Runup, consolidation, breakout, consolidation. From 10Q amended Dec. 10.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations
The following discussion should be read in conjunction with
the company's consolidated financial statements and related
disclosures included elsewhere in this quarterly report.
Except for historic actual results reported, the following
discussion may contain predictions, estimates and other
forward-looking statements that involve a number of risks and
uncertainties. See "Caution Regarding Forward-looking
Statements" included above for a discussion of certain factors
that could cause future actual results to differ from those
described in the following discussion.
Financial Condition and Liquidity
On September 24, 1999, cash and equivalents and short-term
investments totaled $110.9 million, an increase of $46.3
million from the year-end balance of $64.6 million. The
increase is attributable mostly to the following transactions:
Net proceeds of $19.9 million from sale of a discontinued
operation--SEG business, and $16.9 million from sale of the
remaining San Jose, California facility. See a more detailed
discussion of these completed transactions under "Divestiture
Activities" below. In addition, the company's cash position
was improved by an income tax refund of $12.0 million received
in 1999 as a result of the 1998 net operating loss.
At the end of the third quarter, the company's principal
source of liquidity consisted of $66.2 million in cash and
equivalents plus short-term investments valued at $44.7
million. The company invests its excess cash and equivalents
in securities with maturity periods exceeding 90 days to take
advantage of the higher yields. These short-term investments,
which consist primarily of high grade debt securities, are
subject to interest rate risk and rise and fall in value as
market interest rates change.
At the end of the third quarter, there were no material
commitments for capital expenditures. Based on current plans
and business conditions, the company believes that its
existing cash and equivalents, short-term investments and cash
generated from operations will satisfy anticipated cash and
working capital requirements for the next twelve months.
Divestiture Activities
On March 31, 1999, the company sold the high-density plasma
chemical vapor deposition (HDPCVD) intellectual property
assets and related hardware of SEG. In July 1999, the company
sold the remainder of its SEG business, consisting of
atmospheric pressure chemical vapor disposition products
(APCVD). These transactions completed the divestiture of SEG
resulting in a net gain of $7.3 million included in the
company's second quarter financial results as a disposition of
a discontinued operation.
On August 18, 1999, the company announced a definitive
agreement to sell substantially all of TG's assets to a unit
of Marconi North America, Inc., a subsidiary of the General
Electric Company p.l.c. of the United Kingdom. The sale is not
yet complete and is subject to certain conditions in addition
to approval by the company's shareowners and government
approvals.
On September 16, 1999, the company completed the sale of its
remaining San Jose, California facility including a 190,000
square foot building resulting in a pre-tax gain of $9.7
million. This transaction was included in the company's third
quarter financial results.
On October 1, 1999, the company completed the sale of one of
its long-term lease interests in Palo Alto to Stanford
University resulting in net proceeds of about $54.0 million.
This transaction and any resulting gain will be reported in
the company's fourth quarter financial results.
Page 13
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations (continued)
On October 26, 1999, the company announced it has entered into
a definitive merger agreement with FP-WJ Acquisition Corp.
("FP-WJ"), a new company formed by certain investment funds
managed by Fox Paine & Company, LLC. Under the terms of the
merger agreement, the company's outstanding common shares
would be converted into the right to receive $41.125 per share
in cash. This transaction is not yet complete and is subject
to certain conditions in addition to the receipt of funding
under financing commitments, approval by the company's
shareowners and customary government approvals, and the
completion of the sale of TG to Marconi North America, Inc.
There can be no assurance that the pending sale of TG or the
merger with FP-WJ will be completed nor can there be any
assurance that the company will be able to complete its
strategy for the sale of the entire company.
Current Operations and Business Outlook
During the third quarter 1999, WPG received $23.5 million of
new orders, an increase of 49% from the $15.8 million received
in the second quarter and an increase of 3.5% from the $22.7
million during the same quarter one year ago. New orders
received by WPG included key orders from communication
equipment leaders such as Lucent Technologies, Inc. and Nortel
Networks. Approximately 20% of the orders were received for
WPG's components and repeater products.
During the third quarter 1999, TG received $14.5 million of
new orders, an increase of 2.8% from the second quarter of
$14.1 million and 59% more than the $9.1 million during the
same quarter one year ago. Larger than expected orders were
received from U.S. government agencies.
At the end of the third quarter, the company's total backlog
was $77.9 million. This was about 13% higher than the $68.7 at
the end of the second quarter, and about 18% higher than the
$66.0 million of a year ago. Of the total $77.9 million
backlog, WPG's was $43.4 million while TG's was $34.5 million.
Since the company's backlog can be canceled or rescheduled,
backlog is not necessarily a meaningful indicator for future
revenue.
With the divestiture of the SEG business completed in the
second quarter, the company has been focusing on the WPG and
TG businesses. Based on current quarter and year-to-date
results, both businesses are on track to exceed their targeted
profit plans for the year. Although long-term prospects for
both businesses appeared positive, it should be noted that
short-term demand variations by key customers may affect
short-term quarterly results. In addition, the wireless and
telecommunications industries are subject to various
regulatory agencies of federal, foreign, state and local
governments which can affect market dynamics, causing
unforeseen ebb and flow of orders and delivery requirements.
Domestic and international competition from a number of firms,
some of whom are larger than the company, is intense. Other
risks and factors discussed in the company's 1998 Form 10-K/A
could significantly affect the company's future operating
results.
Third Quarter 1999 Compared to Third Quarter 1998
Sales for WPG increased to $16.5 million in 1999 from $11.6
million in 1998, or 42%. Sales continued to grow compared to
1998, but grew at a slower rate when compared to the first
half of 1999. The increase in sales was from various product
areas including radio frequency (RF) devices and
subassemblies, repeaters and PCS converters.
Sales for TG increased to $12.3 million in 1999 compared to
$7.5 million in 1998, or 64%. The 1998 third quarter was a low
period for TG as a key product line, Base2(TM), was
discontinued and TG refocused on its core products and
customers.
Page 14
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations (continued)
Gross margin for WPG increased to 41% in 1999 from 27% in 1998
mostly due to higher volume. Also in 1998, quantifiable costs
totaling about $0.6 million were incurred related to the
start-up of the Milpitas, California plant. The start-up phase
was completed on schedule in the first half of 1999. See
additional information about the Milpitas, California plant
operations in Part I, Item 1 of the company's 1998 Form
10-K/A.
Gross margin for TG increased to 37% in 1999 compared to a
loss in 1998. TG's 1999 third quarter results continued to
indicate that the 1998 restructuring and realignment were
positive relative to current business conditions. Included in
the 1998 third quarter was a $3.4 million inventory write down
associated with the discontinued Base2 product line, and $6.7
million of charges for problem contracts and slow-moving
inventory.
WPG research and development expenses were $4.4 million in
1999 or 27% of sales, compared to $3.9 million in 1998, or 34%
of sales. Research and development activities are expected to
remain at the current level for the rest of 1999. WPG has been
focused on bringing new products to market efficiently to take
advantage of the growing market.
TG research and development expenses decreased from 20% of
sales in 1998 to 5% in 1999 as the group halted its spending
on the discontinued Base2 product in September 1998. Actual
expenses decreased from $1.5 million in 1998 to $0.6 million
in 1999. TG believes the current level of research and
development activity is sufficient in sustaining its refocused
core business.
WPG's selling and administrative expenses increased to $2.3
million or 14% of sales in 1999, from $1.3 million or 11% of
sales in 1998. Due to the increase in volume, WPG required
additional corporate administrative support and was charged
$0.8 million more in the third quarter of 1999 than in the
same quarter of 1998 for such support. The remainder of the
increase was attributable to sales commission expense due to
higher sales volume. For the full year 1999, WPG's selling and
administrative expenses are expected to be within planned
levels at about 11% of sales.
Excluding the 1998 restructuring charges of $2.7 million, TG's
selling and administrative expenses were $2.9 million in 1999
compared to $3.4 million in 1998, or a 15% decline. The
decline was attributable to the restructuring actions taken in
1998.
The company incurred additional expenses totaling $1.6 million
related to the pending transactions as discussed in this Part
I, Item 2, under "Divestiture Activities". Although the
transactions are pending, the related expenses must be charged
against earnings as they are incurred.
Interest income decreased to $1.1 million in 1999 compared to
$1.4 million in 1998 mostly due to higher funds available for
investment in the third quarter of 1998. In 1999, the sale of
the company's remaining San Jose, California facility was
completed in the third quarter resulting in $9.7 million of
pre-tax gain.
Due to the combined effect of the above, net income from
continuing operations in 1999 was $6.9 million, or $1.00 per
diluted share, compared to a net loss of $8.9 million in 1998,
or $1.13 loss per diluted share.
Year-to-date 1999 Compared to Year-to-date 1998
WPG sales increased 84% to $63.7 million in 1999 from $34.6
million in 1998. WPG continued to grow in all product areas
particularly with strong shipments of wireless-local-loop
products in the first half of 1999.
Although TG sales decreased from $41.3 million in 1998 to
$34.6 million in 1999, or 16%, it was in line with TG's
expectations after restructuring in 1998. TG's efforts in
refocusing on its core products
Page 15
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations (continued)
and customers have been positive as its orders and sales have
been stabilized for the first three quarters of 1999.
Gross margin for WPG improved to 38% in 1999 from 32% in 1998
as the group continued to benefit from higher volume and
economies of scale.
Gross margin for TG was 38% in 1999 compared to 21% in 1998.
Included in 1998 was a $3.4 million inventory write down
associated with the discontinued Base2 product line, and $6.7
million of charges for problem contracts and slow-moving
inventory.
WPG research and development expenses increased from $9.1
million in 1998 to $13.0 million in 1999. The expenditures
were within WPG's plans. WPG's product development activities
are expected to continue at its current pace as it is
committed to introduce new quality products to its rapidly
growing market in a timely manner.
TG research and development expenses decreased substantially
from $7.6 million in 1998 to $2.1 million in 1999. The drop
was mostly due to spending being curbed on the discontinued
Base2 product line since third quarter 1998.
WPG selling and administrative expenses decreased from 12% of
sales in 1998 to 11% of sales in 1999 as expected due to
higher business volume. Actual expenses increased from $4.2
million to $6.8 million and were within WPG's plans. Due to
the increase in volume, WPG required additional corporate
administrative support and was charged $1.7 million more in
1999 than in 1998 for such support. The remainder of the
increase was mostly attributable to sales commission expense
due to higher sales volume.
Excluding 1998 restructuring charges of $2.7 million, TG
selling and administrative expenses decreased from $11.5
million in 1998 to $8.1 million in 1999. Based on the results
of the first three quarters of 1999, the decrease was mostly
due to the resizing of the TG business in 1998.
The company incurred additional expenses totaling $1.6 million
related to a number of pending transactions as discussed in
Part I, Item 2, under "Divestiture Activities". Although some
of the transactions are still pending, the related expenses
have to be charged against earnings as they are incurred.
Interest income decreased to $2.7 million in 1999 compared to
$4.7 million in 1998 mostly due to higher funds available for
investment in 1998 than in 1999. In 1999, the sale of the
company's remaining San Jose, California facility was
completed in the third quarter resulting in $9.7 million of
pre-tax gain. In 1998, the sale of about 15 acres of
undeveloped land adjacent to the San Jose, California facility
resulted in about $15.0 million of pre-tax gain.
Due to the combined effect of the above, net income from
continuing operations in 1999 was $12.1 million, or $1.80 per
diluted share, compared to $3.2 million in 1998, or $0.39 per
diluted share.
Looks good on first scan.
Jack |
