10-Q 1 w43183_10q.htm DECEMBER 31, 2005

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2005

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES         EXCHANGE ACT OF 1934

 

For the transition period from ___________ to __________

 

Commission File Number 0-27266

 

Westell Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

DELAWARE

36-3154957

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

 

750 N. Commons Drive, Aurora, IL

60504

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code

(630) 898-2500

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check or mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No .

 

Indicate by check mark whether the registrant is a large filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

X

Non-accelerated filer

 

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes No X  

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of January 26, 2006:

Class A Common Stock, $0.01 Par Value – 55,569,348 shares

Class B Common Stock, $0.01 Par Value – 14,741,872 shares

 

1

 



 

 

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

 

 

PART I FINANCIAL INFORMATION:

Page No.

 

Item 1. Financial Statements

 

Consolidated Balance Sheets

3

-

As of December 31, 2005(unaudited) and March 31, 2005

 

 

Consolidated Statements of Operations (unaudited)

4

-

Three months ended December 31, 2005 and 2004

 

-

Nine months ended December 31, 2005 and 2004

 

 

Consolidated Statements of Cash Flows (unaudited)

5

-

Nine months ended December 31, 2005 and 2004

 

 

Notes to the Consolidated Financial Statements (unaudited)

6

 

Item 2. Management’s Discussion and Analysis of Financial Condition

 

 

and Results of Operations

12

 

Item 3. Quantitative and Qualitative Disclosures About Market Risks

17

 

Item 4. Controls and Procedures

17

 

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

18

 

Item 6. Exhibits

18

 

 

Safe Harbor Statement

Certain statements contained in this Quarterly Report of Form 10-Q regarding matters that are not historical facts or that contain the words “believe”, “expect”, “intend”, “anticipate” or derivatives thereof and other words of similar meaning, are forward-looking statements. Such forward-looking statements include risks and uncertainties, and actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those discussed under “Risk Factors” set forth in Westell Technologies, Inc.’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005. Our actual results may differ from these forward-looking statements. Westell Technologies, Inc. undertakes no obligation to publicly update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or otherwise.

 

2

 



 

 

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

 

ASSETS

 

 

December 31,

2005

 

March 31,

2005

 

 

 


 


 

 

 

(unaudited)

 

 

 

(in thousands)

 

Current assets:

 

 

 

 

Cash and cash equivalents

$ 45,346

 

$ 26,350

 

Investments

1,281

 

610

 

Accounts receivable (net of allowance of $285,000 and $278,000 respectively)

 

22,147

 

 

30,167

 

Inventories

26,221

 

26,419

 

Prepaid expenses and other current assets

3,225

 

2,806

 

Deferred income tax asset

4,113

 

3,980

 

Total current assets

102,333

 

90,332

 

 


 


 

Property and equipment:

 

 

 

 

Machinery and equipment

44,679

 

44,505

 

Office, computer and research equipment

25,534

 

25,270

 

Leasehold improvements

8,931

 

8,810

 

 


 


 

 

79,144

 

78,585

 

Less accumulated depreciation and amortization

64,809

 

62,067

 

 


 


 

Property and equipment, net

14,335

 

16,518

 

 


 


 

Goodwill

18,378

 

6,990

 

Intangibles, net

4,883

 

6,893

 

Deferred income tax asset and other assets

53,846

 

59,357

 

 


 


 

Total assets

$ 193,775

 

$ 180,090

 

 


 


 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

Accounts payable

$ 20,715

 

$ 19,671

 

Accrued expenses

7,836

 

7,962

 

Accrued compensation

6,278

 

7,898

 

Deferred revenue

832

 

1,234

 

Current portion of long-term debt

50

 

318

 

 


 


 

Total current liabilities

35,711

 

37,083

 

Long-term debt

24

 

--

 

Other long-term liabilities

809

 

809

 

 


 


 

Total liabilities

36,544

 

37,892

 

Minority interest

2,733

 

2,540

 

Stockholders' equity:

 

 

 

 

Class A common stock, par $0.01

Authorized – 109,000,000 shares

Issued and outstanding – 54,240,298 shares at March 31, 2005 and 55,512,664 shares at December 31, 2005

555

 

542

 

Class B common stock, par $0.01

Authorized – 25,000,000 shares

Issued and outstanding – 14,741,872 shares at March 31, 2005 and December 31, 2005

147

 

147

 

Preferred stock, par $0.01

Authorized – 1,000,000 shares

Issued and outstanding - none

--

 

--

 

Deferred compensation

(1,858)

 

(2,476)

 

Additional paid-in capital

392,628

 

389,242

 

Treasury stock at cost – 93,100 shares

(247)

 

(247)

 

Cumulative translation adjustment

(186)

 

(672)

 

Accumulated deficit

(236,541)

 

(246,878)

 

 


 


 

Total stockholders' equity

154,498

 

139,658

 

 


 


 

Total liabilities and stockholders' equity

$ 193,775

 

$ 180,090

 

 


 


 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

3

 



 

 

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

Three Months Ended

December 31,

 

Nine Months Ended

December 31,

 


 


 

2005

 

2004

 

2005

 

2004

 


 


 


 


 

 

(unaudited)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

Equipment sales

$ 57,716

 

$ 63,574

 

$ 176,579

 

$ 159,076

Services

10,433

 

10,877

 

33,527

 

32,946

 


 


 


 


Total revenues

68,149

 

74,451

 

210,106

 

192,022

 

 

 

 

 

 

 

 

Cost of equipment sales

41,902

 

48,484

 

129,110

 

117,086

Cost of services

5,333

 

5,409

 

16,979

 

16,553

 


 


 


 


Total cost of goods sold

47,235

 

53,893

 

146,089

 

133,639

 


 


 


 


 

 

 

 

 

 

 

 

Gross margin

20,914

 

20,558

 

64,017

 

58,383

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing

6,181

 

5,740

 

18,338

 

16,622

Research and development

5,228

 

4,053

 

14,860

 

11,155

General and administrative

3,826

 

4,446

 

12,344

 

13,222

Restructuring

443

 

--

 

443

 

(452)

Intangible amortization

324

 

324

 

972

 

1,012

 


 


 


 


Total operating expenses

16,002

 

14,563

 

46,957

 

41,559

Gain on sale of product line

--

 

--

 

--

 

1,453

 


 


 


 


Operating income

4,912

 

5,995

 

17,060

 

18,277

 

 

 

 

 

 

 

 

Other income, net

385

 

395

 

399

 

788

Interest expense

(2)

 

(7)

 

(11)

 

(58)

 


 


 


 


Income before minority interest and income taxes

5,295

 

6,383

 

17,448

 

19,007

Income taxes

2,082

 

2,614

 

6,910

 

7,364

Minority interest

48

 

106

 

201

 

323

 


 


 


 


Net income

$ 3,165

 

$ 3,663

 

$ 10,337

 

$ 11,320

 


 


 


 


 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

Basic

$ 0.05

 

$ 0.05

 

$ 0.15

 

$ 0.17

 


 


 


 


Diluted

$ 0.04

 

$ 0.05

 

$ 0.14

 

$ 0.16

 


 


 


 


Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

70,224

 

68,421

 

69,815

 

68,364

 


 


 


 


Diluted

71,637

 

71,081

 

71,556

 

70,874

 


 


 


 


 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements

 

4

 



 

 

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Nine months Ended

December 31,

 


 

2005

 

2004

 


 


 

 

 

 

 

(unaudited)

(in thousands)

 

 

 

 

Cash flows from operating activities:

 

 

 

Net income

$ 10,337

 

$ 11,320

Reconciliation of net income to net cash provided by

operating activities:

 

 

 

Depreciation and amortization

7,233

 

6,624

Sale of product technology

--

 

(2,053)

Deferred compensation

618

 

--

(Gain) loss on sale of fixed assets

(130)

 

55

Restructuring

22

 

(1,337)

Deferred Taxes

5,383

 

7,036

Minority interest

201

 

329

Tax benefit received on stock option exercises

1,393

 

329

Changes in assets and liabilities:

 

 

 

Accounts receivable

10,155

 

(4,711)

Inventory

4,426

 

(12,009)

Capitalization of software development costs

--

 

(1,436)

Prepaid expenses and other current assets

(348)

 

(682)

Other assets

(7)

 

(139)

Accounts payable and accrued expenses

(2,617)

 

11,782

Accrued compensation

(1,784)

 

(2,067)

 


 


Net cash provided by operating activities

34,882

 

13,041

 


 


 

 

 

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

(2,747)

 

(3,486)

Proceeds from the sale of equipment

130

 

5

Sale of product line

--

 

2,000

Purchase of investments

(671)

 

(618)

Acquisition of a business

(14,349)

 

--

 


 


Net cash used in investing activities

(17,637)

 

(2,099)

 


 


 

 

 

 

Cash flows from financing activities:

 

 

 

Net repayment of long-term debt and leases payable

(318)

 

(3,251)

Proceeds from stock options and warrants exercised

2,006

 

2,172

 


 


Net cash provided by (used in) financing activities

1,688

 

(1,079)

 


 


 

 

 

 

Effect of exchange rate changes on cash

63

 

(63)

Net increase in cash

18,996

 

9,800

Cash and cash equivalents, beginning of period

26,350

 

11,241

 


 


Cash and cash equivalents, end of period

$ 45,346

 

$ 21,041

 


 


 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements

 

 

5

 



 

 

Note 1. Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2005.

 

In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position and the results of operations and cash flows at December 31, 2005 and for all periods presented. The results of operations for the three and nine month period ended December 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2006 ("fiscal year 2006").

 

Certain amounts in previously issued financial statements have been reclassified to conform to the current year presentation.

 

Note 2. Computation of Income Per Share

 

The computation of basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The following table sets forth the computation of basic and diluted earnings per share:

 

 

Three months ended December 31,

 

Nine months ended December 31,

 


 


Dollars in thousands, except per share amounts

 

2005

 

 

2004

 

 

2005

 

 

2004

 


 


 


 


Basic Earnings per Share:

 

 

 

 

 

 

 

Net income

$3,165

 

$3,663

 

$10,337

 

$11,320

Average basic shares outstanding

70,224

 

68,421

 

69,815

 

68,364

Basic net income per share

$0.05

 

$0.05

 

$0.15

 

$0.17

 

 

 

 

 

 

 

 

Diluted Earnings per Share:

 

 

 

 

 

 

 

Net income

$3,165

 

$3,663

 

$10,337

 

$11,320

Average basic shares outstanding

70,224

 

68,421

 

69,815

 

68,364

Effect of dilutive securities: stock options and warrants

 

1,413

 

 

2,660

 

 

1,741

 

 

2,510

 


 


 


 


Average diluted shares outstanding

71,637

 

71,081

 

71,556

 

70,874

 


 


 


 


Diluted net income per share

$0.04

 

$0.05

 

$0.14

 

$0.16

 

 

 

 

 

 

 

 

 

Options to purchase 4,957,962 and 2,568,180 shares of common stock for the three months ended December 31, 2005 and December 31, 2004, respectively, and options to purchase 4,718,054 and 2,552,370 shares of common stock for the nine months ended December 31, 2005 and December 31, 2004, respectively, were not included in the computation of diluted shares because the options’ exercise prices were greater than the average market price of the common shares.

 

6

 



 

 

Note 3. Restructuring Charge

 

The Company recognized a restructuring expense of $2.6 million in fiscal year 2003. This charge included personnel and facility costs related primarily to the closing of a Conference Plus, Inc. facility and personnel and facility charges at Westell Limited. Approximately 25 employees were impacted by these reorganizations. In fiscal year 2005, the Company terminated a lease that was partially reserved for in the 2003 restructuring. This termination resulted in the reversal of $0.5 million of restructuring for facility costs. As of December 31, 2005, the Company has paid all of these accrued restructuring costs.

 

The Company recognized a restructuring expense of $443,000 in the third quarter of fiscal year 2006. This charge included personnel costs relating to the termination of 17 employees at Westell Inc. As of December 31, 2005, $210,000 of these accrued costs remain unpaid.

 

On December 29, 2005, the Company acquired the stock HyperEdge Corporation (see footnote 11). There is a restructuring plan to combine and streamline the operations of the companies to achieve synergies related to the manufacture and distribution of common product lines. The Company estimates the costs of employee terminations, which was capitalized as part of the purchase price, to be $300,000. Approximately 15 employees are estimated to be impacted by this plan. Any adjustments to this plan will be accounted for in accordance with SFAS No. 141. As of December 31, 2005, none of these costs have been paid.

 

The Company's restructuring accrual balances are presented in the following table:

 

 

(in thousands)

 

Balance

March 31, 2005

Accrued through December 31, 2005

Paid through December 31, 2005

Balance December 31, 2005

 





Employee costs

$0

$743

$(233)

$510

Legal, facility and other costs

188

0

(188)

0

 





Total

$188

$743

$(421)

$510

 





 

 

Note 4. Interim Segment Information

 

Westell’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and market strategies. They consist of:

1)

A telecommunications equipment manufacturer of broadband products, and

2)

A multi-point telecommunications service bureau specializing in audio teleconferencing, web conferencing, multi-point video conferencing, and value-added services related to conferencing such as billing, cost allocation and equipment management.

 

 

 

7

 



 

 

Performance of these segments is evaluated utilizing revenue, operating income and total asset measurements. The accounting policies of the segments are the same as those for Westell Technologies, Inc. Segment information for the three and nine month periods ended December 31, 2004 and 2005, are as follows:

 

 

(in thousands)

Telcom Equipment

 

Telcom

Service

 

Consolidated Total

 


 


 


Three months ended December 31, 2004

 

 

 

 

 

Revenues

$ 63,574

 

$ 10,877

 

$ 74,451

Operating income

4,179

 

1,816

 

5,995

Depreciation and amortization

1,316

 

890

 

2,206

Total assets

131,030

 

17,431

 

148,461

 

 

 

 

 

 

Three months ended December 31, 2005

 

 

 

 

 

Revenues

$ 57,716

 

$ 10,433

 

$ 68,149

Operating income

3,807

 

1,105

 

4,912

Depreciation and amortization

1,548

 

606

 

2,154

Total assets

177,049

 

16,726

 

193,775

 

 

 

 

 

 

Nine months ended December 31, 2004

 

 

 

 

 

Revenues

$ 159,076

 

$ 32,946

 

$ 192,022

Operating income

12,513

 

5,764

 

18,277

Depreciation and amortization

3,899

 

2,725

 

6,624

Total assets

131,030

 

17,431

 

148,461

 

 

 

 

 

 

Nine months ended December 31, 2005

 

 

 

 

 

Revenues

$ 176,579

 

$ 33,527

 

$ 210,106

Operating income

12,956

 

4,104

 

17,060

Depreciation and amortization

5,084

 

2,149

 

7,233

Total assets

177,049

 

16,726

 

193,775

 

Reconciliation of Operating income for the reportable segments to income before income taxes and minority interest:

 

 

Three months ended December 31,

 

Nine months ended December 31,

 


 


(in thousands)

2005

 

2004

 

2005

 

2004

 


 


 


 


Operating income

$ 4,912

 

$ 5,995

 

$ 17,060

 

$ 18,277

Other income, net

385

 

395

 

399

 

788

Interest expense

(2)

 

(7)

 

(11)

 

(58)

 


 


 


 


Income before income taxes and minority interest

 

$ 5,295

 

 

$ 6,383

 

 

$ 17,448

 

 

$ 19,007

 


 


 


 


 

 

Note 5. Comprehensive Income

 

The disclosure of comprehensive income, which encompasses net income and foreign currency translation adjustments, is as follows:

 

 

Three months ended December 31,

 

Nine months ended December 31,

 


 


(in thousands)

2005

 

2004

 

2005

 

2004

 


 


 


 


Net income

$ 3,165

 

$ 3,663

 

$ 10,337

 

$ 11,320

Other comprehensive income

Foreign currency translation adjustment

 

140

 

 

(268)

 

 

486

 

 

(233)

 


 


 


 


Comprehensive Income

$ 3,305

 

$ 3,395

 

$ 10,823

 

$ 11,087

 


 


 


 


 

 

 

8

 



 

 

Note 6. Inventories

 

The components of inventories are as follows:

 

 

December 31,

 

March 31,

 


 


(in thousands)

2005

 

2005

 


 


Raw material

$ 19,702

 

$ 16,827

Work in process

523

 

217

Finished goods

11,631

 

14,507

Reserve for excess and obsolete inventory and net realizable value

 

(5,635)

 

 

(5,132)

 


 


 

$ 26,221

 

$ 26,419

 


 


 

 

Note 7. Stock Options

 

The Company has elected to follow Accounting Principle Board Opinion No. 25 “Accounting for Stock Issued to Employees” (APB No. 25) and related interpretations in accounting for its employee stock options and awards. Under APB No. 25, employee stock options are valued using the intrinsic method, and no compensation expense is recognized since the exercise price of the options equals or is greater than the fair market value of the underlying stock as of the date of the grant. The following table shows the effect on net income and income per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock Based Compensation.”

 

 

 



Three months ended

December 31,

 

Nine months ended

December 31,

 


 


(in thousands, except per-share amounts)

2005

 

2004

 

2005

 

2004

 

 


 


 


 


 

Net income, as reported

$ 3,165

 

$ 3,663

 

$ 10,337

 

$ 11,320

 

Stock-based employee compensation expense included in reported net earnings, net of related tax effects

 

74

 

 

--

 

 

223

 

 

--

 

Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects

 

 

(607)

 

 

 

(376)

 

 

 

(2,101)

 

 

 

(1,122)

 

 


 


 


 


 

Pro forma net income

$2,632

 

$3,287

 

$ 8,459

 

$10,198

 

Earnings per common share:

 

 

 

 

 

 

 

 

As reported

$0.05

 

$0.05

 

$0.15

 

$0.17

 

Pro forma

$0.04

 

$0.05

 

$0.12

 

$0.15

 

Earnings per common share, assuming dilution:

 

 

 

 

 

 

 

 

As reported

$0.04

 

$0.05

 

$0.14

 

$0.16

 

Pro forma

$0.04

 

$0.05

 

$0.12

 

$0.14

 

 

 

 

 

 

 

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for grants in fiscal 2005 and 2006:

 

 

2005

 

2006

 


 


Expected volatility

95%

 

89%

Risk-free interest rate

3.65%

 

3.75%

Expected life

5 years

 

5 years

Expected dividend yield

0.0%

 

0.0%

 

 

 

 

 

 

9

 



 

 

Note 8. Warranty Reserve

 

Most of the Company’s products carry a limited warranty ranging from one to seven years. The specific terms and conditions of those warranties vary depending upon the product sold. Factors that enter into the estimate of the Company’s warranty reserve include the number of units shipped historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the reserve as necessary. The Company reports warranty reserve as both current and long term liabilities. The following table presents the changes in the Company’s product warranty reserve:

 

 

 

Three months ended December 31,

 

Nine months ended December 31,

 

 


 


 

(in thousands)

2005

 

2004

 

2005

 

2004

 


 


 


 


Total product warranty reserve at the beginning of the period

 

$1,932

 

 

$1,907

 

 

$1,806

 

 

$1,853

Warranty expense

618

 

541

 

1,512

 

1,558

Adjustments*

72

 

--

 

72

 

--

Deductions

(505)

 

(351)

 

(1,273)

 

(1,314)

 


 


 


 


Total product warranty reserve at the end of the period

 

$2,117

 

 

$2,097

 

 

$2,117

 

 

$2,097

 


 


 


 


 

 

 

 

 

 

*Adjustments represents the addition of HyperEdge warranty obligations obtained through acquisition.

 

Note 9. Deferred Compensation

 

The Company has a deferred compensation program with the Chief Executive Officer that is funded through a rabbi trust. The rabbi trust qualifies as a Variable Interest Entity under FASB Interpretation No. 46, Consolidation of Variable Interest Entities and as such is consolidated in the Company's financial statements. Approximately $1.3 million of cash has been funded into the rabbi trust as of December 31, 2005 and the Company has recorded a $1.7 million short term liability to accrue for the deferred compensation liability. The rabbi trust is subject to the creditors of the Company. All amounts deferred under this compensation program vest on the earlier of March 31, 2006, the executive's death, permanent disability or a change in control of the Company.

 

Note 10. Guarantee

 

In conjunction with a sale of product lines and specified fixed assets in fiscal year 2005, the Company provided an unconditional guarantee in the amount of $1.62 million relating to a 10 year term note payable to the lender that financed the transaction. The balance of the term loan is $1.46 million as of December 31, 2005. This guarantee will stay in place until the note is paid in full. The Company must pay all amounts due under the note payable upon demand from the lender. In fiscal year 2005, the Company assessed its obligation under this guarantee pursuant to the provisions of FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" and recorded a $300,000 liability for the value of the guarantee. The Company will evaluate the liability periodically and adjust the value as required. No adjustments in the liability have been made to date.

 

Note 11. Acquisition

 

On December 29, 2005, the Company acquired 100% of the common stock of HyperEdge Corporation, a manufacturer of network service access products, for $14.0 million in cash. The Company has accrued $600,000 in estimated transaction costs, including costs for employee severance. The acquisition was accounted for using the purchase method of accounting in accordance with SFAS No. 141 “Business Combinations” (“SFAS No. 141”) and accordingly the operating results of HyperEdge have been included in the consolidated financial statements from the acquisition date.

 

 

 

10

 



 

 

In accordance with SFAS No. 141, the total purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date with excess purchase price allocated to goodwill. The purchase price allocation for HyperEdge has not been finalized pending completion of final adjustments to liabilities assumed in the acquisition, and the completion of integration plans and valuation reports. The estimated excess purchase price of $11.4 million has been shown as goodwill on the December 31, 2005 balance sheet.

 

Had the acquisition taken place as of April 1, 2004, proforma revenue for the three and nine months ended December 31, 2005 and 2004 would have been $73.3 million, $227.0 million, $79.0 million and $209.1 million,

respectively. The Company has not completed the proforma consolidated results of operations and earnings per share for the periods presented due to the pending completion of the valuation of intangibles. The Company expects the impact of the acquisition to be dilutive in the fourth quarter of fiscal year 2006 due to one time integration costs and inventory step up and accretive in fiscal year 2007 and thereafter.

 

Note 12. New Accounting Pronouncements

 

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”). Under this new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic value method in accordance with APB 25.  Instead, companies will be required to account for such transactions using a fair-value method and recognize the expense over the service period.  SFAS 123R allows for several alternative transition methods, but the Company has not yet determined the transition method it will use.  On April 14, 2005, the Securities and Exchange Commission announced the adoption of a rule that defers the required effective date of SFAS 123R for registrants to the beginning of the first fiscal year beginning after June 15, 2005.  The Company expects to adopt this statement in the first quarter of its 2007 fiscal year. The adoption of SFAS 123R will have an impact on the Company’s results of operations, although it will have no incremental impact on the Company’s overall financial position.

 

In January 2005, the Financial Accounting Standards Board (FASB) issued revised Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs, an amendment of ARB No. 43. The amendments made by SFAS 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS 151 will be effective for the Company beginning in fiscal year 2007. The impact of SFAS 151 is not expected to have a significant impact to the consolidated financial statements.

 

11

 



 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Overview

 

The Company is comprised of two segments: telecommunications equipment manufacturer and teleconference services bureau. The equipment manufacturing segment consists of two product lines: Customer Networking Equipment (CNE) products and Network Service Access (NSA) products. The CNE product line includes broadband and digital subscriber line (DSL) technology products that allow the transport of high-speed data over the local loop and enable telecommunications companies to provide broadband services over existing copper infrastructure. The Company’s NSA product line consists of manageable and non-manageable T1 transmission equipment, associated mountings and special service plugs for the legacy copper telephone network. Westell realizes the majority of its revenues from the North American market.

 

The Company’s teleconference service segment is comprised of a 91.5% owned subsidiary, Conference Plus, Inc. Conference Plus provides audio, video, and web conferencing services. Businesses and individuals use these services to hold voice, video or web conferences with many people at the same time. Conference Plus sells its services directly to large customers, including Fortune 1000 companies, and serves other customers indirectly through its private label reseller program.

 

The equipment manufacturing segment of the Company’s business consists of two product lines, offering a broad range of products that facilitate the broadband transmission of high-speed digital and analog data between a telephone company's central office and end-user customers. These two product lines are:

 

Customer Networking Equipment (CNE): Westell’s family of broadband products enable the transport of high-speed data over existing local telephone lines and allow telecommunications companies to provide broadband services using their current copper infrastructure. The Company’s broadband products also enable residential, small business and Small Office Home Office (SOHO) users to network multiple computers, telephones and other devices to access the Internet. Digital Subscriber Lines (DSL) products make up the majority of the revenue in this product group.

Network Service Access (NSA): Westell’s NSA product family consists of manageable and non-manageable T1 transmission equipment for telephone services, and an array of mounting products used for connecting telephone wires and cables, and special service plugs. The T1 transmission equipment termed Network Interface Units (NIU) and the associated NIU mounting products make up the majority of revenue from this product group.

 

Below is a table that compares equipment and service revenues for the three and nine months ended December 31, 2005 with the three and nine months ended December 31, 2004 by product line.

 

 

Three months ended December 31,

 

Nine months ended December 31,

 


 


(in thousands)

2005

%

 

2004

%

 

2005

%

 

2004

%

 



 



 



 



CNE

$ 48,603

71.3%

 

$ 54,484

73.2%

 

$ 145,682

69.3%

 

125,592

65.4%

 

 

 

 

 

 

 

 

 

 

 

 

NSA

9,113

13.4%

 

9,090

12.2%

 

30,897

14.7%

 

33,484

17.4%

 



 



 



 



Total equipment

57,716

84.7%

 

63,574

85.4%

 

176,579

84.0%

 

159,076

82.8%

 

 

 

 

 

 

 

 

 

 

 

 

Services

10,433

15.3%

 

10,877

14.6%

 

33,527

16.0%

 

32,946

17.2%

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$ 68,149

 

 

$ 74,451

 

 

$ 210,106

 

 

$ 192,022

 

 


 

 


 

 


 

 


 

 

The prices for the products within each market group vary based upon volume, customer specifications and other criteria and are subject to change due to competition among telecommunications manufacturers and service providers. Increasing competition, in terms of the number of entrants and their size, and increasing size of the Company’s customers because of past mergers, continues to exert downward pressure on prices for the Company's products. The Company expects average selling prices on its CNE products to decline less than 20% in fiscal year 2006.

 

On January 31, 2005, SBC and AT&T announced that they had entered into an agreement for SBC to acquire AT&T. The acquisition was completed on November 18, 2005. In the nine months ended December 31, 2005,

 

12

 



 

sales to SBC (now AT&T) generated approximately 7.9% of the Company's total revenues, 0.4% for the equipment segment (primarily NSA products excluding sales made to SBC through minority business enterprises) and 7.5% for the services segment. AT&T is the largest customer of Conference Plus. AT&T offers services similar to Conference Plus. The Company is unable to predict at this time how the merger will impact the Company's results of operations in the future.

 

The Company's customer base is highly concentrated and comprised primarily of the Regional Bell Operating Companies (RBOCs), independent domestic local exchange carriers and public telephone administrations located outside the U.S. Due to the stringent quality specifications of its customers and the regulated environment in which its customers operate, the Company must undergo lengthy approval and procurement processes prior to selling its products. Accordingly, the Company must make significant upfront investments in product and market development prior to actual commencement of sales of new products.

 

To remain competitive, the Company must continue to invest in new product development and invest in targeted sales and marketing efforts to cover new product lines. Failure to increase revenues from new products, whether due to lack of market acceptance, competition, technological change or otherwise, would have a material adverse effect on the Company's business and results of operations. The Company expects to continue to evaluate new product opportunities and engage in extensive research and development activities.

 

The Company is focusing on expanding its product offerings in the equipment segment from basic high speed broadband to more sophisticated applications such as home networking, VoIP, wireless systems, wireless wireline convergence, IMS (IP Multimedia Subsystem), video / IPTV, multimedia distribution and control and more powerful user interfaces. This will require the Company to continue to invest in research and development and sales and marketing, which could adversely affect short-term results of operations. The Company is currently increasing research and development investment levels in the areas of fixed mobile wireline wireless convergence (FMC), IMS, VoIP and home networking applications. In view of the Company’s reliance on the DSL market for revenues and the unpredictability of orders and pricing pressures, the Company believes that period-to-period comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. Revenues from NSA products such as NIUs have declined in recent years due primarily to reduced demand resulting from the migration by telephone companies to high-speed digital transmission products and the sale of Data Station Termination product lines that occurred in the first quarter of fiscal 2005. The December 29, 2005 acquisition of HyperEdge Corporation will increase revenues from NSA products.

 

In the CNE equipment manufacturing segment, the Company is focusing on new product opportunities such as the DSL wireless gateway, voice/video-over-IP, and always-on-broadband appliances. The Company has introduced new products including the Westell Media Gateway (WMG), UltraLine II™, ProLineTM, VersaLinkTM, VersaLink with PowerBoost™ , and TriLinkTM which are targeted at the home networking, small office/home office (SOHO) and small business markets. The Company continues to support the multimedia always-on-broadband appliance gateway product Verizon One. Revenue is expected from Verizon One in the fourth quarter of fiscal year 2006, but other new products are anticipated to have a greater impact in fiscal year 2007. The Company has multiple evaluations and is entering trials for TriLinkTM, TriLink IMS, UltraLineIITM and the Westell Media Gateway, a variation of the Verizon One product marketed outside of the United States. The Company continues to focus on expanding existing and new products into the international market consisting primarily of Europe and Canada.

 

The Company expects the fourth fiscal quarter of 2006 to be very dependent on the sales of existing products such as ProLineTM and VersaLinkTM. The Company believes that its customers continue to expect growth and replacement in the broadband market that the Company’s CNE products serve. More users are subscribing to DSL services and some subscribers currently using DSL technology desire new DSL technology as the older modems cannot deliver newer applications that require higher broadband speed.

 

The Company expects the overall NSA market to decline annually by approximately 10% as the transition to high-speed digital service continues. This decline could impact the Company’s future revenue. The Company acquired 100% of the common stock of HyperEdge Corporation, on December 29, 2005 with the goal of strengthening its position in the NSA market. With the addition of HyperEdge the Company hopes to increase its market share in mountings and NIU’s. The Company also plans to invest in new product areas to compliment wireless and fiber applications.

 

13

 



 

 

Results of Operations

 

Revenues

 

Three months ended December 31,

 

Nine months ended December 31,

 

 


 


 

 

2005

 

2004

 

Change

 

2005

 

2004

 

Change

 

 


 


 


 


 


 


Consolidated revenue

 

$68,149

 

$74,451

 

$(6,302)

 

$210,106

 

$192,022

 

$18,084

Equipment revenue:

 

 

 

 

 

 

 

 

 

 

 

 

CNE

 

48,603

 

54,484

 

(5,881)

 

145,682

 

125,592

 

20,090

NSA

 

9,113

 

9,090

 

23

 

30,897

 

33,484

 

(2,587)

Total equipment revenue

 

57,716

 

63,574

 

(5,858)

 

176,579

 

159,076

 

17,503

Services revenue

 

10,433

 

10,877

 

(444)

 

33,527

 

32,946

 

581

 

CNE revenue decreased in the third quarter of fiscal 2006 compared to the same quarter in the prior year due to a reduction in unit sales of VersaLinkTM product which was partially offset by an increase in unit sales of modems. VersaLinkTM product has a higher selling price per unit than modems. VersaLinkTM unit sales decreased by 73% and the price per unit decreased by 12%. Modem unit sales increased 119% with a price per unit decrease of 19%. CNE revenue increased in the nine months ended December 31, 2005 compared to the same period in the prior year due to increased unit sales offset in part by decreased unit prices. VersaLinkTM unit sales increased by 49% and the price per unit decreased by 14%. Modem unit sales increased 24% with a price per unit decrease of 15%. NSA revenues were flat in the third quarter of fiscal 2006 compared to the same quarter in the prior year but down only slightly after excluding the one time items in the nine months ended December 31, 2005 compared to the same period in the prior year. NSA product revenue in the nine month period ended December 31, 2004 included an $883,000 contractual settlement from a customer, $900,000 of non-recurring revenue and approximately $500,000 of revenue from a product line subsequently sold. The overall decrease in NSA product revenue is due to reduced demand resulting from the migration by telephone companies to high-speed digital transmission products. Revenue in the services segment decreased in the third quarter of fiscal 2006 compared to the same quarter in the prior year due to the loss of a customer and lower revenue per minute offset in part by an increase in minutes billed. Service revenue increased in the nine months ended December 31, 2005 compared to the comparable prior year period due to an increase in minutes billed offset in part by lower revenue per minute at the Company’s Conference Plus, Inc. subsidiary.

 

 

Gross Margin

 

Three months ended December 31,

 

Nine months ended December 31,

 

 


 


 

 

2005

 

2004

 

Change

 

2005

 

2004

 

Change

 

 


 


 


 


 


 


Consolidated Margin

 

30.7%

 

27.6%

 

3.1%

 

30.5%

 

30.4%

 

0.1%

Equipment Margin

 

27.4%

 

23.7%

 

3.7%

 

26.9%

 

26.4%

 

0.5%

Service Margin

 

48.9%

 

50.3%

 

(1.4)%

 

49.4%

 

49.8%

 

(0.4)%

 

Gross margin as a percent of sales in the equipment segment increased in the third quarter of fiscal 2006 compared to the same period in fiscal 2005 due primarily to non-recurring expediting and other costs related to the introduction of the VersaLinkTM product in the third quarter of fiscal 2005. The increase in equipment margin percentage in the three and nine months ended December 31, 2005 when compared to the same period in fiscal 2005 was due primarily to improvements in material costs. In addition, the December 31, 2004 margin includes the $883,000 contractual settlement mentioned above. The Company believes continued pricing pressures and continued reduction of NSA sales affecting its equipment could continue to adversely impact margins in the future. The service margins decrease in the three and nine months ended December 31, 2005 compared to the same periods in fiscal 2005 due to increased overhead costs related to credit card fees, maintenance and web outsourcing. It is the Company’s strategy to offset the effects of these anticipated price reductions with continued cost reductions and introducing new products that have higher sales prices and margins.

 

 

Sales and Marketing

 

Three months ended December 31,

 

Nine months ended December 31,

 

 


 


 

 

2005

 

2004

 

Change

 

2005

 

2004

 

Change

 

 


 


 


 


 


 


Consolidated sales and marketing expense

 

$6,181

 

$5,740

 

$441

 

$18,338

 

$16,622

 

$1,716

Equipment sales and marketing expense

 

4,084

 

4,194

 

(110)

 

12,000

 

12,039

 

(39)

Services sales and marketing expense

 

2,097

 

1,546

 

551

 

6,338

 

4,583

 

1,755

 

 

 

14

 



 

 

The equipment segment sales and marketing expenses were relatively flat in the third quarter and nine months end December 31, 2005 compared to the same periods last year. Sales and marketing expense increased in the Company’s services segment in the three and nine months end December 31, 2005 compared to the same periods last year due primarily to more employees at Conference Plus. The Company believes that sales and marketing expense in the future will continue to be a significant percent of revenue and will be required to expand its product lines, bring new products to market and service customers.

 

Research and Development

 

Three months ended December 31,

 

Nine months ended December 31,

 

 


 


 

 

2005

 

2004

 

Change

 

2005

 

2004

 

Change

 

 


 


 


 


 


 


Consolidated research and development expense

 

$5,228

 

$4,053

 

$1,175

 

$14,860

 

$11,155

 

$3,705

Equipment research and development expense

 

4,776

 

3,648

 

1,128

 

13,513

 

9,959

 

3,554

Services research and development expense

 

452

 

405

 

47

 

1,347

 

1,196

 

151

 

Engineering expenses have increased in the third quarter and nine months end December 31, 2005 compared to the same periods in fiscal year 2005. The year -to -date increase is due in part to recording a $900,000 credit for customer reimbursed engineering costs offset in part by a $300,000 expense for engineering period performed by a third party in fiscal year 2005. No such offset existed in fiscal year 2006. In addition, there were approximately 12% more engineering employees in fiscal year 2006 which resulted in $42,000 and $756,000 more salary expense in the three and nine months ended December 31, 2005 compared to same periods in fiscal 2005. The Company capitalized $490,000 and $1.4 million of engineering expenses for TR-069 compliant software in the three and nine months ended December 31, 2004. No costs were capitalized in the periods ended December 31, 2005. The Company believes that research and development expenses will increase in fiscal year 2006 as the Company continues to expand its product offerings. Areas of focus include Westell Media Gateway, VoIP, video, multimedia distribution and control, wireless systems, wireless wireline convergence, user interfaces and other broadband applications.

 

General and Administrative

 

Three months ended December 31,

 

Nine months ended December 31,

 

 


 


 

 

2005

 

2004

 

Change

 

2005

 

2004

 

Change

 

 


 


 


 


 


 


Consolidated general and administrative expense

 

$3,826

 

$4,446

 

$(1,620)

 

$12,344

 

$13,222

 

$(878)

Equipment general and administrative expense

 

2,361

 

2,724

 

(363)

 

7,548

 

7,860

 

(312)

Services general and administrative expense

 

1,465

 

1,722

 

(257)

 

4,796

 

5,362

 

(566)

 

The decrease in general and administrative expense in the equipment segment for the third quarter of fiscal 2006 compared to the same period in fiscal 2005 is due primarily to lower consulting and professional service fees. The decrease in general and administrative expense in the equipment segment for the nine months ended December 31, 2005 compared to the same period last year is due primarily to lower franchise tax expense. The decrease in general and administrative expense in the services segment for the third quarter and nine months ended December 31, 2005 compared to the same period last year is due primarily to lower sales tax and professional expenses.

 

Intangible amortization Intangible assets include product technology related to the March 17, 2000 acquisition of Teltrend Inc. Intangible amortization expense, which is attributed to the equipment segment, was $324,000 for the three months ended December 31, 2005 and 2004. Intangible amortization was $972,000 and $1,012,000 in the nine months December 31, 2005 and 2004, respectively.

 

Other income, net Other income, net was $385,000 and $395,000 in the three months and $399,000 and $788,000 in the nine months ended December 31, 2005 and 2004, respectively. The June 30, 2004 quarter contained income from a $400,000 legal settlement in the equipment segment. The remainder of other income, net was comprised of interest income earned on temporary cash investments and unrealized gains or losses on intercompany balances denominated in foreign currencies.

 

 

 

 

15

 



 

 

Interest expense Interest expense decreased to $2,000 in the three months ended December 31, 2005 from $7,000 in the three months ended December 31, 2004 and decreased from $11,000 in the nine months ended December 31, 2005 from $58,000 in the nine months ended December 31, 2004. The decrease in interest expense during the current period is a result of lower net obligations outstanding during the period.

 

Income taxes The Company recorded $2.1 million and $6.9 million of income tax expense in the three and nine month periods ended December 31, 2005 based on an estimated tax rate for the year of approximately 40% compared to $2.6 million and $7.4 million of income tax expense in the three and nine month periods ended December 31, 2004.

 

Liquidity and Capital Resources

 

At December 31, 2005, the Company had $45.3 million in cash and cash equivalents consisting primarily of the highest rated grade corporate commercial paper. At December 31, 2005, the Company had no amounts outstanding and $17.3 million available under its secured revolving credit facility.

 

On December 31, 2005, the Company had a revolving credit facility that provided for maximum borrowings of up to $30 million. The term on the credit facility expires on June 30, 2006. This asset based revolving credit facility provides for total borrowings based upon 85% of eligible accounts receivable and 30% of eligible inventory not to exceed $3.1 million as of December 31, 2005. The $3.1 million inventory limitation is reduced by $0.1 million on the first day of each month. Borrowings under this facility provide for the interest to be paid by the Company at the prime rate or LIBOR rate plus 2.5%. This credit facility contains covenants regarding EBITDA, tangible net worth and maximum capital expenditures. The Company was in compliance with these covenants on December 31, 2005 and expects to comply with these covenants for the term of the credit facility. The Company expects to replace the existing credit facility with a new facility with similar borrowing capacity prior to June 30, 2006.

 

The Company’s operating activities generated cash of $34.9 million in the nine month period ended December 31, 2005. Cash generated by operations resulted primarily from net income, non-cash depreciation and amortization in both segments and reductions in accounts receivable, inventory and deferred taxes offset in part by reductions in accounts payable and accrued expenses and in accrued compensation in the equipment segment.

 

The Company’s investing activities used $17.6 million for the nine month period ended December 31, 2005. The Company used cash of $14.3 million to acquire HyperEdge Corporation. Capital expenditures for the nine month period ended December 31, 2005 were $2.7 million. The capital expenditures in the equipment segment were $2.1 million and were primarily for machinery and research and development equipment purchases. The services segment capital expenditures were $608,000. These expenditures were primarily for computer and telecom bridge equipment.

 

At December 31, 2005 the Company’s principle sources of liquidity were $45.3 million of cash and the secured revolving credit facility under which the Company was eligible to borrow up to an additional $17.3 million based upon receivables and inventory levels. Cash in excess of operating requirements, if any, will be invested on a short-term basis in federal government agency instruments and the highest rated grade commercial paper. The Company believes its future cash requirements for the next twelve months will be satisfied by cash generated from operations and its current credit facility.

 

The Company had deferred tax assets of approximately $64.5 million at December 31, 2005, consisting primarily of net operating loss carryforwards. The Company has recorded a valuation allowance reserve of $7.3 million to reduce the recorded net deferred tax asset to $57.2 million.

 

16

 



 

 

The net operating loss carryforwards begin to expire in 2012. Realization of deferred tax assets associated with the Company’s future deductible temporary differences, net operating loss carryforwards and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration. The Company uses estimates of future taxable income and a tax planning strategy that involves the potential sale of the Company’s 91.5% subsidiary Conference Plus, Inc. to assess the valuation allowance required against deferred tax assets. Management periodically evaluates the recoverability of the deferred tax assets and will adjust the valuation allowance against deferred tax assets accordingly.

 

Critical Accounting Policies

 

There were no changes in critical accounting policies during the quarter. For a description of our critical accounting policies, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2005.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

 

Westell is subject to certain market risks, including foreign currency and interest rates. The Company has foreign subsidiaries in the United Kingdom and Ireland that develop and sell products and services in those respective countries. The Company is exposed to potential gains and losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. Market risk is estimated as the potential decrease in pretax earnings resulting from a hypothetical decrease in the ending exchange rate of 10%. If such a decrease occurred, the Company would incur approximately $787,000 in additional other expense based on the ending intercompany balance outstanding at December 31, 2005. The Company’s future primary exposure is to changes in exchange rates for the U.S. dollar versus the British pound and the Euro.

 

As of December 31, 2005, the balance in the cumulative foreign currency translation adjustment account, which is a component of stockholders’ equity, was an unrealized loss of $186,000.

 

The Company does not have significant exposure to interest rate risk related to its debt obligations, which are primarily U.S. Dollar denominated. The Company’s market risk is the potential loss arising from adverse changes in interest rates. In the past 12 months the Company’s debt consisted primarily of term notes. Market risk is estimated as the potential decrease in pretax earnings resulting from a hypothetical increase in interest rates of 10% (i.e. from approximately 3.5% to approximately 3.9%) average interest rate on the Company’s debt. If such an increase occurred, the Company would incur approximately $2,000 per annum in additional interest expense based on the average debt borrowed during the twelve months ended December 31, 2005. The Company does not believe such additional expense is significant.

 

The Company does not currently use any derivative financial instruments relating to the risk associated with changes in foreign currency or interest rates.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

 

 

17

 



 

 

Changes in Internal Control Over Financial Reporting.

 

There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2005 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

Part II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

 

The Company is not currently involved in any legal proceedings.

 

 

ITEM 6. EXHIBITS

 

Exhibit 31.1 Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Exhibit 31.2 Certification by the Chief Financial Officer Pursuant to Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002

 

Exhibit 32.1

Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002

 

18

 



 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

WESTELL TECHNOLOGIES, INC.

 

(Registrant)

 

 

 

 

DATE: February 9, 2006

By: /s/ E. VAN CULLENS

 

 

E. VAN CULLENS

 

 

Chief Executive Officer

 

 

By: /s/ NICHOLAS C. HINDMAN, Sr.  

 

NICHOLAS C. HINDMAN, Sr.

 

 

Chief Financial Officer

 

 

 

 

19