ITEM 1. BUSINESS
(a) General Development of Business
Electronic Tele-Communications, Inc. is a Wisconsin corporation, incorporated in 1980. The Company designs, manufactures, programs, markets and leases digital voice information platforms, call processing systems, and related computer software and services for the telephone industry. Substantially all of the Company's products are proprietary and have been developed since 1986. Research and development activities have been and will continue to be important to the development of new products and markets.
ETC has executive offices, manufacturing, engineering, technical services, marketing, and a regional sales office in Waukesha, Wisconsin. In addition, engineering, technical services, and a regional sales office are located in Atlanta, Georgia, and technical services, repair services, and a regional sales office are located in Pleasanton, California. ETC also has four sales representatives in various other locations in the United States.
(b) Financial Information About Industry Segments
Not applicable. The Company operates in one industry segment.
(c) Narrative Description of Business
GENERAL
Electronic Tele-Communications designs, manufactures, markets and leases digital voice and call processing systems and related software. It also provides comprehensive services in support of these systems, including installation, training, 24-hour technical support, voice recording and weather forecasting. Its equipment, compatible with most telephone systems, provides a wide range of audio information and call handling capabilities via the telephone network. The Company's products are utilized by a variety of customers, including: (1) telephone companies which use the products to provide information to callers regarding misdialed or changed numbers, sources of assistance or calling instructions, enhanced services such as call forwarding, and automated pay phone interaction; (2) public and private providers of informational announcements such as news, sports, weather, time, stock reports, or advertisements; (3) large and small businesses which use call handling products for applications such as voice mail, call sequencing and automated attendant; and (4) private reporting and information services through pay-per-call services, commonly referred to as "900 Services." The Company's systems are generally priced from $500 to $200,000.
The Company's solid-state products are microprocessor controlled and use digital technology for voice storage and playback. Digital storage provides for the instant and unlimited playback of voice messages. Voice recordings are
digitized, or encoded as data, and stored in memory in the Company's equipment. This data may then be decoded and delivered as voice messages via the telephone network.
The Company's products provide 100% non-blocking operation, so that the caller always receives the announcement service without any delay, regardless of the number of telephone lines simultaneously accessing the service. This provides greater caller acceptance of the service and reduces telephone traffic by eliminating long waits for announcements and repeated calls to a busy announcement service.
In addition to an extensive line of standard digital announcer equipment, ETC designs and manufactures interactive voice platforms which provide callers with a spoken menu from which to choose informational topics of interest. ETC also offers voice mail systems that provide prompt telephone answering and message-taking capabilities, eliminating annoying and time-consuming telephone tag. The Company's call sequencing products ensure that calls to heavily-used phone centers are maintained in the proper order until a service representative is available to speak with the caller, playing music and informational messages while on hold. Finally, ETC provides a variety of special function and customized products, meeting the varied needs of telephone service providers world-wide.
TECHNOLOGY AND PRODUCT DEVELOPMENT
Most of Electronic Tele-Communications' products consist of proprietary circuit card assemblies, purchased assemblies, and proprietary software. The Company's technologies involve the design of electronic systems, including printed circuit boards and the arrangement of electronic components thereon, and the development of the application software necessary to access and control the messages and their formats.
The Company designs printed circuit boards for use in its systems using computer aided design equipment and software. This equipment permits the design of complex multi-layered printed circuit boards which not only have wiring on the top and bottom surfaces, but also incorporate six or more inside layers of circuitry. Printed circuit boards, when equipped with the electronic components required to perform specified functions, are called cards. The electronic components include computer memory chips, microprocessors, integrated circuits, resistors, capacitors, transformers, and switches.
Development of application software to operate the Company's products involves the formulation of specialized computer programs. The Company's proprietary software provides the operating equipment with the instructions necessary to access and control the messages and their format, permit diagnostic tests, and allow monitoring by reading, translating and acting upon commands and information. The Company is currently developing most of its own software programs.
ETC's products employ the concept of distributed processing. This means that each assembly contains its own microprocessor which controls the functions of that particular card. Distributed processing permits the system to be modularly expanded, allows for a variety of configurations of the systems, and increases system reliability.
All of ETC's products are equipped with self-diagnostic features that automatically alert the user to equipment malfunctions or external problems which must be corrected to maintain proper system operation.
New product and software development and product improvements are significant to ETC's business. The Company spent approximately $1,785,000, $1,981,000, and $2,533,000 in 1997, 1996, and 1995, respectively, on research and
development activities, all of which were exclusively Company sponsored and supported.
Electronic Tele-Communications owns some patents, and seeks to obtain copyright protection on all of its proprietary computer software and printed material. The Company has registered its corporate logo and the Audichron(R), Digicept(R), Aris(R), and USA TIME(R) trademarks to protect its products. The Company believes that its patents, trademarks, and copyrights are a significant factor in maintaining its market position, but does not believe that its business is dependent upon any single patent, copyright or trademark.
PRODUCTS
Digital Recorder/Announcers
The basic unit of the Company's Digicept(R) system is the Digicept recorder/announcer, which stores a single announcement for playback to the telephone network. The Digicept(R) line also includes the Extended Memory recorder/announcer, providing extended-length, single-channel messages. Calls to the recorder/announcers are generally grouped through multiple interface circuits, also manufactured by the Company, allowing simultaneous access to the recorder/announcer by hundreds of phone lines. T1 interfaces are available to connect large recorder/announcer systems directly to a 24-channel digital T1 network. The Digicept(R) recorder/announcers are most often found in telephone company central offices, providing informational announcements regarding incorrectly dialed or changed numbers, telephone services and weather conditions. These announcers are also used by businesses to provide information on finance, transportation, public service and education. The Messenger(TM) 612 single-channel announcer, housed in a self-contained package, provides similar functionality in a business office environment.
The Company's Digicept(R), Aris(R) and Messenger(TM) product lines include multi-channel recorder/announcers designed for applications requiring the simultaneous playback of multiple messages. These multi-channel announcers provide informational announcements similar to those of the single-channel recorder/announcers. The Digicept(R) line offers two multi-channel recorder/announcers, which are typically rack mounted in telephone company central offices or other large business applications. The Aris(R) and Messenger(TM) announcers are housed in self-contained packages, ideal for use in office environments. The Aris(R) line offers one multi-channel announcer, in several configurations, while the Messenger(TM) line offers two multi-channel announcers.
Interactive Voice Platforms
The Company produces the Digicept(R) 2000, 2002 and Intr-Act systems, as well as the Audichron(R) System 3 and System 3 Jr. These products constitute a comprehensive line of interactive voice platforms, providing multi-message, user-selectable voice announcements. All five systems feature Automatic Intercept Service, Changed Number Announcement and Automatic Number Announcement. These applications intercept erroneously dialed numbers, informing the caller of changed numbers or other dialing instructions. Each system also provides prompts and messages in support of enhanced telephone services, providing instructions for custom calling services and automated pay phone operation. In addition, the interactive voice platforms may be used to provide user selectable information regarding entertainment or transportation schedules, medical, financial and insurance data, news and sports updates, and other public information. Beyond these applications, the Digicept(R) 2000 and 2002 systems serve as processing platforms to meet the expanding service requirements of the intelligent network.
Voice Mail, Audiotex, Time/Weather/Temperature
The Audichron(R) 410 combines voice mail, audiotex, and time/weather/temperature functions in a single system. Flexible, industry standard hardware and software allow for the continued development of additional features required by the business user or service provider. Both rack-mount and tower enclosures are available, designed to meet the varied needs of both the telephone company and business office environments.
Audichron(R) 410 announcers provide professionally recorded voice announcements, available with synchronous entry so that every caller hears the entire announcement from the beginning. Promotional announcements, in rotating or fixed time slots, may be added for additional revenue generation. All maintenance for weather forecast updates, message changes and time adjustment is provided remotely. Monthly call rate reporting is provided to the customer to document system usage.
The Digicept(R) Time & Temperature II announcer provides a low-cost alternative, announcing the current time and temperature. Digicept(R) multi-channel announcers may be included as part of the system to provide rotating promotional messages.
Call Sequencing Systems
The Company's CMS(TM) Sr and CMS(TM) Jr automatic call sequencers place incoming calls in a queue, assuring that each caller is serviced in the proper order by an available service representative. While on hold, the caller may hear music and informational messages. These systems process two to 60 phone lines and can play as many as 16 different informational messages, up to a total of 68 minutes in length. These call sequencers also serve as call management systems, providing a variety of statistical and graphical reports. These reports allow the telephone system administrator to evaluate system usage including answered and abandoned calls, total number of calls, average caller holding times and service representative staffing requirements.
The Company also offers the CMS(TM) Sr 9-1-1 Auxiliary Unit. This product adds customized fail-safe features, meeting the specialized requirements of a public safety answering point in the 9-1-1 emergency response telephone network.
Common Equipment
Interface and trunk circuits combine hardware and software to provide the connection between the telephone central office, the calling party and the Company's announcement systems. The Company has developed interface circuits for its Digicept(R), Audichron(R) and AEC product lines. By providing both the interface circuits and the announcement systems, the Company offers integrated solutions designed to meet customers' needs while providing for the modular expansion of the systems. The Company provides interface circuits that can perform a wide variety of functions and are compatible with most telephone circuitry, including T1 interfaces for direct connection to the digital telephone network.
SERVICES
Leasing Services
The Company's Audichron subsidiary leases announcement systems in the United States and internationally. These systems form the USA TIME(R) network of time/weather/temperature announcers. These systems primarily serve financial institutions and telephone companies.
Recording Services
A professional staff is available from ETC's recording studio in Atlanta, Georgia to provide high quality recordings of commercial announcements and customized messages in a variety of formats. These announcements include interactive system vocabularies, call processing system prompts, information-on-hold announcements and commercial announcements for telemedia. Recordings may be provided on cassette or reel-to-reel tapes, or may be digitized and stored on floppy diskettes or delivered via the Internet.
Meteorological Services
A staff of degreed meteorologists, using state-of-the-art information services and equipment, update weather forecasts at least four times daily from ETC's weather center in Atlanta, Georgia. When severe weather conditions warrant, updates are provided as often as necessary. A rigid quality control program ensures that forecasts are accurate and timely. These forecasts serve approximately 500 USA TIME(R) sites, and are downloaded to the Company's time/weather/temperature systems via the telephone network, using computer-generated calling. Additionally, all maintenance, call rate reports, promotional messages, time adjustment and daylight savings time changes are provided remotely from the weather center.
Technical Services
The Company offers equipment installation, training, and 24-hour technical support of its various products. Maintenance and installation services include customer premise support and software and documentation updates. Classes are held in ETC's training centers, and at customer sites, to instruct employees and customers on the operation and use of ETC's products. Technical bulletins and software updates are also available from the Company's World Wide Web site.
Miscellaneous Services
In addition to its manufactured products, the Company offers engineering and product services to the telephone companies and other equipment customers. The company can design call processing and voice announcement systems to a customer's specifications. This includes determining equipment requirements based on the Company's standard offerings and interconnecting the cards and systems to the exact size and capability needed by the customer.
MANUFACTURING PROCESSES
ETC's manufacturing processes involve the fabrication of products from components manufactured to specification by others or purchased as stock items from independent suppliers. Items such as memory chips, computers, disk drives, microprocessing units, integrated circuits, resistors, capacitors, transformers, switches, wire and related items are purchased as stock items from a variety of manufacturers and distributors. The Company is not dependent upon any single supplier for such material. Some components are manufactured by a single producer, but the Company believes suitable replacement components would be available from a variety of sources should the product of any producer become unavailable. The Company's printed circuit boards and product enclosures are manufactured by outside suppliers to the Company's specifications. The Company believes these products would be available from a variety of sources and that the loss of any single source of supply would not materially affect the Company's business.
The products manufactured by ETC generally require a high degree of precision and dexterity in the assembly stage and multiple testing and quality assurance
checks prior to shipment. By stressing quality and maintaining rigid testing and quality assurance procedures, the Company has been able to achieve a low product return-for-service rate.
The Company purchases computers, monitors, printers, disk drives, and other computer related accessories. These components are assembled into systems and packaged with mostly proprietary and some purchased software and sold to the customer.
In addition to hardware manufactured by the Company, computer software is an integral component of the Company's announcement systems. Most of the Company's computer software is designed and generated internally by the Company's engineers. The software programs are then loaded into the voice announcement systems in a variety of methods, including "burning" the programs into microprocessors, or using floppy disks to transfer the programs into memory chips or computer hard drives. These software programs dictate how the voice announcement systems perform, and give the products flexibility to meet many different customer specifications and needs.
SALES, MARKETING AND CUSTOMERS
ETC's manufactured products are marketed primarily through Company sales personnel, with approximately 5% being sold through independent distributors and telecommunications dealers. Sales and leases of the Company's time/weather/temperature machines and related information update services are performed through the Company's sales personnel. Approximately 88% of the Company's 1997 sales were in the United States, and 12% were to international customers.
During 1997, ETC's products and related services were sold and leased to approximately 1,440 customers, primarily operating telephone companies, telephone equipment manufactures, telecommunication dealers, telephone service providers, financial institutions, and other businesses. Siemens Stromberg-Carlson accounted for 13% of the Company's 1997 sales.
ETC engages in direct advertising through trade publications, direct mail communications, and the Company's World Wide Web site (http://www.etcia.com). The Company participates in a number of trade shows each year and is a member of many national and state telephone associations. The Company's marketing staff are headquartered in Waukesha, Wisconsin. In addition regional sales offices are located in Waukesha, Wisconsin, Atlanta, Georgia, and Pleasanton, California, and four sales representatives are at various other locations in the United States. Technical service departments exist within all three regional sales offices to provide assistance to customer questions and custom application requirements.
BACKLOG
As of December 31, 1997, the amount of the Company's backlog orders believed to be firm was $682,000. This compares with $1,635,000 of backlog orders as of December 31, 1996. Two customers comprised 28% and 14%, respectively, of the 1997 backlog. A different customer comprised 60% of the 1996 backlog. The Company typically experiences variations in product sales that have no seasonal pattern and are caused by the timing of major equipment purchases by the operating telephone companies and telephone equipment manufacturers.
COMPETITION
The market as a whole for telecommunications equipment sold to operating telephone companies and telephone equipment manufacturers is highly competitive, primarily on the basis of quality, price, availability for delivery, and capabilities. The segment of the operating telephone company
and equipment manufacturing market in which the Company's products are sold is competitive, primarily on the basis of product capabilities and quality, and to a lesser extent on the basis of price and availability for delivery. Product capability is determined by the ability to provide the type of service required by the customer. Product quality is determined by factors such as product consistency, durability, workmanship and reliability. The sale of call processing equipment to telecommunications dealers is primarily competitive on the basis of price and delivery time, and the Company believes it is competitive in these two areas.
Based on comparisons with competitors' products, the Company believes it offers comparable products with more features at lower prices. Some of the Company's competitors are larger than the Company and have substantially greater financial resources.
The Company's time/weather/temperature systems compete indirectly with other sources of time, weather and temperature information such as radio stations, television, and cable TV, where these services are provided to listeners and viewers free of charge on a regular basis.
EMPLOYEES
As of December 31, 1997, ETC employed 134 persons. Approximately 21% of the Company's employees are engaged in product development, 19% in sales and marketing, 13% in management and office support, 19% in service and support, and 28% in manufacturing. The Company has never experienced a work stoppage due to a labor dispute, is not a party to any labor contract, and considers its relations with employees to be excellent. The Company believes that there is an adequate supply of professional and manufacturing personnel available in the metropolitan areas where it has facilities to meet its anticipated personnel requirements.
ITEM 2.
ITEM 2. PROPERTIES
The Company's executive offices, manufacturing and engineering facilities, technical services, marketing, and a regional sales office are located at 1915 MacArthur Road, Waukesha, Wisconsin 53188. This facility contains approximately 29,000 square feet of space. The Company believes that its equipment and facilities at its Waukesha location are modern, well maintained, and adequate for its anticipated needs.
The Company leases 87,300 square feet in seven buildings located in Atlanta, Georgia. These facilities include a regional sales office, engineering, technical services, and accounting. The leases expire in the year 2000, and the Company is currently subleasing 61,500 square feet of this space to other tenants. The properties are modern and well maintained, and include adequate space for anticipated needs.
The Company leases 12,277 square feet at 6689 Owens Drive, Suite B, Pleasanton, California 94588. This lease expires in 1999, with an option to extend to 2004. This facility contains a regional sales office, repair services, and technical services. The Company believes that its equipment and facilities at its California location are modern, well maintained, and adequate for its anticipated needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceedings not arising in the normal course of business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information The Company's Class A common stock trades on the NASDAQ National Market tier of The NASDAQ Stock Market under the Symbol: ETCIA. There is no market for the Company's Class B common stock.
See the caption "Quarterly Financial Data" on page 24 in ETC's 1997 Annual Report to Shareholders incorporated herein by reference.
(b) Holders As of March 1, 1998, there were approximately 940 shareholders of record and beneficial shareholders owning Class A common stock and 8 shareholders of record of Class B common stock.
(c) Dividends For 1997, 1996 and 1995, the Company each year paid a cash dividend of $.12 per share on Class A common stock and $.04 per share on Class B common stock.
On February 23, 1998, the Board of Directors of the Company declared a cash dividend of $.04 per share on Class A common stock, payable on March 31, 1998, to shareholders of record on March 10, 1998.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Eleven Year Review of Selected Financial Data" on pages 22 and 23 in ETC's 1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information on pages 7, 8 and 9 in ETC's 1997 Annual Report to Shareholders is incorporated herein by reference.
The Company may from time to time make statements that could be considered "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These "forward-looking" statements are provided in compliance with the "Safe Harbor" provision of the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers that the following factors, among others, sometimes have affected, and in the future could affect, the Company's actual results and could cause the Company's actual consolidated results during 1997, and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of the Company:
Technology Changes
As technological advancements are made in the product requirements of the Company's customers, the Company must continue to develop new products to keep pace with such advancements. If the Company were unable to develop new products, its ability to continue to serve existing customers and obtain new customers would be impaired, thus adversely affecting the Company's revenues and profitability.
Backlog
Because of the nature of the products sold by the Company and the delivery requirements of customers, most of the Company's orders are filled within a short time and the Company has relatively short production cycles and low levels of order backlog. This low level of long-term orders and backlog makes it more difficult to predict accurately future sales than would be the case if the Company had a higher level of long-term orders and backlog.
Acquisitions
The Company has in the past expanded through acquisition of other companies. The extent to which the Company varies its rate of acquisitions and the profitability of the companies it acquires will impact the Company's overall profitability.
Status of the Economy
The Company's products are sold to a number of different customers in different industries and different countries. Thus, any general downturn in domestic or international economic conditions or rates of growth could impact the Company's sales and levels of profitability.
Governmental Regulations
Many different governmental regulations affect the telecommunications industry. Any changes in these regulations could have a material impact on the Company's business.
Sources of Supply
The Company is, in part, dependent upon the continuing availability of products and raw materials provided by single source suppliers. The inability of the Company to obtain products or raw materials on a timely basis or the termination of such relationships could have an adverse effect on the Company.
Expense Structure
The Company's expense structure for certain costs is based on the Company's expected level of sales and growth. To the extent that the Company's actual level of sales or growth is different from that which it expects, the Company's ability to timely adjust its cost structure to those levels will impact the Company's results of operations.
Product Mix
The Company's profitability is impacted by the mix of products it sells. Certain of the Company's products have lower profit margins than others. If the Company's actual mix of products sold is different from the expected mix, the Company's expected profit margins would be affected by such changes.
Major Customers
The Company has in the past and probably will in the future rely on large sales volume to certain customers. Loss of any of these customers could have a material impact on the sales revenue and profitability of the Company.
Competition
The Company operates in the telecommunications industry where many companies are substantially larger and have substantially greater resources than ETC. If any of these companies were to decide to compete with ETC in its markets,
the sales revenues and profitability of ETC could be materially impacted.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information on pages 10 through 24 in ETC's 1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Directors and executive officers of the Company are as follows:
GEORGE W. DANNER - Mr. Danner retired as the Company's Chief Executive Officer in May 1993. He has served as Chairman of the Board and Director since May 1993. Prior thereto, he served as Chairman of the Board, Chief Executive Officer and a Director since May 1989. Prior thereto he served as President, Chief Executive Officer and a Director of the Company since its incorporation in 1980. Prior thereto he was Vice President of GTE Automatic Electric Corporation (a diversified manufacturer of telecommunications equipment), a subsidiary of GTE Corporation. Mr. Danner is a registered Professional Engineer, and has been actively involved in the telephone industry since 1949, when he founded Electronic Secretary Industries, Inc., a manufacturer of electronic telephone answering and recording equipment, which was merged into GTE Corporation in 1957.
DEAN W. DANNER - Mr. Danner was elected the Company's Chief Executive Officer in May 1993. Mr. Danner has served as a Director of the Company since incorporation in 1980. Prior to his election as CEO, he was elected President in May 1989 and has served as Chief Operating Officer since 1987. Prior thereto he served as Executive Vice President since 1985. He was Vice President and Director of Engineering prior thereto since the Company's incorporation in 1980. Prior thereto he was a Manager of Engineering of GTE Automatic Electric Corporation. He is a registered Professional Engineer and holds five United States patents.
BONITA M. DANNER - Ms. Danner has served as a Director of the Company since incorporation in 1980. She was appointed Assistant Vice President in 1983,
Director of Engineering in 1988, and Vice President Engineering in May 1989. Prior thereto, she was a project engineer since 1980. She has been a member of the Company's Audit Committee since 1993. She is a registered Professional Engineer.
HAZEL DANNER - Ms. Danner has served as a Director of the Company and has been employed as its Administrative Coordinator since its incorporation in 1980. She was elected Corporate Secretary in 1983.
JEFFREY M. NIGL - Mr. Nigl, a certified public accountant, was elected Vice President in May 1990 and Treasurer in May 1993. He has been Chief Financial Officer since 1988 and prior thereto he was Controller since joining the Company in 1985. Prior thereto he was employed for two years as Controller of SportsVue Cable Network of Milwaukee, Wisconsin, and prior thereto for more than three years as a senior accountant for Arthur Andersen & Co.
ROBERT R. SPIERING - Mr. Spiering was elected Vice President Technical Services in May 1994. Prior thereto he was Director of Technical Services since 1990. Prior thereto he was Engineering Supervisor since 1988 and Project Engineer since joining the Company in 1985.
CYNTHIA K. CARLSON - Ms. Carlson was elected Vice President Contracts in May 1994, and has been General Manager of its Pleasanton operations since 1991. Prior thereto she was Western Regional Sales Manager and a member of the sales department since joining the Company in 1986. She is currently serving as Vice President Sales since November of 1997.
JOANNE B. HUELSMAN - Ms. Huelsman has served as a Director of the Company since its incorporation in 1980. Ms. Huelsman has been a member of the Company's Audit Committee since its creation in 1985. She served as Secretary of the Company from 1980 to 1983 and has served as its Treasurer from 1983 to May 1993. Ms. Huelsman has been the owner of Berg Management Company since 1980, has been an elected member of the Wisconsin State Legislature since 1983 and has been engaged in the practice of law since 1980.
A. WILLIAM HUELSMAN - Mr. Huelsman has served as a Director of the Company since its incorporation in 1980. He has been a member of the Company's Compensation Committee since its creation in 1985. Mr. Huelsman is a registered Professional Engineer and a real estate developer and, prior to 1996 was Chairman and Chief Executive Officer of Intelligraphics, Inc., a digital mapping firm.
PETER J. LETTENBERGER - Mr. Lettenberger has served as a Director of the Company and a member of its Compensation Committee since 1985. He is a partner of Quarles & Brady, which firm he joined in 1964, and is a director of W.H.Brady Co.
RICHARD A. GABRIEL - Mr. Gabriel was elected to the Board of Directors in December 1993. He is also a member of the Company's Audit Committee and Compensation Committee. Mr. Gabriel is a business consultant and, prior to 1997, was Executive Vice President of Stolper Fabralloy Company of Waukesha, Wisconsin, a manufacturer of precision aircraft and ground turbine sheet metal components. Prior thereto he was Manufacturing Manager of Kieffer Company from 1992 to 1993, and Executive Vice President of Intelligraphics, Inc. from 1989 to 1992.
All of the Directors serve until their respective successors are elected at the next annual meeting of shareholders. Officers serve at the discretion of the Board of Directors. George W. Danner and Hazel Danner are the parents of Dean W. Danner, who is the husband of Bonita M. Danner, and are the parents of Cynthia K. Carlson, who is the sister of Dean W. Danner. A. William Huelsman is the husband of Joanne B. Huelsman. Other than as noted, none of the
Company's Directors or executive officers has any family relationship with any other Director or executive officer.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The Company is a "small business issuer" as defined in Item 10(a)(1) of Regulation S-B and has elected to provide information in response to this Item 11 in accordance with the provisions of Item 402(a)(1)(i).
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation for the Company's Chief Executive Officer and the highest-paid executive officers, as well as the total compensation paid to each individual during the Company's last three fiscal years. Columns (e) in the table related to Other Annual Compensation, (f) related to Restricted Stock Awards, and (h) related to LTIP Payouts have been omitted as there is no compensation to report.
SUMMARY COMPENSATION TABLE
____________________________ (1) Consists of directors' fees of $2,500 in each year, with the remainder being Company matching contributions pursuant to the Company's 401(k) retirement savings plan.
AGGREGATED OPTIONS/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
The following table summarizes options and SARs exercised during 1997 and the value of unexercised options and SARs held by the named executives at fiscal year-end:
The Company does not have any information to report and has therefore omitted disclosures related to S-B Item 402(c) Options/SAR Grants Table, S-B Item 402(e) Long-Term Incentive Plan ("LTIP") Awards Table, and S-B Item 402(i)
Report on Repricing of Options/SARs.
COMPENSATION OF DIRECTORS
Each Director of the Company is entitled to receive $500 for each Directors' meeting attended, except for the Chairman of the Board, who receives $1,000 per Directors' meeting attended. In addition, each outside Director receives an annual retainer of $2,500 upon reelection at each Annual Shareholders Meeting. These amounts are included in the preceding Summary Compensation Table.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial ownership of each class of the Company's Common Stock by each Director, Executive Officer, or person known by the Company to own beneficially more than 5% of either class of Common Stock, and all Directors and Executive Officers as a group as of February 13, 1998:
_____________________
(1) George W. Danner and Hazel Danner are the parents of Dean W. Danner (the husband of Bonita M. Danner). A. William Huelsman is the husband of Joanne B. Huelsman. All spouses disclaim beneficial ownership of one another's shares, and the owners hold the shares directly and have sole voting and investment power over the shares beneficially held, except that Bonita M. and Dean W. Danner share voting and investment power with respect to 10,400 shares of Class A Common Stock owned by their children.
(2) Georgia Barre is not an officer or director of the Company.
(3) Class A common shares beneficially owned include the right to acquire shares of Class A common stock upon exercise of stock options as follows: Hazel Danner, 600 shares; Bonita Danner, 1,000 shares; Dean Danner, 3,400 shares; Peter Lettenberger, 5,000 shares; and Richard Gabriel, 3,000 shares. Shares beneficially owned by all officers and directors as a group include 3 additional officers with the right to acquire a total of 25,160 shares of Class A common stock upon exercise of stock options.
The address for Bonita M. Danner, Hazel B. Danner, George W. Danner, and Dean W. Danner is 1915 MacArthur Road, Waukesha, WI 53188. The address for Joanne B. Huelsman is 235 West Broadway, Suite 30, Waukesha, WI 53186. The address for A. William Huelsman is 235 West Broadway, Suite 40, Waukesha, WI 53186. The address for Georgia Barre is 1110 Belmont Drive, Waukesha, WI 53186. The
address for Peter J. Lettenberger is 411 East Wisconsin Avenue, Milwaukee, WI 53202-4497. The address for Richard Gabriel is 19625 Killarney Way, Brookfield, WI 53045.
All of the outstanding Class B common stock is subject to a cross purchase agreement among the owners thereof (the "Parties") pursuant to which the shares generally may not be transferred except to a spouse, descendant or certain other permitted transferees unless they have first been offered to the other Parties.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial statements
The Financial Statements, Notes to Financial Statements, Independent Auditors' Report, Eleven Year Review, and Quarterly Financial Data on pages 10 through 24 in ETC's 1997 Annual Report to Shareholders are incorporated herein by reference.
2. Financial statement schedules
The Independent Auditors' Report on Financial Statement Schedules appear on page 18 of this report.
All other financial statement schedules are omitted as they are not required, or the required information is shown in the Financial Statements and Notes to Financial Statements on pages 10 through 24 in ETC's 1997 Annual Report to Shareholders incorporated herein by reference.
3. Exhibits
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ELECTRONIC TELE-COMMUNICATIONS, INC.
By: /s/ Dean W. Danner ---------------------------------- Dean W. Danner President and Date: March 23, 1998 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual Report (Form 10-K) of Electronic Tele-Communications, Inc. of our report dated February 6, 1998 included in the 1997 Annual Report to Shareholders of Electronic Tele-Communications, Inc.
Our audits also included the financial statement schedule of Electronic Tele-Communications, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-30746) pertaining to the Electronic Tele-Communications, Inc. 1989 Nonqualified Stock Option Plan of our report dated February 6, 1998, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Electronic Tele-Communications, Inc.
ERNST & YOUNG LLP
Milwaukee, Wisconsin March 23, 1998
Schedule II
ELECTRONIC TELE-COMMUNICATIONS, INC. _________________
VALUATION AND QUALIFYING ACCOUNTS Three Years Ended December 31, 1997