10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2008
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o |
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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 000-27115
PCTEL, Inc.
(Exact Name of Business Issuer as Specified in Its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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77-0364943
(I.R.S. Employer
Identification Number) |
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471 Brighton Drive,
Bloomingdale, IL
(Address of Principal Executive Office)
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60108
(Zip Code) |
(630) 372-6800
(Registrants Telephone Number, Including Area Code)
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 þ No o
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date.
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Title |
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Outstanding |
Common Stock, par value $.001 per share
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18,236,973 as of November 7, 2008 |
PCTEL, Inc.
Form 10-Q
For the Quarterly Period Ended September 30, 2008
TABLE OF CONTENTS
2
PCTEL Inc.
Condensed Consolidated Balance Sheets
(unaudited, in thousands except per share amounts)
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September 30, |
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December 31, |
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2008 |
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2007 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
53,681 |
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$ |
26,632 |
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Short-term investment securities |
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13,969 |
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38,943 |
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Accounts receivable, net of allowance for doubtful
accounts of $154 and $227, respectively |
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15,181 |
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16,082 |
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Inventories, net |
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9,330 |
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9,867 |
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Deferred tax assets, net |
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988 |
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1,591 |
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Prepaid expenses and other assets |
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2,316 |
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1,800 |
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Assets held for sale |
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485 |
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Total current assets |
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95,950 |
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94,915 |
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PROPERTY AND EQUIPMENT, net |
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12,697 |
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12,136 |
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LONG-TERM INVESTMENT SECURITIES |
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12,662 |
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GOODWILL |
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17,119 |
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16,770 |
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OTHER INTANGIBLE ASSETS, net |
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5,758 |
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4,366 |
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DEFERRED TAX ASSETS, net |
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3,175 |
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4,863 |
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OTHER ASSETS |
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834 |
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1,022 |
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ASSETS OF DISCONTINUED OPERATIONS |
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1,807 |
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TOTAL ASSETS |
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$ |
148,195 |
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$ |
135,879 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
1,437 |
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$ |
956 |
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Accrued liabilities |
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5,220 |
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8,403 |
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Short term debt |
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107 |
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Total current liabilities |
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6,657 |
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9,466 |
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LONG-TERM LIABILITIES |
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1,035 |
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1,192 |
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LIABILITIES OF DISCONTINUED OPERATIONS |
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654 |
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Total liabilities |
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7,692 |
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11,312 |
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STOCKHOLDERS EQUITY: |
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Common stock, $0.001 par value, 100,000,000 shares
authorized, 18,750,588 and 21,916,902 shares issued and
outstanding at September 30, 2008 and December 31, 2007, respectively |
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19 |
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22 |
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Additional paid-in capital |
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142,439 |
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165,108 |
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Accumulated deficit |
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(1,986 |
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(40,640 |
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Accumulated other comprehensive income |
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31 |
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77 |
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Total stockholders equity |
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140,503 |
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124,567 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
148,195 |
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$ |
135,879 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
PCTEL, Inc.
Condensed Condensed Statements of Operations
(unaudited, in thousands, except per share information)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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CONTINUING OPERATIONS |
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REVENUES |
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$ |
20,087 |
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$ |
17,626 |
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$ |
58,661 |
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$ |
50,743 |
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COST OF REVENUES |
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10,527 |
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9,753 |
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30,627 |
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28,099 |
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GROSS PROFIT |
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9,560 |
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7,873 |
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28,034 |
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22,644 |
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OPERATING EXPENSES: |
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Research and development |
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2,591 |
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2,156 |
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7,387 |
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7,381 |
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Sales and marketing |
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2,543 |
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2,825 |
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8,180 |
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8,233 |
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General and administrative |
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2,619 |
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3,129 |
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8,372 |
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9,700 |
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Amortization of other intangible assets |
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552 |
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408 |
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1,544 |
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1,579 |
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Restructuring charges |
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(152 |
) |
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364 |
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1,922 |
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Impairment charge |
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882 |
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882 |
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Gain on sale of assets and related royalties |
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(200 |
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(250 |
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(600 |
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(750 |
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Total operating expenses |
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8,987 |
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8,116 |
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26,129 |
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28,065 |
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OPERATIONS |
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573 |
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(243 |
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1,905 |
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(5,421 |
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OTHER INCOME, NET |
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120 |
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820 |
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1,557 |
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2,620 |
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INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND DISCONTINUED OPERATIONS |
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693 |
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577 |
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3,462 |
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(2,801 |
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PROVISION (BENEFIT) FOR INCOME TAXES |
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(10,216 |
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34 |
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(8,451 |
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612 |
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NET INCOME (LOSS) FROM CONTINUING OPERATIONS |
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10,909 |
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543 |
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11,913 |
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(3,413 |
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DISCONTINUED OPERATIONS |
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NET INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAX PROVISION |
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157 |
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98 |
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37,035 |
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89 |
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NET INCOME (LOSS) |
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$ |
11,066 |
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$ |
641 |
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$ |
48,948 |
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$ |
(3,324 |
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Basic Earnings per Share: |
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Income (Loss) from Continuing Operations |
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$ |
0.60 |
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$ |
0.03 |
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$ |
0.61 |
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$ |
(0.16 |
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Income from Discontinued Operations |
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$ |
0.01 |
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$ |
0.00 |
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$ |
1.90 |
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$ |
0.00 |
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Net Income (Loss) |
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$ |
0.61 |
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$ |
0.03 |
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$ |
2.51 |
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$ |
(0.16 |
) |
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Diluted Earnings per Share: |
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Income (Loss) from Continuing Operations |
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$ |
0.58 |
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$ |
0.03 |
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$ |
0.60 |
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$ |
(0.16 |
) |
Income from Discontinued Operations |
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$ |
0.01 |
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$ |
0.00 |
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$ |
1.87 |
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$ |
0.00 |
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Net Income (Loss) |
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$ |
0.59 |
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$ |
0.03 |
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$ |
2.48 |
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$ |
(0.16 |
) |
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Weighted average shares Basic |
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18,164 |
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20,823 |
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19,525 |
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20,981 |
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Weighted average shares Diluted |
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18,709 |
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20,970 |
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19,761 |
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20,981 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
PCTEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Nine Months Ended |
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September 30, |
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2008 |
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2007 |
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Operating Activities: |
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Net Income (Loss) |
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$ |
48,948 |
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$ |
(3,324 |
) |
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: |
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Income from discontinued operations |
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(37,035 |
) |
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(89 |
) |
Depreciation and amortization |
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2,956 |
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|
2,881 |
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Impairment charge |
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|
882 |
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Amortization of stock based compensation |
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3,469 |
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|
3,157 |
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Loss from short-term investments |
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|
696 |
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Gain on sale of assets and related royalties |
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(600 |
) |
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(750 |
) |
Gain (loss) on disposal/sale of property and equipment |
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39 |
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(21 |
) |
Restructuring costs |
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(1,239 |
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1,623 |
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Payment of withholding tax on stock based compensation |
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(937 |
) |
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(889 |
) |
Changes in operating assets and liabilities, net of
acquisitions: |
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Accounts receivable |
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917 |
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(832 |
) |
Inventories |
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(248 |
) |
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(2,305 |
) |
Prepaid expenses and other assets |
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(314 |
) |
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67 |
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Accounts payable |
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|
467 |
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|
1,547 |
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Income taxes payable |
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(8 |
) |
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|
695 |
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Other accrued liabilities |
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(2,053 |
) |
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(2,128 |
) |
Deferred tax assets |
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2,291 |
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Deferred revenue |
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(30 |
) |
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(425 |
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Net cash provided by operating activities |
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18,201 |
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(793 |
) |
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Investing Activities: |
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Capital expenditures |
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(1,956 |
) |
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(2,181 |
) |
Proceeds from disposal of property and equipment |
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35 |
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|
29 |
|
Purchase of short-term investment |
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(12,739 |
) |
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(19,977 |
) |
Redemptions of short-term investments |
|
|
24,354 |
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|
31,600 |
|
Proceeds on sale of assets and related royalties |
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|
600 |
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|
750 |
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Purchase of assets/businesses |
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(3,930 |
) |
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Net cash provided by investing activities |
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|
6,364 |
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|
10,221 |
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Financing Activities: |
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Proceeds from issuance of common stock |
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2,239 |
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|
1,108 |
|
Payments for repurchase of common stock |
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(29,621 |
) |
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(5,504 |
) |
Tax benefit from stock option exercises |
|
|
1,979 |
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|
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|
Cash Dividend |
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|
(10,294 |
) |
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|
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Repayments of short-term borrowings |
|
|
(112 |
) |
|
|
154 |
|
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Net cash used in financing activities |
|
|
(35,809 |
) |
|
|
(4,242 |
) |
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|
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|
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Cash flows from discontinued operations: |
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|
|
|
|
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Net cash (used in) provided by operating activities |
|
|
(105 |
) |
|
|
1,706 |
|
Net cash provided by (used in) investing activities |
|
|
38,479 |
|
|
|
(328 |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
27,130 |
|
|
|
6,564 |
|
Effect of exchange rate changes on cash |
|
|
(81 |
) |
|
|
186 |
|
Cash and cash equivalents, beginning of year |
|
|
26,632 |
|
|
|
59,148 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period |
|
$ |
53,681 |
|
|
$ |
65,898 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
PCTEL, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended September 30, 2008
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three months and nine months ended September 30, 2008 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2008. For further
information, refer to the condensed consolidated financial statements and footnotes thereto included in the
companys annual report on Form 10-K for the year ended December 31, 2007.
Nature of Operations
During the three months and nine months ended September 30, 2008, the company operated in two
business segments: the Broadband Technology Group (BTG) and Licensing. In 2007, the company
operated in a third business segment, the Mobility Solution Group (MSG). On January 4, 2008, the
company completed the sale of the Mobility Solutions Group to Smith Micro, Inc. At December 31,
2007, the applicable assets and liabilities of MSG were recorded as assets of discontinued
operations. As required by GAAP, the condensed consolidated financial statements separately reflect the MSG
operations as discontinued operations for all periods presented. The company recorded the gain on
sale in discontinued operations in the quarter ended March 31, 2008. The company recorded the
operating results of MSG as discontinued operations for the three months and nine months ended
September 30, 2008 and 2007.
Basis of Consolidation and Foreign Currency Translation
The company uses the United States dollar as the functional currency for the financial statements.
The company uses the local currency as the functional currency for its subsidiaries in China
(Yuan), Ireland (Euro), United Kingdom (Pounds Sterling), Malaysia (Ringgit), and India (Rupee).
Assets and liabilities of these operations are translated to U.S. dollars at the exchange rate in
effect at the applicable balance sheet date, and revenues and expenses are translated using average
exchange rates prevailing during that period. Translation gains (losses) are recorded in
accumulated other comprehensive income as a component of stockholders equity. All gains and losses
resulting from other transactions originally in foreign currencies and then translated into U.S.
dollars are included in net income. Net foreign exchange gains (losses) resulting from foreign
currency transactions included in other income, net were ($134) and $84 for the three months and
nine months ended September 30, 2008, respectively. Net foreign exchange losses resulting from
foreign currency transactions included in other income, net were $76 and $179 for the three months
and nine months ended September 30, 2007, respectively.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current years
presentation of continuing and discontinued operations.
Recent Accounting Pronouncements
In April 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. FAS
142-3, Determination of the Useful Life of Intangible Assets (FSP No. FAS 142-3). FSP No. FAS
142-3 requires companies estimating the useful life of a recognized intangible asset to consider
their historical experience in renewing or extending similar arrangements or, in the absence of
historical experience, to consider assumptions that market participants would use about renewal or
extension. FSP No. FAS 142-3 will be effective for fiscal years beginning after December 15, 2008.
The company does not expect FSP No. FAS 142-3 to have a material impact on the consolidated
financial statements.
In May 2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 162, The
Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the preparation of
financial statements that are presented in conformity with generally accepted accounting
principles. SFAS No. 162 becomes effective 60 days following the SECs approval of the Public
Company Accounting Oversight
6
Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The company does not expect SFAS 162 to
have a material impact on the consolidated financial statements.
In May 2008, the FASB issued FASB Staff Position No. APB 14-1 (FSP No. APB 14-1), Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement). FSP No. APB 14-1 requires that issuers of convertible debt instruments that may be
settled in cash upon conversion separately account for the liability and equity components in a
manner that will reflect the entitys nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. FSP No. APB 14-1 will be effective for fiscal years beginning
after December 15, 2008. The company does not expect FSP No. APB 14-1 to have a material impact on
the consolidated financial statements.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 Share-Based Payment
(SAB 110). SAB 110 establishes the continued use of the simplified method for estimating the
expected term of equity based compensation. The simplified method was intended to be eliminated for
any equity based compensation arrangements granted after December 31, 2007. SAB 110 is being
published to help companies that may not have adequate exercise history to estimate expected terms
for future grants. The adoption of this pronouncement did not have a material impact on the
consolidated financial statements.
In December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations (FAS 141R).
FAS 141R establishes principles and requirements for how the acquirer in a business combination
recognizes and measures in its financial statements the fair value of identifiable assets acquired,
the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date.
FAS 141R determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. FAS No. 141R is effective
for fiscal years beginning after December 15, 2008. The company is currently evaluating the impact
of adopting FAS 141R on the consolidated results of operations and financial condition and plans to
adopt it as required in the first quarter of fiscal 2009.
In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements (FAS 160), an amendment of Accounting Research Bulletin No. 51, Consolidated
Financial Statements. FAS 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Minority
interests will be recharacterized as noncontrolling interests and will be reported as a component
of equity separate from the parents equity, and purchases or sales of equity interests that do not
result in a change in control will be accounted for as equity transactions. In addition, net income
attributable to the noncontrolling interest will be included in consolidated net income on the face
of the income statement and upon a loss of control, the interest sold, as well as any interest
retained, will be recorded at fair value with any gain or loss recognized in earnings. This
pronouncement is effective for fiscal years beginning after December 15, 2008. The company does not
expect FAS 160 to have a material impact on the consolidated financial statements.
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (FAS 159) which provides the option to report certain financial assets and
liabilities at fair value, with the intent to mitigate volatility in financial reporting that can
occur when related assets and liabilities are recorded on different bases. The company adopted
this statement effective January 1, 2008. The adoption of SFAS 159 did not have a material impact
on the consolidated financial statements.
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (FAS 157), which defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. FAS 157 does not require any new
fair value measurements, but provides guidance on how to measure fair value by providing a fair
value hierarchy used to classify the source of the information. The company adopted this statement
effective January 1, 2008. The adoption of FAS 157 did not have a material impact on the
consolidated financial statements.
Effective January 2007, the company adopted provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48). See Note 14 on Income Taxes for a discussion of FIN
48.
2. Cash and Cash Equivalents and Investments
At September 30, 2008, cash and cash equivalents included bank balances and investments with
original maturities less than 90 days. At September 30, 2008 and December 31, 2007, the companys
cash equivalents were invested in highly liquid AAA money market funds that are required to comply
with Rule 2a-7 of the Investment Company Act of 1940. Such funds utilize the amortized cost method
of accounting, seek to maintain a constant $1.00 per share price, and are redeemable upon demand.
The company restricts its investments in money market funds to those invested 100% in either short
term U.S. Government Agency securities or bank repurchase agreements collateralized by the these
same securities. The fair values of these money market funds are
established through quoted prices in active markets for identical assets (Level 1 inputs).
7
At September 30, 2008, the company owns shares with a recorded value of approximately $13.9 million
in a Bank of America affiliated fund, the Columbia Strategic Cash Portfolio (CSCP). The CSCP is
an enhanced cash money market fund that has been negatively impacted by the recent turmoil in the
credit markets. This investment is classified as available for sale and is carried at fair value.
In December 2007, the CSCP was closed to new subscriptions and redemptions, and changed its method
of valuing shares from the amortized cost method to the market value of the underlying securities
of the fund. The CSCPs manager is in the process of liquidating the fund and returning cash to the
shareholders. During the nine months ended September 30, 2008, the company received approximately
$24.4 million in share liquidation payments. In the nine months ended September 30, 2008, the
company incurred unrealized losses of $0.7 million in net asset value from the CSCP marking the
underlying assets of the fund to market. The loss in net asset value was recorded in the companys
income statement as a reduction of Other Income, Net. Starting in December 2007 through
September 30, 2008, the company has recorded cumulative losses on its CSCP investment of $1.2
million. At September 30, 2008, approximately $0.6 million of these losses have been realized
through share liquidation payments and approximately $0.6 million remains unrealized.
The CSCP fund manager provides a report of the CSCP fund share net asset value to shareholders on a
daily basis, a report of the CSCP underlying securities holdings on a monthly basis, and a report
of the liquidation status on a monthly basis. The CSCP fund shares are not tradable. In order to
determine the funds net asset value, the CSCP fund manager utilizes a combination of unadjusted
quoted prices in active markets for identical assets (Level 1 inputs), unadjusted quoted prices for
identical or similar assets in both active and inactive markets (Level 2 inputs), and unobservable
inputs for distressed assets (Level 3 inputs). They do not disclose the amount of net asset value
attributable to each level. The net asset value per fund share provided by the CSCP fund manager is
used by management as the basis for its determination of fair value of the CSCP fund shares. The
company classifies that input in its entirety at the lowest level of the inputs used by the CSCP
fund manager (Level 3). The companys pro-rata share of the underlying assets of the $13.9 million
investment in the fund at September 30, 2008 is approximately $0.9 million of cash and accrued
interest, $2.9 million of corporate financial institution debt, and $10.1 million of asset backed
securities primarily in the areas of residential mortgages, credit card debt, and auto loans. At
September 30, 2008, approximately 86% of the CSCP holdings were in cash, accrued interest and
securities with an S&P rating of A or better. Fourteen percent of the funds holdings are
comprised of securities with S&P ratings of BBB or lower, or were not rated.
At December 31, 2007, the company classified its entire investment in CSCP shares as short term
investments in securities, based on an estimate that the liquidation would be substantially
complete within 12 months, and reinforced by progress seen in the liquidation during the first
quarter 2008, prior to the issuance of the companys financial statements for the year then ended.
At the end of March 2008, the CSCP fund manager informed shareholders that further liquidation of
the underlying assets beyond that which would result from the weighted average lives of the
underlying securities is dependent upon the commercial paper market returning to historical levels
of liquidity. Based on the continued illiquidity of the commercial paper market, management
believes that the most accurate estimate of the CSCP liquidation schedule is found in the weighted
average lives of the CSCP funds underlying securities, adjusted for an allowance for the
historical accuracy of the weighted average lives. Based on that methodology, the company
classified $8.7 million of the CSCP investment as short-term investment securities and $5.2 million
as long-term investment securities at September 30, 2008. The weighted average lives of the CSCP
funds underlying assets indicates the liquidation will be substantially completed by the end of
2010.
During October 2008, the company received redemptions of $1.9 million from the CSCP. The net
asset value (NAV) of the CSCP also declined since the end of the quarter ended September 30, 2008.
As of November 7, 2008 in the change in the NAV represented a $0.5 million mark to market
adjustment to the companys investment balance. The value of the companys investment value in the
CSCP was $11.5 million at November 5, 2008. The company will adjust the CSCP investment balance to
the new NAV at December 31, 2008.
During 2008, the company invested $12.7 million in pre-refunded municipal bonds. The income and
principal from these pre-refunded municipal bonds is secured by an irrevocable trust of U.S
Treasury securities. Because of this enhanced security, pre-refunded municipal bonds generally
carry a rating of AAA. The company classified $7.4 million as long-term investment securities
because the original maturities were greater than one year. The municipal bonds are classified as
held to maturity and are carried at amortized cost.
8
Cash equivalents and investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Cash and cash equivalents |
|
$ |
53,681 |
|
|
$ |
26,632 |
|
|
Municipal bonds: |
|
|
|
|
|
|
|
|
Short-term |
|
|
5,297 |
|
|
|
|
|
Long-Term |
|
|
7,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
Short-term |
|
|
8,672 |
|
|
|
38,943 |
|
Long-term |
|
|
5,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
80,312 |
|
|
$ |
65,575 |
|
|
|
|
|
|
|
|
The fair value measurements of the financial assets at September 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted at Prices |
|
|
Signficant Other |
|
|
|
|
|
|
in Active Markets |
|
|
Unobservable |
|
|
|
|
|
|
for Identical Assets |
|
|
Inputs |
|
|
|
|
|
|
(Level 1) |
|
|
(Level 3) |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
53,681 |
|
|
$ |
|
|
|
$ |
53,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term |
|
|
5,297 |
|
|
|
|
|
|
|
5,297 |
|
Long-term |
|
|
7,441 |
|
|
|
|
|
|
|
7,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term |
|
|
|
|
|
|
8,672 |
|
|
|
8,672 |
|
Long-term |
|
|
|
|
|
|
5,221 |
|
|
|
5,221 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
66,419 |
|
|
$ |
13,893 |
|
|
$ |
80,312 |
|
|
|
|
|
|
|
|
|
|
|
The activity related to the assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) was as follows for the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term |
|
|
Long-term |
|
|
Total |
|
|
|
investment |
|
|
investment |
|
|
investment |
|
|
|
securities |
|
|
securities |
|
|
securities |
|
Balance at December 31, 2007 |
|
$ |
38,943 |
|
|
$ |
|
|
|
$ |
38,943 |
|
Redemptions |
|
|
(24,354 |
) |
|
|
|
|
|
|
(24,354 |
) |
Other than termporary impairments |
|
|
(696 |
) |
|
|
|
|
|
|
(696 |
) |
Reclassifications |
|
|
(5,221 |
) |
|
|
5,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008 |
|
$ |
8,672 |
|
|
$ |
5,221 |
|
|
$ |
13,893 |
|
|
|
|
|
|
|
|
|
|
|
3. Inventories
Inventories as of September 30, 2008 and December 31, 2007 were composed of raw materials, sub
assemblies, finished goods and work-in-process. Sub assemblies are included within raw materials.
9
Inventories consist of the following at September 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Raw materials |
|
$ |
6,850 |
|
|
$ |
7,691 |
|
Work in process |
|
|
501 |
|
|
|
527 |
|
Finished goods |
|
|
1,979 |
|
|
|
1,649 |
|
|
|
|
|
|
|
|
Inventories, net |
|
$ |
9,330 |
|
|
$ |
9,867 |
|
|
|
|
|
|
|
|
4. Property and Equipment
Property and equipment consists of the following at September 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Building |
|
$ |
6,181 |
|
|
$ |
6,050 |
|
Land |
|
|
1,770 |
|
|
|
1,770 |
|
Computer and office equipment |
|
|
3,600 |
|
|
|
3,412 |
|
Manufacturing equipment |
|
|
6,194 |
|
|
|
4,818 |
|
Furniture and fixtures |
|
|
1,156 |
|
|
|
1,037 |
|
Leasehold improvements |
|
|
165 |
|
|
|
119 |
|
Motor vehicles |
|
|
27 |
|
|
|
27 |
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
19,093 |
|
|
|
17,233 |
|
Less: Accumulated depreciation and amortization |
|
|
(6,396 |
) |
|
|
(5,097 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
12,697 |
|
|
$ |
12,136 |
|
|
|
|
|
|
|
|
5. Accrued Liabilities
Accrued liabilities consist of the following at September 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Accrued inventory receipts |
|
$ |
2,038 |
|
|
$ |
2,631 |
|
Accrued payroll, bonuses, and other
employee benefits |
|
|
1,065 |
|
|
|
1,235 |
|
Accrued paid time off |
|
|
720 |
|
|
|
927 |
|
Accrued professional fees |
|
|
400 |
|
|
|
1,102 |
|
Accrued employee stock purchase plan |
|
|
82 |
|
|
|
265 |
|
Restructuring liability |
|
|
|
|
|
|
1,239 |
|
Other accrued liabilities |
|
|
915 |
|
|
|
1,004 |
|
|
|
|
|
|
|
|
Total |
|
$ |
5,220 |
|
|
$ |
8,403 |
|
|
|
|
|
|
|
|
6. Disposal of Mobility Solutions Group
On January 4, 2008, the company completed the sale of its MSG business to Smith Micro Software,
Inc. (Smith Micro) in accordance with an Asset Purchase Agreement (the Smith Micro APA) entered
into between the two companies and publicly announced on December 10, 2007. Under the terms of the
Smith Micro APA, Smith Micro purchased substantially all of the assets of the Mobility Solutions
Group for total consideration of $59.7 million in cash. In the transaction, PCTEL retained the
accounts receivable, non customer-related accrued expenses and accounts payable of the division.
Substantially all of the employees of MSG continued as employees of Smith Micro in connection with
the completion of the acquisition.
The results of operations of MSG have been classified as discontinued operations for the three
months and nine months ended September 30, 2008 and 2007. The assets and liabilities that were
sold with MSG are classified as assets and liabilities of
10
discontinued operations in the balance
sheet at December 31, 2007. The company recognized a gain on sale before tax of $60.3 million in
January 2008.
Summary results of operations for the discontinued operations included in the condensed
consolidated statement of operations for the three months and nine months ended September 30, 2008
and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenues |
|
$ |
|
|
|
$ |
2,692 |
|
|
$ |
122 |
|
|
$ |
7,489 |
|
Operating costs and expenses |
|
|
|
|
|
|
(2,369 |
) |
|
|
(400 |
) |
|
|
(7,195 |
) |
Restructuring expenses |
|
|
(5 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
Gain on disposal |
|
|
|
|
|
|
|
|
|
|
60,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, before
taxes |
|
|
(5 |
) |
|
|
323 |
|
|
|
60,039 |
|
|
|
294 |
|
Provision (benefit) for income tax |
|
|
(162 |
) |
|
|
225 |
|
|
|
23,004 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
|
$ |
157 |
|
|
$ |
98 |
|
|
$ |
37,035 |
|
|
$ |
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
|
$ |
0.00 |
|
|
$ |
1.90 |
|
|
$ |
0.00 |
|
Diluted |
|
$ |
0.01 |
|
|
$ |
0.00 |
|
|
$ |
1.87 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic earnings per share |
|
|
18,164 |
|
|
|
20,823 |
|
|
|
19,525 |
|
|
|
20,981 |
|
Shares used in computing diluted earnings per share |
|
|
18,709 |
|
|
|
20,970 |
|
|
|
19,761 |
|
|
|
20,981 |
|
Assets and liabilities classified as discontinued operations held for sale on the condensed
consolidated balance sheets as of September 30, 2008 and December 31, 2007 include the following:
|
|
|
|
|
|
|
|
|
|
|
September |
|
|
December |
|
|
|
30, 2008 |
|
|
31, 2007 |
|
Prepaid expenses |
|
$ |
|
|
|
$ |
53 |
|
|
Fixed assets |
|
|
|
|
|
|
807 |
|
Goodwill |
|
|
|
|
|
|
871 |
|
Other assets |
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
1,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rent current |
|
$ |
|
|
|
$ |
49 |
|
Deferred revenue |
|
|
|
|
|
|
378 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
427 |
|
|
|
|
|
|
|
|
|
|
Deferred rent long-term |
|
|
|
|
|
|
227 |
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
654 |
|
|
|
|
|
|
|
|
7. Acquisition of Bluewave
On March 14, 2008 the company entered into and closed an Asset Purchase Agreement (the Bluewave
APA) with Bluewave Antenna Systems, Ltd. (Bluewave), a privately owned Canadian company. Under
terms of the Bluewave APA, the company purchased, on a debt free basis, all of the intellectual
property, selected manufacturing fixed assets, and all customer relationships related to Bluewaves
antenna product lines. The total consideration was $3.9 million in cash. The only liability PCTEL
assumed was for product warranty, which has been historically immaterial. The Bluewave antenna
product line augments the companys Land Mobile Radio (LMR). Nearly all of Bluewaves current
revenue is from North America, with 25 percent coming from Canadian customers.
11
The parties also concurrently entered into a Transition Services Agreement (TSA). The TSA
provided for Bluewave to supply antenna inventory while the company ramped up its own contract
manufacturing and final assembly capacity in its Bloomingdale, Illinois factory. The TSA was
completed in June 2008. The revenues and expenses for Bluewave are included in the companys
financial results for the three months and nine months ended September 30, 2008 from the
acquisition date forward.
The purchase price of $3.9 million for the assets of Bluewave was allocated $3.3 million to
intangible assets and $0.1 million to fixed assets. The $0.5 million excess of the purchase price
over the fair value of the net tangible and intangible assets was allocated to goodwill. The
intangible assets have a weighted average amortization period of 6 years.
The following is the allocation of the purchase price for Bluewave:
|
|
|
|
|
Fixed Assets: |
|
|
|
|
Computer software |
|
$ |
46 |
|
Tooling |
|
|
60 |
|
|
|
|
|
Total |
|
$ |
106 |
|
|
|
|
|
|
|
|
|
|
Intangible Assets: |
|
|
|
|
Core technology |
|
$ |
290 |
|
Customer relationships |
|
|
2,850 |
|
Trade name |
|
|
160 |
|
Backlog |
|
|
8 |
|
Goodwill |
|
|
518 |
|
|
|
|
|
Total |
|
$ |
3,826 |
|
|
|
|
|
Total Assets Acquired |
|
$ |
3,932 |
|
|
|
|
|
8. Earnings per Share
The following tables set forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Basic Earnings Per Share computation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
11,066 |
|
|
$ |
641 |
|
|
$ |
48,948 |
|
|
$ |
(3,324 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
18,164 |
|
|
|
20,823 |
|
|
|
19,525 |
|
|
|
20,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share |
|
$ |
0.61 |
|
|
$ |
0.03 |
|
|
$ |
2.51 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share computation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
18,164 |
|
|
|
20,823 |
|
|
|
19,525 |
|
|
|
20,981 |
|
Restricted shares subject to vesting |
|
|
339 |
|
|
|
87 |
|
|
|
141 |
|
|
|
* |
|
Employee common stock option grants |
|
|
206 |
|
|
|
60 |
|
|
|
95 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares |
|
|
18,709 |
|
|
|
20,970 |
|
|
|
19,761 |
|
|
|
20,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share |
|
$ |
0.59 |
|
|
$ |
0.03 |
|
|
$ |
2.48 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents consist of stock options and restricted shares using the treasury stock
method. Common stock options and restricted shares are excluded from the computation of diluted
earnings per share if their effect is anti-dilutive. As denoted by * in the table above, the
weighted average common stock option grants and restricted shares excluded from the calculations of
12
diluted net loss per share were 655,000 for the nine months ended September 30, 2007.
9. Stock-Based Compensation
Total stock compensation expense for the three months ended September 30, 2008 was $0.9 million for
continuing operations in the condensed consolidated statement of operations, which included $0.8
million of restricted stock amortization and $0.1 million for stock option and employee stock
purchase plan expenses. Total stock compensation expense for the nine months ended September 30,
2008 was $3.5 million for continuing operations in the condensed consolidated statement of
operations, which included $2.4 million of restricted stock amortization, $0.6 million for stock
bonuses, and $0.5 million for stock option and stock purchase plan expenses.
Total stock compensation expense for the three months ended September 30, 2007 was $1.0 million for
continuing operations, which included $0.7 million for restricted stock amortization, $0.2 million
for stock option expense and $0.1 million for stock bonuses. Total stock compensation expense for
the nine months ended September 30, 2007 was $3.2 million for continuing operations, which included
$2.1 million for restricted stock amortization, $0.3 million for stock bonuses and $0.8 million for
stock option and employee stock purchase plan expense.
The company recorded stock compensation related to discontinued operations of $0 and $0.2 million
in the three months ended September 30, 2008 and 2007, respectively. The company recorded $0.2
million and $0.6 million in the nine months ended September 30, 2008 and 2007, respectively.
Stock Options
The fair value of each unvested option was estimated on the date of grant using the Black-Scholes
option valuation model with the following assumptions during the nine months ended September 30,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
September |
|
September |
|
|
2008 |
|
2007 |
Weighted average fair value of options granted |
|
$ |
1.97 |
|
|
$ |
2.99 |
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
None |
|
None |
Risk-free interest rate |
|
|
2.7 |
% |
|
|
4.8 |
% |
Expected volatility |
|
|
40 |
% |
|
|
45 |
% |
Expected life (in years) |
|
|
2.4 |
|
|
|
2.5 |
|
The company uses a dividend yield of None in the valuation model for stock options. The company
has paid only one cash dividend in its history which was paid in May 2008. This special dividend
was a partial distribution of the proceeds received from the sale of MSG. The company does not
anticipate the payment of regular dividends in the future.
The company issued 1,800 and 127,500 stock option grants for the three and nine months ended
September 30, 2008, respectively. The company issued 26,000 and 247,910 stock option grants for
the three and nine months ended September 30, 2007, respectively.
The company received $3.2 million in proceeds from the exercise of 437,009 options and received
$3.8 million in proceeds from the exercise of 510,573 options during the three and nine months
ended September 30, 2008, respectively. The company received $14 in proceeds from the exercise of
1,838 options and received $0.5 million in proceeds from the exercise of 67,895 options during the
three and nine months ended September 30, 2007, respectively.
During the three months and nine months ended September 30, 2008, respectively, 21,695 and
1,058,124 stock options were either forfeited or cancelled. Of the options forfeited and canceled
in the nine months ended September 30, 2008, 597,100 related to MSG employees. As of September 30,
2008, the unrecognized compensation expense related to the unvested portion of the companys stock
options was approximately $0.4 million, net of estimated forfeitures to be recognized through 2012
over a weighted average period of 1.3 years.
13
A summary of the companys stock option activity and related information follows for the nine
months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Options |
|
|
Exercise |
|
|
|
Outstanding |
|
|
Price |
|
Outstanding at December 31, 2007 |
|
|
3,824,912 |
|
|
$ |
9.64 |
|
Granted |
|
|
127,500 |
|
|
|
7.28 |
|
Exercised |
|
|
(510,573 |
) |
|
|
7.37 |
|
Expired |
|
|
(910,730 |
) |
|
|
10.27 |
|
Forfeited |
|
|
(147,394 |
) |
|
|
9.21 |
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008 |
|
|
2,383,715 |
|
|
$ |
9.79 |
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2008 |
|
|
2,038,508 |
|
|
$ |
10.02 |
|
The intrinsic value and contractual life of the options outstanding and exercisable at September
30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Intrinsic |
|
|
Contractual Life |
|
Value |
Options Outstanding |
|
|
5.79 |
|
|
$ |
1,362 |
|
Options Exercisable |
|
|
5.35 |
|
|
$ |
1,007 |
|
The intrinsic value is based on the share price of $9.32 at September 30, 2008.
The intrinsic value of stock options exercised was as follows for the nine months ended September
30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Intrinsic value stock options |
|
$ |
1,378 |
|
|
$ |
189 |
|
The following table summarizes information about stock options outstanding under all stock plans at
September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
|
|
|
Weighted |
|
|
|
Range of |
|
|
Number |
|
|
Remaining |
|
|
Average |
|
|
Number |
|
|
Average |
|
|
|
Exercise Prices |
|
|
Outstanding |
|
|
Contractual Life |
|
|
Exercise Price |
|
|
Exercisable |
|
|
Exercise Price |
|
|
|
$ |
6.16 |
|
|
|
|
|
|
$ |
7.30 |
|
|
|
248,365 |
|
|
|
6.47 |
|
|
$ |
6.97 |
|
|
|
139,680 |
|
|
$ |
7.16 |
|
|
|
|
7.40 |
|
|
|
|
|
|
|
7.93 |
|
|
|
248,474 |
|
|
|
5.21 |
|
|
|
7.68 |
|
|
|
236,186 |
|
|
|
7.69 |
|
|
|
|
7.95 |
|
|
|
|
|
|
|
8.62 |
|
|
|
242,047 |
|
|
|
5.15 |
|
|
|
8.24 |
|
|
|
203,446 |
|
|
|
8.19 |
|
|
|
|
8.63 |
|
|
|
|
|
|
|
9.16 |
|
|
|
361,940 |
|
|
|
6.57 |
|
|
|
9.03 |
|
|
|
270,360 |
|
|
|
9.00 |
|
|
|
|
9.17 |
|
|
|
|
|
|
|
10.25 |
|
|
|
304,375 |
|
|
|
6.50 |
|
|
|
9.80 |
|
|
|
228,434 |
|
|
|
9.84 |
|
|
|
|
10.46 |
|
|
|
|
|
|
|
10.70 |
|
|
|
257,206 |
|
|
|
5.55 |
|
|
|
10.68 |
|
|
|
254,927 |
|
|
|
10.68 |
|
|
|
|
10.72 |
|
|
|
|
|
|
|
11.55 |
|
|
|
244,808 |
|
|
|
5.56 |
|
|
|
11.14 |
|
|
|
228,975 |
|
|
|
11.15 |
|
|
|
|
11.60 |
|
|
|
|
|
|
|
11.84 |
|
|
|
435,600 |
|
|
|
5.35 |
|
|
|
11.74 |
|
|
|
435,600 |
|
|
|
11.74 |
|
|
|
|
12.16 |
|
|
|
|
|
|
|
13.30 |
|
|
|
33,400 |
|
|
|
4.88 |
|
|
|
12.82 |
|
|
|
33,400 |
|
|
|
12.82 |
|
|
|
|
59.00 |
|
|
|
|
|
|
|
59.00 |
|
|
|
7,500 |
|
|
|
1.34 |
|
|
|
59.00 |
|
|
|
7,500 |
|
|
|
59.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.16 |
|
|
|
|
|
|
$ |
59.00 |
|
|
|
2,383,715 |
|
|
|
5.79 |
|
|
$ |
9.79 |
|
|
|
2,038,508 |
|
|
$ |
10.02 |
|
14
Employee Stock Purchase Plan (ESPP)
Eligible employees are able to purchase common stock at the lower of 85% of the fair market value
of the common stock on the first or last day of each offering period under the companys Employee
Stock Purchase Plan (ESPP). Each offering period is six months. The company received proceeds
of $0.3 million from the issuance of 32,568 shares under the ESPP in August 2008 and received
proceeds of $0.2 million from the issuance of 36,834 shares under the ESPP in February 2008.
Based on the 15% discount and the fair value of the option feature of this plan, this plan is
considered compensatory under SFAS No. 123(R), Share Based Payments. Compensation expense is
calculated using the fair value of the employees purchase rights under the Black-Scholes model.
The key assumptions used in the valuation model during the nine months ended September 30, 2008 and
2007 are provided below:
|
|
|
|
|
|
|
|
|
|
|
September |
|
September |
|
|
2008 |
|
2007 |
Dividend yield |
|
None |
|
None |
Risk-free interest rate |
|
|
3.0 |
% |
|
|
4.7 |
% |
Expected volatility |
|
|
40 |
% |
|
|
48 |
% |
Expected life (in years) |
|
|
0.5 |
|
|
|
0.5 |
|
The company uses a dividend yield of None in the valuation model for shares related to the ESPP.
The company has paid only one cash dividend in its history which was paid in May 2008. This
special dividend was a partial distribution of the proceeds received from the sale of MSG. The
company does not anticipate the payment of regular dividends in the future.
Restricted Stock service based
Service based restricted stock is amortized ratably over the vesting period of the applicable
shares. These shares typically vest over annual service periods. The shares granted in the nine
months ended September 30, 2008 vest annually over four years.
The company issued 2,200 and 316,482 restricted awards in the three months and nine months ended
September 30, 2008, respectively. The company issued 5,000 and 517,852 restricted stock awards in
the three months and nine months ended September 30, 2007, respectively.
During the three and nine months ended September 30, 2008, respectively, 65,250 and 317,845
restricted shares vested. During the three and nine months ended September 30, 2007,
respectively, 56,150 and 233,915 restricted shares vested. At September 30, 2008, total
unrecognized compensation expense related to restricted stock was approximately $5.0 million, net
of forfeitures to be recognized through 2012 over a weighted average period of 1.7 years.
A summary of the companys service based restricted stock activity follows for the nine months
ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Balance at December 31, 2007 |
|
|
1,148,875 |
|
|
$ |
9.19 |
|
Restricted stock awards |
|
|
316,482 |
|
|
|
6.82 |
|
Restricted shares vested |
|
|
(317,845 |
) |
|
|
7.16 |
|
Restricted shares cancelled |
|
|
(215,288 |
) |
|
|
9.10 |
|
|
|
|
|
|
|
|
Balance at September 30, 2008 |
|
|
932,224 |
|
|
$ |
8.27 |
|
The intrinsic value of vested service based restricted stock was as follows for the nine months
ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Intrinsic value service based restricted shares |
|
$ |
2,277 |
|
|
$ |
2,133 |
|
15
Performance Shares
The company grants performance based restricted stock rights to certain executive officers. These
shares vest upon achievement of defined performance goals such as revenue and earnings. The
performance based restricted stock is amortized based on the estimated achievement of the
performance goals.
A summary of the companys performance stock activity and related information follows for the nine
months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Balance at December 31, 2007 |
|
|
87,000 |
|
|
$ |
10.42 |
|
Restricted stock awards |
|
|
25,000 |
|
|
|
6.75 |
|
Restricted shares vested |
|
|
(5,330 |
) |
|
|
6.18 |
|
Restricted shares cancelled |
|
|
(10,326 |
) |
|
|
10.42 |
|
|
|
|
|
|
|
|
Balance at September 30, 2008 |
|
|
96,344 |
|
|
$ |
9.47 |
|
The intrinsic value of vested performance based restricted stock was as follows for the nine months
ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Intrinsic value performance shares |
|
$ |
33 |
|
|
$ |
|
|
Short Term Incentive Plan
Bonuses related to the companys annual Short Term Incentive Plan are paid in the companys common
stock to executives and in cash to non-executives. The shares earned under the plan are issued in
the first quarter following the end of the fiscal year. In February 2008, the company issued
82,001 shares, net of shares withheld for payment of withholding tax, for the 2007 Short Term
Incentive Plan. In February 2007, the company issued 42,923 shares, net of shares withheld for
payment of withholding tax, for the 2006 Short Term Incentive plan
Employee Withholding Taxes on Stock Awards
For ease in administering the issuance of stock awards, the company holds back shares of vested
restricted stock awards and short-term incentive plan stock awards for the value of the statutory
withholding taxes. During both the nine months ended September 30, 2008 and 2007, the company paid
$0.9 million for withholding taxes related to stock awards.
Stock Repurchases
In August 2008, our Board of Directors authorized the repurchase of 1,000,000 shares of the
companys common stock, and in September 2008, the company repurchased 503,446 shares under this
program at an average price of $9.92.
During the nine months ended September 30, 2008, the company repurchased 3,526,062 shares at an
average price of $8.40 under share repurchase programs that were authorized in 2007 and 2008. The
company used $29.6 million during the nine months ended September 30, 2008 for open market
repurchases of company stock. As of September 30, 2008, the company was authorized to repurchase
496,554 shares under the existing share repurchase program. The company repurchased the remaining
496,554 shares in October 2008 at an average price of $9.14.
The company repurchased 517,300 shares at an average price of $7.84 during the three months ended
September 30, 2007, and the company repurchased 663,384 shares at an average price of $8.30 during
the nine months ended September 30, 2007.
16
10. Comprehensive Income
The following table provides the calculation of other comprehensive income (loss) for the three
months and nine months ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net Income (loss) from continuing operations |
|
$ |
10,909 |
|
|
$ |
543 |
|
|
$ |
11,913 |
|
|
$ |
(3,413 |
) |
Foreign currency translation adjustments |
|
|
(24 |
) |
|
|
29 |
|
|
|
(46 |
) |
|
|
92 |
|
Realized loss on investments |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Realized foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) from continuing operations |
|
|
10,871 |
|
|
|
572 |
|
|
|
11,867 |
|
|
|
(5,138 |
) |
Income from discontinued operations, net of tax |
|
|
157 |
|
|
|
98 |
|
|
|
37,035 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
11,028 |
|
|
$ |
670 |
|
|
$ |
48,902 |
|
|
$ |
(5,049 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Restructuring
UMTS Restructuring
In 2007, the company exited its operations related to its Universal Mobile Telecommunications
System (UMTS) antenna product line. The company closed its research and development facility in
Dublin, Ireland as well as a related engineering satellite office in the United Kingdom, and
discontinued the UMTS portion of its contract manufacturing, which was located in St. Petersburg,
Russia.
The company recorded a $0.2 million credit for restructuring in the three months ended September
30, 2007 and recorded $2.0 million of restructuring costs in the nine months ended September 30,
2007 related to the exit of its UMTS antenna product line. The company recorded $0.1 million of
restructuring expense in the nine months ended September 30, 2008 to adjust the UMTS restructuring
reserve. The company paid $1.3 million for manufacturing obligations during the nine months ended
September 30, 2008.
The following table summarizes the UMTS restructuring activity during 2008 and the status of the
reserves at September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual |
|
|
|
Balance at |
|
|
|
|
|
|
Cash |
|
|
Non-cash |
|
|
Balance at |
|
|
|
December |
|
|
Restructuring |
|
|
Payments/ |
|
|
Settlements/ |
|
|
September |
|
|
|
2007 |
|
|
Expense |
|
|
Receipts |
|
|
Adjustments |
|
|
2008 |
|
Manufacturing
obligations, net |
|
$ |
1,239 |
|
|
$ |
52 |
|
|
$ |
(1,343 |
) |
|
$ |
52 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,239 |
|
|
$ |
52 |
|
|
$ |
(1,343 |
) |
|
$ |
52 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Overhead
In the three and nine months ended September 30, 2008, the company incurred restructuring expense
of $0 and $0.3 million, respectively for employee severance costs related to the companys plan to
reduce corporate overhead.
17
12. Short Term Debt
Short-term borrowings were as follows at September 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2008 |
|
2007 |
Line of Credit |
|
$ |
|
|
|
$ |
107 |
|
The borrowings for the companys Chinese subsidiary were denominated in Chinese Yuan and the
weighted average interest rate on these borrowings was 7.2% in 2008 until the loan was repaid in
April 2008, and 7.0% during the nine months ended September 30, 2007. The company repaid the loan
at the companys Tianjin, China subsidiary from working capital.
13. Commitments and Contingencies
Warranties and Sales Returns
The company allows its major distributors and certain other customers to return unused product
under specified terms and conditions. In accordance with SFAS No. 48, Revenue Recognition When
Right of Return Exists, the company accrues for product returns at the time of original sale based
on historical sales and return trends. The companys allowance for sales returns was $240 and $216
at September 30, 2008 and December 31, 2007, respectively.
The company offers repair and replacement warranties of primarily two years for antennas products
and one year for scanners and receivers. The companys warranty reserve is based on historical
sales and costs of repair and replacement trends. The company reports warranty reserves as a
current liability included in accrued liabilities. The warranty reserve was $195 and $193 at
September 30, 2008 and December 31, 2007, respectively.
14. Income Taxes
For the nine months ended September 30, 2008, the company recorded a net income tax benefit of $8.5
million for continuing operations. The net tax benefit of $8.5 million includes continuing income
tax expense of $1.9 million offset by a $10.4 million tax benefit related to the reversal of
allowances on the companys deferred tax assets. The continuing income tax expense differs from
the statutory rate of 35% because of permanent tax differences.
The company reversed $10.4 million of its $11.0 million allowance on its deferred tax assets
because it expects to realize approximately $7.3 million of deferred tax assets through tax
deductions for intangible assets related to the complete disposition of the assets acquired from
Sigma Wireless Technologies Ltd. (Sigma) in July 2005. See footnote 18 for the discussion of the
disposition of the assets from the Sigma acquisition. The company reversed additional allowances on
its deferred tax assets of $5.0 million because it is more likely than not that the company will
realize its deferred tax assets based on the companys projections of future income. During the
three months ended December 31, 2007, the company released valuation allowances of $7.9 million
because the company generated taxable income in January 2008 from the gain on the sale of MSG.
The company recorded tax expense of $0.6 million for continuing operations for the nine months
ended September 30, 2007. The tax rate of -22% differs from the statutory rate of 35% because the
company provided valuation allowances on its deferred tax assets.
At September 30, 2008, the company had allowances on its deferred tax assets related to state tax
credits of $0.6 million. Significant management judgment is required to assess the likelihood that
the companys deferred tax assets will be recovered from future taxable income.
During the nine months ended September 30, 2008, the company recognized $2.0 million of tax
benefits in additional paid in capital related to equity compensation benefits.
The company adopted the provisions of FIN 48 on January 1, 2007. FIN 48 prescribes the recognition
threshold and measurement attribute for the financial statement recognition and measurement of
uncertain tax positions taken or expected to be taken in a tax return. Upon adoption, the company
decreased deferred tax assets and the associated valuation allowances by $0.9 million. There was
no net balance sheet impact as a result of adoption of FIN 48.
18
The company files a consolidated federal income tax return, income tax returns with various states,
and foreign income tax returns in various foreign jurisdictions. The companys federal and state
income tax years, with limited exceptions, are closed through 2001. The company does not believe
that any of its tax positions will significantly change within the next twelve months. Future
changes in the unrecognized tax benefit will have no impact on the effective tax rate due to the
existence of the valuation allowance.
The company classifies interest and penalties associated with the uncertain tax positions as a
component of income tax expense. There were no interest or penalties related to income taxes
recorded in the condensed consolidated financial statements.
15. Industry Segment, Customer and Geographic Information
The company operates in two business segments: BTG and Licensing. In January 2008, the company
sold MSG to Smith Micro. The segment, customer, and geographic information for the three months
and nine months ended September 30, 2007 has been restated to reflect the companys
current segment reporting structure as MSG was reported as a separate segment in the Form 10-Q for
the three months and nine months ended September 30, 2007. Intercompany sales and
profits are eliminated.
PCTELs chief operating decision maker, its chief executive officer, uses only the below measures
in deciding how to allocate resources and assess performance among the segments.
The results of operations by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BTG |
|
LICENSING |
|
TOTAL |
Three months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
20,015 |
|
|
$ |
72 |
|
|
$ |
20,087 |
|
Gross Profit |
|
|
9,489 |
|
|
|
71 |
|
|
|
9,560 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
8,987 |
|
Operating Income |
|
|
|
|
|
|
|
|
|
$ |
573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BTG |
|
LICENSING |
|
TOTAL |
Three months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
17,455 |
|
|
$ |
171 |
|
|
$ |
17,626 |
|
Gross Profit |
|
|
7,708 |
|
|
|
165 |
|
|
|
7,873 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
8,116 |
|
Operating Loss |
|
|
|
|
|
|
|
|
|
$ |
(243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BTG |
|
LICENSING |
|
TOTAL |
Nine months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
58,448 |
|
|
$ |
213 |
|
|
$ |
58,661 |
|
Gross Profit |
|
|
27,826 |
|
|
|
208 |
|
|
|
28,034 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
26,129 |
|
Operating Income |
|
|
|
|
|
|
|
|
|
$ |
1,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BTG |
|
LICENSING |
|
TOTAL |
Nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
49,972 |
|
|
$ |
771 |
|
|
$ |
50,743 |
|
Gross Profit |
|
|
21,887 |
|
|
|
757 |
|
|
|
22,644 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
28,065 |
|
Operating Loss |
|
|
|
|
|
|
|
|
|
$ |
(5,421 |
) |
19
The companys revenues to customers outside of the United States, as a percent of total revenues
for the three months and nine months ended September 30, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
Region |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Europe |
|
|
23 |
% |
|
|
20 |
% |
|
|
29 |
% |
|
|
21 |
% |
Asia Pacific |
|
|
12 |
% |
|
|
8 |
% |
|
|
7 |
% |
|
|
7 |
% |
Other Americas |
|
|
9 |
% |
|
|
5 |
% |
|
|
8 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
% |
|
|
33 |
% |
|
|
44 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from the companys major customers representing 10% or more of total revenues for the three
months and nine months ended September 30, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
Customer |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Ericsson Tems AB |
|
|
13 |
% |
|
|
8 |
% |
|
|
16 |
% |
|
|
7 |
% |
16. Benefit Plans
401(k) Plan
The 401(k) plan covers all of the domestic employees beginning the first of the month following the
month they begin their employment. Under this plan, employees may elect to contribute up to 15% of
their current compensation to the 401(k) plan up to the statutorily prescribed annual limit. The company may make discretionary contributions to the
401(k) plan. The company made employer contributions of $137 and $407 to the 401(k) plan for the
three months and nine months ended September 30, 2008, respectively. The company made employer
contributions of $163 and $505 to the 401(k) plan for the three months and nine months ended
September 30, 2007, respectively.
Foreign Employee Benefit Plans
The company contributes to various retirement plans for foreign employees. The company made
contributions of approximately $25 and $65 to these plans for the three months and nine months
ended September 30, 2008, respectively. The company made contributions of approximately $3 and $39
to these plans for the three months and nine months ended September 30, 2007, respectively.
Executive Deferred Compensation Plan
The company provides an Executive Deferred Compensation Plan for executive officers and senior
managers. Under this plan, the executives may defer up to 50% of salary and 100% of cash bonuses
with a minimum of $1,500. In addition, the company provides a 4% matching cash contribution which
vests over three years subject to the executives continued service. The executive has a choice of
investment alternatives from a menu of mutual funds. The plan is administered by the Compensation
Committee and an outside party tracks investments and provides the executives with quarterly
statements showing relevant contribution and investment data. Upon termination of employment,
death, disability or retirement, the executive will receive the value of their account in
accordance with the provisions of the plan. Upon retirement, the executive may request to receive
either a lump sum payment, or payments in annual installments either over 15 years or over the
lifetime of the participant with 20 annual payments guaranteed. The companys deferred
compensation obligation was $0.8 million and $1.0 million, which are included in Other Long-Term
Accrued Liabilities at September 30, 2008 and December 31, 2007, respectively. The company funds
the obligation related to the Executive Deferred Compensation Plan with corporate-owned life
insurance policies. The cash surrender value of such policies is included in Other Assets.
17. Dividends
On May 30, 2008, the company paid a special cash dividend of $0.50 per share to shareholders of
record as of May 15, 2008. The total amount paid to shareholders was $10.3 million. The dividend
was a partial distribution of the proceeds received from the sale of MSG. The company does not
anticipate the payment of regular dividends in the future.
20
18. Impairment Charge
On August 14, 2008, the company entered into an asset purchase agreement for the sale of certain
antenna products and related assets to Sigma Wireless Technology Ltd., a Scotland-based company
(SWTS). SWTS purchased the intellectual property, dedicated inventory, and certain fixed assets
related to four antenna product families in the BTG segment for $650,000, payable in installments
at close and over a period of 18 months. The sale transaction closed on October 9, 2008.
At September 30, 2008, the company accounted for this transaction as an impairment charge,
separately within operating expenses in the financial statements. At September 30, 2008, the
long-lived assets sold to SWTS in October 2008 were subject to impairment under FAS 144 and the
goodwill was subject to impairment under FAS 142. The company recorded a net charge of $0.9
million which included the impairment charges for the assets sold to SWTS and the incentive
payments due the new employees of SWTS, offset by the proceeds due to the company.
The major components of the net impairment charge consisted of the net book value of inventory for
$0.8 million, impairment of intangible assets including goodwill of $0.5 million, and incentive
payments of $0.1 million. The amount written off for goodwill was a prorated portion of the BTG
goodwill in accordance with FAS 142. The company calculated $0.5 million in proceeds based on the
principle value of the installment payments excluding imputed interest . On the balance sheet at
September 30, 2008, the company classified the net assets from the disposition as current assets
held for sale.
The product lines sold to SWTS were from the companys acquisition of Sigma in July 2005. Sigma
and SWTS are not related to each other. With the sale of these product lines, the company has
completely disposed of the assets from the Sigma acquisition for tax purposes.
21
Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the condensed interim financial
statements and the notes thereto included in Item 1 of this Quarterly Report and in conjunction
with the financial statements for the year ended December 31, 2007 contained in our Form 10-K filed
on March 21, 2008. Except for historical information, the following discussion contains forward
looking statements that involve risks and uncertainties, including statements regarding our
anticipated revenues, gross profits, costs and expenses and revenue mix. These forward-looking
statements include, among others, those statements including the words may, will, plans,
seeks, expects, anticipates, intends, believes and words of similar import. Such
statements constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking
statements. Our actual results could differ materially from those anticipated in these
forward-looking statements.
Introduction
PCTEL focuses on wireless broadband technology related to propagation and optimization. We design
and develop innovative antennas that extend the reach of broadband and other wireless networks and
that simplify the implementation of those networks. We provide highly specialized software-defined
radios that facilitate the design and optimization of broadband wireless networks. We supply our
products to public and private carriers, wireless infrastructure providers, wireless equipment
distributors, value added resellers and other original equipment manufacturers. Additionally, we
have licensed our intellectual property, principally related to a discontinued modem business, to
semiconductor, PC manufacturers, modem suppliers, and others.
We operate in two separate product segments: a Broadband Technology Group (BTG) and Licensing.
BTG includes our Antenna Products Group and RF Solutions Group. PCTEL maintains expertise in
several technology areas. These include digital signal processing chipset programming, radio
frequency, software engineering, mobile, antenna design and manufacture, mechanical engineering,
product quality and testing, advanced algorithm development, and cellular engineering.
On January 4, 2008, we sold our Mobility Solutions Group (MSG) to Smith Micro Software, Inc.
(NASDAQ: SMSI). MSG produced mobility software products for WiFi, Cellular, IP Multimedia
Subsystem, and wired applications. The financial results for MSG are presented in the financial
statements as discontinued operations.
On March 14, 2008, we acquired the assets of Bluewave Antenna Systems, Ltd (Bluewave). The
Bluewave product line augments our Land Mobile Radio (LMR) and Private Mobile Radio (PMR)
antenna product lines.
On October 9, 2008, we sold certain antenna products and related assets to Sigma Wireless
Technology Ltd, a Scotland-based company (SWTS).
Growth in product revenue is dependent both on gaining further traction with current and new
customers for the existing product portfolio as well as further acquisitions to support our
wireless initiatives. Revenue growth for antenna products is correlated to overall global wireless
market growth. Specific growth areas are last mile wireless broadband Internet delivered over
standards-based solutions such as Worldwide Interoperability for Microwave Access (WiMAX) or vendor
specific proprietary solutions; traditional LMR/PMR solutions supporting public safety, commercial
(2-way and trunked systems), and industrial automation markets; GPS and Mobile SATCOM solutions for
network timing, fleet and asset tracking; and in-building solutions to extend traditional cellular
network technologies. Revenue for scanning receivers is tied to the deployment of new wireless
technology, such as 2.5G and 3G, and the need for existing wireless networks to be tuned and
reconfigured on a regular basis.
We have an intellectual property portfolio in the area of analog modem technology, which we have
actively licensed for revenue since 2002. The number of U.S. patents and applications in this
technology portfolio reached to over 100 in 2005. We have since sold or divested most of these
patents. Companies under license include Agere, US Robotics, 3COM, Intel, Conexant, Broadcom,
Silicon Laboratories, Texas Instruments, Smartlink, and ESS Technologies. At this time, these
licenses are substantially paid up in full. We believe that there are no significant modem market
participants remaining to be licensed and we expect minimal modem licensing revenue going forward.
PCTEL also has an intellectual property portfolio related to antennas, the mounting of antennas,
and scanning receivers. These patents are being held for defensive purposes and are not part of an
active licensing program.
22
Results of Operations
Three Months and Nine Months Ended September 30, 2008 and 2007
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BTG |
|
LICENSING |
|
TOTAL |
Three months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
20,015 |
|
|
$ |
72 |
|
|
$ |
20,087 |
|
Percent change from year ago period |
|
|
14.7 |
% |
|
|
(57.9 |
%) |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
17,455 |
|
|
$ |
171 |
|
|
$ |
17,626 |
|
Percent change from year ago period |
|
|
(1.3 |
%) |
|
|
(60.9 |
%) |
|
|
(2.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
58,448 |
|
|
$ |
213 |
|
|
$ |
58,661 |
|
Percent change from year ago period |
|
|
17.0 |
% |
|
|
(72.4 |
%) |
|
|
15.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
49,972 |
|
|
$ |
771 |
|
|
$ |
50,743 |
|
Percent change from year ago period |
|
|
(0.9 |
%) |
|
|
(90.6 |
%) |
|
|
(13.5 |
%) |
BTG revenues were approximately $20.0 million for the three months ended September 30, 2008, an
increase of approximately 15% from the prior year period. Both scanning receivers and antenna
revenues were higher in the three months ended September 30, 2008 versus the same period in 2007.
Scanning receivers contributed 5% of the revenue growth and antennas provided 10% of the revenue
growth. BTG revenues were approximately $58.4 million for the nine months ended September 30,
2008, an increase of 17% from the prior year period. In the nine months ended September 30, 2008
versus the nine months ended September 30, 2007, scanning receivers contributed 11% of the revenue
growth and antennas provided 6% of the revenue growth. The revenue growth for scanning receivers
is primarily due to the strength of Universal Mobile Telecommunications Systems (UMTS)
deployments. The revenue growth for antennas is primarily due to the acquisition of Bluewave in
March 2008.
Licensing revenues were $72 in the three months ended September 30, 2008 compared to $171 for the
same period in 2007. Licensing revenues were $213 in the nine months ended September 30, 2008
compared to $771 for the same period in 2007. The decline in licensing revenues was expected and we
expect minimal modem licensing revenue going forward because we have sold or divested most of our
modem patents.
23
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BTG |
|
LICENSING |
|
TOTAL |
Three months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
9,489 |
|
|
$ |
71 |
|
|
$ |
9,560 |
|
Percentage of revenue |
|
|
47.4 |
% |
|
|
98.6 |
% |
|
|
47.6 |
% |
Percent of revenue change from year
ago period |
|
|
3.2 |
% |
|
|
2.1 |
% |
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
7,708 |
|
|
$ |
165 |
|
|
$ |
7,873 |
|
Percentage of revenue |
|
|
44.2 |
% |
|
|
96.5 |
% |
|
|
44.7 |
% |
Percent of revenue change from year
ago period |
|
|
4.1 |
% |
|
|
(0.8 |
%) |
|
|
3.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
27,826 |
|
|
$ |
208 |
|
|
$ |
28,034 |
|
Percentage of revenue |
|
|
47.6 |
% |
|
|
97.7 |
% |
|
|
47.8 |
% |
Percent of revenue change from year
ago period |
|
|
3.8 |
% |
|
|
(0.5 |
%) |
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
21,887 |
|
|
$ |
757 |
|
|
$ |
22,644 |
|
Percentage of revenue |
|
|
43.8 |
% |
|
|
98.2 |
% |
|
|
44.6 |
% |
Percent of revenue change from year
ago period |
|
|
3.5 |
% |
|
|
(1.6 |
%) |
|
|
(4.0 |
%) |
The increase in overall gross profit as a percentage of revenues for the three months and nine
months ended September 30, 2008 compared to the prior periods in 2007 is due to higher BTG margins.
Higher BTG margins have offset the lower mix of licensing revenues in the three and nine months
ended September 30, 2008.
BTG margin was 47.4% in the three months ended September 30, 2008 and 47.6% in the nine months
ended September 30, 2008, approximately 3.2% and 3.8%, respectively better than the comparable
periods in fiscal 2007. Scanning receivers contributed 1.8% of the margin percentage increase and
antennas contributed 1.5% of the margin percentage increase in the three months ended September 30,
2008. Scanning receivers contributed 3.4% of the margin percentage increase and antennas
contributed 0.4% of the margin percentage increase in the nine months ended September 30, 2008.
The margin improvement reflects favorable product mix of scanning receiver revenues and the
favorable impact of leveraging fixed costs over higher volume.
Licensing margin was approximately 98.6% for the three months ended September 30, 2008 and 96.5%
for the three months ended September 30, 2007. The margin was approximately 97.7% for the nine
months ended September 30, 2008 and 98.2% for the nine months ended September 30, 2007. The
decline in margin is due to lower revenues.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
Research and development |
|
$ |
2,591 |
|
|
$ |
2,156 |
|
|
$ |
7,387 |
|
|
$ |
7,381 |
|
Percentage of revenues |
|
|
12.9 |
% |
|
|
12.2 |
% |
|
|
12.6 |
% |
|
|
14.5 |
% |
Percent change from year ago period |
|
|
20.2 |
% |
|
|
(12.7 |
%) |
|
|
0.1 |
% |
|
|
13.5 |
% |
Research and development expenses include costs for software and hardware development, prototyping,
certification and pre-production costs. All costs incurred prior to establishing the technological
feasibility of computer software products to be sold are research and development costs and
expensed as incurred in accordance with SFAS 86, Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed. No significant costs have been incurred subsequent to
determining the technological feasibility.
Research and development expenses were $0.4 million higher in the three months ended September 30,
2008 compared to the same period in 2007 and virtually unchanged for the nine months ended
September 30, 2008 compared to the same period in 2007.
24
For the three months ended September 30,
2008, expenses were higher than the prior year period because we invested in headcount for scanning
receivers and for an antenna design center in China. For the nine month period, these investments
in scanning receiver and antenna development offset the reduction in expense related to the exit
from the UMTS antenna product line and the related closure of our engineering offices in Ireland
and the United Kingdom in Q2 2007.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
Sales and marketing |
|
$ |
2,543 |
|
|
$ |
2,825 |
|
|
$ |
8,180 |
|
|
$ |
8,233 |
|
Percentage of revenues |
|
|
12.7 |
% |
|
|
16.0 |
% |
|
|
13.9 |
% |
|
|
16.2 |
% |
Percent change from year ago period |
|
|
(10.0 |
%) |
|
|
4.2 |
% |
|
|
(0.6 |
%) |
|
|
(1.0 |
%) |
Sales and marketing expenses include costs associated with the sales and marketing employees, sales
representatives, product line management, and trade show expenses.
Sales and marketing expenses were approximately $0.3 million and $0.1 million lower for the three
months and nine months ended September 30, 2008, respectively, compared to the same periods in
fiscal 2007. These decreases in sales and marketing expense are due to cost controls and lower
outside sales commissions. Our outside sales commissions were lower because we reduced the number
of outside rep firms in 2008.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
General and administrative |
|
$ |
2,619 |
|
|
$ |
3,129 |
|
|
$ |
8,372 |
|
|
$ |
9,700 |
|
Percentage of revenues |
|
|
13.0 |
% |
|
|
17.8 |
% |
|
|
14.3 |
% |
|
|
19.1 |
% |
Percent change from year ago period |
|
|
(16.3 |
%) |
|
|
(0.4 |
%) |
|
|
(13.7 |
%) |
|
|
(4.0 |
%) |
General and administrative expenses include costs associated with the general management, finance,
human resources, information technology, legal, public company costs, and other operating expenses
to the extent not otherwise allocated to other functions.
General and administrative expenses decreased approximately $0.5 million for the three months ended
September 30, 2008 compared to the same period in 2007. This expense decrease is due to lower
expenses for corporate overhead. For the nine months ended September 30, 2008, general and
administrative expenses decreased $1.3 million compared to the same period in 2007. Approximately
$0.3 million of the decrease is due to the positive impact from our exit from UMTS antenna product
operations in Ireland and the remainder of the decrease is due to lower expenses for corporate
overhead. Corporate overhead expenses declined in the three and nine months ended September 30,
2008 because we streamlined our corporate overhead structure after the MSG sale.
Amortization of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
Amortization of other intangible assets |
|
$ |
552 |
|
|
$ |
408 |
|
|
$ |
1,544 |
|
|
$ |
1,579 |
|
Percentage of revenues |
|
|
2.7 |
% |
|
|
2.3 |
% |
|
|
2.6 |
% |
|
|
3.1 |
% |
Amortization expense increased approximately $0.1 million in the three months ended September 30,
2008 compared to the same period in 2007, and was virtually unchanged for the nine months ended
September 30, 2008 compared to the same period in 2007. The increase in the three months ended
September 30, 2008 was due to the purchase of Bluewave in March 2008. For the nine months ended
September 30, 2008, amortization for Bluewave intangible assets offset lower amortization for the
intangible assets related to UMTS antenna products. The intangible assets related to UMTS antennas
were written off in 2007 because we exited
25
UMTS antenna product operations during the second
quarter of 2007.
Restructuring Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
Restructuring charges |
|
$ |
|
|
|
$ |
(152 |
) |
|
$ |
364 |
|
|
$ |
1,922 |
|
Percentage of revenues |
|
|
0.0 |
% |
|
|
(0.9 |
%) |
|
|
0.6 |
% |
|
|
3.8 |
% |
For the nine months ended September 30, 2008, we incurred charges of $0.3 million related to
corporate overhead restructuring and $0.1 million related to adjustments to our UMTS restructuring
reserves.
In January 2008, we streamlined our corporate overhead structure to reduce general and
administrative expenses. In 2007, we exited from UMTS antenna product operations. We closed our
research and development facility in Dublin, Ireland as well as a related engineering satellite
office in the United Kingdom, and discontinued the UMTS portion of our contract manufacturing,
which was located in St. Petersburg, Russia.
Impairment Charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
Impairment charge |
|
$ |
882 |
|
|
$ |
|
|
|
$ |
882 |
|
|
$ |
|
|
Percentage of revenues |
|
|
4.4 |
% |
|
|
0.0 |
% |
|
|
1.5 |
% |
|
|
0.0 |
% |
On August 14, 2008, we entered into an asset purchase agreement for the sale of certain antenna
products and related assets to SWTS. SWTS purchased the intellectual property, dedicated inventory,
and certain fixed assets related to four of our antenna product families in the BTG segment for
$650,000, payable in installments at close and over a period of 18 months. The four product
families represent the last remaining products acquired by us through our acquisition of Sigma
Wireless Technologies Ltd. (Sigma) in July 2005. The sale transaction closed on October 9, 2008.
At September 30, 2008, we accounted for this transaction as an impairment charge, separately within
operating expenses in the financial statements. At September 30, 2008, the long-lived assets sold
to SWTS in October 2008 are subject to impairment under FAS 144 and the goodwill is subject to
impairment under FAS 142. The net charge calculated of $0.9 million included the impairment
charges for the assets sold to SWTS and the incentive payments due the new employees of SWTS, net
of the proceeds due to us. The major components of the net impairment charge consisted of the net
book value of inventory for $0.8 million, impairment of intangible assets including goodwill of
$0.5 million, and incentive payments of $0.1 million. We calculated $0.5 million in proceeds based
on the principle value of the installment payments excluding imputed interest .
Gain on sale of assets and related royalties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
Gain on sale of assets and related royalties |
|
$ |
200 |
|
|
$ |
250 |
|
|
$ |
600 |
|
|
$ |
750 |
|
Percentage of revenues |
|
|
1.0 |
% |
|
|
1.4 |
% |
|
|
1.0 |
% |
|
|
1.5 |
% |
All royalty amounts represent royalties from Conexant. Under terms of our agreement with Conexant,
the minimum royalty payments declined from $250 per quarter in 2007 to $200 per quarter in 2008.
Payments under the royalty agreement with Conexant run through June 30, 2009.
26
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
Other income, net |
|
$ |
120 |
|
|
$ |
820 |
|
|
$ |
1,557 |
|
|
$ |
2,620 |
|
Percentage of revenues |
|
|
0.6 |
% |
|
|
4.7 |
% |
|
|
2.7 |
% |
|
|
5.2 |
% |
Other income, net, consists primarily of interest income and foreign exchange gains and losses.
Other income, net, declined for the three months ended September 30, 2008 compared to the same
period in fiscal 2007 due to lower interest rates, foreign exchange losses, and to the negative
impact of approximately $0.2 million loss of value resulting from a mark to market adjustment of
the funds in Columbia Strategic Cash Portfolio (CSCP). Other income, net, was $1.0 million lower
for the nine months ended September 30, 2008 compared to the same period in fiscal 2007 due to the
negative impact of approximately $0.7 million loss of value resulting from a mark to market
adjustment and also due to lower average interest rates.
In December 2007, we recorded in Short-Term Investment Securities cash and investments held in
the CSCP. The fund was closed to new subscriptions or redemptions in December 2007. The mark to
market losses included in Other Income, net relate to the estimated fair value of this fund. The
fair value was determined from the net asset value provided by Columbia management.
The net asset value (NAV) of the CSCP declined since the end of the quarter ended September 30,
2008. As of November 7, 2008, the change in the NAV represented a $0.5 million mark to market
adjustment to our investment balance. During October 2008, we received redemptions of $1.9 million
from the CSCP. With the redemptions and the mark to market adjustment, the value of our
investment value in the CSCP was $11.5 million at November 5, 2008. We will adjust the CSCP
investment balance to the new NAV at December 31, 2008.
In the three months ended September 30, 2008 and 2007, we recorded foreign exchange losses of $134
and $76, respectively. In the nine months ended September 30, 2008 and 2007, we recorded foreign
exchange gains (losses) of $83 and ($179), respectively.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
Provision for income taxes |
|
$ |
(10,216 |
) |
|
$ |
34 |
|
|
$ |
(8,451 |
) |
|
$ |
612 |
|
Effective tax rate |
|
|
(1474.2 |
%) |
|
|
5.9 |
% |
|
|
(244.1 |
%) |
|
|
(21.8 |
%) |
For the nine months ended September 30, 2008, we recorded an income tax benefit of $8.5 million for
continuing operations. The tax benefit differs from the statutory rate of 35% because we recorded
a tax benefit of $10.4 million for the reversal of allowances
on our deferred tax assets. We reversed deferred tax asset allowances because we expect to realize
tax deductions related to the complete disposition of our Sigma acquisition in October 2008, the
income from the sale of MSG , and the revised projections of future income, it is more likely than
not that we will realize our deferred tax assets For the nine months ended September 30, 2008, the
tax benefit of $8.5 million includes continuing tax expense of $1.9 million offset by benefit for
the reversal of the allowance on our deferred tax assets.
We recorded tax expense of $0.6 million for continuing operations for the nine months ended
September 30, 2007. The tax rate of -22% differs from the statutory rate of 35% because we
provided valuation allowances on our deferred tax assets.
The tax rate for the three months and nine months ended September 30, 2007 differs from the
statutory rate of 35% because we provided valuation allowances on our deferred tax assets at
September 30, 2007. We reversed $7.9 million of valuation allowances in the quarter ended
December 31, 2007. With the sale of MSG in January 2008 it is more likely than not that we will
realize these deferred tax assets.
We regularly evaluate our estimates and judgments related to uncertain tax positions and, when
necessary, establish contingency reserves to account for our uncertain tax positions. As we obtain
more information via the settlement of tax audits and through other pertinent information, these
projections and estimates are reassessed and may be adjusted accordingly. These adjustments
27
may
result in significant income tax provisions or provision reversals.
Discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2008 |
|
September 30, 2007 |
|
September 30, 2008 |
|
September 30, 2007 |
Net income from discontinued
operations, net of tax |
|
$ |
157 |
|
|
$ |
98 |
|
|
$ |
37,035 |
|
|
$ |
89 |
|
Discontinued operations for the three months ended September 30, 2008 included a $0.2 million
benefit for state income taxes. Discontinued operations for the nine months ended September 30,
2008 included the gain on the sale of MSG of $60.3 million in addition to net loss from operations
of $0.3 million and income tax expense of $23.0 million. Discontinued operations for the nine
months ended September 30, 2007 included net operating income of $0.3 million. The net operating
loss of $0.3 million for the nine months ended September 30, 2008 was more than the comparable
period last year because the period ended September 30, 2008 only included revenue through the date
of the sale of MSG on January 4, 2008.
Stock-based compensation expense
In the three months and nine months ended September 30, 2008, we recognized stock-based
compensation expense of $0.9 million and $3.5 million, respectively in the condensed consolidated
statements of operations for continuing operations.
Total stock compensation expense for the three months ended September 30, 2008 included $0.8
million of restricted stock amortization and $0.1 million for stock option and stock purchase plan
expenses. Total stock compensation expense for the nine months ended September 30, 2008 included
$2.4 million of restricted stock amortization, $0.6 million for stock bonuses, and $0.5 million for
stock option and stock purchase plan expenses.
Total stock compensation expense for the three months ended September 30, 2007 was $1.0 million for
continuing operations, which included $0.7 million for restricted stock amortization, $0.2 million
for stock option expense and $0.1 million for stock bonuses. Total stock compensation expense for
the nine months ended September 30, 2007 was $3.2 million for continuing operations, which included
$2.1 million for restricted stock amortization, $0.8 million for stock option and stock
compensation expense for the stock purchase plan, and $0.3 million for stock bonuses.
The following table summarizes the stock-based compensation expense by income statement line item
for the three months and nine months ended September 30, 2008 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Cost of goods sold |
|
$ |
72 |
|
|
$ |
131 |
|
|
$ |
288 |
|
|
$ |
318 |
|
Research and development |
|
|
135 |
|
|
|
118 |
|
|
|
437 |
|
|
|
342 |
|
Sales and marketing |
|
|
123 |
|
|
|
102 |
|
|
|
514 |
|
|
|
403 |
|
General and administrative |
|
|
578 |
|
|
|
678 |
|
|
|
2,230 |
|
|
|
2,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing operations |
|
|
908 |
|
|
|
1,029 |
|
|
|
3,469 |
|
|
|
3,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
188 |
|
|
|
187 |
|
|
|
594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
908 |
|
|
$ |
1,217 |
|
|
$ |
3,656 |
|
|
$ |
3,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2008 |
|
|
September 30, 2007 |
|
Net income (loss) from continuing operations |
|
$ |
11,913 |
|
|
$ |
(3,413 |
) |
Charges for depreciation, amortization, stock-based compensation, and other non-cash items |
|
|
5,266 |
|
|
|
6,001 |
|
Changes in operating assets and liabilities |
|
|
1,022 |
|
|
|
(3,381 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
18,201 |
|
|
$ |
(793 |
) |
Net cash provided by investing activities |
|
|
6,364 |
|
|
|
10,221 |
|
Net cash used in financing activities |
|
|
(35,809 |
) |
|
|
(4,242 |
) |
Net cash provided by discontinued operations |
|
|
38,374 |
|
|
|
1,378 |
|
Cash and cash equivalents at the end of period |
|
$ |
53,681 |
|
|
$ |
65,898 |
|
Short-term investments at end of period |
|
|
13,969 |
|
|
|
|
|
Long-term investments at end of period |
|
|
12,662 |
|
|
|
|
|
Short-term borrowings at end of period |
|
$ |
|
|
|
$ |
1,092 |
|
Liquidity and Capital Resources Overview
At September 30, 2008, our cash and investments were approximately $80.3 million and we had working
capital of approximately $89.3 million. Our primary source of liquidity is cash provided by
operations, with short term swings in liquidity supported by a significant balance of cash and
short-term investments. The original source of the cash and short-term investments is a public
offering of our common stock made in 1999. During the subsequent years the balance has fluctuated
with cash from operations, acquisition events, large modem licensing agreements, and the repurchase
of our common shares.
Within operating activities, we are historically a net generator of operating funds from our income
statement activities and a net user of operating funds for balance sheet expansion. We expect this
historical trend to continue in the future.
Within investing activities, capital spending historically ranges between 4% and 6% of our BTG
revenue. The primary use of capital is for BTGs manufacturing and development engineering
requirements. We historically have significant transfers between investments and cash as we rotate
our large cash and short-term investment balances between money market funds, which are accounted
for as cash equivalents, and other investment vehicles. We have a history of supplementing our
organic revenue growth with acquisitions of product lines or companies, resulting in significant
uses of our cash and short-term investment balance from time to time. We expect the historical
trend for capital spending and the variability caused by moving money between cash and investments
and periodic merger and acquisition activity to continue in the future.
Within financing activities, we have historically generated funds from the exercise of stock
options and proceeds from the issuance of common stock through our ESPP, and used funds to
repurchase shares of our common stock through our share repurchase programs. The result of this
activity being a net user of funds versus a net generator of funds is largely dependent on our
stock
price during any given year.
Operating Activities:
We generated $18.2 million of funds from operating activities for the nine months ended September
30, 2008. The income statement was a net generator of $17.2 million of funds through net income,
depreciation, amortization, stock based compensation and restructuring. Net income includes a tax
benefit of $10.4 million for the reversal of deferred tax asset allowances. With the sale of
certain antenna product lines to SWTS, we will realize tax deductions in 2008 for intangible assets
from the Sigma acquisition.
The balance sheet provided $1.0 million of funds, primarily through the collection of accounts
receivables of $0.9 million and increase of deferred tax assets of $2.3 million and use of cash of
$2.1 million for accrued liabilities. The receivable collections included $1.9 million of MSG
accounts receivables from December 31, 2007 that were retained by us, offsetting an expansion of
BTG receivables of $1.0 million due to an increase in third quarter 2008 revenues versus fourth
quarter 2007 revenues. The use of cash for accrued liabilities during the nine months ended
September 30, 2008 was for 2007 bonuses and commissions, professional fees, and accrued inventory
receipts.
29
We used $0.8 million of funds from operating activities for the nine months ended September 30,
2007. The income statement was a net generator of $2.6 million of funds through net income,
depreciation, amortization, stock based compensation and restructuring. The balance sheet was also
a net user of $3.4 million of funds due to increases in inventories of $2.3 million and accounts
receivable of $0.9 million. The increase in inventories was due to purchases of antenna raw
material inventory to meet the customer demand in the fourth quarter 2007. The increase in
accounts receivables was due to the calendarization of third quarter 2007 revenues versus the
comparable period in the prior year.
Investing Activities:
Our investing activities provided $6.4 million of funds in the nine months ended September 30,
2008. Redemptions from the CSCP provided $24.4 million in funds and we rotated $12.8 million to
other short-term and long-term investments. We used $3.9 million for the purchase of Bluewave in
March 2008, and $2.0 million for capital expenditures. Capital expenditures during the nine months
ended September 30, 2008 were 3% of BTG revenues, below the historical range of 4% to 6% of BTG
revenues. Lower capital expenditures than our historical trend are reflective of our exit from
UMTS antenna operations in 2007 and reduced capital expenditures for information systems. We
expect the capital expenditures to be at the low end of the historical range for the full year. We
received $0.6 million from the sale and related royalties of our modem business to Conexant in
2003. There are maximum royalty payments under that sale of $0.8 million in 2008 and $0.4 million
in 2009.
In December 2007, we received notification that the CSCP, in which we had invested $38.9 million as
of December 31, 2007, was being closed to new subscriptions or redemptions, resulting in our
inability to immediately redeem our investments for cash. The fair value of our investment in this
fund was based on the net asset value of the fund, and was classified as Short-Term Investments
on our Consolidated Balance Sheet. At September 30, 2008, the fair value of our investment in this
fund was $13.9 million. We classified $5.2 million as Long-Term Investments, and the remainder
included in Short-Term Investments. During 2008, we recognized a loss of $0.7 million, included
in Other Income, net related to the estimated realizable value of this fund. We received $1.9
million in redemptions from the CSCP in October 2008. We expect to receive cash redemptions for
our remaining investment during the fourth quarter 2008 through 2010. The NAV of the CSCP declined
since the end of the quarter ended September 30, 2008. As of November 7, 2008, the change in the
NAV represented a $0.5 million mark to market adjustment to our investment balance. With the
redemptions and the mark to market adjustment, the value of our investment value in the CSCP was
$11.5 million at November 7, 2008.
Our investing activities provided $10.2 million of funds in the nine months ended September 30,
2007. With redemptions of short-term investments, we rotated $11.7 million into cash and cash
equivalents. Capital expenditures were $2.2 million, or 4% of BTG revenue, which fell within the
historical range of 4% to 6% of BTG revenue. We received $0.8 million from the sale and related
royalties of our modem business to Conexant in 2003. There were no acquisitions in the nine months
ended September 30, 2007.
Financing Activities:
Our financing activities consumed $35.8 million of funds for the nine months ended September 30,
2008. We used $29.6 million to repurchase our common stock under share repurchase programs and we
used $10.3 million for a $0.50 per share special cash dividend. We generated $2.2 million from the
proceeds from the sale of common stock related to stock option exercises and shares purchased
through the ESPP. Tax benefits from stock compensation and proceeds from the sale of common stock
related to stock option exercises and shares purchased through the ESPP generated $2.0 million. In
April 2008, we used $0.1 million to
repay a short-term loan for our Tianjin, China subsidiary.
During the nine months ended September 30, 2007, we used $5.5 million to repurchase our common
stock under share repurchase programs, but we generated $1.1 million from the proceeds from the
sale of common stock related to stock option exercises and shares purchased through the ESPP. An
increase in our net borrowing in Ireland provided $0.2 million of cash in the three months ended
September 30, 2007.
Discontinued Operations
Discontinued operations provided $38.4 million and $1.4 million in cash during the nine months
ended September 30, 2008 and 2007, respectively. The $38.4 million contribution in 2008 includes
the gain related to the sale of the MSG segment for total cash consideration of $59.7 million to
Smith Micro, less estimated tax payments. The $1.4 million contribution from discontinued
operations in 2007 is primarily due to an increase in deferred revenue resulting from cash received
for 2007 maintenance contracts.
30
Cash requirements
We believe that the existing sources of liquidity, consisting of cash, short-term investments and
cash from operations, will be sufficient to meet these requirements and working capital needs for
the foreseeable future. We continue to evaluate opportunities for development of new products and
potential acquisitions of technologies or businesses that could complement the business. We may use
available cash or other sources of funding for such purposes. In October 2008, we used $4.5
million to repurchase the remaining shares under a share repurchase program approved in August
2008.
Contractual Obligations and Commercial Commitments
As of September 30, 2008, we had operating lease obligations of approximately $2.1 million through
2013. As of September 30, 2008, we had purchase obligations of $8.4 million for the purchase of
inventory, as well as for other goods and services, in the ordinary course of business, and exclude
the balances for purchases currently recognized as liabilities on the balance sheet.
Critical Accounting Policies and Estimates
We use certain critical accounting policies as described in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations Critical Accounting Policies of our
Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended
December 31, 2007. There have been no material changes in any of our critical accounting policies
since December 31, 2007. See Note 1 in the Notes to the Financial Statements for discussion on
recent accounting pronouncements.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
See our 2007 Annual Report on Form 10-K (Item 7A). As of September 30, 2008, there have been no
material changes in this information.
Item 4: Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial
Officer, the effectiveness of our disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that as of the end the period covered by this report, our disclosure
controls and procedures were effective to provide reasonable assurance that information we are
required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and that
such information is recorded, processed, summarized, and reported within time periods specified in
the Securities and Exchange Commission rules and forms. There has been no change in our internal
control over financial reporting that occurred during the period covered by this Quarterly Report
on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II Other Information
Item 1A: Risk Factors
Factors That May Affect Our Business, Financial Condition and Future Operating Results
There have been no material changes with respect to risk factors as previously disclosed in our
Annual Report on Form 10-K for our fiscal year ended December 31, 2007.
31
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the period covered by this report.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number |
|
|
Shares Purchased |
|
Shares Repurchased |
|
of Shares That May |
|
|
Total Number |
|
Average Price |
|
as Part of Publicly |
|
be Purchased |
|
|
of Shares |
|
Paid per Share |
|
Announced Programs |
|
Under the Programs |
July 1, 2008 - July 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2008 - August 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
September 1, 2008 - September
30, 2008 |
|
|
503,446 |
|
|
$ |
9.92 |
|
|
|
503,446 |
|
|
|
496,554 |
|
On August 21, 2008, our Board of Directors authorized the open market repurchase of 1,000,000
shares of our common stock and in September 2008, we repurchased 503,446 shares for approximately
$5.0 million. As of September 30, 2008, we were authorized to repurchase 496,554 shares under the
existing share repurchase program. We repurchased the remaining 496,554 shares in October 2008 for
approximately $4.5 million.
During the six months ended June 30, 2008, we repurchased 3,022,616 shares for approximately $24.6
million under open market share repurchase programs that were authorized in 2007.
Item 6: Exhibits
|
|
|
|
|
Exhibit No. |
|
Description |
|
Reference |
2.9
|
|
Asset Purchase Agreement,
dated August 14, 2008, by and
between SWT Scotland and
PCTEL. Certain schedules and
exhibits referenced in the
Asset Purchase Agreement have
been omitted in accordance
with Section 6.01(b)(2) of
Regulation S-K. A copy of any
omitted schedule and/or
exhibit will be furnished on a
supplemental basis to the
Securities and Exchange
Commission upon request.
|
|
Incorporated by reference to
exhibit number 2.1 filed with
Registrants Current Report on
Form 8-K filed August 18, 2008 |
|
10.67
|
|
PCTEL, Inc., 1997 Stock Plan,
as amended August 20, 2008,
effective January 1, 2009
|
|
Incorporated by reference to
exhibit number 10.67 filed
with Registrants Current
Report on Form 8-K filed
August 26, 2008 |
|
10.68
|
|
PCTEL, Inc., 1997 Stock Plan,
as amended September 18, 2008
|
|
Incorporated by reference to
exhibit number 10.68 filed
with Registrants Current
Report on Form 8-K filed
September 22, 2008 |
|
10.69
|
|
PCTEL, Inc., 1997 Stock Plan
Form of Stock Option Award
Agreement, as amended
September 18, 2008
|
|
Incorporated by reference to
exhibit number 10.69 filed
with Registrants Current
Report on Form 8-K filed
September 22, 2008 |
|
31.1
|
|
Certification of Principal Executive
Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
|
|
|
|
|
31.2
|
|
Certification of Principal Financial
Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
|
|
|
|
|
32
|
|
Certification of Principal Executive
Officer and Principal Financial Officer
pursuant to 18 U.S.C. Setion 1350 as
adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized:
|
|
|
|
|
|
|
PCTEL, Inc. |
|
|
|
|
A Delaware Corporation |
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
/s/ Martin H. Singer
Martin H. Singer
|
|
|
|
|
Chairman of the Board and
Chief Executive Officer |
|
|
Date:
November 10, 2008
33