................................... 48 40
Curtailment gain.......................................................... --- (352)
Benefits paid ............................................................ (232) (117)
------ ------
APBO at end of the year................................................... $2,574 $2,179
====== ======
Net postretirement benefit costs for the years ended December 31, 2000, 1999 and
1998 consist of the following components:
2000 1999 1998
---- ---- ----
Service cost................................................. $229 $ 261 $ 222
Interest cost on APBO........................................ 165 143 115
Amortization of gain......................................... --- --- (15)
Amortization of transition obligation........................ 51 51 51
Curtailment gain............................................. --- (352) ---
---- ----- -----
$445 $ 103 $ 373
==== ===== =====
The curtailment gain in 1999 was a result of the sale of Western Multiplex. The
assumed discount rate utilized was 7.75%. The assumed health care trend rate in
measuring the accumulated postretirement benefit obligation as of December 31,
2000 was varied between non-Medicare and Medicare eligible retirees. For non-
Medicare eligible retirees the 2000 trend rate is 9%, decreasing linearly to
5.25% in 2005, after which it remains constant. For Medicare retirees, the 2000
trend rate is 12% decreasing linearly to 5.25% in 2008. A one percentage point
increase in the assumed health care cost trend rate for each year would increase
the accumulated postretirement benefit obligation as of
45
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
December 31, 2000 and the 2000 aggregate interest and service cost by
approximately 11.1% and 11.8% respectively. A one percentage point decrease in
the assumed health care cost trend rate for each year would decrease the
accumulated postretirement benefit obligation as of December 31, 2000 and the
2000 aggregate interest and service cost by approximately 11.9% and 19.2%
respectively. The assumed discount rate used in determining the APBO at December
31, 2000 and 1999 was 7.75%.
(b) Defined Contribution Plans
The Company has defined contribution plans covering substantially all of its
full-time employees. Under the plans, the employees can contribute a certain
percentage of their compensation and the Company matches a portion of the
employees' contribution. The Company's contributions under these plans for
continuing operations amounted to approximately $2,276,000, $2,646,000 and
$3,012,000 during the years ended December 31, 2000, 1999 and 1998,
respectively.
13. Loss (adjustment to loss) on Sale of Business
On January 9, 1997, the Company completed the acquisition of CNET, Inc.
("CNET"), located in Plano, Texas. CNET developed and provided integrated
operational support systems, network management, traffic analysis, and radio
frequency propagation software products and services for the global wireless
communications industry. In December 1998, in response to significant adverse
changes in the market size for CNET's existing products, the Company sold its
network management business. At the time of sale, the network management
business had net assets of approximately $5.2 million. A loss on disposal of
$7.9 million was reported in income from operations before income taxes in
connection with the sale for the year ended December 31, 1998. Included in the
loss on sale were accrued facility closing costs, severance payments to
employees, certain transition costs associated with training employees of the
buyer and other charges related to the sale. During 2000 and 1999, the Company
reversed approximately $520,000 and $550,000, respectively, of these accrued
expenses previously included in the $7.9 million loss on sale of the Company's
network management business. These credit adjustments were primarily related to
specific transition costs in the sale agreement and facility closing costs,
which will not be incurred by the Company.
14. Write-Off of Goodwill and Other Intangibles and Escrow Settlements
(a) Open Development Corporation
On October 15, 1997, the Company completed the acquisition of Open Development
Corporation ("ODC") located in Norwood, Massachusetts. ODC was a developer of
database management platforms and products for telecommunications providers.
Actual 1998 revenue and earnings from ODC's products were significantly lower
than anticipated at the date of acquisition, which significantly impacted the
Company's 1998 results. These lower than anticipated results were primarily
attributed to a strategic change in market strategy during 1998 for ODC's
products. This strategic change was from a multiple market approach for the
prepaid wireless, prepaid wireline, and postpaid calling markets to a single
market approach focused solely on the prepaid wireless market, thus eliminating
two markets in which the products were expected to be sold. Operating
projections prepared prior to the acquisition included revenue related to all
three of these markets. Management believes that its future concentration for
the ODC products should continue to be primarily in the prepaid wireless market.
Given this strategic change, the Company concluded that the future forecasted
results for the ODC products will be significantly less than had been
anticipated at the time of the Company's acquisition of ODC. After making this
change, the Company evaluated the ongoing value of the noncurrent assets of ODC.
Based on this evaluation, the Company determined that assets, principally
goodwill and other intangibles, with a carrying value of $30.9 million were
impaired and wrote them down by $26.7 million in 1998 to their fair value. Fair
value was based on estimated future discounted cash flows to be
46
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
generated by ODC. The ODC Norwood, Massachusetts operating facility was closed
in the first quarter 1999 with research and development and administrative
functions relocating to the Company's Atlanta facility.
The ODC Acquisition Agreement ("ODC Agreement") between the Company and the
former ODC shareholders provided that approximately $5 million of the purchase
price would be placed in escrow for the purpose of satisfying any claims of
indemnity that the Company might make. In December 2000, the Company entered
into an escrow settlement with the former ODC shareholders concerning the
disbursement of the remaining funds held in escrow since the acquisition in
October 1997. In this settlement the Company received $300,000 for certain
third party software licensing infringements existing prior to the acquisition.
Additionally, the settlement agreement released all claims by both parties to
the Agreement.
(b) Wireless Access, Inc.
On November 3, 1997, the Company completed the acquisition of Wireless Access,
Inc. ("WAI"), located in Santa Clara, California. WAI develops and markets two-
way wireless messaging devices.
The purchase price was negotiated based on projections of revenues from sales of
the wireless messaging devices and future applications (the "acquired WAI
products"). Actual WAI revenues from November 1997 to September 1999 were
considerably less than the projected sales used in the purchase price
calculations. Sales of wireless messaging devices for 1998 were negatively
affected by manufacturing start-up problems in the second quarter 1998. Design
issues caused further delays in sales in the latter part of 1998 and in the
first half of 1999. Additionally, the two-way wireless messaging market had not
developed as rapidly as expected and the Company's lower end device began to
experience price competition in the second quarter 1999. In the third quarter
1999, after incurring significant operating losses related to the WAI business,
management decided to restructure the WAI operations.
Management made this strategic change due to the following reasons which were
not readily apparent during the acquisition process: (i) performance issues with
the wireless messaging devices causing delays in timing of product delivery and
product acceptance; (ii) slower than expected development of the two-way
messaging market; (iii) a reduction in the overall expected market size for two-
way wireless messaging devices; and (iv) the speed and cost to adapt the product
for future applications has been competitively hindered by the current
architecture.
Given this strategic change, the Company concluded that the future forecasted
results for the acquired WAI products will be significantly less than had been
anticipated at the time of the Company's acquisition of WAI. As a result of
this strategic change, the WAI workforce was significantly decreased and future
WAI requirements for sales and engineering development are expected to be
contracted from elsewhere within the Company. After making these changes, the
Company evaluated the ongoing value of the non-current assets of WAI. Based on
this evaluation, the Company determined that assets, principally goodwill and
other intangibles, with a carrying value of approximately $51 million at
September 30, 1999 were impaired and wrote them down by the remaining balance.
Fair value was based on estimates of discounted future cash flows to be
generated by the acquired WAI products.
During the third quarter 2000, the Company entered into an escrow settlement
with the former WAI shareholders. The Acquisition Agreement ("the Agreement")
between the Company and the former WAI shareholders provided that $12 million of
the purchase price would be placed in escrow for the purpose of satisfying any
claims of indemnity that the Company might make. The Agreement contained
representations and warranties by the former shareholders of WAI that its
AccessMate and AccessLink II pager products, which at the time of the
acquisition were under development, would be manufactured to certain
specifications in specified quantities and by dates set forth in the Agreement.
The Agreement further provided that the WAI shareholders would indemnify the
Company in the event that these pager products did not comply with the
manufacture dates and products specifications. In February 1999, the Company
made an indemnity claim against the former WAI shareholders for the entire
amount
47
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
of the escrow on the ground that WAI failed to comply with or was late in
complying with the manufacture dates and product specifications. In January
2000, the representative of the former shareholders of WAI filed an answering
statement to this claim denying the allegations of the Company and asserting
that the former shareholders of WAI were entitled to all funds accumulated in
escrow. In August of 2000, the Company and the former shareholders entered into
a settlement agreement that disbursed $11.5 million of the escrow funds to the
Company. As part of this settlement the former WAI shareholders were disbursed
$2.1 million of the funds. The Company incurred approximately $600,000 of costs
which have been netted against the proceeds received. As all of the goodwill and
other intangibles related to the WAI acquisition were determined to be impaired
and were written off in the third quarter 1999, the net proceeds from the escrow
settlement of $10.9 million are included in the Company's consolidated statement
of operations for the year ended December 31, 2000. Additionally, the settlement
agreement released all claims by both parties to the Agreement.
15. Stockholders' Equity
(a) Stock Option Plans
The Company maintains two stock option plans (the "1996 Plan" and the "1991
Plan") which were approved by the stockholders, are administered by a committee
of the Board of Directors (the "Committee") and are utilized to promote the
long-term financial interests and growth of the Company. The 1996 and 1991
Plans as amended, authorize the grant of up to 7,650,000 and 11,475,000 shares,
respectively, of the Company's common stock to directors, officers and key
employees. Options granted have an option price of the fair market value of the
Company's common stock on the date of grant. Options under the plans expire no
later than ten years from the grant date.
Activity and price information regarding the Company's stock option plans is
summarized as follows:
Shares Price Range
-------- -------------
Outstanding, December 31, 1997................ 6,725 $0.08---$43.59
Granted....................................... 2,392 4.44---16.75
Exercised..................................... (1,183) 0.08---13.57
Canceled...................................... (572) 1.13---28.22
------ -------------
Outstanding, December 31, 1998................ 7,362 0.17---43.59
Granted....................................... 2,093 2.94---15.25
Exercised..................................... (366) 0.17---10.82 Weighted Average
Canceled...................................... (2,008) 1.13---35.83 Price
------ ------------- ----------------
Outstanding, December 31, 1999................ 7,081 0.40---43.59 7.64
Granted....................................... 2,434 3.54---19.88 11.11
Exercised..................................... (1,667) 0.40---17.13 7.63
Canceled...................................... (933) 1.27---43.59 11.29
------ ------------- ------
Outstanding, December 31, 2000................ 6,915 $1.13---43.59 $ 8.32
====== ============= ======
Of the outstanding options under the Company's stock option plans at December
31, 2000, approximately 3,507,000 are currently exercisable. Approximately 1.6
million shares (all under the 1996 Plan) are available for grant as of December
31, 2000. The weighted-average exercise price for the currently exercisable
options at December 31, 2000 is $7.70. The weighted average remaining
contractual life of options outstanding is approximately 6.8 years.
48
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 2000:
Options Outstanding Options Exercisable
-------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Ranges of Exercise Prices Shares Life in Years Exercise Price Shares Exercise Price
------------------------- -------- ------------- --------------- -------- --------------
$1.13 to $2.94............... 1,349 1.6 $ 1.43 1,339 $ 1.43
$2.97 to $3.44............... 1,188 8.6 $ 3.21 397 $ 3.21
$3.50 to $8.19............... 1,319 9.0 $ 6.73 229 $ 4.95
$8.25 to $10.88.............. 1,187 6.6 $ 9.16 749 $ 9.04
$11.32 to $15.25............. 1,213 8.1 $13.87 550 $14.71
$15.69 to $43.59............. 662 7.8 $23.01 243 $32.29
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, ("FAS 123") requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. Pro forma information regarding
net income and earnings per share is required by FAS 123, which also requires
that the information be determined as if the Company had accounted for its
employee stock options granted subsequent to December 31, 1994 under the fair
value method of that statement. The weighted average fair value per share of
stock based compensation issued during 2000, 1999 and 1998 was $6.94, $1.71 and
$4.85, respectively. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
assumptions:
2000 1999 1998
------ ------ ------
Expected Life in Years........................ 1 to 4 1 to 4 1 to 4
Risk Free Interest Rate....................... 5.8% to 6.1% 5.8% to 6.1% 5.0% to 5.1%
Volatility.................................... 1.03 .72 .59
Dividend Yield................................ -- -- --
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
2000 1999 1998
------ ------ ------
Pro forma income (loss) from continuing operations................ $8,708 $(130,451) $(46,206)
Pro forma income (loss) from continuing operations per share:
Income (loss) per weighted average common share................. 0.14 (2.10) (0.75)
Income (loss) per common share - assuming dilution.............. 0.13 (2.10) (0.75)
49
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
Contributed capital was increased $129,000 and $2.2 million in 1999 and 1998,
respectively, which represents the income tax benefits the Company realized
during these periods from stock options exercised.
(b) Employee Stock Purchase Plan
In 1993, the Company established the Glenayre Technologies, Inc., Employee Stock
Purchase Plan (the "ESP Plan"). Under the ESP Plan, 2,006,250 shares of common
stock are authorized for issuance. The purpose of the ESP Plan is to give
employees an opportunity to purchase common stock of the Company through payroll
deductions, thereby encouraging employees to share in the economic growth and
success of the Company.
All regular full-time employees of the Company are eligible to enter the ESP
Plan as of the first day of each six-month period beginning every February 1 and
August 1. The price for common stock to be offered under the ESP Plan for each
six-month period is equal to 85% of the lower of the average market price of the
common stock for (i) the five trading days prior to the first day of the six-
month period or (ii) the last five trading days of the six-month period. For the
February 1, 2001 to July 31, 2001 period, the stock purchase price will be the
lower of $4.38 or 85% of the average market price of the common stock for the
last five trading days of the six-month period. As of December 31, 2000, 764,162
shares had been issued at a purchase price range of $2.95 to $37.94 with
1,242,088 shares reserved under the ESP Plan.
(c) Income (Loss) from Continuing Operations per Common Share
The following table sets forth the computation of income (loss) from continuing
operations per share:
2000 1999 1998
------ ------ ------
Numerator:
Income (loss) from continuing operations............................. $14,102 $(127,748) $(40,724)
Denominator:
Denominator for basic income (loss) per share -
weighted average shares............................................ 64,087 62,182 61,550
Effect of dilutive securities:
stock options...................................................... 2,879 --- ---
------- --------- --------
Denominator for diluted income (loss) per share-adjusted
weighted average shares and assumed conversions.................... 66,966 62,182 61,550
======= ========= ========
Income (loss) from continuing operations per weighted average
common share....................................................... $ 0.22 $ (2.06) $ (0.66)
======= ========= ========
Income (loss) from continuing operations per common share -
assuming dilution.................................................. $ 0.21 $ (2.06) $ (0.66)
======= ========= ========
(d) Stock Repurchase Programs
In December 2000, the Board of Directors rescinded its 1996 stock repurchase
program and authorized the repurchase of up to 3 million shares of the Company's
stock. As of December 31, 2000, the Company repurchased 12,500 shares at a
total cost of approximately $40,000.
50
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
(e) Stockholders Rights Agreement
In May 1997, the Company's Board of Directors adopted a Preferred Shares Rights
Agreement. The Preferred Shares Rights Agreement was amended on January 14, 1999
and June 2, 2000 (the "Amendments") to provide special provisions with respect
to the State of Wisconsin Investment Board ("SWIB"). Under the Preferred Shares
Rights Agreement, the Board of Directors declared a dividend of one Right for
each outstanding share of common stock to holders of record as of the close of
business on June 12, 1997. Initially, the Rights will automatically trade with
the common stock and will not be exercisable.
Except as provided in the Amendment with respect to SWIB, if any person or group
acquires beneficial ownership of 15% or more of the Company's outstanding common
stock, or commences a tender or exchange offer that results in that person or
group acquiring such level of beneficial ownership, each Rights holder (other
than Rights owned by such person or group, which become void) is entitled to
purchase, for an exercise price of $80, 1/100th of a share of Series A Junior
Participating Preferred Stock. Each fractional preferred share will have
economic and voting terms similar to those of one share of common stock, except
as provided in the Amendment with respect to SWIB. In the event of such a
tender offer or 15% or more stock acquisition, the Rights certificates, after a
short period, will trade separately from the common stock and will be
exercisable.
Each Right, under certain circumstances, entitles the holder to purchase the
number of shares of Glenayre common stock (or, at the discretion of the Board of
Directors, shares of Series A Junior Participating Preferred Stock) which have
an aggregate market value equal to twice the exercise price of $80. Under
certain circumstances, the Board of Directors may exchange each outstanding
Right for either one share of Glenayre common stock or 1/100th share of Series A
Junior Participating Preferred Stock. The Board may also redeem the Rights at a
price of $0.01 per Right.
In addition, except as provided in the Amendments with respect to SWIB, if any
person or group acquires beneficial ownership of 15% or more of the Company's
outstanding common stock and Glenayre either merges with or into another company
or Glenayre sells 50% or more of its assets or earning power to another company,
each Rights holder (other than Rights owned by such person or group, which
become void) is entitled to purchase, for an exercise price of $80, a number of
shares of the surviving company which has a market value equal to twice the
exercise price.
The Amendments provide that, instead of the 15% beneficial ownership level
described above, SWIB's beneficial ownership level will be 20% through June 15,
2001 and, after that date, will be reduced to (i) 16% if SWIB does not
beneficially own 16% or more of Glenayre's outstanding common stock on June 15,
2001 or (ii) if SWIB beneficially owns 16% or more of Glenayre's outstanding
common stock at the close of business on June 15, 2001, the next highest whole
percentage in excess of the percentage of Glenayre's outstanding common stock
then beneficially owned by SWIB, not exceeding 20%. At the close of business on
December 31, 2000, SWIB owned approximately 17.4%.
The Rights will expire on May 21, 2007, unless redeemed earlier.
16. Commitments and Contingencies
In the normal course of business, the Company issues bid and performance letters
of credit which in the aggregate amounted to approximately $16.3 million and $10
million as of December 31, 2000 and 1999, respectively. The fair value of these
letters of credit is estimated to be the same as the contract values based on
the nature of the fee arrangements with the issuing banks.
Additionally, the competitive telecommunications market may require customer
financing commitments. These commitments may be in the form of guarantees,
secured debt or lease financing. Since June 30, 1999, it has been the
51
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands except per share amounts)
Company's policy not to offer customer financing or guarantees. During the third
quarter 2000, the Company renegotiated its only prior financing commitment for
wireless messaging infrastructure and voicemail products reducing the commitment
from $30 million to $10 million. This commitment, which expires in 2001, has a
remaining financing commitment of approximately $500,000 at December 31, 2000.
Amounts outstanding under this financing arrangement as of December 31, 2000 are
$9.3 million.
The Company is from time to time involved in various disputes and legal actions
related to its business operations. In the opinion of the Company, an adverse
resolution of any currently identified claims or actions would not have a
material effect on the Company's financial position, or future results of
operations or cash flows.
17. Interim Financial Data--Unaudited
Quarters Ended
-------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
2000 (a)
Net sales................................................. $58,656 $ 56,672 $ 68,647 $67,610
Gross profit.............................................. 31,140 33,779 36,713 32,773
Net income (loss)......................................... 1,125 1,488 13,440 (1,951)
Net income (loss) per weighted average common share....... .02 .02 .21 (.03)
Net income (loss) per common share - assuming dilution.... .02 .02 .20 (.03)
1999 (b)
Net sales................................................. $61,311 $ 53,477 $ 61,274 $62,027
Gross profit.............................................. 28,179 19,568 24,770 29,975
Loss from continuing operations........................... (1,895) (61,756) (61,998) (2,099)
Loss from continuing operations per weighted average
common share............................................. (.03) (.99) (1.00) (.03)
Loss from continuing operations per common share -
assuming dilution........................................ (.03) (.99) (1.00) (.03)
(a) The results for the third quarter 2000 were impacted by net proceeds of
$10.9 million received from an escrow settlement between the Company and
former WAI shareholders. See Note 14.
(b) The results for the second quarter 1999 were impacted by a charge of $64.6
million for additional bad debt provisions recorded to adequately reserve
the Company's trade accounts and notes receivables. See Note 3.
Additionally, the results for the third quarter 1999 were impacted by a
$50.9 million write-off of goodwill and other intangibles. See Note 14.
Further, the Company recorded restructuring charges of $1.2 million, $1.8
million, $11.0 million, and $600,000 for the quarters ended March 31, June
30, September 30, and December 31, 1999, respectively. See Note 9. Also
during the third quarter 1999, the Company sold its microwave
communications business. Accordingly, MUX's sales, income from operations
(net of tax) and loss on disposal of assets (net of tax) are excluded from
the 1999 quarters presented above. See Note 2.
52
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10 through 13 are incorporated herein by reference to the sections
captioned "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,"
"EXECUTIVE OFFICERS OF THE REGISTRANT," "ELECTION OF DIRECTORS," "COMPENSATION--
Compensation of Directors," "COMPENSATION--Executive Compensation,"
"COMPENSATION--Employment Agreements," "COMPENSATION--Compensation Committee
Interlocks and Insider Participation," "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in
the Company's Proxy Statement for the Annual Meeting of Stockholders to be held
May 17, 2001.
53
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
A. Index to Financial Statements and Supplemental Schedule
(i) Financial Statements Page
----
Report of Ernst & Young LLP Independent Auditors............................................................. 26
Consolidated Balance Sheets at December 31, 2000 and 1999.................................................... 27
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998................... 28
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000,
1999 and 1998............................................................................................... 29
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998................... 30
Notes to Consolidated Financial Statements................................................................... 32
(ii) Supplemental Schedule:
(For the years ended December 31, 2000, 1999 and 1998)
Schedule II - Valuation and Qualifying Accounts.............................................................. 58
All other schedules are omitted because they are not applicable or not required.
B. Reports on Form 8-K
During the three months ended December 31, 2000, the Company filed the
following current reports on Form 8-K:
None.
54
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
C. Exhibits
Exhibit
Number Description
------ -----------
2.1 Acquisition Agreement among Glenayre, WAI Acquisition Corp. And Wireless
Access, Inc., dated October 1, 1997 ("WAI Acquisition Agreement") was
filed as Exhibit 2 to the Registrant's Current Report on Form 8-K filed
November 11, 1997 and is incorporated herein by reference.
2.2 Amended and Restated Acquisition Agreement dated as of September 30, 1999
among GTI Acquisition Corp., the Company, Western Multiplex Corporation,
a California Corporation, Western Multiplex Corporation, a Delaware
Corporation, and WMC Holding Corp. was filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1999 and is incorporated herein by reference.
3.1 Composite Certificate of Incorporation of Glenayre reflecting the
Certificate of Amendment filed December 8, 1995 was filed as Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and is incorporated herein by reference.
3.2 Restated by-laws of Glenayre effective June 7, 1990, as amended September
21, 1994 was filed as Exhibit 3.5 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated herein
by reference.
4.1 Preferred Shares Rights Agreement dated May 21, 1997 between the Company
and American Stock Transfer & Trust Company, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration Statement on
Form 8-A, File No. 0-15761.
4.2 Amendment dated January 14, 1999, to the Preferred Shares Rights
Agreement dated May 21, 1997 incorporated herein by reference to Exhibit
4.2 to the Registrant's Current Report on Form 8-K dated January 14,
1999.
4.3 Certificate of Designation of Rights, Preferences and Privileges of
Series A Junior Participating Preferred Stock of the Company filed May
23, 1997 was filed as Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1997 and is incorporated herein
by reference.
4.4 Second Amendment dated June 2, 2000 to the Preferred Shares Rights
Agreement dated May 21, 1997 incorporated herein by reference to Exhibit
4.3 to the Registrant's Current Report on Form 8-K dated June 2, 2000.
10.1 Services Agreement dated April 18, 1999 between the Company and Clarke H.
Bailey was filed as Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1999 and is incorporated herein
by reference.*
10.2 Agreement dated October 1, 1999 between the Company and Clarke H. Bailey
was filed as Exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999 and is incorporated herein by
reference.*
10.3 Employment Agreement dated June 18, 1999 between the Company and Eric L.
Doggett was filed as Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1999 and is incorporated herein
by reference. On April 27, 2000, the Registrant and Bert Klein entered
into an Employment Agreement in connection with his employment as Senior
Vice President and Chief Financial Officer that is substantially
identical in all material respects to the Employment Agreement dated June
18, 1999 with Eric L. Doggett except as to title, amount of base salary,
rate of bonus participation and number of shares subject to stock
options.*
10.4 Services Agreement dated February 15, 1999 between the Company and Ramon
D. Ardizzone was filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1999 and is
incorporated herein by reference.*
10.5 Services Agreement dated April 18, 1999 between the Company and Ramon D.
Ardizzone was filed as Exhibit 10.1 to the Registrant's Quarterly report
on Form 10-Q for the Quarter ended June 30, 1999 and is incorporated
herein by reference.*
55
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
10.6 Employment Agreement dated May 21, 1997 between the Company and Stanley
Ciepcielinski was filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 and is
incorporated herein by reference.*
10.7 Amendment dated August 10, 1999 to the Employment Agreement dated May 21,
1997 between the Company and Stanley Ciepcielinski was filed as Exhibit
10.10 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999 and is incorporated herein by reference.*
10.8 Severance Agreement dated February 15, 1999 between the Company and
Eugene C. Pridgen was filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1999 and is
incorporated herein by reference.*
10.9 Consulting Services Agreement dated November 11, 1998 between the Company
and Dan Case was filed as Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998 and is incorporated
herein by reference.*
10.10 Letter Agreement dated May 26, 1998 between the Registrant and Amir
Zoufonoun was filed as Exhibit 10.13 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998 and is incorporated herein
by reference.*
10.11 Agreement dated April 16, 1999 between the Company and Amir Zoufonoun was
filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1999 and is incorporated herein by
reference.*
10.12 Executive Severance Benefit Agreement dated May 21, 1997 between the
Company and Lee M. Ellison (the "Ellison Agreement") was filed as Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 and is incorporated herein by reference. Executive
Severance Benefit Agreements, between the Company and individually with
Beverley W. Cox (dated February 1, 1995, as amended), Warren K. Neuburger
(dated January 14, 1999), Gary P. Hermansen (dated January 14, 1999),
William W. Edwards (dated February 3, 2000), Kenneth R. Berger (dated
February 3, 2000), Wayne G. Chester (dated September 1, 2000) and James
F. Kelly (dated September 19, 2000) are identical, in all material
respects, with the Ellison Agreement and are not filed as exhibits.*
10.13 Glenayre Electronics, Inc. Deferred Compensation Plan was filed as
exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and is incorporated herein by reference.*
10.14 Glenayre Technologies, Inc. Incentive Plan for the year ended December
31, 2000 was filed as Exhibit 10.17 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999 and is incorporated herein
by reference.*
10.15 Glenayre Technologies Management By Objective Plan- Corporate Plan for
the year ended December 31, 1999 was filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1999 and is incorporated herein by reference.*
10.16 Glenayre Technologies Management By Objective Plan- Business Segment Plan
for the year ended December 31, 1999 was filed as Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1999 and is incorporated herein by reference.*
10.17 Glenayre Technologies Management By Objective Plan- Glenayre Western
Multiplex Plan for the year ended December 31, 1999 was filed as Exhibit
10.5 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
ended 1999 and is incorporated herein by reference.*
10.18 Glenayre Technologies Management By Objective Plan for the year ended
December 31, 1998 was filed as Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 and is
incorporated herein by reference.*
10.19 Glenayre 1996 Incentive Stock Plan, as amended, was filed as Exhibit 4 to
the Registrant's Form S-8 filed June 21, 1999 and is incorporated herein
by reference.*
56
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
10.20 Glenayre Long-Term Incentive Plan, as amended and restated effective May
26, 1994, was filed as Exhibit 4 to the Registrant's Form S-8 filed June
16, 1994 and is incorporated herein by reference.*
10.21 Amendment dated December 18, 1998 to the Glenayre Long-Term Incentive
Plan was filed as Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998 and is incorporated herein by
reference.*
21 Subsidiaries of the Company is filed herewith.
23 Consent of Ernst & Young LLP is filed herewith.
99 Cautionary Statement under safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 is filed herewith.
______________________
*Management Contract
57
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
Schedule II -- Valuation and Qualifying Accounts
Years Ended December 31, 2000, 1999 and 1998
(dollars in thousands)
Column A Column B Column C Column D Column E
---------- -------- -------- -------- --------
Additions
---------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
-------------------------------------- ------------- ------------------ ---------------- ---------------- ----------------
Accounts Receivable - Allowance for
Doubtful Accounts :
Year ended December 31, 2000 $17,672 $ 2,951 $ --- $2,765 $17,858
Year ended December 31, 1999 5,830 14,350 250 2,758 17,672
Year ended December 31, 1998 4,542 1,187 806 705 5,830
Notes Receivable - Fair Market
Valuation Allowance:
Year ended December 31, 2000 260 --- --- 260 ---
Year ended December 31, 1999 332 (72) --- --- 260
Year ended December 31, 1998 4 328 --- --- 332
Notes Receivable - Allowance for
Doubtful Accounts:
Year ended December 31, 2000 52,757 (518) --- 43,390 8,849
Year ended December 31, 1999 3,795 50,352 56 1,446 52,757
Year ended December 31, 1998 4,038 (439) 298 102 3,795
Valuation Allowance on
Inventories:
Year ended December 31, 2000 10,117 3,600 (677) 1,251 11,789
Year ended December 31, 1999 6,843 10,333 (322) 6,737/(1)/ 10,117
Year ended December 31, 1998 5,511 5,701 (292) 4,077 6,843
Subordinated Notes -
Allowance for Doubtful Accounts:
Year ended December 31, 2000
Year ended December 31, 1999 9,522 --- --- 9,522 ---
Year ended December 31, 1998 1,350 --- 8,172 --- 9,522
--- 767 583 --- 1,350
Interest Receivables -
Allowance for Doubtful Accounts:
Year ended December 31, 2000 --- --- --- --- ---
Year ended December 31, 1999 --- 2,369 --- 2,369 ---
-------------------
(1) Includes $1.5 million due to the disposal of discontinued operations.
58
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
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 on March 14, 2001.
GLENAYRE TECHNOLOGIES, INC.
---------------------------
By /s/ Eric L. Doggett
----------------------------------------
Eric L. Doggett
President, Chief Executive Officer
and Director
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 indicated on March 14, 2001:
/s/ Clarke H. Bailey /s/ Ramon D. Ardizzone
---------------------------------------------------- -------------------------------------------------------
Clarke H. Bailey Ramon D. Ardizzone
Chairman of the Board Director
/s/ Donald S. Bates
-------------------------------------------------------
/s/ Eric L. Doggett Donald S. Bates
---------------------------------------------------- Director
Eric L. Doggett
President, Chief Executive Officer /s/ Peter W. Gilson
and Director (Principal Executive Officer) -------------------------------------------------------
Peter W. Gilson
Director
/s/ Bert C. Klein
---------------------------------------------------- /s/ John J. Hurley
Bert C. Klein -------------------------------------------------------
Senior Vice President John J. Hurley
Chief Financial Officer (Principal Financial Officer Director
and Principal Accounting Officer)
/s/ Thomas C. Israel
-------------------------------------------------------
Thomas C. Israel
Director
/s/ Stephen P. Kelbley
-------------------------------------------------------
Stephen P. Kelbley
Director
/s/ Anthony N. Pritzker
-------------------------------------------------------
Anthony N. Pritzker
Director
/s/ Horace H. Sibley
-------------------------------------------------------
Horace H. Sibley
Director
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
C. Exhibits
Exhibit
Number Description
------ -----------
2.1 Acquisition Agreement among Glenayre, WAI Acquisition Corp. And Wireless
Access, Inc., dated October 1, 1997 ("WAI Acquisition Agreement") was
filed as Exhibit 2 to the Registrant's Current Report on Form 8-K filed
November 11, 1997 and is incorporated herein by reference.
2.2 Amended and Restated Acquisition Agreement dated as of September 30, 1999
among GTI Acquisition Corp., the Company, Western Multiplex Corporation,
a California Corporation, Western Multiplex Corporation, a Delaware
Corporation, and WMC Holding Corp. was filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1999 and is incorporated herein by reference.
3.1 Composite Certificate of Incorporation of Glenayre reflecting the
Certificate of Amendment filed December 8, 1995 was filed as Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and is incorporated herein by reference.
3.2 Restated by-laws of Glenayre effective June 7, 1990, as amended September
21, 1994 was filed as Exhibit 3.5 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated herein
by reference.
4.1 Preferred Shares Rights Agreement dated May 21, 1997 between the Company
and American Stock Transfer & Trust Company, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration Statement on
Form 8-A, File No. 0-15761.
4.2 Amendment dated January 14, 1999, to the Preferred Shares Rights
Agreement dated May 21, 1997 incorporated herein by reference to Exhibit
4.2 to the Registrant's Current Report on Form 8-K dated January 14,
1999.
4.3 Certificate of Designation of Rights, Preferences and Privileges of
Series A Junior Participating Preferred Stock of the Company filed May
23, 1997 was filed as Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1997 and is incorporated herein
by reference.
4.4 Second Amendment dated June 2, 2000 to the Preferred Shares Rights
Agreement dated May 21, 1997 incorporated herein by reference to Exhibit
4.3 to the Registrant's Current Report on Form 8-K dated June 2, 2000.
10.1 Services Agreement dated April 18, 1999 between the Company and Clarke H.
Bailey was filed as Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1999 and is incorporated herein
by reference.*
10.2 Agreement dated October 1, 1999 between the Company and Clarke H. Bailey
was filed as Exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999 and is incorporated herein by
reference.*
10.3 Employment Agreement dated June 18, 1999 between the Company and Eric L.
Doggett was filed as Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1999 and is incorporated herein
by reference. On April 27, 2000, the Registrant and Bert Klein entered
into an Employment Agreement in connection with his employment as Senior
Vice President and Chief Financial Officer that is substantially
identical in all material respects to the Employment Agreement dated June
18, 1999 with Eric L. Doggett except as to title, amount of base salary,
rate of bonus participation and number of shares subject to stock
options.*
10.4 Services Agreement dated February 15, 1999 between the Company and Ramon
D. Ardizzone was filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1999 and is
incorporated herein by reference.*
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
10.5 Services Agreement dated April 18, 1999 between the Company and Ramon D.
Ardizzone was filed as Exhibit 10.1 to the Registrant's Quarterly report
on Form 10-Q for the Quarter ended June 30, 1999 and is incorporated
herein by reference.*
10.6 Employment Agreement dated May 21, 1997 between the Company and Stanley
Ciepcielinski was filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 and is
incorporated herein by reference.*
10.7 Amendment dated August 10, 1999 to the Employment Agreement dated May 21,
1997 between the Company and Stanley Ciepcielinski was filed as Exhibit
10.10 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999 and is incorporated herein by reference.*
10.8 Severance Agreement dated February 15, 1999 between the Company and
Eugene C. Pridgen was filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1999 and is
incorporated herein by reference.*
10.9 Consulting Services Agreement dated November 11, 1998 between the Company
and Dan Case was filed as Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998 and is incorporated
herein by reference.*
10.10 Letter Agreement dated May 26, 1998 between the Registrant and Amir
Zoufonoun was filed as Exhibit 10.13 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998 and is incorporated herein
by reference.*
10.11 Agreement dated April 16, 1999 between the Company and Amir Zoufonoun was
filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1999 and is incorporated herein by
reference.*
10.12 Executive Severance Benefit Agreement dated May 21, 1997 between the
Company and Lee M. Ellison (the "Ellison Agreement") was filed as Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 and is incorporated herein by reference. Executive
Severance Benefit Agreements, between the Company and individually with
Beverley W. Cox (dated February 1, 1995, as amended), Warren K. Neuburger
(dated January 14, 1999), Gary P. Hermansen (dated January 14, 1999),
William W. Edwards (dated February 3, 2000), Kenneth R. Berger (dated
February 3, 2000), Wayne G. Chester (dated September 1, 2000) and James
F. Kelly (dated September 19, 2000) are identical, in all material
respects, with the Ellison Agreement and are not filed as exhibits.*
10.13 Glenayre Electronics, Inc. Deferred Compensation Plan was filed as
exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and is incorporated herein by reference.*
10.14 Glenayre Technologies, Inc. Incentive Plan for the year ended December
31, 2000 was filed as Exhibit 10.17 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999 and is incorporated herein
by reference.*
10.15 Glenayre Technologies Management By Objective Plan- Corporate Plan for
the year ended December 31, 1999 was filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1999 and is incorporated herein by reference.*
10.16 Glenayre Technologies Management By Objective Plan- Business Segment Plan
for the year ended December 31, 1999 was filed as Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1999 and is incorporated herein by reference.*
10.17 Glenayre Technologies Management By Objective Plan- Glenayre Western
Multiplex Plan for the year ended December 31, 1999 was filed as Exhibit
10.5 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
ended 1999 and is incorporated herein by reference.*
10.18 Glenayre Technologies Management By Objective Plan for the year ended
December 31, 1998 was filed as Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 and is
incorporated herein by reference.*
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
10.19 Glenayre 1996 Incentive Stock Plan, as amended, was filed as Exhibit 4 to
the Registrant's Form S-8 filed June 21, 1999 and is incorporated herein
by reference.*
10.20 Glenayre Long-Term Incentive Plan, as amended and restated effective May
26, 1994, was filed as Exhibit 4 to the Registrant's Form S-8 filed June
16, 1994 and is incorporated herein by reference.*
10.21 Amendment dated December 18, 1998 to the Glenayre Long-Term Incentive
Plan was filed as Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998 and is incorporated herein by
reference.*
21 Subsidiaries of the Company is filed herewith.
23 Consent of Ernst & Young LLP is filed herewith.
99 Cautionary Statement under safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 is filed herewith.
______________________
*Management Contract