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| WTT > SEC Filings for WTT > Form 10-Q on 14-May-2009 | All Recent SEC Filings |
14-May-2009
Quarterly Report
INTRODUCTION
Wireless Telecom Group, Inc., and its operating subsidiaries, Boonton Electronics Corporation, Microlab/FXR and Willtek Communications GmbH, (collectively, the "Company"), develop, manufacture and market a wide variety of electronic noise sources, electronic testing and measuring instruments including power meters, voltmeters and modulation meters, high-power passive microwave components and handset production testers for wireless products. The Company's products have historically been primarily used to test the performance and capability of cellular/PCS and satellite communication systems and to measure the power of RF and microwave systems. Other applications include radio, radar, wireless local area network (WLAN) and digital television.
The financial information presented herein includes:
(i) Condensed Consolidated Balance Sheets as of March 31, 2009 (unaudited) and
as of December 31, 2008 (ii) Condensed Consolidated Statements of Operations for
the three month periods ended March 31, 2009 (unaudited) and 2008 (unaudited)
and (iii) Condensed Consolidated Statements of Cash Flows for the three month
periods ended March 31, 2009 (unaudited) and 2008 (unaudited).
FORWARD LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including, without limitation, the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "intends," "plans," "may," "will," "should," "anticipates" or "continues" or the negative thereof of other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These statements are based on the Company's current expectations of future events and are subject to a number of risks and uncertainties that may cause the Company's actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, product demand and development of competitive technologies in our market sector, the impact of competitive products and pricing, the loss of any significant customers, the effects of adoption of newly announced accounting standards, the effects of economic conditions and trade, legal and other economic risks, among others. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. These risks and uncertainties are disclosed from time to time in the Company's filings with the Securities and Exchange Commission, the Company's press releases and in oral statements made by or with the approval of authorized personnel. The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of the financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for each period. The following represents a summary of the Company's critical accounting policies, defined as those policies that the Company believes are: (a) the most important to the portrayal of its financial condition and results of operations, and (b) that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
Share-Based Compensation
The Company follows the provisions of SFAS 123(R), "Share-Based Payment". The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. For the performance-based options granted in 2008, the Company took into consideration guidance under SFAS 123(R) and SEC Staff Accounting Bulletin No. 107 (SAB 107) when reviewing and updating assumptions. The expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding. The expected volatility is based upon historical volatility of our shares using weekly price observations over an observation period of three years. The risk-free rate is based on the U.S. treasury yield curve rate in effect at the time of grant for periods similar to the expected option life. Due to the Company's history with respect to incentive stock options, the estimate of forfeitures included in the option valuation was zero.
Revenue Recognition
Revenue from product shipments, including shipping and handling fees, is recognized once delivery has occurred provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Sales to international distributors are recognized in the same manner. If title does not pass until the product reaches the customer's delivery site, then recognition of revenue is deferred until that time. There are no formal sales incentives offered to any of the Company's customers. Volume discounts may be offered from time to time to customers purchasing large quantities on a per transaction basis. There are no special post shipment obligations or acceptance provisions that exist with any sales arrangements.
Valuation of Inventory
Raw material inventories are stated at the lower of cost (first-in, first-out method) or market. Finished goods and work-in-process are valued at average cost of production, which includes material, labor and manufacturing expenses.
Allowances for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. A key consideration in estimating the allowance for doubtful accounts has been, and will continue to be, our customer's payment history and aging of its accounts receivable balance. If the financial condition of any of its customers were to decline, additional allowances might be required.
Income Taxes
As part of the process of preparing the condensed consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The process incorporates an assessment of the current tax exposure together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes. Such differences result in deferred tax assets and liabilities, which are included within the condensed consolidated balance sheet. The recovery of deferred tax assets from future taxable income must be assessed and, to the extent that recovery is not likely, the Company establishes a valuation allowance. Increases in valuation allowances result in the recording of additional tax expense. Further, if the ultimate tax liability differs from the periodic tax provision reflected in the condensed consolidated statements of operations, additional tax expense may be recorded.
Valuation of goodwill and other intangible assets
The Company reviews its goodwill and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable, and also reviews goodwill annually in accordance with Statement of Financial Accounting Standard ("SFAS") No. 142. The process of evaluating the potential impairment of goodwill is ongoing, subjective and requires significant judgment and estimates regarding future cash flows and forecasts. Goodwill represents the excess of the cost of an acquisition over fair value of net assets acquired. Testing for the impairment of goodwill involves a two step process. The first step of the impairment test requires the comparing of a reporting units fair value to its carrying value. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step must be performed to compute the amount of the impairment. In the second step, the impairment is computed by estimating the fair values of all recognized and unrecognized assets and liabilities of the reporting unit and comparing the implied fair value of reporting unit goodwill with the carrying amount of that unit's goodwill. At March 31, 2009 and December 31, 2008, goodwill is attributable to one of the Company's reporting unit's, Microlab/FXR.
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and the notes to those statements included in Part I, Item I of this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2008.
For the three months ended March 31, 2009 as compared to the corresponding period of the previous year, net sales decreased to approximately $11,362,000 from approximately $12,989,000 a decrease of approximately $1,627,000 or 12.5% . The decrease is primarily due an overall softness in the wireless handset market.
Gross profit on net sales for the three months ended March 31, 2009 was approximately $5,651,000 or 49.7% as compared to approximately $6,166,000 or 47.5% of net sales for the three months ended March 31, 2008. Gross profit margins are higher primarily due to favorable product mix, particularly in the Company's foreign subsidiary, and lower manufacturing labor and overhead costs. The Company can experience variations in gross profit based upon the mix of products sold as well as variations due to revenue volume and economies of scale. The Company continues to carefully monitor costs associated with material acquisition, manufacturing and production.
Operating expenses for the three months ended March 31, 2009 were approximately $6,002,000 or 53% of net sales as compared to approximately $6,723,000 or 52% of net sales for the three months ended March 31, 2008. Operating expenses are lower due to decreases in both sales and marketing expenses and general and administrative expenses, partially off-set by an increase in research and development expenses. During the first quarter of 2009, the Company made a decision to shift some of its research and development to a technical partner in the U.S. The objective of this decision is both to improve our competitive position and to further improve operating results in future periods. Additionally, during the first quarter of 2008, the Company implemented a cost reduction plan to bring operations spending more closely in line with near-term market conditions.
Interest income decreased by approximately $81,000 for the three months ended March 31, 2009 as compared to the corresponding period of the previous year. This decrease was primarily due to a lower interest rates, and consequently lower returns, in a working capital management account.
For the three months ended March 31, 2009, other income decreased by approximately $87,000. This decrease was primarily due to lower non-operating income relating to foreign currency gains and losses.
For the three months ended March 31, 2009, the Company realized a net (loss) of
approximately $(286,000), or $(.01) per share basic and diluted, as compared to
a net (loss) of approximately $(529,000), or $(.02) per share basic and diluted
for the three months ended March 31, 2008. The explanation of the change in net
(loss) can be derived from the operations analysis given above for the
three-month periods ending March 31, 2009 and 2008, respectively.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's working capital has decreased by approximately $98,000 to approximately $24,696,000 at March 31, 2009, from approximately $24,794,000 at December 31, 2008. At March 31, 2009 the Company had a current ratio of 5.6 to 1, and a ratio of debt to tangible net worth of .4 to 1. At December 31, 2008, the Company had a current ratio of 4.6 to 1, and ratio of debt to tangible net worth of .4 to 1.
The Company had a combined cash and short-term investment balance of approximately $11,349,000 at March 31, 2009, compared to approximately $11,643,000 at December 31, 2008. The Company believes its current level of cash and short-term investments is sufficient enough to fund the current operating, investing and financing activities. The Company believes the full benefit of the cost actions taken over the past twelve months, along with additional productivity initiatives in process, will further reduce our cost structure and will bring expenses in-line with the near-term market dynamics.
The Company used cash for operating activities of approximately $137,000 for the three-month period ending March 31, 2009. The use of this cash for operations was primarily due to a decrease in accounts payable and accrued expenses, a decrease in income taxes payable and an increase in prepaid expenses and other current assets, partially off-set by, a decrease in accounts receivable and a decrease in inventory.
The Company has historically been able to collect its account receivables approximately every two months. This average collection period has been sufficient to provide the working capital and liquidity necessary to operate the Company. The Company continues to monitor production requirements and delivery times while maintaining manageable levels of goods on hand.
The Company realized cash from operating activities of approximately $246,000 for the three-month period ending March 31, 2008. The primary source of this cash was due to a decrease in inventory and a decrease in accounts receivable, partially offset by a decrease in accounts payable and accrued expenses and a decrease in income taxes payable.
Net cash provided by investing activities for the three months ended March 31, 2009 was approximately $2,951,000. The primary source of these funds was from the sale of short-term securities, off-set by capital expenditures. For the three months ended 2008, net cash used for investing activities was approximately $73,000. The use of these funds was for capital expenditures, off-set by proceeds from the dispositions of property, plant and equipment.
Cash used for financing activities for the three months ended March 31, 2009 was approximately $14,000. The use of these funds was for the periodic payment of a mortgage note. Cash used for financing activities for the three months ended March 31, 2008 was approximately $346,000. The use of these funds was for the acquisition of treasury stock and the periodic payment of a mortgage note.
On January 17, 2008, the Company's Board of Directors authorized the repurchase of up to 5% of the Company's common stock. The stock repurchase authorization does not have an expiration date and the timing and amount of shares will be determined by a number of factors including the levels of cash generation from operations, cash requirements for investments, and current share price. As of March 31, 2009, the Company has repurchased 295,958 shares at a cost of $477,885. The Company did not repurchase shares during the three months ended March 31, 2009. The stock repurchase program may be modified or discontinued at any time.
The Company believes that its financial resources from working capital provided by operations are adequate to meet its current needs. However, should current global economic conditions continue to deteriorate, additional working capital funding may be required which may be difficult to obtain due to restrictive credit markets.
INFLATION AND SEASONALITY
The Company does not anticipate that inflation will significantly impact its business or its results of operations nor does it believe that its business is seasonal.
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